Today is all about the ECB keep an eye on Gold

Wall Street ended little on changed on Wednesday, as investors await the outcome of a crucial meeting of European Central Bank officials early Thursday and the latest U.S. employment data on Friday.

The Dow Jones edged up nearly 0.1%, while S&P 500 lost 0.1%. Nasdaq fell 0.2%.  Investors are expecting ECB president Mario Draghi to announce the details of a new bond-buying program for euro-area governments that agree to certain terms. The program will involve unlimited purchases of bonds, which will be “sterilized” to ease concerns about printing money, according to Bloomberg.

Meanwhile, traders are keeping a close watch on all economic numbers ahead of the Federal Reserve’s Sept. 12-13 policy meeting, since the reports will likely influence the central bank’s decision on whether it will announce more quantitative easing. 

European stocks closed mixed yesterday, as reports of unlimited bond buying by the European Central Bank helped support equities despite economic slowdown signals. Only Britain’s FTSE 100 slid 0.2%, while France’s CAC 40 gained 0.2% and DAX in Germany added 0.4%.

This morning Asian indices are trading on a mix note with the Strait Times and the Hang Seng trading lower by 0.2% and 0.1% respectively. However, the Nikkei and Taiwan are up by 0.1% each, while the Kospi and Shanghai are trading in the green by 0.6% and 0.3% respectively. So when I say mixed I really do mean mixed.

Base metals are trading marginally down after yesterday’s gains at LME electronic platform. Even, early morning news indicated that Moody’s credit rating agency downgraded Ireland and Portugal from Aaa to A3 and Baa3 while Goldman Sachs lowered the Chinese growth forecast from 7.9 to 7.6 percent and may continue to weaken metals.

As we expected the ECB would not opt for interest rate cut below 0.75 percent primarily due to near zero deposit rate. Now, if the ECB lowers interest rate then the deposit rate may go below the 0 percent mark. Therefore, the ECB may opt for bond buying but again the largest stakeholder of the central bank the German Bundesbank may continue to oppose with its chief even hinting resignation is likely to keep markets at tenterhook.

From the economics calendar today, the eurozone GDP may contract with a slight improvement in German factory orders, however markets are likely to remain buoyant as investors wait for the details of bond buying program. Later today the US starts to heat up with jobs growth in ADP numbers and unemployment figures ahead of tomorrow’s Nonfarm payroll report.

Mounting on the strongest anticipation on ECB to pledge unlimited bond buying vowing for a euro salvation, the yellow metal is showing strength at the early Globex. The euro is continuing its strength against the dollar and thereby supporting the metal. Expect ECB to keep the interest rate unchanged at 0.75% as they cannot pursue price stability with the fragmented euro area since a change in rate will only be affecting one or two countries at the most.

However, they may be launching a new sovereign bond purchasing program and Draghi needs to unveil the program details. Any deviation from the oath however is likely to be injurious to the euro. Gold is therefore likely to stay firm at least till the European hours after which volatility can certainly be seen.

Silver should see a double whammy today, as a successful bond program could increase manufacturing and production and the demand for industrial metals, while keeping precious metals high.

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