Yahoo Finance Price of Gold Fundamental Daily Forecast – Pressured by Dovish ECB, Underpinned by Concerns Over US-China Trade Relations
Gold prices are trading lower early Friday, putting it in a position to close lower for the week. The market is feeling the effects of a strong U.S. Dollar, which was driven higher by a steep plunge in the Euro.
At 0641 GMT, August Comex Gold is trading $1302.50, down $5.80 or -0.44%.
Expectations of higher U.S. interest rates are also helping to make the U.S. Dollar a more attractive investment. This is pressuring demand for dollar-denominated gold.
Underpinning gold is geopolitical tension related to trade issues between the United States and China. The latter is threatening to break off trade talks if the U.S. continues to impose tariffs on the world’s second largest economy. Investors also reacted to weaker-than-expected economic data from China.
The Impact of the European Central Bank Decision
The U.S. Dollar surged against a basket of major currencies to nearly a new high for the year on Thursday, led mostly by a sharply lower Euro. The single-currency plunged 1.68 percent after the European Central Bank said it planned to keep interest rates at record lows into the summer of 2019. ECB policymakers also extended the central bank’s massive bond purchase program into December, but lowered the size of the transactions.
The Euro initially weakened after the central bank said it would extend the bond purchase program, but spiked lower shortly after the start of ECB President Mario Draghi’s press conference. Following the central bank’s policy meeting, Draghi said, “We didn’t discuss when to raise rates.”
That quote was a red flag for long Euro investors, catching many off-guard and obviously on the wrong side of the market. It also highlighted the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish European Central Bank.
Euro Zone bond investors responded immediately to the dovish response by the ECB, cutting the chance of a 10 basis point rate hike by July 2019 from 80 percent before the meeting to just 30 percent by the close of the session. On the other hand, the Fed signaled on Wednesday that it would raise rates twice before the end of the year and as many as three times in 2019.
Gold prices initially rose after the ECB announced it would end stimulus in December then weakened once it became clear the central bank had no intention of raising rates until at least July 2019.
Tensions over China Could Escalate
According to reports, U.S. President Trump has made up his mind to impose “pretty significant” tariffs on Chinese goods, an administration said on Thursday, as Beijing warned that it was ready to respond if Washington chose to ratchet up trade tensions.
The next move appears to be up to China. Gold may attract safe haven buyers if China decides to take a hard stand and walks away from the trade negotiating table.
This article was originally posted on FX Empire
