Gold Dips as Markets Analyze ECB Moves

Gold prices have posted slight losses on Friday, following sharp gains in the Thursday session. The base metal is trading at a spot price of $1262.70 an ounce in the European session. Gold initially dropped after the ECB announced new easing measures on Thursday, but recovered and posted gains after ECB head Mario Draghi stated that the ECB was unlikely to further lower rates. On the release front, the sole event on the calendar is Import Prices.

The ECB made dramatic announcements at its policy meeting on Thursday, and gold mimicked the euro’s movement and showed strong volatility. The ECB applied the axe to interest rates, cutting the benchmark rate from 0.05 percent to a flat zero percent, and further lowering deposit rates from -0.3% to -0.4%. The ECB also announced it would expand its bond-purchase program (QE), starting in April, from EUR 60 billion to 80 billion each month. These easing measures initially sent gold prices downwards, but shortly afterwards, ECB head Mario Draghi stated in a press conference that the ECB was not planning any further rate cuts, and gold jumped on the news. Pressure had been building for months on the ECB to take action, as growth and inflation levels remain sluggish. In December, the ECB remained on the sidelines, so the markets were genuinely surprised at the bold moves announced by the ECB.

On the release front, it’s been a quiet week, with no major events on the calendar. That will change next week, with retail sales, inflation indicators and consumer confidence readings. As well, the FOMC holds a monetary policy meeting on Wednesday and will make a rate announcement. The US economy has softened in early 2016, but overall the economy is solid. The employment market is strong (although wage growth remains a sore spot), the economy continues to grow and consumers are optimistic. Inflation levels, however, are very low, exacerbated by the collapse in oil prices. Given this economic backdrop, will the Fed raise rates next week? Most experts say no, although there is some support in the markets for another such move. More likely, the cautious team of Yellen & Co. will wait until mid-2016, and seriously consider a hike if the US economy shows that it is gaining steam.

XAU/USD Fundamentals

Friday (March 11)

• 8:30 US Import Prices. Estimate -0.7%

*Key releases are highlighted in bold

*All release times are EST

XAU/USD for Friday, March 11, 2016

XAU/USD March 11 at 8:15 EST

Open: 1270.96 Low: 1262.15 High: 1283.01 Close: 1262.70

XAU/USD Technical

• XAU/USD was choppy in the Asian session and has posted losses in European trade.
• 1255 is providing support
• There is resistance at 1279
• Current range: 1255 to 1279

Further levels in both directions:

• Below: 1255, 1232, 1205 and 1191
• Above: 1279, 1303 and 1327

OANDA’s Open Positions Ratio

XAU/USD ratio has shown little movement this week, as long positions have a majority (55%). This is indicative of trader bias towards gold reversing directions and heading to higher levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.