Metals Stocks: Gold pushes above $1,300 as dollar eases ahead of ECB policy update

MarketWatch - Financial Services Industry News

Gold futures gained Thursday, taking to solid ground after mixed trading initially surrounded the Federal Reserve’s revelation Wednesday that it will likely raise interest rates more aggressively in 2018 than previously signaled.

Now, attention turns fully to the European Central Bank’s policy update Thursday, with market expectations that the panel will update plans for its quantitative easing program, a development with implications across currency markets and, accordingly, for precious metals.

Ahead of that announcement, August gold
GCQ8, +0.51%
 was up $7, or 0.5%, to $1,308.30 an ounce. Gold prices settled with a modest gain on Wednesday, then fell back under the closely monitored $1,300-an-ounce level in electronic trading, in the wake of the U.S. Federal Reserve’s decision to lift a key interest rate.

Gold gained Thursday as the ICE U.S. Dollar Index
DXY, +0.00%
a measure of the dollar against a half-dozen major currencies, was down 0.2% at 93.33.

Rising rates can diminish the appetite for assets like gold because the commodity doesn’t offer a yield compared against the perceived safety of other assets like government bonds. Higher U.S. interest rates can also boost the dollar and dull demand for dollar-denominated commodities.

But the rate differential between the U.S. and the ECB will be in the spotlight on Thursday.The €30 billion-a-month, post-crisis bond buys are slated to run at least until the end of September, but the ECB could extend it to continue supporting the economy and gradually taper the purchases. Analysts say it’s a close call and that the central bank boss Mario Draghi could postpone the QE announcement to July.

Read: Investors brace for ECB ‘close call’ on when to start winding down quantitative easing

For its part, the Fed voted to raise its benchmark federal-funds rate by a quarter-percentage point to a range of 1.75% and 2%. The central bank also said it expects to raise rates four times this year, up from a forecast of three in March. See the live blog/recap and video of the event here.

The Fed decision “will provide headwinds for the gold price in the coming weeks, months,” said Peter Spina, president and chief executive officer of

“Gold continues to work through a longer-term consolidation period [but] rising inflation concerns in the later part of this year will help gold’s appeal,” Spina said. “Near-term, the U.S. dollar’s strength will keep gold [priced] in dollar terms under pressure and could see it drop deeper into the $1,200s during the slower summer months.”

As for Thursday’s economic calendar, weekly jobless claims are on the docket at 8:30 a.m. Eastern Time, along with data on retail sales and the import-price index for May. Business inventories for April are due at 10 a.m.

Aside from the central banks, trade worries continued to be on traders’ minds on Thursday. President Donald Trump’s administration is preparing to announce tariffs on tens of billions of dollars in Chinese goods as early as Friday, a move that is feared to trigger retaliatory action by China. Trade concerns can be supportive for haven gold, although its direct impact has been limited so far.

In other metals trading, July silver
SIN8, +0.91%
 added 0.9% to $17.145 an ounce. July copper
HGN8, -0.61%
 fell 0.6% to $3.234 a pound. July platinum
PLN8, +0.59%
 changed hands at $908 an ounce, up 0.6%, while September
PAU8, +0.31%
 rose 0.3% to $1,010.20 an ounce.

Among exchange-traded funds, SPDR Gold Shares
GLD, +0.30%
 rose 0.4% and the iShares Silver Trust
SLV, +1.32%
 tacked on 0.3%. The VanEck Vectors Gold Miners ETF
GDX, -0.04%
 rose 0.2%.

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