Gold just broke through 1840! Why did gold rebound after a one-day plunge of $30? Beware of big moves by the ECB!

On Thursday (December 10) intraday, the DOLLAR index was basically stable, at present at the 91 level above; Spot gold continued its short-term rebound after Wednesday’s sharp fall, with prices just above $1,840 an ounce. On Thursday night, Hong Kong time, investors are bracing for a decision from the European Central Bank, which is expected to take new policy action and could affect the euro. Analysts say gold could be supported if the European Central Bank expands its easing program. Investors will also be paying attention to an EU summit on Thursday.

Gold is back above 1840

Gold prices fell sharply on Wednesday as optimism over further progress on COVID-19 vaccination boosted hopes for a more stable economic recovery. Spot gold closed at $1, 840.02 an ounce, down $30.39 and 1.62 percent, having touched $1, 825.24 an ounce at its lowest intraday close.

As positive results from phase III clinical trials of several COVID-19 vaccines around the world continue to be reported, the approval and mass vaccination of vaccines are gradually underway. A day after The UK became the first Western country to begin mass vaccinations, Canada on Wednesday approved vaccines made by Pfizer and BioNTech.

Health Canada said in a statement: “Canadians can be confident that the vetting process is rigorous and we have strong oversight systems in place. Once the vaccine is on the market, Health Canada and Public Health Canada will closely monitor its safety and will not hesitate to take action if any safety concerns are identified.”

US President Donald Trump signed an executive order on Dec 8 that prioritises the delivery of COVID-19 vaccines to the US, in an effort to allay concerns about inadequate doses being distributed.

Jeffrey Sica, founder of Circle Alternative Investments, said: “The expectation is that as people start distributing vaccines in some parts of the world, some of the confusion caused by the outbreak will ease.”

“Higher risk appetite seems to have prevailed again, and this, combined with the vaccine news, seems to weigh on gold prices,” said Commerzbank analyst Daniel Briesemann.

Gold also came under pressure from the rising dollar. The ICE Dollar index.DXY rose 0.2 percent on Wednesday after hitting an intraday high of 91.20.

Hopes of more fiscal stimulus from the US, however, have helped gold rebound. Signs of progress in discussions on the U.S. Novel Coronavirus bailout will boost gold’s appeal as a hedge against inflation.

In Asian trading Thursday, spot gold continued to rebound in the short term, with prices just above $1,840 an ounce.

Analysts see recent comments by Ms Lagarde as a hint that the ECB will step up its stimulus efforts. If the European Central Bank increases its stimulus measures on Thursday, that could prompt a further rally in gold prices.

“Central banks around the world have been uniformly doing the same thing: printing all the money they can, and that’s not going to end anytime soon,” said Sean Lusk, co-head of commercial hedging at Walsh Trading.

Lusk said they see room for gold to rise to $1,900, which will be a key resistance level to watch in the near term. “We need to recover $1,904 to start talking again about a return to the all-time high above $2,000,” he said.

HSBC analyst James Steel said while gold’s rally had been tempered by the vaccine news, it was still supported by loose monetary and fiscal policies and geopolitical risks.

In addition to the PEPP expansion, ING expects the ECB to increase monthly purchases of its previously implemented asset purchase programme to €40bn from €20bn and to extend its prime rate on targeted long-term refinancing operations for six to 12 months. At the same time, adjust the excess reserve layering mechanism to reduce the negative interest rate to the impact of banks. In addition, corporate bonds downgraded during the outbreak could also be included in the ECB’s corporate bond buying programme.

On Thursday, the ECB will also release its latest macroeconomic forecasts. Markets are now forecasting a sharp cut in the ECB’s fourth-quarter growth forecast for the euro zone (from 3.1 per cent month-on-month in September) and a slightly smaller cut in its 2021 growth forecast (from 5.0 per cent in September). There will be no big change in the ECB’s outlook for inflation over the next two years.

In addition, whether the ECB will intervene verbally in the euro’s exchange rate due to the recent acceleration of the euro/dollar rally will also be a focus of the meetings.

In addition to the ECB decision, Thursday’s European Union summit will also be in focus. The summit will see whether Britain can agree on a deal to leave the EU and whether the EU’s 750 billion euro recovery fund can be implemented.

“This week is all about Europe,” said ING currency strategists. “Super Thursday will include the ECB meeting (widely expected to expand QE) and the EU summit, which will mark the end of talks on the recovery fund and Brexit.” It is widely expected that the pandemic emergency procurement plan will be supplemented and expanded.”

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