Gold Pressured, Oil Improves, ECB Meeting

 | Mar 09, 2016 12:03PM ET

Gold continues to lose ground on Wednesday, as the base metal trades at a spot price of $1254.05 per ounce in the North American session. On the release front, US Wholesale Inventories posted a gain of 0.3%, beating expectations. US Crude Inventories rose by 3.9 million barrels, above the estimate of 3.0 million.

Gold prices have slipped this week, as market sentiment has improved due to stronger oil prices. This has translated into investors feeling more comfortable with riskier assets, such as exotic currencies. As a traditional safe haven, gold prices generally soften when market confidence is higher. Another factor weighing on gold is the ECB meeting on Thursday. The markets are expecting Mario Draghi to announce new easing measures, such as pushing interest rates into negative territory or expanding the ECB’s bond-purchase program (QE). Either of these measures could send the euro lower against the US dollar, and the greenback’s gain could mean lower gold prices. Traders should be prepared for possible volatility on Thursday, following the ECB’s rate announcement and press conference.

A strong US Nonfarm Payrolls is often bullish for the US dollar, but an excellent January report failed to buoy the greenback against its major rivals late last week. The indicator impressed with a reading of 242 thousand, much higher than the estimate of 195 thousand. This was much stronger than the previous (revised) reading of 171 thousand. The US economy has added an average of 225,000 jobs per month since December, an impressive number considering that the economy has softened in the early part of 2016. Why then, did a stellar NFP release not impress the markets? The reason was that wage growth, which has consistently lagged behind other employment indicators, surprised the markets with a decline of 0.1% in January, the first drop in wages since December 2014. This indicator is closely linked to inflation, since an increase in wages means workers have more money to spend. The indicator’s decline means that that Federal Reserve’s inflation target of about 2.0% remains far off, so the Fed, which is keeping a close eye on the weak inflation picture, is unlikely to press the rate trigger at its policy meeting later this month.

XAU/USD Fundamentals

Wednesday (March 9)

  • 10:00 US Wholesale Inventories. Estimate -0.2%. Actual 0.3%
  • 10:30 US Crude Oil Inventories. Estimate 3.0M. Actual 3.9M
  • 13:01 US 10-year Bond Auction

*Key releases are highlighted in bold

*All release times are EST

XAU/USD for Wednesday, March 9, 2016