Gold reignited its bullish flight on earlier this week after sales data showed that the demand for the yellow metal has climbed to a 4-year high. Investors and traders with a Direxion Shares Exchange Traded Fund Trust exposure were also rewarded with a 14.34% gain during Tuesday’s session. Thursday, however was not a pleasant day for bullion investments as the yellow metal saw a reversal in price gains.
On Thursday, gold prices were weakened after European Central Bank (ECB) decided to leave interest rates unchanged. Gold for December delivery was down 0.6% to settle at $1,341.60 an ounce during the session.
ECB keeps rates unchanged to force a reversal in gold price gains
On Thursday, ECB President, Mario Draghi announced that the ECB has decided to leave interest rates unchanged. The ECB president noted that the decision to keep rates unchanged was aimed at checking speculation in the financial markets because “expectations were again too high ahead of (the) decision.”
Draghi also noted that the ECB is committed to keeping interest rates low going forward. He observed that “We continue to expect them (interest rates) to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.” He also noted that “a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve the very substantial amount of monetary support.”
The ECB’s decision to leave interest rates unchanged has caused the U.S. dollar to become stronger against the EU and the strengthening of the greenback is weakening bullion prices. More so, the ECB’s decision to keep interest rates unchanged has triggered a selloff off in government bonds to put more pressure on gold prices.
Analysts have taken up positions in examining how the ECB’s decision could affect gold and Direxion Shares Exchange Traded Fund Trust prices going forward. Analysts at Commerzbank say, “In our opinion this continuation of the ECB’s ultra-expansionary monetary policy will drive up the gold price in euros.” More so, Adam Koos, president of Libertas Wealth Management Group observed that “The pullback (in gold) has everything to do with the ECB confirming the status quo as it pertains to [quantitative easing].”
What’s the short-term outlook for gold?
The price of gold and the Direxion Shares Exchange Traded Fund Trust has experienced a lot of fluctuation this year in response to chatter about the fed’s plan to raise interest rates. Now, the ECB’s decision to leave Interest rates unchanged has caused the dollar to grow stronger. The strong dollar is likely to add another parameter to the factors that could influence the fed’s decision to raise interest rates.
Gold has been finding resistance at the $1,377 high that it made this year and the yellow metal has not been able to sustain a breakout above $1,375. The weakness in the bullion occasioned by the ECB now makes it harder for the fed to raise interest rates. Hence, the yellow metal is not likely to breakout above $1,375 in the short-term until the fed holds it policy meeting this month. However, investors can expect the bullion to move significantly north or south after the fed meeting this month.