Gold Sees Modest Pop as ECB Eases Monetary Policy

Gold Sees Modest Pop as ECB Eases Monetary Policy

Gold prices are seeing a tepid bounce in the immediate aftermath of the European Central Bank lowering its deposit rate by 0.1%. The yellow metal is reacting in part to a surprising rally in the Euro currency and a big sell off in the U.S. dollar index following the ECB easing of its monetary policy. Gold prices overnight dropped to a 5.5-year low and silver prices hit a six-year low. Mild short covering and bargain hunting are featured in the gold and silver markets. February Comex gold was last up $2.20 at $1,056.20 an ounce. March Comex silver was last up $0.046 at $14.055 an ounce.

The regular meeting of the ECB saw the central bank make its easing move, which was not unexpected. What is surprising is that the Euro currency rallied and the dollar index sold off. This is a classic “buy the rumor, sell the fact” scenario for the USDX and a “sell the rumor, buy the fact” for the Euro currency. Don’t be surprised if the same contrary effect occurs if the FOMC raises its interest rates on December 16. The ensuing ECB press conference from ECB President Mario Draghi will be very closely scrutinized.

The marketplace got some data and comments from the U.S. Federal Reserve Wednesday. While containing no surprises, the Fed’s beige book and comments from Fed Chair Janet Yellen reinforced notions the U.S. central bank will slightly raise U.S. interest rates in two weeks—for the first time in nine years. Yellen delivers a speech and testimony on the economy to U.S. lawmakers today.

The important U.S. jobs report is due out Friday. The key non-farm payrolls number is expected to be up around 205,000 in November. An OPEC oil cartel meeting also begins Friday and will be closely watched by the marketplace. There is talk Saudi Arabia may propose a collective oil-production cut for 2016, with the stipulation that non-OPEC members also cut their production levels. Most believe such a plan is a non-starter.

U.S. economic reports due for release Thursday include the weekly jobless claims report, the Challenger job cuts report, the global services PMI, monthly retail chain store sales, the U.S. services PMI, manufacturers’ shipments and inventories, and the ISM non-manufacturing report on business.

Technically, gold bears still have the solid near-term technical advantage. Prices are in a six-week-old downtrend on the daily bar chart. Bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at last week’s high of $1,080.50. Bears' next near-term downside price breakout objective is closing prices below solid technical support at $1,000.00. First resistance is seen at the overnight high of $1,062.10 and then at Wednesday’s high of $1,071.00. First support is seen at the overnight contract low of $1,045.40 and then at $1,040.00.

Silver bears have the solid near-term technical advantage. Bulls’ next upside price breakout objective is closing December futures prices above solid technical resistance at $14.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $13.50. First resistance is at this week’s high of $14.24 and then at $14.44. Next support is seen at today’s contract low of $13.805 and then at $13.50.