(Kitco News) – With the European Central Bank likely to hold interest rates steady at 0.50%, analysts are not expecting to see a major move in gold prices following the decision.
The ECB will officially announce monetary policy at 8:30 a.m. EDT Thursday, which will be followed by a press conference by ECB President Mario Draghi.
Bart Melek, head of commodity strategy with TD Securities, said TDS is not expecting any official move in ECB interest rates; however, he will pay close attention to Draghi’s conference as his comments could drive trading activity.
With renewed weakness throughout the eurozone, Melek said he will watch to see if the ECB downgrades its economic forecasts, which could be the signal of future easing down the road.
“If we do get the ECB signaling some sort of action you could see the U.S. dollar rally on euro weakness, which would be negative for gold,” he said. “However, I think the reaction would be muted.”
Melek added that most investors will be focused on Friday’s U.S. monthly employment data as that might be the key to whether the Federal Reserve starts cutting back on is bond-purchasing program, known as quantitative easing.
Even if employment shows an increase of 160,000, which is in-line with expectations, he said it will not be enough to convince the Fed that they can ease up on their efforts to stimulate the economy.
If that scenario is accurate gold should rally on U.S. dollar weakness and recover any potential losses from Friday’s ECB decision, he added.
Howard Wren, analyst at HSBC Securities, said the ECB meeting and press conference should create some volatility on Thursday, but he doesn’t expect prices will break out of their recent consolidation period.
Wren said he is looking toward Friday’s nonfarm payrolls to create a more definitive direction in gold prices.
Neil Mellor, currency strategist at the Bank of New York Mellon, said because the ECB is so “opaque” it is hard to predict exactly what they will signal and how the market will interpret the message.
Although the European economy continues to weaken, Mellor said there are major concerns being raised about negative deposit rates. He added this could pressure the ECB to hold pat at least for this meeting.
Mellor said the euro and gold could move higher on Thursday as the ECB holds rates; however, he is not expecting any long-term strength in either. A deteriorating eurozone economy will continue to support the U.S. dollar, he added.
He said the eurozone is in a deep depression and even stronger economies like Germany are starting to show signs of stress.
“The Germany economy is suffering because of weak demand on their doorstep,” he said. “Everyone is absolutely sure the U.S. dollar is going up because there are not any real alternatives.”
Because of this forecast, Mellor said he ultimately expects to see gold prices continue to drop.
“I am a bear on gold because I’m bearish on the economy. There is no reason to hold gold because there is no reason to hedge against inflation,” he said.
By Neils Christensen of Kitco News firstname.lastname@example.org