Low risk sentiment supports the U.S. index, gold bulls await the decision of Eurobank

On Thursday, the price of gold was trading near a low in the past two weeks, dragged down by the strength of the U.S. dollar, investors awaited the European Central Bank (ECB) policy decision to be announced later today. The European market accounts for one-third of the global annual gold investment demand. The monetary policy and economic situation in the region are expected to have a further impact on gold prices. With the gradual recovery of the economy, Societe Generale is bullish on the price of gold in the short term, but in the medium term, the bank expects the average price of gold to fall to around US$1750 next year.

The European Bank’s decision is downgraded, monetary policy may affect the trend of gold prices

The European Central Bank will announce its interest rate decision at 19:45 on Thursday, GMT+8, and then ECB President Lagarde will hold a press conference at 20:30. It is expected that the bank will implement a symbolic reduction of the emergency purchase plan for the epidemic. There will still be hints that a lot of support will be provided in the next few years.

Dembik, head of macro analysis at Saxo Bank, said: At present, the overall financing conditions in Europe appear to be very loose. This is a good way to assess the overall financing situation of the Eurozone. This provided support for the positive economic momentum in the euro zone this summer, and supported calls for a slowdown in asset purchases in the fourth quarter.

Dembik said: The scale of asset purchases is expected to slow from 80 billion euros per month to 60 billion euros per month. The technical adjustment of the purchase scale of PEPP will have minimal impact on the market. It is too early to talk about exiting the plan.

The size of the European gold market currently accounts for about one-third of the global annual gold investment demand, which means that the performance of the European economy and changes in monetary policy may therefore affect global trends.

Risk sentiment is suppressed by three factors, and the dollar is under pressure from strong gold prices

The European Central Bank's decision is imminent, and the recent rise in the European and US bond markets has increased market volatility, which may put pressure on risk sentiment. The cautious risk sentiment boosted the competing safe-haven currency, the US dollar, and weakened the attractiveness of gold to holders of other currencies.

Jeffrey Halley, senior market analyst for OANDA Asia Pacific, said that investors’ nervousness about the pace of global economic recovery continues to push up the U.S. dollar, adding that “a strong U.S. dollar puts the price of gold facing a serious risk of substantial decline.” Halley said. It may test the support level of $1780. If it fails, the decline may extend to $1750.

The Federal Reserve reported on Wednesday that the U.S. economy "slightly declined" in August due to another surge in the new crown epidemic that has hit the catering, travel and tourism industries. At the same time, several policymakers of the Federal Reserve (FED) said on Wednesday that despite the slowdown in employment growth in August and the impact of the recovery of new crown cases, the Fed will still cut this year's large-scale asset purchase plan as planned.

Societe Generale: The average price of spot gold is expected to be US$1750 next year

Analysts at Societe Generale have given a medium- and long-term outlook for the price of gold. They expect the average price of gold in 2022 to be around US$1,750.

The bank said: "In the short term, we will remain cautiously bullish, because we expect monetary and fiscal policies will remain highly accommodative. This bullish view is based on the expectation that ETF funds will not continue to flow out, and some are expected by the end of this year. Moderate capital inflows."

With positive economic data, especially employment data, market participants seem to be concerned about the prospect that interest rates may rise earlier than expected. Although real interest rates are still expected to be negative, any expectation that interest rates may turn positive more quickly will really curb investment flows.

The basic assumption of Societe Generale is that as investment flows further decline, the average price of gold in 2022 will reach US$1,750. In the case of rising prices, that is, when the economy is down, the bank expects the price of gold to rise to US$2,100 per ounce. In the event of an economic upturn, the risk of price downside is limited, and the price of gold may fall to US$1,600 per ounce. "

On Thursday, spot gold fell slightly and is currently trading near a two-week low. The market is closely watching the European Central Bank's interest rate decision in the evening.


(Spot gold daily chart)

GMT+8 At 13:55 on September 9, spot gold was quoted at $1,787.44 per ounce.