Gold Trims Gains on Stronger Dollar, ECB Policy Updates

ECB set to keep policy unchanged; to lay groundwork for more easing in December

Gold pared some early gains during the week on Thursday, October 20th, 2016, as the dollar strengthened and markets awaited the outcome of a European Central Bank (ECB) policy later in the day, as reported by Reuters. The ECB is set to keep policy unchanged, but will likely take a stance for more easing in December 2016, as it tries to sustain a rebound in consumer prices over the next few months. Gold steadied after three days of gains as traders took to the sidelines ahead of an ECB meeting, which is expected to give clues about the outlook for euro zone monetary policy. While the bank is not expected to make any changes to its asset purchase program until December 2016, investors are seeking more clarity from President Mario Draghi about rumors that it could begin tapering its bond purchases.

Accommodative monetary policies favor gold and equities because low interest rates encourage investors to opt for assets that do not rely on interest yields. Gold lost some of its sheen earlier in the week due to heavy Chinese buying, even as the U.S. dollar edged higher. The dollar index, which measures the greenback against a basket of currencies, was up 0.1% at 98.006. A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

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Gold prices are up 1.5% this week, on track to break three weeks of losses. The precious metal has regained some technical momentum after closing yesterday’s session above its 200-day moving average of $1,267. Spot gold steadied at $1,272.20 an ounce after hitting a high of $1,273.34 on Wednesday, October 19th, 2016, its strongest since October 5th, 2016. Gold futures were up 0.2% at $1,271.80 an ounce.

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Gold prices are expected to rally further into the year-end as the market is waiting for the outcome of the U.S. presidential elections in November 2016 and the last Fed meeting of the year in December 2016. U.S. Republican presidential nominee Donald Trump faces a formidable challenge when he and Democrat Hillary Clinton face off in their third and final debate on Thursday, October 20th, 2016, at the University of Las Vegas, Nevada.

Spot bullion may rise to touch $1,300 per ounce by the end of 2016, as it has cleared resistance at $1,265. Gold prices in India surged for the first time in nine months on Wednesday, as jewelers in the world’s second largest gold consumer ramped up purchases ahead of major festivals. India’s October gold imports could reach 60-70 tons, the highest since January 2016 and more than double an estimated 30 tons in September 2016. While higher purchases could widen India’s trade deficit given that gold accounts for a major chunk of its imports, they would underpin global gold prices that have come off 7% from two-year highs since July 2016 as expectations of a U.S. interest rate hike by year-end strengthened the dollar.

Meanwhile, spot silver rose about 0.2% at $17.67 an ounce. Platinum rose 0.1% to $944, while palladium rose 0.2% to $637, in early trading on October 20th, 2016, before edging lower.g3

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Meanwhile, crude oil prices rose to a 15-month high on Wednesday, October 19th, 2016, after a surprise U.S. inventory drawdown, boosting energy shares.

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