Gold Climbs to 3-Week High as ECB, BoJ Maintain Loose Policy

Gold has posted gains in the Thursday session. In the North American session, spot gold is trading at $1246.18, up 0.46% on the day. On the release front, the ECB and Bank of Japan both held the course with their ultra-loose monetary policy. In the US, the numbers were a mixed bag. Unemployment claims dropped to 233 thousand, marking a 9-week low. The news was not as positive on the manufacturing front, as the Philly Fed Manufacturing Index slowed down to 19.5, its weakest reading since November 2016.

Gold prices have moved higher after the European and Japanese central banks announced that they would continue their accommodative monetary policy. As well, the ECB and BoJ maintained the current policy of ultra-low interest rates, at 0.00% and 0.10% respectively. With the economies in the eurozone and Japan both showing improvement, there has been pressure on policymakers to reduce stimulus. However, inflation levels in the eurozone and Japan are well below the target of 2%, and the banks have reiterated that they will not taper asset-purchases until inflation levels move higher. The ECB is expected to revisit its monetary stance at its September meeting, and if policymakers decide to tighten monetary policy, gold prices could head lower.

President Trump hasn’t done very well at learning how to tango with Congress, and this week’s debacle on Capitol Hill could make the gap between Trump and Republican lawmakers even harder to bridge. Trump had vowed to replace Obamacare, but his health care bill has stalled in the Senate before lawmakers even had a chance to vote on the proposal. With some conservative Republicans coming out against the bill, it’s questionable if the Republicans can pass another version before Congress takes a recess in August. Trump had promised to pass a health care before the summer break, so his credibility will take another hit if he’s unable to do so. Trump has been in office for six months, but has been unable to get Congress to pass any significant bills, even though the Republicans enjoy a majority in both houses of Congress. With this latest setback, there is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.  This paralysis on Capitol Hill has deepened investor pessimism about Trump’s legislative agenda and is weighing on the US dollar.

ECB Sends a Dovish Message

BOJ as expected

XAU/USD Fundamentals

Thursday (July 20)

• 8:30 US Unemployment Claims. Actual 245K. Actual 233K
• 8:30 US Philly Fed Manufacturing Index. Estimate 23.4. Actual 19.5
• 10:00 US CB Leading Index. Estimate 0.4%. Actual 0.6%
• 10:30 US Natural Gas Storage. Estimate 39B. Actual 28B

*All release times are EDT

*Key events are in bold

XAU/USD for Thursday, July 20, 2017

XAU/USD July 20 at 12:20 EST

Open: 1241.23 High: 1247.52 Low: 1235.36 Close: 1246.18

XAU/USD Technical

• XAU/USD showed limited movement in the Asian and European sessions. XAU/USD has posted considerable gains in North American trade
• 1232 is providing support
• 1260 is the next resistance line
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199, 1170 and 1146
• Above: 1260, 1285 and 1307

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Thursday session. Currently, long positions have a majority (74%), indicative of XAU/USD continuing to climb higher.

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