Dollar falls as euro gains after ECB decision to raise size of its Pandemic Emergency Purchase Program
Gold futures rose on Thursday, with prices posting their first gain in four sessions on the back of weakness in the U.S. stock market and the dollar, as investors digested policy actions by the European Central Bank.
The ECB, as expected, boosted the size of its Pandemic Emergency Purchase Program on Thursday, saying the envelope for asset purchases was increased by €600 billion ($674.5 billion), to €1.35 trillion euros.
The PEPP is now set to run through at least the end of June 2021, versus the end of 2020, while maturing principal payments from assets purchased under the plan will be reinvested until at least the end of 2022, the ECB said.
“Gold pared gains following the ECB’s bond buying boost as the reality hit that this could be it for them,” said Edward Moya, senior market analyst at Oanda. “The initial reaction to the ECB decision was positive for risky assets and that is why gold softened, but the bond reinvestment plans could mean this was the last major increase of stimulus financial markets will see.”
The central bank’s action comes after its President Christine Lagarde downgraded the ECB’s eurozone gross domestic product estimate to a decline between 8% and 12% this year. In a press conference Thursday, Lagarde said the economy was showing signs of bottoming out, but called activity still “tepid” and said she expects the bloc’s economy to contract 8.7% in 2020.
Overall, gold buying has been fed by central bank stimulus measures to limit the economic harm from the COVID-19 pandemic, but signs of economies coming back to life from lockdowns to halt the spread of the deadly infection has dulled bullion’s appeal.
Gold for August delivery GCQ20, -0.97% on Comex tacked on $22.60, or 1.3%, to settle at $1,727.40 an ounce, after trading as high as $1,729. Prices for the most-active contract tumbled 1.7% on Wednesday amid a strong rally in global equities. That decline marked a third straight loss for the most-active contract, according to FactSet data.
Meanwhile, July silver SIN20, -1.03% settled at $18.061 an ounce, down 10 cents, or 0.6%, following a 1.7% drop Wednesday.
Investors also looked to the latest numbers on weekly jobless claims from the U.S. Labor Department Thursday, which show some signs of stabilizing. Some 1.88 million Americans applied for traditional jobless benefits at the end of may and another 623,000 filed new claims under a federal-relief program. Initial jobless claims have slowly tapered off since peaking at almost 7 million in late March.
“Gold is still struggling to resume its bullish trend as global markets ponder how many more increases to stimulus can we get as the global economic recovery continues,” said Moya, in a market update.
“Risks to the outlook are plentiful and gold still has many unforeseen reasons why investors still want safe-haven positions,” he said. “Gold’s bullish outlook remains intact on trade wars, geopolitical risks, a second wave of coronavirus cases and a low-interest rate environment as uncertainty persists to what will be the permanent damage to the U.S. labor market.”
Providing support to gold Thursday, U.S. benchmark stock indexes traded lower as gold futures settled, and the U.S. dollar weakened, with the ICE U.S. Dollar index DXY, 0.01% down 0.6%, as the euro EURUSD, 0.01% strengthened in the wake of the ECB decision.
On Wednesday, gains in the stock market followed data from Automatic Data Processing Inc., which showed the private sector shed 2.76 million jobs in May. That was well below forecasts from economists surveyed by Econoday who expected a loss of 8.66 million.
Monthly employment data from the government are due Friday. Economists surveyed by MarketWatch expect the economy lost an additional 7.4 million jobs in May after losing 21 million in March and April. See MarketWatch’s economic calendar.
Among other metals, July copper HGN20, 1.89% added 0.08% to $2.455 a pound. July platinum PLN20, -1.11% rose 0.5% to $865 an ounce, while September palladium PAU20, 0.79% lost 1.8% to $1,922.80 an ounce.