Gold Price Futures (GC) Technical Analysis – Dollar Gains from Brexit Worries, ECB Concerns Capping Prices

Gold futures are trading slightly lower on Wednesday following a strong upside reversal and higher close the previous session. The move is the result of a stronger U.S. Dollar, which is dampening demand for dollar-denominated gold. The rise in the dollar is being fueled partially by safe-haven demand due to weakness in the equity markets and profit-taking by Euro traders ahead of Thursday’s monetary policy meeting.

At 09:56 GMT, December Comex gold is trading $1936.30, down $6.90 or -0.36%.

US Stocks Attempting to Rebound

U.S. stock index futures are in positive territory early Wednesday after shedding earlier weakness. The move may be putting a lid on safe-haven demand for the dollar, while underpinning gold prices.

The rally indicates that investors may be shrugging off disappointing coronavirus vaccine news. AstraZeneca shares plunged in extended trading after the company said a late-state trial of its COVID-19 vaccine candidate has been put on hold due to a suspected serious adverse reaction in a participant in the U.K.

Meanwhile, gold futures firmed on Tuesday despite a sell-off in technology shares as investors continued to rotate out of companies that led the market’s historic comeback from the coronavirus recession.

Brexit Worries, ECB Uncertainty, Stock Market Volatility Boosting Dollar

The dollar is finding support on Wednesday as the stock market slide spooked investors into selling riskier currencies, while worries about Brexit pushed the British Pound down to a new six-week low. Meanwhile, investors continued to shed long Euro positions due to the uncertainty ahead of the European Central Bank policy meeting on Thursday.

The Sterling is under pressure again on growing fears that Britain is preparing to undercut its Brexit divorce treaty. Britain will set out its blueprint for life outside the European Union on Wednesday, publishing legislation a government minister acknowledged would break international law in a “limited way.”

The proposal could derail the trade negotiations with the EU, putting further pressure on the Sterling, while boosting the U.S. Dollar Index. This could keep gold prices rangebound.

Meanwhile, Euro investors are approaching Thursday’s ECB meeting with some trepidation.

The single-currency started to retreat last week after comments from ECB chief economist Philip Lane, who said the exchange rate mattered to monetary policy.

Daily Forecast

Gold could trade sideways to lower on Wednesday if a weaker British Pound and Euro continue to boost demand for the U.S. Dollar. Another sell-off in the U.S. stock market could see similar results.

There is no doubt that investors are zeroing in on the ECB and Euro this week so they may not want to commit to a position until they find out what policymakers are thinking. Our work suggests that any hint of concern at the currency’s rise, or that low inflation will require ultra-easy policy for a very long time could drive the Euro lower and boost the U.S. Dollar. This could trigger another break in gold prices.