Gold Plunges On Firm Dollar As Central Banks Signal Support For Tapering

Gold coins

Gold prices fell to near two-week lows on Thursday as the U.S. dollar strengthened. The greenback rose on cautious risk sentiment and made the yellow metal more expensive for investors that use rival currencies. Market participants also remain wary as central banks indicated support for reducing economic stimulus.

Spot gold is currently trading at $1,790.91 per ounce as of 0740 GMT.

OANDA senior market analyst Jeffrey Halley noted that investors’ concerns over global economic recovery continue to boost the dollar. The strength of the greenback put gold prices at risk of further decline, he explained. Halley sees immediate support at $1,780, a break below this could see the metal slide down to $1750.

On the technical front, DailyFX strategist Daniel Dubrovsky predicted a bearish outlook for the bullion. He said 81% of retail traders are net-long gold that suggests further price decline. Also, there is a breakout under a bearish Rising Wedge and a brewing bearish crossover between the near-term 20- and 50-period simple moving averages. He sees resistance at the $1,834-1,825 zone.

Meanwhile, the U.S. Federal Reserve reported a slight economic downshift in August due to a surge in COVID-19 infections. Despite this, several Fed policymakers support reducing asset purchases this year. St. Louis Fed President James Bullard said the taper would start this year and end by the first half of next year.  He downplayed concerns about the labor market recovery.

New York Fed President John Williams felt the inflation was already met but would like to see more improvement in the employment rate. Dallas Fed President Robert Kaplan supports a gradual tapering starting in October. The Federal Open Market Committee will meet again on September 21 and 22.

In the European Union, the ECB will release its policy decision today at 1145 GMT. Experts expect the central bank to take token steps to reduce emergency economic aid while also hinting at continuous support for years to come. The unemployment rate is declining, and inflation has been below the target for almost a decade. But ECB policymakers are hesitant to acknowledge that the worst of the pandemic is over. They fear undoing years of stimulus by withdrawing economic support prematurely. The ECB is also cautious not to make a big decision before the Fed.