Gold Firmer on Short Covering, Weaker U.S. Dollar

Frankfurt (May 8)   Gold prices are modestly higher in early U.S. trading Thursday, boosted on some short covering and by a slumping U.S. dollar index. June gold was last up $3.50 at $1,292.50 an ounce. Spot gold was last quoted up $1.90 at $1,292.25. July Comex silver last traded down $0.017 at $19.325 an ounce.

The U.S. dollar index this week hit a multi-month low as the greenback continues in a near-term price downtrend on the daily chart. The dollar bears are in firm technical control, which is a bullish underlying factor for most of the raw commodities, including precious metals.

The major market place event for Thursday is the European Central Bank monthly monetary policy meeting. There was no change in ECB monetary policy announced at this meeting, as expected. However, there is growing pressure on the ECB to implement further monetary policy stimulus measures, amid worries about price deflation in the European Union. The Euro currency is at a multi-week high against the U.S. dollar, and the strength of the common currency is also a concern to many European officials and another reason to EU interest rates. ECB President Mario Draghi’s press conference following the ECB meeting will be closely watched for clues on future ECB monetary policy moves.

Fed Chair Janet Yellen speaks to the U.S. Congress again today, this time to a Senate committee. The take away from Wednesday’s Yellen comments was that the U.S. economy is on the upswing, but don’t look for U.S. interest rates to rise any time soon due to a still-struggling housing sector.

The Russia-Ukraine tensions have not gone away, even though other market place matters have garnered the headlines this week. Traders and investors were somewhat assuaged Wednesday when reports said Russian President Vladimir Putin made comments that were deemed conciliatory. Gold and U.S. Treasuries have seen some safe-haven buying in recent weeks, amid the heightened Russia-Ukraine conflict. This matter is not going away soon and will likely see an escalation in tensions. This remains a bullish underlying factor for the gold market.

U.S. economic data due for release Thursday includes the weekly jobless claims report and ICSC chain store sales trends.