Gold Prices Extend Lower Toward $1,800. Will the ECB Deliver Surprises?

• Gold prices extended lower toward $1,800 amid revitalized reflation optimism

• The ECB interest rate decision and bond purchase guidance will be in focus today

• The worlds largest ETF saw 4.9 million shares of net outflow so far in July

Gold Price - Daily

Gold prices extended lower during Thursday‘s APAC session after breaking an “Ascending Channel” (chart above). Prices are eyeing $1,800 for near-term support as traders await today’s ECB meeting for clues about the banks monetary guidance and its ramifications for the US Dollar.

The ECB is widely expected to keep its policy interest rate unchanged today, but may hint at a twist the pandemic emergency fund (PEPP) and regular Eurozone support (APP) programs. The central bank has raised its inflation target to 2% to tolerate temporary spikes in price levels, suggesting that its monetary policy may remain accommodative amid viral resurgence. A more dovish-tilted tone may lead the US Dollar to strengthen, and thus weigh on gold prices. The reverse may be true if the meeting delivers relatively less-dovish surprises.

The DXY US Dollar Index is hovering near 3-month high, and Treasury yields are rebounding for a second day amid revitalized reflation hopes. Investors cheered a solid start of the US corporate earnings season and shrugged off concerns surrounding the Delta variant of Covid-19, which has caused a new wave of lockdowns around the world. Crude oil prices surged over 4% overnight. These could be temporary however, as the market may have underestimated the impact of the new viral strain on the economic recovery.

Singapore, for example, had over 70% of its population receiving at least one dose of Covid-19 vaccines. Yet, the city state had to return back to lockdowns due to explosive new cases found in the community after a short period of reopening. This points to a bumpy road to recovery for other regions, especially the emerging countries which have muchslower vaccination progress.

The worlds largest gold ETF - SPDR Gold Trust (GLD) – saw its shares outstanding falling by 4.9 million so far this month, hinting that more sellers are returning to the bullion market. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation in the past (chart below). Therefore, an accelerated pace of redemption to the ETF may be viewed as a bearish signal.

Gold Price vs. GLD ETF Shares Outstanding – 12 Months

Gold Price Technical Analysis

Technically, gold prices have likely broken an “Ascending Channel” and entered a technical pullback. An immediate resistance level can be found at $1,835, whereas immediate supports can be found at $1,800 and then $1,794. The MACD indicator remains below the neutral midpoint, suggesting that bullish momentum may be weak.