Gold Steadies Above $1,700 as Dollar Eases, ECB Awaited

By Ambar Warrick

Investing.com-- Gold prices steadied above $1,700 on Thursday as a pause in the recent dollar rally took some pressure off bullion prices, with focus turning to an upcoming European Central Bank meeting for more cues.

Spot gold was largely unchanged around $1,717.40 at 19:18 ET (23:18 GMT), after surging nearly 1% on Wednesday. Gold futures rose slightly to $1,728.65 and had also jumped nearly 1% in the prior session.

The dollar retreated further from 20-year highs on Thursday, with investors awaiting an interest rate hike by the ECB later in the day. The central bank is expected to turn interest rates positive for the first time in 11 years with a 50-basis point hike, as it struggles to combat heightened inflation and a battered euro.

The rate hike is expected to support the euro and take more wind out of the dollar’s sails - a move that could be positive for gold prices.

“The U.S. dollar rally is in a timeout until the ECB rate decision and that is welcome news for bullion. Gold is tentatively holding the $1700 level and that might get tested… Gold is still vulnerable to another massive selloff,” analysts at OANDA wrote in a note.

Strength in the dollar and U.S. Treasury yields weighed heavily on gold prices over the past month, as strong U.S. economic data and hawkish signals from the Federal Reserve drove up expectations of more sharp interest rate hikes by the central bank. Bullion prices have tumbled from 2022 highs as the Fed began hiking rates this year.

This has seen returns on gold fall behind inflation, questioning the yellow metal's viability as an inflation hedge.

Among industrial metals, copper prices were muted after falling in the prior session, amid growing concerns over slowing activity in major importer China.

While Chinese trade data showed the country continued to increase copper imports in August, investors fear that this trend could reverse as economic activity deteriorates further.

China’s overall trade balance was significantly below expectations in August, marred by a drop in imports and exports.