Gold futures on Wednesday headed higher as investors picked up the haven commodity ahead of a closely watched meeting of Europe’s central bank, which is likely to result in an announcement of more stimulus in the eurozone. Investors also bet on a higher chance of Britain exiting from the European Union without a trade agreement, pushing the metal higher.
The ECB is expected to step up stimulus, echoing similar signals by the Federal Reserve at its coming July 30-31 meeting. European policy makers could cut its key interest rate for the first time since March 2016, with the markets anticipating that the Fed will reduce U.S. rates by at least 25 basis points next week.
Separately, Boris Johnson formally took over as U.K. prime minister Wednesday and assembled a team intended to fulfill his pledge to take Britain out of the European Union, or Brexit, soon — a pledge that his predecessor Theresa May failed to do. However, Johnson is expected to take a hard line in pushing the country out without an EU pact in hand, an outcome that threatens to at least briefly roil global markets.
Helping cap some gains for gold were reports that progress was being made between the U.S. and China on their prolonged trade dispute, with parties from both sides slated to meet in Shanghai next week for the first face-to-face talks since May.
“Gold got a boost from rising no-deal Brexit probabilities, which also significantly increases the odds of QE on the continent,” wrote Stephen Innes, managing partner at Vanguard Markets, in a Wednesday research report.
“However, the rally gave way to improved US-China trade news flows and a high degree of investor caution knowing that substantial speculative length has built up above $1400 and that gold markets reaction function will be asymmetric to the Fed’s post rate cut messaging,” he said.
Investors may be keeping one eye on testimony from Robert Mueller, who is set to face questioning in two highly anticipated congressional hearings that could provide more clarity on an investigation on the Trump administrations relationship with Russia during his 2016 presidential campaign.
Meanwhile, September silver SIU19, +0.84% extended its climb toward its highest level in more than a year, rising 11 cents, or 0.7%, to $16.600 an ounce, headed for its eighth gain in nine sessions. On Tuesday, gold’s sister metal booked its highest settlement for a most-active contract since June 15, 2018, according to FactSet data.