Gold prices to rise on ECB QE, US data and uncertainty about US Fed rate hike

Gold prices are set to rise next week, buoyed by a sluggish US economy, ECB stimulus and uncertainty about when exactly the US central bank will raise rates.

Traders will be tracking the Bank of England (BoE), European Central Bank (ECB) and Bank of Canada monetary policy meetings through the week.

The ECB, on 5 March, could clarify as to when it will start making purchases and on how fast it intends to boost its balance sheet. The ECB has said it would roll out its bond-buying programme in March.

Bart Melek, head of commodity strategy at TD Securities, told Kitco News that recent data showed that the US economy started the year on a slower note. He added that there were risks that economic data continues to disappoint. He said that will shift expectations of when the US Federal Reserve will be able to raise interest rates.

Looking at the technicals, Melek said that a convincing break above $1,216 an ounce could lead to a test of $1,230 an ounce.

Colin Cieszynski, senior market analyst at CMC Markets, told Kitco that the traders will turn their focus on ECB quantitative easing. He added that if the markets focus on Europe then investors can expect a gold rally alongside a US dollar rally.

George Gero, vice-president and precious-metals strategist with RBC Capital Markets Global Futures, said he was bullish about gold next week because it was still not clear as to when the US central bank will raise rates.

Gero said data published next week will be scrutinised to determine if it supports the Fed's view that the US economy is recovering and if it can handle a rate increase cycle.

Ronald-Peter Stoeferle, fund manager at Incrementum and author of the In Gold We Trust report, said he expected some headwinds next week, mostly because gold has been unable to build any solid momentum. He added that negative interest rates in the euro alone should provide strong support for prices.

Stoeferle said while gold could dip next week against the greenback, the precious metal could still remain strong in terms of the euro and the Japanese yen, which should continue to attract long-term investors.

But Stoeferle added that investors must track economic data to determine whether the American economy is facing deflationary pressures.

Capital Economics said in a note: "Metals prices have shown some of the largest gains in the past week, benefiting from some better news on the global economy including stronger manufacturing PMI surveys in China and the eurozone. Gold prices have been stable despite fading fears of an imminent Greek exit from the single currency and signs that the Fed is ready to raise US interest rates in June...

"...as long as any US interest rate hikes are gradual and balanced by stronger economic growth, we do not see them as a major problem for commodity markets. In the meantime, meetings of the Bank of England and the ECB, both on Thursday, should underline the prospects of an extended period of ultra-loose monetary policy in Europe."

Gold rises

US gold futures for delivery in April added $3 to finish at $1,213.10 an ounce on 27 February

Prices gained $9.60 or 0.8% for the week as a whole.