Gold Consolidates After Bruising Wednesday Session

Gold prices fell by 2% on Wednesday as stocks rallied on hopes of a faster than expected recovery from the fallout of the coronavirus pandemic. Meanwhile, investors shrugged of the historic civil unrest in the United States and US/China trade tensions.

Risk sentiment was boosted after ADP reported smaller-than-expected May U.S. private-sector job losses on Wednesday. Private payrolls fell by 2.76 million in May, according to the report. Analysts had expected a more severe decline of 8.75 million. The market now turns its attention to the US employment report due to be released on Friday.

Data out of China this week also helped to fuel optimism with a rebound in China’s service sector activity. The Caixin/Markit services Purchasing Managers’ Index (PMI) rose to 55.0 in May from 44.4 in April, marking the highest level since 2010. The reading came in above the 50 mark separating expansion from contraction.

Johns Hopkins University indicates that coronavirus COVID-19 global cases have risen to 6,271,577 with 386,091 fatalities. On Wednesday, Italy reopened its borders to international travelers. As countries around the world lift lockdown measures, safe haven demand for both gold and the US dollar has dampened.

US/China trade tensions increased on news that the Trump administration is suspending passenger flights to the US by Chinese airlines. Earlier in the week Bloomberg reported that Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans and pork.

The economic highlight of the day is the European Central Bank (ECB) policy decision due for release at 1145 GMT, followed by ECB President Christine Lagarde’s news conference at 1230 GMT. The central bank is expected to increase its coronavirus crisis asset-purchase program to bolster the economy.

Looking at the daily chart we can see that gold is holding above the 50-period simple moving average, which represents support. The recent high of 1,765 remains in view, with gold currently holding above the key psychological level of 1,700.