Gold Falls Slightly Before ECB Decision

Gold prices eased early Thursday following a 2% gain in the previous session, as traders eyed the upcoming policy decision from the European Central Bank (ECB) and US weekly jobless claims.

The bullion market was hit by a short-cover rally yesterday that sent prices to their highest in more than a month despite strong data US private-sector payrolls and services industry growth ahead of the infamous jobs report due to be released later in the day. Meanwhile, concerns the US Federal Reserve could start tapering monetary stimulus continue to weigh on markets sentiment.

Spot gold was down 0.62% at $1,236.04 an ounce as of 02:39 a.m. EST, compared with yesterday's close at $1,243.79. The day's range is far between $1,235.33 and $1,244.65.

US November jobs data steal spot at the end of the week, setting the tone the bullion market and the dollar. In Europe, the ECB is broadly expected to stand pat on fresh policy action later Thursday, but comments by central bank president Mario Draghi will be closely watched for any clues on the ECB`s future policy moves.

December policy statement by the Bank of England (BoE) is anticipated as well, with a consensus forecasting no change on the monetary policy front, thus the two central-bank meetings are not expected to bring fresh action before the end of the year.

On the US economic front, key indicators will be closely watched, including weekly release of initial jobless claims and second estimate of US GDP for the third quarter.

Today's second revision to third-quarter GDP will be much of attraction to the market, but the weekly update on new filings for unemployment will offer more timely insight about the labor market in the US, especailly after we watched yesterday`s ADP report coming positively abvoe analsyts` median forecast.

The impact of the Fe's $85 billion of monthly bond purchases on gold prices remains evident, but strong NFP data on Friday will boost the case for stimulus reduction as early as this month, when the Federal Open Market Committee (FOCM) meet to set policy for the last time this year. However, markets have apparently priced in the growing bets of a stimulus taper with prices lingering below $1,250 for almost three weeks now.

With prices lingering near the lowest in five months, we expect the downside bias to extend although yesterday`s bullish movement suggest further upside correctional bias is likely with the context of the overall bearish candle.