Gold Rebounded to Close Higher after ECB Hiked Rates More than Expected, but Overall Sentiment Remains Lukewarm

Gold futures reversed from earlier losses to finish Thursday at their highest price in more than a week, after the European Central Bank raised interest rates by more than expected, which capped gains in the U.S. dollar.

Front-month Comex gold (XAUUSD) for July delivery closed just +0.8% to $1,712.70/oz, still representing its best settlement since July 13, while July silver (XAGUSD) finished +0.2% to $18.687/oz. Dollar strengthening is still heavily pummeling prices of all commodities.

Gold has been consolidating since summer of 2020, in preparation of rate hikes to combat record high inflation in the Continent. Having said that, a monetary tightening cycle is historically not the best time to invest in gold, and the current period yet confirms this rule of thumb. Gold has closed lower for five weeks in a row, aiming for two-year lows, which are literally short of $30.

This is not surprising, given that the futures market for the federal funds rate has priced in a 100% chance of a 0.75% increase at the next FOMC meeting on July 27 and a 20% chance of a 1.00% increase.

All this does not please large speculators, such as hedge funds, which look poised to retain their bearish stance on the bullion. In the week ending July 12, their net long positions in gold futures and options fell to their lowest level in more than three years, the U.S. Commodity Futures Trading Commission (CFTC) reported this week. At the same time, the volume of short positions of large players has reached a record high over the past three years.