Gold rebounds as Fed decision, ECB stimulus hopes curb rising risk appetiteGold rebounds as Fed decision, ECB stimulus hopes curb rising risk appetite
FILE PHOTO: Gold rings are seen on display at a goldsmith shop in Kuala Lumpur

By Shreyansi Singh

(Reuters) – Gold bounced back from early losses on Thursday, as the U.S. Federal Reserve’s decision to keep interest rates near zero and hopes of fresh European Central Bank stimulus offset improved risk sentiment driven by positive trial results of an experimental treatment for coronavirus.

Spot gold rose 0.3% to $1,715.84 per ounce by 0813 GMT. U.S. gold futures rose 1% to $1,730.30 per ounce.

“The massive support we’re getting from the Fed is underpinning the general trend of support for gold… Gold is going to look very attractive as it doesn’t cost anything to hold it right now,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.

The weakness in the dollar and expectations that the European Central Bank may “also play some catch up” gave gold an extra boost, he added.

Risk sentiment got a boost after positive early trial results of an experimental antiviral drug that helped patients recover more quickly from the illness caused by the coronavirus.

Asian stocks rose to a fresh seven-week high on the news, while the U.S. dollar slipped to a two-week low earlier in the session, making gold cheaper for investors using other currencies.

The Fed left its interest rates near zero on Wednesday and repeated a vow to use its “full range of tools” to shore up an economy hammered by the pandemic.

Investors are now awaiting a policy decision from the ECB, amid pressure on the central bank to deploy even more firepower to prop up the economy.

“Negative real interest rates, easy money supply, heightened macroeconomic risks and fading USD strength together form the benign backdrop for gold investors. We see flight to safety investments attracting fund flows in gold,” ANZ analysts said in a note.

Lower interest rates reduce the opportunity cost of holding non-yielding gold, which also tends to benefit from widespread stimulus measures as it’s often seen as a hedge against inflation and currency debasement.

Pointing to the growing economic pain from the virus outbreak and bolstering demand for safe havens such as gold, the U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession, while economists expect an even sharper contraction in the second quarter.

Among other precious metals, palladium rose 3.1% to $1,995.87 an ounce, platinum gained 0.2% to $776.35 per ounce, while silver slipped 0.5% to $15.29 per ounce.

(Reporting by Shreyansi Singh in Bengaluru; Editing by Amy Caren Daniel and Rashmi Aich)