When the ECB’s governing counsel gathers tomorrow, all eyes will be fixated on commodities. Popular hard assets like gold and oil will be in for another potentially big day after the let-down from the Fed at Jackson Hole. With central banks around the world gearing up money printing and asset-purchasing programs, traders and investors are using commodities to speculate the actions of these global superpowers. Unfortunately for the ECB, the market has high expectations from Mario Draghi and company tomorrow, and a failure to live to those expectations will likely cause a market dip [for more commodity news and analysis subscribe to our free newsletter].
It is widely believed that the ECB will announce a bond-buying program and other measures to help the likes of Spain and Italy among other European nations that have been swimming in a sea of debt for the past few years. Typically a build up this nature, especially one that is so specific, lives up to its name so it would be surprising if Draghi fails to take any action. It should be noted that the Euro-zone GDP and rate decision will also be released Thursday, making it a potentially big trading session. That being said, keeping your eye on two of the biggest speculative commodities in the world can lead to some handsome profits.
Gold’s movements are heavily dictated by headlines from around the world and tomorrow will be no exception. A bond-buying program could be a toss-up for this commodity, the devil will be in the details. If the program is to be funded by printing more money or by debt, gold will likely jump higher, as it will increase its safe haven appeal. But a program could also show that the ECB is determined to keep its surrounding nations alive and make stocks more attractive than the metal. The best fund to watch will be the SPDR Gold Trust (GLD) as it has an extremely active options market not to mention that it is the largest commodity ETF in the world [see also Three Reasons Why Gold Is Overvalued].
Crude oil has been making a charge higher in recent weeks as economic data has been relatively positive. But that could all change tomorrow, depending on the outcome of the meeting. If a program is announced it “is likely to prompt speculative financial investors to jump on the bandwagon and drive the (oil) price further upward,” said analysts at Commerzbank in Frankfurt. Then again, if expectations are not met, oil will likely take a plunge and endure a harsh sell-off. Keep an eye on the United States Oil Fund (USO) as it is by far the most popular crude ETF, trading more than 6.6 million times each day.
Disclosure: No positions at time of writing.