Gold News

Prices to Buy Gold Jump as US Retail Sales Fall, Eurozone QE Gets Legal Green Light, Equities Sink

BUY GOLD bids jumped Wednesday lunchtime in London after the European Central Bank won legal approval to start QE bond purchases and new data showed retail sales in the US sinking last month at the fastest pace since 2010.
 
The World Bank had earlier cut its global GDP growth forecast from 3.4% to 3.0% for 2015.
 
Copper prices dropped to new 6-year lows as crude oil fell again and global stock markets sank, with London's FTSE-100 off 2.8% by early afternoon and Wall Street futures pointing sharply lower.
 
National data meantime put consumer-price inflation in France at just 0.1% per year in December, with prices in Italy dropping 0.1%.
 
Ahead of next week's European Central Bank meeting, "Outright Monetary Transactions" – aka QE – by the ECB would fit "in principle" with the 19-nation currency zone's treaty, advocate-general Pedro Cruz Villalon found today for the European Constitutional Court of Justice.
 
Germany's Federal Court last year called on the ECCJ to decide on the legality of OMT.
 
Cruz Villalon's opinion further says the ECB "must have a broad discretion when framing and implementing the EU's monetary policy", unchallenged by "the courts [because they] lack the expertise and experience which the ECB has in this area." 
 
"The final hurdle to quantitative easing [in the Eurozone] appears to have been cleared," the BBC quotes one economist.
 
The Euro hit new 9-year lows, briefly falling below its 1999 launch level to the Dollar at $1.1726 and taking prices to buy gold with the single currency back towards 16-month highs at €1050 per ounce.
 
Prices to buy gold with Dollars meantime drifted back, with London spot twice hitting $1225.50 per ounce.
 
But a sudden drop in the Dollar saw gold leap near yesterday's 3-month high at $1244 per ounce – up 1.4% inside 90 minutes – after US retail sales showed a 0.9% drop for December from a year before. 
 
"We are still wary of getting carried away," says a note on gold prices from UK consultancy Capital Economics.
 
"The recent gains are small compared to the much bigger declines that have gone before."
 
"We expect the Fed to begin raising rates this year," says Standard Chartered bank's senior investment strategist Manpreet Gill.
 
"That is negative for gold because that begins to reduce the excess supply of Dollars that we have seen in the past few years."
 
Interest rates on US Treasury bonds fell hard however after Wednesday's retail sales news, driving 10-year yields back to 1.80%.
 
That's more than 1 full percentage point below where 10-year yields stood 12 months ago, before the Federal Reserve began "tapering" its QE aseet purchase program to zero by November.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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