Gold News

Gold Prices Whip as ECB Boosts QE, Slashes Rates, Trump Decries 'Devaluation'

GOLD PRICES whipped violently with all financial markets Thursday as the European Central Bank announced yet more aggressive monetary stimulus only to see the single currency jump to 3-week highs against the Dollar as stock markets sank.
 
Germany's Dax index turned a near-3% gain into a worse-than-2% loss for the day, while US and UK government bond prices fell sharply as Eurozone bonds ticked higher.
 
Crude oil dropped over 2%. New York equity markets opened sharply lower.
 
"This package isn't an overreaction to oil prices," ECB president Mario Draghi told his scheduled press conference in Frankfurt.
 
"It's an adequate reaction to weakening growth prospects."
 
Gold priced in Dollars initially dropped to 1-week lows beneath $1240 per ounce, a 13-month high when first reached a month ago.
 
But then surging with silver – which jumped to recover all this week's 30 cent loss to trade back at $15.50 – gold bullion rose to $1267 per ounce after Draghi spoke, trading some 0.7% higher from last Friday's close.
 
The ECB's decision today cut its main refinancing rate for Eurosystem banks to 0.00%, cut the deposit rate on excess reserves further below zero to minus 0.40%, expanded its QE money creation scheme by one-third to €80 billion per month, widened the range of assets it can buy with that money to include non-financial corporate bonds (albeit not starting until late in Q2), and announced 4 new "targeted" long-term refinancing operations – to be known as TLTRO II – under which banks may borrow up to 30% of the value of loans already made at zero cost for 4 years.
 
Some analysts claimed disappointment that the negative deposit rate – intended to stop banks holding cash at the ECB instead of lending it – didn't become "tiered" to try and defend the Eurozone banking sector's profitability.
 
Others said Draghi's mistake was to suggest in his press conference that the deposit rate will not be cut again after today, "signalling a possible end to what is essentially an open-ended program," in the words of a spread-betting analyst at CMC Markets.
 
But forecasting consumer-price inflation of just 0.1% for 2016, and cutting his economic growth forecast to 1.4%, Draghi said the ECB understand "the need for further monetary stimulus...without undue delay."
 
"You see [devaluations] almost everywhere except for the United States," said US presidential hopeful Donald Trump – now expected by two-in-three chief financial officers at US corporations to become the Republican nominee for November's election according to a new poll – to CNBC today.
 
"We do nothing about it. They're taking advantage of our country [and] taking our jobs," Trump added, calling Beijing "the grandmaster of all" in terms of currency manipulation.
 
Initially dropping, the Euro however jumped during Draghi's press conference, reaching its highest level since mid-February near $1.12 on the FX market.
 
That squashed the gold price in Euros to 1-week lows beneath €1135 per ounce.
 
Earlier Russia's third largest gold miner Polyus – which was bought and de-listed from the London stock market as the metal's price hit 6-year lows in December – had said it hedged around 8% of the next 4 years' output on February's jump in prices.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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