Gold News

Gold Price Hits 2-Year Euro High on ECB Decision Day as US Fed Members Argue Over Raising Dollar Rates

GOLD PRICE swings held in a tight $8 range around $1195 per ounce in London trade Wednesday, but for Euro investors the metal rose to halve this week's earlier 2% drop as the single currency fell following no change to the European Central Bank's policy of QE and sub-zero rates.
 
After 10,000 people protested outside the European Central Bank's new Frankfurt offices when they were officially opened last month – more than 17 years after the ECB was founded – a lone protester shouting "End the ECB dictatorship!" today interrupted president Mario Draghi's regular press conference, storming the stage and showering him with confetti.
 
The availability of emergency ECB loans to Greek banks "is entirely in the hands of the Greek government," Draghi later said in Q&A, referring to sovereign debt negotiations between the ruling Syriza Party and its EU partner states, adding that he didn't "want to contemplate [or] discuss any possible situation like" a default by Athens on its obligations.
 
Despite seeing "no evidence" of a bubble in northern Eurozone bonds, the ECB is "carefully monitoring" the situation, Draghi said during Q&A, but will press ahead with "full implementation" of its €60 billion in monthly purchases until September 2016.
 
The gold price in Euros today touched €1128 per ounce, the highest level on an ECB decision day since 4 April 2013, just before an EU-IMF bail-out saw exchange controls imposed on Cyprus.
 
"Greece and what happens next continues to dominate Europe," says commodities analyst Leon Westgate at ICBC Standard Bank in London, "with Euro-gold remaining well supported amid mounting uncertainty over the potential and indeed timing of a Grexit and all the capital controls and other measures that would need to be put in place."
 
"Stronger US Dollar and lower investment demand [is going] to pressure prices," reckons French investment and London bullion bank Societe Generale, adding that "Geopolitical tensions have eased. [There's] no catalyst to spur safe haven buying."
 
But Dollar gold's earlier rally this week, counters a trading note from Mitsui Global Precious Metals, was a reaction to "re-setting of expectations and careful Fed talk about 'shallow' trajectories" for any US Dollar interest rate hike.
 
"This time, short sellers of gold who bought back recently [were] joined more aggressively by fresh buyers."
 
The issuing of extra shares saw the SPDR Gold Trust (NYSEArca:GLD) add another 1.8 tonnes to its holdings on Tuesday, taking it to the heaviest backing since before Easter at 736 tonnes but still 5% smaller than early February's 5-month peak.
 
Raising the Federal Reserve's key lending rate any time in 2015 would be "inappropriate" said Minneapolis Fed president Narayana Kocherlakota in a speech Tuesday night, "because such an action would serve to further delay the return of inflation to [the 2%] target."
 
But warning of asset-price bubbles is rates aren't "normalized" soon, "The worst policy is the 'interest rate peg'," said St.Louis Fed president James Bullard in Washington on Wednesday, "under which the policy rate never moves despite changing economic circumstances.
 
"Lift-off should have already occurred. The FOMC has not altered the policy rate in 6.5 years."

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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