Gold News

Gold Price Whips 1% vs. Euro as ECB's Draghi Signals QE "Action" on Deflation in June

GOLD PRICE moves $5 either side of $1290 per ounce were erased Thursday lunchtime in London as the Euro currency whipped violently on a clear signal that the 17-nation currency zone will begin some form of QE-style policy in June.
 
Eurozone stockmarkets also hit volatility after the European Central Bank held its key interest rate unchanged in Frankfurt, again disappointing traders expecting quantitative easing bond purchases of the style applied since 2009 in the UK and US and since 2001 in Japan.
 
The Euro first jumped to new 2.5-year highs above $1.3990, driving the gold price for single currency investors to 1-week lows beneath €922 per ounce.
 
But dropping more than 1.0% inside an hour after the ECB's formal statement, the gold price in Euros then shot higher, regaining all that drop and more after central-bank president Mario Draghi signalled "action" at the start-June meeting.
 
US Fed chief Janet Yellen meantime repeated yesterday's prepared comments on the second day of her scheduled testimony on the economy to Congress.
 
Stressing that interest rates at zero mean "a high degree of monetary accommodation remains", Yellen's comments were "negative for gold prices" but didn't signal "a departure from current policy" said a note late Wednesday from London bullion market maker HSBC.
 
"This month's [Eurozone] discussion was a preview of the discussion we'll have next time," said the ECB's Draghi today at his monthly post-decision press conference.
 
Calling the threat of price deflation a "very serious concern", and repeating that the Eurozone central bank "is not resigned to having too low inflation", Draghi said the governing council is now "comfortable with acting next time [and] is unanimous in its commitment to using also unconventional instruments" – widely seen as code for quantitative easing.
 
The gold price for US investors also reversed a swift drop as the ECB chief spoke, rallying quickly from 1-week lows near $1285 per ounce.
 
Daily correlation between the Dollar gold price and the Euro currency's Dollar value – a staple of investment bank gold analysis as prices rose last decade, and averaging a statistically significant 0.52 between 2000 and 2010 – peaked in early April at an 8-month high of 0.90.
 
New economic projections from ECB analysts will be shared with policymakers in early June. The next decision is due Thursday 5 June.
 
Crude oil and natural gas prices – identified by the ECB's Draghi as a key input for consumer prices – today slipped 0.5% despite east Ukraine separatists ignoring Russian president Putin's call to delay a vote on secession.
 
Russia's stock market meantime held onto Wednesday's 9% gains.
 
Paris-based think-tank the OECD this week urged the ECB to begin "additional non-conventional stimulus" such as QE to fight against deflation.
 
That echoed comments made last month by International Monetary Fund chief Christine Lagarde – comments publicly rebuked by Draghi at his May press conference.

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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