Gold News

Gold Price Jumps Above $1200 on China Rate Cut, Hits 4-Week Euro High as Draghi Vows "More Inflation", Japan Risks "Losing Control" of Yen Decline

GOLD PRICES popped to the highest level this month Friday lunchtime in London, trading back above the $1200 level after the People's Bank of China cut its key interest rate for the first time in two years.
 
The unscheduled change in PBoC rates – down to 5.6% for 1-year loans – saw world stock markets and government bond prices rise, pushing longer-term market rates and yields lower.
 
Commodity prices also rose, rallying 0.7% on the Bloomberg Composite index to stand unchanged on the week as Brent crude oil shot back to $80 per barrel – a four-year low when first hit last month – and iron ore bounced from new 5-year lows.
 
"There is a decent amount of open interest around the $1200 level for Monday's Comex option expiration," says Germany's Commerzbank in a note, pointing to speculative betting on the direction of gold prices.
 
"An initial pullback is likely before the next leg of an up-move," says new technical analysis of gold price charts from French investment bank and London market maker Societe Generale.
 
The Euro currency today sank more than 1 cent to near this month's new two-year lows versus the Dollar after European Central Bank president Mario Draghi vowed to increase QE money creation "if necessary" to beat deflation in the 18-nation single currency union.
 
"We will do what we must to raise inflation and inflation expectations as fast as possible," said Draghi in a Frankfurt speech given in a personal capacity, rather than as ECB chief.
 
"If current policy is not effective enough...we would broaden even more the channels through which we intervene, altering the size, pace and composition of our [QE] purchases."
 
Draghi's comments help the gold price in Euros touch 4-week highs above €970 per ounce.
 
The Euro also sank 1.5% against the Yen, sliding from new 6-year highs, after Japan's finance minister Taro Aso said the decline in the Yen – aimed at boosted export sales and spurring domestic inflation – has been "too rapid".
 
Raising QE money creation to new record sums, the Bank of Japan risks losing control of the Yen's decline, warns FX strategist Steven Barrow at Standard Bank. Because "we can't believe that the BoJ can continue to buy ever-increasing proportions of the nation's debt without there being some sort of consequence."
 
Draghi's comments will "unequivocally increase the market's focus on EUR and EUR shorts [ie, bearish bets on the currency]," says a note from Citigroup analysts, "ahead of the December 4 policy meeting."
 
China's rate-cut news came after the close of Shanghai gold dealing for the week. But trading was solid in the main Au(T+D) contract, with premiums above global quotes reaching $3 per ounce.
 
With Ukraine's central bank meantime reporting a 35% drop in its gold bullion reserves – most likely to subsidize imports of natural gas, according to commodity analysts – the Dutch National Bank said today it has "adjusted [its] gold stock location policy", moving 122 tonnes from New York to Amsterdam the better to "balance" its holdings and boost "public confidence".

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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