Gold News

Gold Prices Jump in Euros & Dollars as ECB Takes Rates Negative, Ends Sterilization, Launches Huge Bank-Loan Program

GOLD PRICES jumped against all major currencies Thursday lunchtime in London after the European Central Bank launched cheap lending and negative deposit rates to try and revive the Eurozone economy.
 
Cutting its main Euro interest rate to a record low of 0.15%, and cutting commercial-bank deposit rates to minus 0.10%, the ECB has "hit the lower bound" of conventional monetary policy, ECB chief Mario Draghi told journalists after the announcement.
 
In his monthly press conference, Draghi then unveiled new 4-year bank financing programs explicitly aimed at private-sector loans – rather than supporting government debt – and invited banks to borrow up to 3 times their existing private-sector business and consumer loans, excluding mortgages.
 
The ECB's Draghi also declared "preparatory work related to outright purchases of [private-sector] asset-backed securities", as yet undecided in size, plus a suspension – three months after analysts widely expected it – of "sterilizing" the central bank's government bond purchases by no longer withdrawing an equal amount of cash through money-market operations.
 
The ECB's news initially left gold prices at $1245 per ounce after a brief $5 burst from the morning's very tight range.
 
But Dollar gold then followed Euro prices 0.9% higher, jumping to $1256 per ounce as silver prices jumped above $19 per ounce, recovering half of last week's 3.3% drop to new 1-year lows.
 
The single Euro currency meantime steadied and bounced from new 4-month lows at $1.35, losing less than 1 cent vs. the Dollar.
 
Gold prices for Eurozone investors jumped to €928 per ounce.
 
Swiss Franc gold prices also leapt, adding 1.7% on Draghi's ECB press conference to hit a 1-week high at CHF 1,132.
 
European stock markets reversed earlier losses, while Eurozone government bond prices ticked higher but industrial and energy commodities held a small drop.
 
Warning earlier that "expectations for ECB action today are very high...it's not a healthy thing," leader of the Eurozone finance ministers group Jeroen Dijsselbloem welcomed Draghi's comments as the single currency fell.
 
"We decided on a combination of measures to support lending to the real economy," said Draghi, stressing unanimity amongst the European Central Bank's 18 sovereign members.
 
"There is still potentially a safe-haven role for gold in a lower interest rates world," Reuters this morning quoted Mitsubishi analyst Jonathan Butler, "but overall in the short term that is going to be outweighed by the impact of FX."
 
"Gold will go into a full-fledged bear market," reckoned MarketWatch columnist Matthew Lynn on Wednesday, forecasting that because ECB asset purchases and zero rates were widely expected, gold's drop since March means the "link [between gold prices and QE] may well be broken."

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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