Gold Prices Defy Bearish Analysts, Jump in Euros, as ECB Starts Asset Purchases, Extends Negative Deposit Rate
Thursday, 9/04/2014 14:55
GOLD PRICES rose slightly in Dollars but spiked over 1% in Euros on Thursday as the European Central slashed interest rates and announced an asset purchase program for the 18-nation Eurozone.
"Together with targeted longer-term refinancing operations," said ECB president Mario Draghi,
these new interventions "will have a sizeable impact on our balance sheet.
"Should it become necessary," he added, pointing to further quantitative easing to try and defeat deflation, "the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate."
Sterling gold prices also rose to regain all of this week's 1.3% drop, as the British Pound fell hard with the Euro currency – now at a 14-month low to the Dollar at $1.3020.
Dollar gold prices continued their rally from near 3-month lows, recovering half the week's earlier loss to trade at $1274 per ounce.
Silver was more muted, briefly spiking to $19.30 per ounce and helping major commodity indices turn positive on the day despite a 0.3% drop in crude oil and new 5-year lows in iron ore.
Blaming Eurozone deflation on "depreciation of food and energy prices in the first part and appreciation of the exchange rate in the second," ECB chief Draghi said the central bank will from October start buying "a broad portfolio of simple and transparent asset-backed securities" (ABS) holding non-financial, private-sector debt in the Eurozone.
The ECB will also buy Euro-denominated covered bonds issued by central and commercial banks, financial intermediaries and money-market funds.
Draghi repeated his call for greater fiscal consolidation from Eurozone governments, telling his monthly press conference that "Structural reforms have a cost, but doesn't low growth have a cost also?"
Cutting its key interest rate to a new all-time low of 0.05%, the ECB pushed its rate for commercial banks holding money on deposit
further into negative territory at -0.20%.
With public debt from Germany, Belgium, Austria, the Netherlands and Finland now yielding below zero on all securities up to 2-year maturities, half of all government bonds worldwide are now paying less than 1.0% says a report from Bank of America analysts.
"The ECB meeting is
more likely to be gold-bearish than gold-bullish," reckoned HSBC analysts this morning.
"Gold is likely to be more influenced by US unemployment data due at the end of the week and the general direction of the Dollar."
New private-sector Thursday said the US economy added fewer jobs than analysts expected, up by 204,000 versus 220,000 forecast. The ADP Payrolls company also revised down its figure for July.
Official non-farm payrolls data are due Friday from the Bureau of Labor Statistics.
"Looser Eurozone monetary policy," said a report from French bank and HSBC's fellow London market-maker SocGen last week, "will not in theory at least necessarily lead to higher gold and silver prices.
"The urge for a hedge against inflation will rise encouraging investors. However...the easing is because of very weak inflation (or even deflation) and second, the monetary loosening should lead to a weaker Euro and hence a stronger US Dollar."
A stronger Dollar, says SocGen, "is naturally a bearish factor for gold directly."
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