Gold Price Slips, Euro/Dollar Plunges after ECB Meeting

GOLD PRICE NEWS – The gold price declined $9.60, or 0.6%, to $1,605.65 per ounce on Thursday amid a rally in the U.S. dollar and despite a wave of monetary easing across the globe.  The price of gold initially climbed toward $1,625 per ounce in overnight trading after China’s central bank unexpectedly lowered interest rates for the second time this month.  Gold prices also received a boost from the Bank of England, which expanded its quantitative easing program by 50 billion pounds.

However, the gold price subsequently turned lower as the euro currency tumbled over 200 basis points to 1.2382 against the dollar following the European Central Bank’s (ECB) monetary policy meeting.  Although the ECB lowered its benchmark interest rate by 25 basis points to a record-low of 0.75%, the euro retreated following cautious commentary from ECB President Mario Draghi.

At the ECB’s post-meeting press conference, Draghi noted that “downside risks to the euro-area economic outlook have materialized.”  He added that “Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment.”

Silver fared worse than the price of gold this morning, as it slipped $0.48, or 1.7%, to $27.73 per ounce.  Other precious metals headed south as well, with platinum futures down by 1.2% at $1,474.10 per ounce and palladium by 2.1% at $586.25 per ounce.  Among cyclical commodities, copper futures fell 1.9% to $3.47 per pound while crude oil dropped 1.2% to $86.65 per barrel.

The gold price sell-off pressured shares of most gold producers, as the Market Vectors Gold Miners ETF (GDX) declined $0.63, or 1.4%, to $45.82 per share.  Notable gold stocks moving lower included Barrick Gold (ABX), Kinross Gold (ABX), and Newmont Mining (NEM).  ABX was down by 1.7% at $38.04, KGC by 1.6% at $8.68, and NEM by 1.4% at $49.05 per share.

The broader equity markets were in the red as well, with the S&P 500 Index dropping 0.8% to 1,363.59.  Investor risk aversion, as measured by the CBOE Volatility Index (VIX), jumped 8.4% to 18.06.

While the price of gold was pressured by the dollar’s strength this morning, several market strategists contended that the longer-term implications of monetary easing around the world remain very beneficial for the yellow metal.  Standard Bank’s Walter de Wet wrote in a note to clients that “Overall, rate cuts by China, the ECB, and the U.S. are all positive for gold, on a slightly longer view than just one day for the simple reason that with inflation where it is, you start cutting interest rates of course then real interest rates get lower. So we see it as a bullish development for gold, and most of the other precious metals should be benefit from that.”

De Wet went on to say that “Like many other commodities gold has been struggling under a lack of direction and this might give it a little more impetus. We think gold will go above $1,900 in the last quarter on exactly these reasons.”