Gold Could Receive Boost Post ECB QE Details

Gold prices may see a boost Thursday, on the back of a bounce in the euro and a weaker U.S. dollar, after the European Central Bank releases the details of its quantitative easing program, but it won’t be enough to shift the yellow metal’s downward momentum, analysts said.

Although the health of the European economy is in question with the looming threat of deflation, some market analysts said they expect the ECB and its President Mario Draghi to be relatively conservative when announcing the details of its quantitative easing program.

At its September meeting, the central bank cut interest rates by 10 basis points across the board, dropping – in particular – its deposit rate to negative 0.20%. Following the monetary policy meeting, Draghi said the central bank would purchase “simple and transparent” asset-backed securities. The purchases will consist of a broad range of euro-denominated covered bonds and non-financial assets. He added that more details about the program would be released at its October meeting. The announcement of a quantitative easing program weighed on the euro since it means more liquidity in the market.

Simon Ward, chief economist at Henderson Global Investors, said since the announcement, markets have priced in significant weakness in the ECB’s monetary policy, and a cautious policy stance from Draghi could create a short-term bounce in the euro against the U.S. dollar, which in turn would help gold prices.
Expectations for aggressive action from the ECB picked up considerably Tuesday after Eurostats, the European Union’s statistics agency, said that inflation rose 0.3% in September, down from a 0.4% rise seen in August and July.

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza