Gold Futures Rebound From Five-Year Low After ECB Rate Cut

  • ECB Governing Council reduced the rate by 10 basis points
  • Bullion prices earlier fell to lowest in since February 2010

Gold futures rallied from a five-year low after the European Central Bank cut its deposit rate, boosting demand for the metal as a store of value.

The move pushed the floor for borrowing costs deeper below zero as officials seek to prevent too-low inflation from becoming entrenched. The ECB will extend its quantitative easing program until at least March 2017 and broaden the range of assets purchased, ECB President Mario Draghi said.

Gold fell to a five-year low earlier amid speculation that the U.S. Federal Reserve will soon tighten monetary policy, cutting the appeal of the metal because it doesn’t pay interest. Fed Chair Janet Yellen said Wednesday that she’s confident in the outlook for economic growth, buoying the dollar. The greenback dropped after the ECB decision, fueling demand for bullion as an alternative asset.

Gold “is reacting in part to a surprising rally in the Euro currency and a big sell-off in the U.S. dollar index following the ECB easing of its monetary policy,” Jim Wyckoff, a senior analyst at Kitco Metals Inc., a research company in Montreal, said in a report.

Gold futures for February delivery gained 0.7 percent to settle at $1,061.20 an ounce at 1:41 p.m. on the Comex in New York, after touching $1,045.40, the lowest since February 2010.

The euro jumped the most against the dollar since 2009 after the scale of the ECB’s stimulus measures disappointed some investors.

Sales from exchange-traded products backed by gold have accelerated. Holdings in the SPDR Gold Trust, the largest gold ETP, shrank 2.4 percent on Wednesday to 639.02 metric tons, data on the fund’s website show. That’s the biggest tumble since January 2011. Assets are at the lowest since September 2008.

There’s a 74 percent chance the Fed will increase rates at its Dec. 15-16 meeting, Fed-fund futures show.

Silver futures rose on the Comex, while palladium and platinum advanced on the New York Mercantile Exchange.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE