Gold Rallies While Commodities Hold Declines After ECB

Gold climbed the most in three weeks as commodities held declines, heading for the longest losing streak since January, after the European Central Bank unveiled measures to spur the economy and fight deflation.

The Standard & Poor’s GSCI gauge of 24 raw materials fell 0.4 percent for a fifth day of declines, lead by soybeans and wheat. Gold rallied as much as 1.1 percent to $1,257.73 an ounce in London, the biggest gain since May 14, as some traders closed bets on falling prices. Copper also fell.

The ECB today cut all three main rates and became the first major central bank to charge fees on deposits. The central bank’s president, Mario Draghi, said the package of measures to bolster the economy also included targeted longer-term loans, and officials will also start work on purchases of asset-backed securities.

“Gold traders were short into the announcement,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “Now we are left with an easing bazooka in Europe and as a result this has triggered short-covering and stocks have climbed. Other growth-dependent commodities could potentially benefit from this as well, as this action hopefully could help support the return of growth to Europe.”

European stocks rallied to a six-year high and the euro reached the weakest since Feb. 6 against the U.S. dollar after the ECB announcement. Gold initially fell as much as 0.2 percent before rebounding and traded 0.7 percent higher by 3:03 p.m. in London.

Copper for delivery in three months fell as much as 0.5 percent to $6,754 a metric ton on the London Metal Exchange, before trading at $6,767.50 a ton.

Brent crude oil, the European benchmark, fell 0.5 percent to $107.84 a barrel on the ICE Futures Europe exchange.

Deflation Efforts

“As part of its efforts to prevent deflation, the ECB needs to weaken the euro, which would imply a stronger dollar,” Nic Brown, head of commodities research at Natixis SA, said before the announcement. “If Draghi is successful, a weaker euro -- and therefore stronger dollar -- is mildly negative for dollar price of commodities generally.”

While commodities initially are reacting negatively to a stronger dollar, the ECB’s measures are conducive of more growth, which will eventually benefit demand, Bart Melek, head of commodity strategy at TD Securities in Toronto, said by phone.

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