ECB ‘Monetary Amphetamine’ Propels Gold to Best Start Since ’79

  • Draghi’s move to drive rates lower ‘fires up’ gold, BMO says
  • Yields on more than 40% of euro-zone sovereign bonds negative

Gold Price Feeds Off Fed in Climb to Two-Week High

Once again, gold is getting a boost from a central banker, only this time it’s not Janet Yellen.

The European Central Bank, led by Mario Draghi, plunged into the corporate bond market on Wednesday, buying the debt of some of the continent’s biggest companies. ECB buying of government bonds has pushed yields down to records, with more than 40 percent of securities in the Bloomberg Eurozone Sovereign Bond Index offering negative yields.

Gold has rallied 19 percent this year, the best start since 1979, as low interest rates boost the appeal of the metal, which offers returns only through price gains. A sputtering dollar and economic-growth concerns have also spurred demand for bullion as a store of value. Bets that rates in the U.S. will stay lower for longer have given the yellow metal an added lift the past few days.

“The ECB’s monetary amphetamine has driven gold above the key $1,250 level,” Tai Wong, director of commodity products trading at BMO Capital Markets in New York, said in an e-mail. “Draghi’s determination to drive rates ever lower fires up investors’ appetite for gold.”

Gold futures for August delivery advanced 1.2 percent to settle at $1,262.30 an ounce at 1:44 p.m. on the Comex in New York, after touching $1,267.20, the highest for a most-active contract since May 18.

In the U.S., traders are pricing a zero percent chance of an interest-rate increase in the Federal Open Market Committee’s meeting next week, and the odds of such a move stay below 50 percent until December, according to Fed-fund futures. The Bloomberg Dollar Spot Index dropped as much as 0.6 percent to the lowest since May 5.

Gold probably has bottomed and will be supported by risks surrounding a U.K. vote on whether to leave the European Union, U.S. monetary policy and elections in the U.S. and Spain, according to Clive Burstow, who helps manage $35 billion at Baring Asset Management Ltd. in London.

In ETFs and other metals:

  • Holdings in gold-backed exchange-traded funds climbed for a sixth straight day Tuesday, rising 0.9 metric ton to 1,860.9 tons, data compiled by Bloomberg show.
  • Silver futures also gained on the Comex, while platinum and palladium futures also advanced on the New York Mercantile Exchange.
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