Gold Swings Before ECB Decision

July 5, 2012 – The price of gold fell in New York as the US dollar strengthened the most since March 9 following the European Central Bank cut in interest rates to a record low.

The policy makers for the central bank are meeting in Frankfurt made the decision to lower the refinancing rate to 0.75 percent from 1 percent. 49 of 64 economists surveyed by Bloomberg predicted the rate cut.

China also cut benchmark interest rates for the second time this month, allowing banks to offer larger discounts with their lending costs. The Bank of England began bond purchases two months after stopping expansion of stimulus as a fraying outlook prompted policy makers to jump start efforts to recovery.

The price of the gold and gold receivables currently held by the Eurozone central banks gained an estimated 1.1 billion euros to 434 billion euros after a quarterly revaluation, according to a statement by the European Central Bank of Wednesday.

“On paper this is gold-supportive but the stronger dollar is creating headwinds,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen said via email.

Gold bullion for August delivery, on the US futures market, fell 1.1 percent, the most since June 29, to $1,604.50 per troy ounce with the gold Fix in London down 0.7 percent at $1,604.88.

The US Dollar Index is an indicator for a six-currency basket, which includes the euro, and it climbed as much as 1.1 percent. Typically, gold trades counter to the dollar. Bullion as denominated in euros gained as much as 0.8 percent, the highest since June 6.

“Central banks cutting rates and providing stimulus whether through quantitative easing or rate cuts, is positive for gold on a longer-term basis,” Walter de Wet, the head of commodities research at Standard Bank Plc. said. “With lower interest rates comes greater liquidity, which is also positive for gold.”

The low interest rates of the central banks involved in the recent rate cuts has already seen a growth in the precious metals market ahead of the announcements themselves and look to provide a gain in the precious metals market in the time to come.

Silver for September delivery dropped 1.5 percent to $27.855 per troy ounce. Platinum for October delivery fell 1 percent to $1,476.40 per troy ounce. Palladium for September delivery declined 1.2 percent to $591.45.

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