Gold Prices Rise on ECB’s QE Announcement

New York (Jan 22)  Gold prices rose above $1,300 an ounce on Thursday, shaking off earlier losses, after European Central Bank President  Mario Draghi  announced a bigger-than-expected bond-buying program.

The most actively traded contract, for February delivery, was recently up $9.70, or 0.8%, at $1,303.40 a troy ounce on the Comex division of the New York Mercantile Exchange.

The ECB will buy €60 billion ($69 billion) of public and private sector debt a month, starting in March 2015 and continuing until September 2016. Although the introduction of a bond-purchasing program was widely expected, analysts and investors said the size was toward the upper end of expectations. Earlier, the ECB kept interest rates on hold at record lows, as expected.

Gold prices shrugged off earlier losses and advanced in response to the news. Some investors view gold as a store of value and a better bet than currencies or government bonds during periods of monetary easing.

“Right now, the jubilation seems to be there,” said Ira Epstein, a broker with the Linn Group in Chicago. “Europe is finally doing something, it’s taken them four years to do something.”

Still, gold’s gains Thursday were muted as the market had rallied in recent weeks in anticipation of the bond-buying program, said Paul Nolte, portfolio manager at Chicago’s Kingsview Asset Management.

Gold traders will also sift through the ECB’s technical documents to see how much of the €60 billion is made up of previously authorized purchases, said Frank McGhee, senior precious metals broker with Integrated Brokerage Services in Chicago.

“If it’s a large proportion, then this market will correct to the downside, but nobody will know until we get the technical documents later this afternoon,” he said.

Gold prices could soon drum a retreat, as much of the uncertainty surrounding the economic outlook has been cleared away this week, Mr. McGhee said.

The final hurdle will be Sunday’s election in Greece. The leftist Syriza party is ahead in the polls, reviving talk of a possible exit by the country from the eurozone. The election has also put on hold Greece’s negotiations on further financial aid.

Source: WSJ