The reaction of the gold market on a bold stimulus package by the European Central Bank suggests that lowering interest rates may not be enough to increase the value of the precious metal.
Gold prices fell immediately after the ECB announced the decision to reduce interest rates to a record low and increase bond buying program. This reaction has surprised analysts, as low interest rates tend to stimulate the growth of demand for safe assets, including the Japanese yen and gold.
At the end of the trading session on Thursday, the price of the yellow metal showed a rebound. But it is likely to have been caused by reduction of the euro against the US dollar after ECB President Mario Draghi said that further rate cuts are unlikely. In early trading in Asia, the spot price of gold rose by less than 1% and amounted to about $ 1280 per ounce.
According to Julian Jessop, head of Capital Economics Research Unit on Commodities, such a reaction indicates that the movement of prices for precious metal act out the important role of other factors.
According to him, initially slight reaction confirms that the main driver of gold prices is not interest rates, and the fluctuations of the US dollar, the demand for safe assets, and changes in inflation expectations, particularly expectations for US inflation.
The initial fall in gold prices is due to the strengthening US currency, whose rate rose by more than 1% against the euro, as well as 3-protsennym rally of European shares, which was the signal for reducing demand for safe-haven assets.
According to Capital Economics analysts at the end of 2016, gold will trade at $ 1,350 an ounce.
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