Gold price flops around $1,300/oz despite dollar at 11-yr high

Otmane El Rhazi from The Bullion Desk.

The gold price was hovering around $1,300 on Thursday afternoon despite the dollar surging to an 11-year high against the euro after the European Central Bank (ECB) announced an aggressive 1.1-trillion-euro quantitative easing package.

The spot gold price peaked at $1,304 and was last at $1,298.70/1,299.40, still up $7.60 on Wednesday’s close.

In the most dramatic post-ECB market move, the euro fell almost two percent to 1.1403 against the dollar and was last not far from that level at 1.1415.

Under the terms of the QE programme, the bank will buy 60 billion euros of eurozone government bonds per month from March this year until September 2016 in a bid to lift inflation and support economic growth.

“Today’s measures will decisively underpin the firm anchoring of medium to long-term inflation expectations,” Draghi said. “Taken together, [this] should strengthen demand, increase capacity utilisation and support money and credit growth, and thereby contribute to a return of inflation rates towards two percent.”

In December, the bloc officially dropped into deflation – consumer prices dropped 0.2 percent, marking the first negative reading since 2009.

The markets had already priced in a quantitative easing (QE) scheme worth about 500 billion euros, so the package of 1.14 trillion euros easily outpaced market expectations.

“The ECB announcement has triggered safe-haven buying in gold, which is now challenging key resistance at $1,300,” FastMarkets analyst Tom Moore said.

“But because the programme is not scheduled to start until March, we are likely to see further consolidation above the 61.8 percent Fibo at $1,183,” he added. “The Greek election on Sunday could add currency stability concerns.”

UBS expects the bulk of the impact from the QE programme, which it believes “is large enough to bring about an easing of financial conditions and to create significant wealth effects,” to be felt next year, it said in a note.

“Yet, past ECB measures, coupled with the falls in the euro and oil prices, should generate a strong growth impulse during 2015,” it added.

Silver at $18.32/18.37 per ounce was up on the previous close of $18.08, while platinum was $15 stronger at $1,284/1,290 and palladium gained $4 to $766/722.

(Additional reporting by Tom Jennemann, editing by Mark Shaw)

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