Gold price hits 4-mth high above $1,260/oz on surprise SNB rate cut

Otmane El Rhazi from The Bullion Desk.

Spot gold climbed above $1,250 to a four-month high on Thursday morning, lifting the other precious metals, following the Swiss National Bank’s (SNB) surprise rate cut.

The price recently hit $1,261.00 per ounce, up $30.60 or more than 2.3 percent on Wednesday’s close and its strongest since September 8, after the SNB cut its benchmark rate to -0.75 percent.

“The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified,” the bank said.

Divergence in the monetary policies of the major currency areas have increased significantly, a trend that is likely to become even more pronounced, it also said.

Negative interest rates in the Swiss safe haven might nudge more surplus wealth into gold, FastMarkets analyst William Adams said.

“Accommodative policies are generally gold-friendly. But with the yellow metal more focused on the US, the impact of today’s SNB announcement could somewhat be muted,” UBS said. “The implications for gold are therefore not straightforward, and much will depend on currency moves in the days and weeks ahead, particularly the dollar.”

This followed the World Bank’s downgrade on Wednesday to its forecast for global growth this year to 3.0 percent.

Currencies have been choppy today, with the euro sliding to just 1.1579 against the dollar on the SNB news although the move proved to be a knee-jerk reaction – it was last at 1.1740.

Still, not all market participants are convinced that gold will manage to hold onto these gains, with MKS Capital suggesting a test of $1,215/1,220 is possible in the coming days.

“We don’t see a compelling reason for gold to go higher in the near term, and sense the market needs a period of consolidation. Higher gold prices may begin to weigh on emerging market demand and the declines in the PGMs could have a negative impact on gold,” James Steel at HSBC also said.

In data, Chinese new loans undershot at 697 billion yuan, while M2 money supply was also below forecast at 12.2 percent.

The EU trade balance data undershot at 20 billion euros. From the US, the PPI, the core PPI, unemployment claims, the core Empire State manufacturing index and the Philly Fed manufacturing index are all scheduled for release.

In the other metals, silver was back above $17 at $17.04/17.09 per ounce against the previous close of $16.83. Platinum at $1,246/1,251 was $14 higher and palladium at $778/783 increased $3.

“Palladium is a strange one – it was doing well earlier in the week but then slumped yesterday, we imagine on liquidation selling in thin conditions,” FastMarkets’ Adams said.

(Editing by Mark Shaw)

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