Gold retreats from $1,300 as rumours of ECB QE package emerge

Otmane El Rhazi from The Bullion Desk.

The gold price retreated from the key $1,300 psychological level on Wednesday afternoon after details of the composition of the European Central Bank’s unconventional policy measures emerged – they were not due to be announced until Thursday.

Spot gold was last at $1,290.40/1,291.20 per ounce, down $1.10 on Tuesday’s close and below an earlier session and five-month high of $1,305.70.

According to the reports, the ECB’s executive board suggests bond purchases of 50 billion euros per month either for one year or until the end of 2016. The latter scenario contrasts with earlier speculation that ECB president Mario Draghi’s QE programme would be just 500 billion euros – a two-year schedule would equate to around 1.1 trillion euros.

While the reports remain unconfirmed, gold immediately reversed all of the gains made in the session.

“Unconfirmed rumours regarding the structure of the ECB’s strongly expected QE programme have underwhelmed markets – a package of 500 billion euros has already been largely priced in, reducing safe-haven demand and therefore gold’s upside,” FastMarkets analyst Tom Moore said.

The euro dipped to 1.1594 against the dollar while traders await clarification on the reports.

The finer details of the ECB announcement will continue to be scrutinised for its possible effects on currencies and ultimately the gold price, particularly whether the programme is given a set timetable and how many of which bonds will be bought.

In other central banking news, the Bank of Canada surprised markets by lowering its overnight rate to 0.75 percent from 1.0 percent.

Earlier, the Bank of Japan opted to maintain QE and has increased its growth-supporting funding facility to 10 trillion yen from 7 trillion yen. The BoJ also said the country will see GDP growth of 2.1 percent in 2015, up 0.6 percentage points on previous indications, although inflation has been downwardly revised to 1.0 percent from 1.7 percent previously.

In data, US housing starts increased 4.4 percent to a seasonally adjusted annual pace of 1.09 million units, which is the highest level in six-and-a-half years and beat the 1.04 forecast. But building permits for December at 1.03 million missed the expected 1.06 million.

In the other metals, silver at $18.08/18.13 per ounce was up 21 cents but short of the four-month high hit earlier at $18.49. Platinum meanwhile at $1,271/1,276 was $2 higher while palladium at $770/775 was unchanged.

(Editing by Mark Shaw)

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