GOLD PRICE NEWS – The gold price climbed above $1,700 per ounce on Thursday as financial markets rallied after the European Central Bank (ECB) announced an unlimited bond-buying program. The spot price of gold jumped as much as $22.66, or 1.3%, to $1,716.87 earlier this morning but later pared its gains. With today’s rise, the gold price reached its best level since March 11th and extended its year-to-date advance to 9.8%.
Silver headed north in concert with the price of gold, by as much as $0.75, or 2.3%, to $33.04 per ounce. This brought silver’s year-to-date gain to 19.2% and gold’s sister precious metal to its highest level since April 3rd. The strength in gold and silver prices was not accompanied by considerable weakness in the U.S. dollar, however, as the euro currency relinquished all of its earlier gains against the greenback to trade near unchanged at 1.2598.
Gold stocks climbed alongside the gold price, with the Market Vectors Gold Miners ETF (GDX) rising $0.85, or 1.8%, to $48.78 – its highest level since April 3rd. The sector has been particularly strong of late, as the GDX is now up by 14.0% since July 31st. This morning, notable advancers included Barrick Gold (ABX), Goldcorp (GG), and Kinross Gold (KGC). ABX rose by 1.5% to $38.67, GG by 2.3% to $41.79, and KGC by 1.7% to $8.99 per share.
As for the broader U.S. equity markets, the S&P 500 Index jumped 1.5% to 1,424.97. Investor risk aversion fell sharply, as the CBOE Volatility Index (VIX) dropped 8.3% to 16.26. In Europe, the benchmark indices in France and Germany each posted gains of at least 2.5%.
Mario Draghi, President of the ECB, lived up to expectations on Thursday by announcing an unlimited bond-buying program to help lower interest rates on the sovereign debt of several euro zone nations. The purchases will be sterilized, such that they would be offset by the sale of other ECB assets so that the program would not technically constitute money printing. The ECB will target government bonds with maturities of one to three years, including longer-dated debt that has a residual maturity of that length.
At his press conference following the ECB’s meeting, Draghi stated that the bond-buying program “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.” He added that “Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.”
As for the implications on the gold price, Credit Suisse analyst Tom Kendall noted that “There is a bit of buying the rumour here and whether we see any correction on the facts or not, we will have to wait and see…What is clear is the break of $1,700 is going to pull in some additional momentum-following money. I think it will give further encouragement to those who are invested in physical (gold) and it is adding confidence to those who are already exposed.”
Edel Tully, a precious metals strategist at UBS, wrote in a note to clients that the price of gold “will likely react strongest when the market gets over its initial disappointment on the lack of details from Draghi and once the focus turns to impending bond intervention and balance sheet expansion, this will be supportive of a higher gold price, especially (euro/gold).”
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