2012-09-07

Gold price climbed above $1,700 per ounce after the European Central Bank (ECB) announced an unlimited bond-buying program

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%.

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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