gold bars

Gold Price Treads Water After ECB

October 20th, 2016 by

The big news moving the markets on Thursday morning was the decision by the European Central Bank (ECB) to leave its quantitative easing (QE) stimulus program unchanged. This gave traders and investors somewhat mixed messages, as did the announcement of slightly higher weekly jobless claims in the U.S.

Spot gold was about $4 per ounce lower (-0.3%) at $1,265/oz at 10:30 am in New York. Meanwhile, spot silver prices traded below $17.50/oz as the argent metal sank more than 1% lower right along with platinum and palladium.

Before sliding back not long after trading opened, gold prices actually touched above $1,270/oz earlier in the morning, their highest in more than two weeks.

ECB QE

Although some were disappointed by the unchanged status of ECB policy, apparently expecting more stimulus measures from the central bank, the ECB merely confirmed that it will continue its regular QE purchases that run through next March. ECB President Mario Draghi left the door open for the bank to pursue additional stimulus down the road. At the same time, Draghi said it would be appropriate for there to be a taper period of gradually more modest QE before the emergency program to prop up the eurozone economy is entirely phased out. By signaling the end of quantitative easing, Draghi sent a bit of a mixed message.

This ambivalent forecast has been interpreted as somewhat ambiguous by the markets today, hence gold is not far from unchanged. Stocks in Europe were mostly higher as a result of the steady message coming out of the ECB meeting and press conference.

Reports in the U.S.

dudley

Bill Dudley, president of the NY Fed

After opening in positive territory, equities in the U.S. fell slightly following the release of multiple economic reports. The continued announcement of third-quarter earnings numbers on Wall St have shown some resilience, helping stock valuations remain high. This is despite officials from the Fed, from Vice-Chair Stanley Fischer to New York Fed President William Dudley, speaking about the case for higher interest rates. EBay and Verizon disappointed shareholders, however. Firms overseas have also been reporting quarterly results.

Although tighter monetary policy is usually not bullish for the equity markets, it is taken as a sign that the economy is improving. This conclusion still remains to be seen.

Existing home sales in the U.S. were higher during September. It was a strong rebound from the previous two months of falling activity in the real estate sector. Commodities and basic materials, however, were mostly lower. Crude oil prices slipped into the red from better than one-year highs but WTI crude was still solidly above $50 per barrel. U.S. Treasurys continued to see demand, as the 10-year yield dropped 1 basis point to 1.74%.

Weekly jobless claims came in at 260,000, which was 13,000 higher than the week before. A total below 300,000 still considered encouraging for labor market conditions. Labor and manufacturing data from the Philadelphia Fed also showed improvement during September.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.