Gold Jumps on ECB QE Announcement: Morning Market Update Jan 22

January 22nd, 2015 by

Markets are reacting to the European Central Bank’s larger than expected quantitative easing (aka “money printing”) plan. Stocks and currencies fluctuated after the ECB announced that interest rates would remain the same, at 0.05% and -.20% for excess bank funds deposited at the ECB. It was the press conference afterwards by ECB president Mario Draghi that the markets were waiting on, and “Super Mario” did not disappoint.

After rumors were deliberately leaked yesterday, stating that the ECB QE would be for €50 billion a month for 12 months, the reaction was perhaps not what the central bank wanted. This led to the surprise announcement of €60 billion ($69 billion) a month through September 2016.

Both gold and the dollar had eased overnight ahead of the ECB meeting, but shot up after the QE announcement. Gold blasted upward over $15 to hit the $1,305 level before some profit taking temporarily set in, but soon rose back above $1,300. Silver, which is seeing its best January in over 30 years, is up over 1-1/3% this morning. At a gold:silver ratio over 71, compared to a historical average of 58, many investors are moving into silver since it is deemed more inexpensive than it should be.

The Euro is trending near an 11-year low of under $1.15 that it hit on January 16th, while European stocks extend a seven-year high hit yesterday, all according to Draghi’s plan. Wall St opened higher, but was immediately slammed by disappointing earning reports from Verizon and American Express. After traders digested this news, indices moved solidly back into positive territory.

Factors Affecting Gold Today

The “gold rush” by everyday investors in Europe is not likely to slow, now that the ECB QE plans have been made public. Retail gold purchases in Italy, France, and Germany) are up 41% from last year as taxpayers see more of their money being dumped into the bottomless pit called the Greek economy.

Denmark is desperately defending the peg of their currency to the euro, with the second rate cut since Monday. The Danish central bank has been fighting off speculators who have targeted the krone, expecting the government to quit devaluing it to maintain a peg with the plummeting euro. The attacks intensified after the Swiss central bank shocked global markets by dropping the peg of the franc to the euro. This action forced the Danes into a surprise cut of their own last Monday, moving the negative interest rates on deposits with the central bank from -0.05% to a whopping -0.2%. After today’s larger than expected QE announcement by the ECB, the Danish central bank popped another shock on the markets, moving the rate to -0.35%. Despite the obvious pressure of a euro at 11-year lows, Demark’s president of the central bank refuted an imminent abandonment of the euro peg, stating “We have plenty of kronor.

First-time jobless claims in the U.S. were reported at 307,000, down 10,000 from last week’s seven-month high, but worse than forecast. Crude inventories in the U.S. increased 10.1 million barrels, almost double last week’s increase. The public seems to be liking the lower gas prices as a time where some refineries are switching to making heating oil. Gasoline inventories increased by only 600,000 barrels, and distillates inventories dropped by 3.3 million barrels.

West Texas Intermediate crude is down 75 cents to $47.03 this morning, while Brent is down 32 cents to $48.71. Shale fracking companies are already announcing cutbacks and layoffs, as operations in many wellfields were predicated on oil prices being double what they are presently.

looking-aheadLooking Ahead

Tomorrow is a fairly heavy day for economic reports, with flash Purchasing Manager Indices from Germany, France, the EU as a whole, and the U.S.

The U.S. will also release numbers for Existing Home Sales, and Leading Economic Indicators.

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