Gold Steady As Central Banks Stand Pat

July 21st, 2016 by

Gold prices are steady this morning, as the European Central Bank (ECB) has decided to keep interest rates at record lows rather than cutting them further (as some had expected).

Similarly, Bank of Japan (BOJ) Governor Haruhiko Kuroda stated in a radio interview that there was “No need and no possibility for helicopter money,” the controversial policy of directly dumping new money into the economy. (In the most likely scenarios, “helicopter money” wouldn’t go directly into the pockets of the people, as might be implied.) This news helped send the yen higher, further depressing the U.S. dollar.

Around noon EST, spot gold had risen about 1% to move back above $1,330/oz. Meanwhile, the silver spot price was robustly higher as well, adding 25¢ to trade above $19.65/oz.

Stocks Fall From Highs

cards-gambling-stand-patThe decision by the ECB to stand pat has not been particularly kind to stocks, which were previously riding along at nine-month highs. European stocks in particular were unhappy with the news, as many had expected the central bank to take some sort of action to help prop up markets.

This notion of expanding the ECB’s accommodative measures has become an especially contentious point in the aftermath of the Brexit vote, which some economists still believe is portending a recession in the United Kingdom. Simply put, however, the ECB is out of ammunition. Its monthly asset purchases totaling €80 billion will continue, nonetheless. Switzerland’s Credit Suisse has taken the position that this quantitative easing (QE) program from the central bank, coupled with negative interest rates, has not been of much benefit.

Assets in Turkey continued to plunge following the failed military coup over the weekend that has seen the country’s president, Recep Erdoğan, greatly consolidate his power by purging tens of thousands of his potential political rivals. In the meantime, U.S. stock indices were all slightly lower on Thursday morning.

On-Tap for Today

This morning, existing home sales numbers and the FHFA Home Price Index (HPI) will be released, providing a gauge of the real estate market. Late in the afternoon, the Fed balance sheet and current money supply will also be announced. Japan releases its Flash PMI Manufacturing Index tonight at 10 pm EST.

Gold

charting gold priceThe gold futures contract for August delivery rose about $5.00 per ounce during early trading on Thursday after opening just below $1,320/oz. Uncertainty surrounding central bank policy has been the main driver of renewed safe haven demand for the yellow metal.

Further, INTL FCStone analyst Edward Meir notes, “Should the central bank signal a more accommodative policy, we could see gold get a bit of a lift despite the fact that the dollar could strengthen as a result.”

Currencies

The announcement of no helicopter money from the BOJ propelled the yen higher, touching ¥105 per dollar. This naturally caused the U.S. dollar to weaken, falling slightly from its highest level on the DXY index since March to 97.0. The euro held right around $1.10 while the British pound sterling continued to wane, approaching as low as $1.30.

 

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.