Gold Sinks as Central Banks Refrain from QE
Gold dropped today, falling for the third straight day, as central banks disappointed traders, refraining from adding stimulus. A bit of hope remained as heads of the banks hinted that stimulating measures would be implemented later, but that was not enough to satisfy investors.
The European Central Bank was the major source of disappointment as traders hoped that bank’s President Mario Draghi would take decisive actions after he has promised to support the euro last week. Draghi reiterated the necessity to address issues of the eurozone and to maintain the shared European currency, but failed to deliver any actual measure to back up his words. The announcement of the ECB followed Bank of England’s decision to leave its stimulating program unchanged. Yesterday, the Federal Reserve also refused to boost its quantitative easing. The central banks stated that they are ready to add stimulus in case it would be necessary, but that was not what investors hoped for and markets remain depressed.
Many commodities suffered from the unwillingness of the central banks to act, but gold was the most noticeable looser. The precious metal desperately needs some reason to rally and inflation remains the major factor for strength of gold, especially as the metal lost its appeal as a safe haven. QE from central banks would create inflation, resulting in stronger gold. By the same token, absence of stimulus would damp inflation, strengthening currencies (especially the dollar) and weakening gold at the same time. For now, the metal looks to be unable to break the $1,630 level.
Gold dropped from $1,601.68 to $1,590.13 per ounce as of 20:21 GMT on COMEX today, following the rally to $1,614.06.
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