Draghi trillions drag gold price past $1,300
European central bank's historic $1.3 billion stimulus package convulses markets and trigger new wave of safe haven buying.
Gold on Thursday jumped past the $1,300 an ounce level following the announcement of a bigger-than-expected stimulus package from the European Central Bank.
In heavy trade of more than 18m ounces by 12:45am in New York, gold for delivery in February – the most active futures contract – jumped just over $14 an ounce from Monday's close hitting a high of $1,307.80 an ounce – the highest since August 15.
The metal is now trading up over $120 or just under 9.5% in 2015, having gained during nine of the last 10 trading sessions.
The latest breakout came after European Central Bank chief Mario Draghi in an effort to stimulate the economy of the bloc and stoke inflation announced its own version of quantitative easing – an unconventional monetary policy tool to create money by buying sovereign bonds.
The third round of QE in the US ended in October after expanding the US Federal Reserve balance sheet by almost $4.5 trillion where it still sits today.
The ECB's version – at least the first round, possibly of many – turned out to be a bazooka after all with the bank announcing monthly asset purchases of €60 billion through September next year.
Euroland's 19 central banks would shoulder most of the burden to pump at least €1.1 trillion ($1.3 trillion) worth of easy money into financial markets over this time. Despite the fact that the ECB program had been signposted for months, the single currency tumbled against the US dollar falling 1.7% in value – a major decline for currency markets more used to movements of a few basis points at a time.
(Although the Swiss National Bank bombshell which triggered a bigger currency move than the end of the gold standard showed anything is possible on today's markets.)
A central feature 2015 trading in gold is the metal's advance into the teeth of a rampant US dollar. On Thursday, the greenback hit fresh 12-year highs against the currencies of major US trading partners, with the dollar index rising 1.2% topping 94 for the first time since 2002. Since mid-August, the last time gold traded above $1,300 an ounce, the USD has strengthened by 12%.
Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency, particularly gold. The US dollar index record high of 164.72 reached in February 1985 coincided with the bottom in the price of gold of $284.25 an ounce during that same month.
After a fairly uneventful 2014, the year has seen some convulsions on financial markets as investors seek a safe haven amid the confidence-shaking move by the Swiss central bank, a slowing global economy (in the world's growth engine China GDP has fallen to levels last seen during the Tiananmen sanctions period) and the continuing fallout of the collapse in oil prices.
Next up for financial markets is the possible breakaway from the euro by member Greece in polls over the weekend. That could only add fuel to the fire.
Image of Mario Draghi by miqu77 / Shutterstock.com