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Updated: ECB To Buy Sovereign Debt, Expanding Monthly Purchase-Program To €60 Billion

By Kitco News
Thursday January 22, 2014 9:01 AM

Editor's Note: The article was updated to include more information from the press conference.

(Kitco News) - The European Central Bank will launch an expanded “asset purchase program,” expanding its monthly purchases to €60 billion, said ECB President Mario Draghi Thursday.

The announcement was made during Draghi’s press conference following the central bank’s monetary policy. He said that the purchase program will start in March and go until at least September 2016. As expected, the sovereign debt purchases will be proportional to each eurozone member country’s debt.

As some analysts expected, the larger-than-expected purchase-program has helped gold prices jump into positive territory Thursday.

Image courtesy of the European Central Bank: ECB President Mario Draghi

Jim Wyckoff, senior Analysts at Kitco.com said gold appears to be benefiting from increased volatility in European markets.  Following the announcement Comex February gold pushed above the key psychological area of $1,300 an ounce. Currently February gold is trading at $1,296.6, up 0.2% on the day.

During the question and answer period of his press conference, Draghi provided more details about the sovereign debt purchases, saying that the central bank will buy bonds with varying maturities ranging from 2 to 30 years.

One key topic raised during the question and answer period was regarding an potential investment losses on the government purchase.

“With regard to the sharing of hypothetical losses, the Governing Council decided that purchases of securities of European institutions (which will be 12% of the additional asset purchases, and which will be purchased by [National Central Banks]) will be subject to loss sharing. The rest of the NCBs’ additional asset purchases will not be subject to loss sharing. The ECB will hold 8% of the additional asset purchases. This implies that 20% of the additional asset purchases will be subject to a regime of risk sharing,” Draghi said in his opening statement.

Draghi said the decision to take further unprecedented steps was taken to counter weaker inflation expectations and increased economic slack in the eurozone. He added that risks for the European economy remain on the downside.

Although falling oil prices was a major contributor to lower headline inflation numbers but Draghi added there is the potential for “second-round” effects on wages and price-setting has increased.

“Looking ahead, today’s measures will decisively underpin the firm anchoring of medium to long-term inflation expectations. The sizeable increase in our balance sheet will further ease the monetary policy stance. In particular, financing conditions for firms and households in the euro area will continue to improve,” he said.

By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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