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Gold prices push higher as ECB shoots monetary policy bazooka, easing rates and restarting bond-purchase program

Kitco News

(Kitco News) - Gold prices are pushing higher above $1,500 an ounce as the European Central Bank announces significant monetary policy easing actions, in line with expectations.

For nearly a month, economists were expecting the ECB to launch a monetary policy “bazooka” at this meeting.

Thursday the ECB said that it is lowering its interest rate on the deposit facility by 10 basis points to -0.50%. 

At the same time, the central bank is also restarting its monthly bond-purchase program.

“Net purchases will be restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November,” the central bank said. “The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”

The bank will also continue to reinvest its principal payments from maturing securities purchased under the APP, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates.

The bank’s new series of quarterly targeted longer-term refinancing operations (TLTRO III) will be changed to preserve favorable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy.

And finally the ECB said that a two-tier system for reserve remuneration will be introduced, in which part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate.

Gold prices were holding decent gains ahead of the announcement and pushed higher in initial reaction to the expected dovish announcements. December gold futures last traded at $1,517.80 an ounce, up nearly 1% on the day.

Many market participants have noted that global monetary easing policies will continue to support gold prices.

Investors and traders will now be antious to hear what ECB president Mario Draghi has to say during this press conference, which starts at 8:30 a.m. EDT.

Andrew Kenningham, chief Europe economist at Capital Economics, said that although the latest announcement was largely expected, the details are more dovish than expected. However, he added that it’s uncertain if it will be enough to boost European economic growth.

“It remains doubtful, however, that this will do much to reboot the euro-zone economy let alone achieve the near-2% inflation target.

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