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Gold Price Hits 2nd-Highest Ever Euro Fix as Draghi Unveils Bond-Buying Program

UPDATE, 13:30 GMT – The Gold Price fell to dip below $1700 per ounce as Europe's chief central banker Mario Draghi detailed the ECB's latest bond-purchase program to journalists in Frankfurt Thursday lunchtime.

The Gold Price then rallied back to $1706, heading for its highest PM London Fix price since early March.

Gold priced in Euros was little changed from the 12-month highs hit Thursday morning,as the single currency also fell back during Draghi's press conference.

After holding Eurozone interest rates unchanged at 0.75%, the ECB president named and detailed the "Outright Monetary Transaction" scheme just as it had already been leaked to Bloomberg News on Wednesday:

  • Conditionality – governments benefiting from OMT must stick to budget cuts;
  • Unlimited size – and with no target for government bond yields;
  • Full sterilization – withdrawing the same amount of money put into the markets by selling other bonds at the same time.

Justifying the program, Draghi stressed the need to defend "the monetary policy transmission mechanism", so that different Euro-member states enjoy similar domestic interest rates.

"This falls squarely within our mandate," he said.

The drop in Dollar Gold Prices, which came at the start of Draghi's speech, also coincided with the latest ADP Payrolls report on US private-sector employment – which beat analyst forecasts with an August rise of 200,000.

Friday brings official Non-Farm Payrolls data, often a volatile event for currency markets.


The Gold Price reached new 6-month highs in Asian and London trade Thursday morning at $1713 per ounce, rising alongside most other financial assets as traders awaited the European Central Bank's latest policy decision – widely expected to unveil a quantitative easing-style program of buying weaker government bonds.

After a Bloomberg leak claimed Wednesday that the ECB will begin "Monetary Outright Transactions" – buying Italian and Spanish debt to reduce their borrowing costs – the published announcement simply kept Eurozone interest rates unchanged.

But traders awaited the crucial post-meeting press conference, however, where ECB president Mario Draghi will speak at 12:30 GMT.

"I think the ECB will start buying bonds mainly because there is no other short-term solution available to Europe to support growth," said Tom Price of Swiss bullion bank UBS to India's CNBC-TV18 this morning.

"This will mean support for mainly gold and copper in the metals market, and perhaps even oil."

"The rally in gold," says today's note from Standard Bank in London, "is in our mind a combination of short-covering and new longs being added" – with bearish traders being forced to quit their positions as the Gold Price rises.

"We continue to look for further upside in the metal towards year-end. Our target price is still $1900 in Q3."

Frankfurt's Dax index of German shares meantime extended its rise above 7,000 – recovering all of the 14% drop between April and May.

The Gold Price in Euros hits its second-highest ever London Gold Fix, clearing in the wholesale bullion market above €1355 per ounce at 10:30am.

Silver briefly topped $33 per ounce, its best level since early April and 7.1% higher from this time last week.

The British Pound held dead flat all morning, trading just above $1.59 as the Bank of England pegged its key lending rate at 0.5% for the 42nd month running.

The UK central bank also maintained it current "quantitative easing" target of £375 billion in government-bond purchases.

Gold priced in Sterling has risen by 130% since the scheme began in March 2009.

"The [precious metals] market is optimistic about the ECB's plan to rescue the region," Bloomberg News quote Wang Xiaoli, chief investment strategist at Chinese brokerage CITICS Futures Co.

"The Gold Price is getting a lift from the strength in the Euro."

Both Italy and France today sold new government debt at much lower interest rates than at the last time of asking.

German factory orders meantime rose 0.5%, new data said, after dropping 1.6% in July.

Greece's unemployment rate, however, jumped a whole percentage point in August from July, reaching a fresh record of 24.4%.

"The liquidity provision by [European] central banks can only provide a temporary reprieve," said Bank of Japan governor Masaaki Shirakawa in a speech about the challenges facing the Japanese economy given in Tokyo today.

"First, economies with fiscal problems must proceed with drastic fiscal reforms as well as economic structural reforms...Second, Europe as a whole must set out clearly the future of economic integration and reconstruct a sustainable single currency zone."

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