Gold Price Soars After Central Bank Rate Cuts

  • Posted Thursday, June 05, 2014 at 08:08 PM

TANGIBLE INVESTMENTS - Los Angeles - by James O'Dell - The price of gold soared more than one percent on Thursday, and is currently trading at $1,253.80 an ounce while silver was up nearly two percent at $19.11 an ounce after the European Central Bank (ECB) cut key interest rates as its policymakers scramble to prevent persistently low inflation from derailing the euro zone recovery.

In addition to slashing its primary lending rate from 0.25 percent to 0.15 percent, a record low, the ECB also cut the rate that it charges banks to park deposits overnight to a minus 0.1 percent, a policy change designed to boost bank lending. In effect, commercial banks will now be charged for keeping their money at the ECB. The central bank will also cut its main refinancing rate to 0.15 percent, and the emergency borrowing rate to 0.40 percent.

"We think it is a significant package," said ECB President Mario Draghi at his news conference following the announcement. "Are we finished? The answer is no. If need be, within our mandate, we aren't finished here."

Draghi went on to suggest other initiatives designed to "support lending to the real economy," including a program of large-scale asset purchases, similar to the Fed's quantitative easing (QE) program. "A broad-based asset-purchase program is certainly one of those instruments," he said. Draghi finished by repeating the ECB's promise to keep interest rates low for an extended period, and possibly for even longer than previously seen.

"I find it really quite logical that gold has risen today," said Dennis Gartman, author of the The Gartman Letter. "The ECB's policy changes were very expansionary and that on balance is supportive of gold, all things being equal. And I think more is coming."

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