BULLION MORNING – Gold, silver rise after ECB policy moves prompt buying

Jun 6, 2014 - 9:53 AM GMT

Gold edged higher on Friday morning, finding support from the tough measures announced by the European Central Bank (ECB) on Thursday.

Spot gold was last at $1,254.7/1,255.6 per ounce, up $1.60 on the previous day’s close and having peaked yesterday at $1,258.05.

“That gold has held on to its latest gains suggests that the market is taking the imminent expansion of the ECB’s balance sheet as a positive, and rightly so. But expectations on gold price moves from here should not be modelled against gold’s response to the Fed’s QE,” UBS said in a note.

Gold enjoyed its best rally since May 14 on Thursday, responding positively to the ECB’s moves to unsterilise bond purchases, increase liquidity and move rates into negative territory, although the market had been slightly short ahead of its announcement.

At its press conference the ECB lowered the minimum bid rate to 0.15 percent and the deposit rate to -0.1 percent, introduced new lending measures and increased efforts to enable the purchase of asset-backed securities (ABS) at a later stage.

“A wider QE program[me] clearly remains an option if inflation disappoints further, and we think chances of such a program[me] remain fairly high,” Credit Suisse said in a note.

“Overall, one should probably not expect to see a fast macroeconomic impact of the new measures on lending activity, as Eurozone banks are still awaiting the results of the asset quality review and stress tests by the end of October,” it added

The euro had dropped to a four-month low of 1.3501 against the dollar on Thursday but has since recovered to 1.3629/1.3630.

“Gold prices surged, essentially ignoring a notable – and theoretically bearish – drop in the euro,” James Steel at HSBC said. “We attribute the rally in gold to the severity of the ECB’s actions. The surprise associated with more aggressive easing might have triggered a near-term dash for gold,” Steel added.

But although the yellow metal looks less vulnerable, its rise was not as sharp as some expected.

 “The fact that gold could only rally $15 overnight really demonstrates that investors are looking to park money elsewhere at present and pessimistic towards any sustained recovery,” MKS Capital said.

Today’s key focus will be US non-farm payroll data, which is forecast at 214,000 against the previous 288,000.

From the EU, the German trade balance was positive at 17.7 billion euros but the country’s industrial production undershot at 0.2 percent. The French trade balance was a better-than-expected at -3.9 billion euros.

In the other metals, silver at $19.17 per ounce was up 14 cents and around one-week highs. Platinum has risen amid reports that talks to end the 20-week strike in South Africa have stalled – it was last at $1,449/1,450, up $3 – and palladium was $2 higher at $838/843.

(Editing by Mark Shaw)