March 10, 2016
Gold Surges to One-Year High After European Stimulus
By Mike Cherney
Nasdaq.com
Gold futures surged to a new one-year high on Thursday, reflecting bets that new stimulus measures announced in Europe would have some success fighting low inflation.
Gold futures, typically viewed as a hedge against inflation, rose 1.2% in U.S. trading to $1,272.80 a troy ounce for April delivery, the most actively traded contract, according to CME Group. The move comes after the European Central Bank said earlier Thursday it would cut key interest rates and increase monthly bond purchases.
Gold, however, added to its gains throughout the day, and could have received a boost as stocks fell. Gold is viewed as a safe-haven asset and often rallies when riskier assets like stocks are falling.
Gold prices were also likely supported by investor expectations about the Federal Reserve, which meets later this month to debate whether to raise benchmark U.S. interest rates. Analysts previously believed there was a good chance the Fed could raise rates, which would hurt gold prices because it makes yield-bearing assets like U.S. Treasurys more attractive. But many analysts now expect the Fed to wait before raising rates given economic uncertainty abroad.
Gold futures initially fell on Thursday morning, dropping to as low as $1,239 a troy ounce before rebounding, according to FactSet data. Analysts said traders may have underestimated the scope of the stimulus measures, which became more clear later in the morning.
ECB President Mario Draghi "actually pulled out all the stops, and that means stimulus on at least one continent and possibly two if China follows," said George Gero, managing director at RBC Wealth Management. "That is going to increase the inflationary outlook, and gold is basically more about inflation than anything else."
"I expect $1,300 to be within hailing distance going forward," Mr. Gero added, referring to gold prices.
Gold is up roughly 20% this year, as investors flocked to the yellow metal amid uncertainty about the global economy.
http://www.nasdaq.com/article/gold-surges-to-oneyear-high-after-european-stimulus-20160310-00841
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