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ECB Keeps Interest Rates Low

Release Date: 
Thursday, November 8, 2012

Gold prices were effectively unchanged during Thursday morning trading as the European Central Bank (ECB) held interest rates at historically low levels.  Gold was $.10 higher at 7:25 a.m. Pacific Time on the New York Spot Market, trading at $1,718.40 per ounce.  Spot silver was $.05 higher, trading at $31.99 per ounce.  (Click here for the most current spot prices.)

The ECB left its key interest rate unchanged at 0.75% and made no changes to monetary policy on Thursday.  The Bank of England also left monetary policy unchangedand kept the key lending rate at a record low 0.5%.

Greece faced a key austerity vote to secure bailout payments.  "The Greeks managed to narrowly pass their initial austerity vote overnight, but the main budget vote is this weekend and that needs to be passed for the EU bailout to happen," Marex Spectron said in a note.  "So the euro woes remain for the time being, which will once again create uncertainty in the FX markets, with the effects affecting precious metals.”

Europe is dominating the news “with the ECB keeping accommodative policy in place and rates steady,” said Jeffrey Wright, a managing director at Global Hunter Securities. “ECB policies, much like our own, eventually lead to inflation, which support gold.”  For now, there are three near-term catalysts which should be supportive for gold, said Wright: a U.S. debt ceiling limit by mid-December, a plan to deal with the fiscal cliff before January and the Federal Reserve meeting in December and “potential to again support or extend quantitative-easing measures.”

Gold “is displaying relative strength and living up to its reputation as a store of value and a safe haven,” Commerzbank analysts wrote in a Thursday report.

James Steel, precious metals strategist at HSBC, predicted that gold could rally to a high of $1,900 by the end of the year on expected political wrangling over the fiscal cliff.  “If divided government means diffused power and therefore greater uncertainty, that would be a recipe for higher gold prices,” he said. “If one looks at the debt extension fiasco last summer – that is what propelled gold to an all-time high. Any replay of that has the potential to push gold up significantly.”

(Sources: “Gold climbs with ECB, U.S. fiscal cliff in focus,” Marketwatch, November 8, 2012; “PRECIOUS-Gold holds near $1,715/oz, focus on euro zone,” Reuters, November 7, 2012; “US elections boost for yellow metal,” Financial Times, November 7, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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