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Gold Drops as ECB Announces Interest Rate Cut

July 5, 2012 at 18:43 by Vladimir Vyun

Gold slipped today after the European Central Bank cut its main interest rate by 25 basis points to 0.75 percent. As it was previously said, the lower interest rates in Europe are not particularly good for gold prices as the dollar strengthened after the monetary decision.

Additionally, the report of Automatic Data Processing showed that US employers added 176,000 jobs in June, more than was expected. Moreover, unemployment claims fell from 388,000 to 374,000 last week, while they were expected to stay basically flat. The positive employment data suggests that the Federal Reserve may refrain from a third round of quantitative easing yet again. That further bolstered the US currency, weakening gold at the same time.

Today’s events may be positive for the precious metal in a longer term. The European economy should be bolstered by the easing measures, while the US economy looks robust even without help from the central bank. Inflation will pick up as economic growth would gain momentum and that should be positive for gold. For now, though, the metal remains under pressure.

Gold rose from $1,615.30 to $1,623.60 per ounce, but after the ECB announced the rate cut the metal slumped to $1,596.80. Gold traded at 1,607.50 as of 18:31 GMT on COMEX today.

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