Gold for February delivery sunk $31.40 to close at $1,713.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,760.50 and as low as $1,707.80 an ounce while the spot price was down $34, according to Kitco's gold index.
It was a wild and crazy trading session. Gold was moving higher in early trades after the ECB lowered interest rates by 25 basis points to 1%, the previous low dating back to the Lehman Brothers crisis. President Mario Draghi said the eurozone economy faces "downside risk" and "substantial uncertainty."The ECB also announced longer term financing operations of 36 months, which means banks can borrow more money for a longer period of time at a fixed rate. Collateral requirements were expanded as well. The move, in essence, underscored the fact that the ECB is the lender of last resort for banks, not just governments. The Bank of England left interest rates unchanged at 0.5% and kept its quantitative easing program at 275 billion pounds.
But gold quickly reversed direction after Draghi said that sovereign bond purchases would be limited and that he was surprised that the market thought the ECB would act more aggressively if certain fiscal union conditions were met by the Eurozone. The euro tanked on the news, which dragged on gold. A rate cut in and of itself is confusing to gold. Typically low rates are good for the hard asset as the cut devalues the currency, but the euro and gold have been moving together of late in opposition to the U.S. dollar. If the rate cut is seen as helping the Eurozone, gold could rise with the euro, but if it is seen as devaluing the currency, both assets could head lower. This tug-of-war could keep gold trapped in its trading range.
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