As was widely expected by markets, the European Central Bank, or ECB, has started quantitative easing, or QE. What the markets couldn’t predict, however, was the size and scope of the program. On January 22, ECB president Mario Draghi announced an open-ended bond-buying program worth 60 billion euros ($68b) a month as part of its quantitative easing program. This program could go on until at least the end of September 2016.
European regional growth has been lackluster, unemployment is high, and consumer prices across the Eurozone fell on an annual basis for the first time in over five years.
Fears over a deflationary trend in the Eurozone have increased the demand for safe-haven assets, including gold and silver.
Gold prices strengthened after the stimulus plan was announced.
On January 22, gold breached the $1,300 per ounce mark, though it closed at $1,296 per ounce. Gold also got a boost after the Danish central bank cut its key interest rate for a second time to counter the impact of the ECB’s QE on its currency.
A loose monetary policy usually leads to inflationary pressure. That’s when investors tend to favor precious metals like gold. This favorably impacts gold prices and gold stocks such as Goldcorp, Barrick Gold, and Newmont Mining.
