Gold and silver prices saw a slight recovery on Thursday after European Central Bank President Mario Draghi announced that he would expand the bank's stimulus measures. Additionally, investors may be starting to hedge against a drop in consumer prices as crude oil continues to tumble.
ECB enacts stimulus measures through September 2016
Draghi said that the ECB will buy 60 billion euros' worth of assets each month through September 2016, Bloomberg reported. This is an increase over the Executive Board original proposal of spending 50 billion euros per month on bonds through December 2016. Reuters added that Draghi also stated that he expects inflation to be closer to the two percent mark that the ECB has set for a target later this year.
Analysts believe that the announcement of substantial stimulus measures to kickstart growth in moribund economies may be what is helping gold prices rebound. Investors often flock to precious metals as a store of value as an alternative to currencies experiencing a revaluation.
On the Comex in New York, gold futures for February delivery increased 0.1 percent to $1,295.30 an ounce at 9:01 a.m, according to a report from Bloomberg. Prices this week climbed higher than $1,300 for the first time in the last five months.
"It's slightly higher than what the market was expecting, so we saw some buyers come in to the gold market. Investors are torn between whether to continue the flight to quality, or invest more cash into the equity market because of further injection of cheap capital," Adam Klopfenstein, a senior market strategist at Archer Financial Services Inc. in Chicago, said in a telephone interview with the news source.
Silver prices get a bump
The talk of stimulus in the euro zone may also be a key contributor to silver's resurgence.
Silver for immediate delivery increased 0.7 percent to close at $18.127 on Jan. 21, according to Bloomberg generic pricing. Prices for the commodity are up 15 percent this month, making this the best start to a year silver has had since 1983.
"Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks. Also, the stimulus measures will at some point boost usage of the metal," Caroline Bain, a commodities economist at Capital Economics Ltd. in London, said in a telephone interview with Bloomberg.
"Many analysts and investors are worried that the still-falling price of oil could be a harbinger of a general decline in consumer prices."
Plummeting crude prices may also be having an affect on precious metals
While global economic conditions are buoying precious metal prices, analysts are pointing to the freefall of crude oil prices as a possible contributor to gold and silver's price increases to begin the year.
Gold is off to its best start since 1980, while WTI crude is at the lowest its been since April 2009. The correlation between the two commodities, which hit a 16-month high in December, is now the weakest it has been in five months, Bloomberg wrote in an article on Thursday. This sudden weakening of the correlation between the price of crude and gold could be the reason why investors are starting to move to the precious metals.
"It's clear that potential dislocation of what the falling oil prices may do to the market is bringing people to gold," Quincy Krosby, a market strategist based in Newark, New Jersey, at Prudential Financial Inc., said in a phone interview with Bloomberg on Jan. 14.
As the news source noted, many analysts and investors are worried that the still-falling price of oil could be a harbinger of a general decline in consumer prices, which may be prompting them to hedge against that possibility by investing in gold and silver.
THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.
THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.
TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.
YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.
GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.