Gold Drops After ECB Cuts Rates to Record Low

Today’s AM fix was USD 1616.75, EUR 1292.99 and GBP 1037.58 per ounce.
Yesterday’s AM fix was USD 1617.00, EUR 1285.37 and  GBP 1032.90 per ounce.

The ECB has cut the main refinancing rate to record low of 0.75%. Gold dropped sharply immediately following the announcement, but is currently rising again.

Gold is trading at $1603.75/oz. Analysts from Standard Bank in London say that a rate cut implies a lower real interest rate, which ultimately is bullish for gold. Gold’s fundamentals have not changed.

WGC – Gold as a Strategic Asset for European Investors

During the current period of serious uncertainty in the Eurozone, the World Gold Council considers the case for gold as a long-term or strategic asset allocation for European investors. WGC claims that the consensus is that in the long-term gold is a store of value and a useful hedge against inflation. 

Nevertheless, long-term strategic investors have traditionally not been investing in gold. WGC examines evidence from several cases and finds that gold appears to add significant diversifying power to asset portfolios because it tends to be negatively correlated with most other asset classes. WGC advises that the exact allocation depends on the needs of the particular investor, and the environment. 

The full report is available on the World Gold Council website.

WGC – Gold as a Strategic Asset for UK Investors

WGC takes a holistic approach in this report, examining the role of gold as a strategic asset for UK investors. Using conservative estimates, it finds that strategic diversification into gold is statistically significant especially for low to medium-risk investors. An added benefit is that gold comes without the added complication of complex structures and with the added benefit of centuries’ worth of history. 

The chart below shows that in the long run, gold competes on the basis of its diversification qualities, rather than returns. Gold is a hard asset that carries no risk of default.

The full report is available on the World Gold Council website.

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NEWS

ECB Cuts Main Rate To Record Low, Deposit Rate To Zero – Bloomberg

Gold Climbs as ECB Rate Reduction May Help Fan Inflation – Bloomberg

COMMENTARY

The Fed And LIBOR – The Biggest Manipulator Of Them All – Zero Hedge

Keiser Report: Big guy ‘scandals’ vs small fry ‘crimes’ – Max Keiser

“This Libor-manipulation story grows crazier with each passing minute.” – Rolling Stone

Draghi-King Push May Mean Bigger Step Into Zero-Rate Era – Bloomberg

Mark OByrne

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