Gold recovered some of its losses in the last few days, holding its own above the $1260 an ounce threshold. New policy announcements by the European Central Bank (ECB) last week curbed the yellow metals free fall prompting global cues to buy into precious metals as a hedge against riskier investments.
Market analysts seem to think that once ECB monetary policies begin to take hold, the gold market will gain some long-term momentum given that gold’s main influence has shifted from the US dollar to the Euro. With investors in the Eurozone historically keen to owning a store of wealth in precious metals than other parts of the world, new monetary policies are likely to make investors extra cautious and use gold as a hedge.
Economists have been speculating for some time what the President of the ECB, Mario Draghi would do to inject life into a sluggish euro. The answer came last week when the Italian announced unprecedented monetary measures to stimulate growth and boost inflation. Plan target longer-term refinancing operations.
Rather than the traditional stimulus of quantitative easing adopted by the world’s other central banks, Draghi has opted to cut interest rates and introduce the possibility of outright asset purchasing. The program is estimated to cost €400 billion – arguably less than a quantitative easing program would generate.
Analysts have calculated the proposal will replace around 56% of the €1 trillion confiscated from bank account holders to bail out banks following the 2008 collapse. The lessons learned from recovery programs in recent years could signal a major turning point in the fortunes of precious metals and push global prices up.
Recent trends indicate this will be the case despite strong signals the global economy is strengthening. Furthermore, with further packages yet to be unveiled, money managers have not had a chance to assess the full scale of how the new monetary policies might impact the market.
On the other hand, some analysts remain sceptical, pointing towards policies the ECB announced they intended to introduce, but pulled back at the last hour. The slide of the Euro equities against the dollar is a prime example and a major gripe amongst investors that have been stung in the past.
No rally for gold
Although the outlook for gold looks bullish, it is unlikely the yellow metal will enjoy a dramatic rally and start trading over the $1300 an ounce threshold as it did during the tensions over Crimea. However, a gradual climb is a strong possibility.
Investors looking to take advantage of a weaker gold market therefore are advised to board the band-wagon before prices are pushed to unattractive prices. Given the value of gold is likely to tip the $2000 an ounce threshold and break all-time highs in the future, there is still a healthy profit to made with today’s prices.
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