European Central Bank’s interest rate hike decreases gold prices
Must-know: Why gold's price could decrease even more (Part 5 of 17)
Interest rate hike
The European Commercial Bank’s (or ECB) interest rate actions are important for gold and gold stocks like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (NEM), and Kinross (or KGC). They’re also important for exchange-traded funds (or ETFs) like the Gold Miners Index (GDX) and the SPDR Gold Shares (GLD). To learn how central bank policies impact gold prices, please click here .
ECB interest rate cut
The ECB cut the interest rate on September 4. The interest rate was cut to stimulate economic growth in the Eurozone. Stagnant growth and decreased inflation caused the bank to take this policy action. Refinancing rates were cut by 0.10% to 0.05%. The central bank also announced the asset-backed securities (or ABS) and covered bond purchase program. It was equivalent to 500 billion euros—$650 billion—over three years. More details will be available in October.
Negative impact on gold
Qualitative easing (or QE) will show its impact in the medium to long-term. This leads to credit creation in the economy. It’s positive for gold demand. However, in the short term, this will weaken the euro. As a result, the U.S dollar will strengthen. Gold contracts, denominated in the U.S. dollar, become more expensive. This is negative for gold.
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