Gold Price Firm after ECB Rate Cut

GOLD PRICE NEWS – The gold price held firm Thursday morning near $1,745 per ounce after the European Central Bank (ECB) cut its benchmark interest rate by 25 basis points to 1.0%, as expected.  The spot price of gold initially jumped to as high as $1,757.80 following the ECB’s announcement, but soon after pared its gains as the U.S. dollar bounced back against the euro currency.  The gold price also showed a mixed reaction to the latest report on U.S. jobless claims, which fell by 23,000 to 381,000 – their lowest level since February of this year and below the 395,000 consensus estimate among economists.

On Wednesday the gold price advanced $15.69, or 0.9%, to $1,745.28 per ounce as the U.S. dollar turned lower against several of the world’s leading currencies.  The spot price of gold slid to as low as $1,719.10 per ounce in morning trading, but later turned sharply higher as dip buying emerged.  With its gain, the gold price came within a fraction of returning to positive territory thus far in December.  On a year-to-date basis, the price of gold is now higher by 22.9%.

While the gold price climbed, silver retreated $0.31, or 0.9%, to $32.56 per ounce.  Cyclical commodities posted modest losses in concert with silver, as crude oil fell 0.6% to $100.65 per barrel and copper slid 0.6% to $3.55 per pound.  Gold’s sister precious metal is now lower by 0.8% this month and higher by just 5.2% year-to-date.

The gold price rally moderately lifted gold shares, as the AMEX Gold Bugs Index (HUI) closed higher by 0.3% at 573.22.  Among gold producers, Newmont Mining (NEM) rose 0.8% to $67.71 per share and Randgold Resources (GOLD) jumped 2.3% to $108.80 per share.  On the downside, Yamana Gold (AUY) dipped 0.5% to $16.29 per share and Harmony Gold (HMY) fell 0.8% to $14.10 per share.

Although the gold price headed north on Wednesday, it remains close to the mid-point of the $1,600-$1,900 per ounce trading range it has occupied for the past several months.  This week the price of gold has oscillated between gains and losses as investors await Friday’s European Summit, where policymakers are expected to present a more formidable plan for dealing with the euro zone sovereign debt crisis.

Daniel Smith, an analyst with Standard Chartered, wrote in a note to clients yesterday that “Such a big unknown event risk is making people quite cautious and, heading into year-end as well, no one really wants to take any positions and it adds to that lack of interest in the market… My assumption would be that the summit would end up being slightly disappointing and therefore, base metals will do relatively badly and gold will do relatively well on the back of fresh safe-haven flows.”

Another downgrade warning from Standard & Poor’s also helped support the gold price on Wednesday, as the ratings agency placed the European Union’s AAA credit rating on CreditWatch with negative implications.  The move indicated a 50% probability of a downgrade over the next three months.

In its report, Standard & Poor’s noted that “The CreditWatch on the E.U. is an expression of our concerns about the potential impact on the future debt service capacity of eurozone sovereigns, and therefore also the E.U., in the context of what we view as deepening political, financial, and monetary problems within the euro zone.”