Gold jumped 1 percent on Thursday, rising further from this week's four-month low, after the European Central Bank cut interest rates to record lows and its chief Mario Draghi unveiled a package of new stimulus measures. Dealers who had bet against gold in the run-up to the announcement rushed to cover positions as the metal held above $1,240 an ounce, traders said.
Spot gold was up 0.8 percent at $1,252.15 an ounce at 1308 GMT, off a high of $1,256.50. It earlier dipped as low as $1,240.90, close to this week's four-month low of $1,240.61. US gold futures for August delivery were up 0.7 percent at $1,252.50 an ounce. The ECB lowered the deposit rate to -0.1 percent, meaning it will effectively charge banks for holding their money overnight. It cut its main refinancing rate to 0.15 percent, and the marginal lending rate - or emergency borrowing rate - to 0.40 percent.
Draghi later unveiled a package of measures to stimulate the euro zone economy, saying the ECB will offer banks a targeted long-term refinancing operation (LTRO) to persuade them to lend, was preparing to purchase asset-backed securities and will discontinue sterilising previous bond purchases. "The market was short into the announcement, and with quantitative easing arriving in the euro area, shorts are now being reined in," Saxo Bank's head of commodities research Ole Hansen said. "It has probably got another percent in it towards $1,268 before resistance is met."
Gold tends to benefit from low interest rates and looser monetary policy, which cuts the opportunity cost of holding non-yielding bullion. Hansen said gold's move in the opposite direction to the euro, with which it usually trades in line, was unsurprising, given the reasons for the euro's fall. "Interest rates will stay lower for longer than previously expected," he said.
The euro hit a four-month low against the dollar and European shares rose more than 1 percent after Draghi spoke. The dollar index rose 0.2 percent, also benefiting from firm US borrowing costs. The US 10-year Treasury yields stood around 2.59 percent. Returns on US bonds are closely watched by the gold market, given that the metal pays no interest.
Markets were now eyeing Friday's US nonfarm payrolls to gauge the strength of the economy. A Reuters survey of economists forecast that employers probably added 218,000 jobs to their payrolls last month. While that would be step down from April's robust 288,000 job gain, it would still be above the average for the preceding six months. "The metal may get a short-term boost if US employment data this week give back some of the outsized gains of April but that is widely anticipated and the gold market is not running that heavily short, so we doubt that any rally will be sustained," Credit Suisse said in a note.
Among other precious metals, silver gained 1 percent to $18.93 an ounce, while platinum was up 0.3 percent to $1,435.80 an ounce and palladium rose 0.3 percent to $836.22 an ounce. South Africa's AMCU union has rejected a government wage increase proposal aimed at ending a crippling five-month strike by platinum miners, the Business Day newspaper reported on Thursday. South Africa's new mining minister Ngoako Ramatlhodi had said on Wednesday that he hoped to resolve the strike this week.
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