In early Asian trading on Thursday, the European central bank (ECB) announced a €750 billion program to buy both private and public sector securities in response to a new bout of pneumonia. The euro rose sharply against the dollar in the short term after the news, with the dollar index falling sharply, while spot gold jumped nearly $20 to briefly break through the $1,500 / oz mark.
The European central bank has launched an emergency €750 billion purchase program
The euro rose 75 points against the dollar to as high as 1.0980 after the ECB announced its 750 billion euro asset purchase plan. The dollar index was down about 50 points at 100.42.
In addition, 10-year Treasury futures surged, rising more than a full point in an instant. At one point, s&p electronic mini futures surged 2.5 percent.
The ECB said it would launch a new temporary asset purchase program for private and public sector securities to address serious risks to the transmission mechanism of monetary policy.
The ECB said the purchases would continue until the end of 2020 and would include all eligible asset classes under its existing asset purchase program. For the purchase of public sector securities, benchmark allocations between jurisdictions will remain key to central Banks’ capital.
The ECB noted that the governing council would consider revising the self-imposed restrictions to the extent necessary if they threatened to prevent the ECB from taking the necessary action to fulfill its mandate. At the same time, procurement under the new economic policy will be conducted in a flexible manner. This allows for fluctuations over time in the allocation of purchase flows between different asset classes and jurisdictions.
The ECB said its governing council was fully prepared to increase the size of its asset purchase program and adjust its composition and timing as needed.
Europe is now the epicenter of the outbreak. According to media reports and statistics, a total of 35,713 new coronavirus cases have been confirmed in Italy. A total of 14,769 cases have been confirmed in Spain. A total of 12,327 cases have been confirmed in Germany. A total of 9,134 new cases of crown pneumonia have been confirmed in France. A total of 3,115 cases have been confirmed in Switzerland. A total of 2,626 cases have been confirmed in the UK.
The ECB said that once it had concluded that the coronavirus crisis phase was over, the governing council would make net asset purchases under the emergency purchase programme, but that they would not be completed before the end of the year in any case.
The ECB noted that the scope of eligible assets was extended to include non-financial commercial paper.
The President of the European central bank Christine Lagarde said exceptional times call for exceptional action. There is no limit to the ECB’s commitment to the euro. Resolve to use all available tools.
Gold jumped briefly above $1,500
Spot gold rose sharply in the short term from around $1,482 an ounce after the ECB announced the start of its temporary emergency buying program, briefly breaching the $1,500 an ounce mark and as high as $1,500.82.
Spot gold prices fell nearly 3 percent on Wednesday as investors sold the precious metal in search of cash after additional us stimulus measures failed to calm sentiment amid growing fears of a coronavirus-induced economic downturn. The dollar index jumped to a near three-year high, further depressing gold prices.
Gold, traditionally known as a “safe haven”, usually does well during market sell-offs, but it was not immune to last week’s sell-off in global equity markets as the coronavirus pandemic spread.
Analysts said global equity markets could still fall sharply if the panic deepens, which could put pressure on investors to cash in on margin calls.
Tai Wong, head of trading at BMO foundation and precious metals derivatives, said: “there continues to be a risk aversion in the market, with gold falling below $1,500 as s&p futures abandon the stimulus-driven rally. Liquidity here, like in most markets, has been severely affected and we expect to see continued volatility and mood-driven volatility.”
“Gold prices will continue to fluctuate in the coming days as investors wait to see if the Trump administration can quickly pass its massive stimulus plan,” Edward Moya, senior market analyst at broker OANDA, said in a note. “If we see a repeat of the financial crisis and congress fails to act quickly, the fight for money will continue.”
Gold has lost more than 12 percent, or $200, since soaring above $1,700 last week as investors sold the metal in exchange for cash and margin calls.
The CBOE gold ETF volatility index, which tracks ETFs to gauge expected price volatility, has more than doubled in the past six sessions to its highest level since November 2008.
“Volatility remains the dominant market story, and gold is no exception,” Carlo Alberto De Casa, chief analyst at Activ Trades, said in an email. We are not surprised to see a positive correlation between equities and gold, as many traders use gold as an ATM to meet margin calls on other investment positions each time the market falls sharply.