Tuesday, July 3, 2012

ECB Meeting On Thursday Could Ignite Gold, Silver

A potential game changer for gold, silver, euro, and yen is just ahead.  The game changer is the meeting of the European Central Bank (ECB).
Traditionally the ECB has towed the line of the Bundesbank inflation hawks.
Jean-Claude Trichet, the chief of ECB until 2011, kept monetary policy tight and interest rates high even though Europe was melting down and he had an example across the Atlantic of Chairman Ben Bernanke of the Federal Reserve dramatically easing monetary policy.
Mario Draghi, the former governor of the Bank of Italy, followed Trichet as the president of the ECB. Under Draghi, monetary policy has been more accommodative but interest rates have stayed relatively high.
The ECB meets on Thursday.  Expectations are for a rate cut of 25 basis points.  The markets are expecting a clear shift towards growth-related policies from the central bank.  There are also expectations of an extension of longer-term refinancing operation also known as LTRO.
If these expectations come true they are game changers for gold and silver.
In anticipation of these moves, gold has already broken out from resistance zone at $1607 – $1611.  Heavy buying is being seen in gold ETF (GLD) and silver ETF (SLV).  Gold miner ETF (GDX) is going along for the ride.
The euro is also pricing the foregoing moves by the ECB. Euro dollar ETFs (FXE) and (EUO) are also seeing heavy trading.  Gold and silver bulls are heartened by expectations that the Bank of Japan will also ease when it meets next week.  Heavy trading is being seen in yen ETFs (FXY) and (YCS).
The Bank of England also meets on Thursday.  Expectations are that the bank will add an extra 50 billion pounds to its asset purchase plan.
Expectations are heady, but if they are not met there may be a slaughter of those who are buying gold and silver ahead of the meeting.  On the other hand, if the actual actions exceed the expectations, expect another up leg in gold and silver.

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