Forexpros – Gold futures tumbled on Thursday, erasing gains made in the wake of a European Central Bank rate cut, after ECB President Mario Draghi dampened hopes for more aggressive purchases of euro zone bonds and ruled out the possibility of lending to the International Monetary Fund
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,719.15 a troy ounce during U.S. morning trade, tumbling 1.47%.
It earlier fell by as much as 1.85% to trade at a two-day low of USD1,712.85 a troy ounce.
Gold futures were likely to find support at USD1,704.75 a troy ounce, the low of November 30 and resistance at USD1,767.05, the high of December 2.
Market sentiment was rattled after ECB President Draghi said that the central bank’s bond-buying program was “neither eternal nor infinite” and deflected questions about more bond purchases by the ECB.
Speaking at the bank’s post policy meeting press conference, Draghi added that it was “legally complex” for euro zone central banks to lend to the International Monetary Fund, citing Article 123 of the Lisbon Treaty, which prevents it from giving monetary financing to governments.
“If the IMF were to use this money exclusively to buy bonds in the euro area, we think it’s not compatible with the treaty,” Draghi said.
The ECB did unveil new measures to increase liquidity, including unlimited 36-month credit to euro zone banks, a cut in the reserve requirement for commercial banks and the loosening of collateral requirements for ECB loans.
The announcement came after the ECB cut its benchmark interest rate by 0.25%, bringing rates to a record low 1%.
Gold traders also remained jittery ahead of a critical two-day summit of European leaders due to begin later in the day in Brussels.
Focus on the summit has intensified since ratings agency Standard & Poor’s placed 15 euro zone nations, including AAA-rated Germany and France, on review for credit downgrades due to the region’s deepening financial crisis.
For much of the last year, investors’ typical reaction to bad news from Europe was to buy gold, as it boosts the safe haven appeal of the precious metal, but that relationship has unraveled over the past two months.
Instead, gold futures have moved largely in line with other commodities and risk-sensitive assets, with investors preferring the relative safety of the U.S. dollar.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.47% to trade at 78.84.
Elsewhere on the Comex, silver for March delivery sank 1.85% to trade at USD32.02 a troy ounce, while copper for March delivery shed 0.45% to trade at USD3.540 a pound.
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