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Sunday, January 18, 2015

Gold hits a 4-month peak

On the back of a stunning move by the Swiss National Bank, the dollar slumps and gold moves higher

No one saw it coming. Switzerland shocked the world last week when it abandoned its three-year cap on the franc. As a result, European shares and bonds yields tumbled and the dollar moved lower. Gold, however, rose to a 4-month high.

According to investment specialists, this rise has can be attributed to the uncertainty prevailing in the market. Ole Hansen, Senior Manager at the Saxo Bank explained, "Gold is gaining from a risk-off situation because nobody expected the Swiss central bank not to keep that cap." According to him, this has created "potential big losses in many places and is obviously triggering some flight to safety."

On the other hand, the dollar fell 0.2% percent and European stocks plummeted as a result of the move from the Swiss National Bank, which many believe was spurred on by the European Central Bank potentially announcing a money-printing program in the coming days.

Hansen further added that this could add more pressure on the euro as all this happened just "a week before the ECB meeting." Because of this, "gold in euro terms" is sure to benefit further.

Since the financial crisis in 2008, central banks have opted for more liquidity. This has over the years has had a very positive impact on the price of gold. The price of Euro-dominated gold rose to its highest level since May 2013 to 1,077.09 euros an ounce.

Though there is still some uncertainty about what the metal will do in the rest of the year, it has risen six percent in just this month.

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Photo Credit: Canadian Pacific via Compfight cc

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