Gold Erases Loss After ECB Raises Rates by More Than Expected

(Bloomberg) — Gold erased its decline to the lowest level in 15 months after the European Central Bank raised rates by a larger-than-expected 50 basis points.

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European stocks and bonds slumped and the euro rose after the ECB joined global central banks driving outsized rate increases to quell inflation. Bullion climbed back above $1,700 an ounce. Thursday’s increase, the first interest rate hike in 11 years by the ECB, comes as a brewing political crisis in Italy ramps up the pressure on the central bank to shield the most vulnerable euro-zone members from market speculation.

The precious metal has been volatile this year, rallying to a near record above $2,000 an ounce in March after Russia’s invasion of Ukraine. It’s since lost 18% as the Federal Reserve tightened monetary policy and the US currency soared on the back of rising interest rates, haven demand and recession fears.

Before the ECB’s decision, bullion had been struggling to maintain its traditional status as a haven asset, according to Jeffrey Halley, a senior market analyst at Oanda Corp. There’s a risk prices could fall further toward $1,450 to $1,500 an ounce, should support at around the $1,675 level fail, he said.

“If any asset class yells that the risk sentiment rally could be a very false dawn, it is gold,” Halley said in a note. “To say that gold’s price action is underwhelming is an understatement, and it appears to be facing imminent material downside risks if the technical picture is to be believed.”

Spot gold rose 0.3% to $1,702.32 an ounce by 1:51 p.m. in London, after earlier dropping to the lowest since March 31 last year. The Bloomberg Dollar Spot Index dropped 0.3%. Silver fell, while platinum and palladium gained.

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