The gold price jumped 0.8% following the European Central Banks (ECB) decision to reduce interest rates in the Eurozone to records lows.
The ECB reduced the overnight lending rate to -0.1% which means the banks will have to pay the ECB 0.1% to deposit money with them overnight. This is the first time any major Central Bank has introduced negative rates.
The rate cut is an attempt to encourage lending and prevent the Eurozone falling into a deflationary debt spiral similar to the conditions Japan experienced in the early 1990’s. Currently inflation in the Eurozone is running at 0.7%.
The ECB also confirmed they will commence a quantitative easing program if inflation remains low. The ECB also cut its main refinancing rate from 0.25% to 0.15%.
Both gold and silver responded positively to the news that the ECB is committed to inflationary policies. Monetary expansion by central banks since the start of the 20TH century has been the main catalyst behind the rise in the gold price. So far in 2014 the gold price has risen 4%.
Following the announcement the Euro fell to a four month low against the dollar and equities rose across Europe.