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Wednesday, 06/27/2012 10:11:33 AM

Wednesday, June 27, 2012 10:11:33 AM

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Spot Gold 1573.90, Silver 27.11 Prices Bounce on ECB Rate Cut Hints
Jun 27, 2012 By Tatyana Shumsky

NEW YORK--Gold prices shot higher Wednesday on comments by a European Central Bank executive board member that hinted at potential interest rate cuts by the bank.

Gold for August delivery, the most actively traded contract, was recently up $1.50, or 0.1%, at $1576.40 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract touched a high of $1584.60 on the ECB news.

Peter Praet, the chief economist and a leading member of the ECB's executive board, said that "there is no doctrine that the main interest rate can't be under 1%" in an excerpt of an interview with Germany's Financial Times Deutschland.

The central bank aims for consumer price inflation of just below 2% over the medium term. Recent inflation data from Germany released Wednesday showed inflation easing, potentially opening the door for the central bank to cut its main rate below the record low of 1%, at the upcoming meeting July 5.

Gold prices shot higher, climbing into positive territory on the remarks. Periods of low interest rates favor gold, which doesn't earn interest, over interest bearing assets like government bonds, whose return is diminished.

The comments caught gold traders by surprise, said Charles Nedoss, a senior market strategist with Olympus Futures.

"I don't think that people were looking for Europe to lower rates," Mr. Nedoss said, adding that moves to cut interest rates would be seen as inflationary and thus beneficial to gold prices.

Gold is widely considered a store of value and a hedge against inflation.

Write to Tatyana Shumsky at
-Todd Buell contributed to this article.
(END) Dow Jones Newswires
06-27-12 0953ET
Copyright (c) 2012 Dow Jones & Company, Inc.

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