Markets await ECB announcement

Gold declined on Thursday for the second consecutive day ahead of the much awaited announcement from the European Central Bank (ECB), where the bank is widely expected to reveal details of its unprecedented bond-buying programme.

European shares hit fresh seven-year highs ahead of the ECB’s announcement as markets get buoyed by expectations of the bond-buying scheme. The return of risk appetite has seen shares in Europe rise for six consecutive days and sent precious metals lower.

The expectation has curbed demand for safe-haven assets and nudged gold lower to near $1,285, after prices briefly broke above the $1,300 barrier yesterday. Silver also retreated a little, falling close to the psychologically significant $18 level.

Markets are looking ahead to the ECB’s announcement at 13:30 GMT today, where Mario Draghi, the ECB’s president, is expected to propose spending 50 billion new euros a month to purchase sovereign bonds, in a plan that will amount to 550 billion euros. The ECB quantitative easing programme will provide much needed relief to the beleaguered European economy, which is battling with slow growth and negative inflation.

Oil has also declined ahead of the decision as the US dollar climbed near an 11-year high versus the euro, which took the shine off commodities that are priced in dollars as protections against inflation. The black gold traded below the $50 mark for the third day running as crude inventories in the US expanded for the second consecutive week, adding to the global supply glut that has seen the price of oil crash over 50 per cent since June 2014.

As the ECB is effectively planning to print money the market will become flooded with euros, which could weaken the euro further. Some banks expect the euro will hit parity with the dollar, however, many already believe the effects of quantitative easing have already been priced in for a long time. There’s potential that the euro may swing higher in the near-term give how long traders have been anticipation the ECB’s move, however, longer-term trends should see the euro decline further.