Investors often think of stimulative central bank policies as boosters for gold. But the European Central Bank's newly announced 60 billion euro ($67 billion) per month quantitative easing policy could be a bit different, traders argue.
The reason the Federal Reserve's late QE program was thought to be helpful for gold was that it would hurt the value of the U.S. dollar by creating inflation. It would consequently take more dollars to buy gold; in other words prices would go higher.
The massive inflation predicted by some gold lovers never did arrive, but it is true that the U.S. enjoys higher inflation than much of the world, with core inflation measures running between 1.5 percent and 2 percent.
Similar thinking could lead to gold buying on the ECB QE program—after all, more money is being created and pumped into the system, which should stoke inflation. However, the money created is not dollars, but euros. Consequently, the dollar has risen sharply against the euro, which should hurt gold, all other things equal.
And in fact, while gold initially rose to a five-month high shortly after the European QE announcement, it has subsequently retraced much of those gains, as the U.S. dollar has continued on its path higher.