Gold has found support as ECB President Mario Draghi announced its new stimulus plans which are a bid to encourage banks’ lending to businesses. The refinancing rate was cut to a record low of 0.15%.
The ECB is one the first central banks to introduce negative interest rates to make lending to businesses a more attractive option.
This bold and unusual mood may have been why we see gold gaining support this week, as there is a definite essence of uncertainty as to how things will pan out with negative interest rates in the mix.
With gold firming this is likely to be an indication of traders securing their portfolios with gold as a safe haven asset.
Negative interest rates aren’t totally novel and have been used in the European countries before with mixed results. Both Sweden and Denmark has adopted negative interest rates before. Sweden reported seeing little change, whilst Denmark concluded the effect of lowering the value of the currency was achieved at the cost of lowering the banks’ profits.