ECB President Mario Draghi brought the “goods” this morning and the only question that remains is whether any of this “stimulus” will actually flow through to the real economy – once again the ECB staff projections were very weak and pushed out advances in growth to 2015:

Draghi: staff projections 0.7% 2014, 1.1% 2015, 1.4% 2016 – all big drop from March figures.

What seems to have pushed the ECB to act is the worrying prolonged period of low inflation. Draghi was quoted as stating “The longer it lasts, the higher the risks.” The idea being that the longer the period of low inflation lasts, the more likely it is to become the baseline expectation for consumers and businesses – something which the ECB wants to avoid at virtually any cost.

It appears that today’s ECB announcements are quite positive for precious metals and relatively neutral for equities – while the ECB has floated another liquidity blanket for markets, growth is very weak and it remains unclear when, if ever, growth will trend higher on a self-sustaining trajectory. Gold spiked following the ECB staff projections and has since consolidated in the $1250-$1255 area:

Click to enlarge


There is significant potential for a short squeeze given the large increase in bearish bets during the past couple of weeks. A move above resistance near $1260 could trigger another $20-$30 of near term upside for gold:


Read also:  Silver: Still Seeing the Forest for the Trees