The fall and subsequent rebound in the dollar price of gold after today’s announcement of additional monetary stimulus from the European Central Bank (ECB) should help to settle the debate over what has been behind the recent improvement in sentiment towards the precious metal. The initially lacklustre response confirms that cuts in interest rates that are already negative (or at least near zero) can only explain a small part of this improvement. Instead, the main drivers have been swings in the US currency, the ebb and flow of safe-haven demand, and, above all, shifts in inflation expectations.
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