Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold dropped 0.6% to close under $1,342 in choppy trade after the European Central Bank kept interest rates unchanged and made no mention of a third round of quantitative easing. The metal spent most of the session in gains, rising as high as $1,354, before Mario Drahgi's post-meeting comments boosted the dollar and eroded demand for alternative assets.

The ECB held its deposit rate at minus 0.4% and main rate at zero, saying rates would remain at historic lows for an "extended period." But traders were disappointed when the central bank failed to signal whether QE will be extended after the current program expires in March 2017.

Expectations for QE3 had grown in recent weeks because of persistently slow growth and low inflation in the Eurozone. Its non-announcement initially rallied the euro and weakened the dollar, supporting higher gold prices. A falling dollar lifts gold and other commodities priced in it by making them less expensive overseas.

However, the euro trimmed its rise and the dollar rebounded, pressuring gold into losses, after ECB chief Mario Draghi reassured the markets by keeping the door open for more stimulus. Speaking after the meeting, Drahgi said "there is no question" that the central bank "will act using all the instruments available" if the inflation outlook warrants. QE devalues the euro and drives forex investors into the dollar and other currencies in search of higher yields.

The other precious metals also finished lower, with silver falling 0.9% while platinum and palladium lost 0.7% and 0.1%, respectively.

At the Comex close: December gold dropped $7.60, or 0.6%, to settle at $1,341.60; December silver fell 17 cents to $19.68; October platinum shed $8.10 to $1,084.70; and December palladium lost 50 cents to $687.85 an ounce.