ECB taper rumor rattles markets

Yesterday the Eurozone bond market and the bullion got rattled big time on the rumor that the European Central Bank (ECB) might be considering a taper after the bond buying program gets concluded in March. After all, the market has been expecting a continuation of bond buying from the ECB and not a tapering. There was a report from Bloomberg, citing unnamed official that the ECB might wind down its bond purchases in steps of €10 billion per month, similar to what the Federal Reserve did.

However, an ECB spokesperson denied such rumor saying that the ECB governing council hasn’t discussed these topics. But the damages were done, bond yields were higher across the continent and the euro moved higher against the dollar too. The biggest victim has been gold which declined more than $40 and broke all the key supports around $1300 and $1275 area. The gold is likely to test $1250 now.

The ECB rumor may not be fully responsible for the big move in gold. It is evident from the Euro, which is still struggling around 1.12 area. It is more like speculators withdrawing from the long positions. One the key $1300 got broken, heavy selling pressure set in. The gold is currently trading at $1271 per troy ounce, while the euro struggles at 1.122 area.

On the tapering front, we think that such a move is unlikely as the inflation is still way too low. Tapering would pose serious doubts over the credibility, especially after all the policy defending the central bank has done.