Gold declines from five-month high after ECB stimulus reports

[NEW YORK] Gold prices fell from the highest in five months after two European Central Bank officials said policy makers will propose purchasing 50 billion euros in assets per month through the end of 2016.

The euro briefly pared gains after the report, and US stocks fluctuated.

The proposal will be discussed starting on Wednesday by the ECB's decision-making Governing Council, which could still change the plan significantly, the people said, asking not to be identified as the proposal is confidential.

Purchases won't start before March 1, one of the people said. A final decision will be announced at a press conference in Frankfurt Thursday.

"Some market participants are disappointed so far with the" amount of stimulus being discussed, Tai Wong, the director of commodity products trading at BMO Capital Markets Corp in New York, said in a telephone interview.

"People will want the details tomorrow, and I think a fair bit of uncertainty remains in the market, which will keep gold supported, but at lower levels."

Gold topped US$1,300 an ounce on Wednesday for the first time since August as stagnating world economies drive demand for haven assets. Policy makers in Europe and Asia are being challenged to come up with new ways to spur growth amid prolonged below-target inflation.

Bullion for immediate delivery dropped 0.6 per cent to US$1,288.04 at 10:17 am in New York, according to Bloomberg generic pricing. Prices earlier touched US$1,305.25, the highest since Aug 15.

Investors are adding to gold-backed funds at the fastest pace in three years. Open interest in New York futures and options is at the highest in eight weeks, and money managers are the most bullish since August.

After shunning gold for two years, investors are returning to the metal amid concern US growth won't be enough to offset weakness in foreign economies. The International Monetary Fund and the World Bank cut outlooks for global growth this month, even as they upgraded estimates for American expansion.

Spot gold fell 1.4 per cent last year after a 28 per cent loss in 2013, marking the first consecutive annual slide since 2000. A surge in equities and an improving US economy prompted some investors to lose faith in the metal. The Standard & Poor's 500 Index of shares is heading for a second monthly drop, the longest slump since 2012.

"It's too early to decide if gold is really out of the downtrend," said Lance Roberts, who helps oversee US$600 million as chief strategist for STA Wealth in Houston.

"What has changed over the past few months is that fear is coming back. Some investors are buying gold to hedge against uncertainties."

BLOOMBERG