Investing.com -- Gold rallied as the dollar suffered one of its worst sessions of the year, after the European Central Bank sent shockwaves through global foreign exchange markets by instituting limited easing measures on Thursday that fell far short of market expectations.
In a widely unexpected move, the ECB left several key interest rates unchanged and opted not to increase the pace of its €60 billion a month quantitative easing program as many expected heading into the closely-watched meeting. Instead, ECB president Mario Draghi unveiled only modest changes to the bond buying program, including a plan to extend it by six months through March, 2017,
As a result, investors partook in a mass exodus from the dollar piling into the euro in frenzied trade, as EUR/USD shot up nearly 3% to eclipse 1.09, its highest level in more than a month. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Gold for February delivery traded between $1,045.40 and $1,062.00, before settling at $1,060.40, up 6.60 or 0.63% on the session. Gold fell to fresh six-year lows in the overnight, Asian session before rebounding following Draghi's comments. Despite halting a two-day losing streak, the precious metal is still down by approximately 7% over the last month of trading.
Gold likely gained support at $1,045.40 and was met with resistance at $1,086.60, the high from November 12.
The ECB also surprised investors by slashing its deposit facility rate by 10 basis points to minus-0.3%. Consensus estimates expected the central bank to cut the rate deeper into negative territory by at least 20 basis points to minus-0.4%. The deposit rate is the rate paid on surplus liquidity or excess reserves institutions deposit at the central bank.
Heading into the meeting, Draghi sent strong indications the ECB would employ all tools necessary to boost stubbornly low inflation through euro zone, which is hovering around 0.1%. In March, the ECB launched the €1.1 trillion program in an effort to boost economic growth and stave off deflation.
"Let me make this clear we are doing more, because it works, not because it fails," Draghi said at a press conference in Frankfurt. "We concluded that our policies have been effective, in improving credit conditions and financial market conditions, and in the real economy. But the governing council concluded that more stimulus was needed."
Investors now turn their attention to Friday's critical U.S. jobs report, which could pave the way for the Federal Reserve to raise short-term interest rates at a two-day meeting on Dec. 15-16. In a speech before the Economic Club of Washington on Wednesday, Fed chair Janet Yellen noted that a flurry of economic and financial data since the Fed last met in October has fallen in line with its expectations for improvements in the labor market.
Analysts expect the U.S, unemployment rate to hold steady at 5.0% and expect to see solid job gains of 190,000. In a robust October report, nonfarm payrolls jumped by 271,000 while the unemployment rate ticked down by 0.1 to 5.0%.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell as much as 2% to an intraday low of 97.15, before rebounding slightly to 98.10 in U.S. afternoon trading.
Silver for March delivery added 0.061 or 0.41% to 14.066 an ounce.
Copper for March delivery jumped 0.028 or 1.39% to settle at 2.061 a pound.