The ECB cut interest rates for the first time since July 2012 and left the door open for more action including imposing negative rates on commercial banks.

The cut from 0.75% to 0.50% boosted precious metals as some investors looked to hedge against ongoing economic uncertainty. The gold price rise was somewhat more muted compared to when the ECB cut rates in July 2012, as the bearish tone for gold lingers.

Despite obvious risks to the global recovery, investors are shunning gold, believing that the extremely accommodative central bank policy can circumvent another crisis and at the same time avoid generating inflationary pressures. Signals that the Fed may be ready to curb purchases as the outlook of the labor market improves also contributed to the bearish sentiment towards gold. However, physical gold buying remained strong, physical coin, bar and jewellery buying in Asia, the US, Europe and the Middle East rising to multi-year highs.

Gold ETPs register the biggest outflow since October 2009 as investors become more positive on global growth. The US job market showed continued signs of recovery last week, with US employers adding 165,000 jobs in April and prior data being revised upwards. ETP investors reduced gold exposure in favor of more cyclical commodities like platinum and industrial metals, as higher-than-expected US manufacturing activity in April, added to the optimism. While gold ETPs saw US$323mn of outflows last week, daily volumes of trading on the Shanghai Gold Exchange remained elevated and premiums were reported to be around $34/oz last Thursday. Demand from India is likely to see a seasonal lift due to the Akshaya Tritiya festival which falls on May 13 and last week’s Reserve Bank of India interest rate cut is likely to further boost household balance sheets of gold-hungry physical buyers.