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Gold Prices At Two-Week High Following Mixed Messages From ECB

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(Kitco News) - Gold prices are trading near a two-week high as renewed strength in the euro weighs on the U.S. dollar following mixed messages from the European Central Bank.

ECB President Mario Draghi reiterated the central bank’s commitment to end its monthly bond-purchase program and was fairly optimistic on inflation expectations as he noted lower growth forecasts for this year and the next.

In its updated staff projections, the central bank said that it sees Europe’s economy growing by 2% this year, down slightly from June’s forecast of 2.1%. The economy is expected to grow by 1.8% next year, down a tick from the previous forecast of 1.9%. Growth projections were left unchanged at 1.7% for 2020.

Inflation expectations were left unchanged at 1.7% through 2020.

Draghi explained that the drop in growth expectations was the result of weaker foreign demand. However, he remained optimistic that the euro zone is on the right path.

“The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding down of our net asset purchases,” he said.

Although Draghi’s tone was mostly optimistic, he did highlight growing risks to the global and European economy.

“Risks relating to rising protectionism, vulnerabilities in emerging markets and financial-market volatility have gained more prominence recently,” he said.

Many economists have described the press conference as “uneventful” with the central bank providing little new guidance on monetary policy. While its quantitative easing measures are anticipated to end in December, the central bank has said does not expect to raise interest rates until after the summer 2019.

Gold prices have pushed to a two-week high during the press conference, but analysts have said that strength in the euro is more related to weak U.S. economic data that was released the same time as the press conference.

December gold futures last traded at $1,216.20 an ounce, up 0.43% on the day.

U.S. Consumer Price Index showed annual inflation pressures rose to 2.7% last month, down from 2.9% seen in July.

Adam Button, currency strategist at Forexlive.com said that the euro is benefiting from Draghi’s comments because markets were expecting a more dovish response from the central bank.

“The risk was that because of soft data and risks, Draghi would push out the timeline for a rate hike from around this time next year to later,” he said. “That didn't happen. Instead, Draghi repeatedly emphasized strong underlying momentum in the economy.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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