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Gold Unable To Hold Gains After Optimistic Comments From ECB’s Draghi

Kitco News

(Kitco News) - While the European Central Bank is committed to its bond-purchase program at least to the end of the year, the euro and in turn gold prices saw a brief spike Thursday as the central bank appears to be more optimistic about the economy.

According to currency analysts, the euro rallied to session highs as investors focused on the comment from ECB President Mario Draghi, in his opening statement, that “the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished.”

In the question-and-answer period, he added that the compared to three years ago, when the recovery was fragile, it is now “solid and broad-based.”

Gold saw some modest renewed buying interest after the euro spiked higher, but the momentum didn’t last with June Comex gold futures last trading at $1,265.20 an ounce, relatively unchanged on the day and near a two-week low. EUR/USD has not been able to hold onto its gains, with prices falling back to session lows. The currency pair last traded at $1.088, down 0.2% on the day.

Currency analysts at Brown Brothers Harriman said that EUR/USD needs to see a sustained break above $1.0950 “to be of any technical significance.”

Draghi squashed some of the optimistic overtones by noting that inflation expectations, which are the central bank’s focus, remain subdued. 

“A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term,” he said in his statement.

During the question-and-answer period, Draghi also noted that despite solid growth, there is still some fragility in the eurozone economy, in particular within the banking sector.

“The risks surrounding the euro area growth outlook, while moving towards a more balanced configuration, are still tilted to the downside and relate predominantly to global factors,” he said in his statement.

Draghi added that with the central bank committed to its asset-purchase program, the committee has not yet talked about an exit strategy.

While Draghi wouldn’t talk about politics he said that the threat of protectionist policies appear to be receding.

“We don’t react to political uncertainty in itself… but we internalize the information as it could impact price stability,” he said.

Draghi's comments come after the central bank decided to leave the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40% respectively.

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