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Gold Weighed Down As ECB Loosens Monetary Policy To Combat Uncertainty

Kitco News

(Kitco News) - Gold prices remain under pressure following dovish comments from European Central Bank President Mario Draghi after the central bank loosened its monetary policy Thursday to protect the region’s economy from pervasive uncertainty.

In his opening remarks following the central bank’s monetary policy meeting, Draghi said, “The weakening economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year.”

The comments come after the central bank announced a several measures to loosen monetary policy, including a new round of quarterly targeted longer-term refinancing operations, starting in September and ending in March 2021. At the same time, the ECB also pushed back forward guidance, saying that it expects to leave interest rates unchanged through the end of 2019.

The policy change comes as the central bank substantially downwardly revised its growth and inflation expectations. According to ECB staff projections, eurozone gross domestic product will increase by 1.1% this year, 1.6% in 2020 and 1.5% in 2021, compared to December’s forecast of 1.7% growth in 2019, 1.7% in 2020 and 1.5% in 2021.

Looking at inflation, the central banks sees consumer prices increasing 1.2% in 2019, 1.5% in 2020 and 1.6% in 2021, compared to the previous estimates of 1.6% inflation this year, 1.7% in 2020 and 1.8% in 2021.

“The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets,” said Draghi in his opening statement. “A cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

Although there are growing risks to the European economy, Draghi also said that the central bank is confident the economy can get through this period of weakness.

He said in the question-and-answer period of the press conference that the central bank sees a low risk of a recession and that inflation expectations will remain well anchored.

According to some commodity analysts, the latest moves from the ECB could continue to pressure gold prices as the euro weakens against the U.S. dollar.

Bill Baruch, president of Blue Line Futures, said that although gold is holding above a critical support level, the market continues to suffer from significant technical damage.

“Gold is consolidating, but given the technical damage last week, the bulls must, must secure a close above $1,291.30 in order to neutralize this weakness or face this technical damage head-on as the bears continue to attempt to pierce major three-star support,” he said.

April gold futures last traded at $1,284.70 an ounce, down 0.22% on the day. Meanwhile in currency markets the euro is down 0.50% against the U.S. dollar, last trading at $1.1250.

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