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Gold in EUR holds just below record highs as ECB’s Lagarde says ‘ample monetary stimulus remains necessary’

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(Kitco News) Gold prices in euros were slightly down on the day but holding not too far below record highs hit in May as ECB President Christine Lagarde stressed that “ample monetary stimulus remains necessary” after keeping rates unchanged. 

Spot gold was last trading at EUR 1,582.05, down 0.23% on the day, according to Kitco’s Gold-Currency charts. The new record high was hit in May and was just above EUR 1,630.

During the press conference, which followed the ECB decision to hold rates steady while maintaining its extremely accommodative monetary policy, Lagarde highlighted that even though the economic recovery in May and June was “significant,” it was also “uneven and partial.”

“Incoming information since our last monetary policy meeting in early June signals a resumption of euro area economic activity, although the level of activity remains well below the levels prevailing before the coronavirus (COVID-19) pandemic and the outlook remains highly uncertain,” Lagarde said. 

Considering the uncertainty still dominating the economic recovery, “ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium-term price stability,” Lagarde added, reconfirming the ECB’s “very accommodative monetary policy stance.”

Prior to Lagarde’s press conference, the ECB said the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.

The ECB also maintained its stance that it would conduct emergency asset purchase through 2021 and it would also continue its regular monthly-asset purchase program for as long as necessary.

Lagarde noted that the ECB will make full use of the Pandemic Emergency Purchase Programme (PEPP) bond program barring any surprises, which means that the ECB remains on track to buy up to 1.35 trillion euros worth of debt through June 2021. 

“The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows us to effectively stave off risks to the smooth transmission of monetary policy. We will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over,” Lagarde said. 

Lagarde added that she expects inflation to start picking up in early 2021. 

“On the basis of current and futures prices for oil and taking into account the temporary reduction in the German VAT rate, headline inflation is likely to decline again in the coming months before picking up in early 2021,” she said. “We expect [rates] to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”

Lagarde also noted that the ECB stands ready to adjust all instruments as it monitors the risk of a possible second coronavirus wave. 

When asked about the EU rescue fund, Lagarde said she expects it to come about. 

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