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All eyes on the ECB and potential currency devaluation rate

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(Kitco News) - All eyes will now be watching the European Central Bank to see if they will do anything to push inflation pressures higher. 

Although new stimulus measures from the ECB would boost the U.S. dollar and, in turn, drive gold prices down, analysts have said that investors should look past this short-term volatility and focus on the bigger picture: a new lap in the global race of currency devaluation.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said that technical indicators point to continued consolidation in the near-term. However, he does not expect to see any significant correction.

“If the major central banks are engaged in an uncoordinated effort to convince investors that they are serious about pushing inflation higher and that in part, it means lower rates for longer, it is difficult to envision a deep or sustained decline in gold prices,” he said.

Commodity analysts at Commerzbank said they also see the potential for higher gold prices as the ECB could spark a devaluation race.

Jonathan Butler, precious metals analyst at Mitsubishi, said that it’s not surprising to see government and central banks focus on boosting inflation pressures as they try to reflate the global economy. Since March, the global economy has been turned upside down to the COVID-19 pandemic.

“Governments and central banks around the world are, more than ever, looking to raise inflation as they seek a return to growth, avoid a deflationary trap, and perhaps also inflate away the record levels of government debt incurred this year,” he said. “Negative interest rates and a global pandemic/economic crisis was the backdrop for gold’s solid underpinning through the last several months. We expect the macro environment will continue to be favorable to gold as an investment.”

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