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Gold price pushes higher as ECB's Lagarde avoids talking about euro, and new stimulus measures

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(Kitco News) - A weaker U.S. dollar following optimistic comments from the European Central Bank is helping to push gold prices higher Thursday.

Gold prices are trading near session highs as the U.S. dollar falls sharply from a one-month high after ECB President Christine Lagarde reframed from making any comments on the euro’s recent rally against the U.S. dollar.

December gold futures last traded at $1,972.20 an ounce, up 0.88% on the day.

Lagarde also noted that the central bank’s accommodative policy has been working and didn’t signal any increase in stimulus measures.

“We have not discussed expanding [The pandemic emergency purchase programme (PEPP)],” she said during her regular press conference.

Ahead of the meeting, there were significant expectations that the ECB would introduce new stimulus measures that would have pushed the euro lower against the U.S. dollar and, in turn, hurt gold prices.

Lagarde’s comments come after the ECB announced no changes to its monetary policy, saying 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.

During the press conference, Lagarde said that the ECB’s PEPP program has been effective and efficient in stabilizing financial markets. Although the ECB doesn’t expect to increase the program anytime soon, she added that the committee expects to use the full €1,350 billion envelope.

The ECB’s steady hand on the tiller was also reflected in updated economic forecasts for the rest of the and into 2022.

According to the latest staff projections, the central bank sees inflation holding at 0.3% for the rest of this year and then rising to 1.0% in 2021, up from the previous estimate of 0.8%. By 2022, inflation is expected to rise to 1.3%, unchanged from the previous forecast.

Looking at economic growth, the staff’s baseline projections call for an economic contraction of 8% this year, up from the previous forecast of a decline of 8.7%. The Eurozone economy is expected to grow by 5% in 2021, down from the prior estimate of 5.2%. The regional economy is expected to grow by 3.2% in 2022, down from the previous estimate of 3.3%.

“The balance of risks to the euro area growth outlook is seen to remain on the downside. This assessment largely reflects the still uncertain economic and financial implications of the pandemic,” Lagard said.

Although Lagarde and the monetary policy committee are optimistic that the Eurozone will recover from the devastating impact of the COVID-19 pandemic, she said that accommodative monetary policies are still needed.

“The incoming data since our last monetary policy meeting in July suggest a strong rebound in activity broadly in line with previous expectations, although the level of activity remains well below the levels prevailing before the coronavirus (COVID-19) pandemic,” Lagard said in her opening statement. “Against this background, ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium-term price stability. Therefore, we decided to reconfirm our accommodative monetary policy stance.”  

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