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Gold price in CAD sees double-digit drop as Bank of Canada ends QE, holds rate steady

Kitco News

(Kitco News) The Bank of Canada (BoC) ended its quantitative easing while holding its key interest rate steady on Wednesday. Gold priced in Canadian dollars reacted with a double-digit drop, last trading down $20 on the day.

The BoC held its overnight rate at 0.25% while stating that it is ending quantitative easing. The Bank added that it is entering the reinvestment phase. Previously, the QE program was set at $2 billion per week.

“The Bank is ending quantitative easing (QE) and moving into the reinvestment phase, during which it will purchase Government of Canada bonds solely to replace maturing bonds,” the BoC said in a statement.

The BoC also indicated that it is moving up its rate-hike timeline to “the middle quarters of 2022” from the latter half of next year.

The BoC, led by Governor Tiff Macklem, pointed to potential problems with inflation, noting that price pressures are looking to be more persistent than previously thought.

“The main forces pushing up prices – higher energy prices and pandemic-related supply bottlenecks – now appear to be stronger and more persistent than expected. Core measures of inflation have also risen, but by less than the CPI,” the statement said. “The Bank now expects CPI inflation to be elevated into next year, and ease back to around the 2 percent target by late 2022. The Bank is closely watching inflation expectations and labour costs to ensure that the temporary forces pushing up prices do not become embedded in ongoing inflation.”

The central bank is now projecting the Canadian economy to grow 5% this year, 4.5% next year, and 3.75% in 2023.

“Demand is expected to be supported by strong consumption and business investment, and a rebound in exports as the US economy continues to recover,” the statement said. “On the supply side, shortages of manufacturing inputs, transportation bottlenecks, and difficulties in matching jobs to workers are limiting the economy’s productive capacity.”

In reaction to the news, spot gold priced in Canadian dollars plunged $20, down nearly 1% on the day.

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