(Kitco News) - The gold market faces another monetary policy hurdle as the European Central Bank signals it will interest rates with a 25-basis point move in July followed by a potentially 50-basis point move in September.
Thursday, after leaving interest rates unchanged, ECB President said if inflation expectations remain at elevated levels or continue to rise, it will be prepared to move aggressively in September.
"The calibration of this rate increase will depend on the updated medium-term inflation outlook. If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at our September meeting," she said in her opening statement.
"That is pretty precise as a commitment, but it also a factor of how the medium-term outlook evolves," she added during the question and answer period of the press conference.
Lagarde added that she wouldn't rule out further rate hikes throughout the year, depending on the inflation outlook.
Thursday, the ECB raised its inflation projections through 2024. The central bank sees prices rising 6.8% in 2022, falling to 3.5% in 2023 and 2.1% in 2024 – higher than in the March projections.
"We are determined to bring inflation back to our 2% medium target and we will deliver," she said.
At the same time, the ECB has lowered its growth forecast for the EU for this year. European real GDP is expected to grow by 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024.
Despite lower growth forecasts, Lagarde doe not see a recession on the horizon.
"There are also factors supporting economic activity and these are expected to strengthen over the months to come. The reopening of those sectors most affected by the pandemic and a strong labor market, with more people in jobs, will continue to support incomes and consumption," she said.
|
| Gold market is waiting for next week's Fed meeting - StoneX's O'Connell |
Looking at the gold market, some analysts note that the latest comments from Lagarde present a mixed bag for the precious metal.
On the one hand, rising interest rates can make gold unattractive to investors as a non-yielding asset. However, some analysts have noted that the ECB's stance could weaken the U.S. dollar as it continues to hold near its highest levels in 20-years.
Many currency analysts have noted that the U.S. dollar has benefited from the growing monetary policy gap as the Federal Reserve has led the market in aggressive monetary policy tightening.
The Federal Reserve has signaled it will raise interest rates by 50-basis points later this month and again in July.
Although the monetary policy gap is closing, many currency analysts expect the U.S. dollar to remain in an uptrend.
"At some point, we think the weak eurozone outlook will outweigh the hawkish ECB," said currency analysts at Brown Brothers Harriman in a note Thursday. "We still view the May move lower in the dollar as a correction within the longer-term dollar rally and are heartened by the recent bounce in June. That said, we acknowledge that further gains will likely be slow until the market pessimism on the U.S. economic outlook improves further."
For now, the gold market remains trapped in neutral at around $1,850 an ounce. August gold futures last traded at $1,843.90 an ounce, down 0.68% on the day.
