(Kitco News) - Gold investors looking for central banks to ease interest rates might be waiting a little longer than expected after the European Central Bank set the tone Thursday, signaling that it is not ready to loosen the reins just yet.
The gold market continues to hold support above $2,000 an ounce but has been unable to attract any significant bullish momentum. February gold futures last traded at $2,017 an ounce at the time of writing, roughly unchanged on the day.
After leaving interest rates unchanged, ECB President Christine Lagarde said it was premature to discuss rate cuts and that the central bank would continue to follow the data.
Although broad inflation pressures have eased, she said more work is needed to ensure consumer prices fall to the central bank’s 2% target.
“We need to be further along in the disinflation process before we can be sufficiently confident that inflation will actually hit the target in a timely manner,” Lagarde said.
Although the ECB is pushing back against the idea of an early rate cut, Lagarde didn’t fight against expectations that rates will eventually come down.
Ole Hansen, head of commodity strategy at Saxo Bank, said Lagarde’s comments had a dovish tilt.
Jack Allen-Reynolds, deputy chief Euro-zone economist at Capital Economics, said although an April rate cut is becoming less likely, there is still time for a move in the summer.
“If inflation in the next three months is weak, the Bank could cut in April. If the inflation numbers fall more steadily, even in line with the Bank’s forecasts, investors might be surprised at how long the ECB waits before starting to loosen,” he said.
Fixed income analysts at TD Securities also noted the dovish tone from the ECB.
“The dovish tones of the press release were followed by a surprisingly dovish Lagarde in the press conference,” the analysts said. “While the broad expectation was for Lagarde to actively push back against Spring cuts, she failed to do so when given the opportunity to. Instead, Lagarde opted to be vague in her comments, and never gave a clear answer about whether Spring cuts could be coming.”
Everett Millman, precious metals specialist at Gainesville Coins, said that he sees the latest comments from the ECB and Lagarde as relatively neutral for gold, which could keep prices in the current range between $2,000 and $2,050 an ounce.
Millman said that all the attention of the gold market remains on the Federal Reserve and when they will cut interest rates. The fixed-income market is seeing a rise in volatility as markets see a roughly 50/50 chance of the Federal Reserve starting its easing cycle in March.
