(Kitco News) - The gold market is holding its own as waning inflation pressures have given the Bank of Canada room to ease interest rates further.
Wednesday, in a much-anticipated move, the BoC lowered its target for the overnight rate to 4.50%, with the Bank Rate at 4.75% and the deposit rate at 4.50%.
The expected rate cut is not having much impact on the gold market as it maintains its price gains against the Canadian dollar. Spot gold last traded at $3,343,85 an ounce, up 0.71% on the day.
Gold’s move against the Canadian dollar is roughly in line with its performance within the broader market. Spot gold against the U.S. dollar last traded at $2,425.501 an ounce, up 0.69% on the day.
The BoC’s rate cut comes as the committee remains optimistic about economic growth, even as it sees weakness brewing on the horizon, particularly in the labor market.
“In Canada, economic growth likely picked up to about 1½% through the first half of this year. However, with robust population growth of about 3%, the economy’s potential output is still growing faster than GDP, which means excess supply has increased. Household spending, including both consumer purchases and housing, has been weak,” the BoC’s monetary policy said. “There are signs of slack in the labour market. The unemployment rate has risen to 6.4%, with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderating, but remains elevated.”
As growth slows, the BoC, expects that inflation pressure will continue to ease, proving more room for additional rate cuts this year.
“Inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate. The timing will depend on how we see these opposing forces playing out. In other words, we will be taking our monetary policy decisions one at a time,” said BoC Governor Tiff Macklem in his opening statement discussing the bank’s latest move and outlook.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, said that he expects the BoC is on track to cut rates again in September as inflation and economic growth continue to slow.
He added that the tone of Macklem’s comments and the monetary policy statement were slightly more dovish than expected.
“Although the Bank will continue to take the “monetary policy decisions one [meeting] at a time”, the new Monetary Policy Report shows that the Bank now shares our view that headline inflation will average 2.3% in the third quarter. That provides some support to our forecast that a third consecutive rate cut in September is the most likely outcome at this stage,” Brown said in his note. “Otherwise, the MPR also revealed that the Bank is now publishing forecasts for the average of CPI-trim and CPI-median inflation, which it also sees settling at 2.0% next year. Again, that is in line with our own expectations and the key reason why we expect the Bank to cut at every meeting this year.”
