(Kitco News) - Gold has struggled in recent days against the euro, and even lower interest rates have not provided any new bullish momentum for the precious metal.
As expected, the European Central Bank once again lowered its three key ECB interest rates by 25 basis points on Thursday. According to the latest monetary policy statement, the interest rates on the deposit facility, the main refinancing operations, and the marginal lending facility will drop to 2.50%, 2.65%, and 2.90% respectively, effective March 12.
The gold market is not reacting well to the latest monetary policy decision, as it is experiencing its sixth day of consecutive losses. Spot gold last traded at €2,680.92 an ounce against the euro, down nearly 1% on the day. Gold against the euro is down 6% from its all-time highs last month.
Gold continues to fare better against the U.S. dollar as it tests support at $2,900 an ounce, down 0.60% on the day.
According to some analysts, gold is struggling specifically in Europe as investors flock to undervalued equity markets as EU nations increase their defense budget and military spending to support Ukraine in its war against Russia.
Europe has been forced to step up its support of Ukraine as the U.S. has stepped back as it focus on more domestic policies.
There are expectations that the new spending will boost the economy, which continues to falter. In its monetary policy statement, updated economic projections show the central bank sees growth falling 0.9% this year. Growth is expected to rebound to 1.2% in 2026 and remain relatively steady in 2027 at 1.3%.
“The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty. Rising real incomes and the gradually fading effects of past rate hikes remain the key drivers underpinning the expected pick-up in demand over time,” the ECB said in its statement.
Meanwhile, the central bank sees higher inflation pressure with headline inflation averaging 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027.
“The upward revision in headline inflation for 2025 reflects stronger energy price dynamics,” the central bank said.
Although gold is struggling against the euro, many analysts expect the precious metal to find some support as deficit spending increases. At the same time, lower interest rates reduce gold’s holding costs.
Although the ECB has provided little forward guidance on its monetary policy, economists expect to see further rate cuts this year.
"We still suspect that the Bank will cut interest rates a few more times in the coming months as the economy remains sluggish and core inflation keeps falling. But we now think the deposit rate will only decline to 2% rather than the 1.5% level that we had previously assumed," said Jack Allen-Reynolds, Deputy Chief Euro-zone Economist at Capital Economics.
