Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Draghi Won’t Send a Rate Hike Gift to the Gold Bulls

Commodities / Gold & Silver 2019 Mar 10, 2019 - 03:24 PM GMT

By: Arkadiusz_Sieron

Commodities

The ECB eased its monetary stance. It launched another round of cheap loans to banks and promised to keep interest rates unchanged this year. It means that Draghi will not hike during his presidency. What does it all mean for the gold market?

ECB Unveils New Monetary Stimulus in Response to Slowdown

The ECB left its interest rates unchanged. But it pushed out the timing of its first post-crisis rate hike until 2020 at the earliest. As we can read in the monetary policy statement.

The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. 


It means that Mario Draghi will end his mandate as the ECB President without hiking the interest rates. Moreover, the ECB slashed its growth and inflation forecasts for 2019 and lowered those for 2020 and 2021. The bank now sees euro zone growth at barely 1.1 percent this year, compared to the 1.7 percent it projected in December. And it sees the CPI rate to rise only to 1.6 percent in 2021. Acknowledging that Europe’s slowdown could be longer and deeper – after all, Germany stagnated in the fourth quarter, while Italy was in outright recession – the ECB offered banks a new round of cheap loans, called TLTRO-III, to help revive the euro zone economy.

A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy.

In short, according to Draghi, “we’re coming – and maybe we still are – in a period of continued weakness and pervasive uncertainty”. This is why the economic forecast has been revised downward – and why the ECB consequently eased its monetary stance.

Implications for Gold

What does it mean for the gold market? Well, more dovish Draghi is fundamentally bad news for the yellow metal. Many economists hoped that the ECB will join the Fed and will normalize its monetary policy. However, it is not going to happen anytime soon. The latest ECB decision should, thus, strengthen the US dollar against the euro – and gold – especially that the move was rather surprising. 

You see, the greenback still appears as the only reasonable choice among the fiat currencies. Both the ECB and the Bank of Japan have not normalized its monetary policy. The People’s Bank of China has launched a fresh stimulus. The Bank of England pauses, preparing for Brexit. Instead of normalizing its monetary policy, the BoE has activated euro swap line, in order to shore up financial system in case of abrupt exit from the EU.

In such an environment, the Fed and its currency are the only game in town. It’s still the best looking house in a bad neighborhood. Indeed, the euro fell against the US dollar in the aftermath of the ECB monetary policy meeting, as one can see in the chart below.

Chart 1: EUR/USD exchange rate from March 7 to March 9, 2019

And the U.S. dollar index reached a new 2.5-month high. Unfortunately, what strengthens the greenback, hurts gold. Indeed, initially the yellow metal struggled following the ECB meeting. However, the selling pressure in the U.S. stock market helped the gold prices to rebound and go north, as the chart below shows.

Chart 2: Gold prices from March 6 to March 8, 2019

We acknowledge, of course, that the Fed pauses, but it still means that the divergence in monetary policies between the US central bank and the ECB – and the resulting gap between bond yields in America and Europe – will remain in place, supporting the greenback against the euro and gold. Moreover, stronger dollar should translate into lower US inflation – but, on the other hand, it also gives more leeway for the Fed to lean dovish.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in