Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Lagarde – Friends or Foes?

Commodities / Gold & Silver 2019 Dec 20, 2019 - 03:54 PM GMT

By: Arkadiusz_Sieron

Commodities

A week ago, Lagarde chaired the monetary policy meeting of the Governing Council of the ECB for the first time. An insightful press conference followed in the footsteps. What will her presidency imply for the ECB’s policy and the gold market precisely?

Key Takeaways From First Lagarde Monetary Policy Meeting as ECB President

Last Thursday, the ECB held its December monetary policy meeting. The central bank maintained its stance steady, keeping the interest rates unchanged. However, the ECB has revised slightly down the outlook for real GDP growth for 2020, while the outlook for HICP inflation went slightly up.


But the main change occurred in the position of the President. Christine Lagarde has replaced Mario “whatever it takes” Draghi. Of course, it has happened some time ago, but only now she chaired her first monetary policy meeting and held a post-meeting press conference as the ECB President. What do her remarks and her presidency in general imply for the ECB’s future and the gold market specifically?

First of all, we are now sure that the dovish stance on monetary policy will be prolonged. Lagarde confirmed the status quo on interest rates, quantitative easing, etc. She said that “All right, on the toolbox, I’m not going to revisit the past (…) Policy decisions that were made, stand, and were re-endorsed yet again”.

Moreover, Lagarde communicates with the market pretty well. She reminded the audience in the very beginning that each president has his or her own style of communicating, so the analysts should not overinterpret her words. She also nicely escaped from being compared with Draghi, or being classifying as dove or hawk. Lagarde said that “I’m neither dove nor hawk and my ambition is to be this owl that is often associated with a little bit of wisdom”. Nice rhetoric, Madame, but let’s be honest, we all know that deep down you are a dove.

Indeed, Lagarde was rather candid on the negative interest rates. She did not criticize them and she did not announce any normalization. Instead, when asked about the existence of a “reversal rate”, i.e. a policy rate whose adverse consequences outweigh the positive effects, she replied that it’s not the case in the Eurozone. So, the madness of negative interest rates will continue. Is it really wisdom, Madame?

Last but not least, Lagarde announced that a top-down review of the ECB’s strategy would get underway in January with a view to being completed by the end of 2020. And guess what, she did not say that, but I bet dollars to doughnuts that the review will call for a more symmetric inflation goal. As a reminder, the ECB aims to reach inflation rate at a level sufficiently close to, but below, 2 percent. I can imagine that the phrase “but below” must be a thorn in Lagarde’s side. She already said during the press conference, that inflation at 1.7 percent is not close enough…

Implications for Gold

What does it all mean for the ECB’s monetary policy and the gold market? Well, Lagarde is consensual. Lagarde speaks nicely. Lagarde smiles. But beware of the central banker! Don’t be fooled by Madame Lagarde’s charm. If it looks like a dove, flies like a dove, and coos like a dove, then it probably is a dove. And, indeed, Lagarde is a dove, or actually an ultra dove. So, we expect the status quo on the very easy ECB’s monetary policy to continue, at least until the other members of the Governing Council express their objections.

Unfortunately, from the fundamental point of view, Lagarde’s dovishness is not helpful for the gold prices. Fundamentally, I mean the fact that dovish ECB, or the ECB more dovish than the Fed, should work to weaken the euro against the U.S. dollar. And the dollar’s strength should keep a downward pressure on gold prices.

However, please note that the status quo of the ECB was already priced in. The EUR/USD exchange rate was barely influenced by Lagarde’s press conference, as the chart below shows (the later sharp moves were caused by the outcomes of the UK parliamentary elections and Trump’s tweets about trade policy).

Chart 1: EUR/USD exchange rate from December 6 to December 19, 2019

So, technical factors are also important in the gold market and right now, they might actually play first fiddle as we are approaching January, which is historically a positive month for the gold bulls.

If you enjoyed the above analysis, we invite you to check out our other services. We provide detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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