Gold News

Gold Prices Firm as ECB Cuts Rates But Vows 'Higher for Longer'

GOLD PRICES trimmed this week's rebound on Thursday after the 20-nation European Central Bank surprised no one by following the Bank of Canada with its first cut to interest rates since the post-Covid inflation spike, vowing to stay 'higher for longer' even as the cost of borrowing fell.
With gold priced in the Dollar trading $20 higher from last Friday afternoon, silver meantime reclaimed last weekend's level, rallying 4.1% from yesterday's 3-week low to rise back above $30 per Troy ounce.
"Monetary policy has kept financing conditions restrictive," said ECB President Christine Lagarde, claiming that Frankfurt's policy had made "a major contribution to bringing inflation back down".
But "inflation is likely to stay above target well into next year," Lagarde went on following the Euro central bank's quarter-point cut to 3.75% per annum on commercial bank deposits.
"We will keep policy rates sufficiently restrictive for as long as necessary."
The Euro moved half-a-cent high to low on the currency market was little changed overall, while gold prices for German, French, Italian and Spanish investors fell back €7 per Troy ounce from a 2-week high of €2180 set overnight.
Western government bond prices meanwhile slipped, edging longer-term borrowing costs higher, while European equity bourses rose for the 2nd session running to come within 0.1% of mid-May's record high on the EuroStoxx 600 index.
Chart of Euro area inflation vs. deposit interest rates. Source: St.Louis Fed
Adjusted for 20-nation HICP inflation, the real return to Euro cash deposits reached a lifetime high near 1.7% per annum in April, but edged back last month as the cost of living re-accelerated from the lowest in almost 3 years.
Having raised the cost of borrowing as the crash phase of the Western financial crisis began in mid-2008, the European Central Bank in Frankfurt then raised rates again at the height of the Euro-government debt crisis in 2011.
It then cut deposit rates below zero in 2014, and cut them again to minus 0.5% per annum in September 2019 – three months before the Covid pandemic began – leaving them negative until August 2022.
By then, inflation across the 350-million currency union had reached 4-decade highs at 9.1%, peaking at 10.6% two months later.
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With No.1 Euro economy Germany expected to stagnate in 2024 after falling into recession last year, today's cut " should have a positive impact...on the real estate investment market," says one services provider to the sector, quoted by financial newspaper FAZ.
Dollar and UK gold prices in Pounds per ounce meantime fell back 0.4% and 0.3% respectively from their overnight 2-week highs, trading at $2364 and £1850 after Thursday's ECB rate cut.
"In January," says FAZ, "the futures markets showed that investors were pricing in six interest rate cuts of 0.25 percentage points each by the ECB this year. Most recently, the figure was not even three."
Betting on US interest rates – expected to remain at a 2-decade high of 5.33% per annum after next week's Federal Reserve meeting – also forecast 6 Fed rate cuts across 2024 at the start of the year.
Today that outlook grew towards 2 cuts between now and Christmas, with consensus in the futures market predicting a year-end rate of 4.89%, the lowest such forecast in 3 weeks, ahead of tomorrow's key non-farm payrolls data for May.
US stock markets meantime rose further, putting the S&P500 index on track for its 26th new all-time high of 2024 to date.
Gold priced in the Dollar has set 18 new all-time benchmark records in 2024 to date, the last on 21 May at $2427.50 per Troy ounce.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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