On Thursday, the European Central Bank released its most recent monetary policy statement. What does it say about the ECB’s stance and what does it imply for the gold market?
As expected, the ECB kept its monetary policy unchanged at its last meeting, but altered its quantitative easing program. In line with expectations, the bank cut the volume of monthly purchases, but extended the duration of the program until September 2018:
“From January 2018 the net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”
The recalibration of the ECB’s quantitative easing program reflected growing confidence in the Eurozone economy, while the extension of the program was caused by the still subdued inflation rate. As markets expected a tinier reduction in the volume of monthly purchases (to €40 billion), the decision was a little bit more hawkish than expected.
However, at the press conference, Draghi said that the large majority of the Governing Council members preferred to keep quantitative easing open-ended rather than to announce an end date. He even added that the asset purchase program was not going to stop suddenly. Draghi also pointed out the importance of reinvestment, as its level is sizable, about €10 billion per month. Hence, as we predicted yesterday, the ECB meeting was considered more dovish than expected, on balance. The euro plunged against the U.S. dollar, as one can see in the chart below.
Chart 1: EUR/USD over the last three days.
The depreciation of the euro against the greenback was a headwind for the gold market. As the next chart shows, the price of the yellow metal also declined in the aftermath of the ECB meeting.
Chart 2: Gold prices over the last three days.
