Gold Investment Gains Support Amid Central Bank Rhetoric

At the time of writing, silver is down 2.0% to below $ 26 an ounce, while platinum, which makes up most of its annual demand in industrial use, is unchanged from last Friday at $ 1.093.

China has eased its monetary policy, allowing commercial banks to lend more money that their clients put on deposits, even as the data showed a sharp jump in new lending in June that beat analysts’ forecasts by nearly one-fifth.

The release of the meeting notes on the June Federal Reserve decision showed that the tone of the US central bank is “less hawkish than the markets expected in mid-June,” Stone X noted.

For the Fed to raise rates or cut QEs of $ 120 billion a month, significant further progress in economic growth and employment needs to be seen.

Monetary policy in the euro area will also remain soft. It became known on Thursday that the ECB is now targeting 2.0 percent annual inflation.

Deposit rates for commercial banks with the ECB have been negative since 2014 and have remained at -0.5% since September 2019.

Eurozone CPI, ECB Deposit Rate and Gold Prices in Euro

Adjusted for inflation in the euro area, in May the ECB deposit rate was -2.5% per annum, which was the most negative value since a record low in October 2018 of -2.7%.

Despite concerns that central banks may hesitate in their commitment to loose monetary policy following recent surges in inflation, it looks like the ECB is redoubling its efforts.

Given the possible implications for the future course of monetary policy, investment in gold among European investors is expected to garner strong support.

Krishan Gopaul, World Gold Council

The European Central Bank said in a statement Thursday that inflation of 2.0% will now be a “symmetric” target rather than an upper limit, in line with the strategy of other central banks such as the US Federal Reserve and the Bank of England.

The ECB will target inflation of 2.0% in the “medium term” and “this will require particularly decisive or permanent monetary policy measures” when interest rates are already close to zero. “It could also mean a transition period where inflation is moderately above the target.”

“What cannot fall must grow,” said Nicky Shiels of the Swiss group MKS Pamp. According to him, the “strong” data on US employment last Friday should have given the green light for hedge funds to sell gold, as well as lead to a breakdown of an important price level, but this did not happen.

Protocols [ФРС] could be analyzed for interesting hawkish facts, but the market did not perceive this as a significant event, as the central bank is still cautious about cutting the program.

The sharp drop in US real interest rates in the bond market last week means that “the price of gold should be $ 1,880 with a 10-year TIPS yield of -0.96,” Shiels concluded.

“Gold looks pretty cheap,” Ole Hansen agreed, pointing to the same pattern of gold price movement as opposed to the 10-year TIPS yield and suggesting that the gold price should be $ 100 above current levels.

Posted by Adrian Ash Jul 9, 2021 | Translation: Gold Reserve

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