Yesterday, Draghi hinted at more quantitative easing in the nearest future. What does it mean for the global economy and the gold market?

At yesterday’s meeting held in Malta, the Governing Council of the European Central Bank left interest rates unchanged. However, mainly due to a softer growth outlook and price deflation in September (inflation was -0.1 percent, down from 0.1 percent in August), Mario Draghi, the President of the ECB, hinted that he could announce further monetary policy stimulus in December. He said that:

“In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new Eurosystem staff macroeconomic projections will be available”.

Moreover, the ECB is considering further cuts of the deposit facility rate even deeper into negative territory. Draghi said: “So there we've decided a year ago that that would be the lower bound, then we've seen the experience of other countries and now we are thinking about that”.

It seems that this madness will never stop. Central banks all over the world fight with low prices which obviously support the real purchasing power of consumers and do it by measures that failed in Japan and elsewhere. The only way to act for these technocrats is to provide larger and larger quantitative easing and cut interest lower and lower, despite all the empirical evidences that these methods simply do not work.

Interestingly, gold prices were virtually flat yesterday, despite the rise in the greenback exchange rate. This suggests that investors consider Draghi’s statement as another symptom of a global economic slowdown, which should be positive for the yellow metal. Additionally, with the ECB being more and more dovish, the Fed’s hike this year looks much less probable.

The key takeaway is that the ECB left interest rates unchanged, but hinted that more quantitative easing and interest rate cuts would be possible in December. The ECB’s meeting supported the U.S. dollar, but gold showed resilience, perhaps due to the faded expectations of a Fed hike this year.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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