Gold Near Long-Term Highs As ECB Won't Engage In Currency War
(Kitco News)- The gold market haspared earlier gains but remains not far from its highest level in 1 1/2 years as the euro strengthensagainst the U.S. dollar following comments from European Central Bank PresidentMario Draghi.
While the ECBremains committed to its accommodative monetary policy, the euro posted stronggains against the U.S. dollar after Draghi said that Europe will notparticipate in a currency war and try to weaken its currency.
“We will not targetour exchange rate for accommodative purposes,” he said during the question-and-answerportion of his press conference.
The comments havepushed the euro to fresh three-year highs against the U.S. dollar. While downfrom their nearly two-year high, gold prices continue to hold key near-termsupport, last trading at $1,354 an ounce.
Draghi said thatthe governing council showed concern about recent comments from U.S. TreasurySecretary Steven Mnuchin, who said at the World Economic Forum in Davos,Switzerland, that a weaker U.S. dollar has been positive for the U.S. economy. Draghisaid that Mnuchin’s comments don’t just have implications in forex-exchangemarkets but questions “the status of international relations.”
While there wereexpectations that Draghi would start to signal an end to current monetary policy,his comments show that the central bank is committed to its current plan.
“A cross-check ofthe outcome of the economic analysis with the signals coming from the monetaryanalysis confirmed the need for an ample degree of monetary accommodation tosecure a sustained return of inflation rates towards levels that are below, butclose to, 2%,” Draghi said in his opening statement.
While Draghi stillsees uncertainty over medium-term inflation pressures, he acknowledged thatEurope continues to see strong economic growth. He added that the central bankcontinues to expect inflation to eventually hit its target.
“The riskssurrounding the euro-area growth outlook are assessed as broadly balanced. Onthe one hand, the prevailing strong cyclical momentum could lead to furtherpositive growth surprises in the near term. On the other hand, downside riskscontinue to relate primarily to global factors, including developments inforeign-exchange markets,” he said.
Draghi commentscome after the ECB decided to leave interest rates unchanged, as expected.
By Neils ChristensenFor Kitco News
Follow neils_C
nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.