ECB President Draghi Wants More QE, Euro Gold Testing Major Support

Today, the European Central Bank (ECB) published its monetary policy statement, with the central bank leaving its main refinancing rate at 0.05%, its deposit rate at 0.20%. The press conference with ECB President Mario Draghi brought up some interesting quotes from the first half of Draghi’s speech:

  • RENEWED RISKS TO THE DOWNSIDE HAVE EMERGED
  • TO INCREASE ISSUE SHARE PURCHASE LIMIT FROM 25% TO 33%
  • ASSET BUYS TO RUN UNTIL SUSTAINED ADJUSTMENT IN INFLATION
  • ECB TO USE ALL TOOLS WITHIN MANDATE IF NEEDED
  • ECB CAN ADJUST SIZE AND DURATION OF QE PROGRAM IF NEEDED
  • ECB CUTS GDP GROWTH FORECASTS FOR 2015-2017 (including down to 1.7% in 2016)
  • ECB LOWERS EUROZONE INFLATION FORECASTS FOR 2015-2017 (including down to 1.1% in 2016)
  • MAY SEE NEGATIVE INFLATION IN COMING MONTHS

And here is another important quote: “ECB WILLING AND READY TO ACT IF NEEDED.”

There is clearly a strong desire to create inflation. Unfortunately, the economic system is not able to create inflation, even with continuous stimulus from central banks. For now, it seems that low inflation, even deflation, is in the cards for the coming years.

As a result, the price of gold has a hard time overcoming its major hurdle: the 50 and 200 day moving averages.

gold_price_dollar_3_SEPTEMBER_2015

However, gold in euro is doing somehow better. Driven by a huge monetary easing program, euro gold went sharply higher early 2015, breaking out of a basing pattern that was formed after the great crash of 2013.

gold_price_euro_3_SEPTEMBER_2015

As the second chart shows, euro gold is testing its major support at €1000 /oz. This is a make-or-break level for euro gold, with a high importance for gold in other major currencies.

If euro gold will stay above €1000, the market would anticipate more monetary easing in Europe, with a positive impact on the price of gold.

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