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Draghi, Carney, Yellen, and Gold

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Published : June 28th, 2017
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Category : GoldWire

Yesterday, three renowned central bankers delivered speeches. What can we learn from them?

On Tuesday, investors faced a triumvirate of central bank talkers. First, Mario Draghi, President of the ECB, gave an introductory speech at the ECB Forum on Central Banking in Sintra, Portugal. He said that the ECB’s monetary policy needed to be persistent, as inflation dynamics were not yet durable and self-sustaining. Hence, he reminded that this is why “the Governing Council has repeatedly emphasized that a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up, and to support headline inflation in the medium term.” So, the ECB will remain ultra dovish for a while. However, Draghi also hit hawkish tones, as he assured that:

“The first is confidence that monetary policy is effective and the transmission process will work. All the signs now point to a strengthening and broadening recovery in the euro area. Deflationary forces have been replaced by reflationary ones.”

Therefore, Draghi’s speech was interpreted as hawkish, on balance. In consequence, the euro strengthened against the U.S. dollar, while gold gained.

Later, Mark Carney, Governor of the Bank of England, set the stage, but there were no fireworks. The Bank of England only ordered banks to build greater capital cushions in the near future to protect the country’s financial system from different risks.

And Janet Yellen, Fed’s Chair, said in London at the British Academy that banking reforms implemented after the last financial crisis had made the financial system safer. Although it may be true, she made too optimistic a statement:

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be.”

Yeah, sure, this time is different, and the problem of financial crises has been definitely solved. This is probably why the Bank of International Settlements in its recent annual report (we will analyze it in more detail soon) warned of trouble ahead for the world economy.

Last but not least, Patrick Harker, Philadelphia Federal Reserve Bank President, also delivered a speech in London. He sounded rather dovish, saying that the U.S. central bank may have to reconsider its plans to tighten monetary policy if the inflation outlook deteriorates. Harket’s comments supporter the rally in the euro and gold. In consequence, gold prices nearly rebounded to pre-Monday’s flash crash level.

Summing up, Tuesday was full of central bankers’ talks. Draghi’s speech was probably the most important, as he turned out surprisingly hawkish. If the ECB adopts a more hawkish stance, while the Fed returns to a more dovish policy, the yellow metal should gain. However, if the current level of divergence in monetary policies remains, gold should be trade sideways. Stay tuned!

If you enjoyed the above analysis, we invite you to check out our other services. We focus on fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our mailing list yet, we urge you to join our gold newsletter today. It’s free and if you don’t like it, you can easily unsubscribe.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

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

Gold News Monitor
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Data and Statistics for these countries : Georgia | Portugal | All
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Przemyslaw Radomski is the founder, owner and the main editor of www.SunshineProfits.com. Being passionately curious about the market’s behavior he uses his statistical and financial background to question the common views and profit on the misconceptions. “Don’t fight the emotionality on the market – take advantage of it!” is one of his favorite mottos. His time is divided mainly to analyzing various markets with emphasis on the precious metals, managing his own portfolio, writing commentaries, essays and developing financial software. Most of the time he’s got left is spent on reading everything he can about the markets, psychology, philosophy and statistics. Mr. Radomski has started investigating the markets for his private use well before starting his professional career. He used to work as an informatics consultant, but this time-consuming profession left him little time for his true passion – the interdisciplinary market analysis. Establishing www.SunshineProfits.com gave him the opportunity to put his thoughts, ideas, and experience into form available to other investors.
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