The gold market continues to hold a record high against the euro and may still be well supported when the European Central Bank (ECB) cuts interest rates, in the context of increasing economic instability and weakening inflationary pressures.
As expected, the ECB continued to cut three key interest rates by 25 basis points on Thursday. Interest rates for deposits, major refinancing and frontier lending will decrease to 2.25%, 2.40%, and 2.65%, respectively.
Although the gold market did not react strongly immediately after the announcement from the ECB, prices are still maintaining at a record high. Spot gold was traded at EUR2,938.28/ounce, up 0.27% on the day.
The ECB warned that the risk of economic downturn still exists, but this policy message does not provide much new information.
Inflation continued to move in line with forecasts, with both general inflation and core inflation falling in March. Inflation in the service sector has also cooled down significantly in the past few months.
Most of the core inflation indicators show that inflation will remain around the Board of Directors' medium-term target of 2%, the ECB said.
The eurozone economy has been somewhat more resilient to global shocks, but growth prospects are deteriorating due to rising trade tensions.
Increased instability can cause household and business confidence to decline, and negative reactions and market fluctuations due to trade tensions can make financial conditions tighter. These factors could continue to put pressure on the eurozones economic outlook. The ECB also stressed that it will continue to rely on economic data and not follow a fixed policy roadmap.
