Gold price down but weathering ECB's 25 basis point rate hike
The gold market appears to be largely shrugging off the European Central Bank’s decision to raise interest rates, as selling pressure remains limited against the euro.
Thursday, the ECB announced that it would raise its three key interest rates by 25 basis points. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will increase to 2.50%, 2.65% and 2.90%, respectively.
The central bank said it was forced to raise interest rates as inflation pressures remain well above its 2% target.
“The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period. Today’s decision underscores the Governing Council’s commitment to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term,” the ECB said in its monetary policy statement.
Although under pressure, the gold market is not seeing any significant increase in selling in the initial reaction to the ECB rate hike. Spot gold last traded at €3,760.33 an ounce, down 0.62% on the day.
The selling pressure is broadly in line with the wider market. Spot gold last traded at $4,367 an ounce, down 0.77% on the day.
Some analysts have said that the ECB’s rate hike could create some downward pressure on gold as it sets a hawkish tone ahead of the Federal Reserve’s monetary policy decision next week.
According to the CME FedWatch Tool, markets see a 64% chance of a rate hike on September 16.
In its updated staff projections, the ECB expects headline inflation to average 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. For inflation excluding energy and food, the baseline forecast sees inflation averaging 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.
Meanwhile, the baseline projection for economic growth in the eurozone is 0.9% for 2026, 1.4% for 2027 and 1.5% for 2028.
“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. In relation to the energy shock, the updated scenarios put together by staff illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects,” the ECB said.
