European Central Bank warns of downside risk to growth

In more good news for future gold prices, the European Central Bank has warned that the economic forecast for recovery is tilted to the downside with significant risks remaining.  The ECB also indicated that it expects an increase in inflation; something that favours higher gold prices.

Speaking yesterday (Thursday), the bank’s president, Christine Lagarde said, “Overall, the risks surrounding the euro area growth outlook over the medium term have become more balanced, although downside risks remain in the near term. On the one hand, better prospects for global demand, bolstered by the sizeable fiscal stimulus, and the progress in vaccination campaigns are encouraging. On the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk. The outlook for inflation has been revised up for 2021 and 2022, largely due to temporary factors and higher energy price inflation. It is possible that inflation hits 2%, but we will look through that because of technical and temporary conditions.”

Any increase in inflation is bullish for gold and supportive of higher prices; something that many experts have predicted will see the precious metal continue on its epic 2020 bull run and smash through its previous highest ever price record.

Lagarde also played down yield increases which have weighed on gold prices in recent weeks, indicating that the ECB will act quickly to stunt the spike with a significant increase in what is an already hefty asset purchasing program in order to safeguard economic activity as we emerge from the global pandemic. She said,

“If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy. This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation.”

With all of these favourable conditions at play, there is no better time to buy than now. Act quickly to add gold to your portfolio and benefit from the buzz surrounding the precious metal as inflation risks emerge and economic threats persist. As a long term safe haven and store of wealth, the yellow metal is the ultimate hedge against the economic and geopolitical uncertainty that persists as a result of the Covid-19 pandemic.

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