The ECB announced a series of monetary stimulus measures on Thursday, living up to the high market expectations and solidifying its commitment to hitting its targets.
None of this guarantees that these objectives will be achieved any more than they have in the past but the central bank today reaffirmed its determination to do so and put the ball in the court of governments around the block to do their part. This point was driven home by Draghi, who insisted that governments with fiscal space should act.
This is also being increasingly highlighted by the growing number of people that question just how effective monetary policy can possibly be at a time when interest rates – and government bond yields – are already negative. This feels like more of a symbolic gesture than effective stimulus that’s highly dependent on looser fiscal policy to succeed.
From a markets perspective, the most important thing is that the ECB is easing and therefore the currency is weakening. In response to Trump’s tweet, Draghi did insist that this is not a target of monetary policy but let’s face it, neither of them truly think it is and this is more of a case of a central banker being drawn into a political argument that he’d rather steer clear of.
Gold certainly welcomed the ECB stimulus, despite its role in lifting the US dollar which typically weighs on the yellow metal. Ultimately, global easing like we’re seeing now has been bullish for gold and that’s exactly what we’re seeing right now. Central banks around the world have been easing, and will continue to do so, and that’s why gold has been making such strides higher with only modest corrections along the way. It’s run out of a little steam of late but today we’re seeing that the appetite is still there.