Toward the end of last year, the European Central Bank announced that it would end its emergency purchase program for the pandemic in March 2022. While this doesn’t signal a stop to quantitative easing, as the central bank of the Eurozone continued to purchase assets under this program, it does mean that it will be reducing the frequency of its purchases in 2022.
During a conference held recently, the president of the European Central Bank, Christine Lagarde, admitted that the bank would stop net asset purchases done through this program next month. In the press conference, Lagarde acknowledged the shift in macroeconomic conditions and highlighted the good risk of inflation but did not directly signal hikes in rates of interest.
However, she didn’t repeat a phrase she’d made last year about how increasing rates of interest in 2022 was unlikely. Instead, when a question was raised about this, Lagarde stated that while she didn’t give pledges without any conditions, the central bank would soon be able to make a detail assessment based on the data it received, after which it would present forecasts to the governing council and come up with recommendations.
This has led many to believe that interest rates will hike in the near future, which will positively impact gold’s performance. This is backed by data which shows that inflation in the Eurozone is at its highest in the euro’s history. The data shows that between December 2021 and January 2022, inflation rose from 5% to 5.1%.
Additionally, the gross domestic product of the Eurozone reached levels recorded prior to the pandemic in the last quarter of last year. This economic recovery reinforces the hawkish camp in the European Central Bank, which is bullish for the price of gold. However, it should be noted that the European Central Bank may still be relatively dovish and lag behind the Federal Reserve, considering the structural issues of this area.
In Germany, bond yields have also increased, with room left for further hikes. It is expected that with rates of interests going higher in Europe than in the United States, the spread between German and American interest rates will narrow. Analysts believe this is likely, considering the financial tightening that had already happened in America.
The reducing divergence between rates of interest and monetary policies in the Eurozone and the U.S. will strengthen the euro against the dollar, which will create a supportive environment for gold. However, if the divergence increases, the precious metal will suffer.
Once the interest rate hikes start taking effect, mining companies such as StraightUp Resources Inc. (CSE: ST) (OTCQB: STUPF) are likely to see their stock prices rise and investor interest grows.
NOTE TO INVESTORS: The latest news and updates relating to StraightUp Resources Inc. (CSE: ST) (OTCQB: STUPF) are available in the company’s newsroom at https://ibn.fm/STUPF
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