Gold prices hold steady as Bank of Canada remains committed to fighting rising inflation

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(KitcoNews) – Gold priced in Canadian dollars is holding on to modest gains but remains at relatively low levels as the Bank of Canada continues to aggressively tighten its monetary policy, raising interest rates by 75 basis points.

The BoC’s monetary policy decision was in line with market expectations. At the same time, the central bank said that it will continue to tighten its monetary policies as it focuses on cooling inflation pressures.

“Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target,” the BoC said in its monetary policy statement.

The gold market is not seeing much reaction to the latest central bank decision. Spot gold priced in Canadian dollars last traded at $2,245.14, up 0.34% on the day.

Adam Button, head of currency strategy at Forexlive.com, said the central bank’s statement is more hawkish than expected.

“Many analysts thought 3.50% would be the top, but that’s looking unlikely. The BOC appears to be unbothered by house prices, which are down by about 18% since February,” he said.

Although inflation pressures eased in July, the Bank of Canada said that higher consumer prices remain a threat.

“The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July. Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched,” the statement said.

The BoC also noted that the Canadian economy has been fairly resilient in the face of rising interest rates, suggesting there is still some slack to pull in.

“The Canadian economy continues to operate in excess demand and labor markets remain tight. Canada’s GDP grew by 3.3% in the second quarter. While this was somewhat weaker than the Bank had projected, indicators of domestic demand were very strong,” the statement said . “The Bank continues to expect the economy to moderate in the second half of this year, as global demand weakens and tighter monetary policy here in Canada begins to bring demand more in line with supply.”

Avery Shenfeld, senior economist at CIBC, said that the hawkish stance from the BoC shows that it has not done hiking interest rates.

“We’ll therefore be lifting our target for the end of this tightening cycle, with at least another quarter point on tap for October. Even then, the Bank is likely to want to leave the door open to go beyond 3.5% until it gets more definitive evidence of a slowdown in growth and inflation pressures,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/or damages arising from the use of this publication.

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