The Morning Gold Report: BoE and ECB Hold Steady

Sep 04 a.m. (USAGOLD) -- Gold has edged higher after the dollar stabilized somewhat. Solid physical demand out of India at the beginning of the festival season is helping to underpin the yellow metal as well.

Both the BoE and the ECB opted to hold steady on rates today at 5.0% and 4.25%, respectively. These non-moves were widely anticipated and the Fed is expected to follow suit in a couple of weeks.

There was no statement after the BoE's announcement, but one can imagine that the MPC had to reconcile still considerable upside price risks with strong indications that growth in the UK is slowing rapidly. Cable firmed modestly in response, but sterling remains technically weak in the wake of recent sharp losses. The minutes will be released on 17-Sep, so we'll get to see what the MPC was thinking just a day after the Fed announces their policy decision.

The ECB's press conference is just beginning as I write this, but I think they too were faced with simultaneous price risks and growth risks. Look for emphasis to remain on price stability, the ECB's single mandate. There had been some pressure in recent weeks for the central bank to reverse the 25bp hike seen in July. I don't think there was ever a chance of that actually happening. There was some short covering in euro seen in advance of the press conference.

In his opening statement ECB President Trichet did in fact state that risks to price stability remain on the upside. He said that, "Inflation rates are likely to remain well above levels consistent with price stability for a protracted period and upside risks to price stability over the medium term prevail."

Perhaps Mr. Trichet believes that inflation risks will prevail in the medium term because of money supply growth. His very next comment ended with the following rather candid statement, "the still strong underlying pace of monetary expansion points to continued upside risks to price stability over the medium term."