(Kitco News) - The gold market continues to face significant downside risks and is seeing little reaction as interest rates rise in Europe.
As expected, the European Central Bank increased its interest rates by 25 basis points. Interest rates for the central bank's deposit facility, the main refinancing operations, and the marginal lending facility have been increased to 2.25%, 2.40%, and 2.65%, respectively.
The rate hike comes as the central bank significantly increases its inflation forecasts. According to the new Eurosystem staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. For inflation excluding energy and food, the baseline forecast sees an average of 2.5% in 2026 and 2027 and 2.2% in 2028.
“Compared with March, staff have revised up their baseline projection for inflation in 2026 and 2027 owing to a higher path for energy prices, which, to some extent, is expected to feed into food, goods, and services inflation,” the ECB said in its monetary policy statement.
The central bank noted that the ongoing war in Iran continues to drive energy prices higher and has created significant economic uncertainty.
“The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area,” the ECB said.
Although the gold market is not seeing any major reaction to the ECB's rate decision, prices continue to hold critical support levels. Spot gold last traded at €3,530.36 an ounce, relatively unchanged on the day.
Gold's price action against the euro is broadly in line with its performance against the U.S. dollar. Overnight, the yellow metal fell to its lowest level since November. Spot gold last traded at $4,064.20 an ounce, down 0.15% on the day.

