Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

ECB Buy Gold Bullion? Japan's Monetary Policy Dubbed "Ponzi Scheme"

Commodities / Gold and Silver 2014 Nov 18, 2014 - 06:12 PM GMT

By: GoldCore

Commodities

Concerns about deflation, recession and a return to the Eurozone debt crisis, may see the ECB follow Japan and print money to buy assets including shares, exchange traded funds and physical gold.

Counter intuitively, gold prices fell on the quite bullish news. In marked contrast to the sharp falls gold saw on the mere rumour of small Cyprus selling their miniscule gold reserves. Such odd trading leads to continuing concerns that the precious metals markets are still being manipulated.


Over the last couple of months, the ECB has launched several measures to revive the lacklustre euro zone economy. Mersch said the bank should let these steps take effect first before considering more action.

If more action was needed, the ECB's hands wouldn't be tied as it could theoretically purchase government bonds or other assets such as gold, shares, or exchange traded funds (ETFs).

But he said the bank was not determined to buy up assets come what may and should consider its actions carefully. He warned about the negative side effects were the central bank to start buying up government debt, urging political leaders instead to reform their economies to boost growth.

"Easing of monetary policy cannot work effectively when the European economy is structurally not in good shape," Mersch said in a speech at an annual banking conference in Frankfurt.

There appears to be an ongoing tussle between the ultra dovish such as ECB President, Mario Draghi and the slightly less dovish members of the ECB.

Mario Draghi has explicitly cited government bond buying as a policy tool officials could use to further stimulate the economy should the outlook worsen again.

“Unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds,” the ECB president said in Brussels yesterday in answer to a question during his quarterly testimony to lawmakers at the European Parliament.

Draghi and the uber doves appear determined to ignore the failure of QE in both the U.S. and Japan.

The architect of Japan's radical economic policies - ‘Abenomics’ - Koichi Hamada has described the recent bond buying binge by the Japanese central bank as a ponzi scheme: 

“In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I'm not saying it's good.”

Japan's GDP tanked an incredible 7.4% last quarter and social tensions are rife. Like in the U.S., the primary beneficiaries of Japan's ultra-loose monetary policies have been speculators, investors and the ultra-rich - the Nikkei has been booming - or bubbling.

Meanwhile, Japan has hit the panic button with President Abe directing his cabinet to formulate policies such as printing up "gift certificates" for the poor to "support personal consumption directly."

Against this backdrop Yves Mersch, from the ECB's executive board, made an astounding observation regarding Abenomics:

"I’m not so sure it has worked, considering that this morning we saw that Japan has officially slid into recession again."

In a speech in Frankfurt, Mr. Mersch made a suggestion which may be seen as an acceptable compromise by Germany with regard to monetary expansion to stoke inflation. 

He said "Theoretically the ECB could purchase other assets such as gold, shares, ETFs to fulfill its promise of adopting further unconventional measures to counter a longer period of low inflation."

Germany have been resolutely opposed to monetary expansion through the purchase of debt, but asset backed money printing may be regarded as more palatable.

The suggestion that gold would be used, even in a limited way, to back the Euro is encouraging. Western central banks public utterance regarding gold is usually negative. 

Physical gold supply remains extremely tight. Gold is currently in backwardation meaning that the price on the futures market is lower than the spot price today. 

If holders of physical gold bullion sold it today they could profit by buying a forward contract which would guarantee them the same volume of gold but at a lower price in the future, avoiding storage costs in the interim period and using the proceeds of the sale to invest until that later date. 

Investors are not taking advantage of this opportunity probably because some are concerned that there will not be physical gold available at the lower price which may cause the counterparty to the trade to default.

It appears as though the trepidation of gold investors may sometime come to an end. That the ECB would even consider buying gold in QE may come to be seen as an important moment. 

If the Swiss people vote to pass the gold initiative at the end of this month it is likely that the ECB will feel pressure to enter the market sooner than they may have expected. 

As the currency wars continue it may be that other western central banks will feel compelled to enter the gold market to protect their currencies from speculative attack and devaluation. 

We advise owners of gold to ensure they own gold in allocated and segregated accounts and to sit tight - their patience will again be rewarded.

Get Breaking News and Updates on the Gold Market Here

MARKET UPDATE
Today’s AM fix was USD 1,202.00, EUR 959.68 and GBP 767.81 per ounce.
Yesterday’s AM fix was USD 1,187.00, EUR 950.36 and GBP 759.49 per ounce.

Gold fell $14.30 or 0.36% to $1,186.40/oz yesterday. Silver slipped $0.14 or 0.86% to $16.16/oz.

Gold in EUR - YTD, 2014  (Thomson Reuters) 

Today, gold jumped to a two week high at $1,202 per ounce as a weakening dollar and concerns about the global economy led to safe haven demand. Silver climbed 1.2% to $16.34 an ounce.
Gold climbed as markets digested the important news that the European Central Bank may purchase assets including gold bullion to counter low inflation.

ECB President Mario Draghi said yesterday that unconventional measures may include the purchase of a variety of assets to stimulate the economy. The central bank could theoretically buy sovereign debt, gold, exchange-traded funds, and even real estate to counter a longer period of low inflation, Executive Board member Yves Mersch said yesterday (see above).

Gold in USD - January 1986 to November 19, 2014  (Thomson Reuters) 

The largest gold backed ETF, SPDR Gold Trust, saw holdings rise 0.33% to 723.01 tonnes on Monday, the first increase since November 3. The fund’s 10th anniversary is tomorrow and its holdings are at a 6 year low as ‘weak hand’ investors sell and gold flows East. 

India's central bank is rumoured to announce new restrictions on gold imports tomorrow, a finance ministry source noted to the media.
In the world’s largest consumer China, local prices remain at a premium of $2-$3 an ounce, as buying increased on firmer prices. 

S&P 500 – Jan, 1986 to November 19, 2014 (Thomson Reuters) 

Stock markets continue their constant march higher. The Stoxx Europe 600 was up 0.6% after Germany’s ZEW institute stated that although the economic environment remains fragile, the recent eurozone growth figures suggest a degree of stabilization. 

U.S. stocks eked out slight gains, with the S&P 500 recording a 42nd record close of the year, as comments by European Central Bank President Mario Draghi helped offset data that unexpectedly showed Japan's economy in a recession.

This update can be found on the GoldCore blog here.

Yours sincerely,
Mark O'Byrne
Exective Director

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W www.goldcore.com

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules