Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Bank of Canada Ends QE, Plunging Gold Prices in CAD

Commodities / Gold and Silver 2021 Oct 31, 2021 - 04:24 PM GMT

By: Arkadiusz_Sieron

Commodities

So, QE ended (so far in Canada, but the Fed will follow suit) and the termination plunged gold prices in Canadian dollars. Will this repeat globally?

Finally! Yesterday (October 27, 2021), one central bank ended its quantitative easing program after gradually reducing the pace of asset purchases earlier this year. Don’t panic though - it wasn’t the Fed, nor the ECB, nor the Bank of Japan. It was the Bank of Canada. As we can read in the monetary policy statement:

In light of the progress made in the economic recovery, the Governing Council has decided to end quantitative easing and keep its overall holdings of Government of Canada bonds roughly constant.



Of course, the central bank didn’t say a word about a reduction of the size of its balance sheet. This is how the dovish bias works: central banks never return to the pre-crisis levels of interest rates or balance sheet. Anyway, I would like to focus on the fact that the central bank of Canada admitted that it underestimated the persistence of inflation, which could remain elevated next year:

The recent increase in CPI inflation was anticipated in July, but the main forces pushing up prices – higher energy prices and pandemic-related supply bottlenecks – now appear to be stronger and more persistent than expected.

More persistent and higher inflation implies sooner monetary policy tightening. The BoC signaled that it could hike its main policy interest rate in mid-2022:

We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s projection, this happens sometime in the middle quarters of 2022.

The direct consequences of the Bank of Canada ending QE should be limited, as the BoC’s actions are not too meaningful for the global financial markets. However, yesterday’s decision is emblematic of the current shift among central banks from monetary easing into monetary tightening. Investors should be thus prepared for more persistent inflation and for a hawkish response of central banks.

Interestingly, while the BoC has just completed its asset purchases program, the Fed is only going to start tapering its own quantitative easing program. It means that the US central bank is tardy and behind the curve (especially that inflation in Canada is lower than across the border). So, its reaction will have to be stronger in the future. The market expects the first hike in the federal funds rate to happen in June 2022, so also in the middle quarters of 2022, despite the Fed’s one-year lag behind the Bank of Canada.

Gold may struggle until the Fed’s tightening cycle starts. You have been warned!

Implications for Gold

What does the end of Canadian quantitative easing imply for the gold market? Well, the direct impact on gold prices denominated in greenbacks should be minimal. However, the decision to stop QE exerted a huge impact on the price of gold denominated in the Canadian dollar. As the chart below shows, the price plunged yesterday from about 2228 CAD to C$2204 CAD within minutes.



This drop may be a harbinger of what may happen in the international gold market when the Fed tightens its own monetary policy. Of course, the announcement of tapering at the November FOMC meeting is widely expected. However, please remember that the message of tapering could be accompanied by other hawkish signals as well. So, although gold has been moving upward recently (see the chart below), its struggles could continue for a while.



The silver lining is that the drop in the gold price in CAD – although abrupt – wasn’t too deep overall and reversed quickly. To be clear, a 1% drop is relatively large, but it’s not a total disaster, especially given the prominence of the event. It seems that inflation worries currently provide support for gold prices.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 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