Well,well,well, here we go again, more printing of money as the Bank of England announced that its quantitative easing (QE) programme will be increased by another £75 billion shortly. The Bank’s Monetary Policy Committee is taking its asset purchase initiative up to a total of £275 billion.
The committee also mentioned risks to the UK’s economic growth, including the Europe's worsening sovereign debt crisis and the deceleration in the pace of global growth, especially within the UK’s major export partners.
The markets responded rapidly with the FTSE moving up supported by huge increases in the banking sector. Of interest to us was the 6.49% gain achieved by Fresnillo Plc, and the 5.45% gain achieved by Randgold Resources Limited, both household names in the silver and gold producing sectors.
The positive mood was carried forward in the US as the S&P 500 gained 1.83% in today's trading in NYC.
The Europeans also moved to increase liquidity when The European Central Bank accessed the Federal Reserve's foreign exchange swap facility for $500 million this week at slightly higher interest rates, this move is due to the shortage of dollars among European banks.
It should be noted that this is the third time in as many weeks that the ECB has been has made use of the swap line facility in an attempt to ease the need for dollars in the euro-zone.
Adding more liquidity may well benefit the stock exchanges, however, people on fixed incomes such as pensioners will be confronted by higher prices somewhere down the line and they don't have the ability to increase their earnings to compensate for such rises. Having pounds injected into the system will also serve to keep interest rates low, which is disappointing news for those who have worked hard and managed to save a few quid as the real rate of return is negative.
As an alternative to holding the folding stuff and watching the value decay over time, people will look further afield for a safe haven and for money that no government can dilute. Enter gold and silver, which have outperformed the both the general stock markets and the major currencies over recent years. We sense that although more people are starting to talk about precious metals few have actually made the move in terms acquiring a foot hold in this sector of the market. But that will change and when it does we will be on the edge of the 'manic' phase which will see precious metals prices go ballistic.