Precious metal prices rose yesterday on news of more quantitative easing (QE) by central banks in Europe. The most actively traded Comex gold contract, for December delivery, rose $11.60 (0.7%), settling at $1,653.20 per troy ounce. Platinum for January delivery was up 1.7% to $1,508.10 per ounce, while palladium for December delivery settled up 5% to $598 per ounce. However – and unsurprisingly on a day when hedge funds were buying “risk” assets and inflation expectations were rising – silver was the best performer of the precious metals, with the December contract gaining 5.5% to settle at $32.005 per ounce.
More money printing in Europe was the stimulus for gains in gold, silver, commodities and stocks. The Bank of England’s Monetary Policy Committee surprised markets by announcing another £75 billion of gilt purchases. The Bank has been preparing people for more quantitative easing, but the purchases were announced a month earlier than expected. In addition, investors had been anticipating just £50 billion’s worth of purchases. £75 billion of new bank reserves are equivalent to the US Federal Reserve injecting around $750 billion into the US banking system.
Upon completion of this latest round of QE, the Bank of England will have created £275 billion since the financial crisis in late 2008, with some economists predicting that this figure could reach as high as £500 billion in the coming months and years. Certainly the BoE governor, Mervyn King, is doing all he can to prepare people for more drastic measures, stating in an interview yesterday that “this is the most serious financial crisis we’ve ever seen, at least since the 1930s, if not ever.”
With UK inflation already running at 4.5% on the CPI (and RPI – which many regard as more accurate – at 5.2%) this latest QE measure will pile further inflationary pressures on to the British economy. Prices are increasing at a greater rate in the UK than in other developed countries.
Meanwhile across the English Channel, outgoing European Central Bank president Jean-Claude Trichet announced in his last press conference as head of the ECB further “covered asset purchases” worth €40 billion – QE in all but name. He also reiterated that the ECB would continue targeting an interest rate of 1.5% – though the new ECB head, Mario Draghi, (who takes over on November 1) may well jettison this policy in favour of a lower rate.
QE in the eurozone has thus far remained muted (the €40 billion announced yesterday is equivalent to the Fed creating “just” $61 billion). But with more and more countries seeking to devalue their currencies in order reduce the real value of debt and to promote exports, it’s surely only a matter of time until the ECB gives into the same temptations in a big way – a development that would of course be highly bullish for precious metal prices.