ECB stimulus: Gold and silver up, Euro still stays strong

Gold Today –Gold closed in New York at $1,265.50 on Wednesday, falling in London at the opening on Thursday morning.

The $: € moved from $1.1346 to $1.1340 overnight. The dollar index is standing at 93.89 up from 93.71.

LBMA price setting:  $1,258.35 up from Wednesday 8th June’ $1,252.40.

With the European Central Bank’s Mario Draghi beginning his next phase of monetary stimulus the concept of ‘helicopter money’ comes to fruition. A fear that, when one has deflation [and actions to stimulate inflation that fail point to heavy deflation] and such a stimulative policy going on, deflation accelerates because of the excessive supply of new money. A look at the Weimar Republic’s hyperinflation showed how the two joined forces to accelerate inflation. While we don’t think that today’s action will lead to hyperinflation, such policies do eventually result in considerable economic damage.  We believe that the road to that result has begun. Gold and silver prices are the natural beneficiaries as currency values decline heavily.

But the U.S. will act to prevent a strong dollar from resulting as this will hurt the recovery there. The weapons to keep the dollar strong against the euro will prove insufficient eventually, if ‘helicopter money’ issuance grows much more.

The gold price in the euro was set at €1,108.19 up from yesterday’s €1,101.69

Ahead of New York’s opening, the gold price was trading at $1,260.30 and in the euro at €1,113.78.

Silver Today –The silver price closed in New York at $17.05, up from Wednesday’s $16.40 a rise of 65 cents. Ahead of New York’s opening the silver price stood at $16.99.

Price Drivers

Mario Draghi made it abundantly clear that Monetary policy can do only so much and that structural reform must be undertaken to make monetary stimuli work well. The decision to buy Corporate Bonds, we feel, is going too far, as this will bring such yields down to zero and likely below into negative territory.

The evidence of QE both in Japan and the Eurozone to date has been disappointing in terms of delivering economic growth. There is a good case to say that at least it has staved off deflation, which will grow again, if stimulation is halted. Hence, such current stimulus is only a temporary solution, at best.

It is unlikely that there will be a synthesis of structural reform policies within the E.U. in the near or foreseeable future due to the structure of the E.U.  The bubbles that are being formed in the bond markets will burst, the moment interest rates are hiked.

Gold ETFs – On Wednesday the holdings of the SPDR & gold Trust stood still, once again, leaving the holdings of the SPDR at 881.145 and those of the Gold Trust at 196.90 tonnes.  There is media talk that gold is being bought. We can accept that this is so in the E.U. but U.S. demand is quiet as they analyse the way forward for the U.S. The gold price is rising

Silver –The silver price is going full pelt upwards. When gold pulls back silver pauses, when gold rises slightly silver will sprint ahead.


Julian D.W. Phillips | | StockBridge Management Alliance


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