Gold and silver have enjoyed huge upside moves so far in September, despite falling short of posting new highs for the year. Still, gold is up 24% on the year and silver 40%.
One of the reasons for renewed interest in the metals is the failure of the European Central Bank’s €80 billion a month quantitative easing to stimulate economic activity in the eurozone. As a result, there is widespread speculation that not only will the program be continued but that the size will be increased.
Despite all the recorded failures of fiat money not providing long-lasting positive results, central banker never let that stand in the way of creating still more money “out of thin air.”
The ECB has now purchased more than 1 trillion of its planned €1.7 trillion buying, which started March 2015. Still, inflation and economic growth remain subdued. (I know that it’s ridiculous to equate inflation to economic growth, but that’s how central planners see it!)
Now, here’s a dilemma facing the ECB. It is running out of bonds to buy. German bonds, primarily, meet the ECB’s requirements, Germany being by far the most stable nation in the eurozone.
Citibank believes that come November there will not be enough German bonds left in the marketplace for the ECB to buy. Bank of America thinks bonds will last until the end of the year. What then?
The ECB will have to lower the standards for the bonds it buys. Come November or December, it will have to consider buying the bonds of less stable eurozone members, such as Portugal, Italy and Spain?
Money creation to solve economic ills has been embraced around the world, from Japan and China to the United States to Great Britain–and nations in between. History shows that higher prices will take hold.
It would be great if there were some way to know just when higher prices will kick in, but there isn’t. However, gold and silver’s price increases so far this year indicate that some very serious money has moved to the metals.