Market expectations

At CMI Gold & Silver Inc. we believe that central bank activity is driving the markets — the metals and the stocks. Expectations of loose money mean higher metals prices (in anticipation of increased rates of inflation) and higher stock prices (in hopes that the stimulus will fillip the economy).

As for the latter, there is solid analysis that interest rate manipulations and fiscal spending fail to stimulate economic activity. Still, bureaucrats continue such efforts under the misguided belief that “The government needs to do something.”

The European counterpart to the US Federal Reserve is the European Central Bank, which is in the middle of a €80 billion a month bond buying program that hopefully will stimulate economic activity in the EU and move the rate of inflation closer to the ECB’s goal of 2%. Currently, it is running at 0.4%.

The big discussion going on in the EU is will the ECB continue its €80 billion a month asset buying program past the spring. As the Financial Times reports, “. . .the ECB faces a choice whether to meet market expectations and prolong QE beyond March. . .” Presently, markets are betting on a continuation of QE, and ECB president Mario Draghi has said that “an abrupt end to bond purchases is unlikely.”

Expectations of continued money creation — at the ECB, the Fed, the Bank of Japan — is built into markets. Any reversals, however small, will be met with negative results in stocks. And, in a smaller way, in the metals. However, three months of declining stock prices would reverse any selloff in gold and silver. Stocks remain the metals’ primary competition for investor dollars.

Gold and silver have enjoyed solid gains so far this year, despite their price declines over the past month. At CMI we believe the metals remain in a bull market and that current prices are favorable. After the election is over, the media will return to discussing real problems in the world, which will increase interest in the metals.