ECB Extends QE but Tapers it – Gold prices rise in Euro terms.

Video transcript:

Today is Thursday 8th December 2016 and we are commenting on the ECB decision today to both extend and taper its QE Programme.

Most European stock markets rose today between 1% - 2% following the European Central Bank's decision to extend its asset purchase programme by 9 months, longer than had been expected, while cutting the size of monthly purchases.

The ECB loosened restrictions on the assets it could purchase and President Mario Draghi gave a dovish press conference where he said the level of purchases could rise again if needed.

In essence:
1. The ECB extends QE until December 2017
2. The new €60bn a month rate was introduced but would not begin until April 2017.

While many investors were confident of dovish messages from the ECB, few saw a "tapering" coming

It seems that the Central Bank has become stuck between two opposing interests: the other central banks, which are against extending quantitative easing, and the public, which is still looking to the ECB for fiscal stimulus.

George Selgin, senior fellow at the Cato Institute describes the situation extremely well:

"The ECB is playing a difficult (and dangerous) game. It wants to reassure its more hawkish critics, including German representatives on its Governing Council who voted against the current purchases, that its quantitative easing deadlines aren’t meaningless.

The ECB also wants to give the public some ‘forward guidance,’ by committing itself to a definite policy course in the future. Besides countering uncertainty, which itself acts as a drag on investment and growth, an advanced commitment to future easing is intended to enlist the public’s help in boosting spending and interest rates by raising today’s inflation forecasts.

Consequently, central bankers, by placing too much emphasis on current conditions, can end up contributing to economic instability instead of combating it. When central banks commit to future policy actions in advance, as they do when they make use of forward guidance, they’re even more likely to end up regretting their actions.”

The reaction has been the immediate fall of the euro by 1pc to $1.06 where it currently stands. We remember back to 11th March 2015 where the euro slipped to $1.0599 below $1.06 for the first time since April 2003.

We can now see it falling potentially further against the dollar especially if the FED raises rates next week. Euro dollar parity should not prove surprising and the impact on the gold market is that although gold has fallen by $2 today in Euro terms it has risen by 12 Euros. With further weakness still expected, we should not be surprised to see gold and silver purchases increase again within the Eurozone, though for the moment the stock markets are the flavour of the month.

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Disclaimer:

Illuminati Silver owners come from a background of Banking, International Wealth Management and Economics. Having now retired from these worlds we are not qualified to give investment advice. Therefore, this and other productions must not be deemed to be giving such advice and merely represent the personal views of its owners.