Gold News

Eurozone's QE "Could Include Gold Bullion" to Boost Inflation, Swiss "Must Be Able to Sell" as Japan Hits Recession Despite QE

GOLD BULLION prices touched new 2-week highs at $1194 per ounce in Asian trade Monday morning after new data showed Japan slumping into recession for the 7th time in 20 years.
 
Gold prices then eased back but held onto Friday's late surge – sparked by what analysts called "short covering" – while silver retreated 2.5% from its new 2-week high at $16.47.
 
The Yen – now subject to $60 billion of QE by the Bank of Japan each month – spiked to a new 7-year low versus the Dollar, while the Nikkei stock index dropped almost 3%.
 
Prices across the Japanese economy rose 2.1% annualized between July and September, today's data said – a multi-year record high – while real GDP fell 1.6%, with Q2's reading also revised sharply lower.
 
With the European Central Bank aiming to grow its balancesheet by 40%, back to 2012's record level above €3 trillion ($3.75trn), "Theoretically the unconventional measures unanimously approved by the Board of Governors...includes the purchase of government bonds or other assets such as gold, shares and Exchange Traded Funds (ETF)," said ECB policymaker Yves Mersch in a speech Monday.
 
Switzerland's looming referendum on central bank gold bullion – taking place 30th November – was meantime hotly debated on national TV on Friday. The most recent opinion poll says voters will reject its call for the Swiss National Bank to hold a minimum 20% of its reserves in gold, all held domestically, and with a ban on ever selling gold again.
 
The vote faces "significant risks" says US investment bank and London bullion market maker Morgan Stanley today, because the question put to voters "is complex...[with] a double majority threshold" set both at 50% of all voters and in the majority of regional cantons.
 
"History indicates that Swiss public referenda rarely lead to change," says Morgan Stanley. Moreover, "the national parliament voted down the proposal in May over concerns [it] would undermine the flexibility of monetary policy."
 
Also opposing the plan however, SNB chairman Thomas Jordan "categorically" dismissed suggestions at the weekend of a separate fund to manage the central bank's gold in the event of a "Yes", telling weekly newspaper Sonntagszeitung that "the SNB cannot simply use some tricks to circumvent the will of the people. I rule that out."
 
Amongst the initiative's supporters, meantime, Zurich economics professor Hans Geiger said the proposals should be changed because "the absolute ban on selling gold in future is doubly wrong."
 
First says Geiger – who has long supported the initiative – the SNB should be able to reduce its gold reserves if its balancesheet shrinks overall.
 
Secondly, "If Switzerland were to face crisis, it must be able to use the central bank's gold." 
 
Official data show consumer price inflation averaging less than 0.5% per year since 2004, the year the SNB completed selling half its gold bullion reserves – a move needing voter approval in a referendum of 1999.
 
Since 2011, and in a bid to support the country's large export sector, the SNB has imposed a ceiling on the Franc of €1.20, using QE to create money and buy Euro-denominated assets to depress the Franc and trebling the size of its balancesheet.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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