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Accommodation On Top Of Accommodation...by Peter A. Grant
Sep 18, AM 
Gold pushed to a new 7-month high at $1779.30 in overseas trading on Wednesday, after the Bank of Japan — following on the heels of the ECB and the Fed — announced an expansion of their own quantitative measures. The BoJ said that they will buy an additional ¥10 trillion in assets, bringing the total size of their asset purchase program to ¥80 trillion.This move by the BoJ was modestly more aggressive than anticipated, and the yen dutifully retreated. However, gains in the USD-JPY rate above 79.00 proved short-lived. Perhaps the muted response to the third significant easing by a major central bank in as many weeks is reflective of growing skepticism that monetary policymakers truly have a handle on the situation. We just passed the 4-year anniversary of the Lehman Brothers' collapse, and the 4-year anniversary of the announcement of QE1 is fast approaching, and yet central banks are still heaping accommodation on top of accommodation. Do these policymakers continue down this path indefinitely? Afterall, ¥80 trillion in BoJ asset purchases can easily be ramped up to ¥100 trillion, or ¥200 trillion for that matter. Maybe they reach a point where they throw up their hands and say, "We've done all we can do from the monetary side. It's now time for politicians to make meaningful — and painful — fiscal reforms." That would of course create a whole new set of problems. Worse yet, maybe the market is waking up to the possibility that what we have on our hands is a burgeoning currency war. I mean, how can a country (or group of countries) expect to gain any advantage if every central bank easing is answered by easier monetary policy elsewhere? Beyond the latest parade of accommodations, the Bank of England minutes released today showed that some members of the MPC "felt that additional stimulus was more likely than not to be needed in due course." Beggar-thy-neighbor currency debasement results in a race to the bottom, where nobody wins in the end. However, gold continues to serve as a critical hedge against such debasement. It's worth reiterating the following, and re-posting the chart from a comment I wrote last week: When QE1 was announced on 25-Nov-08 gold was trading around $816. Slightly less than 2-years later, QE2 was announced with gold at $1368. The yellow metal was at $1784 on the announcement of Operation Twist on 21-Sep-11. And last week, when the FOMC statement revealed QE3, gold was trading at $1732.
Gold is already up more than 2% from the QE3 announcement, with the next significant technical hurdle defined by the highs from 29-Feb-12 and 08-Nov-11 at $1790.64 and $1802.89 respectively. For a little bonus content today, be sure to read: A Devilish Addendum to Today's DMR Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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