I came across an interesting Bloomberg piece when the Market’s Live team published a piece on the Market’s Live blog making a case for QE continuing indefinitely. The rationale for the view is that the world’s major banks are not buying debt quickly enough leaving ~$1 trillion of new sovereign bonds for buyers in the months ahead. This mean that the Fed, ECB and BoE will need to increase the pace of purchases in order to maintain the present low bond yield levels.
The devilish deal means that huge COVID-19 support packages is met with a seemingly virtually unlimited amount of bond purchases to keep borrowing costs down.
The Market’s Live team make a great point. There is no way to go back now we have started down this QE road. Many people now who take mortgages will have no memory of high interest rates and how crippling they can be. Many new mortgages will be based on these ultra low rates which means that the central banks must keep adding to their QE programs and keep the borrowing costs down. Failure to do so will just cripple an economy now that is dependent on low borrowing costs
Gold and silver set to shine
This environment is perfect for both gold and silver to shine in. With central banks committed to do ‘whatever it takes’ to cushion the COVID-19 blow and low yields for the medium term future expect the precious metals to keep moving higher and look for pullbacks for buying.
$1855 looks like an area where we can expect pullback buyers in gold and $21 an area to expect pullback buyers in silver.