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 Gold has recouped most of yesterday's corrective losses,
returning to the narrow consolidation band that had developed going back to
the middle of last week. The yellow metal is up more than $15 on the day and
is up nearly $20 from the intraday low of $1310.00.
The ECB held steady on policy today, as was widely expected, but there were
hints that further accommodations could be in the offing. “If warranted to
achieve its objective, the Governing Council will act by using all
instruments available within its mandate,” said Mario Draghi. He want on to
stress the central bank's "readiness, willingness, ability, to do so.”
Of particular concern was Mario Draghi's acknowledgement that a "public
backstop" for the eurozone financial system may be needed. European bank
shares surged on the prospect of ridding their balance sheets of distressed
assets at the public's expense. Nobody loves a bailout like a banker!
With the possibility of bailouts on the horizon, movement into gold should
come as no surprise. One need look no further than gold's reaction to the
bailout of the U.S. financial system that came in October of 2008. That
marked the bottom of the deleveraging correction in gold at $681. Over the
next three-years, the price of gold darn-near tripled.
On the other side of the world, there is ongoing speculation over what the
BoJ's next move might be. The BBC released an interview with BoJ governor
Haruhiko Kuroda, who said there was "No need and no possibility for
helicopter money."
However, it turned out the interview was recorded more than a month ago.
Central bankers very rarely explicitly rule out the use of anything in their
toolbox, that they may need at some point down the road. So, either that
comment was a slip, or Kuroda was hoping to tamp-down speculation ahead of
such a move.
Additionally, that comment was made well before Kuroda's private meeting last
week with (Helicopter) Ben Bernanke. Are the choppers spooling up? We'll have
to wait and see, but if they are, you most certainly want to own gold as the
last throws of the central bank death spiral is test driven in Japan.
The other idea that is being floated is that all of those JGBs on the BoJ's
balance sheet get swapped for a perpetual zero-coupon bond! It's essentially
a cancellation of that debt. From that point, the country can start running
up debt again in the same manner that netted them perpetually weak growth and
disinflationary pressures. Or, they can just spool up the choppers anyway and
drop all those yen on the public . . .
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