While it remains to be seen if a majority of the Swiss population want their central bank to purchase a whopping 1,500 tons of gold in the coming years, perhaps the most notable event for gold overnight (aside from news that while India exports fell 5% in October, gold and silver imports soared by 280% and 136% Y/Y, respectively), came from ECB Executive Board member Yves Mersch who in a speech in Frankfurt said that the ECB balance-sheet expansion is “neither an end in itself nor a fetish.” As quoted by Bloomberg, the ECB member said that “the effect on rates that comes along with it is at best a collateral benefit.”
Nothing new here: we have discussed why unlike Japan and the US, the biggest gating factor for Europe is the presence of freely-available, unencumbered collateral that could, at least in theory, be purchased by the ECB. Which brings us to the Mersch punchline: “Theoretically the ECB could purchase other assets such as gold, shares, ETFs to fulfill its promise of adopting further unconventional measures to counter a longer period of low inflation.”
In other words, for the first time ever, the ECB revealed just what the endgame for the Eurozone would looke like: full-blown monetization of virtually everything that is not nailed down. Including gold.
More from Mersch via Bloomberg: “The ECB should allow current stimulus measures to take effect first, then potential new measures must be analyzed in advance for effectiveness and conformity to ECB mandate.” He concluded by saying that “Monetary-policy easing can bring no positive effect if Europe’s economy isn’t structurally well-positioned” through reforms.
Which is ironic because in the same speech the same Mersch also opened a whole new can of worms when he admitted that he is not sure if the BOJ’s QE has worked.
“I’m not so sure it has worked, considering that this morning we saw that Japan has officially slid into recession again.”
