Since Mario Draghi (ex Goldman Sachs) came to power as head of ECB, we have seen policies put in place to ensure euro zone bonds are an attractive to buy. Interest rates were first dropped and then the LTRO was introduced, i.e borrow cheap at 1% over 3 years with the intention of purchasing sovereign debt (just as Nicholas Sarkozy). Well you can see from the chart below, the ECB may not be printing yeah right, but has massively expanded its balance sheet.

Where are the Germans in all this?  After all they are totally against printing money, yet they benefit from the fall of the euro since their exports become much cheaper.

The ECB’s total assets have risen by 38% from €1.94trn on 1st July to €2.69trn on 6 jan 2012, while the fed’s total assets rose by 1%. And you know what this means for gold.

More importantly to fans of sound currency, the bottom line is that between the ECB (assuming it does proceed with a €1 trillion LTRO), and the Fed (assuming it does go ahead and launch a $600 billion minimum (and as much as $1 trillion) QE3 as every bank expects by June), the global balance sheet will have increased by nearly $3 trillion since July, even as gold has actually declined in price. And if anyone needs the final clue as to what is going on, an increase in the US debt ceiling to $16.4 trillion which is expected to pass imminently, would mean that by simple correlation a fair value for the yellow metal would be just under $2000 per ounce.

Source: Zerohedge

Advertisements