Central Banks Begin to Panic - Craig Hemke (22/10/2019)

October 22, 2019

After rapidly reversing policy in 2019, does it seem to you that the global central banks have moved into full panic mode over the past several weeks? To that point, consider some of the headlines that have appeared over just the past few days.

Let's start with Count Draghi and his insistence that the ECB restart their QE programs as soon as possible. Beginning next month, the ECB will begin regular purchases of up to €20B in bonds each month.

• https://www.ft.com/content/de4a958a-eab3-11e9-a240...

Not to be outdone, the U.S. Fed went from "neutral" to "Large Scale Asset Purchase Program" in less than four weeks with the announcement on October 11 of a new $60B/month debt monetization program. The Fed also announced that their liquidity-providing repo facilities will remain open through January of 2020, at a minimum.

• https://www.cnn.com/2019/10/11/investing/fed-qe-po...

So what is prompting this quick reversal in monetary policy? Is it simply the worsening global economy, or is something darker lurking in the shadows? As I type, it's Tuesday morning, October 22, and here is a collection of headlines from just the past week.

First, here's the Secretary General of the UN—a largely symbolic, international diplomatic post—urging global central bankers, the IMF, and World Bank to "do everything possible" in order to stave off a potential crisis: https://www.zerohedge.com/economics/central-banks-...

Next, the consulting firm McKinsey & Co. is out with a new report that concludes that more than half of the world's banks may not be strong enough to maintain economic viability in the next crisis (a crisis which is inevitable, I might add ). Remember, the central banks are owned by and serve their own member banks. If the majority of the world's banks are in financial trouble, then it's understandable that the majority of the world's central banks would be quite nervous: https://www.bloomberg.com/news/articles/2019-10-21...

And then how about this? Mervyn King is the former head of the Bank of England...sort of an English Bernanke. You probably ought to read this entire story from the Guardian, but the money quote is shown below: https://www.theguardian.com/business/2019/oct/20/w...

And finally, in what might be an unrelated development, check this out. Do you recall that The Washington Agreement on gold was allowed to expire a few weeks back? This twenty-year agreement between central banks put in place a structure for their gold SALES. When the agreement was not renewed, many wondered if that was due to a desire of central banks to make gold PURCHASES instead.

Well, guess what? That appears to be exactly the case! For the first time since 1998—and the introduction of the euro currency!—the German Bundesbank has added gold to its reserves. Not much, mind you, but still just short of three metric tonnes at 90,000 ounces. Is this the start of a trend, and will Germany join China, Russia, and the rest with regular monthly purchases? Perhaps more importantly, is this the signal to other EU-area central banks that they should all go ahead and buy gold too? And what, if anything, does this signal about the future of the fiat dollar and euro? All questions to ponder as you monitor developments in the weeks ahead.

Back in January, we posted a theory that, at the time, seemed almost contrarian in nature. Back then, almost every major analyst and economist was expecting higher interest rates in 2019 along with flat-to-down gold prices. At TFMR, we instead forecast a complete reversal in central bank policy due to a rapidly-slowing global economy, and that these conditions would lead to the best annual gains for the precious metals since 2010. You can access that post here: https://www.sprottmoney.com/Blog/gold-and-silver-2...

While not surprised at getting the macro picture correct, even I have been shocked by how quickly the central banks have moved in order to perpetuate the illusion of normalcy. And if the links from just the past few days are any indication, the central bankers are just getting started. Expect negative interest rates and unlimited debt monetization in the months ahead as the central banks literally empty their "tool box" in a desperate attempt to maintain order. Already, The Fed is publishing research pieces that extoll the alleged virtues of negative interest rates. This alone assures you that negative rates will soon be coming to the U.S.: https://www.frbsf.org/economic-research/publicatio...

Though gold and silver prices are already up about 20% year-to-date, this worsening global monetary/liquidity crisis sets the stage for considerable gains in the months ahead. Are you positioned to participate? If not, now is the time to prepare through the acquisition of physical precious metal. Only precious metal can provide protection against the madness of the central bankers. Acquire some today at Sprott Money while it remains readily available.