On Thursday as expected, the European Central Bank revealed a €1.1 trillion quantitative easing programme in a bid to shore up the Eurozone economy. Mario Draghi, President of the ECB, said that the programme would continue, “until we see a sustained adjustment in the path of inflation” and that the decision had been made by such an overwhelmingly large majority of the Bank’s governing council, that a vote was regarded as unnecessary.
At the London close the Dow Jones had increased by 114.50 points to 17,668.78 In London the FTSE 100 closed up by 68.59 points at 6,796.63 3,644.98.
The newly printed money will be used to buy government debt in the hope it will boost confidence, raise inflation and lower the value of the euro against its major trading partners. Following the announcement gold saw a period of volatile trading followed by a rise from £849 to £869 per ounce later in the evening. The move was more substantial against the weak Euro where the price was approaching €1,130 on the day and has since gone higher towards €1160 per ounce.
It is interesting to note that former BoE Governor Mervyn King suggested that QE might not work and that, ‘we should worry about that. We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand’.
Investors are extremely concerned about Sunday’s Greek election which could see Greece exit the euro and potentially default its outstanding sovereign debt. Any such move would destabilise the eurozone. Currently the anti-bailout party Syriza have a strong lead in the polls with the exit now looking likely. Gold is benefiting as a safe haven due to the uncertainty.
The Bank of England’s Monetary Policy Committee returned to unanimity after two rebel hawks returned to the fold this month and voted to keep interest rates at 0.5% following the larger than expected drop in inflation. It now appears unlikely that interest rates will rise in 2015, the first or second quarters of 2016 appear much more likely time frames.