Hi everyone, I'm Amirah from KGI! Just quickly touching on an announcement from ECB last week
They announced a new round of monetary stimulus
According to its policy meeting last week interest rates on the main deposit facility will drop in further into negative territory
With the ECB's outgoing President Mario Draghi, announcing a 10 basis point cut to negative 0.5 percent
Which was pretty in line with market expectations.
What's more interesting here though is its decision to relaunch its massive quantitative easing program, or QE.
The asset purchase program will be restarted in the 1st of November and will entail
20 billion euros per month of net asset purchases for as long as it deems necessary.
This will mark the second round of QE from the ECB, the first coming four years ago
and will be Mario Draghi's last meeting before the new president Christine Lagarde takes over
Now, let's talk about some precious metals
We see an attractive investment opportunity now where we expect more potential upside even after gold prices have gained 16 percent this year.
Gold has historically performed well during recessionary
periods returning an average of about 12 percent
and we think it will do similarly well
in the coming months.
So what do we see driving the performance of precious metals this time round?
For one we are at the start of a new rate cut cycle where global central banks are once again cutting interest rates
Mainly as a result the weak economic growth in Europe and Asia, as well as a persistently low inflationary environment
Second, and just to indicate the amount of global liquidity that is searching for investment opportunities, or the lack thereof,
Negative yielding debt in the world has reached a staggering US$17 trillion just last month
Assuming gold prices increase US$50/oz for every 25 bps cut in the Fed Funds rate
We are expecting gold prices to reach at least US$1,600/oz by the end of this year.
Silver on the other hand has been lagging behind gold
The gold to silver ratio surged to a high of about 90 in July which is significantly higher than its 10-year average of 68
Therefore if history is any guide
We can expect the ratio between gold and silver to return to its historical averages
and for silver to trade above US$20/oz by the end of this year
So that wraps it up for me today
If you'd like to find out more about our views gold and silver check out the report we published last week
I'll try to link it in a card somewhere up here. Otherwise, check it out in the description box below. Thanks and have a good Monday!
