Addicted to credit

The Bloomberg Market’s Live team published a piece on the Market’s Live blog making a case for Quantitative Easing continuing indefinitely. The thinking is that the world’s major banks are not buying debt quickly enough still leaving ~$1 trillion of new sovereign bonds for buyers in the months ahead. This means that the Fed, ECB, and BoE will have to speed up the pace of their bond purchases in order to keep the present low bond yield levels which they need to do in order to keep borrowing costs down. The net result of this means that enormous COVID-19 support packages are being met with a seemingly virtually unlimited amount of bond purchases in order to keep borrowing costs down.

The Market’s Live team makes an important point. There is not really an easy way to go back now we have started down this QE path. Many people now who take mortgages will have no memory of high-interest rates and how crippling they can be. Many new mortgages will be based on these ultra-low rates which means that the central banks must keep adding to their QE programs and keep the borrowing costs down just to keep economies stable. We have become totally addicted to cheap credit. Failure to keep this environment going will just cripple an economy now that is dependent on low borrowing costs

Gold and silver set to shine

This environment however is perfect for both gold and silver to shine in. With central banks committed to do ‘whatever it takes’ to cushion the COVID-19 blow and low yields for the medium-term future expect the precious metals to keep moving higher and look for pullbacks for buying.

$1900 looks like an area where we can expect pullback buyers in gold and $23 an area to expect pullback buyers in silver.

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