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Gold price rises on monetary stimulus hopes

# Yesterday, for the first time in March, the gold price broke through its short-term ceiling of $1,585 and approached the $1,600 mark, while silver moved back above $29. During a press conference concerning the Bundesbank’s annual report, the German central bank’s president Jens Weidmann stated that short term inflationary pressures were subsiding.

As Weidmann – a member of the ECB Governing Council – is one of the strongest opponents of Draghi’s “whatever it takes” approach on monetary policy, his newest remarks were judged as a sign for a continuation and maybe even more leeway regarding future ECB stimulus. However Weidmann also reiterated that the crisis in the eurozone has not been resolved and cannot be solved by central banks. “It is fiscal policy, not monetary policy that will decide the overcoming of the crisis“, said Mr. Weidmann.

Interestingly the Bundesbank withheld nearly €7 billion in profits from the German government as a provision against the increased risks that come with the purchase of European sovereign debt on behalf of the ECB. On the one hand this means a shortfall of €800 million for the German budget. On the other hand it obviously raises the question why the ECB – facing very similar balance sheet risks – has only been setting aside €1.2 billion in provisions in 2012 despite the fact that its balance sheet is about four times the size of the Bundesbank’s.

Across the ocean the Dow Jones Industrial Average closed at 14,450.06 points for its eighth consecutive all time high posing the question whether the definition of inflation by central bankers is not of completely dishonest nature. It is not hard to forecast what is going to happen to the price of gold when the reality – that inflation is in fact the dilution of a currency’s value – slowly sinks in.

Author: The GoldMoney News Desk

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