Gold Performance During Global Monetary Easing

Another round of global monetary easing has just begun! More than 30 central banks around the world have cut interest rates this year so far. The Fed and the ECB are certainly among them. Should gold investors look forward to these policies playing out? Let's find out how gold tends to behave during such an extraordinary period!

Ladies and Gentlemen! Another round of global monetary easing has just begun! More than 30 central banks around the world have cut interest rates this year amid trade wars and slowing economic growth and subdued inflation. The Fed cut the federal funds rate twice this year, each time by 25 basis point. In September, the ECB cut its deposit rate from minus 0.4 percent to minus 0.5 percent and reintroduced its quantitative easing, while the People's Bank of China cut the reserve ratio by 50 basis point to 13 percent for large banks, the third time this year, releasing about $126 billion in liquidity to support the slowing economy. In August, the Reserve Bank of New Zealand surprised investors with 50-basis point interest rate cut. The central banks of Hong Kong, Thailand, Mexico, Turkey and Russia also have cut rates recently, while the Bank of Japan may join the club soon.

The fresh round of global monetary easing ends the short period when major central banks talked of, and some even tried, to normalize the monetary policy after all the unconventional measures undertaken in the aftermath of the Great Recession. The Fed probably advanced the most, but even the U.S. central bank failed to return the interest rates and its balance sheets fully back to pre-recession levels.

The last time when the central banks eased their monetary policies in such a unison was during the financial crisis. Today's situation is not as grave as in 2008, but the central banks all around the world take the trade tensions and the U.S. yield curve inversion seriously. They worry about the risk of recession and try to prevent it, or to cushion the blow.

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