Central Bank Credibility, the Equity Markets and Gold
By GCRU Gold News on Friday, November 28 2014, 01:28 - Permalink
Central bank credibility is at all-time highs. As a consequence, we suggest, equities are near all-time highs too while gold is scraping multi-year lows. A change though may be in the offing with all three. Not today, nor tomorrow. But perhaps sooner than most think.
As James Grant, editor of Grant’s Interest Rate Observer likes to say, gold is the reciprocal of central bank credibility. We agree. Central bank credibility is at a peak, so gold is in the dumps.
Gold wasn’t always in the dumps. It rose right along with equities, indeed outperformed equities, from the 2009 Great Recession bottom – when central banks the world over first began implementing their unconventional monetary policies – straight through to its September 2011 top. The reason we think it did is quite simple. Coming out of the Great Recession, central bank credibility – their ability to “pull us out” of the Recession – was being severely questioned by investors.