Aggressive central bank action has extended the life of the gold bull market.
B oth the Fed and ECB have signaled that they will “do their part” in a growth challenged environment. The specific impact, and the eventual success, of their actions for the global economy are less clear. Nonetheless, recent aggressive action by both central banks is clearly good news for liquidity-related investment plays.
For example, although gold prices had begun to rise in anticipation of the ECB and Fed announcements, our Commodity & Energy Strategy service believes that the full potential for monetary reflation has not yet been realized in the gold price. Measures of market positioning for gold are no longer oversold, but neither are they overbought. We expect our indicators to reach overbought levels before the rally is over, given the actions of the two most important central banks.
Bottom line: ECB and Fed monetary reflation are not yet fully priced: gold, silver and related mining stocks offer excellent intermediate-term upside and will continue to outperform growth-sensitive commodity plays.