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Updated: 15:06 06/12/21

Central Banks can’t save the markets this time

By Duncan Richardson, News Editor

01 Sep 2015

As stock markets continue to tumble traders are once again looking to their central banks to save the day.

As global stock markets plunged the Fed rolled out William Dudley, President of the Feds New York branch to calm the markets. After six years of zero percent interest rates and trillions of dollars in quantitative easing the Fed is running out of ammunition. The best they can now do is hint that they may delay an interest rate rise.

According to a number of traders global stock markets are so pumped up with cheap credit that a market crash is inevitable. More worryingly they believe when the crash does come Central Banks will be powerless.

Since the start of the 2008 crash the Federal Reserve has dumped $4.5 trillion dollars into the system. The Bank of England has printed up £375bn and both the ECB and Japan are still printing.

QE involves a Central Bank buying government debt to drive up its price and lower its yield. As a result fund managers have been forced into equities in search of yield. In effect QE has caused massive distortions in the financial market with the risk reward relationship divorcing itself from reality.

Many in the gold community believe all QE has done is to delay the day of reckoning. With global stock markets starting to come apart can the world’s central banks pump up the market one more time?

FTSE 100 is currently down over 2% after falls in New York and Asia. Gold is currently trading at £743.30 per ounce, silver at £9.48 per ounce and platinum £659.21 per ounce.

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