Early last week, the Bank of Japan (BOJ) indicated their intention to further expand the money supply:
“Regarding purchases of T-Bills, conducted as part of money market operations, the Bank will decide the purchase size per auction considering the effects on financial markets. The Bank will purchase about 500 billion to $3.0 trillion yen of T-Bills per auction for the time being.”
When combining the above statement with the BOJ eliminating its ceilings on purchases of Japanese government bonds and increased purchases of corporate bonds, and the BOJ committed itself to perhaps expanding its money supply by another $5 trillion before the end of 2021.
To put the seemingly massive increase in perspective, the $5 trillion in money printing is approximately equal to Japan’s $5 trillion GDP. That’s right – the BOJ is printing enough money to equal the country’s annual GDP.
The amazing, albeit symbolic move, is not an anomaly among central banks. The following figure has projections on central bank balance sheets for the European Central Bank (ECB), the Federal Reserve, the BOJ, the Bank of England (BOE), and the People’s Bank of China (PBOC).
How much money will central bankers print before 2021 is through? If one believes the signals coming out of the mouths of the BOJ, the BOE, the ECB, the Fed, and the PBOC, the amount of new money printing could amount to $25 trillion. If one assumes global GDP of $85 trillion at the end of 2021, the central bank money printing operations sum to almost 30% of global GDP. Almost unbelievable.
The Balance Sheets
The chief sinner of the pending money printing operations is the Federal Reserve. Before 2021 is through, the Federal Reserve could end up printing another $11 trillion from its current $6.3 trillion balance sheet.
In second place is the ECB. Ms. Lagarde’s beloved institution may print another $7 trillion by the end of 2021. That would more than double the amount of action the ECB has right now at $6 trillion.
A rank of the other three includes $5 trillion from the BOJ, $2 trillion from the PBOC, and $500 billion from the BOE. Hey, if your neighbor is doing it, why not get into the game?
The Meaning for Precious Metals
What does all this mean for precious metals? Well, it could mean quite a lot – or it could mean nothing. So far, the money printing and other actions have helped silver recover to $15 from a COVID-19-induced drop from $19 to $12. At the same time, the price of gold has risen from a mid-March figure of $1,475 to $1,700.
If there is any indication from the movements in the price of gold and the price of silver to this point, the message is one of strength. Precious metals have done quite well.
With another $25 trillion on tap from central banks through 2021, it seems hard to see economy-drive demand for precious metals sapping up. And with the inflation-hedge aspect of precious metals demand likely continuing to rise, the remaining 2020 and 2021 performance could be years to remember.