How QE Impacts On Company Share Prices

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Unscrambling the real value of investments is becoming more difficult as central bank monetary policies distort the markets.

The values of some currencies and gilts are falling while stock markets are bullish but many analysts argue the values are false and are the result of policymakers trying to restart their economies.

Britain and Japan are both expanding quantitative easing, while the Eurozone is still buying bonds.

Many are awaiting concrete data which will show how much effect the British Brexit vote to leave the European Union has had on the global economy.

One of the problems is so many economic and political factors impact on local and the global economy that unravelling the strands is almost impossible.

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For Britain, is Brexit the cause of the nation’s financial woes or does the blame lie elsewhere?

After all Japan has no Brexit to contend with and is experiencing dire economic issues as well.

Safe havens for investors

The World Gold Council, the trade body for gold producers and dealers, contends poor monetary decisions by central banks are boosting the price of the precious metal as a safe haven for the wealthy.

But why would anyone want gold?

Invest in the precious metal and any cash sitting in bullion depreciates with inflation and does not earn an income.

Moving savings from cash to gold involves a brokerage cost and loss of interest, although not a large amount of money.

So the price of gold has bounced back to $1,360 an ounce.

Gold is not a risky, speculative investment. The gamble is on the price outperforming cash in the bank or money staked on stock markets.

The reputation as a safe haven comes from being easy to transport and sell.

Distorted share prices

Some argue that quantitative easing has no real effect on the economy, but boosts confidence that the economy may benefit from the injection of cash.

Others suspect the price of shares and assets are artificially inflated by monetary policy, while the price of gilts are deflated.

The reasoning is market prices are set by demand from investors and other macroeconomic factors, but these factors are tinkered with by easing, causing market prices to rise or fall for other reasons.

Instead of share prices reflecting company value and investor demand, their value rises without an underlying real terms increase in performance.

The same could be said about gold. People buy into the history of gold and feel better holding the metal even though economically the decision is not really sensible.

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