The Central Bank purchases the bonds from the Private Sector i.e. Pension Funds and High Street Banks. This hike in demand makes the bonds more expensive and so they become a less attractive investment. So with all the money the Pension Funds and High Street Banks have made after selling the bonds, they start lending more and creating liquidity in the market which lubricates the wheels of commerce.
QE is not an exact science and once the ball is in motion it rolls where it will. The down side of this printed out of thin air money is that it devalues the currency of the country concerned. This makes a lot of people leave their cash based investments and turn to Gold and Silver. This pushes up the price of precious metals. And this exodus from the paper derivatives hurts the Stock Market.
So Mr. Draghi President of the ECB (European Central Bank) had better get his timing right! GDP is already at an all time low. GDP recorded in the EU was just 0.8% annual growth; Italy's GDP shrank by 0.1% and Germany, the 'power house' of the EU only managed a poultry 0.1%.
With QE (quantitative easing) on the horizon would it be prudent to take a long position in gold or silver now? Well the combined efforts of QE and low interest rates will kill savings. So it might be time to put savings into something of real value. And with the price of precious metals as low as they are, it has to be said it's worth a punt!
If this has been of any interest or help please share. As always your comments are most welcome!