The correlation between the size of the European Central Bank’s (ECB) balance sheet and inflation in the common currency area is literally zero, according to Jeroen Blokland, Portfolio Manager for the Robeco Multi-Asset funds, Robeco ONE and Robeco Pension Return Portfolio.
That seems to be the case the central bank has expanded its balance sheet from roughly EUR 4.7 trillion to a record high of EUR 6.83 trillion in the eight months to November 2020. However, Eurozone’s inflation turned negative in September and the Consumer Price Index has remained below zero ever since.
While the balance sheet expansion doesn’t seem to have any impact on inflation, it does push borrowing costs lower. The German 10-year bond yield has declined by more than 30 basis points to -0.54% this year.
The decline in bond yields usually bodes well for zero-yielding safe havens such as gold. The yellow metal peaked at a record high of $2,075 early this year and was last seen trading at $1,838 per ounce, representing over 20% year-to-date gains.
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