The ECB openly entered the quantitative easing game (QE) this morning with a plan to purchase a “broad portfolio of transparent asset backed securities”. The chart below clearly illustrates why the ECB has finally hit the panic button with regard to QE:

Click to enlarge

Eurozone_inflation

Source: FT

“Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate,” ~ Mario Draghi

The disinflationary headwinds continue to be a severe threat to the eurozone economic recovery, as is the stubbornly strong euro currency. This morning's ECB announcement sent the euro tumbling to fresh 14-month lows against the US dollar which surely put a smile on Mr. Draghi's face:

EUR_USD

There is no end in sight to the central bank balance sheet expansion and the competitive currency devaluation among the major global central banks. The following chart from Bianco Research puts the current situation into perspective:

CB_Balance_Sheets

That's about as clean of a trend as one will find out there, virtually uninterrupted from the bottom left to the upper right of the chart. If this morning's ECB announcement is any indication the trend continues to be one of central bank balance sheet expansion.

The inevitable "unwind" of nearly $11 trillion in central bank balance sheets will be a tricky one to say the least and how this QE "endgame" will play out is anyone's guess. For now it's clear that the major global central banks (namely the ECB and BOJ) aren't done adding 'stimulus' to their economies. Gold remains an important part of a diversified long-term portfolio particularly after the recent price declines (Frank Holmes of US Global Investors recommends 10% of a portfolio be in gold with annual rebalancing)