This month the European Central Bank is due to commence its asset purchase program to tune of €60 billion per month for the next 18 months. The expectation that this was coming as well as the actual announcement on January 22nd of this year have contributed to the euro’s 7.37% decline against the dollar year to date and its almost 19% decline over the last year.

There is an old cliché that says it is easy to create (price) inflation except when you really need it which is where Europe and much of the developed world is today. The US can’t quite maintain its 2% inflation target and Eurozone inflation in January printed at -0.6% in January after being at -0.2% for all of 2014.

As we learned from US policy, the goal of asset purchases and ultra-low interest rates is to stimulate economic activity by flooding the system with capital, making that capital cheap to borrow and creating impatience with assets sitting in money funds that only pay one or two basis points.

For years the European Central Bank implemented fewer stimulative policies than the US Federal Reserve and is coming to the asset purchase party six years after the Fed and so however deflationary things might appear in the US it is far worse in Europe.

We see this in the shockingly low bond yields in Europe. The ten year yields for sovereign debt from all of the PIIGS countries (remember that term?) is lower than the US Ten Year Treasury Note and has been for quite a while. Five year sovereign debt in Germany, Austria, the Netherlands and Finland are all negative. Non euro countries like Denmark, Sweden and Switzerland also have negative yields at various points on their respective curves.

There are several investment implications here. Just like they say you should not fight the Fed, you probably shouldn’t fight the ECB as many European equity markets are up a lot year to date despite the large decline in the euro. “The book” would say that deflation is bad for gold but like many supposed investing rules of thumb this may need to be reexamined.

The deflationary scenario has been bad for the euro against the US dollar and gold and to the extent gold is a currency then we should be open to the possibility that the trends in place (euro weaker against the dollar and gold) can continue a while longer.