Gold rose $11.10 to $945.70 per ounce in trading in New York yesterday and silver was up 18 cents to $17.90 per ounce. Gold and silver have traded in a narrow range in Asian and early trading in Europe. Gold reached new record nominal highs at $952.75 and silver has surged over $18 per ounce to new 27 year highs at $18.06.
Gold also surged to new record highs in British pounds and in euro. The London PM Fix at 1500 GMT yesterday afternoon was at $945. Gold fixed at new record highs at £482.76 and €641.20.
Increasing fears of stagflation drove gold to new record highs (non inflation adjusted highs) in major currencies. Both the ECB and the Federal Reserve have lowered their growth estimates and the Fed has also increased its inflation forecast. The Philly Fed Index fell to its lowest level since 2001 and unemployment news was poor with the 4 week moving average of jobless claims rising 10,750 to 360,500. Meanwhile most commodities continued to rise with zinc and copper surging, leading the base metals higher. Equity markets in Asia and Europe are down and fears of a U.S. recession are sure to be to the fore.
Despite the significant and growing inflation, markets have moved to fully price in a 0.50% rate cut at the next FOMC meeting in March. Central bankers are throwing in the towel in the fight against inflation in order to try and prevent a systemic crisis and a subsequent deep recession. The risk is that they let the inflation genie fully out of the bottle. Thereby wreaking havoc in the form of an inflationary spiral as was experienced in the 1970s (or worse in 1920s Germany which led to order-of-magnitude increases in prices and interest rates, redenomination of the currency and a wholesale consumer flight from cash to hard assets).