BOE/ECB At 0.5% – Negative Real Interest Rates Continue, Inflation Rising

Today’s AM fix was USD 1,249.50, EUR 961.15 and GBP 819.67 per ounce. 
Yesterday’s AM fix was USD 1,246.00, EUR 962.16 and GBP 818.28 per ounce.

Gold rose $10.70 or 0.86% yesterday and closed at $1,252.90/oz. Silver surged to $19.905 and finished up 2.38% at $19.80/oz.


Cross Currency Table – (Bloomberg)

The U.S. markets are closed for their Independence Day holiday today.

Gold was tentatively higher overnight on worries about the revolution in Egypt which ended with President Mursi ousted. They crept lower prior to the BOE and ECB rate decisions but gold rose in sterling terms after the BOE decision to keep rates at 0.5%.


UK Bank Rate (1694 – 2013)

Carney, the new Bank of England governor, kept interest rates at historically record low levels at 0.5% and the pound fell after the announcement and was down 1% to £828/oz soon after.

Draghi, emulated his fellow Goldman Sachs banker, Carney and kept rates at 0.5%.

Ultra loose monetary policies involving record low base rates have been in place in the UK since March 2009, a lengthy 4½ years. In the Eurozone 0.5% record low rates have been seen since May this year.

Since 1694 and the ensuing three centuries’ of Bank of England history, the base rate has never been this low.

German and ECB base rates have never been this low. 


German Interest Rates and Inflation (1975-2013)

UK and western government bond yields remain near record lows only because western governments and their central banks are manipulating their bond markets by electronically creating currency in order to buy their own debt. 

Euro zone consumer prices are being driven upward by rising energy and food prices, data showed on Monday, underlining the fragility of the bloc’s economic health. Inflation in the euro zone, which is suffering from its longest ever recession and record high unemployment, increased to 1.6% year-on-year in June from 1.4% in May. 

June’s inflation reading was the second upward move from a three-year low of 1.2% in April.

Germany’s most populous state and a bellwether for German inflation data, North Rhine-Westphalia, saw inflation pick up to 2.1% on the year in June.

U.K. inflation accelerated more than economists forecast in May rising to 2.7% (CPI) due to rising energy costs. Britons face a persisting squeeze in living costs as they endure inflation triple the rate of basic pay growth, which was 0.9% in the three months through April.

Transport provided the biggest upward pressure on the inflation rate in May, as air transport and motor fuel rose from a year earlier. Air fares soared 22% from April, a record for the month of May. Higher clothing and footwear costs also stoked consumer prices.

Citizens throughout the EU are feeling the pinch in their pocket due to rising costs and many believe that inflation is higher than the statisticians in government departments are calculating.

Negative real interest rates and continuing money printing and QE will lead to inflation. The question is not if but rather when. They will support gold and lead to a lower fiat currencies versus gold in the long term. 

 NEWS
Gold climbs for 2nd day as dollar, stocks ease – Reuters

Gold Gains as Egypt Unrest, Europe Debt Woes May Increase Demand – Bloomberg

Gold futures end higher on political strife – Market Watch

Gold at huge premium as imports dry up; Survival of small jewellers at stake – Economic Times


COMMENTARY
Faber: "We Are Approaching A Low In Gold" – Economic Times

HSBC’s Steel Says Gold At $1,400/oz By Year End – Bloomberg

Greatest Threat to the U.S. Economy and One Easy Way to Protect Yourself – The Gold Report

Where Does Liquidated ETF and Electronic Gold Go? – Wall Street Pit

For breaking news and commentary on financial markets and gold, follow us on Twitter.

 

Mark O'Byrne

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