Gold News

Comment - Two central bankers, two politicians, and the advantages of offshore gold

Gold traded sideways in Asia on Thursday, opening the European session back above $670 per ounce – the 7-month high for Dollar investors it first hit after Ben Bernanke of the Fed said he was done raising US interest rates on Wednesday.

Or so the bond and currency markets thought. "It will be some time before we can be confident that underlying inflation is moderating," the Fed chairman actually told politicians in Washington.

But Wall Street and the City took the thrust of his testimony as intended – and sent bond yields tumbling as the Dollar lost value yet again.

The 10-year US bond yield fell 9 points to close Wednesday at 4.73%. Since Tuesday, the Dollar has now slipped nearly 2 cents against the Euro to reach $1.3150.

"You are getting good grades from everyone," joked one US senator to Bernanke on Wednesday – everyone but Dollar investors, that is!

Meantime in London, the UK's leading central banker warned that the UK cannot "ignore concerns about inflation ahead".

Mervyn King was presenting the Bank of England's latest Inflation Report. It says there's a chance Consumer Price inflation will still be above its 2% target two years from now.

At last count, it was running at 2.7%. The old inflation measure, the RPI, is running at 4.2%. That's above the average salary growth of 4.0% – including bonuses – reported by the UK government's data agency on Wednesday.

No wonder then that the markets took Dr. King's warnings to mean further Sterling rate rises ahead. UK interest rates are running only 2.55% ahead of official inflation – their lowest level in more than two decades.

So anticipating better real returns for Sterling investments – soon...any time...maybe this year? – currency traders have pushed the Pound more than 1% higher to open London today at $1.9650 against the Dollar.

That left the Sterling price of gold to retreat back to £340 per ounce in Asia earlier today. Versus the Euro, gold has pulled back below €510.

Bad news for Euro investors from Paris and Berlin, however. The outlook for the Euro is weakening politically, just as the French and German economies had appeared to be picking up.

"Many in the financial sector would leave for London if Ségolène Royal is elected," a leading French recruitment consultant warned the Financial Times yesterday.

As it is, France waves good bye to two people each day who are now paying its "wealth tax", representing a loss to the Paris exchequer of €2.2 billion in 2005 – some $2.8 billion.

Now Ms Royal has proposed regulating bank fees, and removing the ceiling on how much tax individuals can pay – currently at 60% of personal income.

"I am not talking about salaries, but easy profits," said Ms Royal in a speech last week.

"Not hard-earned pay but rapacious profit."

French investors aren't alone in facing these crowd-pleasing threats from vote-seeking politicians. Germany's vice-chancellor Franz Müntefering yesterday stood by his "locust" metaphor when talking about Anglo-Saxon-style activist investors.

"Money in itself is not bad," he said in an interview. "[But] we need rules that ensure this modern form of capitalism respects the requirements of the social market economy."

If you agree that having money isn't a bad thing – and you'd like to attend to your own social requirements before today's populist governments attack your wealth further – click here to learn more about BullionVault's offshore gold investment programmes today...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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