Gold News

Spot gold prices leap as US Fed meets to decide Dollar interest rates

Spot gold spiked 1% higher just ahead of the Wall Street open on Tuesday, driven by bad news for both global inflation and the US mortgage market.

Gold priced in Dollars, Euros and Yen had traded sideways all morning in Europe.

It then leapt above $661 for the first time in 15 days. For German and French investors looking to buy gold, it shot to €497 per ounce.

Against Sterling, the price of gold had fallen as the Pound rose on the foreign exchanges after news that UK inflation is rising again.

But the surge in gold versus all currencies recovered those losses, pricing one ounce above £337.

British investors may welcome the defense against inflation that gold can offer.

Consumer prices in the UK rose 2.8% from Feb. last year, their second fastest pace in a decade, driven by higher food costs.

The UK's former inflation measure – the Retail Price Index – rose to 4.6% year-on-year, its fastest rate since 1991.

The data came as the Bank of England reported rapid inflation in the UK money supply continues regardless of higher interest rates.

Another measly quarter-point, now widely expected at the BoE's April meeting, is unlikely to encourage much long-term confidence in the Pound Sterling as a store of value.

(Click here to read more about how global inflation is destroying confidence in money today...)

Meantime in the United States, housing starts rose more than forecast in Feb., said Washington today.

Builders began working on new homes at an annualized rate of 1.525 million last month – up 9% from Jan.

"The drag from residential construction will be diminishing through the year," reckons Richard DeKaser, chief economist at National City in Cleveland.

"To the extent that there was angst about the housing market, this report should provide some comfort."

But a growing supply of new homes is unlikely to comfort US mortgage debtors who can't make their repayments right now.

And with the US Federal Reserve meeting today and tomorrow to discuss Dollar interest rates, the ongoing crisis hitting US mortgage lenders looks likely to hurt anyone bothering to save cash today.

"We are not expecting a rate cut," says Rupert Della-Porta, a $4 billion fund manager at F&C in London.

"But the market would like to hear that the Fed is watching the deterioration in housing and credit."

Lower rates from the Fed would only eat into further into the value of US Dollars. Measured against consumer price inflation, current Fed interest rates look positive.

But using the previous measure of CPI, real interest rates in the US are now at zero.

To find out what this means for the value of gold, click here and read on now...

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.

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