Gold News

Rate cuts expected to spur gold investment

The respective decisions of the European Central Bank (ECB), the Bank of England (BoE) and the Swiss National Bank (SNB) to cut interest rates are expected to result in more people buying gold, an analyst has told Reuters.

According to Commerzbank analyst Eugen Weinberg, interest rates might well be designed to stimulate economic growth in the wake of fears of a global recession, but they are also likely to lead to inflationary pressures.

As a direct consequence of this, he suggests more people will turn to gold investment as a way of securing their money.

"Interest rate cuts would provoke inflationary fears in the longer term, and a lower opportunity cost would promote gold investments," Mr Weinberg told the news provider.

Earlier today (Thursday, November 6th), the ECB reduced its main lending rate by 0.5 per cent to 3.25 per cent, with the SNB reducing its rate by a similar margin.

Meanwhile, the BoE's monetary policy committee chose to slash rates by 1.5 per cent to three per cent - the most aggressive cut in Britain for 27 years.

Even so, HIS Global Insight's Howard Archer believes further action is likely before the end of the year.

"We expect the Bank of England to reduce interest rates by a further 50 basis points to 2.50 per cent in December, and would not rule out a larger cut if the economic downturn continues to deepen," he commented.

"This reflects our belief that the economy will contract up to, and including, the third quarter of 2009 before stabilizing."

Standard Bank analyst Walter de Wet suggests the full impact of the rate cuts on the gold market will not become apparent until after the publication of US non-farm payroll data tomorrow (Friday, November 7th).

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