Gold News

UK Interest Rates Below Inflation for Longest in 7 Decades, Sterling Price to Buy Gold Jumps

BUY GOLD prices jumped to 4-month highs against the British Pound in London trade Thursday after the Bank of England failed to raise UK interest rates yet again, despite inflation continuing to exceed its official target of 2.0% per year.
 
With Tehran vowing "resistance" and denying it has any military bases in Syria after Israeli warplanes attacked what Jerusalem called Iranian positions in the two countries' war-torn neighbor last night, world stock markets edged higher as crude oil set fresh 3.5-year highs above $77 per barrel of Brent.
 
US President Trump's plan to restore sanctions on Tehran over its nuclear research program "may have implications for the [global] market balance," warns the International Energy Agency, noting that Iran "exports 2.5 million barrels of oil a day and is the world’s fifth-largest exporter."
 
Gold priced in US Dollars ticking further above last Friday's finish to reach $1318, on track for the first weekly gain in five.
 
Prices for Eurozone investors wanting to buy gold also rose again, re-touching Wednesday's new 6-month highs above €1109 per ounce.
 
With consumer price inflation in the UK last reported at 2.5% per year, the Monetary Policy Committee kept Bank Rate at 0.5%, saying it expects inflation "to fall back slightly more quickly" than previously thought.
 
The Bank of England also cut its 2018-2020 economic growth forecasts for the UK, citing risks and uncertainty over next year's Brexit deadline for leaving the European Union.
 
Across the last 10 years, UK interest rates have now matched or exceeded the pace of consumer-price inflation in only 23 of 120 months.
 
Measured against the Office for National Statistics' long-run consumer price index, interest rates have now lagged inflation for 101 months – the longest unbroken stretch of negative real returns to bank savers since the Great Depression and war-time era of 1938-1951.
 
Chart of Bank of England interest rate after inflation. Source: BullionVault
 
Prices to buy gold with British Pounds jumped 0.7% within 10 minutes of today's BoE decision, touching the highest level since mid-January at £975 per ounce but still almost £100 below the peak hit after 2016's shock Brexit referendum result.
 
"Until a few weeks ago, a further quarter point rate hike to 0.75% looked almost guaranteed," says Tom Stevenson, a director at brokerage group Fidelity International. 
 
"But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady's increasingly unhelpful forward guidance."
 
Major government bond prices also rose Thursday, nudging longer-term interest rates lower and pulling 10-year US Treasury yields back below 3.0%.
 
Investor demand for gold-price exposure through exchange-traded trust funds slipped on Wednesday, with the SPDR Gold Trust (NYSEArca:GLD) needing 2 fewer tonnes of bullion to back its shares at 862 tonnes.
 
April saw the heaviest monthly demand to buy gold exposure through ETFs since early 2017, data from the mining-backed World Gold Council show.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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