Gold News

Rush to Buy Gold Among Central Banks as US Inflation Outruns Interest Rates by Most Since 1975

PRICES to buy gold headed on Friday for their 3rd highest month-end ever and the highest weekly finish in London since early November, eve of the first successful Covid vaccine trials announcement, amid rumors of heavy central-bank gold buying, a fresh rise in crude oil and other industrial input costs, plus the highest inflation on the US Fed's preferred measure in nearly 3 decades.
 
Losing $100 per ounce on Monday 9 November, the day of the Pfizer/BioNTech news, gold prices bottomed in March at $1675.
 
Today gold priced in US Dollars rose to $1896 ahead of the 3pm LBMA benchmarking buy-sell auction in London, having risen through $1900 earlier this week.
 
New US inflation data today said the cost of living in the world's largest economy, excluding 'volatile' fuel and food, rose almost 3.1% per year in April, the fastest annual rise in the core PCE index since July 1992.
 
With the yield offered to buyers of 10-year US Treasury debt ending last month at 1.65%, that put long-term interest rates 1.4 percentage points below inflation, worse than any time since 1975.
 
Chart of annual core US PCE inflation vs. 10-year Treasury yield. Source: St.Louis Fed
 
So-called base effects continue to drive annual inflation higher however, because last April saw the core PCE index rise just 0.9% from 12 months before, near its slowest pace of the last 6 decades.
 
Crude oil prices, having gone below zero in April 2020's Covid Crash as producers struggled to find storage space amid the collapse in demand, today rose back to $67 per barrel of US benchmark WTI, a record high when first reached in 2006.
 
Shipping costs for China-to-Europe freight have meantime jumped to record highs, up 5-fold from this time last year, says the Drewry World Container Index.
 
Back in the gold market, gold being bought inside the Bank of England's vaults – heart of the world's wholesale bullion market – "has traded for as much as 50 cents above benchmark London prices," claims Bloomberg today, citing "sources" and "traders" and suggesting this signals strong demand among official-sector agencies, defying earlier analyst forecasts for moderate central-bank gold demand in 2021.
 
The Bank of England held over 5,640 tonnes of gold at end-April according to data on its website, all but 310 tonnes – the UK's own gold reserves – held for foreign governments and central banks, as well as international bodies and also the commercial-bank clearing members of the London Bullion Market Association.
 
The Bank for International Settlements – the central banks' central bank – "bought as much as 1 million ounces...from various commercial banks at a premium of 30 to 40 cents recently," Bloomberg claims.
 
With the BIS typically acting for central-bank clients, analysts at Commerzbank this week said new data show the Bank of Thailand buying 43.5 tonnes of gold for its reserves in April, while Uzbekistan added over 8 tonnes and Kazakhstan over 4 tonnes.
 
How London 'spot' gold prices typically work is to be quoted for unallocated ounces, a credit position owed by the selling bank to the client, who can then pay a small premium for allocation into specific bars belonging to the buyer outright and therefore incurring storage fees.

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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