Gold News

Gold Bullion 'Wins When Politicians Attack Central Banks', Outpaces Silver on Week

GOLD BULLION briefly rose back above $1200 per ounce for the second time this week on Friday as world stock markets ticked higher, major government bond prices slipped, and the central bank of world No.11 economy South Korea warned of a sharp slowdown in growth, holding its key lending rate at the record low of 1.25% reached last summer.
 
Rising 2.3% from this time last week, gold bullion outpaced the 1.6% rise in US Dollar silver prices, which traded Friday lunchtime in London at $16.46 per ounce.
 
Faced with this week's earlier new record lows in the Lira, the central bank of Turkey – formerly world No.4 gold consumer nation, now overtaken by Germany – meantime said it has "many tools" to combat "speculative" moves in the currency, echoing yesterday's claims from President Erdogan that "There is no difference between a terrorist who has a weapon or bomb in his hand and a terrorist who has Dollars, Euros and interest [rates]...
 
 
Having demanded and then welcomed the CBRT's rate cuts of 2016 – and then urging households to buy gold bullion alongside the Lira to cut capital outflows last month – Erdogan said the central bank should act to "ruin this game", widely taken as a call to raise the cost of borrowing to support the currency.
 
"When you start seeing [political] pressure build on central bankers, and the market becoming far less confident [in] central bankers...in our view you get a bull market for gold," says Christopher Mahon, director of asset allocation research for the $2.4 billion Baring's Multi-Asset product, which has almost doubled the average gains from 'absolute returns' funds over the last 5 years.
 
"Their policies have been pretty inadequate in many senses," Mahon said in an interview Monday. "It's very plausible now that politicians stand up and throw stones at central bankers.”
 
With the US Federal Reserve not meeting until mid-March, "Unemployment has now reached a low level, the labor market is generally strong and wage growth is beginning to pick up," said Fed chair Janet Yellen in a speech Thursday.
 
"Inflation has moved up from a very low level, and it's a little bit under our 2% objective, but it's pretty close."
 
Adjusted by inflation in the official US Consumer Price Index, the effective Fed Funds rate has declined from -0.4% to -1.3% since the Fed first raised its key interest rate after 7 years at zero at the end of 2015.
 
Gold prices have now risen 15% versus the Dollar meantime. 
 
Chart of the Effective Fed Funds rate minus CPI inflation rate vs. US Dollar gold price
 
Berlin's finance minister Wolfgang Schauble last spring accused the European Central Bank of fuelling support for Germany's so-called "populist" AfD Party, as Bloomberg notes today, by hurting savers with its negative interest-rate and quantitative easing policies.
 
UK prime minister Theresa May last autumn called for a change to Bank of England policy after it followed the Brexit referendum shock by cutting rates and re-starting new quantitative easing, notes Bloomberg News today.
 
US president-elect Donald Trump said on the campaign trail last November that the Federal Reserve should "be ashamed" of hurting savers and distorting the economy by keeping Dollar interest rates so low.
 
Gold bullion priced in US Dollars fixed at $1196 per ounce at Friday morning's benchmark auction in London, $10 below yesterday's new 7-week high on trading volume matching the daily average from October-December 2016 – the strongest quarterly average since new administrators ICE Benchmarks began managing the process in early 2015.

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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