Gold News

Gold Prices Rise as US and UK Central Banks Tweak Rates in Face of Surging Inflation

GOLD PRICES rose Thursday after the US and UK central banks both raised their key interest rates by just a quarter-point in the face of inflation running at multi-decade highs.
Asian stock markets closed the day higher but European bourses reversed earlier gains – made after Moscow said a 15-point ceasefire proposal with Kyiv is being seriously discussed – as Russia continued to kill civilians by shelling residential areas of Ukraine's capital as well as Mariupol and other cities in its ongoing invasion.
With the US cost of living rising 7.9% per year on February's data, the fastest increase since 1982, the Federal Reserve raised from 0% to 0.25% in Wednesday's decision.
The Bank of England today raised from 0.50% to 0.75% despite Consumer Price Inflation running at 5.5% as the now downgraded RPIX measure hit 8.0% – both their fastest since 1992.
Having bottomed at 2-week lows just before yesterday's Fed announcement, gold priced in the Dollar this morning rose to $1945 per ounce, some $50 higher but still 6% below last week's near-record high.
The UK gold price in Pounds per ounce meantime rallied to £1483, also more than 2% above yesterday's low.
Real central-bank interest rates for the US and UK since 1976. Source: BullionVault
"The invasion of Ukraine by Russia [has] highly uncertain implications for the US economy," said the Fed's FOMC policy statement overnight, "but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity."
"Even before Russia’s invasion of Ukraine," says Bank of England chief Andrew Bailey – writing to UK finance minister Rishi Sunak to explain why inflation is so far above its 2.0% target – "consumer prices were pushed upwards by global factors, particularly the economic recovery from the worst of the pandemic and supply constraints in certain sectors."
Russia's President Putin today said his assault is going to plan despite Ukraine reporting that its troops have killed 14,000 Russian servicemen since the invasion began 3 weeks ago, plus a fourth Russian general overnight.
"Dear Mr.Scholz, tear down this wall," said Ukraine's President Zelensky to the German Chancellor today, referring to Central Europe's new divide "between freedom and bondage" when addressing lawmakers in Berlin by videolink, his 3rd speech to a major Western parliament in as many days.
Wednesday's new 'dot plot' forecasts from the US central bank's policymakers now projects PCE inflation of 4.3% across 2022, fully 1.7 percentage points above its last forecast in December.
But the Fed's own key interest rate will be only 1.0 point higher than last predicted, rising to 1.9% according to the "central tendency" among FOMC members' forecasts.
Betting in the US interest-rate market on Thursday put a 3-in-5 shot on the Fed ending 2022 at a ceiling of 2.25% or higher.
Today's odds of 58% were just 33% before yesterday's Fed announcement and zero as recently as 1 March.
Both US and UK bond yields edged lower Thursday following their central bank rate rises, but longer-term borrowing costs rose for other major Western economies as crude oil jumped back above $100 per barrel and natural gas also rose more than 7% for the day.
While 10-year borrowing costs for Washington have risen by 0.21 percentage points over the last month to the highest since mid-2019 at 2.17% per annum, the real 10-year rate of interest – after accounting for bond-market implied inflation forecasts – has fallen by 0.19 to minus 0.67% per annum.

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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