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"What Yellen Says Matters to Gold": Frank Holmes

Gold prices set by real interest rates, fear & love says U.S. Global Investors CEO, Frank Holmes...
GOLD PRICES really do count what US Federal Reserve chair Janet Yellen says about interest rates, Frank Holmes tells me in this latest gold-market interview, writes BullionVault's Miguel Perez-Santalla.
He knows how gold prices work, unlike the last Fed chief, Ben Bernanke. Chief investment officer and CEO of award-winning fund manager U.S. Global Investors, in 2006 Frank Holmes was selected "Mining Fund Manager of the Year" by the Mining Journal. Co-author of The Goldwatcher: Demystifying Gold Investing, he is also a regular commentator on financial television networks CNBC, Bloomberg and Fox Business, he's been profiled by Fortune, Barron's, the Financial Times and other publications.
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Interviewing him for New York Markets Live, I asked Frank about recent comments from new US Fed chair Janet Yellen, who indicated that interest rates may or may not rise in 2015. The economy is still fragile, the future is uncertain and there were no guarantees, Yellen said in subsequent comments.
What's really going on? 
"It's bewildering for investors," agreed Holmes. "As gold investors we look to both positive and negative interest rates. In other words, what will the government pay you over the CPI?
"This time last year we were going to get negative 50 basis points against inflation in a five-year government bond. Interest rates went up, inflation went down and we went to positive 50 basis points and gold $1400.
"So what Yellen says is important to the gold investor."
Gold prices are also determined by supply, of course. So Frank Holmes and I discuss the latest strikes is South Africa's mining industry, and the likely impact on gold output.
More crucially for prices, I wanted Frank Holmes' opinion on where demand is coming from.
"Sixty per cent of the demand for gold is what I call the 'Love Trade'," he explained.
"It's associated with love in areas where there is a cultural affinity for giving gold. In India, for instance, where you have 600 million consumers under the age of 25. In North America, by contrast, we associate gold with fear.
"Poor government policies, imbalances between monetary and fiscal policy can cause gold prices to take off."
Accessing the market leads to wildly different gold prices for "Love" versus "Fear" investors too, Frank Holmes says.
"You can go to Turkey and buy a beautiful gold bracelet for 10% over the price of gold that day. If you're on Fifth Avenue to buy gold, you're going to pay a 400% markup."


Vice president of business development for BullionVault from 2012 to 2014, Miguel Perez-Santalla is a fierce advocate for retail investors, and a regular speaker at industry and media events. With over 30 years' experience in the precious metals business, Miguel has worked at the United States' top coin dealerships, as well as international refining group Heraeus.

See the full archive of Miguel Perez-Santalla articles.

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