Gold News

Worst-Ever Real Interest Rate for US Savers Sends Gold and Silver Prices Soaring

CONFIRMATION of the worst negative real interest rate for US savers on record saw gold and silver prices leap on Wednesday, breaking through what chart analysts had called key resistance in the yellow precious metal's Dollar price as new US data showed inflation in the world's largest economy racing to its fastest annual pace in more than 3 decades.
 
Gold priced in the Dollar jumped over $30 per ounce, smashing the $1835 level where this summer's highs met the downtrend starting at summer 2020's all-time peak above $2000.
 
Gold priced in the single-currency Euro hit a 12-month high at €1610, and the UK gold price in Pounds per ounce rose faster still, up 2.2% inside an hour to reach its highest since January at £1380.
 
Silver prices also jumped, rising more than $1 per ounce from this time last week to break above $25 for the first time since early August.
 
Inflation in the headline US consumer-price index jumped last month from 5.4% to 6.2% per year, blowing past analysts' consensus forecasts of 5.8%.
 
The fastest annual rise in the cost of living since December 1990, last month's figure came only 0.2 percentage off the highest since July 1982.
 
Back then, US interest rates stood at 12.6% per annum on the Fed Funds overnight target, giving cash savers a positive real return of more than 6% per year.
 
US interest rates at Christmas 1990 were more than 1% above inflation.
 
Today, in contrast – and ever since March 2020 marked the start of the US Covid Crisis – the US central bank is holding its key interest rate below 0.10%.
 
That means cash savers are now suffering the most negative real interest in modern history, facing a loss of purchasing power worse than 6 cents in the Dollar per year.
 
Chart of effective Fed Funds rate minus CPI inflation vs. gold priced in Dollars. Source: St.Louis Fed
 
Stripping out food and fuel, so-called 'core' CPI inflation rose to 4.6% per year in October, its fastest pace since August 1991.
 
Gold's responding price move in Dollar terms marked the fastest intraday gain since March 2020's Covid chaos across all financial markets.
 
Separate data had earlier said that factory-gate inflation in China – the world's 2nd largest economy and No.1 importing and exporting nation for goods – rose to its fastest in 26 years last month.
 
Like today's US consumer inflation data, that surge was led by dramatic month-on-month rises in energy and raw material costs also hitting food, transport and most service sectors.
 
Asian stock markets slipped overnight, putting the MSCI World Index on track for a 2nd daily decline from Monday's fresh all-time high as European shares trimmed earlier gains and New York equities slipped following Wednesday's US inflation print.
 
So-called 'crypto currency' Bitcoin hit a fresh all-time high, while Western government bond prices sank, driving longer-term interest rates sharply higher for the day but still below where 10-year US Treasury yields had begun the week at 1.50%.
 
The yield on so-called inflation-protected TIPS bonds sank to fresh all-time lows on the CPI data release, pointing to a 1.24% annual loss of purchasing power in 10-year Treasury debt between now and 2031.

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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