Gold News

Gold Hits One-Week for European Investors Ahead of ECB, Bank of England Rate Decisions

Gold Prices rose steadily in Asia on Thursday, gaining 2.6% from yesterday's low vs. the Dollar and nearing a one-week high above €622 per ounce as the European Central Bank met to decide Eurozone interest rates for the coming month.

All 55 economists surveyed by Bloomberg believe the ECB will keep Eurozone rates on hold after inflation hit a 14-year high of 3.2% in January – the fifth month running that the cost of living rose ahead of the ECB's 2.0% target.

"But there have been occasions in the past," noted Steven Major of HSBC to the newswire earlier today, "when the ECB have said one thing and done the other," most notably when the Bank cut rates despite rising inflation during 2001.

Major now forecasts 0.75% of cuts by 2009 – perhaps starting today.

"The political pressure is being built up on the ECB to lower the interest rate and actually follow the policy delivered in the US," agrees Thorsten Polleit of Barclays Capital.

"I think the chances are – the risks are – that a rate cut might come as soon as March. [But] inflation is the biggest challenge, the biggest risk, to monetary policy right now. One reason is that money and credit remain at a very elevated level, and historical experience suggests that sooner or later that might increase inflation and then we have a big problem, especially here in Europe."

Between 1968 and 1998, for example, the correlation between growth in the world money supply and global inflation averaged 0.98, according to analysis by Mervyn King, now governor of the Bank of England.

"Few empirical regularities in economics are so well documented as the co-movement of money and inflation," concluded King in a speech of Nov. 2001.

But more than six years later – and with the UK's money supply expanding by 12.3% per year at last count – the Bank of England is sure to cut its key lending rate today, analysts agree, adding to inflationary pressure because of a marked decline in house prices.

The Pound Sterling slid to a new two-week low of $1.9532 against the Dollar this morning, pushing the Gold Price in British Pounds up to a five-session high of £466.25 in early London trade.

The FTSE 100 index of leading UK shares dropped 0.7%, meantime, after British Land Plc said admitted a near £1.4 billion writedown ($2.7bn) on its portfolio of commercial UK property, creating a pre-tax loss of £1.3bn for the last three months of 2007.

The Dax in Frankfurt dropped 0.8% ahead of the ECB's rate decision, while the European single currency held in a tight range below $1.4640.

Researching your first Gold Investment today? Don't pay more than you should! Make it cheap, simple & ultra-secure at BullionVault...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals