US manufacturing shrank at its quickest pace in more than 3 years in August and US construction spending lowered in July by the greatest amount in a year, the disappointing ISM index and construction spending information had been released yesterday.
These kinds of reports fire up further hope for investors that Ben Bernanke will launch QE. Gold rose 4.5% in August and is now focusing on the $1,700 price level once more, probably the most since January, on conjecture that the Federal Reserve will add to its $2.3 trillion bond-buying plan. Traders are awaiting the important US employment information due on Friday for further signals on the poor well being of the US economic climate.
Bill Gross, the co-chief investment officer and founder of (PIMCO) Pacific Investment Management Co., manager of the world’s biggest bond fund, stated in a Twitter post yesterday that indicators that the European Central Bank will also increase actions to increase financial development are “very reflationary”
Highs in gold prices since 1975 have generally been related with increasing real interest rates. Times when real interest rates fell in tandem with gold prices consist of 1987-1990 and 1996-2001. Although real rates are have risen somewhat, they stay beneath their historical average and levels beneath 2% have nonetheless been supportive of increasing gold prices.
The 2% real interest rate limit has served as an inflection point for gold prices. Gold prices were in the doldrums from 1980 to 2000, when real rates stayed greater than 2%. While real rates had been volatile throughout this time, gold prices continued to decrease even as real rates had been fairly unchanged.
Gold prices did not move drastically from 1980 to 2000 and had declining correlations with debt levels because GDP development was adequate to mute fears about spending budget and deficit problems. The present financial recovery has been also weak to support a continual rise in real rates above the 2% level which has acted an inflection point for gold prices.
With power and food rising prices deepening and soon to impact customer price indices, interest rates might have to rise considerably in order to restore real interest rates above 2%. This really is with ex-Federal Reserve Chairman Volcker did in the late 1970’s - when he elevated interest rates to above 15% in order to shield the dollar and aggressively deal with rising cost of living.
It's unlikely that the Bernanke Fed could implement comparable 'hawkish' monetary policy these days. It's unlikely that they would as well as doubtful if they could - offered the appalling fiscal scenario and levels of debt in the US and international economic climate.
A ongoing succession of greater real gold prices above the rising cost of living adjusted high, or real record high, of $2,500/oz is most likely until we see interest go back to more regular levels and zero % interest plans are supplanted by positive real interest rates. My recommendation would be to buy silver now, buy gold today. Rare Coins, Silver Coins, Gold Coins, Learn more >> http://gold-