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Negative Real Interest Rates, Central Banks Prepare For the Worst Life After Euro

Stock-Markets / Global Debt Crisis Dec 08, 2011 - 07:31 AM GMT

By: GoldCore

Stock-Markets

Best Financial Markets Analysis ArticleGold is trading at USD 1,719.40, EUR 1,302.70, GBP 1,109.30, CHF 1,608.40, JPY 135,050 and AUD 1,689.4 per ounce.

Gold’s London AM fix this morning was USD 1,739.00, GBP 1,105.81, and EUR 1,297.28 per ounce.

Yesterday's AM fix was USD 1,731.00, GBP 1,108.20, and EUR 1,289.96 per ounce.


Gold edged higher in euros, pounds, dollars and most currencies today after the ECB cut its main interest rate from 1.25% to 1% and the Bank of England kept interest rates at 0.5%. Sharp selling came into the market after the ECB's Draghi commented that the economic outlook was bad. It is another strange and counter intuitive market reaction as a bad economic outlook is of course bullish for gold.

Gold appears to be consolidating between $1,667/oz and $1,803/oz and looks well supported at these levels due to concerns about whether EU policy makers can resolve the 2 year long eurozone debt crisis and protect the euro from a possible break up.

Gold in USD – 1 Day

UK interest rates remain at their record low of 0.5% and QE continues in the UK with a further £275 billion being created to monetize debt and buy gilts. Eurozone interest rates are now back at record all-time lows.

The ECB, Bank of England, Federal Reserve and even the People’s Bank of China continue to pursue extremely loose monetary policies. Inflation is the official policy response in order to overcome this deflationary debt crisis.

Negative real interest rates, with inflation much higher than deposit rates, make gold an important diversification for investors and savers to hedge against currency debasement and monetary risk.

Central Banks Prepare For Life After Euro
The Wall Street Journal reports today that central banks are preparing for life after the euro with countries studying printing national currencies in case the single monetary union collapses.

Given the real risk of a breakup of the currency as we know it today, that would seem like the logical and prudent thing to do.

Major multinational corporations are planning for the possibility of this scenario and recently British Chancellor George Osborne said his government had contingency planning in place in the event of the break-up of the euro.

The Wall Street Journal reported that the Irish central bank is evaluating whether it needs to secure additional access to printing presses in case it has to print new bank notes to support a "reborn" currency.

The Journal quotes "people familiar with the matter" and says other central banks have started to weigh contingency plans to prepare for the possibility that countries leave the eurozone or the eurozone breaks up entirely.

The central banks said they would not comment and the Irish central bank called the article "speculation".

Currency devaluations are inevitable in the coming months and years.

Whether that be a sharp, fast devaluation of individual national currencies (lira, pesetas, escudos, punts) or that be a more gradual devaluation of a surviving single currency that is debased through massive and unprecedented debt monetisation.

While market and media attention is on the Eurozone and euro crisis the real risk of a systemic crisis remains. The risk of a ‘Lehman Brothers’ banking failure and consequent global financial contagion and failure of the banking system rises every day.

UBS Chief Economist Warns of Possibility of Euro Break Up and Importance of Precious Metals

The chief economist of UBS, Larry Hatheway, has warned that banks “should be asking themselves whether they would survive a collapse of the payments system, a run on deposits and widespread default on assets.”

And amid ensuing chaos, where should investors be allocating their assets? Precious metals feature highly on Hatheway's favourite asset allocation.

"I suppose there might be some assets worthy of consideration—precious metals, for example. But other metals would make wise investments, too. Among them tinned goods and small caliber weapons."

"Break-up runs the risk of becoming one wretched scenario. Sadly, however, it can’t be ruled out, just as it would have been improper to rule out the horrors of the first half of the 20th century before they happened."

For the latest news and commentary on financial markets and gold please follow us on Twitter.

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This update can be found on the GoldCore blog here.

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Mark O'Byrne
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Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

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Comments

Pat
08 Dec 11, 15:07
Fed killing citizens futures

The FEDeral Reserve [a Private Corporation-few know this] is Owned by the Big banks US and European. The FED gives Our money to those Banks.

–No money gets to Main St.–Small Businesses make 70% of jobs–

–Those small businesses get their capital from pensioners and middle class savers CD’s in local/regional banks and credit unions-

-Those savings are wiped out by FED zero interest rate policy of Greenspan and Bernanke–

–Until Interest rates normalize at 4-5% and people can save again–THERE CANNOT BE ANY JOBS INCREASE…SO–

EVERYONE TAKE YOUR MONEY OUT OF THE BIG BANKS NOW AND SAVE WHAT YOU HAVE LEFT–THEN THEY CANNOT GAMBLE ON DERIVATIVES WITH YOUR MONEY–[RESTORE THE GLASS STEAGALL ACT]–

–PUT YOUR MONEY IN LOCAL/REGIONAL BANKS AND CREDIT UNIONS WHERE IT CAN CREATE JOBS–

*****LOBBY TO END THE UNCONSTITUTIONAL, CROOKED FED—–

**PLEASE COPY AND SEND THIS VIRAL–

Jim Rogers: "The Fed is Lying to Us"

Stock-Markets / Central BanksDec 08, 2011 - 07:12 AM

By: Money_Morning

David Zeiler writes: Despite statements to the contrary, the U.S. Federal Reserve has continued to pump money into the economy, says investing legend Jim Rogers.

The resulting low interest rates and creeping inflation, he says, are destroying the wealth of millions.

"[Federal Reserve Chairman Ben] Bernanke said last August he was keeping interest rates artificially low," Rogers told Yahoo! Finance on Tuesday. "The only way you can do that is to go into the market."

As proof, Rogers pointed to the rise in the broad M2 measure of the U.S. money supply, which has increased more than 5% since the Fed's second quantitative easing program (QE2) ended on June 30, and 20% since November 2008.

"Since August - well, this whole year - the M2 has jumped up," Rogers said. "They're in the market. They're lying to us."

A well-known critic of the Fed who has called for it to be abolished, Rogers warned that the central bank's policies would lead to disaster.

"Right now what the Federal Reserve is doing is ruining an entire class of people in America," Rogers said. "The people who saved and invested for the past 10, 20, 30 years are now being ruined because interest rates are [too] low."

He added that if he were Fed chairman, he'd raise interest rates to slow down inflation.

In a separate interview with The Street yesterday (Wednesday), Rogers said he considered the Fed to be the greatest risk to the U.S. economy in 2012.

"They don't seem to understand economics or finance or currencies or much of anything else except printing money," Rogers said.


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