Gold Prices Increase On Bank Of England Rate Decision

By Dave Brown - Exclusive to Gold Investing News

Gold prices gained slightly following a combination of news developments from Europe. The Bank of England voted to inject another 50 billion pounds into its financial system and it also preserved its official Bank Rate at 0.5 percent.  Greek leaders finally negotiated a deal on fiscal reforms and austerity measures. 

All of these events contributed to send the spot market price of gold to $1747.50 per troy ounce, which represented a 1 percent appreciation to the previous trading session.

Negative real rates should strengthen gold price

Frank Holmes, CEO of US Global Investors explains his outlook on gold, “There is an $8 trillion rollover when you look at Japan, America and the EU, in the next 12 months. Having low interest rates, the future burden of the cost of interest is very beneficial to these central governments.  History is replete with examples that whenever the government issues bonds that have a negative real interest rate, then gold [price] rises in that country's currencies. We have most of the world issuing sovereign paper with negative real interest rates. That has always been beneficial to gold.”

Slow growth

In the United Kingdom, the economic recovery slowed last year, with activity falling slightly during the last three months. The rate of expansion in chief export markets has also been sluggish and concern about some euro-area countries' debt and economic competitiveness are persistent. An anchor from difficult credit conditions presents a headwind. The correspondingly weak short term outlook for productivity means that a considerable degree of uncertainty is anticipated to persist.  The Bank of England also expects the inflation rate to decline further as pressure from high unemployment and spare capacity is combined with a change in taxation policy from last year.