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Sterling Falls As BOE’s Posen Says BIS Talking “Nonsense” And Stagflation “Unlikely” In UK

Tyler Durden's picture





 

From GoldCore

Gold is trading at $1,501.60/oz, €1,052.35/oz and £941.09/oz. 

Gold is marginally higher in all currencies and 0.7% higher in
sterling after a downward revision of UK GDP from 1.8% to 1.6% growth
saw sterling decline. Stagflation appears to be taking hold in the UK
with soaring food and energy costs eroding household incomes and
economic growth continuing to decline.

Cross Currency Rates

Despite UK inflation being 4.5% in May, more than twice the Bank of
England's target, the BOE’s Posen’s ultra dovish comments are leading to
speculation that zero percent interest rates and ultra loose monetary
policy will continue for the foreseeable future.

This poses risks to those on fixed incomes in the UK, savers, the
poor and the elderly, and to countries that export to the UK such as
Ireland.

Posen said that the Bank of International Settlements (BIS) call for
central banks to raise interest rates was “nonsense”. Posen also said
there is little risk of a repeat of 1970s-style stagflation. 

Gold in GBP – 1 Year (Daily)

His comments are odd given the fact that the UK is already
experiencing high inflation and declining economic growth and looks on
the verge of a contraction in economic growth and another recession and
possibly a depression.

Posen’s lack of appreciation of the real risk of inflation and
stagflation both of which the UK is already experiencing leave him open
to the accusation that he is talking “nonsense”. 

The U.K. government’s fiscal deficit is likely to be a very high 9%
of GDP this year and the U.K.’s banking system has a large amount of
risk exposure (including sovereign debt exposure), which pose risks for
the pound. The Chinese credit rating agency estimates that about 40% of
the UK’s banking system’s GBP 2 trillion worth of assets is exposed to
risk.

These real risks and the BOE’s ultra loose monetary policy will
likely result in sterling continuing to weaken in the coming months. 

The parlous state of the euro and the dollar mean that the pound may
not fall sharply against these currencies. However, it is likely to fall
against gold and new record nominal highs over £1,000/oz seem likely
soon.

Gold in Nominal British Pounds – 1971 to 2010

It is important to remember that the recent record highs in sterling
are nominal and when gold reaches £1,000/oz it will only have returned
to the inflation adjusted price levels seen back in 1980.

In sterling terms gold rose from below £20/oz to over £300/oz in the 1970’s or 15 times.

Were gold to replicate the performance in sterling again today then
gold would have to rise from the ‘Gordon Brown bottom’ (when Gordon
Brown commenced selling 60% of the UK gold reserves - increasingly
regarded as one of the Treasury's worst financial mistakes which has
cost UK taxpayers almost £7 billion) in 1999 at £170/oz to over
£2,550/oz in the coming years.

China’s “Silver City” Opens First Precious Metal Exchange – Goal of Trillion Yuan in Trade by 2015

China's first precious metal exchange opened in Yongxing County in central China's Hunan province yesterday.

"Our goal is to reach 1 trillion yuan ($154.6 billion USD) in annual
trading volume by the end of 2015," Cao Minghui, the exchange's general
manager said at the center's opening ceremony.

"We also hope that the exchange will give Yongxing County a voice in the global precious metal market," Cao said.

Yongxing County ( ????????? ), is known as the "Silver City" of China
for its abundant reserves of silver. Silver output in China’s “Silver
city” reached 2,050 metric tons in 2010.

The Hunan South Rare and Precious Metal Exchange, built with a total
investment of 260 million yuan (40.2 million U.S. dollars), opened in
Yongxing County, whose silver output accounts for one-fourth of the
country's total silver output, according to Cao.

The exchange, covering an area of 189 mu (12.6 hectares), includes an
exchange hall, several vaults and a quality inspection center.

This is another indication of China’s appreciation of the
precious metals and an indication that the surge in demand seen in
recent months is likely sustainable.

UBS reports today that Chinese physical interest has been “tweaked by recent price action”.

The Shanghai Gold exchange has seen turnover increase by some 60% this week when compared daily averages so far in June.

“Combined turnover for the AU9999 and AU9995 contracts on the
Shanghai Gold exchange has increased to about 8000 kg daily over this
week, up from a daily average of around 5000 kg for the month as a
whole” UBS said. 

Investment demand for silver both as a store of value and as a hedge
against inflation continues to surprise the bears. Many buyers in Asia
have experienced stagflation and hyperinflation. 

The demand is also very strong on the industrial side where the
increasing range of industrial applications is leading to very
significant demand that the silver market does not appear to be able to
accommodate at these prices.

Chinese demand for silver increased a huge four fold to 3,500 tonnes in 2010 – up from 877 tonnes in 2009. 

 

SILVER 
Silver is trading at $33.96oz,€23.80/oz and £21.28/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,692.70/oz, palladium at $735/oz and rhodium at $1,925/oz. 

 

NEWS
(MarketWatch)
Gold, silver higher as commodities rebound‎

(Bloomberg) 
Gold May Gain for First Time in Four Days Before Greek Vote on Budget Cuts

(San Francisco Chronicle) 
Gold Pares Drop to 1-Month Low Following Dollar Gains

(Reuters)  
Gold inches up on weaker dollar, Greece bailout hopes

COMMENTARY
(ZeroHedge) 
Welcome To The Recession: Manufacturing Surveys Imply US Economy Has Entered The Second Month Of A (Re)Recession

(MoneyWeek)
God help Ireland

(MoneyWeek)
The next big worry for the eurozone - Italy

(Mineweb) 
The Greek crisis unraveled and its impact on gold

 

 


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Tue, 06/28/2011 - 07:12 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Tyler,

Short Spanish Banks for a 14-20% return

Spain till 7.700-8.700 index

 

Short BBVA,STD; EWP

Look our CDS http://www.rankia.com/respuestas/851561/fotos/49966

 

http://www.rankia.com/foros/bolsa/temas/851527-alerta-bankia-si

 

Tue, 06/28/2011 - 07:52 | Link to Comment hugovanderbubble
hugovanderbubble's picture

I like when people click on junk... Because im telling the real thing about Spain.

 

BANKS -Rtrs headline saying up to 15 of 91 banks are expected to fail EU wide stress tests..will have a spec sales comment asap but remember that includes Cajas and Landesbanks..all this from euro zone sources..

 

Tue, 06/28/2011 - 07:12 | Link to Comment Goldenballs
Goldenballs's picture

So many idiots in positions of power,would not know the truth if it ran over them.

Tue, 06/28/2011 - 07:22 | Link to Comment squexx
squexx's picture

Idiots?!? I think you mean bought and paid for political whores!

Tue, 06/28/2011 - 08:44 | Link to Comment snowball777
snowball777's picture

Can you be the latter without also being the former?

Tue, 06/28/2011 - 07:24 | Link to Comment Yen Cross
Yen Cross's picture

 cable is one of the few currencies (trades) I'm Bullish on! Buy the deep dips!     Yen.

Tue, 06/28/2011 - 07:58 | Link to Comment equity_momo
equity_momo's picture

I wouldnt. The market has largely left the UK alone as there have been riper , lower hanging fruit to go after , but if cable couldnt break into the 1.70s during the last 2 year risk on move , its not going to now. More likely you will see a fast move down through the 1.50s over the next quarter .  The UK cannot and will not raise rates so the stagflation will worsen. As soon as city jobs are lost in London you will see the 500k to 1.5m part of the housing market come unstuck fast. The BoE will end up printing as their next major policy move , not raising rates.

Tue, 06/28/2011 - 08:25 | Link to Comment Yen Cross
Yen Cross's picture

 You pay attention to all those painful austerity moves that have happened over the last 6 months?  You watch how BOE deals with BIS and ECB junksters!

Tue, 06/28/2011 - 08:45 | Link to Comment snowball777
snowball777's picture

Admirable, to a degree, at least they aren't completely incognizant of their situation, but they'll need to bring the cable back to ground in order to export and dig out, don't you think?

How much do you think people are willing to pay for Fish and Chips?

Tue, 06/28/2011 - 08:51 | Link to Comment Yen Cross
Yen Cross's picture

  Yes I agree 777. Inflation in Sterling. Now a risk off currency, is not a bad thing.

Tue, 06/28/2011 - 07:27 | Link to Comment oogs66
oogs66's picture

remember when the Greek finance minister was telling speculators they would lose their shirt betting on being short Greece?

Tue, 06/28/2011 - 07:28 | Link to Comment Dr. Hannibal Lecter
Dr. Hannibal Lecter's picture

My Dear Friend Tyler,

Thank you for the posts.  Please keep them coming.  Glenn Beck is slowly moving off the front page.

Warmest Regards,

H.

Tue, 06/28/2011 - 07:25 | Link to Comment murdomcsponge
murdomcsponge's picture

As a resident in UK, I have long adopted the approach - "earn your bread overseas and don't invest a penny in UK, Europe, or USA". Not done me badly so far.

Tue, 06/28/2011 - 07:29 | Link to Comment Josephine29
Josephine29's picture

I think somebody has better tell Adam Posen that with economic growth being zero in the UK over the past 6 months and inflation being 4.5% on the CPI measure and 5.2% on the RPI measure that stagflation is already here! Although that would mean he would have to admit his policy errors over the past 2 years. Here is an interesting critique of his views from the economist Shaun Richards.

My critique of Adam Posen’s opinion piece in the Financial Times

http://t.co/kM3CMyh

 

Like a stopped clock one day Adam Posen's views will be correct but it is feeling like a very very long wait.

Tue, 06/28/2011 - 09:08 | Link to Comment trav7777
trav7777's picture

economists don't appear to treat rising prices as evidence of inflation

Tue, 06/28/2011 - 07:36 | Link to Comment agNau
agNau's picture

A show of hands; who here would like to live in Silver City?

Tue, 06/28/2011 - 07:46 | Link to Comment Going Loco
Going Loco's picture

You are assuming that it exists. Does it exist?

Tue, 06/28/2011 - 08:32 | Link to Comment Oh regional Indian
Oh regional Indian's picture

That was funny, more so in the context of the recent mirage city stories comign out of China.... http://www.foxnews.com/scitech/2011/06/27/lost-civilization-appears-above-chinese-river/?test=faces

 

And the pound getting pounded. Not quite a sterling currency anymore.

I think the Pound is the canary because it, because after 300-400 years of abuse, it's got to go/give. Way to one world currency that is. ;-)

ORI

http://aadivaahan.wordpress.com/2011/06/21/thunder-perfect-mind/

 

Tue, 06/28/2011 - 07:38 | Link to Comment YHC-FTSE
YHC-FTSE's picture

Posen is a political whore. Just yesterday Mervyn King gave an interview which basically contradicts everything Posen says. 

 

If the BOE's policies are "Ultra Loose", then WTF is the Fed? We're running out of superlatives here. 

Tue, 06/28/2011 - 07:49 | Link to Comment Going Loco
Going Loco's picture

Posen's position is dictated by this:

http://www.guardian.co.uk/business/2011/jun/27/house-repossessions-wave-interest-rates-rise

and this:

http://www.guardian.co.uk/business/2011/jun/28/thorntons-store-closures-retail-crisis

and this:

http://www.guardian.co.uk/business/2011/jun/28/gdp-figures-pressure-george-osborne

If they raise rates there will be a significant failure of the housing market, and a knock-on effect on the British banking system. It could lead to a full-scale depression. If they keep the ZIRP policy and (probably) add further QE the show can be kept on the road (probably) until the next general election. The only people who will suffer from this in the short term are savers, like me. That is why I naturally hate these bastards, but then that's just me. 

In the long run the big objection to this policy is that as others have said here capital cannot form in such an environment. Instead capital is steadily being eroded. Therefore in the long run this policy will lead to exactly the same result as an increase in interest rates would now. It just takes longer to get there.

Tue, 06/28/2011 - 08:00 | Link to Comment equity_momo
equity_momo's picture

Indeed.

Tue, 06/28/2011 - 09:13 | Link to Comment trav7777
trav7777's picture

JFC...savers?  Where do you think the interest comes from to pay your coupon...magic?

I love how you "savers" think the CBs are cheating you of your due when there is nobody out there who can generate a ROI sufficient to pay your stupid coupon.

The CBs are following the market; there's no demand for credit.  Nobody is lining up out there to borrow your "savings" and pay you the interest rate you think you're entitled to.

Tue, 06/28/2011 - 08:09 | Link to Comment falak pema
falak pema's picture

The market is now so opaque/volatile and there are so many balls being manipulated up in the derivative air by the big boys that anybody who wants to win big has a good chance of losing his skin. Like a virgin.

Tue, 06/28/2011 - 08:24 | Link to Comment Sambo
Sambo's picture

"You are talking 'nonsense'!"

"No, you are talking 'nonsense'!'

"No, you are talking 'nonsense'!'

"No, you are talking 'nonsense'!'

....7 hrs later....

"I am tired. Its time to go to bed."

 

Tue, 06/28/2011 - 08:38 | Link to Comment Yen Cross
Yen Cross's picture

 Are you watching eur/gbp Tool time?  Get some exercise.  TZamboni!

Tue, 06/28/2011 - 08:40 | Link to Comment Dreadker
Dreadker's picture

I left the UK because of the dire situation over there... and the fact I want guns when the SHTF... Its no better in the states IMO, but your devalued currency does have more purchase power within the US...

I earn about half what i did in the UK (if you take into account exchange rates etc.), but i pay less taxes and 100k will get you a hell of a lot more in the US than it will in the UK...

I chat with my family back in the UK and they all say that wages are being cut or staying the same but everything is costing more... and I have family members that range from low to high income families and they all say the same...

Tue, 06/28/2011 - 08:36 | Link to Comment FunkyOldGeezer
FunkyOldGeezer's picture

UK has been in stagflation for almost 2 decades when one looks at wages versus general inflation.

The buying power of wages has been hammered down and down and down and...

Tue, 06/28/2011 - 08:49 | Link to Comment Going Loco
Going Loco's picture

Sadly, as an employer, I have to report that part of the reason is the incompetence of a large part of the workforce.

It's easy to hire someone to sit in a call centre and talk (often incomprehensibly; almost always ungramattically) to customers.

Try hiring a good toolmaker... or CNC programmer.... or plumber...  I have been trying to hire a good fencer for a year. I have sacked two contractors. The last one lied so often about when he was going to come I sacked him before he arrived. I have asked one of my ex. Polish employees to come back and work for me again. 

We have bred a generation of unemployable twits. No wonder the buying power of wages is low.

Tue, 06/28/2011 - 08:45 | Link to Comment Yen Cross
Yen Cross's picture

 The UK is 10 years ahead of the meltdown that's coming in Europe! 

Tue, 06/28/2011 - 08:44 | Link to Comment Bohemian Clubber
Bohemian Clubber's picture

C'mon UK is not socialist like Europe!

Tue, 06/28/2011 - 08:49 | Link to Comment Yen Cross
Yen Cross's picture

  Fine point Bohemian!  When BOE starts edging Rates up, I'm liking the Sterling!

Tue, 06/28/2011 - 09:46 | Link to Comment FunkyOldGeezer
FunkyOldGeezer's picture

Wait a mo'. There may well be incompetent workers (from the boardrooms down), but I haven't seen pre-tax profits shrinking over the last 20 years. More profits being made should end up in the workforces' pockets (in part), BUT generally, they haven't. They've gone to shareholders ( and owners of the businesses in small companies) and management (in larger companies).

Simply put, the rich have got richer, the poor have got poorer.

 

Tue, 06/28/2011 - 09:54 | Link to Comment FunkyOldGeezer
FunkyOldGeezer's picture

The minimum wage has been the best excuse ever for businesses to pay a bare minimum. It has had the effect of keeping wages in many industries artificially low, and all with the backing of the government.

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