Gold’s Rise To Continue Above $2,500/oz On Negative Real Interest Rates

Tyler Durden's picture




 

From GoldCore

Gold’s Rise To Continue Above $2,500/oz On Negative Real Interest Rates

Today’s AM fix was USD 1,689.50, EUR 1,349.23, and GBP 1,065.26 per ounce.
Yesterday’s AM fix was USD 1,691.50, EUR 1,342.25 and GBP 1,067.44 per ounce.

Silver is trading at $32.18/oz, €25.73/oz and £20.32/oz. Platinum is trading at $1,563.50/oz, palladium at $636.50/oz and rhodium at $1,025/oz.


Cross Currency Table - (Bloomberg)

Gold edged up $3.50 or 0.21% in New York yesterday and closed at $1,695.30. Silver rose to $32.27 in Asia, slipped to $31.90 in London, and then hit a high of $32.40 in New York and finished with a gain of 1.84%.

Gold edged down overnight, but is not far from the 6 month high hit last session as weak economic data from the US bolstered hopes of further stimulus measures by central banks.

US manufacturing contracted at its fastest pace in more than three years in August and US construction spending dropped in July by the greatest amount in a year, the disappointing ISM index and construction spending data were released yesterday.

These reports ignite further hope for investors that Ben Bernanke will launch QE.  Gold rose 4.5% in August and is now targeting the $1,700 price level again, the most since January, on speculation that the Federal Reserve will add to its $2.3 trillion bond-buying program. 

Investors are awaiting the key US employment data due on Friday for further signals on the poor health of the US economy.

Bill Gross, the co-chief investment officer and founder of Pacific Investment Management Co., manager of the world’s biggest bond fund, said in a Twitter post yesterday that signs that the European Central Bank will also increase steps to boost economic growth are “very reflationary” and mean that investors should “buy gold, TIPS and real assets.”

Peaks in gold prices since 1975 have usually been associated with rising real interest rates. 

Times when real interest rates fell in tandem with gold prices include 1987-1990 and 1996-2001. 

Even though real rates are have risen slightly, they remain below their historical average and levels below 2% have still been supportive of rising gold prices.

The 2% real interest rate threshold has served as an inflection point for gold prices. 

Gold prices languished from 1980 to 2000, when real rates stayed higher than 2%. While real rates were volatile during this time, gold prices continued to decline even as real rates were relatively unchanged.

Gold prices languished from 1980 to 2000 and had declining correlations with debt levels because GDP growth was sufficient to mute fears about budget and deficit issues. The current economic recovery has been too weak to support a sustained rise in real rates above the 2% level that has acted an inflection point for gold prices.

With energy and food inflation deepening and soon to affect consumer price indices, interest rates may have to rise significantly in order to restore real interest rates above 2%. 

This is with ex Federal Reserve Chairman Volcker did in the late 1970’s - when he increased interest rates to above 15% in order to protect the dollar and aggressively tackle inflation.

It is unlikely that similar ‘hawkish’ monetary policy would be implemented by the Bernanke Fed today. It is unlikely that they would and even doubtful if they could – given the appalling fiscal situation and levels of debt in the US and global economy. 

A continuing succession of higher real gold prices above the inflation adjusted high, or real record high, of $2,500/oz is likely until we see interest return to more normal levels and zero percent interest policies are supplanted by positive real interest rates.

NEWSWIRE
(Bloomberg) -- Gold Seen by TD Securities Rising to $1,900 An Ounce in 2013
Gold may rise to $1,900 an ounce in the second half of 2013 from $1,775 in the fourth quarter, according to a presentation today by TD Securities Inc.

Silver may rise to $33 to $34 an ounce in the fourth quarter and $37 in the second quarter, the company said. Palladium will be in shortage this year and next year and platinum may move into shortage in 2013 and 2014, it said.

(Bloomberg) -- Gold’s Surplus:  “Investment demand has filled the gap”
Gold’s surplus will continue to grow this year to at least 2,100 metric tons this and may be valued at as much as $120 billion, Thomson Reuters GFMS said.

“This is not necessarily a condition for lower prices,” Philip Klapwijk, global head of metals analytics at GFMS, said today in a presentation in London. “Investment demand has filled the gap.”

(Bloomberg) -- China Seen by GFMS Overtaking India in 2012 as Top Gold Market 
China will likely overtake India as the world’s biggest gold market this year, Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS.

The expectation of higher prices may spur Chinese investors to buy more gold, he said today in a presentation in London.

For breaking news and commentary on financial markets and gold, follow us on
Twitter.

NEWS
Gold futures seesaw with $1,700 in sight – Market Watch

Gold Tops $1,700 on Bets Central Banks to Boost Stimulus - Bloomberg

Gold ends at 5-month high on central-bank hopes - MarketWatch

Gold rises for 3rd day; resistance at $1,700 per ounce - Reuters

COMMENTARY
Jim Rogers: How to 'Protect Yourself' From 'Debased' Currencies - CNBC

Did The Great Financial Crisis Start With The End Of The Gold Standard? – Zero Hedge

Chart Of The Day: 803 Years Of Global Inflation – Zero Hedge

Turkish Gold Exports (And Imports) - Forexpros

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Wed, 09/05/2012 - 09:05 | 2764069 GetZeeGold
GetZeeGold's picture

 

 

Oh good....I'm still sane!

 

Wed, 09/05/2012 - 09:17 | 2764071 BaBaBouy
BaBaBouy's picture

Actual Fiat Printing ???

It's not even done anymore. The FED and other CB's, just enter the Fiat AMOUNT They Want

on the computer Screen and the data gets stored on their Harddrive!

Digits on the Magnetic Harddrive, thats all todays' "Paper Money" is, Stored Ones and Zeros...

 

GOLD $50K, Bitchies ...

Wed, 09/05/2012 - 09:19 | 2764114 Dalago
Dalago's picture

The system is made to fail.

Wed, 09/05/2012 - 10:02 | 2764257 Dr. Richard Head
Dr. Richard Head's picture

http://www.youtube.com/watch?v=rUK5EpdUZZw&feature=plcp

Sheldan Nidel - We return with much to discuss. A great change in your banking system is getting ready to appear. As you know, a dark cabal runs your world by maintaining a tight grip on the global banking system, which in turn controls everything else. This grip has been loosened recently by the inflationary nature of its fiat currencies. Added to which, it is impossible to perpetuate a system based on debt and expect to simply add to the debt indefinitely, but this is precisely how your present financial system is expected to operate. In fact the true extent of the hidden debt accrued by this cabal is staggering.

Wed, 09/05/2012 - 11:11 | 2764476 Zap Powerz
Zap Powerz's picture

I do not understand their need to destroy and control.  Are they just bored with their power and wealth?

Wed, 09/05/2012 - 12:53 | 2764863 SemperFord
SemperFord's picture

If you have ever met people like them you will know they have no soul, don't know how to have fun or make love to a woman.

Wed, 09/05/2012 - 14:11 | 2765214 RockyRacoon
RockyRacoon's picture

Power, whether political or military, does not suffer from declining marginal utility.  In fact, it's like a drug.  The more that is present the more that is needed.  And, as you point out, it displaces normal human needs and emotions.   Lord Acton put it best: "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men."

Wed, 09/05/2012 - 10:17 | 2764293 midtowng
midtowng's picture

Forget the CPI when it comes to gold. What matters is real interest rates and the amount of Fed printing. Everything else is background noise.

Thu, 09/13/2012 - 08:54 | 2788929 DosZap
DosZap's picture

Gold’s Surplus: “Investment demand has filled the gap”
Gold’s surplus will continue to grow this year to at least 2,100 metric tons this and may be valued at as much as $120 billion, Thomson Reuters GFMS said.

Sure there will be, out it on the market, and the Chinese will suck it up like a NEW Hoover................idiots.

Wed, 09/05/2012 - 09:11 | 2764086 LawsofPhysics
LawsofPhysics's picture

Been saying this for over a year.  There is a very real cost for creating capital (regardless of whether it is simply stacked on a bankers desk and not spent- non-inflationary) as it implicitly depends on those paper promises delivering something of real value in the future.  Banks, financial houses, and other paper-pusher don't actually know how to create anything of real value, yet this is where all the paper has been accumulating, hence the printing isn't very inflationary (to these kleptocrat fucks who get to spend it now) but it will be eventually.

Zero interest rates only work if deployed for a short period and only if the real innovators are also getting that money at the same low to zero interest rate.

Fuck the paper-pushers already, burn this shit down.  Anyone who actually has a real skill set will be just fine.

Wed, 09/05/2012 - 09:39 | 2764186 LongSoupLine
LongSoupLine's picture

Anyone who actually has a real skill set will be just fine.

 

Replaced a thermal cut-off switch and high temp sensor in my clothes dryer last week.

Neighbors and friends said, "You did what?!...you're crazy not to let a "pro" do that!"

Yep, we're doomed...

Wed, 09/05/2012 - 09:46 | 2764205 LawsofPhysics
LawsofPhysics's picture

There has been an "educational" war on that do-it-yourself mentality for quite some time.

Wed, 09/05/2012 - 10:32 | 2764337 Bicycle Repairman
Bicycle Repairman's picture

How has the "war" manifested itself?  With tutorials on youTube I'm fixing all kinds of stuff I couldn't have touched before.

Wed, 09/05/2012 - 10:52 | 2764388 Peterpaul
Peterpaul's picture

Heard that! I have fixed an enormous amount of electronic devices and made some more than basic car repairs thanks to how-to videos on youtube! It has saved a ton and been fun, even with the capital expense for new tools and busted knuckle or two!

Wed, 09/05/2012 - 14:14 | 2765240 RockyRacoon
RockyRacoon's picture

The tools are actually free since that is at least what you would have paid a "pro" to do the job.  And the experience is priceless since that will be your asset forever (until Alzheimer pays a visit anyway).

Wed, 09/05/2012 - 11:56 | 2764651 A Nanny Moose
A Nanny Moose's picture

That lasts as long as Gummint keeps its hands off the Kill Switch.

Packet radio might be a good skill to learn. Good luck watching the Yewtewbz though.

Wed, 09/05/2012 - 14:03 | 2765172 smiler03
smiler03's picture

@ longsoupline

"Replaced a thermal cut-off switch and high temp sensor in my clothes dryer last week."

Extremely well done. It's hard enough to isolate problems outside modern circuit boards. If you'd sought a "professionals" repair in the UK they would have quoted ridiculous prices to replace all the PCBs, failed to spot the real problem and eventually tell you that your machine is beyond repair after having charged you 90% of the price of a new machine for "labour".

I did a less complex repair on a fitted electric oven myself earlier this year. The two parts cost about $30.

Wed, 09/05/2012 - 09:48 | 2764213 ParkAveFlasher
ParkAveFlasher's picture

You're not doomed.  After credit fails, and cash goes infinitesmal, they'll be looking for you to fix their dryers. 

Charge them in silver.

Wed, 09/05/2012 - 13:19 | 2764966 FiatGold
FiatGold's picture

I hear you on that.  I can fix cars and computers if it really comes down to it.  That is if the electricity stay on.  People look to me and say that they can never do that.  I tell them it was just a few screws and a anual and they look terrifed at the thought of that.

 

Wed, 09/05/2012 - 11:13 | 2764492 Zap Powerz
Zap Powerz's picture

I agree with you. I would like to point out that those without skill sets will become a huge problem for those with skill sets and capable of taking care of themselves.  And what I mean by "huge problem" is they will become physical threats to your security and safety.  Plan accordingly.

Wed, 09/05/2012 - 14:18 | 2765258 RockyRacoon
RockyRacoon's picture

Bright side:  Some of the population problem will be solved as the not-so-mechanically-inclined will have electrocuted themselves or meet with some other horrible industrial-style demise.   Survival of the mentally fittest doncha know.  Maybe we could salt YouTube with some erroneous instructions on how to repair your wood chipper.   Ultimately, it's for the sake of the children's' survival!

Wed, 09/05/2012 - 09:12 | 2764088 kito
kito's picture

gold will not cross $2,000 without the perceived threat of further currency dilution ie: LSAP...............and ben has been disappointing the gold bugs for over a year now.....................

Wed, 09/05/2012 - 09:19 | 2764111 LawsofPhysics
LawsofPhysics's picture

So long as the printed money remains in banks, financial houses, and other places secluded from the real economy, you are correct.  But I think the forcoming wave of retirees might want to eat more than cat food, especially if they have been paying into the bullshit system for 40+ years.  FAIL

 

But, in general, you are probably correct and nothing will really change until corporations and people start to default on contracts to deliver real commodities.  At which point, it won't matter what the price is gold goes to because you won't find anyone willing to part with it.

 

In case you missed it, in order to "price" anything, someone must be willing to sell.

Wed, 09/05/2012 - 09:33 | 2764163 LoneStarHog
LoneStarHog's picture

And in order to LEGALLY sell something, you must LEGALLY own something. The paper scam WILL detonate, if it has not already started in a temporarily controlled demolition.

Wed, 09/05/2012 - 09:42 | 2764195 spentCartridge
spentCartridge's picture

How about owning it lawfully, or is that too much of a stretch for you guys to consider?

 

Leave legal land to self destruct. Educate yourself. Learn the difference between legal & lawful ...

 

... it ain't rocket science.

Wed, 09/05/2012 - 09:50 | 2764220 LoneStarHog
LoneStarHog's picture

Ya wanna play, Mr. Pseudo-Intellectual?

Black's Law Dictionary of Legally:  Lawfully; according to law

Wed, 09/05/2012 - 10:20 | 2764302 Alpo for Granny
Alpo for Granny's picture

"But I think the forcoming wave of retirees might want to eat more than cat food, especially if they have been paying into the bullshit system for 40+ years.  FAIL"

 

Correct. On special occasions, they will want to step it up a bit.

http://www.alpo.com/ProductsDetail.aspx?product=chophouseoriginalsfiletm...

Wed, 09/05/2012 - 09:19 | 2764112 LawsofPhysics
LawsofPhysics's picture

Damn.

Wed, 09/05/2012 - 10:26 | 2764320 _underscore
_underscore's picture

But the fiat currency that CBs create to buy govt. bonds now goes into the economy, whereas before the market took that money out of circulation to buy the bonds. Nett result is that when the govt. spends that money (created by their friendly, tame, CB) that equals money printing (i.e. the debt is monetised). When bonds are bought increasingly by created CB fiat that money has velocity (i.e. the govt. spends it on real things) - that's the inflationary time-bomb (or one of them, at least).

That's all I need to know.

 

Wed, 09/05/2012 - 09:12 | 2764090 bharat
bharat's picture

I don't know if the negative interest rate argument holds water. Negative interest rates for who? Only the wall street banks. I'm paying a positive interest rate for all the money that I borrow. My companys pays 13% interest on its term loan.

I'm seeing deflation everywhere. Aggregate demand is going down. Unless people are making money, they can't buy gold.

Wed, 09/05/2012 - 09:22 | 2764100 LoneStarHog
LoneStarHog's picture

You have it bassackwards...not the interest you PAY, but the interest you GET!

Wed, 09/05/2012 - 09:21 | 2764118 LoneStarHog
LoneStarHog's picture

The average person can no longer afford gold, as a result they are purchasing more silver. 

Wed, 09/05/2012 - 09:41 | 2764192 LongSoupLine
LongSoupLine's picture

Plus, it's about the ratios too.

Wed, 09/05/2012 - 09:54 | 2764238 blueRidgeBoy
blueRidgeBoy's picture

while I agree the average person should buy silver, I don't see much evidence that they are.  Do you have any? (evidence, not silver)

Wed, 09/05/2012 - 09:57 | 2764245 LoneStarHog
LoneStarHog's picture

There is plenty of credible evidence.  The data is published monthly (e.g. U.S. Mint).  I am not your goddamn secretary.  Get off your damn ass and try doing a simple SEARCH.

Wed, 09/05/2012 - 10:01 | 2764255 blueRidgeBoy
blueRidgeBoy's picture

so they listed the median income of silver buyers in the Mint reports?  Again, I'm not disputing silver sales figures - I'm only questioning whether the average person is responsible for them.  Try to be a little more rigorous in your arguments and a little less emotional.

Wed, 09/05/2012 - 10:09 | 2764275 ParkAveFlasher
ParkAveFlasher's picture

Most of the average people I know think I'm making candelabras when I mention "buying silver".  For an investment?  "What kind of nutcase are you?  Don't you watch TV?"

Wed, 09/05/2012 - 10:17 | 2764295 blueRidgeBoy
blueRidgeBoy's picture

exactly.  And understanding how the average person is investing is an important clue to the stage of the cycle silver is in.  When the shoeshine boy (does he count as average?) starts buying silver, that tells us something.  OP confuses my genuine curiosity with a personal attack on him - all too common on ZH, I'm afraid.

Wed, 09/05/2012 - 10:34 | 2764341 FEDbuster
FEDbuster's picture

The "shoeshine boy" doesn't have any left over money to buy anything.  Most Americans live paycheck (or unemployment check) to paycheck.   All the cash flow is spent on needs and wants.   Most Americans don't "invest" in anything, unless it is forced through some retirement plan at work. 

Wed, 09/05/2012 - 10:45 | 2764366 francis_sawyer
francis_sawyer's picture

The 'shoeshine boy' buying silver... HA! That's a good one... I think it's an old throwover from the "taxi cab driver giving out stock tips" mentality from the 80's, 90's (& probably long before)...

It just goes to show you how difficult it is to shed old thought processes... Naturally ~ stories like that are wedded to an INVESTMENT/PROFIT meme (when actually, the ideas about owning PM's nowadays have little to do with investment/profit & much more to do with a collapsing fiat paper regime)...

Wed, 09/05/2012 - 10:54 | 2764391 Bay of Pigs
Bay of Pigs's picture

You hit the nail on the head. Most Americans are too poor, dumb or busy working to understand gold or silver. Ive been yapping about it for 12-15 years and know a only a handful of people that have listened and bought some. I'm sure that holds true for any PM holder here at ZH. 

Wed, 09/05/2012 - 13:28 | 2765008 FiatGold
FiatGold's picture

I saw the writing on the wall with PM with an anonymous message.  We have moved 60% of our investment into PMs and have learned a lot in the process.  I even found this website through PM searces for forums.  Silver is a great buy at any price right now, the ratio of silver:gold is at 52.4:1.  This is way to high and the reality is digital fiat silver and gold.  This is all new to me and probably old hat to you.  No matter what, I am buying physical and mixing a protfolio of PMS: platinum, paladium, silver and gold.  It's never too late and if you are holding for the medium to long term, it's the only hedge against the REAL inflation.

I would love to hear from anyone who has bee ndoing this longer.  :)

Wed, 09/05/2012 - 11:06 | 2764447 ParkAveFlasher
ParkAveFlasher's picture

-1 Exactly what?  The average people don't have to buy it themselves, their 401k's and pension funds and local banks' associated hedgers will do it for them.  Just as with bonds at auction, how many average people visit their local Federal Reserve on a Wednesday morning to buy T-bills at auction?  Their bankers and brokers do it for them.  So that investment demand is proxy demand.  Most average people have no clue what rolls down the pyramid into their various accounts.

BTW, humanity will never stop finding new applications for silver in industry and chemistry.  It is an exceptional element and rare at that.  The potential as an investment is in many ways more profound than that of gold, which is more of a simple, inert store of purchasing power and insurance against inflationary prices.

And this is all before you even consider that silver is now in constant backwardation, as opposed to alternating backwardation bookending delivery months, and before you consider that the physical market is TINY in size, and before you consider that many market watchers (most recently Bill Murphy who was interviewed on Kitco recently) are noting that delays and numbers on delivered bars indicate that silver is passing unusually quickly from the mine to the customer with the fewest possible stops in between.

Thu, 09/13/2012 - 09:06 | 2788965 DosZap
DosZap's picture

I'm seeing deflation everywhere. Aggregate demand is going down. Unless people are making money, they can't buy gold.

 

 

Come shopping we/me, and we'll see your Deflation.

Also, auto sales in my AO for models folks want are sold at MSRP.

Trade in's are worth jackshit, if they have over 50k miles, same as it was in the 60's, when cars were worn out at 100k.

Wed, 09/05/2012 - 09:16 | 2764091 buzzsaw99
buzzsaw99's picture

citing bill gross who mentions TIPs and gold in the same sentence. omg lolololololololol!!!! gold bitchez. the double nirp play. :snark!:

Wed, 09/05/2012 - 09:49 | 2764217 otto skorzeny
otto skorzeny's picture

TIPS are a joke-it is based on #s from the govt-I made my point

 

Wed, 09/05/2012 - 10:45 | 2764367 Clowns on Acid
Clowns on Acid's picture

Agree here otto - why would anyone buy a Gov't priced asset. Forget the Inflation calculation used in TIPs, ....I am talking counterparty risk here..!

Wed, 09/05/2012 - 09:15 | 2764098 JustObserving
JustObserving's picture

Negative interest rates means that pension and social security and medicare obligations will be increasingly more difficult to sustain. Sooner or later, there will be massive printing to solve this problem which should be bullish for gold and silver.  Gold to $2500 means silver at $60 to $65 an ounce.

Wed, 09/05/2012 - 09:16 | 2764101 Poor Grogman
Poor Grogman's picture

Rehypothecation is the answer

Kind of like the loaves and fishes story except no-one ends up actually getting fed..

Wed, 09/05/2012 - 10:11 | 2764276 gdogus erectus
gdogus erectus's picture

Exactly! An abstraction of an abstraction. Kinda like buying pictures of food to to insure against a famine.

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