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UK Inflation Rises Again To 5.2% - Ultra Loose Monetary Policy May Lead To Stagflation

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From GoldCore

UK Inflation Rises Again to 5.2% - Ultra Loose Monetary Policy May Lead to Stagflation

Gold is trading at USD 1,656.50, EUR 1,211.20, GBP 1,054.00, JPY 127,093.00, AUD 1,634.70 and CHF 1,494.10 per ounce.

Gold’s London AM fix this morning was USD 1,658.00, GBP 1,054.64 and EUR 1,211.19 per ounce. 

Yesterday’s AM fix was USD 1,689.00, GBP 1,069.33 and EUR 1,217.64 per ounce.


Cross Currency Table

Gold has fallen in all currencies today as equity and commodity markets have seen weakness due to concerns about Chinese economic growth after China's economy eased somewhat. Germany’s pouring cold water on the likelihood of a speedy resolution of the euro zone's debt crisis and the summit this weekend has also increased market jitters.

Gold continues to be correlated with equities in the short term but we are confident that this correlation is short term in nature and the inverse correlation between gold and equities and bonds will again be seen in the medium and long term.


Gold in USD – 30 Day (Tick)

Gold priced in euros has fallen less than other currencies as the euro has fallen against most currencies today on concerns about the debt crisis and after another fall in German investor confidence.


XAU-EUR Exchange Rate - 30 Day (Tick)

Peripheral European debt markets are showing weakness again. The recent trend of falling yields appears to have ended which is worrying. Should yields begin to rise again this should create added safe haven demand for gold.

UK inflation rose to match a record high of 5.2% (CPI) and retail price inflation (RPI), a measure of the cost of living used in wage negotiations, accelerated to 5.6% (from 5.2%), the highest since June 1991.

The figures were again worse than expected by the BoE, economists and many economic experts who have been underestimating the threat of inflation for some time.

The BoE, like the Federal Reserve, continues to follow an ultra loose monetary policy in an effort to boost an economy teetering on the brink of a double dip recession.

Second quarter UK Gross Domestic Product (GDP) shocked the markets by showing a disappointing 0.1% growth in the economy, down from a 0.2% increase in the first quarter.

The UK appears to be entering stagflation with declining economic growth and stubbornly high inflation seeming increasingly likely. Whether stagflation becomes as intractable and long lasting as was seen in the 1970s remains to be seen but it would be foolish to completely ignore the risk of stagflation – both in the UK and in most debt saturated western economies.


XAU-GBP Exchange Rate - 30 Day (Tick)

Given the macroeconomic backdrop, the case for owning gold as part of a diversified portfolio remains strong.

Slow global growth and the risk of a global recession, ultra low interest rates and increasing inflation in most markets means that owning gold remains prudent.

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

SILVER 
Silver is trading at $31.04/oz, €22.69/oz and £19.74/oz 

PLATINUM GROUP METALS 
Platinum is trading at $1,525.50/oz, palladium at $601/oz and rhodium at $1,525/oz. 

NEWS

(Reuters)
Gold edges down as risk assets retreat

(Reuters)
Gold slides after German data dents euro

(MarketWatch)
Gold ends lower on data, euro zone woes‎

(The Street)
Gold Prices Held Back by Europe, Strong Dollar‎

(Barron’s)
Gold Wavers, Silver Falls As Dollar Climbs Amid Europe's Debt Woes‎

COMMENTARY

(WashingtonPost)
Bloomberg Video: Hong Kong Bourse Starts Trading Gold Quoted in Yuan

(King World News)
James Turk - Insolvency of Banks to Cause Gold Explosion

(GoldSeek)
Gold and Economic Decline

(ZeroHedge)
Deutsche Bank Warns France May Be Put On Downgrade Review Before Year End

 

 

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Tue, 10/18/2011 - 08:06 | 1784518 BeerGoggles
BeerGoggles's picture

Gold continues to be correlated with equities in the short term but we are confident that this correlation is short term in nature and the inverse correlation between gold and equities and bonds will again be seen in the medium and long term.

Should we sell PMs then because this market is going up medium term as far as I can see.

Tue, 10/18/2011 - 08:11 | 1784536 jdelano
jdelano's picture

take off the beer goggles and look again.

Tue, 10/18/2011 - 08:22 | 1784574 Cynical Sidney
Cynical Sidney's picture

"UK inflation rose to match a record high of 5.2% (CPI) and retail price inflation (RPI), a measure of the cost of living used in wage negotiations, accelerated to 5.6% (from 5.2%), the highest since June 1991.

Second quarter UK Gross Domestic Product (GDP) shocked the markets by showing a disappointing 0.1% growth in the economy, down from a 0.2% increase in the first quarter."

uk just slipped into a depression before the olympics could save them

Tue, 10/18/2011 - 08:32 | 1784585 BeerGoggles
BeerGoggles's picture

the indexes are definitely bullish medium term, the bottom was in as soon as ZH called bear market.

Tue, 10/18/2011 - 08:48 | 1784647 Johnny Lawrence
Johnny Lawrence's picture

You have no sense of market history.  Good luck when you get smoked.

Tue, 10/18/2011 - 09:11 | 1784716 BeerGoggles
BeerGoggles's picture

what is happening now is exactly what happened last June. There will be new highs in about 12 months from now.

Tue, 10/18/2011 - 09:25 | 1784758 CvlDobd
CvlDobd's picture

Not true, last year we ran up in April and retraced it all in May/June. No real pattern top.

This year we have a nice 7 month long head and shoulder breakdown. The price target down was quickly fulfilled but until we get a long term bottom formation the head and shoulders governs all long term equities decisions (for me).

2011 and 2010 do not look the same to me. Also on July 4 2010 we already had aggs, copper, and emerging market leading us higher. Not seeing that in those markets this year.

Tue, 10/18/2011 - 08:22 | 1784522 MFL8240
MFL8240's picture

So Gold is no longer good to own, instead to fight inflation own paper currency? The US courrption has spread world wide and many will lose their life savings to these mother fucking pigs.

The Reuters headline says it all folks.  Gold is now a risky assett.  Not dollars, not bonds, ..rather Gold.  What a joke.

Tue, 10/18/2011 - 09:13 | 1784724 obelisks
obelisks's picture

MFL just listen to this broad she knows what she is talking about / sarc

 

http://www.youtube.com/watch?v=XL8vGbhpbEs&feature=player_embedded

Tue, 10/18/2011 - 08:07 | 1784523 achmachat
achmachat's picture

in other words.. the precious metals are going to make good on all that inflation as soon as people try to protect themselves from ultra loose monetary policy?

Tue, 10/18/2011 - 08:08 | 1784527 msmith
msmith's picture

The USD should see significant strength in the near term.  The ES, TNX, and CL have likely put in an important top yesterday.  Intermarket analysis tells us that big moves are likely ahead with risk off being the theme. http://bit.ly/oLkAgM

Tue, 10/18/2011 - 08:09 | 1784531 drwillia
Tue, 10/18/2011 - 08:10 | 1784533 firstdivision
firstdivision's picture

Good thing they just announced that new QE program.  That sure helped the situation greatly....

Tue, 10/18/2011 - 09:51 | 1784819 tocointhephrase
tocointhephrase's picture

(Sarc?)

Tue, 10/18/2011 - 08:11 | 1784538 EL INDIO
EL INDIO's picture

At this point Gold seems to be back to the old inverse relation with the USD. Silver as usual amplifies Gold’s moves.

Dollar up, PMs down.

Gold’s faire range 1535-1665 (according to me). Fair value at 1610.

Silver, too dangerous right now.

 

The UK is already in stagflation and inflation is more like 10% at least.

Tue, 10/18/2011 - 08:23 | 1784557 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

We're sure to have at least another dip under $1600 with gold and $30 with silver. The question is whether or not we get a lower low ie under 1500 gold and $26 silver. I give it about a 40% chance at the moment. But I have some (not really that much, but have been doing overtime since the big PMs knock down!) dry powder ready to blow should they test the lows...!!!

The way I see it (as someone from the UK now living in France) the UK is in the worst shape of all western countries, just about: massive world wide famous benifits system that has whole towns, 3 generations of families and scores of immigrants who have never worked and live off the state; a society compltely broken by immigration, awful educational standards, outsourcing etc; a royal family to support! Very crowded spaces with huge pressure on infostructure, huge debts, complete relience on the financial sector (spain, greece, italy are all better prepared to go back to being agrarian economies); massive debts, massivly over-leveraged, few natural resources, over-extended military...please someone tell me how any western country could be in worse shape!

Tue, 10/18/2011 - 08:24 | 1784580 achmachat
achmachat's picture

i need to convert € into silver within this week (i don't trust the banks with my money over the next weekend). If it dips under 30, it will be today.

If not, just right after any of the daily smaller raids tomorrow or so.

Tue, 10/18/2011 - 08:33 | 1784597 Quinvarius
Quinvarius's picture

OPEX for stocks is Friday.  I think the CFTC vote is today.  Two prime windows to buy into predictable paper raids.

Tue, 10/18/2011 - 08:32 | 1784606 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

yeh, I wouldn't trust them with my £ or $ either. I even have my cash (which minus the powder I've set asside for PMs is about £5000 which I need to help settle in france) in my goldmoney account. I like hurting the banks by not leaving them with anything, but I don't think depositors in europe are going to get wiped out any time soon, without the governements coughing up for it that is (up to 80,000 euros I believe)

On silver, Im hoping for under 28 again. If we don't see it over the next month I don't think we ever will. I recon we'll be back at 40 by early next year.

Tue, 10/18/2011 - 09:58 | 1784840 tocointhephrase
tocointhephrase's picture

And in the event that they cough up 80000 euro/£ how long will that take to do with millions standing in line and more importantly what will it be worth. As Bartiromo says, do you know where your money is? 

Tue, 10/18/2011 - 08:25 | 1784560 Minoan
Minoan's picture

But the 10 year bond yield is low.Why would someone park his money in this uncertain situation?

Tue, 10/18/2011 - 08:37 | 1784623 Quinvarius
Quinvarius's picture

One way or another, Fed money is going into that market.  It doesn't matter what they say.  They are still buying.

Tue, 10/18/2011 - 08:26 | 1784584 luigi
luigi's picture

And the rating still is....?

Tue, 10/18/2011 - 08:28 | 1784595 afdestruction
afdestruction's picture

Let the uneducated sell, I'm fine with picking up some cheap PM's. GO MISLEADING HEADLINES!

Tue, 10/18/2011 - 08:29 | 1784596 dcb
dcb's picture

And yes despite seeing this they still call for more easing, it's amazing that their whole paradigm refuses to accept what the problem really is, and instead of recognizing it the answer is to just do more of something that fails. now, why there really aren't even bigger riots there god knows.

 

I find a funny anecdote to the whole thing, because some idiot american pundit over there keeps calling for more easing. He states that the reason it has never worked after a situation like this is because they haven't done it long enough. Of course using that logic, I have determiined that if I cut off an animals haed and pickle it in a jar a new animal will grow. The experiment has been tried many times, but they have never let it run long enough. This of course can justify any stupid policy action that helps the elites. Yeah, we have it bad, but the british have it worse, austerity, with an expansive monetary policy that just put everyone further behind xcept the bankers. these people are insane.

Tue, 10/18/2011 - 08:34 | 1784611 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

the british also seem more clueless about whats going on than others, save perhaps the irish. The BOE can QE all they like and most people just think its a fancy term that economist use that won't effect their lives.

Tue, 10/18/2011 - 10:14 | 1784925 tocointhephrase
tocointhephrase's picture

I agree to a large extent. Most of my fellow natives are blind to the theft. My coin dealer says my eyes are wide open and the majority are asleep. He says it is better that way because it would be chaos. I have tried to warn as many people as possible about the upcoming and past events but I might as well be Noah! Its taken my Dad about a year to finally read the book I gave him, M Malony's Guide To PM's...A FREAKIN YEAR and the only metal he owns is the Oz of Ag I gave him last year for Xmas (along with the rest of my family). Even with the manipulated take down that coin is up 50% and he still prefers the 'traditional way of saving'. TPTB really are 'Masters of Deception'/'Masters of Fear'. As you can see not all Brits are clueless and to think we are 'more' is wishful thinking as you guys say, don't be so stoooopidd

Tue, 10/18/2011 - 08:32 | 1784603 Josephine29
Josephine29's picture

The nature of the grim situation facing the UK is expressed well below.

A further impact on real wages

Last week on the 13th of October I suggested that as wage growth was slower than price inflation that real wages were falling and that this was acting as a break on the UK economy. Furthermore that this unintended consequence of all the monetary stimulus in our economy was contributing to this meaning that it was acting as a brake on itself. If we look at this and put in today’s inflation figures we see this.

Total pay (including bonuses) rose by 2.8 per cent on a year earlier

So if we compare this to the inflation rate then we can estimate that real wages fell by 2.4% compared to CPI and 2.9% compared to RPI-X. We might not then be so surprised at the weak nature of our economic recovery as all the monetary stimulus in the world will struggle to compensate for falling real wages.

It is all okay because the Bank of England tells us that inflation will fall

I have looked back at the Bank of England’s past inflation forecasts for today to see how they compare with a level of CPI inflation of 5.2%.

November 2009 1.8%

February 2010  1%

May 2010 1.5%

August 2010 1.5%

February 2011 2%

These are estimates from the mid-range of its fan charts but as you can see any minor error in staring at the chart is dwarfed by the scale of the forecasting incompetence exhibited by the Bank of England. Apparently we are supposed to believe yet again that inflation will fall below target and only this month we required a further £75 billion of Quantitative Easing to stop a deflationary nightmare!

So bad is this situation I am reminded of the latin phrase which I repeat below.

Quis custodiet ipsos custodes?

http://www.mindfulmoney.co.uk/wp/shaun-richards/so-with-consumer-price-inflation-at-5-2-and-rpi-at-5-6-shouldnt-mervyn-king-resign/

Tue, 10/18/2011 - 08:49 | 1784648 Johnny Lawrence
Johnny Lawrence's picture

Gold continues to be correlated with equities in the short term but we are confident that this correlation is short term in nature and the inverse correlation between gold and equities and bonds will again be seen in the medium and long term.

I've posted about this correlation several times over the past couple weeks and get thumbed down.  For PM bulls, the correlation with equities is downright alarming.

Tue, 10/18/2011 - 09:12 | 1784722 BeerGoggles
BeerGoggles's picture

exactly, new highs coming in equities. Only thing that will make gold go up now is QE.

Tue, 10/18/2011 - 08:53 | 1784664 Mr. Lucky
Mr. Lucky's picture

Don't worry the extra  funds from carbon tax will save the UK  this winter.

Tue, 10/18/2011 - 08:57 | 1784673 Enkidu78
Enkidu78's picture

Ohhh another drop in PM prices, I best sell sell sell.....

Or maybe I have my eyes open and will buy some more, we got some serious issues here in the UK.

Tue, 10/18/2011 - 09:23 | 1784753 Minoan
Minoan's picture

Indeed.My favourite is the 5 pounds silver commemorative coin issued last year,with the British weather theme."Never may a cloud come o'er the sunshine of your mind"

Tue, 10/18/2011 - 09:17 | 1784733 johny2
johny2's picture

Nevermind this smoke and mirrors game, what happens when the ponzi credit scheme is wound up? Is it going to be done orderly, by getting usd back to gold standard, or we are going to have to live underground for the rest of our lives?

Tue, 10/18/2011 - 10:02 | 1784869 monkeyfaction
monkeyfaction's picture

The BOE must be expecting some hellish deflation in the pipeline if their response to a 5.6% rise in inflation is to print another 75 billion pounds.

Tue, 10/18/2011 - 10:37 | 1785034 Fuh Querada
Fuh Querada's picture

If the official rate of price inflation is 5.2 % then God knows what the real one is - probably more than double, if the shadowstats data for the US are anything to go by. During my lifetime the purchasing power of the GBP has decreased by over 98%. The Bank of England makes the Fed look like greenhorns when it comes to printing money.

Tue, 10/18/2011 - 10:45 | 1785076 tocointhephrase
tocointhephrase's picture

No wonder they got rid of the £1 note.

Tue, 10/18/2011 - 10:48 | 1785099 Enkidu78
Enkidu78's picture

Hey its fine though because at least house prices are not falling and everyone on income support etc gets an inflationary rise..  Every time I go shopping then fill up at the pump I feel like im being robbed and I pay my way.  Who puts these people in power????  Wake up UK FFS

Tue, 10/18/2011 - 14:19 | 1786057 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Anyone not living in the UK and needs to know the precipice it is teetering over should read a previous posters description which explains the implosion about to hit the UK economy very well:

"The way I see it (as someone from the UK now living in France) the UK is in the worst shape of all western countries, just about: massive world wide famous benifits system that has whole towns, 3 generations of families and scores of immigrants who have never worked and live off the state; a society compltely broken by immigration, awful educational standards, outsourcing etc; a royal family to support! Very crowded spaces with huge pressure on infostructure, huge debts, complete relience on the financial sector (spain, greece, italy are all better prepared to go back to being agrarian economies); massive debts, massivly over-leveraged, few natural resources, over-extended military...please someone tell me how any western country could be in worse shape!" You could add to the above, declining North Sea oil revenues(various Uk govts over the last 40 years pissed them away on general govt expenditure,no sovereign wealth fund for us)that have kept the poulation living in a debt based boom economy, turbocharged by relentless currency devaluation,an economy hopelessly unbalanced in favour of housing instead of manufacturing with a vastly overpriced housing stock that cannot be allowed to fall in value(hence the repeated QE announcements) as bank reserves are already running on fumes. Nobody know,or wants to know what is coming,I am personally sick to the back teeth of trying to educate morons who are more interested in updating to the latest phone or who has won the latest round of X Factor than how their country has been systematically robbed from them by bankers and how in years to come they will be a minority in their own country. The future can't be bad enough for me,the pond life need to have avery severe lesson taugh them and I think they are going to get it big time. Bring it on.
Wed, 11/30/2011 - 10:18 | 1929727 JenniferS
JenniferS's picture

Unless you work in public sector, there's never been agreements to pay you x(inflation) extra each year. You simply put up with what you get paid. if you don't like it you ask for a raise, if they don't you leave. (apart from now that doesn't hold since jobs are scarce)

There is a lag since it takes time for the inflation to feed into the system, I believe its around 4-5months. Example oil, feeds into many other sectors in which pricing is fixed. Put shortly inflation isn't felt straight away, so hence employees don't expect more pay till it hits their disposable income.

There are millions of public service workers who will not have any pay rise in this year, next year and the year after that. They are people like you and me, with a family to keep, bills to pay, children to educate and cash loans wouldn't be an answer always, yet - through no fault of their own - they have been singled out for special punishment by the coalition.

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