Typically we stay focused on gold pricing in US dollars, sharing that as the standard with international traders and mining companies. However, recently a global movement of capital into precious metals is making up the bull market, and we believe that this is only the beginning.

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We make sure to take regular looks around the globe to remain up to date. Last week, Governor Mark Carney of the Bank of England increased interest rates to 0.50%, an increase of 0.25%. Because this was the first increase in the UK in ten years, it has gathered a lot of attention. In this attention, what is not being noted is that these interest rates are at the lowest levels ever recorded in the whole of the British monetary system. This is evidenced in the graph below, which shows the prime rate of the Bank of England from 1971, when the Bretton Woods gold standard was abolished and currencies were allowed to float freely against the US dollar, up to now:

Interest rates rise to 0.5%

It is also important to note that not only have interest rates been kept lower from 2007 to now than any other part of modern history, but that have also stayed lower than 2.0%, the rate that was set during World War II.

If you are new to central banking, you may not realize that the controlling organization does not just have a button to push that lowers interest rates whenever they feel like it. Instead, central banks have to regularly print money to buy short-term bonds to keep interest rates below the level they would be naturally. This is the main reason why low interest rates are inflationary, money is being created month by month as central banks keep the interest rate low.

M3 money supply in the UK, the largest measure of the quantity of British pounds in existence in total, has almost doubled since 2007, and has increased 5-fold in the last 25 years, which is no real surprise:

UK Money supply

 

Powell Nominated by Trump

Across the Atlantic Ocean, last week President Trump finalized his nomination of Jerome Powell as the new chair of the Federal Reserve. Last week we wrote that if Powell were to be confirmed, the current chairwoman would end up with the shortest tenure as Fed chair since G. William Miller in the late 1970s- a man who oversaw the highest inflation rate in all of US history, 14%.

The fact that Powell was chosen to be Fed governor under the Obama administration seems to indicate that the Democrat/Republican divide may exist in name only:  

Janet Yellen “should be ashamed of herself” for creating “a false stock market” [by keeping interest rates low].

-Donald Trump, September 2016.

“I do like the low-interest rate policy… I have a lot of respect” [for Yellen].

-Donald Trump, July 2017.

The bottom line here is that support for Fed member banks comes first and at all costs. The rest of it, consumer price inflation, unemployment, the value of currency- come second.

Following the announcement of the replacement of Yellen, the major markets remained stable, the status quo of money-printing to keep the solvency of member banks will stay in place when the new chair takes over in February of next year.

Update on Gold Price

Currently, gold is staying in the middle of a long-term downtrend retest zone. As of final trade on the COMEX in New York on Friday, the historic store of wealth was lowered 0.2%, or $3 down to $1269. Precious metals investors must always focus on the main gold chart, and nothing that we have seen over the last week has changed the fact that a 6-year downtrend, evidenced on the chart below by the magenta line, is currently retesting its breakout point. We have to let this process play out as gold is attempting to create a new trend:

d_gold

Christopher Aaron,
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000's. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping: both are based on the observations of repeating and imbedded patterns in human nature.

His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is provided as a third party analysis and does not necessarily matches views of Bullion Exchanges and should not be considered as financial advice in any way.