The Daily Nugget – Japan starts printing, gold prices keeps rising

The gold price is up once again today on a six-month high, and for once it is not thanks to Ben Bernanke or another Western Bank.

This time it is thanks to the Bank of Japan (BOJ) who have opted to not only keep interest rates at 0.1% but to join in the QE party in a hope to prevent a contraction in the world’s third largest economy. The central bank announced it plans to expand its asset purchases by 10 trillion yen ($126 billion), spurring yet more demand to buy gold online.

Gold prices spurred by the Land of the Rising Sun

Economic sentiment, which had already shown a better than expected improvement in yesterday’s ZEW figures, was boosted this morning as a result of the BOJ’s announcement; stocks edged higher, but not high as investors watch for news of Spain and their rumoured bailout.

Prime Minister Rajoy is reportedly still wary about asking for a bailout as it would mean signing up to a permanent bailout fund – a further loss of sovereignty for the country. However markets are worried as the 10-year government’s bonds hover near 5.89% this morning, dangerously close to the 6% threshold.

The BoE minutes released this morning show that the MPC voted unanimously to keep policy unchanged, leaving interest rates at 0.5% and not increasing the £350bn QE program. Some members did, however, express their belief that further stimulus would be needed in the near-term. The minutes have done little to affect the pounds near 5-month high against the dollar.

Yesterday the UK’s CPI for August remained above wage rises, as it has done for the last 27 months. Whilst the BoE work to reassure us that inflation will drop below the 2% target in 2013, it seems more of us need convincing as we are increasingly feeling the pressures of increased costs of living.

Also in the UK the Office of National Statistics (ONS) are planning to reform the way inflation is calculated in a move which is likely to save the government billions but cause dire scenarios for savers and those looking for wage increases.

What we must remember is whatever the inflation measure and the methodology used (whether RPI, CPI etc.), the government will always seek to manipulate it. Not only for selfish reasons (financial, political etc.) but also because they have taken it upon themselves to set the price of money, i.e. interest rates. The MPC’s main task is to control the rate of inflation, therefore it is not surprising that with each new revision of the inflation measure, the new reading comes in lower. Therefore, no ‘official’ inflation statistic can demonstrate just how much the real inflation rate is affecting the populace. This is not a conspiracy theory, more an unfortunate fact of life.

Lots of predictions have been coming in from banks on where the gold price is headed. To pick one as my favourite it has to be Deutsche Bank which sees the gold price exceeding $2,000 an ounce in Q1 of 2013, not my favourite because of the price predicted but their justification; they explain this is thanks to growth in fiat currencies, “When one has accumulated too much debt, while the right thing to do is pay it back, the easiest thing to do is default and hope your creditor has a short memory…We believe the Western economies in general are biased towards the latter, whether they will admit it or not.”

Concerned about debt and defaults? Buy gold bullion for protection…

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About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles