Zero Rates, Short Memories

By: Adrian Ash | Thu, Mar 20, 2014
Print Email

Steady nerves needed for short-term speculators in precious metals...

Double-whammy for gold and silver prices.

First, new US Federal Reserve chairwoman Janet Yellen hinted that Dollar interest rates may rise earlier than analysts thought. "Fed's new rate forecasts signal endgame for easy money," reckons the Financial Times.

Believe it when we see it. Slowly raising US Dollar rates from record-low rates in 2004-2006 blew the economy up in 2007. Europe today stands on the edge of deflation. And near-zero rates are here to stay, Yellen stressed. And stressed again.

But everything except the US Dollar sank after Yellen spoke in Washington, with hard-money gold and silver leading the way. Because they don't pay any interest at all. So they are the most sensitive assets to changes in interest-rate expectations, however slight.

Second, in an interview quoted by the Wall Street Journal, German Bundesbank policy-maker Carl-Ludwig Thiele says Eurozone central banks are "discussing" the future of their 15-year old cap on gold sales.

This might matter. The burden of feeding the gold flow from West to East, which maps the transfer of wealth and economic power more broadly, has shifted to private stockpiles since the financial crisis. Because Western central banks have suspended their sales.

Their 1999 agreement to pre-announce sales, with a definite cap on annual sales (first of 400 tonnes, then 500...and then 400 again), helped stem gold's 20-year decline. That cap, known as the Central Bank Gold Agreement, was forced by the UK's disastrous sales announcement of June 1999. Since the financial crisis starting 2007 it has become pointless, as sales have fallen to zero anyway. Because countries in crisis don't sell gold. Not unless they want to admit things are truly catastrophic.

But as crisis recedes, memories grow short.

"The negotiations are still ongoing," says Thiele at the Bundesbank. The German central bank never did sell any gold, either before or after the CBGA.

But "No one can see into the future," he says, "and therefore it is currently under discussion whether it should be continued."

The current 5-year CBGA is due to expire in September. Signing a fourth, with only 203 tonnes sold since 2009 out of a possible 2,000, would frankly look silly. But not signing might spook the market, especially those older hands who recall the disaster of Brown's Bottom.

Certainly looks to be spooking them today. Steady nerves needed for short-term speculators in precious metals.



Adrian Ash

Author: Adrian Ash

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council ( joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit

© BullionVault 2006-2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.

All Images, XHTML Renderings, and Source Code Copyright ©