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Bank of England Interest Rate Increase - Yet Gold and Precious Metals Higher as Pound Drops Against US Dollar

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Bank of England Interest Rate Increase - Yet Gold and Precious Metals Higher as Pound Drops Against US Dollar

From the BBC News:

Biggest interest rate hike in decades as Bank warns of long recession.

Pound drops following interest rate move
Sterling fell sharply following the the Bank of England's interest rate decision.

The Bank's warnings over a prolonged recession saw the pound drop by nearly 2% to 1.12 against the US dollar in London trading. It also finished 0.7% lower against the euro.

The 0.75% increase to 3.0% was clearly intended to help steady and support the pound after the recent US Fed rate rise, but contrary to expectation the pouhd sterling dropped another 2 cents, to just below $1.12

As recently as Monday, it had been trading at above $1.16 making for a 4 cent fall on the week.

S.A News had this headline:

Gold prices slide to lowest in two-and-a-half years following latest Fed rate hike.

But in sterling terms the news was almost the opposite, for example Kitco's headline:

Gold price continues to rise against British pound as BoE governor said inflation threat has never been higher

So, on Monday we saw gold prices around £1415, we are now seeing it at almost £1460 per ounce.

In dollar terms, gold was around $1632 on Monday, rising to around $1655 only yesterday Wednesday, with one short spike to almost $1665; gold dropped to below $1620 earlier today, and is now about $1630 having been as low as $1617.

Despite the headlines, gold in dollars is almost exactly where it started the week, whereas the price in pounds is about £40 higher.

It sounds like the foreign exchange markets expect UK interest rates to rise again soon, although possibly the big damper was the Bank's gloomy recession warning.

What I don't understand here is why the outlook has turned so doomy in just a few days.

Is this still backwash from the Liz Truss / Kwasi Kwarteng fiasco, despite Rishi Sunak promising tax increases in place of tax cuts? Perhaps Truss / Kwarteng caused shook market confidence more than anyone realised. It is almost certain that if they were still in power, that sterling would be trading below parity to the dollar.

😎 - I use this emoji more in hope for the future.


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