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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (14243)	3/10/2003 1:26:06 PM
From: Clappy	Respond to of 89467

Gold - Northern Trust... Paul Kasriel It Is Getting Tougher To Get An "Honest" Return On Your Money Back on January 27th, I wrote a weekly piece entitled "What Makes Gold Glitter." In it I argued that gold prices would really get a boost when central banks around the world cut their policy rates below the going rates of inflation in their respective economies. The Fed already had done so at that time. I suggested that other major central banks were on the way to doing so. It has not happened universally yet, but major central banks are moving in that direction. The Bank of England recently cut its policy rate by 50 basis points to 3.75%. The year-over-year consumer inflation rate in the UK as of January was 2.73%. So, although you can still get about a 100 basis points of positive inflation-adjusted return on your short-term money in the UK, this is down from 250 basis points in June 2002. Dan Galo, our Bank of England expert, believes that another 25 basis point cut is in the works in a month or two. The ECB cut its policy rate by 25 basis points to 2.50% on March 6. The flash estimate for eurozone consumer inflation in February is 2.30%. So, you are earning a positive inflation-adjusted return on your money of only 20 basis points in Western Europe now versus 140 basis points back in June. Like the Bank of England, the ECB is generally expected to cut its policy rate another 25 basis points in the next month or two, which likely will result in negative inflation-adjusted return on your short-term money. Switzerland traditionally has been viewed as place where you could get a positive inflation-adjusted return on your money. But not these days. On March 6th, the Swiss National Bank announced a 50 basis-point cut in its interest rate target range, saying that it would now target a rate level of 0.25%. With Swiss February consumer inflation running around 1%, you get a negative inflation-adjusted return on your short-term money of 75 basis points. Here in the US, the Fed is targeting the overnight funds rate at 1.25% in the face of a January CPI inflation rate of 2.60%. Given the recent weakness in the US economy, the markets are now starting to price in another 25 basis cut in the funds rate in May or June. Unless there is a major reversal in energy prices, US consumer inflation is likely to be drifting still higher in the next several months, which would make the inflation-adjusted return on short-term money even more negative. It is getting more difficult to get an "honest" return on your short-term money in any major capital market. Unless conditions change radically in the near term, gold prices are likely to be retesting their early-February highs of $390.