ECB Keeps Rates At 1%: Gold Hits Record High In Indian Rupees

Includes: GLD, IAU, SGOL
by: GoldCore

Today's AM fix was USD 1,633.25, EUR 1,305.45, and GBP 1,057.33 per ounce.
Friday's PM fix was USD 1,606.00, EUR 1,292.76, and GBP 1,041.76 per ounce.

The ECB has left its benchmark refi rate at 1.0% as expected. The deposit rates remains at 0.25 pct and the marginal lending rate at 1.75 pct and are thus both unchanged.

Cross Currency Table - (Bloomberg)

An ECB rate cut would have had a negligible impact on the Euro crisis as monetary policy transmission has broken down. It would have helped debtors and mortgage holders especially in struggling periphery nations.

Ultra loose monetary policies risk stoking inflation and are harming already embattled savers and pension funds who are suffering from negative real interest rates.

Gold fell 0.12% or $2.00 in New York yesterday and closed at $1,618.40/oz. Gold crept gradually higher in Asia and then quickly jumped $10 at 0848 GMT as sizeable orders hit the market sending gold through recent resistance at $1,627/oz to over $1,637/oz.

While gold fell, silver managed to eke out a gain of over 1% or $0.31 and the mining shares rose by some 0.5%.

Gold has surged to a record nominal high in Indian rupees overnight as the rupee continues to depreciate (see chart above).

Gold futures in India, the world's second biggest bullion buyer after China, climbed as much as 0.6% to a record 30,192 rupees per 10 grams. The August-delivery contract on the Multi Commodity Exchange of India Ltd. traded at 30,181 rupees at 12:46 p.m. in Mumbai.

Gold in Indian Rupees - 1 Year (Daily)

Gold's rally on Friday sparked scrap selling in India as some consumers took advantage of the higher prices to sell old jewelery. While Indian physical demand has fallen recently there continues to be strong investment demand in India as seen in the very high demand for ETF gold products.

Negative real interest rates and a depreciating currency mean that demand will continue in India - although it may decline from the records seen recently.

Gold's record high in rupees will likely soon be seen in euros with gold at €1,308/oz now only 5% below the record high of September of €1,375/oz.

XAU/EUR Exchange Rate - (Bloomberg)

The recent strength of the dollar and the pound mean that nominal high's in these currencies may be delayed for a while but seem likely prior to year end given gold's very strong fundamentals.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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