Despite previously warning that it would need to act on inflation, the Bank of England voted in favour of keeping interest rates at their current low of 0.1% during their November 4th meeting, shocking markets. As a result, the pound dropped sharply, boosting the price of gold by almost 3%.
The BOE Throws a Curveball
Last month, Bank of England’s governor Andrew Bailey made headlines warning that they would ‘have to act’ to curb rising inflation rates. Mr Bailey gave the markets the impression that an interest rate rise would be 100% certain when the Monetary Policy Committee (MPC) would meet to vote on monetary policy.
However, the committee threw us a curveball during their meeting last week. The nine members of the MPC surprisingly voted 7-2 against a raise in interest rates, as well as 6-3 against a sooner reduction in the Bank’s quantitative easing programme (which is due to end next month).
The Bank of England is forecasting an estimated 5% peak in inflation for April 2022, as they believe the UK economy will have reverted to pre-pandemic size by then, positively impacting the cost of living. However, the general public will have to endure the higher prices of food, services, and fuel until then.
After weeks of being stuck, the gold price finally broke free and reacted quickly to the BoE’s curveball decision, as the value of the Pound Sterling dropped to a five-week low. Thursday saw gold rise from below £1,300 early in the day to £1,332; a rise of 2.6%.
The Fed Sets the Tone
The price of gold also rose in dollars last week, hovering near a two-month high as the Fed decided that current inflationary pressures were only temporary, dimming prospects of interest rate hikes. The US economy added another 531k jobs to payrolls during October – which was higher than expected.
It is well known that the US Federal Reserve is the Central Bank that all investors’ eyes are fixed on, and that their decisions usually set the tone for the rest of the Central Banks. Wednesday’s dovish Fed decisions on inflation and quantitative easing left the markets slightly disorientated, as they then awaited the BoE’s decision after they previously gave the impression that a rate rise was 100% certain. However, investors were shocked to find the BoE had decided to err on the side of caution, following the Fed’s dovish tone.
What’s Next for Investors?
Last week saw investors assume that the Central Banks would act on inflation and that they needed to prepare for rates to rise much faster than expected. However, this was not the case. So, what is next for us investors?
Of course, a rise in interest rates isn’t always good news for many investors. However, if inflation does continue to rise and there is a risk that the Fed and BoE are falling behind the curve, this could positively impact gold as investors turn their backs on other investments and focus their energies back into precious metals.
As always, we don’t have the definitive answer on what’s next, and can only speculate, just as we all do in our everyday lives. However, planning for those curveballs in life is important. And we are of the belief that physical gold can offer a real, lasting form of protection for when those unforeseen situations strike. One that has proved repeatedly that it can withstand the test of time.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.