Anyone that has lived and worked in the UK in the past few years will have noticed that prices have been rising and that, owing to the sluggish economy conditions, wages and job prospects have not quite followed suit.
When the economy is booming, people earn more, consume more and, typically, prices rise. The reverse is also true when the economy is cooling. That is, if people are out of work and consume less, shops will need to lower prices to sell their stock.
The Bank of England’s primary remit is that of price stability. Its job is to rein the economy in when we all get carried away with our credit cards, and to encourage us to spend and invest when the high streets are deserted. It does this by adjusting interest rates.
Paul Volcker, ex-Chairman of the Federal Reserve, once famously referred to gold as ‘the enemy’ of central banks and policy makers. In this article, I will explain the recent large swings in gold prices and, by doing so, explain why gold continues to be a precious thermometer for economic sentiment and the enemy of policy makers.
At a basic level, there are two opposing forces which drive gold price movements. The first is inflation. The second, and perhaps the more topical, is the general fear of economic collapse. I will now explain these two opposing forces and which is principally responsible for driving the current movements in gold prices. Click here to keep reading