Metal TradingMetal TradingWhat Happens if Central What Happens if Central

Banks Raise Rates?Banks Raise Rates?You are here at the metal markets, I would to You are here at the metal markets, I would to ask you the question "What Happens if Central ask you the question "What Happens if Central Banks Raise Rates?“ You may have your own Banks Raise Rates?“ You may have your own answer, now we just have a short discussion answer, now we just have a short discussion with the with the Gold Bullion ReportGold Bullion Report..

This week marks another round of This week marks another round of speculative news that the European speculative news that the European

Central Bank may move to raise interest Central Bank may move to raise interest rates. Coming off comments from the rates. Coming off comments from the

ECB Chief Trichet, most analysts seem ECB Chief Trichet, most analysts seem to take it as a given that their rate will to take it as a given that their rate will

ratchet up .25 percent at their next ratchet up .25 percent at their next meeting. Does this mean that the meeting. Does this mean that the

Federal Reserve will also raise rates? If Federal Reserve will also raise rates? If central banks start to raise interest rates, central banks start to raise interest rates,

what could be the impact on precious what could be the impact on precious metals?metals?

That’s the question we care about when That’s the question we care about when talking about the talking about the metals marketmetals market this this

week.week.The following chart shows some of the The following chart shows some of the points in the past at which interest rate points in the past at which interest rate

changes came from the Federal changes came from the Federal Reserve. Just have a look at it to learn Reserve. Just have a look at it to learn

more.more.

The first thing to dispense with is the The first thing to dispense with is the idea that a rate hike from the ECB is a idea that a rate hike from the ECB is a

guarantee. According to governing guarantee. According to governing council member Ewald Nowotny, council member Ewald Nowotny,

members do not “pre-commit” to rate members do not “pre-commit” to rate increases. However, other banks like the increases. However, other banks like the Bank of Ireland are nearly unwavering in Bank of Ireland are nearly unwavering in

their forecast that an interest rate their forecast that an interest rate increase will come in the next few increase will come in the next few

months. months.

The reasoning behind this speculation is The reasoning behind this speculation is two-fold. Reason number one is the two-fold. Reason number one is the obvious comments from their ECB obvious comments from their ECB

president, and two is the ongoing price president, and two is the ongoing price inflation seen in several sectors.inflation seen in several sectors.

Even before hot spots for political Even before hot spots for political tension began erupting in the Middle tension began erupting in the Middle East, consumers and manufacturers East, consumers and manufacturers were seeing prices for some basic were seeing prices for some basic

commodities gain ground. Although it commodities gain ground. Although it may not have been reflected in a may not have been reflected in a

significant PPI or CPI report, there was significant PPI or CPI report, there was still a marked increase in goods and an still a marked increase in goods and an

effect on the consumer. The general effect on the consumer. The general view is that the Federal Reserve and view is that the Federal Reserve and

other central banks will raise rates to try other central banks will raise rates to try to head off future inflation. to head off future inflation.

Before analysts run off to poke a hole in Before analysts run off to poke a hole in what they see as a what they see as a commodity pricecommodity price. .

bubble, let’s consider the other factors bubble, let’s consider the other factors that could influence the ECB and the that could influence the ECB and the

Fed in the months to come. The caveat Fed in the months to come. The caveat to raising interest rates to combat to raising interest rates to combat

inflation is that it happens to battle inflation is that it happens to battle futurefuture inflation, and many central bank inflation, and many central bank members, including our own Ben members, including our own Ben

Bernanke, suggest that this rise in oil Bernanke, suggest that this rise in oil and commodities is only temporary. and commodities is only temporary.

A general peace accord in Middle East A general peace accord in Middle East nations or a bumper crop harvest could nations or a bumper crop harvest could quickly turn the markets in their eyes. quickly turn the markets in their eyes. However, for most of us, the idea of However, for most of us, the idea of

these temporary causes is only part of these temporary causes is only part of the greater picture. the greater picture.

Stimulus programs at home and abroad Stimulus programs at home and abroad (think Quantitative Easing Round Two) (think Quantitative Easing Round Two)

increased money supplies and increased money supplies and depressed currency values. Before that, depressed currency values. Before that,

a credit crisis and global meltdown a credit crisis and global meltdown wreaked havoc on financial markets. wreaked havoc on financial markets.

These things haven’t really gone away. These things haven’t really gone away.

In fact, to some more critical eyes, the In fact, to some more critical eyes, the alleged rebound of the economy has alleged rebound of the economy has

been a figment based on inflation. That been a figment based on inflation. That means that the unprecedented level of means that the unprecedented level of debt in the US and the high levels of debt in the US and the high levels of unemployment are probably going to unemployment are probably going to

loom larger than any action the Federal loom larger than any action the Federal Reserve might take. Reserve might take.