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A look at interest rate cuts and gold

Marketplace Staff Oct 5, 2010

A look at interest rate cuts and gold

Marketplace Staff Oct 5, 2010


BILL RADKE: Time to greet our Tuesday morning regular,
analyst Juli Niemann at Smith, Moore & Co. She’s live from St. Louis. Good morning, Juli.

JULI NIEMANN: Good morning, Bill.

RADKE: So U.S. interest rates are low, Japan’s got even lower today — Is that a coincidence or is there a rate-cut competition here?

NIEMANN: Oh and you’re probably going to see Britain follow as well. Everybody at 0 percent interest rates. The United States is pumping about $1 trillion into the system at 0 percent interest rates and they’re hoping that surely the banks will start lending again and the economy can start to grow. The problem with that, though, is the currency goes way down in value. It makes you look really cheap compared to the rest of the world. Your goods are priced cheaply and everybody will want to buy, but it hurts the strong economies.

RADKE: Yeah. I’ve been hearing a phrase this morning, “beggar thy neighbor.” What does that mean?

NIEMANN: Well the strong economies are Australia, Asia, Latin America, the emerging markets — they’ve been doing extremely well. They barely had a recession. They came out fast. They produced commodities, which are on a tear. They can’t cheapen their currencies or devalue it. The problem is the money has been pouring into the emerging market just like it did a few years ago and it could lead to wild inflation and speculation there. And their stocks shoot up. We know where that story ends. And the big danger is you could have a currency war and that’s where all the countries unilaterally try to keep their currencies from rising. And you have to have a coordinated policy. You’ve got protectionism really coming in.

RADKE: Right. Beggar thy neighbor — put your neighbor at a disadvantage.


RADKE: So does any of this have to do, Juli, with why gold is at a record high today? About $1,333 an ounce.

NIEMANN: It’s directly tied to it because there’s really not that much physical demand for gold. How can you afford it at these prices? But gold has become the new international currency. The new motto is “in gold we trust” because you can’t mess around with that if you have something that’s a protection against inflation. So as the stock market goes up, gold goes up and the value of currencies go down. So it’s all tied together. The new international currency is gold.

RADKE: In Juli Niemann we trust, from Smith, Moore and Co. Thank you, Juli.

NIEMANN: You bet.

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