Global Real Interest Rate Charts (now with local currency gold prices)
Here we present this month’s update of the global real interest rate charts. Thanks to the idea of a participant on dasgelbeforum.de.org, we’ve decided to include local currency gold prices alongside the usual ‘real’ interest rate lines.
‘Real’ interest rates remain generally negative around the world. However, there are signs that this could be changing for the developing markets at least.
[EDIT: For up-to-date real interest rate charts see here.]
[Note: By ‘real‘ interest rates, we mean the short-term inter-bank rate minus the year-on-year growth in the consumer price index.]
Long-term & Short-term Real Fed Funds Rate Charts:
Interestingly, we see empirical evidence for the contention that a plunging real interest rate is typically accompanied by a higher gold price. The steep decline in the ‘real’ interest rate in 1933 was closely accompanied by heavy withdrawals from the banking system and a series of governmental denials of reality. Importantly, the dollar was devalued from $20.67 per troy ounce to $35 per troy ounce shortly after (with the Gold Reserve Act of Jan 1934).
Likewise, the downward move in the real fed funds rate in the late-1960s was accompanied by the first cracks in the Bretton Woods agreement. Subsequently, we have seen several periods where a declining real fed funds rate has spurred on the dollar price of gold.
Moving onto the shorter-term timeframe, we can see that the latest data point (in July 2011) shows a heavily negative real fed funds rate.
The developed world continues to display generally negative real interest rates. The exceptions (below) are Australia and Norway.
Asia continues to display broadly negative real interest rates. However, there are signs of life in Indonesia and Korea (since at least the ‘real’ interest rate lines are pointed upwards).
We see a mixed picture in Eastern Europe now. Although real rates in the Czech Republic and the Russian Federation remain negative, they are at least starting to point upwards.
Over recent months we have noted that Latin America has bucked the global trend of negative real interest rates. This continues to be the case.
Middle East & Africa:
Recommended: Charting the Federal Reserve's Assets - 1915 to 2012