The Brazilian Central Bank has increased its interest rate by 0.5% to 14.25% in an attempt to stabilise the currency and combat inflationary pressures. The economy is expected to contract this year by 2.5%.
The real is now trading at a 12 year low against the dollar and interest rates are at their highest level since 2006. Inflation is now running at 9.15% and many prices are increasing simply because people expect them to.
According to Goldman Sacs the world economy is experiencing a “negative feedback loop.” Commodity prices are spiralling downwards as Chinese demand cools, causing the currency of commodity base economies to fall and inflation to rise.
The U.S. dollar has benefited as investors seek liquidity and a safe haven to park their money. This strength may explain the recent weakness in the gold price.
Gold is currently trading at £694.87 per ounce, silver £9.37 per ounce, platinum £628.52 per ounce and palladium £393.91 per ounce.