Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Gold Holds Tight as Fed Buys U.S. Treasuries

Commodities / Gold & Silver 2009 May 18, 2009 - 08:45 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF WHOLESALE GOLD BULLION held inside a tight $5 range early Monday, bouncing off $927.60 an ounce as government bonds rose, pushing interest rates lower, and crude oil rose back above $57 per barrel.


World stock markets held flat overall, as sharp losses in Tokyo were followed by a record surge in the Mumbai Sensex – up 17% after a decisive election victory by the ruling Congress Party.

The Indian Rupee also rose on the news, up 2% against the strengthening Dollar and knocking the Gold Price in Rupees down 2.6% to 14,650 Rupees per 10 grams in the world's hungriest physical market.

"Since January 2009, we have seen net buying whenever the Gold Price moved below $900, and net selling whenever it moved above $900," says today's Precious Metals Insight from Walter de Wet at Standard Bank in London.

"However, since the beginning of May, when the Gold Price moved above $900 again, net physical buying has continued. While we have too few data points to call this a sustainable trend yet, we view this as bullish for gold."

Brazilian president Luiz Inacio "Lula" da Silva meantime travels to China this week, and "the outcome could be quite explosive," says Steven Barrow, also at Standard Bank.

Having blamed the global financial crisis on "blue-eyed bankers" at this April's G20 summit, "Lula has already said that he will suggest to China’s leaders that bilateral trade is conducted in local currencies, not the US Dollar," Barrow notes.

"There’s no reason why China can’t make such a commitment this week."

Bilateral trade between China and Brazil accounts for only a tiny portion of global trade, but "these sorts of actions from Brazil and China could be the start of creeping de-dollarisation of trade and that’s something that could weigh on the dollar in the very long haul," says Barrow – "meaning years, if not decades."

Latest data showed on Friday that the US current account deficit was well-financed in March, with foreign investors buying a net $23.2 billion of US securities, compared with a net outflow of $91.1bn in Feb.

Foreign central banks acquired $29bn of US Treasury debt, up from Feb's $2.0bn total. Private foreign investment flows into US government debt were steady at $26.7bn net.

This week the Federal Reserve will buy Treasury bonds with 5- to 10-year maturities, according to an inter-dealer broker in London, quoted by Bloomberg. After 10-year yields ticked back above 3.0% in April, however, "The bear market in Treasuries is underway," reckon Richard Berner and David Greenlaw, senior strategiests at Morgan Stanley, "[but] bear market rallies seem likely in the next few months.

"Real rates are historically at very low levels," they note, pointing to the Fed's $300bn Treasury-bond pledge, worth one-third of this fiscal year's new supply.

"Moreover, the market is well aware of the fact that the Fed can always increase the size and lengthen the duration of the Treasury purchase program," as it did with mortgage-backed securities and agency debt.

"Another reason that real rates are low is the dearth of competition from private credit demands that typifies recession."

Today the Dollar capped the Euro below $1.35, the 5-week high hit last Monday. The US currency also strengthened vs. the Japanese Yen, adding 1.4% to touch ¥95.80 – one-third beneath its record peak of a decade ago, but one-tenth above Jan. 09's thirteen-year low.

Last week the Dollar closed just shy of 83 on its trade-weighted index – up by 17% from March 2008's record low but 7% below late-Feb's two-year highs – as measured against the other six major world currencies (the Euro, Canadian Dollar, Japanese Yen, British Pound, Swiss Franc, Australian Dollar, and Swedish Krona).

When the Dollar Index fell through 83 in Nov. 2004, the Gold Price traded at $440 an ounce. Gold reached $600 by June 2006 and had moved up to $760 an ounce by autumn 2008, the next two occasions when the Dollar Index traded at today's level.

"Gold Prices can't rise indefinitely," reckons Herve Lievore, investment strategist at AXA Investment Managers in London, speaking this weekend to The Independent.

While "Investor demand for gold is strong, fuelled recently by the fear of a systemic crisis and now by the growing concern on inflation," he says, "high prices boost supply and kill demand, as was perfectly illustrated by oil last year."

Crude oil continues to trade two-thirds below its Dollar peak of mid-2008. The Gold Price in Dollars, in contrast, stands 10% below its record top.

For Sterling, Euro, Canadian and Swiss investors now Ready to Buy Gold, the price today held 13% below this spring's all-time highs.

"In the year to date, gold has underperformed other commodities," says Lievore. "That reinforces the attractiveness of the yellow metal in an environment with many uncertainties. But don't expect a 150% increase like in the last five years."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules