Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold, Oil & Euros Pushed Higher by Fed's Interest Rate Cut; "US in Deep Trouble"

Commodities / Gold & Silver Sep 19, 2007 - 09:56 AM GMT

By: Adrian_Ash

Commodities GOLD PRICES pulled back $2 per ounce in London on Wednesday morning to trade just shy of the new 16-month high hit when the US Federal Reserve slashed Dollar interest rates on Tuesday in a bid to "forestall" recession.


"You can throw away your charts in these kind of market conditions," said one bullion dealer in Singapore to Reuters. "There's a chance we will see a new high this week.

"It was an aggressive move by the Fed to cut rates by 50 basis points," he added. "I think the US is in deep trouble.

"Gold should be your safe haven."

Gold futures for Dec. delivery also slipped back after leaping to a 27-year high on the Fed's decision. According to Bloomberg data, Tuesday's top of $735.50 was the highest price for the most-active gold futures contract since 11th Feb. 1980 .

"Technically, gold looks set to test last year's $730 high in the short term," said Brandon Lloyd for Mitsui in Sydney this morning, "but it will potentially need to weather profit-taking following [Tuesday's] spike."

Crude oil, wheat and base metal prices all rose following the Fed's announcement, with the European single currency hitting new record highs against the ailing Dollar at $1.3981. US light crude prices rose above $82 per barrel for the first time.

The British Pound, by contrast, gave back much of its Fed-driven spike during early trade today, dropping back below $2.00 and helping the Sterling Price of Gold recover above £361 per ounce.

The London stock market rose by 2.3% and banking stocks jumped by more than 4%. But shares in Northern Rock – the aggressive mortgage lender that suffered a run by depositors until the UK government guaranteed their savings on Monday night – dropped another 7% to a fresh ten-year low.

For German and French investors looking to Buy Gold Today , the metal began the day in Frankfurt trading €1 either side of €518 per ounce. Like the Bank of England in London , the European Central Bank refused to cut its interest rates earlier this month. Short-term loans from the ECB to the European money markets, however, have jumped this week to €155 billion ($217bn).

"This is not a subprime crisis," says Christopher Wood, chief strategist at CLSA. "Subprime has merely exposed the bigger scam of structured finance; a scam about pretending that bad credit is good credit."

Wood sees the Gold Price rising four-fold in the next three years to hit $3,400 per ounce.

"There's a strong possibility gold will reach $740 or $750 at the end of this month," reckoned one Tokyo gold trader today after Japan 's most-active gold futures contract rose more than 2.1% for the session.

The Nikkei stock-market index put on 3.7% by the close, while European equity markets rose 1.9% in Frankfurt by lunchtime, and added more than 2.4% in both Paris and Madrid .

Short-term bond prices also continued to rise, but 10-year US Treasury debt was sold lower for the third session running, pushing yields higher.

Longer-dated bonds are more sensitive to fears of inflation. A ten-year bond held to maturity would be destroyed if the value of the currency underpinning it continued to slide.

That's why "we see US bond yields rising," says Yoshio Takahashi, a Tokyo strategist for Barclays Capital. "Market turmoil will calm down [but] the inflation risk will increase because of the big rate cut."

The difference between short-dated and 10-year bond yields has now widening to a 7-week gap – "a classic steepening of the yield," notes Gerard Baker in today's London Times . "It may presage concerns about inflation risks – fuelled by concern that the Fed has dropped the inflationary ball."

Simply put, "the rate cut is inflationary," says Ron Goodis, futures director at Equidex Brokerage in Closter , New Jersey , "and money is flowing into gold as a hedge."

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 2007

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

© 2005-2022 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