Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Central Bankers Meet in Switzerland to Discuss Global Financial Crisis

Interest-Rates / Credit Crisis 2008 Mar 07, 2008 - 02:37 PM GMT

By: Adrian_Ash

Interest-Rates

The Ghost of Gold at the Central Bank Banquet
"Never shake thy gory locks at me...If thou canst nod, speak too."
Macbeth to Banquo's ghost, who's sitting in his chair ( Macbeth Act III, Scene iv)

THIS WEEKEND in Basel, Switzerland, central bankers from the G-10 group of rich nations meet up for one of their regular hoe-downs.


You can guess the main event in between canapés and champagne – academic chit-chat about interest rates, political pressure and banking supervision. The global financial crisis will surely get plenty of air-time, too.

After all, Ambac Financial – the giant "monoline" bond insurance group – this week issued and sold $1.5 billion in new shares and convertible bonds, raising cash to defend its credit rating but accepting a 9% discount to ABK's stock-market price.

"The stock offering nearly tripled the number of Ambac shares outstanding," according to Reuters. ABK closed the day 15% lower.

Real estate investment trusts also slumped Thursday after Thornburg Mortgage – which lost 60% on the day – admitted to the New York authorities that it missed a $28 million margin call from J.P.Morgan Chase this week. And here in London , a number of major hedge funds were rumored to be right up against it after their brokers called in credit lines and forced a fresh wave of liquidations.

All told, says Nouriel Roubini – a former advisor to the US Treasury – "the risk of a systemic crisis is rising. The markets are becoming utterly unhinged, the financial system is broken and everybody's in de-levering mode..."

Hey gentlemen, let's clear the gloom! Who's for a break? Shall we say one hour for lunch...?

And so Ben Bernanke, the two Jean-Claudes of Europe, Mervyn "Moley" King from London and all the rest crowd together into the dining hall, asking after wives and children while getting ready for another heavy meal...drowning in another rich, cream sauce...and eaten beneath even heavier Swiss winter skies...

But wait! Who's that – already sitting in Ben Bernanke's place?

"Letting gold go to $850 per ounce was a mistake," wrote Paul Volcker – chairman of the US Federal Reserve during the last great Dollar crisis of the late 1970s.

"We had to deal with inflation," he went on in a PBS interview of Sept. 2000. "There was a kind of great speculative pressure. It was the years when everybody wanted to buy collectibles from New York . The market was booming, and other markets of real things were booming – because people had got the feeling that things were inflating and there was no way you could stop it."

At one policy meeting in 1979, the Fed committee noted that "speculative activity" in the Gold Market was spilling over into other commodity markets. An official at the US Treasury called the gold rush "a symptom of growing concern about world-wide inflation."

What a mistake! Barely nine years after Richard Nixon floated the US Dollar free of that "barbarous relic" known as the Gold Standard – and scarcely 18 months after the International Monetary Fund "eliminated the use of gold" as money altogether (or so the IMF thought) – just mentioning the bull market in Gold Prices only served to push the gold price higher!

Would the policy wonks never learn? You can't dispense with gold as money and yet dare to speak its name.

Put another way, perhaps, you just can't dispense with gold as money...

"All of a sudden," writes Peter Bernstein of late 1979 in his tome The Power of Gold , "central banks began to make noises about restoring gold to its traditional role in the monetary system, a complete reversal of recent policies of selling gold out of their reserves.

"The US undersecretary of the Treasury declared before Congress that 'Gold remains a significant part of the reserves of the central banks available in times of need.'...Then Treasury secretary G.William Miller held a news conference at which he announced that the Treasury would hold no further gold auctions [saying] 'it doesn't seem an appropriate time to sell our gold.'

"This was a curious observation in light of the auctions that the Treasury had conducted at much lower prices since they began the practice five years earlier [and] within thirty minutes of Miller's remarks, the Gold Price shot up $30 an ounce to $715. The next day it was up to $760. The day after gold hit $820."

Of course, here in March 2007, thirty-dollar moves are a daily occurrence. Anyone choosing to Buy Gold today had better get used to this kind of volatility, too. But it's nothing next to the volatility now hitting world confidence in government money and financial debt.

The big difference between now and the 1970s bull market in gold is that even as the US Dollar is sinking to all-time record lows – both against gold and the rest of the world's currencies – the world's financial markets also face a genuine meltdown.

The reason? Credit default – or even the merest hint of it. This spook is now jumping out of cupboards and walking through walls right from Sydney to California , and all points in between.

That's why, last time they met, just after the Northern Rock collapse hit the United Kingdom (the world's fourth largest economy), the G-10 central bankers agreed in December to coordinate half-a-trillion in short-term loans to the US and European money markets.

Pumped into the private banks by the Federal Reserve, Bank of England and European Central Bank, this flood of emergency lending really did ease the panic in Western money markets, bringing open-market interest rates down from a seven-year high towards the central banks' "target" rates.

But still the ghost won't die! Because interbank lending rates have now shot higher again – a clear sign that "banks are hoarding cash because of fears of further hedge fund collapses," says the Financial Times .

Whereas physical Gold Bullion – if owned outright as your property, rather than via "trust" fund trickery or the counterparty risk of futures and options – still represents the only liquid financial asset that nobody can default on. And the danger of default is what's driving investors out of stocks and bonds into – oh no! – into Dollars!

"Boo!" says the spook, dancing on the dining table...

Three-month interbank lending rates have now hit 4.40% for Euros, up from 4.33% in mid-Feb. Three-month Sterling rates have risen to 5.77% – up from 5.48% in late Jan. – even after a 0.25% cut in the Bank of England's preferred rate last month.

"In the US ," the FT says, the "three-month Dollar [rate] has fallen, but it still remains well above the expected Fed Funds rate, suggesting bankers view the outlook as extremely uncertain [after] the collapse of Focus Capital, the New York hedge fund, and the failure of Peloton Partners' asset-backed securities fund."

So put the surging oil price and war in the Middle East to one side, if you can. Try to forget about the US recession too...as well as the crisis now looming in Eurozone government debt, world food prices and Russian gas supplies.

Just take one Dollar crisis and add a global financial panic after five years of unprecedented credit expansion. What do you get? On one side of the table, a record bid for physical Gold .

And on the other, a gaggle of central bankers – holed up in Switzerland – pale and quaking like they just saw a ghost.

"Prithee, see there! Behold! Look! Lo! How say you?"

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 2008

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