Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

US Treasury Bonds Fast Becoming Certificates of Confiscation

Interest-Rates / Inflation May 22, 2008 - 08:09 AM GMT

By: Adrian_Ash

Interest-Rates THE PRICE OF GOLD BULLION slipped $10 from a new five-week high in London early Thursday, pulling back to $925 per ounce as crude oil broke new record highs and the US Dollar fell yet again on the forex market.

" Gold has rallied over 8% in the last five days and is now trading over $80 higher than May's low," notes Mitsui, the precious metals dealer, in London today.


"Record oil prices and a resurgent Euro are playing a significant part in this precious metals rally. But there are also fresh concerns today about the credit crisis."

US credit spreads – a measure of investor anxiety over the risk of non-payment – turned higher on Wednesday after ailing Swiss banking giant UBS sold $15.5 billion worth of mortgage-backed assets to the Blackrock hedge fund at a 30% discount.

UBS also lent Blackrock the funds needed to complete the purchase, mimicking the "vendor financing" tactics employed by home builders and auto-dealers before the bubble in consumer credit burst in spring 2007.

Shares in Moody's – the credit ratings agency – fell a record 16% meantime after the Financial Times reported how a computer glitch in early 2007 led the company to award "triple A" ratings to high-risk debt derivatives.

Moody's is now reviewing the ratings on $4 billion in so-called constant proportion debt obligations (CPDOs) – likened by Bloomberg columnist Mark Gilbert to a " Nigerian banking scam ".

( What's the link between Gold & Credit Defaults ? Read more here... )

Today the price of government bonds – the main "safe haven" bought by large funds and financial institutions after the global banking crisis first broke – also fell as crude oil rose above $135 per barrel.

"For bond market players the focus is now on accelerating inflation," said one senior analyst in Tokyo to Bloomberg this morning.

Fixed-income investments destroy wealth when the cost of living rises. That's why US Treasuries became known as "certificates of confiscation" during the double-digit inflation of the late 1970s.

Ten-year US government bond yields rose to 3.86% on Thursday as prices fell. Karsten Linowsky, fixed-income strategist at Credit Suisse in Zurich , believes the 10-year yield is heading for 4.00% and above – meaning a capital loss of $3.50 on every $100 invested.

"The inflation outlook is weighing more on the market as it implies the Fed could hike interest rates," says Linowsky. But Wednesday's release of minutes from the Federal Reserve's latest policy meeting showed the central bank most likely frozen for the rest of 2008.

After slashing the cost of Dollars from 5.25% to 2.0% in just nine months, the US Fed no sees cost pressures staying "elevated" while unemployment rises "significantly".

The Fed also cut its 2008 growth forecast down from a ceiling of 2.0% as low as a mere 0.3%.

US interest rates at 2.0% are barely half the rate of consumer price inflation meanwhile. That negative return to cash savers is likely to boost commodity and Gold Prices as investors seek to defend their wealth.

"Renewed credit market strain could put further pressure on global bond and equity markets," adds Manqoba Madinane for Standard Bank in Johannesburg today.

"This could lift precious metal investment demand amid rising global inflation expectations.

"Continued Dollar weakness should also support precious metal investment appeal. Under these conditions, we see upside potential."

The US Dollar continued to slide vs. the Euro this morning, dropping to a new five-week low despite a sharp fall in European industrial orders reported for March.

The UK data agency in Cardiff added that business investment in the United Kingdom shrank by 1.4% during the first three months of this year. But the Pound also rose against the US currency, reaching its best level so far this month above $1.9800.

That pulled the Gold Price in Sterling down almost £10 per ounce from a five-week high of £474.50.

For French, German and Italian investor wanting to Buy Gold today, the price moved back to €587 per ounce after touching its highest level since April 18th.

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

© 2005-2016 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

Catching a Falling Financial Knife