Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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