Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Ending Syria’s Nightmare will Take Pressure From Below - 29th Mar 17
Charts That Reveal US Real Employment Status and It’s Not Good - 29th Mar 17
SNP Controlled Scottish Parliament Demands Right for Scotland to Commit Suicide - Indyref2 - 29th Mar 17
USD Gold Myriad of Signs - 28th Mar 17
Ominous Social Trends That Will Shape Our Future - 28th Mar 17
Foundation And Empire: Is Donald Trump The Mule? - 28th Mar 17
Top Ten US Dollar Risks - 27th Mar 17
The Popularity of Gambling and Investing Amongst Students - 27th Mar 17
Is Political Betting on the Rise? - 27th Mar 17
US Stock Market Consolidation Time - 27th Mar 17
Russia Crisis - Maps That Signal Growing Instability and Unrest - 27th Mar 17
Goldman Sachs Backing A Copper Boom In 2017 - 27th Mar 17
Foundation – Fall Of The American Galactic Empire - 27th Mar 17
Stock Market More Correction Ahead - 27th Mar 17
US Dollar Inflection Point - 27th Mar 17
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

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