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US Treasury Inflationary Bail-Out to Include Curb on Inflation-Hedge Investments

Commodities / Gold & Silver Sep 23, 2008 - 07:54 AM GMT

By: Adrian_Ash

Commodities Best Financial Markets Analysis ArticlePHYSICAL GOLD BULLION PRICES slipped 2.1% early Tuesday from an overnight high of $910 per ounce, but the London Fix recorded its best level in seven weeks as Western stock markets tumbled yet again.

Crude oil retreated to $107 per barrel after the "front-month" contract moved onto November.


Monday saw the October oil future close above $120 per barrel – nearly 16% up for the day – in what US regulators believe was a clear case of "manipulation".

Bart Chilton, head of the Commodity Futures Trading Commission (CFTC), said last night that "some members of Congress" want to curb raw-materials speculation as part of the $700bn Toxic Trust now aimed at saving Wall Street investment banks from their bad debts.

" Gold saw another $50 range yesterday and although there were $10 intraday swings, the trend was up," notes Mitsui, the precious metals dealer, here in London.

"The short-term impact of US and UK authorities banning short-selling [of banking shares] has subsided, and equities are once again under pressure. There are fears about the US plan to clean up the Toxic Debt as delays keep the market on tenterhooks.

"The US Dollar is significantly weaker after losing three big figures to the Euro [i.e. 3¢] on the day – and as a consequence, Gold is attracting a lot of interest."

Pointing to a surge in activity at the world's major metals refineries, "we cannot recall an occasion when sentiment was so strong," Mitsui goes on, "and we have to return to September 2006 for the closest comparison."

The group's monthly Refining Monitor confirms "very limited availability" of gold coins across Europe and North America, plus "strong demand" for all new products minted by the Rand Refinery in South Africa.

Gold imports into India – the world's No.1 physical gold market – jumped to perhaps 100 tonnes last month, almost 48% above Aug. '07 and three times the "paltry" 32 tonnes imported this July.

"You can't afford to not own Gold ," said Jim Cramer, the motor-mouth host of CNBC's Mad Money, late Monday.

" Gold makes sense when nothing makes sense," claimed the TV host who screamed at the Federal Reserve and US Treasury to bail out Wall Street's biggest banks when the credit crisis first hit in August '07.

Now Jim Cramer he says Hank Paulson's plan for a Toxic Trust to buy $700bn of otherwise unsellable debt securities will make rapid inflation inevitable, as the supply of US Dollars swells to pay for the rescue.

Last Friday, Cramer advised his viewers to dump one-fifth of their stock market portfolios.

" Gold is insurance," says Jean-Marie Eveillard, head of the $22 billion First Eagle Global Fund, speaking to Bloomberg.

He's now put $1bn of the fund's assets into Gold Bullion , held in a secure storage vault near Times Square, New York.

"In most of those instances where things would get bad enough so you would get into equity bear markets – where economic and financial circumstances would be bad for a year or two or three – Gold Prices will rise."

US government bonds – the other "safe haven" asset snatched up by anxious fund managers amid the latest round of financial turmoil – continued to fall in price early Tuesday, pushing the yield offered by 3-month notes up to 1.32%.

Tuesday last week saw the 3-month yield sink to an all-time low of 0.03% as the price leapt.

On the world's stock markets, meantime, Asian equities closed Tuesday around 1.5% lower as investors moved to "lock in profits" following Friday and Monday's record surge, says the Financial Times .

The FTSE100 here in London lost another 140 points, undoing half of Friday's record jump to stand 9% below the start of this month.

UK mortgage approvals hit a record low of just 21,000 in August, said the British Bankers Association this morning. Yet the British Pound held above $1.8550 to the US Dollar, capping the Gold Price in Sterling at £482 an ounce.

The Euro meantime dipped from Monday night's four-week high of $1.4850, helping to keep the Gold Price in Euros above €600 per ounce – almost twice the price of five years ago, at a level first broken in Jan. '08.

"What happens in the currency, oil and stock markets will continue to determine the way Gold trades," believes Ronald Leung, head of Lee Cheong Gold Dealers in Hong Kong, speaking to Reuters this morning.

"It's a confidence issue and no one knows what will happen next. The only certain thing now is that the volatility we've seen in the past few weeks will continue."

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.

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