Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Pending Rush to Buy Gold and Silver

Commodities / Gold and Silver 2012 May 31, 2012 - 06:19 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleToo Many Cars, Too Few Spaces

Government debt is so good for you, even the second- or third-best will do in this rush...

"ONCE PEOPLE decide that German and US bonds are not such a great store of value," said one BullionVault user I spoke to last week, "the rush to find parking spots in a very small car-park will be on."


Pending a rush to buy gold or silver however, that same fight for parking spots continues inside the government bond market. French, Dutch, Austrian and Finnish government debt just got annexed as the latest scrap of waste-ground for global capital to park its Mercedes.

"There's a rotation out of the safest assets into the next best," says Eric Wand, fixed-income strategist at the Lloyds Banking Group. "Treasuries yields have been distorted to levels not consistent with its economic data," says Marc Ostwald at Monument Securities, also here in London and also speaking to Bloomberg.

On fixed-income bonds, yield moves inverse to price, and yields on French 10-year debt have sunk to a fresh record low of 2.35% per year. Maybe investors think new Socialist president Francoise Hollande – already busy raising the minimum wage and imposing a maximum salary for national industry chiefs of 20 times their lowest wage-earner's pay – is a safe bet for the return of, let alone on capital.

More likely they're desperate, buying Paris's promises because they're already max'ed out on Berlin's, and Washington's, and even London's. Yes, long term, it is hard to imagine a bigger "sell" than 10-year UK gilts yielding 1.57%. That rate of interest is barely half the current rate of annual inflation, and it's only one-third the average yield paid by Britannia since 1750.

But fact is, supply is too tight for demand, despite the peace-time record debt mountains built across the rich West and Japan. Money managers and corporate treasurers daren't leave cash in the bank; the bank might implode. They daren't buy equities with both hands; look what the Euro-crisis is doing to stocks. Business investment would require faith in the business environment. Commodities are no longer the brainless "no brainer" of the early 21st century, for who can say what is really happening to China's demand growth?

Instead of money, risk or stuff, retained savings worldwide are choosing government debt – hefty, near-cash debt which is in truth an obligation of the "safe haven" sovereigns. Those safe havens already face record peace-time obligations. But a call on the taxpayer is better than a call on banking, growth or production right now. At least you know the poor taxpayer will still be there 12 months from now!

And so strong is demand that it now plainly outstrips supply. The mismatch is creating absurd anomalies like the zero-yield offered last week on Germany's latest 2-year Schatz bonds, and the 1.57% yield on 10-year US Treasury bonds.

Big-name Keynesian economists think Big Government should plug that gap by issuing new mountains of debt, piled on top of the record peace-time debts already built up.

"A dominant feature of the world economy is that there are not enough safe financial assets (or, rather, financial assets generally perceived as safe) in the world economy," explained Berkeley professor Brad DeLong back in March.

"Each time the US government creates another Treasury bond it adds value to the world economy."

Put another way, "The shift of debt away from over-indebted households to a federal government that is not borrowing-constrained is a big plus; it's setting the stage for recovery," reckons Paul Krugman of Princeton, the Nobel prize and New York Times.

Plenty of people gasp at such ideas...that government debt adds value to the world economy, or that piling new debt on debt can possibly speed the recovery. But those people have either chosen to buy gold or silver – and now have to take their chops like everyone else, watching the precious metals fall despite what seems yet another perfect storm, and after being proven all too right for the past decade and more. Or they can sell US Treasury bonds short in the market, putting their money where their big mouth is.

You risk making a bad hit-and-run if you dare to go short, however. Because retained savings the world over – terrified by the apparent "free market" crisis starting 5 years ago – continue tearing into the State's parking lot of prior obligations. For now.

Let's see what happens if...or more likely when...the State scratches its own car-keys down the side of all those shiny new cars.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly 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 2012

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.


© 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