Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Rises as Central Bank "Crisis Action" Fails to Ease Money-Market Fears

Commodities / Gold & Silver Mar 12, 2008 - 12:03 PM GMT

By: Adrian_Ash

Commodities SPOT GOLD PRICES rose out of a tight 1% range as the US opening drew near on Wednesday, while global stock markets continued to bounce after four months of losses in response to yesterday's historic "crisis action" from seven of the world's biggest central banks.

Short-term Dollar lending pressures eased in London , but the cost of borrowing Euros continued to rise. The US currency fell towards a new record low vs. the Euro at $1.5490.


US crude oil prices held just below $109 per barrel.

"Any perceived improvement in US economic fortunes [thanks to Tuesday's action] should support the Dollar and therefore weigh on Gold ," reckons James Steel at HSBC in New York .

"It calms financial markets and boosts equities, reducing the need to purchase bullion as a safe haven."

Yet despite the central-bank action, however, "all metals appear to be well bid this morning," says today's note from Mitsui, the precious metals dealer.

Gold Bullion owned with no counterparty risk has risen by more than 47% since the global banking crisis began in August last year, and while "a short term consolidation [in Gold ] does look possible," says Mitsui, "the bullish fundamentals should push things higher again soon."

On Tuesday morning the US Federal Reserve – acting in concert with the central banks of Europe , Japan , the UK , Canada , Switzerland and Sweden – offered to lend New York dealers a total of $200 billion in government bonds for up to 28 days at a time.

The aim was to ease short-term interbank interest rates, which recently neared fresh seven-year highs and sparked a rash of hedge-fund failures and investment bank losses despite coordinated central-bank action in mid-December.

In return for the extra $200bn in short-term funds, the Fed will now take higher-risk assets as collateral, accepting mortgage-backed bonds (MBS) that are not insured by government agencies Freddie Mac or Fannie Mae.

But the Fed's action "takes the US central bank a step closer to the nuclear option of buying mortgage securities in its own right," says the Financial Times today, because the Fed is effectively creating a market for mortgage-backed bonds in the absence of any free-market trading.

It also echoes the European Central Bank's action during the last three months of 2007, when it accepted all $80 billion of new mortgage-backed bonds issued by Spanish banks as collateral against short-term loans because the open market "shut down" in the words of one bank trader.

Early Wednesday, open-market Dollar lending rates in London showed short-term pressures easing, with the gap between three-month Dollar swaps and three-month interbank Dollar lending rates narrowing to 0.65%, down from last week's 0.80% spread.

That gap hit 0.95% when the UK 's Northern Rock mortgage bank collapsed in Sept., and it peaked again at 1.05% just before the first joint-central bank action in December according to Reuters data.

But interbank rates charged on Euro loans continued to rise this morning for the seventh day running, taking three-month Euribor prices to 4.61% – the highest rate since Jan. 7th.

What's more, the AAA-rated bonds the Fed will now accept as collateral for its 28-day loans are not be safe "investment grade" assets they first appear, according to Bloomberg.

"Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut [their credit ratings on] the ones that matter most," says the newswire today – "AAA securities that are the mainstays of bank and insurance company investments."

One mortgage-backed bond floated by Deutsche Bank in May 2006, for example, is still rated "triple-A" by both S&P and Moody's. Yet 43% of the mortgages underpinning it are now delinquent.

( How was this mountain of Toxic Waste ever created and sold? Find out if your pension or mutual fund is merely Investment Landfill here... )

"The Fed is basically accepting busted securities as collateral for loans," says Ian Shepherd, senior economist at High Frequency Economics in London . "I don't ever remember central banks co-ordinating globally like this. It should scare the hell out of everybody."

Within the US banking system, more than one third of America 's smallest banks now have commercial real estate concentrations exceeding 300% of their capital, according to their regulator, the Comptroller of the Currency, John Dugan. Nearly 30% of these "community banks" have construction and development loans exceeding 100% of their capital.

As for the broader US stock market, "between the close of business Thursday and Tuesday, the Fed's extra $352 billion in liquidity enhancing measures bought a 1.3% increase in the S&P500," says Sean Corrigan at Diapason Commodity Management in a private note to BullionVault today.

"Since we need a 19.4% rally to regain the Suckers' High of 1576 in October, we might need another $4.8 trillion in new measures to do the trick. Neatly, that would equate to the Fed buying out the outstanding total of Agency/Government-backed mortgage pools, with enough room to nationalize Freddie and Fannie at current market value, into the bargain.

"Over to you Ben..."

Asian stock markets took their lead today from yesterday's 4% surge on Wall Street, rising everywhere but China and closing the session 0.9% higher on average.

Here in London , the FTSE index of 100 blue chips added 114 points to Tuesday's 61-point gain, taking it back towards last Thursday's closing price.

Government bond prices meantime slipped further in Tokyo , Frankfurt and London . US Treasuries rose, however, pushing the returns offered by two-year bonds seven basis-points lower from Tuesday's 12-year record jump to 1.78%.

"Money-market stresses seem to remain high," says Laurence Mutkin, head of European fixed-income strategy for Morgan Stanley in London . "Credit and counterparty concerns are not being removed by central bank actions."

Outside the hedge funds and investment banks loaded with failed mortgage-backed bonds, "a surge in the default rate is imminent and almost unavoidable" for European corporate debt says a new report from strategists at Dresdner Kleinwort.

Almost 40% of Europe's business debt will need re-financing within the next 12 months, says the report, and these "rapidly accelerating borrowing needs may cause supply fears, or cause a shortage of available funding, especially when liquidity is already tight."

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

© 2005-2019 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

6 Critical Money Making Rules