Central Banks Money Markets $110 Billion Injection Greeted with Skepticism

By: Gold_Investments

Gold
Gold was up $1.60 to $813.20 per ounce in New York yesterday and silver was down 3 cents to $14.64 per ounce. Gold rallied sharply on the news <1400 GMT> of the latest injection of $110 billion into the global money markets and rallied from $809 to $817 within an hour. Subsequently gold has gradually traded down in Asian and European markets and the London AM Fix was at $809. Gold has traded up in pounds sterling and euros and at the London AM Fix gold was trading at £396.18 GBP (up from yesterday's London AM Fix at £394.77) and €550.60 EUR (up from yesterday's London AM Fix at €549.21).

The huge and unprecedented $110 billion (£53.7 billion) injection into money markets by the world's key central banks yesterday has been greeted with skepticism by the financial markets with Asian and European stock markets selling off aggressively today. The drastic central bank action will lead to heightened risk aversion and safe haven demand for gold.

The world's financial and monetary system looks increasingly like a very unattractive base metal. Central bankers are not alchemists who can create gold out of base metal. The financial system is so unbalanced due to humunguous and unprecedented credit creation by western central banks and the Federal Reserve in particular. Unfortunately no amount of liquidity can alleviate the problem. In fact releasing the helicopters and injecting billions of dollars of liquidity into the system while alleviating the situation in the short term will likely create even greater difficulties in the long term as the markets begin to be concerned regarding sharply increasing moral hazard, the diminishing value of fiat currencies and the possibility of a global monetary crisis.

Alan Greenspan and his era in the Federal Reserve is in large part responsible for this global financial crisis. It is ironic given his much celebrated quote regarding fiat currencies and gold: "Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted." We are now witnessing a huge increase in the money supply and fiat money in extremis. This can only lead to dilution of the existing money supply and further debasement of currencies. Virulent stagflation or a new form of hyperinflation look increasingly likely especially in the light of the changed globalised economy and increased global demand for finite commodities such as wheat, oil, water and gold.

There is no 'silver bullet' to magically to solve the huge structural challenges facing western economies and the financial system. While liquidity has been one of the major issues up to now - soon the solvency of major financial institutions will become the issue and the UK's Northern Rock is now likely the first of at least a few 'run on the banks' in the coming months. This is not alarmist. Suggesting that there could be a run on Northern Rock was not alarmist as it happened. Now more than ever it is important to deal in economic reality.

Silver
Silver is trading at $14.64/66 at 1200 GMT. Silver rallied on the central bank announcement yesterday and has since gone back to yesterday's price.

PGMs
Platinum was trading at $1477/1482 (1200 GMT).
Spot palladium was trading at $346/350 an ounce (1200 GMT).

Oil
Oil rallied sharply on the central bank news yesterday to above $94 a barrel in US trade yesterday and remains above $94 today.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Fair Use Notice: This newsletter contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of financial and economic significance. At all times we credit and attribute the copywrite owner and publication.
We believe this constitutes a 'fair use' of any such copyrighted material as provided for in Copyright Law. The material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for economic research purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.