Fed Destroys the US Dollar, Gold and Euro Soar !
- The financial nuclear option: Quantitative Easing has been launched. Is it working? What is the market response so far? Adrian Ash comments :
THE WHOLESALE SPOT PRICE of gold continued to rise for US-Dollar investors early Thursday, hitting $951 an ounce in London as the greenback fell versus all asset classes.
Creating $300 billion to buy long-dated US Treasury bonds, Ben Bernanke’s policy team also announced a further $750bn to buy government-insured US mortgage bonds.
“USD getting destroyed. Hearing Asian central banks buying Euro,” said one London dealer to BullionVault this morning. “Stops going off on topside,” he added, as bearish bets on gold got wiped out by the rising price breaking above traders’ stop-loss levels.
Over on the currency markets, meantime – and for the first time since mid-Jan. – the Euro also jumped together with gold, adding to Wednesday’s record one-session leap and hitting a fresh 10-week high vs. the Dollar above $1.3680.
The Fed’s Nuclear Strike on US Treasury yields – which squished 30-year rates to new record lows – meantime rippled across government bond markets worldwide, with investors bidding up UK and German bonds so high, their 10-year debt yielded barely 3.0% by lunchtime in London.
“I am torn between deflation unleashed by a bursting credit bubble, and the inflationary pressures of the policy response,” writes James Montier, strategist with Albert Edwards at SocGen in London. Trying to identify “cheap investment insurance” for clients this morning, Montier cites inflation-protected government TIPS as one possible solution. His “second inflation/deflation hedge” is gold.
“From an insurance point of view, most obviously…gold is the one currency that can’t be debased. Thus it provides a useful hedge against the return of [the Fed's] sort of beggar-thy-neighbor policy. In the event of significant prolonged deflation [on the other hand], what is left of our financial system is likely to collapse. “Thus holding a money substitute isn’t such a bad idea against this cataclysmic outcome.”
- DJIA corrected downwards yesterday. It seems to be meeting major resistance on the upside. This is largely confirmed by the action of the S&P500, it failed to breach the 800 level. The bear picture is still intact. The stock market should resume its downward slide and test the previous lows. The target seems to be 450 for the S&P500.
- Dan Norcini comments on the market action yesterday:
Here comes the index funds and the hedge funds on the return to the “anti-dollar” move. You will recall they all began a mass exodus beginning in July of last year that took many months to complete as they had built a massive long position across the entire gamut of commodity markets. Those long positions were as much a play on the weaker dollar as they were on a move to hard assets or tangibles as investors were fearful of the spectre of runaway inflation with the Dollar the probing new life time lows.
That all came to a screeching halt as risk aversion and the need for cash to meet both redemption requests and margin calls resulted in a wholesale repatriation of funds from emerging markets abroad and a huge reversal in the Yen carry trade. We all know the results of that by now having watched it unfolding before our eyes – the Dollar embarked on a sharp move higher which sent commodity prices crashing alongside of equities as every single commodity market was crushed with not even gold being spared for a short season before it took on its historic safe haven role.
What we are now seeing continue this morning after beginning yesterday, are these same exact players who bailed out en masse, now returning en masse to the commodity markets as the long term implications of the Fed’s announcement becomes crystallized in the minds of investors world wide. The death knell of the US Dollar was just rung by Bernanke and company – we wonder how many heard it. Their action guarantees that the US will experience at some point in the not-too-distant future soaring inflation with the increasing likelihood of a hyperinflationary event following. Think about what they announced and sweep aside all the high-sounding phrases and flowery rhetoric – they are going to create in excess of US $1 trillion out of thin air and buy US debt . This is the very monetization that we have been predicting they would be forced to resort to but which we were somehow hoping could be avoided for the sake of our nation’s future.
The cards have been dealt and the Fed has shown its hand – with the US embarking on a spending spree that makes the word “orgy” too mild to describe it, they have decided to devalue the currency and debauch our Dollar. They have no other choice now short of defaulting on our debt obligations. I am not sure how this is going to go down with the Chinese who have become our largest holder of US debt but I would strongly suspect that the Chinese will move with even greater speed in their reserve diversification process.
I also suspect that the recent chatter coming from several quarters about the need to have a new global reserve currency or some combination thereof is going to garner more earnestness. If the path which the Fed has chosen to follow were being implemented by any other nation on the face of this earth, the currency of that nation would immediately become practically worthless overnight. The only thing that allows the Fed to get away with this con is the fact that the Dollar is the global reserve currency. How do you think this is going to sit with other nations around the world?
I am both sickened and angered by what these men, who were given a stewardship of our national currency, have done to us. As I have said many times before, I would much prefer to see a sound US economy, sound monetary policy, a balanced budget and responsible spending and taxing policies. Instead we have the worst of all possible worlds. All we can now do is to attempt to protect our wealth from the ravages that are going to be inflicted upon it. It is coming and nothing can avoid the consequences of this action.
Gold continued its torrid reversal off the lows made early in yesterday’s session. It experienced a bit of selling during the Asian session last evening as shorts were trying to push it back below the technically significant $930 level. They failed. It ran right on into the heavy resistance band on the charts near $960 this morning which is the level that is so critical for the shorts to defend if they are going to prevent an almost immediate return to the $1000 level. A breach of $960 that can hold that level for a couple of hours and many of the shorts will cover. That will also bring in fresh money from the momentum funds which have been sitting on the sidelines who are watching to see if that level will fall before their algorithms kick in.
- Gold will breach US$960/ounce without any difficulty soon. Next week??
Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals.
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