Gold News

Gold Ends Tues with $4 Gain as Fed & Central Banks Move to "Monetize Bankruptcy"

From Chris Mullen at GoldSeek.com...

Gold Prices rose as high as $985.55 early in London on Tuesday before dropping more than $20 per ounce on news of a new central-bank bail-out package.

The Gold Market then finally rallies in New York to end with a gain of 0.42% for the session.

Silver climbed to $20.29 and fell to $19.33 before it also rallied back higher into the close. But silver still ended with a small loss of 0.2%.

The Gold Price in Euros rose to about €635, platinum gained $14 to $2050, and copper remained at about $3.80.

After the United States reported a worsening of its trade deficit in Jan. to $58.2bn, the US Fed led the world's major central banks in a new lending plan to ease short-term money rates and prevent insolvencies hitting more hedge funds and thus banks.

The Fed announced a plan to lend up to $200 billion in Treasury securities to primary dealers. It will also allow them to use their agency and mortgage debt as collateral in an effort to increase liquidity and ease financial problems.

Just as with the first such move in Dec., this eased worries over counterparty risk and also reduced expectations for a dramatic cut in the Fed funds rate at the Fed’s meeting next (Tues 18th March).

But short-term money market rates rose sharply once the initial Dec. easing wore off. Wednesday at 14:00 EST brings the US Treasury Budget for Feb., expected to show a $170bn deficit.

Oil rose to a new record intraday high of $109.72 before it fell back off on reduced consumption forecasts from the Energy Department and the International Energy Agency, but it still ended with a decent gain and ended at a new record closing high as funds continue to put money into commodities.

The US Dollar index rose, Treasury bonds fell, and the Dow, Nasdaq, and S&P found impressive gains on the Fed’s plan to intervene in the markets in a meaningful way and effectively provide a market for mortgage-backed securities.

Gold and silver equities steadily rose throughout trade along with the major indices and ended with near 5% gains.

"The Federal Reserve action today formalizes what has been the policy of the Fed from almost day one of the visibility of the credit and default derivative meltdown and credit market lockup," says Jim Sinclair at JSMineset.com.

"What is occurring is the monetization of bankruptcy. And the predictable result is a significant increase in inflation and a sharply lower Dollar.

"The result of that is sharply higher Gold Prices, regardless of the Federal Reserve's farce of paying for bankrupt derivative packages purely to keep banks that are almost all on the edge solvent."

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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