Gold News

Gold Dumps $15 on Buffett Bail-Out & Lifeline for US Foreclosures; But Will They Both "Wither on the Vine"?

Gold Prices fell sharply from the Wall Street open on Tuesday, losing $15 an ounce as Western stock markets rallied on a double-whammy for US financial markets.

First Warren Buffett – the legendary "value" investor – proposed a bail-out of the world's ailing bond insurance industry, offering to insure the municipal bonds currently under-written by "monoline" giants Ambac, MBIA and FGIC worth $800 billion.

Downgrades to the monolines' own credit ratings had threatened to undermine all $2.4 trillion of the bonds they've insured.

But those downgrades were driven by concerns over mortgage- and other asset-backed default rates. To date, the municipal bonds weren't in doubt – meaning that Buffett is happy to buy the monolines' quality risks, leaving them with the "toxic waste" of mortgage bonds and complex credit derivatives driving the currency crisis in global banking.

Even so, the news pushed the S&P in New York some 1% higher by lunchtime. The FTSE100 in London closed the day 3.5% to the good.

Then the US Treasury confirmed details of its "Project Lifeline" package, giving "people on the brink of the final steps in foreclosure" a further 30 days to stall foreclosure and re-negotiate with their lenders, according to Housing & Urban Development secretary Alphonso Jackson.

The plan extends the "Hope Now" initiative launched in Dec. '07 which has now helped 545,000 subprime borrowers. Only one-in-four has actually got cheaper financing, however, says the New York Times. The others only have a new repayment plan, typically meaning a longer term.

"We remain doubtful about the Buffett deal," said one fixed-income strategist at RBC Capital Markets to the Associated Press. "He is only offering to take on the 'good' securities, or municipal bonds."

Pointing to the failed MLEC bail-out put forward by the US Treasury late in 2007, "the market eventually saw through it and the plan withered on the vine," he noted.

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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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