Gold Prices leapt to a new 27-year high following the US Fed's decision to cut its target interest rate by 25-basis points to 4.50% on Wednesday, jumping above $795 per ounce as the Dollar sank in value against pretty much every last tradable asset class.
Crude oil futures broke new highs at $94 per barrel after a sharp fall in US inventories was reported for last week.
The S&P index of US stocks gained 1.4% by late afternoon on Wall Street, while the European single currency made a new lifetime high vs. the Dollar above $1.4500.
The British Pound breached $2.0800, its highest level in 26 years.
Corn, copper, coffee and platinum prices also surged, as traders and producers repriced the entire Dollar-denominated commodities complex.
But US Treasury bonds bucked the trend, sinking on the Fed's 0.25% cut and pushing both short-dated and longer-term government bond yields sharply higher.
"After this action," said the Fed's accompanying statement, "the upside risks to inflation roughly balance the downside risks to growth" – and traders took that to mean a pause in Ben Bernanke's new loose money policy until January '08 or even later.
Either that, or disappointment that the Fed didn't cut 0.50% off the cost of Dollars today reminded investors just what the end result of the Dollar's collapse will bring for US bond holders.
Talking up inflation was a curious gambit for the Fed today. Much stronger-than-expected US economic growth – reported for July to Sept. earlier on Wednesday – only came thanks to a sudden and shocking fall in a key measure of price inflation.
The Bureau for Economic Analysis said this morning that third-quarter GDP rose 3.9% from the same period in 2006. A survey by Bloomberg of 82 professional economists had earlier forecast a fall to 3.1% from the 3.8% growth reported for April to June.
"This is an extremely resilient economy," cheered Ed Lazear, chairman of President Bush's Council of Economic Advisers. "It is really quite remarkable" – and indeed it was!
For even as the union of Eurozone nations today reported a sharp rise in their consumer-price inflation, rising to a two-year high of 2.6%, the US non-government GDP deflator sank to 0.7% in the third quarter – a near 44-year low – from 2.6% across the previous three months.
The median average over the last four years was 2.8%, notes Sean Corrigan at Diapason CM in Zurich, and if that figure were deducted from the gross GDP growth reported today, "the US economy would have expanded by a sickly 1.3% rather than the 3.9% now being trumpeted across the financial newswires." (Get the full picture here...)
Meantime in the US housing market, "things are going from bad to worse," reckons one bond analyst in New York.
"Overleveraged borrowers are meeting falling home prices," he told Bloomberg after the Mortgage Insurance Companies of America said today that defaults by heavily-geared US homeowners rose by more than one-fifth in the year to Sept.
Home-buyers lacking a 20% deposit – and so needing mortgage insurance – who fell more than 60 days behind with their monthly repayments rose nearly 5% from August.
Back in the Gold Market, "gold has been trading in lockstep with the Euro," reckons Frank McGhee, head of metals trading at Integrated Brokerage Services in Chicago.
"The new highs in the Euro allowed gold to come back."
But the Gold Price also bounced sharply for European investors today, gaining 2.0% from Tuesday's low to trade above €548 per ounce as the New York close drew near.
British investors wanting to Buy Gold Today also saw the metal shoot higher. The Gold Price in Sterling rose 1.2% from yesterday's dip, but at £381 by the close in London, it remained £5 per ounce off Monday's new all-time record.