Gold News

Gold Steady as Stocks Rise, Bonds Sink on "Big 5" Central Bank Cash Injection

Spot Gold Prices rose sharply into the US opening on Wednesday, jumping almost 2.4% from their overnight low and then holding onto those gains as five of the world's biggest central banks announced a co-ordinated injection of cash to "to address elevated pressures in short-term funding markets."

With the price of three-month Dollar loans in London's inter-bank market holding above 5.10% – even as three-month US bond yields trade below at 2.99% – the US Fed, Bank of England, Bank of Canada, Swiss National Bank and ECB in Frankfurt today announced an increase in their short-term loans to their local money markets.

The big five, publicly supported by a statement from the Bank of Japan, also widened the range of securities they will accept as collateral. Previously refusing to take anything but UK government bonds and AAA-rated bonds, the Bank of England will now accept foreign government debt, mortgage-backed securities, and AAA-rated covered bonds.

The US Federal Reserve also said it's entering into six-month currency swaps with the European Central Bank and the Swiss National Bank – worth up to $20 billion and $4 billion respectively – "for use in their jurisdictions."

Wall Street equities leapt on the announcement, while US Treasury bonds – the "safe haven" of choice for institutional investors since the world credit crunch began in August – suffered their worst fall in 11 years.

Europe's major stock markets reversed earlier losses to approach the close 0.5% higher on average. Wild volatility in the currency markets contrasted with the steady Gold Price, however, which reached a two-week high of €556 per ounce for European investors wanting to Buy Gold today.

"The Fed is adding more liquidity to the system and that's good for gold," reckons Marty McNeill at R.F.Lafferty in New York.

"Adding funds is more inflationary."

Higher inflation already showed up in Wednesday's US import data for October. Year-on-year, average prices paid for imported goods gained 11.4% – a sharp rise from Sept.'s 9.6% rate of increase, led by surging oil prices.

The weakening Dollar did nothing to redress America's yawning trade deficit, meantime, which gaped to $57.8 billion, up by 1.2% from the upwardly revised trade gap of $57.1bn in Sept.

Today's central-bank action "should [further] help the Gold Market," says Jonathan Jossen, a Comex floor trader, to Reuters.

"They are admitting finally that they are huge troubles out there."

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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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