Credit Crisis Is A Reason For Investing In Gold
Thursday, 2. October 2008, 09:11:31
In Asia trading, the US Dollar rose and gold fell as the EUR/JPY unwound.
Kitco.com reports that a little after 3:00 AM eastern time, the US Dollar rose to $80.18; and gold fell to $860. The reason being the yen carry trade is unwinding.
The ActionForex.com article 'Senate Approved Rescue Plan, Euro Tumbles Ahead Of ECB' provides the chart of the EUR/JPY reading a drop to 146.40.
The yen carry trade has the name "Armageddon Trade", because when it unwinds it causes terrific decimation in world stock values, especially the BRICS, EEB, and the natural resource stocks, such as KOL, SLX, OIH, GDX, XME, XLE, in gold, GLD, and in oil, USO.
The currency traders get 0.5% loans from the Bank of Japan and short sell the Euro.
There is a terrific interest rate differential between the Bank of Japan, BoJ, and the European Central Bank, ECB, whose rate is 4.25%, which is a great part of the problem here.
Yahoo News presents the AFP News article 'ECB Renews One Day Loans Of $50bln, Siphons Off Euros', which I believe relates that the ECB is buying the very Euros the currency traders are selling
US Treasuries may rise in Thursday's trading as stocks are falling in after-hours trading. That is terrible news, as the good US Treasuries are being swapped out for junk, and should be falling in value, not rising in value.
But as money comes out of stocks, the government bonds could rise even more than they have, with TLT going above the strong resistance it just hit at 95.78. This gives the appearance of safety to the US Government bonds, yet it's only a mirage!
I perceive a "risk of investment loss", which suggests to me, the wisdom of investing in gold.
As stocks fall, liquidity is going to flow out of the world wide financial system as a whole. And a stock sell off could cause a shortage of liquidity at brokerages. I know brokerage accounts are insured; but what if like, all of a sudden all brokerages go down. Would there be enough insurance to cover them all?
In spite of falling gold prices, I recommend one be invested in gold, as I see a liquidity meltdown coming, where there simply will not be "any money in the system', which communicates the risk of total loss.
Under the Paulson-Bush-Pelosi financial bailout, the Emergency Economic Stabilization Act of 2008, where the Federal Reserve has expanded authority and greater facilities, such as TARP, people are going to be encouraged to put their trust in the US Government, and in Ben Bernanke at the helm of the Federal Reserve, and in the banks, with an inducement coming from greater FDIC limits.
Jesse in article 'FDIC to Have Access to "Unlimited Amounts" from Treasury - Vote Set for 7:30 PM' relates: "The Weather Report says rough seas ahead, mates" and provides the Greg Hitt and Sarah Lueck Wall Street Journal article 'Senate Vote Gives Bailout Plan New Life' which details the "inducement".
When I reflect on unlimited amounts from the Treasury, it makes me think that some individuals may be taking a "flight to safety" in government connected banks.
But never, no way would I put my money in a bank, as I have greater confidence in physical gold, that I can control, or have personal legal title to, than I have trust in the US Government.
I suggest diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.
There are a number of metrics which show lack of liquidity; and these also communicate to me "a risk of loss of one's total investment" due to "credit meltdown", or 'tight credit';
1) The Ted Spread, it is above 3, and that is like "code red real bad".
2) The principal value of the tax free municipal bond mutual funds like USSTX, falling, as interest rates rise.
3) The loss of value in the municipal bond ETFs MUB and TFI
4) The loss of value in the debt ETFs LQD, HYG, CFT and EMB
"I trust in gold more than in money in Bernanke's banks."
Charts for understanding the value of gold
The Yahoo Finance ongoing chart of GLD relative to the EUR/JPY and the USD/JPY, provides fascinating insights into the interplay of gold and the two major currency pairs.
Gold, $GOLD.
The gold ETF, GLD.
The US Dollar, $USD.
US Treasuries, TLT
The Ten Year US Government Note, $TNX
The on going monthly MSN Finance chart of the gold ETF, compared to world stocks, EFA, and US Stocks, VTI, and US Treasuries, TLT
The ongoing five day Yahoo Finance chart of gold, GLD, relative to the US Dollar ETF, UUP, and the Euro, FXE, and oil, USO
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, EFA, and EEB
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to IWM, and SPY
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, USO, and RJI
The ongoing ten day MSN Finance chart of EUM, compared to TWM, SDK, and SFK
The the ongoing five day Yahoo Finance chart of EUM, compared to TWM, SDK, and SFK
The ongoing five day Yahoo Finance chart of the yen, compared to gold and the world's major currencies
Gold relative to world stocks: GLD:EFA
Gold relative to US Stocks: GLD:VTI
Gold relative to the euro: GLD:FXE
Gold relative to world currencies: GLD:DBV
Gold relative to oil: GLD:USO
Suggested Reading
October 1, 2008 Here We Go Again
Cubs Vs White Sox Series Bad Economic Omens
Caveat
I am a blogger who communicates what I perceive to be reasons for investing in gold; one should always seek advice from a licensed professional before making any investment decisions.
Kitco.com reports that a little after 3:00 AM eastern time, the US Dollar rose to $80.18; and gold fell to $860. The reason being the yen carry trade is unwinding.
The ActionForex.com article 'Senate Approved Rescue Plan, Euro Tumbles Ahead Of ECB' provides the chart of the EUR/JPY reading a drop to 146.40.
The yen carry trade has the name "Armageddon Trade", because when it unwinds it causes terrific decimation in world stock values, especially the BRICS, EEB, and the natural resource stocks, such as KOL, SLX, OIH, GDX, XME, XLE, in gold, GLD, and in oil, USO.
The currency traders get 0.5% loans from the Bank of Japan and short sell the Euro.
There is a terrific interest rate differential between the Bank of Japan, BoJ, and the European Central Bank, ECB, whose rate is 4.25%, which is a great part of the problem here.
Yahoo News presents the AFP News article 'ECB Renews One Day Loans Of $50bln, Siphons Off Euros', which I believe relates that the ECB is buying the very Euros the currency traders are selling
US Treasuries may rise in Thursday's trading as stocks are falling in after-hours trading. That is terrible news, as the good US Treasuries are being swapped out for junk, and should be falling in value, not rising in value.
But as money comes out of stocks, the government bonds could rise even more than they have, with TLT going above the strong resistance it just hit at 95.78. This gives the appearance of safety to the US Government bonds, yet it's only a mirage!
I perceive a "risk of investment loss", which suggests to me, the wisdom of investing in gold.
As stocks fall, liquidity is going to flow out of the world wide financial system as a whole. And a stock sell off could cause a shortage of liquidity at brokerages. I know brokerage accounts are insured; but what if like, all of a sudden all brokerages go down. Would there be enough insurance to cover them all?
In spite of falling gold prices, I recommend one be invested in gold, as I see a liquidity meltdown coming, where there simply will not be "any money in the system', which communicates the risk of total loss.
Under the Paulson-Bush-Pelosi financial bailout, the Emergency Economic Stabilization Act of 2008, where the Federal Reserve has expanded authority and greater facilities, such as TARP, people are going to be encouraged to put their trust in the US Government, and in Ben Bernanke at the helm of the Federal Reserve, and in the banks, with an inducement coming from greater FDIC limits.
Jesse in article 'FDIC to Have Access to "Unlimited Amounts" from Treasury - Vote Set for 7:30 PM' relates: "The Weather Report says rough seas ahead, mates" and provides the Greg Hitt and Sarah Lueck Wall Street Journal article 'Senate Vote Gives Bailout Plan New Life' which details the "inducement".
When I reflect on unlimited amounts from the Treasury, it makes me think that some individuals may be taking a "flight to safety" in government connected banks.
But never, no way would I put my money in a bank, as I have greater confidence in physical gold, that I can control, or have personal legal title to, than I have trust in the US Government.
I suggest diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.
There are a number of metrics which show lack of liquidity; and these also communicate to me "a risk of loss of one's total investment" due to "credit meltdown", or 'tight credit';
1) The Ted Spread, it is above 3, and that is like "code red real bad".
2) The principal value of the tax free municipal bond mutual funds like USSTX, falling, as interest rates rise.
3) The loss of value in the municipal bond ETFs MUB and TFI
4) The loss of value in the debt ETFs LQD, HYG, CFT and EMB
"I trust in gold more than in money in Bernanke's banks."
Charts for understanding the value of gold
The Yahoo Finance ongoing chart of GLD relative to the EUR/JPY and the USD/JPY, provides fascinating insights into the interplay of gold and the two major currency pairs.
Gold, $GOLD.
The gold ETF, GLD.
The US Dollar, $USD.
US Treasuries, TLT
The Ten Year US Government Note, $TNX
The on going monthly MSN Finance chart of the gold ETF, compared to world stocks, EFA, and US Stocks, VTI, and US Treasuries, TLT
The ongoing five day Yahoo Finance chart of gold, GLD, relative to the US Dollar ETF, UUP, and the Euro, FXE, and oil, USO
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, EFA, and EEB
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to IWM, and SPY
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, USO, and RJI
The ongoing ten day MSN Finance chart of EUM, compared to TWM, SDK, and SFK
The the ongoing five day Yahoo Finance chart of EUM, compared to TWM, SDK, and SFK
The ongoing five day Yahoo Finance chart of the yen, compared to gold and the world's major currencies
Gold relative to world stocks: GLD:EFA
Gold relative to US Stocks: GLD:VTI
Gold relative to the euro: GLD:FXE
Gold relative to world currencies: GLD:DBV
Gold relative to oil: GLD:USO
Suggested Reading
October 1, 2008 Here We Go Again
Cubs Vs White Sox Series Bad Economic Omens
Caveat
I am a blogger who communicates what I perceive to be reasons for investing in gold; one should always seek advice from a licensed professional before making any investment decisions.
WIDGETIZE