The rock-and-the-hard-place issue is resolved ... the Fed needs to cut prices and, if possible, it looks even more interesting for gold. In the last four years, the precious metal massive prospered under higher interest rates-to the surprise of many an analyst. But now that prices are heading south, what's in store for gold and the dollar?
And could an amazing sequence with an interest rate boomerang?
Why the Fed Caved
To be fair, theFed in a real place. No question. Raise prices and you can temporarily catch the free-falling dollar ... But slide the housing right off the cliff. Lower prices and help you to a number of banks and people who do not would probably have something to do with mortgages in the first place ... but you wave bye-bye to the dollar had. Perception is always greater than the reality, but it is understandable, and the American people the perception that the maintenance of their home is much morecritical issue as the solution of some complicated dollar problem. This should not come as any great surprise. The major shaper of American perceptions, the media has not told the public about the dangers of the collapsing dollar.
The worst-case scenario has in fact painted by the media - and continue to paint - is that a wimpy U.S. dollars simply means travel abroad will now be much more expensive. Big deal. Stack that against homeowners lose their homes, and the whole thing is a U.S.not in any case. "So the Fed gave himself up to public pressure.
But definitely, the impact of the collapsing of dollars are far greater concern than a higher hotel bill in Paris. And ironically, the consequences could be a further steep rise in interest rates to start.
Follow the Yellow Brick Road
Right Back Higher Rates
It is as if we are all suddenly stuck in the whacky world of Oz. Follow this disquieting argument (as shown analyst MartinWeiss, editor of Money and Markets):
One / When the Fed made its dramatic cut in interest rates, it signals the world that (the dollar was miserable enough, wanted) already near record lows not supported by the U.S. in the foreseeable future will be. So the trickle of the dollar has been sold more quickly, such as dumping dollars ... and if dollars are dumped landfill, so are U.S. bonds.
Two / Sure enough government bonds fell by more than two points in the days after the rate cut, the worstDecline since September 2003. Since bond yields just as fast in the opposite direction, they have here is booming recently. But of course, the great difficulties, that ...
Three / ... long-term mortgage rates followed long-term Treasury yields! Yikes. That is, if the dumping persists dollars, it will likely increase in prime mortgage interest rates in the board of sub-prime.
"According to textbook theory," Weiss said: "This was not actually happen! But it ishappens. Why are Treasury yields rise (and their prices fall sharply), even while the Fed is cutting interest rates? Quite simply: It is mainly because the key factor we are hammering away day after day, week after week, the U.S. Dollar. "
The big question is, will the dumping dollars on? Ominously enough, was the demand for U.S. bonds below a whopping 80% in just one months. Where it goes from here is something that we all have to wait and see. But if it does continue, interest ratescould, in fact ... and boomerang boomerang with a vengeance. But in the end it is not too much difference to gold.
Lower interest rates? Higher interest rates?
Gold is likely to north Either Way
Unlike paper investments, is the fate of precious metals no longer be permanently bound with interest, and if they are traveling.
Today it is more a question of trust.
Foreign nations are dumping dollars, because, as the irresponsibleTeenagers with his first credit card is the U.S. shelves a terrible guilt. We are a disgrace to the largest debtor nation in the world. And because the currency is the biggest debtor nation in the world also happens to be the world's reserve currency, the world is rapidly losing confidence.
Finally, the world holds more than 7 trillion U.S. dollars right now. And every time the dollar set a record low against the euro and other currencies, what happens now with disturbing frequencylately, the value of 7 trillion U.S. dollars, which is eroded.
That is why people are hedging their dollar with gold ... and why you should do the same. Julian Phillips, goldforecaster.com wrote: "Gold has broken out of all restrictions and is now a whole new game after Fed Chairman Ben Benanke let the interest rates charged to the value of the dollar internationally. National interests will always override any of those international share. Only confidence in the U.S. economy, the banks and theSpending power of consumers, the confidence in the dollar gold price and turn restore. Will this happen? "
Gold is your insurance if it does not. "
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