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From the Market Oracle January 15, 2008
Rumours of Fed Emergency Rate Cuts To Avert Serious Economic Downturn
.............There are rumours of emergency rate cuts and even of a possible drastic full 100 basis point. A leaked client note by HSBC added fresh fuel to the rate excitement, suggesting that Fed may now have to slash a full percentage point by month's end to fend off a serious downturn.
However the Federal reserve is caught between a rock and a hard place. Commodities including base metals and soft commodities surged again yesterday and the CRB went up 5.07 to an all-time high of 370.22. Thus there are deepening fears of inflation and stagflation and this is leading to inflation hedging and safe haven buying of gold.
The Daily Telegraph reports in an article entitled 'ECB warns crashing dollar may stop Fed cuts' that rumours of an emergency rate cut over coming days by the U.S. Federal Reserve have swept the global markets, setting off a fresh plunge in the dollar. Lorenzo Bini-Smaghi, a member of the European Central Bank's executive council, warned that the tumbling dollar may now start to foreclose the option of U.S. rate cuts and force the Fed to keep monetary policy tighter than it would like. "I would not be so sure about the movements of the Fed. There is a serious problem with the dollar in America. We will see what margins they have for further rate cuts," he told Italy's La Republica newspaper. It is the first time that a top central banker has openly aired concerns that dollar weakness could constrain U.S. economic policy.
The FT reports that John Hill, an analyst at Citigroup in New York, said that gold prices were likely to test the $1,000-an-ounce level in 2008. Key gold traders such as UBS, Mitsui Precious Metals, Barclays Capital and The Bank of Nova Scotia expressed a similar view. "Prices could explode to multiples of these levels in the event of a full-blown U.S. recession," he added. David Holmes, head of precious metals at Dresdner Kleinwort in London, added that investors were already buying option contracts that would be profitable only if gold prices surged to levels above $1,000 an ounce to as high as $1,500 an ounce.
Rumours of Fed Emergency Rate Cuts To Avert Serious Economic Downturn
.............There are rumours of emergency rate cuts and even of a possible drastic full 100 basis point. A leaked client note by HSBC added fresh fuel to the rate excitement, suggesting that Fed may now have to slash a full percentage point by month's end to fend off a serious downturn.
However the Federal reserve is caught between a rock and a hard place. Commodities including base metals and soft commodities surged again yesterday and the CRB went up 5.07 to an all-time high of 370.22. Thus there are deepening fears of inflation and stagflation and this is leading to inflation hedging and safe haven buying of gold.
The Daily Telegraph reports in an article entitled 'ECB warns crashing dollar may stop Fed cuts' that rumours of an emergency rate cut over coming days by the U.S. Federal Reserve have swept the global markets, setting off a fresh plunge in the dollar. Lorenzo Bini-Smaghi, a member of the European Central Bank's executive council, warned that the tumbling dollar may now start to foreclose the option of U.S. rate cuts and force the Fed to keep monetary policy tighter than it would like. "I would not be so sure about the movements of the Fed. There is a serious problem with the dollar in America. We will see what margins they have for further rate cuts," he told Italy's La Republica newspaper. It is the first time that a top central banker has openly aired concerns that dollar weakness could constrain U.S. economic policy.
The FT reports that John Hill, an analyst at Citigroup in New York, said that gold prices were likely to test the $1,000-an-ounce level in 2008. Key gold traders such as UBS, Mitsui Precious Metals, Barclays Capital and The Bank of Nova Scotia expressed a similar view. "Prices could explode to multiples of these levels in the event of a full-blown U.S. recession," he added. David Holmes, head of precious metals at Dresdner Kleinwort in London, added that investors were already buying option contracts that would be profitable only if gold prices surged to levels above $1,000 an ounce to as high as $1,500 an ounce.
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