How come gold and Silver Bullion prices pulled back as the Fed's QE2 hit...?
BOTH THE Shanghai and Hong Kong stock markets tumbled to multi-week lows on
reports that Beijing is willing to hike interest rates again, in order to tackle
the country's accelerating inflation rate, writes Gary Dorsch of Global Money
Trends . The tumble that started on November 12th shaved some 11% off the
Shanghai red-chip index. The Chinese Politburo is utilizing almost all of its
weapons for combating inflation, except for the one that Washington advocates
– lifting the Yuan against the US Dollar at a quicker pace. However, on Nov.
17th, Zhou Qiren – a key advisor to the PBoC – said Chinese rate hikes are
no panacea for curbing inflation: "Loose monetary policy in 2009 has created
excessive liquidity and helped fuel prices of various products. Too much
liquidity and fewer goods is the reason behind inflation. Raising interest rates
cannot change such a situation," he told the China Securities Journal. Thus, if
Chinese and Chicago commodity markets manage to rebound strongly from their
latest shake-out, it would signal that inflationary pressures are deeply
entrenched. The PBoC would be faced with the biggest inflation threat to its
economy in decades. Meanwhile, the Fed was scheduled to buy $105 billion of
Treasury securities from Nov. 12th through Dec 9th, which in turn, might fuel
another tidal wave of liquidity into the global commodities and metals markets.
Gold Bullion and Silver Prices have still tumbled from their recent highs,
however, spooked by hefty increases in margin requirements set by the
US-exchange operators for agricultural and metal futures. Given the
extraordinary efforts of the bond market vigilantes in jacking-up US Treasury
yields, and the upward drift in Chinese yields, the mountain that the precious
metals' bulls must climb has gotten steeper. However, one should also keep in
mind that Chinese bond yields are still far below the inflation rate, and
therefore, offering a negative rate of return. In regards to the US T-bond
market, if there's a growing realization that the US-government is bankrupt, and
can only pay back its debts by printing paper, then precious metals are a safe
haven. So far, the actual results of the Fed's QE-2 scheme are horrifying.
Monetizing the Treasury's debt on such a massive scale has only reawakened the
bond vigilantes from their slumber. If the Fed cannot stop the slide in T-bond
prices, and bond yields ratchet sharply higher, the euphoria in the stock
markets over QE-2 is misguided. A similar example is the events leading up to
Back Monday, October 1987. At best, the results of QE-2 would simply guide the
US-economy into the "Stagflation" trap. Buying Gold or physical Silver Bullion
today...?
