Gold rises as US interest rates stay down
Gold rises, along with the euro and Australian dollar, after the S&P downgraded its outlook on the US. Gold rises above $1,500 and silver is trading above $44.
Gold bars are displayed to be photographed at bullion house in Mumbai in this December 3, 2009 file photograph. Gold prices hit record highs for a second day in a row on Tuesday and silver touched a 31-year peak.
Arko Datta / Reuters / File
Front and center this morning we have a currency and commodity rally going on for the ages! But first… Today is also my long time, good friend, and the Big Boss’ birthday! Yes… Happy Birthday, Frank Trotter! YAHOO!
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OK… The currency and commodity rally for the ages… It’s as if the overnight markets guys and gals had the light bulb go on over their collective heads, and inside the light bulb was this thought… “Interest rates around the world are going up, but staying down in the US and S&P just downgraded the US’s outlook to negative, so why are we holding dollars?”… The rest is history as they say, with the euro (EUR) rallying to 1.45, the Aussie dollar (AUD) to $1.0650, and gold at $1,505…
It’s pretty amazing once the markets figure out something, it’s like they’re playing poker, and decide to “go all in”… For all the time before they finally figure something out, they hem and haw around giving this reason or that reason for supporting a sinking asset… In this case it’s the dollar… Look, I don’t want this to happen, but, the writing has been on the wall for some time now, and I said it would happen, so there you go!
We also had Sweden’s Riksbank adding fuel to the fire that’s burning under the pole that the dollar is strapped to this morning, by hiking their internal interest rate 25 basis points (1/4%) bringing their internal rate to 1.75%… I expect the Riksbank to hike rates quite frequently this year, pushing their rate to 2.5% in the next year… The Swedish krona (SEK) received a ton of love after the rate hike, and has finally moved back to its level of 2008… You know, the levels we saw before the financial meltdown, the first of many things that have come along to rescue the dollar, but eventually allow it to be tied to the pole again…
As I said above, gold is trading above $1,500 this morning…and that move is responsible for helping the Aussie dollar reach a 29-year high at $1.0650! And don’t forget silver! Yes, silver is trading above $44 this morning! And once again, it’s important to remember that those who think that because gold and silver don’t pay interest, higher rates around the world would squash their bull market rallies, are wrong… Or at least to me they are… Instead, higher rates around the world squash the dollar, and gold and silver are being used as “dollar alternatives”…
Another thing throwing gas (literally) on the fire burning beneath the pole that the dollar is tied to, is the jump in the price of oil yesterday and overnight… Yesterday, the price of oil had slipped to $106.10, but this morning, it’s back to $109.80! And don’t think for a minute that investors aren’t using oil investments as dollar alternatives too!
