Fed raising "Disount" lending rate to .75 tomorrow

Patches

With that and the IMF getting ready to sell 1.91 tonnes of Gold. I think this year is shaping up to flat-line or drop from here. Great news for those still buying if so (I am).

Do you think this will stall the metals rally?

gsa1fan

Maybe the FED was trying to make US debt more attractive than the 191 tonnes of gold?

Patches

<< <i>With that and the IMF getting ready to sell 1.91 tonnes of Gold. I think this year is shaping up to flat-line or drop from here. Great news for those still buying if so (I am).

Do you think this will stall the metals rally? >>



I put the decimal point in the wrong places on the tonnage of gold ...191

BigE

Seems like they have created the perfect conditions for PM's to drop----------------------------BigE

OPA

Maybe the 3 mos T bills will jump from .01% to .02%

jmski52

Do you think this will stall the metals rally?

I was just listening to Bill Gross on CNBC, saying that he doesn't expect the interest rate increase to do anything to the yield curve in terms of flattening it out.

The spread between the short end and the long end of the yield curve is at historic highs.

This means that nobody is willing to believe that long term paper will do anything but depreciate, relative to current values.

Since the bond market dwarfs the gold market in terms of capitalization, I take all this to mean that the pressure on precious metals will continue to be in the UP direction, and not the down direction, regardless of whatever gold sales the IMF can orchestrate.

CaptHenway

Gold strong this Ay-Em.

Justacommeman

A non-event. MJ

ebaytrader

<< <i>A non-event. MJ >>




The Fed raising the discount rate will do two things:
1. This is the beginning of discouraging banks from Fed borrowing and dries up excess liquidity (cash) on the Fed's balance sheet thus dampening inflation, and you guessed it, commodity prices.
2. Banks will now take their historically high reserves and begin lending to the peons to boost their margins that they were getting by borrowing at near zero from the Fed.

This is a wait-and-see metals market for the next few weeks.

KCC

<< <i>

<< <i>A non-event. MJ >>




The Fed raising the discount rate will do two things:
1. This is the beginning of discouraging banks from Fed borrowing and dries up excess liquidity (cash) on the Fed's balance sheet thus dampening inflation, and you guessed it, commodity prices.
2. Banks will now take their historically high reserves and begin lending to the peons to boost their margins that they were getting by borrowing at near zero from the Fed.

This is a wait-and-see metals market for the next few weeks. >>



Good analysis.

Justacommeman

A non event because a quarter point increase on almost nothing in reality is almost nothing plus a quarter. Remember, this is the rate that Reserve banks lend to member banks on short term loans..........A non event in the metals market imho............MJ

ebaytrader

<< <i>A non event because a quarter point increase on almost nothing in reality is almost nothing plus a quarter. Remember, this is the rate that Reserve banks lend to member banks on short term loans..........A non event in the metals market imho............MJ >>




Actually, it's a huge move. This takes the banks out of the < 2 year market and backs them into >3 year notes with Fed borrowed money.
It's no longer easy money on the interest rate slide down to maturity. Now the banks need to begin to lend their own reserves to generate income.

Metals market? Wait-n-see a bit but prolly sideways to down. My WAG would be the $ will continue to strengthen (already up nearly 10% since 12/1) against the Euro with the dollar short carry trade closing-up shop and long money chasing the US rates and with the EU committed to bailing out Greece, et al, it's not looking good for their team.

Justacommeman

<< <i>

<< <i>A non event because a quarter point increase on almost nothing in reality is almost nothing plus a quarter. Remember, this is the rate that Reserve banks lend to member banks on short term loans..........A non event in the metals market imho............MJ >>




Actually, it's a huge move. This takes the banks out of the < 2 year market and backs them into >3 year notes with Fed borrowed money.
It's no longer easy money on the interest rate slide down to maturity. Now the banks need to begin to lend their own reserves to generate income.

Metals market? Wait-n-see a bit but prolly sideways to down. My WAG would be the $ will continue to strengthen (already up nearly 10% since 12/1) against the Euro with the dollar short carry trade closing-up shop and long money chasing the US rates and with the EU committed to bailing out Greece, et al, it's not looking good for their team. >>



The dollars only real BIG move has been against the Euro. Since the Euro represents 50% of the dollar index one really need to pick their spots. The balance of the currencies have held up remarkably well. Especially the CAD. The dollar has made no move against the Canadian dollar. I expect a huge rebound of the Euro. I moved net long the Euro on Thurday for the first time in several months. The dollar is extremely overbought.

As for the metals market this week-----They announced an IMF Gold sale after market close one day and the quarter point hike right on it's heels. (noise) Again after market close. How did it effect gold? Both days it saw gold go down immediately only to see it rebound. It closed up for the week I believe. Gold shaking off this news coupled with the dollar being extremely overbought leads me to lean slightly positive on gold action next week. Sideways is probably more realistic.

In my humble opinion the mother of all bubbles is forming in the US Treasury market. I believe over the next three years this will make the internet and housing bubble look like childs play and that is what has my intention and prompts my flippant non event remarks. MJ

ebaytrader

<< <i>The balance of the currencies have held up remarkably well. Especially the CAD. The dollar has made no move against the Canadian dollar. >>



So what?



<< <i> I expect a huge rebound of the Euro. I moved net long the Euro on Thurday for the first time in several months. The dollar is extremely overbought. >>



As long as US rates rise, the short dollar carry trade is drying up, and the EU is intent on bailing out the socialists, it will be King $.
It could last awhile and as far as the $ being over bought? Let's be real. It's a race to the bottom for most currencies.





<< <i>In my humble opinion the mother of all bubbles is forming in the US Treasury market. I believe over the next three years this will make the internet and housing bubble look like childs play and that is what has my intention and prompts my flippant non event remarks. MJ >>



Please x-plane.

Justacommeman

Let's see- The Fed pounds the long end of the curve. Traders/investors continue to pile in creating the greed element in their can't lose trade (which you need to create a bubble). When this ends/slows down as there is almost nobody left to buy and when everybody hits the door at the same time it will end quickly and horribly for those holding long term maturities. (ten years or more) They will be no buyers. You need new money to pay out redemptions. Very Ponzi like. Actually when Warren Buffet comments that he's never seen a single investment over bought it tends to catch my attention.

King Dollar is a Kudlow illusion and the term makes me want to vomit.

The balance of the currencies have held up remarkably well. Especially the CAD. The dollar has made no move against the Canadian dollar.

<<So what?>>

my comment was in rebutal to the illusion that the dollar is strong. The dollar is strong against the Euro.I've been anti Euro for a long time.

<<As long as US rates rise, the short dollar carry trade is drying up, and the EU is intent on bailing out the socialists, it will be King $.
It could last awhile and as far as the $ being over bought? Let's be real. It's a race to the bottom for most currencies>>

Let's be real. So when the EU bails out Greece, Spain etc..... it's helping out the socialists.......When the US is forced to bail out California, Michigan, Illinois, Florida and Neveda what will that be called? California is way worse shape then a Greece and is defacto bankrupt. If California was a country it would have the sixth or seventh largest GDP in the world.

As far as US rates rising......1) What makes you think they will raise in the near future? 2) What makes you think others won't be raising their rates at the same time or before offsetting what the US does? Australia has aleady started raising rates. Others will follow.

MJ

EagleEye

I think we'll see a flight from gold to Treasuries. This will postpone any bursting of a Treasury bubble for at least a year.

I was googling "Treasury Bill Bubble" and found all the entries for late 2008 and 2009. It this "Treasury Bubble" you speak of old news or just under-reported?

In any event, I think the IMF is both talking-down gold and will soon actually be forcing it down. I wouldn't fight it.

Justacommeman

<< <i>I think we'll see a flight from gold to Treasuries. This will postpone any bursting of a Treasury bubble for at least a year.

I was googling "Treasury Bill Bubble" and found all the entries for late 2008 and 2009. It this "Treasury Bubble" you speak of old news or just under-reported?

In any event, I think the IMF is both talking-down gold and will soon actually be forcing it down. I wouldn't fight it. >>



No Rick, I was referring to the near 30 year bull market in Treasuries and the fact that it was exacerbated by the financial crisis and the "flight to saftey" trade. It leads me to believe that this "trade " is crowded and leaning in one direction. Personally, I think that recent entries will be slaughtered in this one way trade as everybody hits the door at the same time. I think it could unwind very quickly when it starts. Could a failed auction could be the trigger? A squeeze play of epic proportion? Just a thought or two.

There has been a Barron article or two on the subject and the Buffetts, Soros and Rogers of the world have commented on it in passing but largely it's off the radar.

As for the IMF sale- if recent memory serves me correctly when the IMF has sold gold in the past it has actually ended up being positive for gold. It's only 191 tonnes and the announcement was not a surprise as it was the balance of the 403 tonnes that was already scheduled to be sold. (212 tonnes was sold in Oct/Nov to Central banks-India, Sri Lanka and Mauritius). Any number of central banks could add this 191 tonnes to their cache easily and form another mini floor on gold or even serve as an inflection point. Again, being that it's not a large amount I have my doubts. The IMF will be selling up to 2,000 tonnes over the next five years and a cap of 400 tonnes per annum. So again this is not a surprise and it must be baked into the price of gold in my humble opinion. MJ

EagleEye

Yes, I saw that they sold more gold in the past year than they are now planning. I learned that it was sold to other countries, so I am changing my thought that it will not affect the market negatively. Thanks.

cohodk

In my humble opinion the mother of all bubbles is forming in the US Treasury market. I believe over the next three years this will make the internet and housing bubble look like childs play and that is what has my intention and prompts my flippant non event remarks


I cant think of a more DEFLATIONARY scenerio. Bring it on.

roadrunner

The IMF sold several thousand tons of gold into the early 1970's bull market and found out that all it did was fuel further buying by major entities. It is doing the same thing now. There is no convenient way for a nation to go out and buy 200 tons of gold in one shot w/o drastically disrupting the market price and costing them much more. The 403 tons of gold the IMF currently had earmarked for sale was less encumbered than the remaining few thousand tons of gold they have left. No matter though. If they are able to get permission to sell off that gold (assuming it hasn't already been leased/sold) it will only push the market higher over time.

The Fed raising the discount rate will do two things:

1. This is the beginning of discouraging banks from Fed borrowing and dries up excess liquidity (cash) on the Fed's balance sheet thus dampening inflation, and you guessed it, commodity prices.
2. Banks will now take their historically high reserves and begin lending to the peons to boost their margins that they were getting by borrowing at near zero from the Fed.

The FED is not yet ready to see the major banks lend out the $800 BILL or so it dropped into the bank reserves back in late 2008. To just let that sum fly into the economy and be multiplied would not be controlling potential inflationary effects. In fact one might see the FED continue to raise the interest rates they pay on those reserves in order to keep them safe in the vault. Those reserves are in effect the insurance policy on all the otc derivative losses the banks are currently shielding using marked to model accounting.

The FED has little chance of drying up its excess balance sheet "assets" since the majority of them are now illiquid SIV's/MBS's and other such junk. The FED isn't about to let the world find out that those assets it paid a princely 100 cents on the dollar (or more!) are worth a fraction of that amount. That would only help to speed up the destruction of the remaining otc derivatives languishing out there. Those FED assets are staying put. The FED can't possibly sell them...unless of course they get funnelled into the Fannie or Freddie pool which now have unlimited buying caps through 2012. This might be the way to transfer the FED's liabilities back to the citizens of the USA. By funneling these illiquid items into F&F the FED/Treasury could pick a price out of thin air which ensures them a profit....and the bagholders future losses.

roadrunner

Justacommeman

<< <i>In my humble opinion the mother of all bubbles is forming in the US Treasury market. I believe over the next three years this will make the internet and housing bubble look like childs play and that is what has my intention and prompts my flippant non event remarks


I cant think of a more DEFLATIONARY scenerio. Bring it on. >>


Please allow me to retort : ) Last time the Treasury bubble burst gold went up 6X and oil 3 X and the stock market went down 20%. 1976-81. I maybe off on my numbers a little one way or the other and yes numbers can be skewed to fit the agenda of the guy with the microphone. But the fact is that inflation came with the burst of the Treasury bubbl and there is ZERO doubt in my mind we will shift into a inflation storm in the not so distant future. Sounds like we have a horse race. Please your bets

MJ