Gold Down 0.6%; Securitised Mortgage Debt Threatens Second Phase of Financial Crisis

Gold

With the Federal Reserve soon to embark on QE2 and printing money and buying US bonds in a sizable way, possibly as soon as November, gold should be well supported when it does correct. As with all bull markets, gold is climbing a wall of worry with the public remaining unaware and (mainstream) media commentary sparse and skeptical. The primary trend remains up and short term pullbacks are to be expected.

Gold is currently trading at $1,346.80/oz, €975.21/oz, £851.00/oz.

Click on the image to view full size.

Growing concerns about slowing economic growth, austerity measures and still high inflation in the UK have seen sterling weakness recently and this has led to gold rising to £848/oz (see chart above) – not far from the record nominal high of £857.22/oz.

Despite recent euro strength against the under pressure dollar, the euro remains under pressure versus gold and appears to be consolidating between €950 and €1,000 per ounce (see chart below). The record nominal high of €1,040/oz will be targeted again should gold close above €1,000/oz as seems likely given that the problems in the eurozone are far from over.

Click on the image to view full size.

It has been revealed that Bank of America, JP Morgan and numerous other banks will be halting all foreclosure activity due to incompetence  and possibly fraud related to the packaging, pricing, and trading of the underlying collateral in thousands of mortgage-backed securities. Some analysts are warning that there are financial weapons of mass destruction lurking in the securitized mortgage debt market and that they could potentially lead to another banking and systemic crisis.

Continuing signs of growing ‘agflation’ were seen in corn’s rise again today. It is the fourth day of rises and corn rose a remarkable 8.5 percent to $5.7325 yesterday. Corn rose by its daily trading limit and is now trading at the highest level since September 2008. There is a concern that demand will outstrip supply (especially with the increasing use of corn in ethanol) as output is forecast to drop in the US, the biggest grower.

Corn Futures – 30 Day (Tick). Click on the image to view full size.

Corn and other agricultural commodities have risen in recent months but remain well below their inflation adjusted prices of the 1970s. With economic growth slowing and inflation gradually picking up in most economies internationally there is a real risk of stagflation – a condition that would be bullish for gold as it was in the 1970s.

Silver

Silver is currently trading at $23.09/oz, €16.74/oz and £14.61/oz.

Platinum Group Metals

Platinum is trading at $1,676.00/oz, palladium is at $583/oz and rhodium is at $2,175/oz.

Mark OByrne

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