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That''s likely 398 million euros'' worth of gold, not ounces
Soaring Price of Gold Predicts
Bout of Carnage in Bond Markets
By Ambrose Evans-Pritchard
The Telegraph, London
Saturday, November 5, 2005
http://portal.telegraph.co.uk/money/main.jhtml?
xml=/money/2005/11/05/cngold05.xml&menuId=242&sSheet=/money/2005/11/0
5/ixcity.html
The rising price of gold is a flashing red alert for investors,
pension funds, and insurance firms holding bonds worth trillions of
dollars, according to a new study by H.C. Wainwright & Co.
After reviewing data back to 1951, it found that gold is an
uncannily accurate predictor of inflation one year ahead -- and a
crystal ball for future interest rates and bond prices. If so, there
may be carnage in the bond markets in 2006, since gold is now
screaming inflation.
Gold touched $478 an ounce in September, the highest level in 18
years. It has risen about 90 percent since 2001, although it has
slipped back over the past month.
This rise is at odds with abnormally low interest rates on all forms
of debt -- from junk bonds, to Latin American loans, to gilts and US
treasuries.
The yield on German 10-year bonds fell below 3 percent this spring,
the lowest ever recorded, bringing down all eurozone yields in
lockstep. While rates have since crept back up, they are still
anticipating very tame inflation.
As a rule of thumb, long-dated bonds lose half their value if
inflation doubles (and stays high).
The study, released by the World Gold Council, found that gold is a
much better forecaster of inflation than oil, which indicates what
will happen to prices next month, but not next year.
"Gold provides a much earlier warning. The optimal correlation
(0.73) between changes in the price of gold and changes in 10-year T-
bond yields is about 12 months," it said.
"Because gold moves earlier than official measures of inflation, it
works much better at anticipating monetary policy than 'Fed
watching,'" it said.
"Gold is a powerful predictor of nominal interest rates, both long
and short. It is free from many of the errors of measurement that
bedevil the official indices of inflation," it said.
While the price of gold can be buffeted by the vagaries of South
African politics, Chinese demand, and central bank sales, the study
found distortions rarely last long.
Unlike industrial metals, it is not subject to abrupt business-cycle
swings in supply and demand.
Although gold has come off its peak, dropping to $456 yesterday,
most experts view this as a short term "technical" correction in a
healthy bull market.
Gold has had nine corrections in this upward trend, usually lasting
about six weeks. Each time gold has held above its 50-week moving
average, a key support line watched by the big funds and bullion
traders.
Three European central banks may have played a role in the latest
dip, selling 398 million ounces in the last week of October,
according to the European Central Bank in Frankfurt.
But central banks cannot offload reserves at this pace week after
week since they are restricted by a five-year accord to total sales
of 500 tonnes a year. In any case, Asia's central banks are
automatic buyers as they move to keep the gold ratio of their fast-
growing foreign reserves at 2 percent.
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http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
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http://www.resourceinvestor.com
http://www.goldpennystocks.com/
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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