[Marxism] Fear triggers gold shortage, drives US treasury yields below zero

[Dbachmozart@xxxxxxx]

The investor search for a safe places to store wealth as the  financial 
crisis shakes faith in the system has caused extraordinary moves in  global 
markets 
over recent days, driving the yield on 3-month US Treasuries  below zero and 
causing a rush for physical holdings of gold. 

 

 
 
By Ambrose Evans-Pritchard
Last Updated: 9:26AM GMT 11 Dec 2008

"It is sheer unmitigated fear: even institutions are looking for mattresses  
to put their money until the end of the year," said Marc Ostwald, a bond 
expert  at Insinger de Beaufort.  
The rush for the safety of US Treasury debt is playing havoc with America's  
$7 trillion "repo" market used to manage liquidity. Fund managers are 
hoovering  up any safe asset they can find because they do not know what the 
world 
will  look like in January when normal business picks up again. Three-month 
bills 
fell  to minus 0.01pc on Tuesday, implying that funds are paying the US 
government for  protection.  
"You know the US Treasury will give you your money back, but your bank might  
not be there," said Paul Ashworth, US economist for Capital Economics.  
The gold markets have also been in turmoil. Traders say it has become  
extremely hard to buy the physical metal in the form of bars or coins. The  
market 
has moved into "backwardation" for the first time, meaning that futures  
contracts are now priced more cheaply than actual bullion prices.  
It appears that hedge funds in distress are being forced to cash in profits  
on gold futures to cover losses elsewhere or to meet redemptions by clients. 
But  smaller retail investors â and perhaps some big players â are buying 
bullion in  record volumes to store in vaults.  
The latest data from the World Gold Council shows that demand for coins,  
bars, and exchange traded funds (ETFs) doubled in the third quarter to 382  
tonnes compared to a year earlier. This matches the entire set of gold auctions 
 by 
the Bank of England between 1999 and 2002.  
Peter Hambro, head Peter Hambro Gold, said the data reflects a "remarkable"  
shift in the structure of the market. The rush to safety reflects a mix of 
fears  about the fragility of world finance and concerns that the move towards 
zero  interest rates could set off an inflationary surge further down the road, 
and  possibly call into question the worth of some paper currencies.  
The near paralysis in the "repo" markets may prove to be no more than  
pre-Christmas jitters as banks square their books.  
However, there are some signs that extreme monetary stimulus by the US  
Federal Reserve and other banks is starting to have unintended consequences.  
The Bank of Japan is it is reluctant to cut its rates to zero again because  
of the damage this causes to the money markets, which serve as a key lubricant 
 of the credit system. The US is now starting to face the same dilemma. 
<_http://www.telegraph.co.uk/finance/economics/3703565/Fear-triggers-gold-shor
tage-drives-US-treasury-yields-below-zero.html_ 
(http://www.telegraph.co.uk/finance/economics/3703565/Fear-triggers-gold-shortage-drives-US-treasury-yields-
below-zero.html) > 







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