The history of short – term interest rate direction is a guide for long – term yields, up or down. Declining short-term rates, especially the 10 year bond (yielding 1.91% 9/10/11), signals long-term yields (30 year bond) falling to new historically record lows. Subsequent of interest rates falling, commodity prices especially gold and silver could continue to see new record highs.
Federal Reserve Chairman Ben Bernanke recent speech (9/09/11): Mentioned possible steps to stimulate the U.S. economy ($1.65 trillion Treasure portfolio), purchasing more government bonds and lengthening the duration of securities (50 year bond?). 1 Recent United States economic news may be indicative of another recession, influencing the majority or unanimous members of the Federal Open Market committee (FOMC) vote (next meeting in September 20-21, 2011), buy back more long term government bonds. On 9/09/11 the 30 year bond yielded 3.2463%. Following the next FOMC meeting thirty – year bond yield could fall to new historical lows, below three percent. Financial turmoil among EURO members, attributed to stock prices declining around the world, lead many investors to purchase U.S. Government bonds (attributing to falling long-term yields) and purchasing gold: Save a haven (driving gold prices to new historical highs, besides hedge against inflationary concerns), during economic times of uncertainty, especially for financial institutions.
Not surprisingly, the price of gold could trade above $2,000 ounce (before the end of September 2011), if the Federal Reserve announces (after the next meeting), additional purchases of long-term treasuries. In April 2011 – “The Dollar Index fell to a three – year low and gold climbed to a record after the Federal Reserve renewed its pledge to keep U.S. interest rates near zero.” 2 If the future resolution of the FOMC further cuts long – term interest rates, U.S. dollar likely falls, and support higher commodity prices, including gold and silver.
Future decline in the U.S. Dollar, potentially off-set by a further depreciation of the EURO Dollar, as the economic crisis among the EURO nations, continue to get worse. Tug – of – War for the U.S. Dollar: Appreciating as the EURO Dollar falls or depreciating by faltering U. S. economic news. When the tide of economic prosperity is certain in the United States, U.S interest rates will climb, and U.S. dollar will turn the corner, decisively higher. The price of gold may be less friendly to investors, and institutions may withdraw their holdings.
References:
1.) Bernanke Says Tighter Budget May Hurt Growth as Fed Weighs Aid – http://www.businessweek.com/news/2011-09-09/bernanke-says-tighter-budget-may-hurt-growth-as-fed-weighs-aid.html
2.) Dollar Weakens, Gold Climbs to Record on Fed; Stocks Advance – http://news.businessweek.com/article.asp?documentKey=1377-a7qWafyfWCos-5SI86E86TEOOBNE7P6C5F64N5I