The Spreading Bondfire and the Rising Price of Gold

The Spreading Bondfire and the Rising Price of Gold By: Darryl Robert Schoon

Today’s rising interest rates and trillion-dollar losses in global bond markets are prelude to what is to come, i.e. rising inflation with higher interest rates ending in the bursting of the global government bond bubble and the long awaited breakout of gold.
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Last year, on December 15, 2015, the Fed announced the first tentative rate increase in nearly ten years, from 0.0% to 0.25%. The Fed had last raised rates in June 2006 which eventually burst the US real estate bubble in 2007 resulting in the collapse of global markets in 2008.

Last year, on December 15, 2015, the Fed announced the first tentative rate increase in nearly ten years, from 0.0% to 0.25%. The Fed had last raised rates in June 2006 which eventually burst the US real estate bubble in 2007 resulting in the collapse of global markets in 2008.

In 2015, after a decade of unprecedented cheap money and virtually free credit to banks, Yellen’s Fed hoped economic conditions had finally stabilized and they could again charge commercial and investment banks interest, a nominal rate of only 0.25%, for their debt-based capital.

On December 16th 2015, Bloomberg reported:

FED ENDS ZERO-RATE ERA: SIGNALS 4 QUARTER-POINT INCREASES IN 2016

The increase draws to a close an unprecedented period of record-low rates that were part of extraordinary and controversial Fed policies designed to stimulate the U.S. economy in the wake of the most devastating financial crisis since the Great Depression. The FOMC lowered its benchmark rate to near zero in December 2008, three months after the collapse of investment bank Lehman Brothers Holdings Inc.
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Source: Trade Economics

Because today’s overvalued stock prices are supported mainly by Fed liquidity and low central bank interest rates, investors feared that the higher interest rates would negatively impact stock prices. On January 1st, an article in Forbes asked, Will Rising US interest rates Crush Stock Markets?  The answer was “yes”.

In the first week of 2016, the Dow fell 1,079 points, its worst start in history.
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…Virtually all investors lost money during the atrocious month of January sending the Dow to its worst 10-day start to a year on record going back to 1897.

CNN, January 2016

…total stock market losses in the United States alone was $2.2 trillion [In January]..after just 11 trading sessions…Bloomberg [estimates] $15 trillion in net value has mysteriously vanished from the value of equities around the globe.

247wallst.com, January 20, 2016

On January 28th, the Japan’s central bank had to reassure frightened investors that the era of cheap central bank money wasn’t over; and the BOJ then announced even lower interest rates, a negative rate of -0.1%.

The next day: US stocks closed sharply higher [after] the worst January performance since 2009..Friday’s surge came amid a global equity rally following a surprise decision by the Bank of Japan to push a key interest rate into negative territory that some said could push the Federal Reserve to ease up on its plans to steadily raise interest rates…Randy Frederick, managing director at Schwab Center for Financial Research, blamed the stock market’s monthly losses on the Fed’s decision to raise interest rates in December…

MarketWatch, January 29, 2016

In 2016, because of January’s shocking stock market losses, continuing economic “softness” and other factors, e.g. Brexit, prevented the Fed from raising interest rates again as planned; but, today, with only one meeting remaining in 2016, in December, another nominal rate increase is a foregone conclusion unless, of course, another financial crisis intervenes.

Market forces have already pushed interest rates higher. Fearful that a Trump presidency will lead to increased spending, tax cuts and growing deficits, interest rates spiked after Trump’s election.

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