-- Posted Sunday, 14 September 2008 | Digg This Article
| Source: GoldSeek.com
By: Peter J. Cooper
It looks like the financial crisis will claim its first big victim this week in the shape of Lehman Brothers, unless ‘a miracle occurs’ in the words of one observer. Meanwhile, shares in Merrill Lynch plunged 50 per cent last week on fears over its viability; American International Group and Washington Mutual, the largest US savings and loans institution, are also teetering on the brink.
The blood on the street is just starting. There will be a downward spiral with quite a strong possibility of a full on Wall Street crash.
In this situation the only medicine that the Fed can offer is an emergency rate cut. This will be bad for the US dollar and good for gold and precious metals which should quickly regain their safe haven status which has been somewhat tarnished over the past two months by a big commodity sell down, not to mention massive currency market intervention.
The true price of the bail out of Fannie Mae and Freddie Mac will also come more into the spotlight. House prices will continue to fall, and more and more home lenders appear with their begging bowls.
This is going to be a highly volatile period with some wild price swings. Perhaps the precious metals sector has had its swing to the downside and is now due for a big lurch to the upside.
Certainly interest rate cuts will pull the rug from under the dollar rally - which still looks like nothing except a small upward blip on a long-term channel downwards. Besides we do not know how bad things will get before they stabilize, and it may be that ultra-low US interest rates are now required for a sustained period, just like in Japan in the 1990s.
People say why do you hold precious metals with a zero return, but they offer a clear defense against inflation and relative security of value in hard times. That is where the global economy is heading this week.
Peter J. Cooper
http://arabianmoney.net/
-- Posted Sunday, 14 September 2008 | Digg This Article | Source: GoldSeek.com
