Interest Rates

March 18, 2008

The Fed announced a surprising Sunday night drop in interest rates- a 25 basis point drop. They did that tyo hopefully keep the markets from tanking after the Bear Stearns news. It worked for a day. The Fed meets today and the only question is how much further will they reduce interest rates. Will it be 50 basis points or more?

Generally gold does better when interest rates are going UP because that indicates there’s a problem with INFLATION which makes gold a good place to visit. However, we’re looking at very different and difficult times. With the stock market tanking and way off for the year, where’s a person to put their money?

Brokerage houses like Bear Stearns now scares people.

One answer is gold bullion as gold has far out-paced the stock market. In the last year, gold was up 55%. Where can you find such a return. The 55% increase means gold was up $356 for the last twelve months. What is fueling gold (when inflation is not the answer) is a weakening US$ and great uncertainty. Since the US$ is fiat money, and becoming more and more worthless, gold becomes the answer.

Purchasing a home used to work but now even that is a losing proposition.

The US$ is on the verge of no longer being the world’s currency. People are wating other alternative currencies. As an example, the U.S. dollar’s value is dropping so fast against the euro that small currency outlets in Amsterdam are turning away tourists seeking to sell their dollars for local money while on vacation in the Netherlands. “Our dollar is worth maybe zero over here,” said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. “It’s hard to find a place to exchange. We have to go downtown, to the central station or post office.”

Talk about a financial disaster!

That’s because the smaller currency exchanges, despite buy/sell spreads that make it easier for them to make money by exchanging small amounts of currency, don’t want to be caught holding dollars that could be worth less by the time they can sell them.

And today the Fed will make it worth even less than it was yesterday!

Written by Ernie · Filed Under Gold News