Interest Rate Drop Boosts Gold!

Author: Ernie Fitzpatrick

The Fed announced today that they were reducing the Discount rate another 50 basis points after having just reduced it 75 basis points last week. So, the Fed has dropped rates 1.25% in ten days. So, how did the market react? All three major Indexes were in tge red at th close. Why? Could it be Alan Greenspan?

Gold jumped in after market trading Wednesday after the Federal Reserve slashed its key interest rate again. This is an all-out inflationary move that boosted the metal's appeal as a stable investment. The Fed cut its benchmark federal funds...rate by a half percentage point, following a bold three-quarter-point reduction last week that was aimed at staving off a U.S. recession. After one of the worst starts for the stock market (in history) the Fed is worried.

Gold has risen $95 in the last 30 days and $286 in the last 365 days (44%). Minutes after the Fed decision, gold for April delivery jumped to $935.50 an ounce in after market trading on the New York Mercantile Exchange.

Alan Greenspan told the German weekly Die Zeit that the Fed or political policies could "probably not" keep the world's biggest economy from sliding into recession, as financial markets widely expected the US central bank to cut its main lending rate. "The influences of the global economy today are stronger than almost any monetary or budgetary response," the German-language weekly quoted Greenspan as saying.

Although he is no longer the Fed Chairman, Greenspan's opinions on the economy are still sought. With a market meltdown potential, everyone wants his thoughts

Additionally, Citigroup Inc., Merrill Lynch & Co., UBS AG and other banks may post another $70 billion in writedowns should bond insurers lose their top credit ratings. Citigroup, Merrill Lynch and UBS together stand to lose 45 percent of the total were Moody's Investors Service and Standard & Poor's to cut the insurers' AAA credit ratings, Whitney said. The banks suffered $61 billion of the industry's $133 billion in losses from the collapse of the subprime mortgage market, according to data compiled by Bloomberg.

Dow 6,000?

Bottom line? Things are not well in the financial amrkets and mankind is limited to what might be done, but Bush, Paulson, and Ben Bernanke are trying. We'll have to wait and see what Congress might or might not do on the proposed stimulus package.