Gold price at record highs, credit spreads at record lowsBOOM & BUST REPORT. - * Yields of US below investment grade bonds over US Treasury yields.
For example, central banks acquired 693.5 tons of gold in the first three quarters of this year, which, was less than the increase of 833.4 tons in the first three quarters of 2023. What is more, demand for gold ETFs has been disappointing. While gold ETF holdings increased somewhat in the last five months up to September , gold ETF inflows have remained modest.
What is more, there are factors that are usually difficult to measure but have a great impact on the gold price. These factors can be called"imponderables"—non-quantifiable uncertainties, moods, and fluctuations in sentiment on financial markets—that can increase the demand for gold, translating into a higher valuation of gold, expressed in official currencies and relative to stocks and bonds.
There is another very important factor at work that deserves our attention: As seen in the graph on page 1, the gold price has reached record highs, while credit spreads in the US capital markets have been approaching all-time lows. How should this be interpreted? Clearly, financial market participants expect that the US central bank will fend off large-scale credit defaults. If the economy and/or financial markets falter, investors believe the Fed will come to the rescue.
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