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The gold price has encountered
selling resistance at $1,650, while the silver price is still being pegged
below $30. Though fears about the US going to war with Iran are growing,
crude oil prices slipped yesterday on news that the European Union will not
embargo Iranian crude for another six months, in order to allow countries such
as Greece, Italy and Spain time to source alternate supplies.
The North American benchmark WTI
crude is now trading at below $100 a barrel, while as of 11.15 GMT Brent
crude is just above $110 – down from an intraday high of close to $115
a barrel yesterday. The Dollar Index has moved higher and is now close to 81,
while the EURUSD has fallen again in trading today, with the euro now below
$1.28.
Yesterday President Obama asked
Congress for another $1.2 trillion in government borrowing authority; as Bloomberg
notes, this is the last of the three such borrowing requests authorised by the debt ceiling legislation from August 2
last year. This will
raise the federal government’s borrowing “limit” to $16.394
trillion, which the Treasury Department estimates will fund the government
“until late 2012”.
So come the end of this year, we
could see another replay of last summer’s debt ceiling debate –
only this time set against the backdrop of a presidential election. Congress
will vote to kick the can down the road and raise the debt ceiling again, as
Republicans will not want to risk any scenario where the Democrats and the
press blame them for jeopardising the economic
status quo – even if the economic status quo resembles a car speeding
towards the edge of a cliff.
No article discussing US
government debt would be complete without mention of the current record-low
Treasury yields. But this last week has again seen non-US investors reducing
their Treasury holdings, the sixth consecutive week of such outflows, which as ZeroHedge reports now total $85 billion. This is a record amount in terms of
cumulative weekly Treasury sales by non-US investors.
One swallow of course
doesn’t make a summer, and in the context of a $2.5+ trillion market,
$85 billion isn’t that much. If – as is eminently possible
– the economic situation deteriorates in Europe and we get a full
default by Greece, Portugal or some other beleaguered sovereign, then
foreigners could once again come flocking back to Treasuries, rendering this
recent sell-off moot. But if Europe manages to find a way to somehow muddle
through (at least in the short-term) then we could see more people outside
America selling Treasuries in exchange for higher-yielding assets. This
sell-off could intensify as it becomes more widely publicised,
as the “herd mentality” kicks in among investors.
Then things could start to get
interesting.
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