Jim Rogers to start shorting US Treasuries

2011-MAY-11

The gold price has edged higher on growing concerns about the financial stability of the eurozone. Default by a country like Greece or Ireland would deal a serious blow to the international banking system and could result in a depression in many western nations.

In America, investors are becoming concerned that Mississippi River floods could affect refinery output downstream in Louisiana. WTI crude for delivery in June gained 1.33% intraday to settle at $103.88.

Rising petrol prices are starting to become a thorny political issue for President Obama, with many Americans now paying over $4 a gallon, with prices reaching their highest levels in some areas since the summer of 2008. Many blame speculators for the rising prices, with President Obama recently setting up an official task force to look at market manipulation of oil prices.

Ultimately, however, the key enabler of these price rises has been Ben Bernanke’s Federal Reserve. Its quantitative easing (QE) programmes have pumped trillions of new dollars into asset markets. This has resulted in rising stock markets (a good effect as far as the Fed is concerned) but has also meant soaring commodity prices.

The Fed’s policies have also artificially lowered bond yields in America. However, more and more investors are becoming concerned that regardless of short-term price fluctuations, the end of “QE2” in June will mean rising yields on US government bonds – piling further pressure on the federal government’s already perilous fiscal position.

Bill Gross’s PIMCO, the world’s largest bond fund, has upped its bets against US government debt, while investment veteran Jim Rogers said yesterday that he is going to start shorting US Treasuries.

Rogers expects the US dollar to rally when QE ends, however. The dollar could also be boosted by further bad news from Europe, where rumours persist that some countries will leave the euro in response to their fiscal problems. EU officials’ efforts to cover up these strains are failing to turn attention away from the fact that the long-term survival of the EU could be at stake in this crisis.

These events are highly bullish for gold. With regards silver, this analysis of the most recent Comex silver Commitment of Traders report is interesting – proof that we are still far from a silver “bubble”.