Bond Bubble Warning From BIS

Hope that American politicians may be able to successfully navigate their way through the fiscal cliff rapids, and suggestions that the Federal Reserve may announce an extension of its bond-buying programme are stimulating bids for growth assets. The Dollar Index has fallen just below 80.00, with the euro rising above $1.30. Despite the increasing political uncertainty in Rome -- with rumours abound that Silvio Berlusconi is preparing to ride to his country’s “rescue” on a wave of populist discontent with Brussels, the euro, and Mario Monti-style technocrats -- Italian bond yields are down 20 basis points from Monday’s high.

Gold and silver continue to consolidate. Both had reasonable days yesterday, with gold eking out some more space above an important support level at $1,700. Silver is holding above $33 -- a resistance point for the bulls in the recent past. Silver looks like it’s coiling, ready for a big move up to test the $50 nominal record again next year.

In the short-term, today’s Fed meeting could have important consequences for precious metal prices -- and indeed, all other asset markets as well. Consensus opinion among economists is that Bernanke & Co will expand their bond-purchases by $45 billion a month, with the ending of its “Operation Twist” scheme. This “QE3.5”, or QE4 as some are calling it, is not really anything new though: merely an extension of the Bank’s pledge in September to print as much money as is needed in order to push businesses and consumers into spending more money.

Bond Bubble
In related news, the Bank for International Settlements is warning about the bond bubble. As ArabianMoney reports, the BIS was one of the few global financial institutions to correctly warn of the 2008 credit bubble that brought us the Great Recession. Now the Switzerland-based BIS is warning that another bubble has formed in the bond market, the largest liquidity pool on the planet. The article goes on to note, Shifting out of bond and into hard assets like precious metals and undervalued real estate is the only logical course for investors.