Weekly Economic Summary - October 8, 2010
OVERVIEW ~ September 27 through October 1 ~ The 10-year Treasury note continued a relatively gentle slide, ending at 2.528%, its rate easing in part due to the successful Treasury security auctions that resulted in low yields for the 2-year, 5-year and 7-year notes. The Dow Jones Industrial Average (DJIA), meanwhile, having jumped to 10860.26 on the prior Friday’s resilient investor optimism, stayed just below that level through the week, ending at 10829.68. The euro continued to climb against the dollar, with investors worried about the Fed’s hints it may purchase more Treasury securities, which could further weaken the dollar and invite slightly higher inflation. This also helped to inspire record prices for gold, which reached about $1317 by the end of the week. The average 30-year fixed rate for Freddie Mac, remained at 4.32%, and the HSH Associates computation (including jumbo rates) was unchanged a third week at 4.75%.
FOCUS ~ What are we to make of the rising price of gold? Gold futures ended this past week at an all-time high (nominally, but not if inflation is factored in). On Friday, the December contract (purchase price for gold that will be delivered in December) rose to a record $1317.80. Considering that an ounce of gold fetched $700 in 2007, it has been appreciating at a remarkably rapid rate: well over 300% in the last decade.
Rising values have generated still more rising values, as eager investors noted that the yield on an investment in gold far outstripped the minimal yields offered by bonds or even by shares of stock. But it is gold as a hedge against economic uncertainty that most attracts the global investor. Thus, when the Fed recently intimated that it may buy up greater amounts of Treasury securities to help keep rates low and to stimulate the economy, investors all over the world reacted to the possibility that the Fed’s purchases could reduce the value of the dollar against foreign currencies and produce a higher rate of inflation in the American economy. The investors turned, therefore, to what many consider the ultimate currency, gold.