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Monday, August 15, 2016

The Ultimate Bubble and the Mother of All Carry Trades



January 31, 2010 by · Leave a Comment 

By Ron Hera, GoldSeek

Among the many opinions expressed by billionaire investor George Soros over the course of the 2010 World Economic Forum in Davos, Switzerland was his statement on January 28 in an interview with Maria Bartiromo, host of CNBC’s Closing Bell, that “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment.  The ultimate asset bubble is gold.” New York spot gold closed at $1085.40 down $1.80, but the price of gold is not as much about gold as it is about the value of currencies, particularly the US dollar.

Since new currency is created through lending activity, very low or 0% US interest rates and government deficit spending are fueling a US dollar carry trade and monetary inflation in the US dollar resulting in rising asset prices and global speculation.  According to Zhu Min, deputy governor of the People’s Bank of China, “[The US dollar carry trade] is a massive issue; estimates are that it is $1.5 trillion, which is much bigger thanJapan’s carry trade.”  The close relationship of global commodity prices, particularly the gold price, to the value of the US dollar can be seen by comparing the changing value of the US Dollar Index to an inverted US dollar spot gold price chart.

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