2 June 2015

Liquidity Risks Growing

Those of you who follow the financial markets and read articles on the CelticGold website know that every week it seems more and more news stories surface about the growing dangers in the global economy.

Many of these dangers are present because of the continued massive intervention by the worlds Central Banks. Traders and investors are making trades almost exclusively on the policies of Central Banks. This is why everyone is piling into the same investments.

One of the issues that has come up in the past month or two has to do with liquidity. Since so many traders are on the same side of the trade what happens when everyone wants to sell? The answer of course is that not everyone will easily be able to exit their positions. 

Consider the Following Warnings:

  • Evaporating liquidity and higher US interest rates will cause huge market swings with potentially catastrophic consequences the Institute of International Finance warns. (Source: telegraph.co.uk 2015 May 4th)
  • When referring to the US Fed raising interest rates, former Fed Chairman Alan Greenspan said "Normalization is great, but the process of getting there is going to be very rocky." (Source: CNBC 2015 May 13th) 
  • Famed economist Nouriel Roubini, who predicted the 2008 financial crisis, recently said "Macro liquidity is feeding booms and bubbles, but market illiquidity will eventually trigger a bust and collapse.” (Source Business Insider 2015 June 1)

Expect High Volatility 

One of the important points to understand about today’s market environment is that when traders rely to much on Central Bank policies everyone crowds into the same sure bet trade, then it no longer becomes a sure bet. When everyone rushes for the exits at the same time it will create big moves in asset prices.

When interest rates start to move higher they may move higher very quickly. It will likely cause major moves in currencies and stocks as well. The whole idea that the Central Banks can exit low interest rate policies without causing major disruptions to the global economy is a complete fallacy.

This is the main reason to have your Gold position before the market disruptions begin. No one knows exactly how it will all play out, but the precious metals are one the best ways to preserve wealth during times of crisis and instability.

Author: celticgold.eu

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