Today the ECB held the Eurozone interest rate at 1.5% while softening its stance on inflation. At a press conference following the rate cut decision, ECB president Jean-Claude Trichet stated the obvious: “risks have intensified”. Trichet also admonished Greece saying “it would be an enormous mistake for Greece not to cut its deficit”.

Elsewhere Italian yields are up slightly and gold and the US dollar remain positively correlated.

Germany 10-Year Bonds at Record Low Yield

Bloomberg reports German 10-Year Yields Fall to Record Low After ECB; Italian Bonds Decline

German 10-year bund yields fell to a record low after European Central Bank President Jean-Claude Trichet said “downside risks” to the economy have intensified and inflation concerns had eased.

Italian bonds declined after the nation’s Senate approved a revised 54 billion-euro ($75.6 billion) austerity plan as the government seeks to convince investors it’s serious about cutting its deficit. French bonds gained as the ECB cut its euro-area economic growth forecasts for this year and next. The euro-region’s economy faces “particularly high uncertainty,” Trichet said at a press conference in Frankfurt after the ECB kept its benchmark interest rate at 1.5 percent.

Ten-year bund yields fell to a record 1.823 percent as Trichet spoke. Two-year notes dropped three basis points to 0.46 percent. They declined to an all-time low 0.417 percent Sept. 6.

Gold, U.S. Dollar Higher

Gold continues to react to events in Europe rather than the U.S. dollar or events in the United States.

The US dollar Index is 76.525, up 0.579 (+0.76%). Meanwhile gold is up $40.0 (+2.20%) to 1,854.9.

$HUI – Gold Mining Index

$HUI Gold Ratio

The $HUI is at a new all-time high but miners are cheap compared to the price of gold and also cheap relative to earnings of major miners such as Barrick Gold (ABX)

Barrick pays a dividend of 49 cents .90%.

For comparison purposes 3-year U.S. treasuries yield .33% and 5-year treasuries .87%.

Barrick could easily double its dividend and if it did so, Barrick would yield close to the 10-Year treasuries, currently 1.98%.


Mike “Mish” Shedlock
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