Bailout could boost inflation, sink dollar
Oil and gold surged Monday as investors worried that huge new debts will harm US Treasury's credit standing.
A spike in the price of gold and oil was matched Monday by a fall in the US dollar and in stocks – all signs of unease as investors take a sober look at a mammoth government bailout of financial institutions.
Two big questions are weighing on investors:
First, will this bailout cost so much that it affects the creditworthiness of the US Treasury?
Second, will the bailout succeed in calming credit chaos and restoring health to the banking system?
In Monday's trading:
•Oil rocketed to nearly $121 per barrel, up $15 in a single day.
•Gold surged past $900 per ounce, a one-day jump of $43.
•The Dow Jones Industrial Average lost nearly 400 points, giving up the gains it made last Friday on the bailout news.
Oh, and last but not least, the dollar tanked.
"You've seen a fall in the trade-weighted dollar of about 2.25 percent today," says Paul Kasriel, director of economic research at the Northern Trust Co. in Chicago. "The markets have rendered a verdict of some sort."
Investors aren't so much revolting against the bailout as wondering what it all means.
Some may be concluding that, with rising US Treasury debt could come higher interest rates or inflation in the future.
Gold and commodities such as oil are hard assets, seen as a hedge against such a threat. Meanwhile, investors tend to shun the dollar in such a scenario.