Today’s AM fix was USD 1,591.00, EUR 1,213.39 and GBP 1,049.20 per ounce.
Yesterday’s AM fix was USD 1,608.50, EUR 1,228.80 and GBP 1,062.28 per ounce.
Silver is trading at $28.94/oz, €22.15/oz and £19.12/oz. Platinum is trading at $1,598.50/oz, palladium at $738.00/oz and rhodium at $1,200/oz.
Gold fell $16.80 or 1.04% yesterday in New York and closed at $1,597.10/oz. Silver slid to a low of $28.84 and finished with a loss of 1.4%.
After the fall of yesterday, gold recovered in Asian trading and traded over $1,604/oz prior to renewed selling sent prices below $1,600/oz again.
Gold rebounded on concern that automatic U.S. spending cuts that are due to take effect from tomorrow may hurt the recovery of the U.S., still the world’s largest economy.
More than $85 billion of across-the-board U.S. cuts start tomorrow for the current fiscal year, followed by a March 27 expiration of a funding measure for U.S. agencies.
This should support gold at the $1,600/oz level which is at an “attractive entry point for investors” according to an analyst at CITICS Futures, a unit of China’s biggest listed brokerage.
Chinese demand should support gold and the Shanghai Gold Exchange daily volumes for the benchmark cash contract have been more than double the average in 2012 since February 18, when it reached a record 22,024 kilograms, according to exchange data.
Gold is over 1% higher this week after US Federal Reserve Chairman Ben Bernanke defended the central bank’s asset purchases and currency debasement, in addition to the political turmoil in Italy after an election plus the renewed risk of contagion in the Eurozone led to a pickup in demand.
The ECB’s grand bond plan is now in jeopardy after Italian voters rejected EU conditions. Italy’s electoral earthquake is “a catastrophe for the euro and the European Union”, according to Luxembourg’s foreign minister, Jean Asselborn.
During the past four years, whenever the euro has declined significantly versus the US Dollar, German investors have fled to the safety of gold and been rewarded.
Historically, when the Euro has declined by 8% to 20% since the start of 2008, gold in local currency Euro terms has risen by 14% to 41%, compounded annually.
So far the majority of demand for gold in Europe has been from more conservative German investors and savers due to their knowledge and experience of inflation and hyperinflation.
As the Eurozone debt crisis escalates, demand will be seen across the European Union and not just in Germany.Courtesy: Goldcore
Gold & Silver Futures prices have been on a steady decline since sometime now. But ironically at the same time physical demand for Gold & Silver Bullion has been on a steady rise ever since the Q4 of 2012 & has picked up momentum in Jan when the US Mint had to actually stop sales in the American Eagles Silver Coins due to lack of inventory. If the need for Gold & Silver was actually weaning off, then why in the world were such large number of people in a mad rush to accumulate the metals? Movement points clearly to a manipulation in the Futures market, doesn’t it? Because only the futures market can be manipulated & no way can the physical market demand be controlled out of vested interests, except when in national interest. It would not be surprising in the least manner if some smart players (Manipulators) have been accumulating Gold & Silver after initiating the sell offs. While Indian consumers & Bullion dealers rushed to buy & accumulate Gold before import duty hikes & other curbs were imposed, Russia and Turkey were significantly adding to their bullion reserves. Another ironic development in the Gold & Silver Market has been a series of reactions on a single debatable Economic point. Ever since the minutes of the Jan FOMC meeting have been announced, Gold & Silver Futures have been hammered notably on a daily basis. The meaning (not the content) of the FOMC minutes of the Jan meeting also has been twisted, manipulated & broadcasted in a major way to serve the Sellers intent & after the crash, the other meaning of the minutes started doing the rounds. Gold & Silver Futures prices have been declining earlier & are now seen rising on the same debatable point, only serving the manipulators in the bargain. The FOMC minutes did not spell doom for Gold & Silver, as some people manipulated the meaning for the masses to think. The focus earlier was that the Fed can withdraw the Quantitative Easing (QE) in the very near future & this shook up the bullion market as the QE was a major reason for its fascinating rise in the last 4 years. The reasoning’s now doing rounds explain why the QE would yet go around for at least a year & that the US Federal Reserve cannot afford to withdraw it anytime soon. But by now the damage is already done & the blame of being responsible for the sharp negative movements too is squarely put on the FOMC minutes. For more clarification on the same read YES, Gold & Silver Market in a Bubble – The Short Sell Bubble
No Inflation? Is there anyone out there not paying more for energy, gasoline, health insurance, etc than just 6 months ago? Improving economy? Government-reported GDP for Q4, 2013 was negative. Housing is better? There are 133 million housing units in the US. 75 million are owner occupied and 40 million occupied on rent. That means there are 18 million vacant homes. 4.3 million are considered vacation homes and 3.9 million are available for rent. That means 9.8 million homes are vacant (data is from the Census Bureau). Is that a healthy housing market? Every month more people move onto Social Security disability and food stamps. Over 100 million people in this country receive Government entitlement payments. Healthy economy – is it? The Fed’s Balance sheet has a debt of over 4 Trillion & the National Debt of the US? The less spoken, the better. The illusion of Economy improvement may get stretched for some more time but then Inflation is bound to rise along. With spending cuts coming in sooner or later, the US Economy will go for a toss & so will risk assets like equities. Do you have any hedge option other than Gold & Silver?
The US Mint has recently implemented a series price increases for Gold, Silver, and Platinum numismatic products. Collectors who may have been hoping for the same at lower prices due to the price slides in the Precious Metals will surely be dismayed by this unusual situation. Prices for 21 products had remained unchanged, while the prices for three silver products were increased compared to the prior year. Specifically, the price for the America the Beautiful Five Ounce Silver Coins was increased by $15.00 to $244.95, the Proof Silver Eagle was increased by $3.00 to $62.95, and the Un-circulated Silver Eagles was increased by $3.00 to $53.95.
Earlier This Month, pricing was announced for the silver and clad composition 2013 commemorative coins. Price increases were included for each of the silver options and for one of the clad options. The proof silver dollars saw increases of $5 per coin compared to the prior year, and the un-circulated silver dollars saw increases of $6 per coin. Effective Today, the US Mint has adopted revised pricing grids for gold and platinum numismatic products. These products are priced under a flexible policy which results in adjustments as frequently as weekly based on the average market prices of the metals. The newly adopted grids reflect increases in the premium component for numismatic Gold Coins of as much as $80 for the Proof Gold Buffalo. The premium component for the Proof Platinum Eagle was increased by $108, reported coinupdate.
During the United States Mint’s most recently completed fiscal year, numismatic program revenue had fallen by 33.32%. Much of the decline could be attributed to lower sales for gold and platinum proof coins, which were down by 56.34% compared to the prior year. Despite the sales decline, the segment had remained steadily profitable with net margin of 12.01%. For the same fiscal year, silver product revenue had shown an increase of 16.49%. Net margin for this segment was rather robust at 32.69%. Silver product segment had generated more net income than any other numismatic segment. According to the United States Mint, a main objective of the numismatic program is to increase their customer base and foster sales while controlling costs and keeping prices as low as practicable.
Silver Prices have now traded sideways for around 16 months. The lower end of this trading range is $27.00/oz and the higher end is $35.00/oz. As of today the price stands at $29.33 having bottomed at $28.50, it’s taken 4 trading sessions of small but positive gains to reverse the downward spiral from $32.00/oz. Not much to write home about here, but it is encouraging that the carnage is showing signs that it might be over, for now at least. It could of course be a relief rally with more downside selling pressure waiting in the wings a little further down the track. Either way we are still a long way down from the heady days of $48.00/oz. On the positive side the latest pronouncements from Ben Bernanke helped both gold and silver to rally along with the stock market in general.
We have also had elections in Italy which appear to have resulted in gridlock with no political party able to govern without forming a coalition. The emergence of a clown known as Beppe Grillo has stunned everyone by capturing 25% of the vote. As we see it Italy will be back to the polling stations within 3 months in another attempt to resolve this situation. Also worthy of note was that the technocrat from Europe, Super Mario Monti, only managed to get 10% of the vote. This is a real blow to the policies of austerity and puts a question mark over Italy’s appetite to stay the course of reform and hardship. With debts 10 times the size of that of Greece it is difficult to see how a bailout for Italy could materialize and so the possibility of a default casts its dark shadow over the Eurozone.
Over in the UK we see that, not before time, their AAA status has been reduced which in turn will make borrowing a tad more expensive in future. This is something that the UK could do without as it is shouldering so much debt at the moment and it too continues to print more money. Back in the States the question of whether to impose sequestration or not has to be resolved by Friday, so all eyes will be focused on the outcome. However, even if it is implemented in full, it only slows the rate of spending; it does nothing to prevent the debt from climbing, said Bob Kirtley. In conclusion we can say that our political masters and administrators will continue to try and print their way out of trouble and sooner or later inflation will follow. Once it raises its ugly head paper currency will be recognized for what it is and the herd mentality will kick in via a rapid charge to the exit. At that point Gold and Silver Prices will be at new all-time highs and heading north. Technically the RSI and the STO in Silver charts have turned and are heading north from a very low level, so they have plenty of room to move to the upside. For now it is a case of sweating it out, doing the work and proceeding with great caution once you have identified an opportunity that fits your unique investment criteria.
India announced one of the most highly anticipated budgets in recent years, presented today by Finance Minister P. Chidambaram. India looks to rein in a bloated fiscal deficit and restore confidence in Asia’s third-largest economy. India raised the value of Gold that can be brought home from abroad by NRI’s (Non Resident Indians). A male passenger can now bring Gold worth 50,000 Rupees without paying any duty while a women passenger can bring Gold worth up to 100,000 for free. NRI’s have long demanded that the Indian government should levy the customs duty based on the weight of Gold instead of the value of Gold as rate of Gold will keep changing. However India reduced the amount of gold as the maximum permissible weight of Gold that can be imported has been reduced to 1 kg from 10 kgs. India introduced a 4% excise duty on Silver manufactured from smelting zinc or lead. India budget for 2013-14 acknowledged the fact that rising gold imports remained a major contributor to country’s widening Current Account Deficit (CAD). Mr. Chidambaram said the country needs to find a whopping $75 billion to finance Current Account Deficit. He also added that the CAD remains a major worry for country’s development and added that current year’s economic growth rate will be below India’s potential growth rate of 8%. Finance minister P. Chidambaram however did not raise import duty on Gold in his budget presentation as was widely expected. Chidambaram however introduced a 0.01% Commodity Transactions Tax (CTT) for Commodity Futures in a limited way from next fiscal year. He exempted Agro commodities from the CTT. The Finance Minister also introduced a string of reforms, opening India to wider foreign investment and cutting deficit-ballooning spending and subsidies to avert a damaging credit rating downgrade and boost corporate spending.
The Finance Bill 2013 proposes to introduce Commodities Transaction Tax (CTT) in a limited way, which is expected to deliver Rs.5000 crores (Rs. 50,000 Million) in government revenue. The Finance Minister P. Chidambaram said that CTT shall be levied on non-agricultural commodities future contracts at the same rate as on equity futures that is at 0.01% of the price of the trade. Gold, Silver, non-ferrous metals and Crude Oil will attract a 0.01% duty in Commodities Transaction Tax. The tax applies to buy side and sell side. The trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income. Mr. Chidambaram also said that there is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. Hence, it is time to introduce CTT in a limited way. However, agricultural commodities will be exempt. Some market analysts are of the view that this may have an impact on trading volumes.
Fiscal deficit seen at 5.2% of GDP in 2012/13
Fiscal deficit seen at 4.8% of GDP in 2013/14; revenue deficit at 3.3%
Faced with huge fiscal deficit,Indiahad no choice but to rationalize expenditure
Gross market borrowing seen at 6.29 trillion Rupees in 2013/14
Net market borrowing seen at 4.84 trillion Rupees in 2013/14
Short-term borrowing seen at 198.44 billion Rupees in 2013/14
To buy back 500 billion Rupees worth of bonds in 2013/14
Total budget expenditure seen at 16.65 trillion Rupees in 2013/14
Non-plan expenditure estimated at about 11.1 trillion Rupees in 2013/14
India’s 2013/14 plan expenditure seen at 5.55 trillion Rupees
Revised estimate for total expenditure is 14.3 trillion Rupees in 2012/13, which is 96 pct of budget estimate
2013/14 major subsidies bill estimated at 2.48 trillion Rupees from 1.82 trillion Rupees
Set aside 100 bln Rupees towards spending on food subsidies in 2013/14
Petroleum subsidy seen at 650 billion Rupees in 2013/14
Revised petroleum subsidy for 2012/13 at 968.8 billion Rupees
Estimated 900 billion Rupees spending on food subsidies in 2013/14
Revised food subsidies at 850 billion Rupees in 2012/13
Revised 2012/13 fertilizer subsidy at 659.7 billion Rupees
Proposes surcharge of 10 pct on rich taxpayers with annual income of more than 10 million Rupees a year
To increase surcharge to 10 pct on domestic companies with annual income of more than 100 million Rupees
For foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 pct to 5 pct
To continue 15% tax concession on dividend received byIndiacompanies from foreign units for one more year
Propose to impose withholding tax of 20 pct on profit distribution to shareholders
Amnesty on service tax non-compliance from 2007
10 billion Rupees for first installment of balance of GST (Goods and Services Tax) payment
Propose to reduce securities transaction tax on equity futures to 0.01 pct from 0.017 pct
Time to introduce commodities transaction tax (CTT)
CTT on non-agriculture futures contracts at 0.01%
India faces challenge of getting back to its potential growth rate of 8%
India must unhesitatingly embrace growth as highest goal
Expect 133 billion Rupees through direct tax proposals in 2013/14
Expect 47 billion Rupees through indirect tax proposals in 2013/14
Target 558.14 billion Rupees from stake sales in state-run firms in 2013/14
One-time Amnesty Scheme for service tax due from 2007
To set aside Rupees 9,000 crore as compensation to states for CST
To impose service tax on all AC restaurants
Nirbhaya Fund for women safety
TDS of 1% on land / property deals over Rupees 5 million
Import duty on luxury cars to 100% from 75%
Import duty on imported motor vehicles hiked
Import duty on set-top boxes to 10% from 5%
To reduce STT on equity futures, MF units
To continue with education cess of 3%
Food inflation is worrying, will take all steps to augment supply side
CORPORATE SECTOR AND MARKETS
Plans to issue inflation-indexed bonds
Proposes capital allowance of 15% to companies on investments of more than 1 bln Rupees
Foreign institutional investors (FIIs) can use investments in corporate, government bonds as collateral to meet margin requirements
Insurance, provident funds can trade directly in debt segments of stock exchanges
FIIs can hedge Forex exposure through exchange-traded derivatives
Investor with less than 10% stake in a company will be regarded as FII, more than 10% stake as FDI (foreign direct investment)
Stock exchange regulator will simplify know-your-customer norms for foreign portfolio investors
To implement quickly recommendations of financial sector legislative reforms commission
SMEs allowed to listed on MSME exchange without making a public offer
POWER AND ENERGY SECTOR
Proposes zero customs duty for electrical plants and machinery
Proposes to move to revenue-sharing from profit-sharing policy in oil and gas sector
To equalize duties on steam and bituminous coal to 2% customs duty and 2% CVD (countervailing duty)
To cut duty on exports of precious and semi-precious stones to 2% from 10%
To provide 140 billion Rupees capital infusion in state-run banks in 2013/14
Rs 2000 crore for Urban Housing fund
Regulatory authority for the road sector
Dedicated debt section in Stock exchanges
KYC of banks sufficient to acquire insurance policies
Insurance firms to open branches in tier iii cities with out IRDA approval
Rs 2000 crore for urban housing fund
Social security package for unorganized sector
14,000 crore for capital infusion for public sector banks
Social security package for unorganized sector
Banks to be permitted to act as insurance brokers
By Oct 2013 to get approval to constitute panel on transaction costs, financial policies
India’s first Women’s Bank as public sector bank; Rs 1000 crore as initial capital
Rs 14,000 crore to public sector banks for additional capital infusion to meet BASEL III requirements by March 2014
Public sector banks: 12517 crore – additional capital for banks by March 2013
To allocate 2.03 trillion Rupees to defense in 2013/14
To allocate 801.94 billion Rupees to rural development in 2013/14
Plan to allocate 270.49 billion Rupees for agriculture in 2013/14
FINANCE MINISTER COMMENTS
“Faced with a huge fiscal deficit, I have no choice but to rationalize expenditure. We took a dose of bitter medicine. It seems to be working.”
Commercial Gold mining has always been important in former Soviet Union nations, states an article published by the Alchemist, a quarterly journal from the London Bullion Market Association. Although 1997 to 1998 marked a low point for Gold production in a large number of these nations, since then, many — including those clustered in Central Asia — have rebuilt and are improving and expanding their Gold industries.
This region is home to the Tien Shan gold belt, which Central Asian Minerals and Resources (CAMAR) describes as one of the richest in the world. It spans over 2,500 kilometers, running through parts of Uzbekistan, Tajikistan, Kyrgyzstan, Kazakhstan and China, and contains numerous large gold deposits, including Muruntau, Kumtor and Konimansuri Kalon in Tajikistan, which reportedly contains over 50 million ounces.
Kyrgyzstan provides an excellent example of the economic benefits delivered by gold mining. It hosts the Kumtor gold deposit, currently owned by Centerra Gold (TSX:CG,OTC Pink:CAGDF). The company claims the titles of the country’s largest private-sector employer and the largest source of foreign investment.
The Kumtor mine, which produced 8.6 million ounces from 1997 to 2012, is one of the largest gold mines in Central Asia. Centerra’s 100-percent interest in the project is notable not only because of Kumtor’s size, but also because it is in the hands of western company.
However, there is some uncertainty about the future of that arrangement. The government has not only expressed concerns over the company’s tax payments, but also alleges that it has caused significant environmental damage. Five environmental claims issued in December for $150 million have now been followed by another environmental claim for $315 million. The Kyrgyz parliament has set a three-month deadline for the government to revise its 2009 deal with Centerra or terminate the arrangement unilaterally. Throwing more cold water on the situation, the mine was hit by a strike earlier this month.
Companies also have their sights set on neighboring Kazakhstan’s gold.
Central Asia Resources (ASX:CVR) states on its website that Kazakhstan is the only former Soviet Union nation to have fully privatized almost all gold companies and properties. The company is focused on gold and currently has five prospects. It recovered 181 ounces of gold from Dalabai, one of the prospects, last year.
Hambledon Mining (LSE:HMB,OTC Pink:HBMGF) began mining in Kazakhstan in 2008 and expanded from open-pit to underground mining. The company hopes to acquire Akmola Gold, which will bring into the group two deposits with combined resources of 440,000 ounces of gold.
Southern Cross Exploration (ASX:SXX) is reportedly prepared to spend $1.5 million to become part of a new company. Its motive in doing so is to get a 20-percent interest in three properties in Kazakhstan.
Turquoise Hill Resources (TSX:TRQ,NYSE:TRQ) owns a 50-percent interest in Altynalmas Gold, the owner of the Kyzyl gold project. Based on feasibility study results announced last year, its mineral reserve estimate is 5.76 million ounces of gold. Earlier this month, Turquoise Hill reached an agreement to sell its stake to Sumeru Gold for $300 million.
Uzbekistan is also endowed with Muruntau, the largest open-pit gold mine in the world. The Alchemist articles notes that about 50 MT of gold are produced from this site, which is operated by Navoi Mining & Metallurgy Combinat, a state-owned company.
Uzbekistan plans to develop about 30 gold deposits by 2025, according to Trend. Almalyk Mining and Metallurgical Combine has already reconstructed Kyzyl Olma and Kochbulak fields, which are now primary gold-producing sites. The state-owned copper producer is currently building another gold mine, with plans to spend an estimated $74 million on the project.
While Uzbekistan’s gold mining industry seems to be moving in a positive direction, there are some stories that those who considering investing in the country should consider.
One involves Newmont Mining (NYSE:NEM), which quickly zeroed in on the country’s gold sector after it gained independence. Newmont signed a joint venture with the government and mined there until 2006, when Uzbekistan decided to rid itself of the partnership. The government claimedthat Newmont had not paid taxes, according to media reports at the time. After the courts agreed, Newmont’s metal production was seized.
Uzbekistan’s strong-arm tactics are also highlighted in its dispute with Oxus Gold (LSE:OXS). The company held a 50-percent stake in Amantaytau Goldfields; it was partnered with two Uzbek companies. After the the government initiated an audit of Amantaytau, Oxus claimed it was an attempt to force liquidation below market value. This matter has required international arbitration.
Tajikistan is also a Central Asian gold producer and CAMAR is a company that is focused on this nation’s resources. The company has reported production of about 12,000 ounces of gold equivalent per year. The benefits that CAMAR outlines for operating in Tajikistan include exemption of foreign income tax for up to five years, liberalized interests rates and controlled exchange rate.
Zinjin Mining has also invested in Tajikistan. The company holds a 75-percent interest in the Zeravshan joint venture, with the government holding the remaining 25 percent. Zeravshan holds four mining licenses in Tajikistan. The land package reportedly contains 5.5 million ounces of gold.
A $189-million expansion project is currently underway at Zeravshan, but Zinjin has noted that completion is near. When the expansion is completed, the project’s capacity is expected to be about 10,000 ounces per day with 160,000 ounces of gold production each year.Courtesy: goldinvestingnews
Is the financial collapse of Italy going to be the final blow that breaks the back of Europe financially? Most people don’t realize this, but Italy is actually the third largest debtor in the entire world after the United States and Japan. Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does. That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity. The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated. When you combine their totals, they got more than 50 percent of the vote. Italian voters have seen what austerity has done to Greece and Spain and they want no part of it. Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months. Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart. This is creating quite a bit of panic in European financial markets right now. On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent. Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising. If Italy is now “ungovernable”, as many are saying, then what does that mean for the future of Italy? Will Italy be the spark that sets off financial Armageddon in Europe?
As you can see from the following excerpt from a Bloomberg article, the vote was very divided and the anti-austerity parties did much better than had been projected…
The results showed pre-election favorite Pier Luigi Bersani won the lower house with 29.5 percent, less than a half a percentage point ahead of Silvio Berlusconi, the ex-premier fighting a tax-fraud conviction. Beppe Grillo, a former comedian, got 25.6 percent, while Monti scored 10.6 percent. Bersani and his allies got 31.6 percent of votes in the Senate, compared with 30.7 percent for Berlusconi and 23.79 percent for Grillo, according to final figures from the Interior Ministry.
So what do those election results mean for Italy and for the rest of Europe?
Right now, there is a lot of panic about those results. There is fear that what just happened in Italy could result in a rejection of austerity all over Europe…
“I think the election results (or lack thereof) are a negative for the euro, which will likely keep the currency pressured for some time,” Omer Esiner, chief market analyst for Commonwealth Foreign Exchange, told me. But it’s not just the political uncertainty in Italy, he adds. “The shocking gains made by anti-establishment parties in Italy signal a broad-based frustration with austerity among voters and a decisive rejection of the policies pushed by Germany in nations across the euro zone’s periphery. That theme revives unresolved debt crisis issues and could threaten the continuity of reforms across other countries in the euro zone.”
Zero Hedge summarized some of the bad news out of Europe that we saw on Tuesday…
Swiss 2Y rates turned negative once again for the first time in a month; EURUSD relatively flatlined around 1.3050 (250 pips lower than pre-Italy); Europe’s VIX exploded to almost 26% (from under 19% yesterday); and 3-month EUR-USD basis swaps plunged to their most liquidity-demanding level since 12/28. Spain and Italy (and Portugal) were the most hurt in bonds today as 2Y Italian spreads broke back above 200bps (surging over 50bps casting doubt on OMT support) and 3Y Spain yields broke above 3% once again. The Italian equity market suffered its equal biggest drop in 6 months falling back to 10 week lows (and down 14% from its end-Jan highs). Italian bond yields (and spreads) smashed higher – the biggest jump in 19 months as BTP futures volume exploded in the last two days.
In fact, the UK was just stripped of its prized AAA credit rating. That was huge news.
And check out some of the other things that have been going on in the rest of Europe…
In Spain, a major real estate company, Reyal Urbis, collapsed last week, leaving already battered banks on the hook for millions of euros in losses. Meanwhile, the government faces a corruption scandal and a steady stream of anti-austerity demonstrations. Thousands of people took to the streets again on Saturday, protesting deep cuts to health and other services, as well as hefty bank bailouts.
Life is no better in a large swath of the broader EU. In Britain, Moody’s cited the continuing economic weakness and the resulting risks to the government’s tight fiscal policy for its rating cut. In Bulgaria, where the government fell last week and the economy is in a shambles, rightists who joined mass demonstrations across the country burned a European Union flag and waved anti-EU banners. Other austerity-minded governments in the EU face similar murky political futures.
And that is really bad news because Europe is already in the midst of a recession. In fact, according to the BBC, the recession in the eurozone got even deeper during the fourth quarter of 2012…
The Eurozone recession deepened in the final three months of 2012, official figures show.
The economy of the 17 nations in the euro shrank by 0.6% in the fourth quarter, which was worse than forecast.
It is the sharpest contraction since the beginning of 2009 and marks the first time the region failed to grow in any quarter during a calendar year.
But this is just the beginning.
The truth is that government debt is not even the greatest danger that Europe is facing. In reality, a collapse of the European banking system is of much greater concern.
Why is that?
Well, how would you feel if you woke up someday and every penny that you had in the bank was gone?
In the U.S. we don’t have to worry about that so much because all deposits are insured by the FDIC, but in many European countries things work much differently.
For example, just check out what Graham Summers recently had to say about the banking system in Spain…
It’s a little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.
So… when the newly formed bank goes bust, “poof” your savings are GONE. Not gone as in some Spanish version of the FDIC will eventually get you your money, but gone as in gone forever (see the above article for proof).
This is why Bankia’s collapse is so significant: in one move, former depositors at seven banks just lost virtually everything.
And this in a nutshell is Europe’s financial system today: a totally insolvent sewer of garbage debt, run by corrupt career politicians who have no clue how to fix it or their economies… and which results in a big fat ZERO for those who are nuts enough to invest in it.
Be warned. There are many many more Bankias coming to light in the coming months. So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding, potentially taking down the financial system with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening.
Like Graham Summers, I am extremely concerned about the European banking system. Europe actually has a much larger banking system than the U.S. does, and if the European banking system implodes that is going to send huge shockwaves to the farthest corners of the globe.
But if you want to believe that the “experts” in Europe and in the United States have “everything under control”, then you might as well stop reading now.
After all, they are very highly educated and they know what they are doing, right?
But if you want to listen to some common sense, you might want to check out this very ominous warning from Karl Denninger…
I hope you’re ready.
Congress has wasted the time it was given by the Europeans getting things “temporarily” under control. But they didn’t actually get anything under control, as the Italian elections just showed.
Now, with the budget over there at risk of being abandoned, and fiscal restraint being abandoned (note: exactly what the US has been doing) the markets are recognizing exactly the risk that never in fact went away over the last couple of years.
It was hidden by lies, just as it has been hidden by lies here.
Bernanke’s machinations and other games “gave” the Congress four years to do the right thing. They didn’t, because that same “gift” also destroyed all market signals of urgency.
As such you have people like Krugman and others claiming that it’s all ok and that we can spend with wild abandon, taking our fiscal medicine never.
They were wrong. Congress was wrong. The Republicans were wrong, the Democrats were wrong, and the Administration was wrong.
Congress is out of time; as I noted the deficit spending must stop now, irrespective of the fact that it will cause significant economic damage.
For the past couple of years, authorities in the U.S. and in Europe have been trying to delay the coming crisis by kicking the can down the road.
By doing so, they have been making the eventual collapse even worse.
And now time is running out.
I hope that you are ready.Courtesy: theeconomiccollapseblog
Today’s AM fix was USD 1,608.50, EUR 1,228.80 and GBP 1,062.28 per ounce.
Yesterday’s AM fix was USD 1,597.25, EUR 1,219.65 and GBP 1,052.07 per ounce.
Silver is trading at $29.13/oz, €22.32/oz and £19.33/oz. Platinum is trading at $1,611.00/oz, palladium at $736.00/oz and rhodium at $1,200/oz.
Gold climbed $19.30 or 1.3% yesterday in New York and closed at $1,613.90/oz. Silver surged to as high as $29.456 and ended with a gain of 1.2%.
Gold’s 1.3% gain yesterday was its biggest one-day gain in three months, as Federal Reserve Chairman Ben Bernanke’s defense of U.S. debt monetisation confirmed bullion’s inflation hedging appeal.
‘Helicopter Bernanke’ confirmed the Fed’s ultra dovish monetary policies are to continue which supported gold as a hedge against central banks’ cash printing.
Gold is trading flat today near a one and a half week high hit yesterday as Federal Reserve Chairman Ben Bernanke defended the U.S. ultra loose monetary policy.
The selloff in Gold ETFs in February underscores the weakness in gold sentiment among retail investors that has been prominent recently.
Our trading desk has never been so busy – on the sell side – as weak hands and lack of conviction buyers have engaged in panic selling.
However, the sell off’s genesis was again hedge fund and bank paper players on the COMEX many of whom still have large concentrated short positions.
February is set to be the weakest month in terms of Gold ETF outflows thus far, and the decline is set to exceed the 2.3 million ounces liquidated back in January 2011.
Total known gold holdings held by exchange traded funds worldwide include the SPDR, ETF Securities, ZKB, iShares, Swiss & Global, Central Fund, Credit Suisse, Source, New Gold, Sprott Gold, Deutsche Bank, Central Goldtrust, Claymore (now iShares), and Goldist.
It is important to note that despite the significant decline in gold holdings in January 2011, gold bottomed at $1,313/oz on January 27, 2011 and then embarked on its nearly 50% increase or $600 increase to record nominal highs above $1,900/oz.
World powers and Iran ended two-days of talks over the Islamic Republic’s disputed nuclear program with a pledge to hold further discussions at both technical and political levels, an Iranian official said.
The officials adjourned without an announcement on a proposal by the U.S. and its partners to ease some banking, petrochemical and gold sanctions if Iran curbs its atomic activities.
Jim Grant, astute monetary economist and respected author of the Interest Rate Observer said in a Bloomberg interview overnight that the dollar would crash and a new Gold Standard would be the end result of the U.S. Federal Reserve’s irresponsibilities.
Although the interviewer said that Grant’s remarks were inflammatory Grant said that it is important to examine our monetary affairs over the sweep of time.
“Over 100 years ago the U.S. Fed was founded and in 1944 at Bretton Woods they decided there would be no more Gold Standard but rather a U.S. dollar that was backed by gold. If you fast forward to the present we now have a full blown PhD standard where the former heads of Economic Departments are running federal institutions. Central Banks across the world are waging an all out struggle against the price mechanism which is going against Adam Smith’s invisible hand.”
A guest host said that no one in academia is calling for a Gold Standard and suggested it would result in a deflationary period for the U.S.
Grant disagreed and said that the Gold Standard is the only answer as it was monetary system good practice for the 100 years ending in 1914, whereas everything else since has been a “try out”.
Grant says that he expects more quantitative easing from the U. S. Fed, and likens their single mindedness to a doctor prescribing to a patient that is clearly overmedicated.
He notes, credit in the world is an infinite sum of numerous simultaneous equations. He notes that if humans knew how to allocate credit than the USSR would have been a success. Socialists unions over manipulating credit don’t work.
Therefore, just as central banks are continually try to print their way out of our current global debt crisis their manipulation is not working.Courtesy: Goldcore
Here’s Bernanke’s list of the costs/risks associated with further asset purchases, and his assessment about the severity of those risks:
1. On the cost that concern about exit will undermine long term inflation expectations: In Bernanke’s words, “the committee remains confident that it has the tools necessary to tighten monetary policy when the time comes to do so”. He points to recent inflation trends which remain subdued, and to inflation expectations which remain well anchored in Bernanke’s view.
2. On financial stability risks: The Fed’s longstanding view is that monetary policy is too blunt a tool to deal with potential mispricing of risk in various asset markets and instead these concerns should be addressed through supervisory channels. Bernanke appears to cling heavily to this view. He notes in his testimony that the Fed has substantially expanded its monitoring of the financial system. The Fed’s approach to supervision of financial firms has also taken a more systemic perspective since the crisis. Bernanke acknowledges that a long period of low rates could encourage excessive risk-taking, but concludes that the potential costs outweigh the benefits of promoting a stronger recovery and more rapid job creation.
3. On the risk of future capital losses and their implication for the federal budget: Bernanke acknowledges, in-line with recent Fed studies, that asset sales in a rising rate environment could lead to a period of capital losses. This, in turn, may force the Fed to suspend remittances to the Treasury, which could have an adverse impact on budget projections. Bernanke downplays these concerns and suggest that the Fed’s activities have to be viewed holistically. He notes that even in the case of sharply reduced remittances to the Treasury in future years, total remittances during the entire balance sheet expansion will have been larger than during the pre-crisis period. He also underscores that better economic outcomes will ultimately improve the budget situation, implicitly arguing in favour of further asset purchases rather than against them.
Leaning against fiscal restraint
Bernanke also warns that the sequester could impose additional near-term burden on the recovery. He cites the CBO’s estimate that it will contribute to 0.6% of fiscal drag this year. This is on top of the drag from tax increases that went into effect on Jan 1. In the context of the fiscal tightening currently underway, Bernanke does not seem to be in a hurry to scale back QE in the near future.
* * *
Of course, none of the above commentary from SocGen does nearly enough justice to Bernanke’s response to Senator Shelby whether the Fed’s record balance sheet has ever been higher: “there are other central banks whose balance sheets have been this large, such as Japan.”
Well, since it worked for Japan.
Finally this, which the market may want to pay attention to: Bernanke says there may be ‘frothiness’ in some asset classes.Courtesy: Zerohedge
Indian & Chinese Gold consumers kept up their bargain-hunting for Gold Bars, Gold Coins and Gold Jewelry after Gold Prices slumped to a 8 month low last week. Gold and Silver seem poised for a Price Rally on signs of increased demand in India, China & as political turmoil in Italy after an election spurred haven demand. Initial results in Italy suggested the election may end in a divided parliament. Such an outcome may have induced safe-haven Gold and Silver bullion buying. Italy may require another vote after partial election results suggested the four-way race may end in a divided parliament. Gold Bullion’s discount to Platinum narrowed. With Silver prices down close to $28.50 & Gold price down to $1,555.55 on Feb. 21, the lowest since July 12, seem to have triggered fresh rally hopes for Bullion Investors. Daily volumes for cash benchmark Gold Bullion of 99.99% purity on the Shanghai Gold Exchange have been more than double the average in 2012 since Feb. 18, when it reached a record 22,024 kilograms, according to exchange data. The re-emergence of physical buyers in China following the Lunar New Year celebrations was an encouraging sign. The China Securities Regulatory Commission issued a new regulation allowing Gold ETFs – exchange-trade funds in January, which expands the channels for investors to buy the metal. India Gold Demand rose as traders & consumers rushed to buy Gold as prices seemed attractive & also on expectations that the Finance Minister may add more curbs on Gold Import or buying in the Union Budget to be announced on Feb 28.
Central Banks bought 77.3 tons of Gold Bullion in 2010 & 456.8 tons in 2011. Central banks are expected to again be strong buyers this year after they boosted purchases 17% to 534.6 tons last year, the most since 1964, according to the London-based World Gold Council. Total investor holdings in Gold ETPs stood at 2,560.097 tons on Feb. 22, down 2.8% from a record reached on Dec. 20. Data from the International Monetary Fund showed the central banks of Russia and Kazakhstan raised Gold Reserves in Jan. Russia and Kazakhstan expanded Gold Reserves for a fourth straight month in Jan, while Azerbaijan acquired bullion for the first time in more than three years, as central banks sought to diversify their assets. Russian holdings climbed 12.2 metric tons to 970 tons last month after gaining 8.5% over 2012. Kazakhstan’s Gold Reserves grew 1.5 tons to 116.8 tons, following last year’s 41% expansion, data on the IMF website showed.Azerbaijan’s holdings rose 1 ton, the first gain since May 2009, when it held 64 ounces.
US Federal Reserve Chairman Ben Bernanke faces the first of two days of congressional testimony that will subject the Fed’s controversial bond-buying program to tough scrutiny and gauge his confidence in the resilience of the US Economy. Coming just a week after the Fed’s meeting minutes sent Gold & Silver in a tailspin & U.S. stocks reeling by suggesting the central bank could pull back its economic stimulus earlier than had been expected, and a day after another sharp stock market drop, investors are certain to hang on every word. Beginning with the U.S. Senate Banking Committee today, Bernanke will be quizzed by some bitter critics of the aggressive steps he has championed to spur growth. On Wednesday, he will appear before the House Financial Services Committee. His opinion remains that there is still not enough growth, that high unemployment is a cyclical issue, that there is not enough inflation. Now that is amazing. Lawmakers in both chambers will seek his comment on the likely impact of $85 billion in across-the-board government spending cuts that are set to take effect on March 1. He is also expected to be grilled on his bold bond- buying program, which has tripled the size of the central bank’s balance sheet to $3 trillion since 2008. Bernanke is likely to repeat his line that the indiscriminate axe they take to the budget will hurt the recovery, and argue that it would be better to cut the deficit over time and avoid the risk of a near-term fiscal shock, reported Reuters. The Gold & Silver markets are keen to find out where Bernanke stands.
Gold Price cycle has probably turned as the recovery in the US Economy gathers momentum and investment holdings collapse, according to Goldman Sachs Group. Goldman Sachs cut its three-month target to $1,615 from $1,825 and lowered the six- and 12-month forecasts to $1,600 and $1,550 from $1,805 and $1,800. Goldman reversed an assumption, Gold ETP holdings will expand in 2013. “The turn in the gold cycle has likely already started,” the Goldman analysts wrote in the report, after predicting an end of Gold’s Bull Run in a Dec 5 note. “The latest collapse in Gold ETF holdings stands in sharp contrast to our assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading.” – Bloomberg.
Raw commodities & metals have never been at currently seen prices at this time of the year ever. Yet you see most Central Bankers & Finance Ministers repeatedly claim that Inflation is low & in fact going down. Do you agree to this claim? Why are Central Banks buying Gold Bullion then? Are you paying any lesser for Food, medication, insurance, clothing, fuel or education than you have been paying a couple of years ago or is it that these costs have escalated much more than the normal annual pace seen for a long time? In recent years strong global demand for food and bio-fuels has been pushing crop prices higher. The drought has helped & not hindered farmer’s profits. For farmers able to produce corn (maize), it raised prices dramatically. The average price of corn was about 20% higher last year than in 2010, and reached $8.49 a bushel (25kg) in August. This year, according to a report from the USDA on February 11th, farm profits may rise by 14% to $128 billion, the highest in real terms since 1973. Historically, creating money to monetize national debt & financing wars by borrowing money have always given birth to very high Inflation. The recent and ongoing creation of trillions of fiat dollars through multiple Quantitative Easing programs to provide a stimulus to the Economy which is being followed by the Currency Wars is a sure shot formula to achieve Hyperinflation. Although there are many warning signs, when hyperinflation finally strikes, it strikes suddenly, so it’s imperative to prepare before it’s too late. Investing in Gold and Silver earlier is the best way for individuals to protect their capital. There can be several hurdles imposed by Governments on owning or trading in Gold & Silver as Inflation accelerates to higher levels. Higher slabs of Profit tax, Higher Value added Tax, Added Import or Export limitations among many others may come into effect as Inflation rises. Imposing new curbs on Gold in faster succession is already being seen in India, but this is just the tip of the proverbial iceberg. When hyperinflation itself kicks in, there are two more extreme actions the federal government might take: gold and silver confiscation, as happened in the US in 1933, or a return to the gold standard. In the event of a return to the Gold Standard, the value of bars and modern bullion coins would be fixed by the government.
Some Central Banks like BoJ now want Inflation to rise & their wish may soon be fulfilled. Ordinary inflation precedes hyperinflation. Many politicians, Fed governors & economists also say that inflation is low and under control. One needs to understand that most currencies are undergoing a major devaluation, read Currency Wars – A Race to the Bottom. Central Banks are consistently buying Gold since 2010 since they know that this mindless money printing will on fine day explode into a massive currency devaluation leading to an uncontrollable hyperinflation. Ordinarily, Central Banks fight Inflation by increasing Interest Rates which tends to slowdown the economic growth and gives investors alternatives to buying Gold & Silver as inflation hedges. With US Debt now above $16 trillion and the need to constantly borrow money to make debt payments, it’s virtually inconceivable that the US Federal government would allow interest rates to rise. The other alternative would be to devaluate the US Dollar. This worsening scenario can take sometime to reach its peaks but by that time, strong emerging nations like China, India, Russia, etc would be comfortably out of huge US Dollar reserves by exchanging it for more Silver & Gold Reserves. Supported thus, by that time, Gold & Silver prices would have reached sharp new highs but how much an individual could own or hold remains to be seen as new rules & curbs get imposed.
What can be bought using leverage must eventually be sold. Traders who buy Gold and Silver Futures cannot profit from the rising prices until they sell. So, sooner or later, they must sell. Alternatively, if the price goes down, they must sell because they are incurring losses at a multiple of the price drop due to their use of leverage. Nearly all buyers of futures are only speculators & not investors generally. They could be called “naked longs” because they have neither the intent nor the means to take delivery. Their predictable behavior when a particular contract heads into expiry has a characteristic behavior. One can see this happening in the Gold and Silver many times & especially now. Naked longs must sell the expiring contract, and if they wish to remain long in the metal, they must buy another farther-out or next contract. Right now, for example, we are in the late stages of “rolling” from the March Silver Futures contract to May. In the short run, this can have an enormous impact on the price but almost none in the long run. The largest chunk of these speculators do not read important & price movement influencing news or data & are mostly unaware of why price swings are seen or what is driving the prices in a particular direction – the fundamentals. They simply enter markets on their own notions of the “right price” & the “right time.” They don’t even look at the price measured in US Dollars. They are using another currency, such as Rupees. These traders rarely have access to the right knowledge or advisory. These are the people that also can be categorized as “Penny wise & Pound Foolish.” They try & save on buying right knowledge which comes at a fraction of the amounts involved in the trade, while many a times opting for free advise. Some of the more tech savvy ones take a look at the available charts on the net, form their own opinions of the right & wrong & start applying the same to the trade. While technical knowledge does form an important part of the trade, longer term price direction is rarely determined by the same. Fundamental knowledge plays the major role in determining this but individual traders may most of the times be unaware of where to look for the same as there is no single point of know-how for the same. Speculative trade entry may certainly end in loses most of the times but if these entries are fundamentally driven, they create Wealth.
Silver longs fell to the lowest levels since August & the number of total Gold speculative short positions now stands at the greatest level since 1999. With near-record short positions on Gold, a potential short covering on Gold Bullion may lead to higher prices. The potential for a short-covering rally in Silver is much higher, should a catalyst emerge to support prices also based on the fact that much of the concentrated net shorts are in the March Silver Futures contract which expires in a couple of days. One potential catalyst for covering would also be if remarks from Federal Reserve Chairman Ben Bernanke should be construed to mean policy-makers were staying the course of Quantitative Easing. Another potential catalyst may come on Feb 28 from India– the world’s largest Gold consumer. India may impose additional curbs on Gold imports or add taxes & levies on its way to keep a check on its bloating Current Account Deficit which, if unchecked, could lead to a potential credit rating downgrade. The government’s move to hike the customs duty from 4 to 6% will have a loud impact on the Bullion sector. The hike sums up to around INR 60,000 (approx) per kilogram of gold. To be clear, with this duty hike a difference of 7% between the international and domestic price of the yellow metal is evident. Due to this, the increase in duty on the actual price of gold is being passed on to the retail consumers by the jewelers. This may also lead to rise of illegal channels and malicious activities with respect to importing gold and related products like jewelry etc., in the country. Gold Demand in India has seen a rise in Dec 2012 & then again now based on the same fears.
Today’s AM fix was USD 1,592.50, EUR 1,201.89 and GBP 1,051.85 per ounce.
Friday’s AM fix was USD 1,580.00, EUR 1,196.15 and GBP 1,034.78 per ounce.
Silver is trading at $29.27/oz, €22.14/oz and £19.41/oz. Platinum is trading at $1,631.50/oz, palladium at $749.00/oz and rhodium at $1,175/oz.
Gold rose $3.60 or 0.23% on Friday in New York and closed at $1,580.50/oz. Silver gained 0.28%. Gold fell 1.77% this week while silver slipped 3.49%.
Gold climbed in Asia, pulled back and then continued higher in Europe. Investors remain wary over the Italian election result and the risk of contagion to the monetary union.
Exit polls will be published around 1400 GMT. What will it mean for the euro remains to be seen, but gold bullion stayed above the 7 month low hit last week.
Russia and Turkey both increased their gold holdings for a second consecutive month in January, data from the IMF highlighted on Friday, continuing the trend for central banks to diversify their reserves.
HSBC releases a survey on China’s manufacturing sector at 0145 GMT; this sector hit a 2 year high last month.
The Nikkei soared to over a 4 year high on Monday after sources named Asian Development Bank President Haruhiko Kuroda, a strong supporter of aggressive quantitative easing as the next central bank chief. Cheap money rather than healthy economic growth is leading to stock market gains.
This week’s U.S. economic highlights include the Case-Shiller 20-city Index, FHFA Housing Price Index, New Home Sales, and Consumer Confidence on Tuesday, Durable Goods Orders and Pending Home Sales on Wednesday, Initial Jobless Claims, GDP, and Chicago PMI on Thursday, and Personal Income and Spending, Core PCE Prices, Michigan Sentiment, the ISM Index, and Construction Spending on Friday.
Hedge funds cut bets on a rally in gold by the most since 2007 which is bullish from a contrarian perspective as weak hands are shaken out of the market.
Less informed speculators are being knocked out of the market while the smart fundamentals driven money again accumulates with a focus on the long term.
Hedge funds and other large speculators reduced their net-long position in gold futures and options by 40% in the week ended February 19th to 42,318, the biggest drop since July 31, 2007, U.S. Commodity Futures Trading Commission data show.
Global holdings of exchange-traded products backed by Gold tumbled 1.6% last week, the most since August 2011, after minutes of a Fed policy meeting showed several officials said the central bank should be ready to vary the pace of their monthly bond purchases.
The pound weakened against the dollar, the euro and especially gold as currency markets reacted to Moody’s decision to downgrade Britain from AAA citing “continuing weakness in the UK’s medium-term growth outlook” and concerns over massive debt levels in the UK.
Market reaction has been muted with bonds reasonably firm and the FTSE higher. However, the move was already priced in. What is not priced in is a series of cuts which seem very likely given the appalling finances in the UK.
This will lead to weaker gilts, higher borrowing costs for the UK, inflation and a continuing fall in the pound against gold.
Gold is nearly 2% higher in sterling so far in 2013 after the 2.2% gain in 2012 and 10.5% gain in 2011.Goldcore
When forecasting the future price of Silver from a fundamental perspective, it can make sense to review the basic principles of economics and behavioral science as they apply to the Silver Market.
These principles typically relate to factors that are driving higher future purchasing power of Silver or factors that are making silver more valuable as a wealth saving asset. Other key contributing factors to silver’s currently undervalue pricing tend to block awareness with respect to the true value of silver.
When the prevailing silver market manipulation by the relative few shorts is eventually overcome by the common sense of the much larger horde of private investors, the market for silver will revert back to the fundamental principles that have been driving the price of silver higher for years.
The interplay of the following economic and behavioral principles is underpinning the silver market and should eventually push Silver Prices higher:
Regardless of price, metallic silver has strategic importance in industrial and medicinal applications for which it cannot be readily replaced. Nevertheless, only a small per unit supply is needed per use since tiny amounts are needed to keep production lines flowing.
The supply of silver does not readily respond to changes in its price since limitless paper silver can be created to manipulate the price of the physical metal.
This is the tendency among investors to make judgments regarding the frequency of an event on the basis of how easily they can recall related instances. This primarily unconscious strategy helps people simplify their investment choices by reviewing the examples they already have ready access to within their memories.
When applied to demand, this principle indicates that a market move in silver will be initiated by only a small number of early players or the hinting of confidence loss in paper currencies.
Humans tend to look for complicated solutions when simpler ones are available. This simplicity principle suggests that the hypothesis that requires the fewest assumptions should be chosen. It’s no complex conspiracy that banks are allowed to have access to manipulative positions, where they profit as a result.
The following factors seem to be blocking awareness of underlying pricing factors like the true value of silver, the depth of the ongoing financial crisis, and the need for diversification outside of dollar denominated assets:
The slow bumpy nature of the decline in the economy allows for excuses to be made based on the normalcy bias, which is a state of mind people often enter when facing a disaster. This bias causes people to underestimate the possibility of the disaster and its effects, and it typically results in their inadequate preparation for the disaster,
Most people truly believe that things cannot really be all that bad or that the economy is simply undergoing a downturn within a typical business cycle, which will end soon enough. They also tend to believe that governments cannot go broke and that printing money can lead to real economic growth.
The insidious nature of inflation, which is both thievery and a tax on the common person, tends to allow it to creep up on investors gradually over time, so they typically do not prepare their portfolios adequately for this hidden cost.
Thomas Malthus postulated that unchecked population growth would prevent the creation of a Utopian society. The “Malthus was Wrong” fallacy, also known as the “Myth of Progress” has become the belief that humanity is necessarily on an “upward” trajectory regardless of how many people are fighting for exponential growth at the expense of the world’s clearly finite resources, and silver is one of those valuable items in finite supply.
Ultimately, perceiving the need to immediately prepare for a coming or worsening economic crisis comes down to playing the “What happens next?” game.
Furthermore, investors need to remain realistic with respect to the time frames involved.
They also need to understand that just because they were comfortable yesterday, does not mean they will be better off tomorrow. Preparing for the worst makes sense so that you can be pleasantly surprised if the future turns out to be brighter.Courtesy: silver-coin-investor
If there is a Bubble in the Gold and Silver Market, it is the Short Position Bubble which could after a point, breakout violently up. The Gold and Silver Futures market has become just a virtual market where prices of these Precious Metals is equal to just the margin cost due to the leveraged trading formats of the Exchanges. This virtual Gold and Silver Futures market bears no resemblance to the real unleveraged, demand / supply oriented physical market. The virtual market was designed to assist the physical market for a better price discovery but of late seems to move against the very fundamentals of its cause. The Bullion Banks take complete advantage of this leveraged trade format to manipulate the markets at will & the daily morning “short sell” hammering carried on without a hitch to create the Perfect Storm. These Banks do realize that they can never control the underlying fundamentals of the physical markets & therefore will be the first to turn buyers after creating the bearish storm & convincing the weaker individuals to be net sellers for some time to come. After all, the markets will need sellers when these manipulators turn buyers. There have to be sellers when one needs to buy something, without which there cannot be a transaction. There will also be a need for a large number of passionate sellers & so the need to totally crush the upside sentiment in Gold & Silver was born. The “Perfect Gold and Silver Market Storm” thus got initiated. Once the masses are completely convinced that Bullion have had a long run up & now need to be sold at each rise to achieve gains, they turn to be passionate sellers. That is then the birth of a seller at each & every rise, who will one day realize that he is doomed by these acts, albeit too late. If not the weak individual, then who would be an easier target to manipulate? The Gold & Silver physical market demand was on fire since December when India rushed to buy Gold to avoid a looming import duty hike. There were severe real-time shortages also (remember the American Eagle Silver Coins sale was stopped for over 10 days due to shortage under excessive demand) & Central Banks in 2012, bought the highest ever record amount of Gold Bullion ever bought in the previous 50 years. Physical demand is the most important factor for prices to rise based on the demand / supply fundamentals. Despite massive demand, the Gold and Silver Market crashed. Have you given a thought to the reasons behind this ridiculously weird outcome? It’s simply Big Time Manipulation – A Bubble.
Moreover, irrespective of what individual governments claim, the global economy is expected to slump. The latest IMF report confirms the same. ECB President Draghi last week said the Eurozone economy may remain weak for the first quarter but is soon expected to pick up. But several reports this week showed conditions in many parts of the Euro area are deteriorating. The US claims its economy is getting back on track, which too will soon prove to be an illusion. The slow bumpy nature of the decline in the economy allows for excuses to be made based on the normalcy bias, which is a state of mind people often enter when facing a Disaster. This bias causes people to underestimate the possibility of the disaster and its impacts, and it typically results in their inadequate preparation for the Disaster. In addition, most people believe that things cannot really be all that bad or that the economy is simply undergoing a downturn within a typical business cycle, which will end soon enough. This thought process occurs not because it is a fact based on knowledge of the happenings, but born out of keen desire for wellness & also out of trust that the nation is in safe, knowledgeable & logical hands. They also tend to believe that governments cannot go broke and that printing money can lead to real economic growth, because it is money what is needed for more growth. The common man does not realize the rise in Inflation because it generally does not shoot up to excessively large proportions in a very narrow time period. The realization comes in very late when money market movements lessen & liquidity gets tightened as an impact of high inflation. Perceiving the need to immediately prepare for a coming or worsening economic crisis needs to be at top priority, especially when things appear good & calm. Times change fast & so do circumstances – more so & even quicker in today’s manipulated times.
The meaning (not the content) of the FOMC minutes of the Jan meeting also has been twisted, manipulated & broadcasted in a major way to serve the Sellers intent & after the crash, the other meaning of the minutes is doing rounds. The FOMC minutes did not spell doom for Gold & Silver, as some people manipulated the meaning for the masses to think. The focus earlier was that the Fed can withdraw the Quantitative Easing (QE) in the very near future & this shook up the bullion market as the QE was a major reason for its fascinating rise in the last 4 years. The reasoning’s now doing rounds explain why the QE would yet go around for at least a year & that the US Federal Reserve cannot afford to withdraw it anytime soon. But by now the damage is already done & the blame of being responsible for the sharp negative movements too is squarely put on the FOMC minutes. The FOMC did discuss possible reasons why they might want to end QE4 earlier. An important clip from the minutes goes like this:
“A few participants expressed concerns that the current highly accommodative stance of monetary policy posed upside risks to inflation in the medium or longer term.”
“In this regard, several participants stressed the economic and social costs of high unemployment, as well as the potential for negative effects on the economy’s longer-term path of a prolonged period of underutilization of resources. However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability.”
Does this give a clear signal to the market that the quantitative easing will end earlier? No. One important statement which was towards the end may have been completely missed out is:
“One member dissented from the Committee’s policy decision, expressing concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
This makes it all the more clear that although several members had expressed concerns in the discussion, when it came down to voting on the actual policy, only a single member dissented. The rest all agreed that QE should continue as agreed earlier till unemployment remains a greave concern & above the expected target of 6%. There are a lot of things that get discussed generally but that does not mean that they will be acted upon immediately without serious thought about the consequences of the actions. The truth is that tapering the QE size would make the US Economy anemic & withdrawing the same would eventually kill the economy as the US is now addicted to the easy money supply & cannot think of life without it. The Fed discussing these problems is certainly significant, but all you know, they could just ignore the issues. The occurrence of the discussion simply means there’s could be just a possibility that at some point the concerns could become more serious and then turn into action & not necessarily happen. And moreover – That action hasn’t taken place yet, nor is the FOMC planning it. So while the discussion in the meeting may warrant a temporary weakening in Gold & Silver Prices, it certainly shouldn’t have resulted in such a major landslide decline. So what may have triggered the slump, but manipulation which had an easy & perfect start in the previous week where global trading volumes were highly thin with most of Asian markets being closed for the entire week?
Anyways, what should have ideally caught the eye are a few line as mentioned below:
“In 2014 and 2015, real GDP was projected to accelerate gradually, supported by an eventual lessening of fiscal policy restraint, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy.” “The staff continued to project that inflation would be subdued through 2015. That forecast is based on the expectation that crude oil prices will trend down slowly from their current levels, the boost to retail food prices from last summer’s drought will be temporary and relatively small, longer-run inflation expectations will remain stable, and significant resource slack will persist over the forecast period.”
This is amazing analysis & forecast by the Fed. If growth in the economy is actually seen as the Fed expects, then shouldn’t the Fed forecast rising Crude Oil prices to match growing demand? Crude Oil prices will actually rise & so will Inflation – the byproduct of rising oil prices. The Fed expects Inflation to actually remain subdued while economy is rising while being based on excessive monetary infusions? Do all the three points go together?
The Silver Futures Market ceased being a physical market long ago when the overall short position became dominated by just a few bullion banks. Whether these players control 25% or 50% of the net shorts, this concentration influences the paper price of Silver. The price of Silver will ultimately be driven by premiums, which are ultimately determined by demand at the retail level. The recent downward corrections in Silver Prices make it look like the Silver Market is being pushed off a cliff by the concentrated shorts in order to influence the perception spectrum of retail investors. These downward moves do not seem to consist of reality-based corrections, because the price of Silver was never too high. The price was just too high for the concentrated shorts and so it needed to be muscled lower. As confidence is lost in the futures market and shortages develop at physical metal dealers and scrap flows drop because they have already been panned out, an industrial panic will compete for the large (1000 ounce) Silver Bar supply, said Dr. Jeffrey Lewis. When the prevailing Silver Price Manipulation by the relative few shorts is eventually overcome by the common sense of the much larger horde of private investors, the market for Silver will revert back to the fundamental principles that have been driving Silver Prices higher for years. Although the deep-pocketed bullion banks seem unlikely to cover their shorts quickly, a speculative buying panic will move money into each and every physical or derivative form of Silver that exists. Margin raising, coordinated dumping and halting futures trading would not stop the Silver Price Rally, once the market’s perception of Silver shifts along the spectrum from fear, disinterest and disdain towards curiosity, interest, action and finally — Greed.
Greater the movement seen, greater the greed will get. Moreover on an average, Silver rises higher and falls further than Gold & amid much higher volatility, which was a fact & will also remain true. Physical Silver investors may not feel much of an impact but futures market traders must be able to stomach the bigger moves, regardless of the direction. If you have a tendency to get emotional about your trades, you should reduce your exposure to futures, especially in Silver. The soon to be seen movements in Silver can be breathtaking most of the times & one must be prepared emotionally to handle the volatility. Tendency to think in terms of “Too Much” should be avoided. The “Too Much” for you may be ‘Almost Nothing Yet” for someone else. Never forget that you are in a global market & do not have the means or know how to measure the capacities of someone far away & also unknown to you. Set your own realistic goals & abide by it. One thing for sure – the Silver Ride promises a super adrenaline rush.
Today’s AM fix was USD 1,580.00, EUR 1,196.15 and GBP 1,034.78 per ounce.
Yesterday’s AM fix was USD 1,568.50, EUR 1,189.34 and GBP 1,030.96 per ounce.
Silver is trading at $28.65/oz, €21.80/oz and £18.81/oz. Platinum is trading at $1,611.50/oz, palladium at $731.00/oz and rhodium at $1,175/oz.
Gold climbed $12.30 or 0.79% yesterday in New York and closed at $1,576.90/oz. Silver surged to a high of $28.88 and finished with a gain of 0.53%. Euro gold climbed back to €1,196/oz and platinum lost $32.50 to $1,613/oz.
Gold recovered on Friday, adding to gains yesterday on news that the US Economy is still faltering and concerns that the U.S. Fed’s QE will continue despite assertions to the contrary.
The U.S. economic growth stalled in Q4, and the jobless rate rose up to 7.9% this January.
Investors will look for clues in Bernanke’s testimony before the U.S. Congress on Tuesday and Wednesday. However, the fiscal cliff drop is still dangerous as the U.S. government will embark on spending cuts, debt limits and the U.S. Fed has every reason to keep its stimulus package in place.
Smart money bought the dip yesterday, especially in China where premiums in Shanghai were nearly $20/oz over market prices.
In the Eurozone, the EU commission said today that Europe will not recover until 2014.
Fearful investors continued liquidating positions in ETFs like SPDR Gold Trust, which saw its largest one day fall in positions yesterday in the past year and a half.
GoldCore Insight – Currency Wars: Bye Bye Petrodollar – Buy, Buy Gold
Currency wars are probably one of the greatest risks posed to the wealth of nations today.
In September 2010, Guido Mantega, Brazil’s finance minister, warned that an “international currency war” had broken out, as governments around the globe peg their currencies and devalue their currencies against each other.
His comments were echoed by senior Russian and Chinese officials.
The G20 said last week that there would be no currency wars and some central bankers such as the ECB’s Mario Draghi have recently dismissed talk of “currency wars” as excessive.
Sir Humphrey, the wily civil servant in ‘Yes Prime Minister’, always stressed how important it was “to never believe anything until it is officially denied.”
Competitive currency devaluations are in effect a continuation of currency debasement. Debasement is simply the devaluing of one’s currency or money. In ancient and medieval history it used to be done through the clipping of gold and silver coins.
Today it is done through excessive money creation through the printing of, and indeed the electronic creations of billions and billions of dollars, pounds, euros and other fiat currencies. Indeed, today central bankers are creating billions and billions of electronic money simply by pressing a few buttons on a computer.
Currency wars are set to deepen as most industrial nations in the western world are close to insolvent and look on the verge of recessions – potentially deep ones.
The fiscal situation of the U.S., the largest economy in the world, is appalling with the national debt having increased from $5.7 trillion in 2000 to over $16.5 trillion today.
Besides the U.S. national debt of over $16.5 trillion, the U.S. has off balance sheet debt or unfunded liabilities of between $70 trillion and $100 trillion.
The U.S. will never be able to pay these debts back and so it will attempt to inflate them away through currency devaluation. This poses risks to the global reserve currency status of the dollar – especially as the world moves to a multi polar world where India, Russia, Brazil and China exert their increasing economic and political power.
XAU/GBP Currency – (Bloomberg)
This is why it is important to consider the energy money nexus and to look holistically at the world of energy and money as Chris Sanders has done in this interesting insight.
Currency wars and the threats posed to the U.S. dollar as the global reserve currency of the world, make owning physical gold essential to all who wish to preserve wealth in the coming years.
We do not endorse the opinions of guest contributors but where we find an argument interesting and potentially valuable to our clients and the public in helping to protect and grow wealth we share it.
Click here in order to read GoldCore Insight – Currency Wars: Bye Bye Petrodollar – Buy, Buy Gold
Is the US Economy about to experience a major downturn? Unfortunately, there are a whole bunch of signs that economic activity in the United States is really slowing down right now. Freight volumes and freight expenditures are way down, consumer confidence has declined sharply, major retail chains all over America are closing hundreds of stores, and the “sequester” threatens to give the American people their first significant opportunity to experience what “austerity” tastes like. Gas prices are going up rapidly, corporate insiders are dumping massive amounts of stock and there are high profile corporate bankruptcies in the news almost every single day now. In many ways, what we are going through right now feels very similar to 2008 before the crash happened. Back then the warning signs of economic trouble were very obvious, but our politicians and the mainstream media insisted that everything was just fine, and the stock market was very much detached from reality. When the stock market did finally catch up with reality, it happened very, very rapidly. Sadly, most people do not appear to have learned any lessons from the crisis of 2008. Americans continue to rack up staggering amounts of debt, and Wall Street is more reckless than ever. As a society, we seem to have concluded that 2008 was just a temporary malfunction rather than an indication that our entire system was fundamentally flawed. In the end, we will pay a great price for our overconfidence and our recklessness.
So what will the rest of 2013 bring?
Hopefully the economy will remain stable for as long as possible, but right now things do not look particularly promising.
The following are 20 signs that the US Economy is heading for big trouble in the months ahead…
#1 Freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.
#2 The average price of a gallon of gasoline has risen by more than 50 cents over the past two months. This is making things tougher on our economy, because nearly every form of economic activity involves moving people or goods around.
#3 Reader’s Digest, once one of the most popular magazines in the world, has filed for bankruptcy.
#4 Atlantic City’s newest casino, Revel, has just filed for bankruptcy. It had been hoped that Revel would help lead a turnaround for Atlantic City.
#5 A state-appointed review board has determined that there is “no satisfactory plan” to solve Detroit’s financial emergency, and many believe that bankruptcy is imminent. If Detroit does declare bankruptcy, it will be the largest municipal bankruptcy in U.S. history.
#6 David Gallagher, the CEO of Town Sports International, recently said that his company is struggling right now because consumers simply do not have as much disposable income anymore…
“As we moved into January membership trends were tracking to expectations in the first half of the month, but fell off track and did not meet our expectations in the second half of the month. We believe the driver of this was the rapid decline in consumer sentiment that has been reported and is connected to the reduction in net pay consumers earn given the changes in tax rates that went into effect in January.“
#7 According to the Conference Board, consumer confidence in the U.S. has hit its lowest level in more than a year.
#8 Sales of the Apple iPhone have been slower than projected, and as a result Chinese manufacturing giant FoxConn has instituted a hiring freeze. The following is from a CNET report that was posted on Wednesday…
The Financial Times noted that it was the first time since a 2009 downturn that the company opted to halt hiring in all of its facilities across the country. The publication talked to multiple recruiters.
The actions taken by Foxconn fuel the concern over the perceived weakened demand for the iPhone 5 and slumping sentiment around Apple in general, with production activity a leading indicator of interest in the product.
#9 In 2012, global cell phone sales posted their first decline since the end of the last recession.
#10 We appear to be in the midst of a “retail apocalypse”. It is being projected that Sears, J.C. Penney, Best Buy and RadioShack will also close hundreds of stores by the end of 2013.
#11 An internal memo authored by a Wal-Mart executive that was recently leaked to the press said that February sales were a “total disaster” and that the beginning of February was the “worst start to a month I have seen in my ~7 years with the company.”
#12 If Congress does not do anything and “sequestration” goes into effect on March 1st, the Pentagon says that approximately 800,000 civilian employees will be facing mandatory furloughs.
#13 Barack Obama is admitting that the “sequester” could have a crippling impact on the U.S. economy. The following is from a recent CNBC article…
Obama cautioned that if the $85 billion in immediate cuts — known as the sequester — occur, the full range of government would feel the effects. Among those he listed: furloughed FBI agents, reductions in spending for communities to pay police and fire personnel and teachers, and decreased ability to respond to threats around the world.
He said the consequences would be felt across the economy.
“People will lose their jobs,” he said. “The unemployment rate might tick up again.”
#14 If the “sequester” is allowed to go into effect, the CBO is projecting that it will cause U.S. GDP growth to go down by at least 0.6 percent and that it will “reduce job growth by 750,000 jobs“.
#15 According to a recent Gallup survey, 65 percent of all Americans believe that 2013 will be a year of “economic difficulty”, and 50 percent of all Americans believe that the “best days” of America are now in the past.
#16 U.S. GDP actually contracted at an annual rate of 0.1 percentduring the fourth quarter of 2012. This was the first GDP contraction that the official numbers have shown in more than three years.
#17 For the entire year of 2012, U.S. GDP growth was only about 1.5 percent. According to Art Cashin, every time GDP growth has fallen this low for an entire year, the U.S. economy has always ended up going into a recession.
#18 The global economy overall is really starting to slow down…
The world’s richest countries saw their economies contract for the first time in almost four years during the final three months of 2012, the Organisation for Economic Co-operation and Development said.
The Paris-based thinktank said gross domestic product across its 34 member states fell by 0.2% – breaking a period of rising activity stretching back to a 2.3% slump in output in the first quarter of 2009.
All the major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have already reported falls in output at the end of 2012, with the think tank noting that the steepest declines had been seen in the European Union, where GDP fell by 0.5%. Canada is the only member of the G7 currently on course to register an increase in national output.
#19 Corporate insiders are dumping enormous amounts of stock right now. Do they know something that we don’t?
#20 Even some of the biggest names on Wall Street are warning that we are heading for an economic collapse. For example, Seth Klarman, one of the most respected investors on Wall Street, said in his year-end letter that the collapse of the U.S. financial system could happen at any time…
“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter. The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments. “(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.”
So what do you think is going to happen to the U.S. economy in the months ahead?Courtesy: theeconomiccollapseblog
Gold and Silver trades again got hammered sharply lower in the early morning US market trading hours as has been the norm for quite sometime now. The Gold and Silver Market extended these loses & hit a fresh 8 month low in the afternoon following bearish FOMC minutes from a month old report, while bonds got sold instantly & the US Dollar soared above its 200 DMA. Gold and Silver were already down sharply as rumors swirled that a large commodity hedge fund had been forced to liquidate its holdings, which triggered a broad sell-off in industrial commodities led by crude oil. The FOMC minutes indicated that the Fed might have to slow or stop buying bonds before seeing the pickup in employment the program was designed to deliver. There are yet several reasons that the Fed will not stop the money printing process any time soon. Gold and Silver Price declines before the Fed actually starts tapering off or stopping the QE is as good as selling the fact & buying the rumor. This incessant slam down of Prices has sent the Gold and Silver Bulls reeling & now huddled up in a corner. The Gold and Silver market seems cowed down with complete Bearish sentiments. Is the US Fed, through its several means & ways, suppressing Gold and Silver Prices to display the strength of the US Dollar & that the massive QE programs dealt out over 4 years are not devaluing it? Is the Fed trying to maintain a show of strength in the Petrodollar to keep buyers of US Debt queuing up? The Big Banks also could be a part of the Big game plan to manipulate the Bullion market for as long as it can or needed. If these views are true, then there will be a double whammy effect to be dealt with later.
The truth is that weak trading volumes in the Gold and Silver Futures markets last week as most of Asia was on a holiday, gave the bears a chance to exploit the condition to the best of their ability & later this week, the momentum & the FOMC minutes did the rest of the damage. Negative US data was not even noticed. Housing starts fell sharply in January while wholesale costs rose last month for the first time in four months. The Gold and Silver price manipulators may be able to drive down futures prices for sometime but will not be able to control the physical market demand for Bullion. May be that is why many people have been shifting focus from the uncertain & manipulation-prone Futures Markets to physical buying. The trust in Gold and Silver has not at all diminished – in fact has been rising with a vengeance, as proven by the supply shortage in Silver coins seen recently. There has been a steady rise in Gold Demand from India, Russia, China & other emerging markets. Central Bank Gold Bullion buying has shot to a 50 year high in 2012. Stock Markets have been steadily rising & currently are above the pre-crisis levels, simply helped by large sums of money printed out of thin air, which indicate that piling up debt can return huge dividends of prosperity. The gap between Illusion & Reality is widening as what is seen, is getting further far away from the truth or what should ideally be. But sooner or later, there will be a time when only fundamentals would matter & nothing else would help.
The FOMC at its January meeting decided to continue buying $45 billion a month of Treasuries and $40 billion in mortgage debt without setting a limit on the duration or total size of the purchases. Policy makers also affirmed their pledge to keep the target interest rate near zero “at least as long” as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%. The US Federal Reserve signaled it may consider slowing the pace of asset purchases as officials extended a debate over whether record Monetary Easing risks unleashing Inflation or fueling asset-price bubbles.
Why is the Fed worried of the prospective rise in Inflation now? The Fed has defended its QE initiatives repeatedly for 4 years insisting that Inflation will not be a point of concern at all. Obviously, as Inflation picks momentum, Gold and Silver would be top gainers, but the US Dollar would also be the top loser.
Several participants at the Jan 29-30 meeting of the FOMC “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes of the gathering released yesterday.
The prices of Crude Oil have been on the rise for quite some time now & with each Dollar rise in Oil prices means lower GDP. Gold and Silver should have been on the upside run but Bullion Prices have conveniently been suppressed by vested interests. Rise in Crude Oil Prices should ideally trigger monetary tightening by the Central Banks.
Policy makers in December started debating when to halt bond buying that has pushed the Fed’s assets to more than $3 trillion, prompting warnings by some officials that the program will complicate an eventual withdrawal of stimulus. The minutes show “tapering is a likely outcome at some point in the future,” said Hanson, a former Fed economist. “If you taper the purchases, it allows you to calibrate how the market reacts to your actions without having to go cold turkey.”
The minutes released yesterday didn’t indicate a discussion about when to end quantitative easing. Most analysts still believe the core voting members of the Federal Open Market Committee, led by Bernanke, firmly back the asset purchase policy. So the Fed will be continue adding $85 billion of liquidity each month for at least the rest of 2013 which may help stock markets in elevating prices of paper investments even higher, right till markets again get unstable to a point of total collapse. There is always a rising potential for a violent correction when asset prices are powered higher though the underlying facts & fundamentals are deteriorating at an even faster pace. As for Gold and Silver, they are bound to rise anyways, in fact exponentially in every currency that devaluates fast. Historical analysis of the technical “Death Cross” formation in Gold Charts shows that Gold Prices actually rebound substantially after sharp dips in the weeks following the formation.
A number of officials said that their evaluation of costs and benefits of the policy “might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred. Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor-market outlook had occurred. The minutes said “many participants” expressed concern about “potential costs and risks arising from further asset purchases.” Several discussed “possible complications” that additional purchases could have as the Fed begins to exit the policy, a few mentioned inflation risks, and some mentioned risks to financial stability. The minutes said that the committee would conduct a review of quantitative easing at the March 19-20 meeting. Fed officials are also considering new ways to present economic projections in their public communications. Many participants expressed interest in using their quarterly projections to convey information about future asset purchases and the Fed’s balance sheet. The Fed chairman and his principal allies remain concerned about the economic outlook.
The minutes clearly show a Fed whose thinking on the conduct of monetary policy is constantly changing and a committee that is far less unified than at any other time in the past few years. The Fed’s 3 rounds of Quantitative Easing have played an essential role in the record-breaking Gold Price rally in recent years due to the inflation-hedge appeal of Gold which attracted investors. Currency debasement as a result of rampant cash printing by central banks has been the main driver of higher Gold Prices. But the sentiment started to shift from late last year when illusions of US Economy recovery started emerging, raising doubts on the necessity of large-scale Quantitative Easing and cooling sentiment in Gold and Silver. Unemployment is yet very high in the US & Eurozone still has significant economic challenges as well which seem to increase despite Government claims that things are improving – Just Illusions created by vested interests. Stock markets & Prices of raw commodities – both have been on the rise with the rising liquidity in markets. With each addition of monetary infusion done every month & each passing day, the Fed will find it more difficult to turn the QE tap off. The markets have become addicted to easy money & it has more or less become a lifeline by now, which if tapered will make the economy anemic & if cut off, will kill the economy.
So what should the Fed do now – Simple, Kill the Dollar! Multiple objectives will be achieved with one action.
BUT what about Gold and Silver – Oh, They will be close to the sky by then – for the holders of US Dollar.
On Tuesday, President Obama said the Republicans would be at fault if the $1.2 trillion spending cuts take effect and cost the jobs of emergency personnel. Republicans fought back by seeking to portray Obama as the mastermind of the spending reductions, known as the sequester, thereby making him responsible for any damage they cause to the military and the economy. The sequester is the result of a summer 2011 deal between Obama and Congress that was designed to be so distasteful that it would compel lawmakers to agree on a broader framework to tame federal borrowing. That hasn’t happened. And with no recent communication between the White House and congressional Republicans, much of Washington seems resigned to the cuts taking effect March 1. Macroeconomic Advisers, an independent economic group, said Tuesday that sequestration would cost 700,000 jobs and push the unemployment rate a quarter of a percentage point higher than it otherwise would have been.
Unemployment rise thus added will thereby keep QE firmly in place. Gold and Silver will again get supported on their way up.
Comex Gold extended declines amid heavy selling pressure & sharply slumped further to $1590 today, with Silver Prices following the slump to $29.13. MCX Gold Apr futures have declined sharply to Rs. 28,706 – a level not seen in the past 8 months. MCX Silver Mar futures too followed the downside trend & have hit Rs. 54,210 by the time of writing. Gold & Silver Futures trades on the Comex ended the session yesterday at lower levels on more technical selling pressure in the in Gold and Silver Market. Gold, used by investors as an inflation hedge and a safe haven against economic uncertainty, fell 3.5% last week for its biggest weekly drop since May 2012. Minutes from the US Federal Reserve’s FOMC meeting have been market-movers for the past few months & the Gold and Silver Market await the announcement of the minutes of the Jan 29-30 meeting today, looking for new cues. Gold may decline more if the minutes show the US Federal Reserve continued a discussion from its December meeting over whether Quantitative Easing may either slow or stop well before the end of 2013. The Gold and Silver Market seem oversold on the basis of reliable technical indicators & the downside too has been over extended for the short term. A bout of short covering or profits booking rally cannot be ruled out, which leaves Gold and Silver vulnerable to near-term consolidation and witness some modest upside correction. The resurgence of risk appetite over the past month has seen a general clearing out of net-long Comex Gold speculative positions to August 2012 levels, as investors seem positioned for ‘the-worst-is-over’ scenarios. Rising Equity Markets and a general “feel-good environment” in the US has led speculators to increase short positioning. The sharp extension in Gold and Silver short positioning increases the likelihood of a short-covering rally in the near term. Also some bargain buying may have returned as indicated by the all time high record Gold Trading volumes of over 22 MT on the Shanghai Gold Exchange Monday as market participants returned from Chinese New Year holidays. This bargain hunting could have enabled Gold Prices to stabilize around the $1,600 region.
As alerted of in my earlier articles, Silver has finally hit the strong support of $29.20 & this level seems to hold. But if breached, could drag Silver all the way to $25. Any further weakness in Gold below $1621 could lead to the strong flooring around $1540. Technically, an ultra-bearish formation on Gold Charts suggests a further pullback could be on the way as a steadier global economic outlook and fading concerns about inflation reduce the investment appeal of bullion. On Tuesday, spot gold was on the brink of forming a “Death Cross,” when its 50-day moving average broke below its 200-day moving average. The most recent death cross formed on April 12, 2012, and Gold Prices dropped $150, or nearly 10%, in the following 25 days. The need for Gold as a currency hedge, widely advocated by prominent hedge fund managers such as John Paulson, has significantly lessened as a chaotic break-up of the Eurozone appears less likely at least for now. The latest industry data showed that investors have turned more bearish. Managed money’s futures and options net length, or their bullish bets, fell to their lowest since December 2008, the CFTC’s Commitments of Traders report showed on Friday. For the day, Comex Gold could see a slump to $1589 & then $1578, while Comex Silver – only on a breach below $29 could crash towards $28 but finally to $25.
A large sudden upside may add to the chart damage incurred recently, especially in Gold. But modest rises with small & short daily movement range may just be the signs of consolidation leading to a massive & a violent reaction by the Gold and Silver Market on key events lined up anytime in the very near future. Strong trending markets can remain in oversold conditions for days or even weeks before exploding upside. Ironically, Rallies in Gold Prices to $1648 or further to $1687 may be seen as opportunities to sell by traders or investors influenced by the idea that Global Economy is actually improving & is set on the upside. Only beyond these levels will traders realize they have missed a huge opportunity.
The threat of Inflation is so far removed from investor concern, while deflation is more of a worry for investors and central banks, and that’s what’s hurting Gold and Silver. Did it occur to anyone that Crude Oil Prices have been rising steadily? That is one of the biggest factors which lead to higher Inflation eventually. Macro-economic fundamentals suggest potentially attractive entry levels in Gold and Silver, as global financial markets remain awash with liquidity while global interest rates are expected to remain extremely low for quite sometime to come. How much long do you think before Gold and Silver make a violent comeback? Physical demand for Gold and Silver has been on the rise since Dec of 2012 & Central Banks have bought their biggest ever chunk of Gold in 2012. Remember – Futures prices will eventually follow the Physical market trend & never the other way around. I had mentioned in one of my earlier posts that Gold imports into India surged 23% to 100 tons in January (the highest in 18 months), the head of the leading trade body here said, as traders snapped up supplies ahead of a hike in duty by a government struggling to rein in its import bill. Well – Indian traders are again rushing to buy Gold on worries the government may take more steps to curb soaring imports of the precious metal when it presents its budget later this month on 28 Feb. I have also alerted of expecting more import curbs in yesterday’s article: Will more Import Duty Hikes curb India’s Passion for Gold?
“Most people in the market are concerned about policy changes in the budget,” said a Mumbai-based dealer. “Some sort of measures to curb gold imports can be there, that’s why bullion players, especially jewelers, are increasing their stock levels.” Gold Market participants will closely watch India’s budget for fiscal year 2013 – 14 which could reveal more measures to discourage Gold Bullion imports by the top consumer. Gold Trading volumes hit an all time high record of over 22 MT on the Shanghai Gold Exchange Monday. China, the world’s second-largest gold consumer after India, has been actively buying since its markets reopened on Monday after a week-long Lunar New Year holiday during which gold dropped more than 3%.
There’s been a growing debate over Japan’s move to devalue its currency to stimulate growth, with reaction from the G-7 leaders stating that “domestic economic policies must not be used to target currencies,” reported Reuters. While the G-7 tried to legitimize the currency debasement with this statement, in reality, it is easy to be able to see through to the real motivations. Late last year,Japan’s new leader, Prime Minister Shinz? Abe, openly indicated his intention to drive down the currency to make the economy more competitive and increase Inflation. As a result of Japan’s policy changes, the yen weakened, driving up the price of gold in Japan’s local currency. A gold investor in Japan is likely to be ecstatic with his Gold Investment over the past few months. The chart below compares the percentage change of gold in the Japanese yen to the metal’s percentage change in U.S. dollar terms over the last six months. From the middle of August 2012 until about November, gold prices in both currencies closely followed each other. However, as a result of changes in government policies, over the six-month period, gold rose nearly 19% in yen, while only increasing less than 1% in U.S. dollar terms.
During short-term gold corrections, it’s much more important to focus on the facts, including the fact that gold is increasingly viewed as a currency, said Frank Holmes. Emerging market central banks have been adding gold to their reserves, including Mexico,Brazil, the Philippines, South Korea and Russia. Over the past decade, Russia has accumulated a total of 958 tons of gold, making its gold reserves the eighth largest of all central banks, says the World Gold Council.
“It is great to see Gold Sovereign coins being introduced back into India for the first time in almost 100 years. This will no doubt be a boost for The Royal Mint as they re-enter the largest gold market in the world.”
British Prime Minister David Cameron
Today sees potential history in the making, with the announcement of a new partnership between The Royal Mint and MMTC-PAMP India to strike The Royal Mint’s gold Sovereign commemorative coins in India for the first time in nearly a century.
This significant development, revealed today in New Delhi, will allow the Indian public to purchase genuine versions of the Sovereign, one of the world’s most famous coins and a lasting symbol of beauty and integrity. These commemorative Sovereigns, struck in India by MMTC-PAMP using tools and techniques developed by The Royal Mint in South Wales, UK, will be uniquely available to the Indian market and will carry the special mint mark “I” to show that they have been manufactured there.
India is the largest market in the world for gold, and the gold medal market is estimated at c.80 tonnes by GMFS. Gold coins play a key role in Indian wedding ceremonies and festivals throughout the year, so The Royal Mint’s decision to license the striking of their flagship coin to MMTC-PAMP India is likely to be a popular one. Residents of India have been unable to buy genuine commemorative Sovereigns since 1918, when The Royal Mint operated a branch mint in India for a single year during which a staggering 1,300,000 Sovereigns were struck.
This new agreement will seek to re-establish The Royal Mint brand and the iconic Sovereign in this major market. This will allow the Indian public to buy an authentic UK commemorative Sovereign specially minted in India for the first time in almost 100 years. This should have long term benefits to the Indian public and to the integrity of The Royal Mint brand and the Sovereign itself.
“As the oldest manufacturing organisation in the UK and the world’s leading export mint, we are delighted to be entering another exciting chapter in The Royal Mint’s 1100 year history. This partnership with MMTC-PAMP India will introduce genuine commemorative Sovereigns back into the Indian market, satisfying significant demand for the coin, and allow The Royal Mint to develop a new revenue stream”.
Mr Mehdi Barkhodar, Chairman of MMTC-PAMP and Managing Director of PAMP SA said:
“The return of the authentic Royal Mint commemorative Sovereign to India has been a much-anticipated event. The Indian consumer deserves nothing but the best, however, until now their only option was to buy replica Sovereign coins. Therefore, I have no doubt that the re-emergence of the highly-prized authentic Sovereign coins will be warmly welcomed by those wishing to purchase the genuine article for their wedding or special occasion”.
Featuring the same classic Benedetto Pistrucci ‘St George and the Dragon’ design as the Sovereigns struck in India in 1918, striking of the 2013 Indian Sovereign has commenced in MMTC-PAMP India’s world class facility near Delhi. The first production run will be for 50,000 pieces and will be available in the market from today.
“The Sovereign is the oldest traded commemorative coin that is still manufactured today and is also the most precisely specified gold coin. Its quality and specification is protected by the annual Trial of the Pyx; at over 750 years old the oldest quality control process still being used today. The commemorative coins struck in India will go through this quality process in the same way as all UK coins. This opportunity allows The Royal Mint to enter the largest market in the world for gold”
These Gold Sovereigns will be available for sale to customers in India, initially at select jewelry outlets in Delhi and subsequently pan-India through MMTC-PAMP India’s distribution network and selected banks.Courtesy: The Royal Mint.
India’s total Gold Imports in January this year surged 23% to 100 tons, the highest in 18 months, as traders stocked up ahead of the duty hike by a government struggling to rein in its import bill, according to the Bombay Bullion Association. The massive cache of shipment clearly undermined the government’s efforts to curb imports. A purchase of 100 tons in one month is around 40% more than the monthly average. This has got the government worried once again. Indian Gold Demand could rise nearly 12% to as much as 965 tons in 2013 as per the World Gold Council report last week. Imports accounted for almost all the 864 tons of Indian Gold Demand. A further rise in import duty seems very much likely. Indian Gold Futures traded on the MCX have fallen nearly 2% so far in 2013. Despite the higher duty, local Gold Prices have gone down due to the drop in overseas prices as well as the rise in the Rupee against the US Dollar. India’s undying passion for Gold has got the government worried especially since around 20,000 tons is reportedly lying unused with Indian households. The government wants to make physical Gold buying unattractive. India’s passion for Gold, seen by many as a hedge against persistently high Inflation, means Gold Bullion comes second only to Crude Oil in the import bill of Asia’s third-largest economy. Much of rural India, however, lacks adequate banking to offer alternative investment options, keeping gold popular. Less than 10% of the total number of villages in India has banks, an MMTC (Minerals and Metals Trading Corporation) official said & as reported by Reuters. Gold Demand in India seems sluggish as buyers postponed purchases expecting further sharp drop in Gold Prices. India’s government may further raise import duties on Gold or put a cap on purchases in a bid to rein in the Current Account Deficit in the 2013/14 budget, an official with the biggest state-run gold importer – MMTC said. The government had already hiked import duties by 2% to 6% on Jan. 21 to discourage higher Gold imports. The Government of India may cap imports, impose a fresh set of duties or cut the number of companies authorized to import gold if purchases have not slowed down by the time it announces the 2013/14 budget on Feb. 28. The Reserve Bank of India, had earlier indicated it could limit Gold imports by banks, which corner about 60% of supply. MMTC’s Gold purchases this fiscal year were down to around 30-40 tons from last year’s 160 tons.
India posted its second highest ever monthly trade deficit of $20 billion in January as imports surged to record highs, piling pressure on a widening current account deficit and limiting scope for the central bank to cut interest rates. The January trade deficit was the second worst on record. The worst figure was $21.9 billion posted in October. The RBI – Reserve Bank of India warned that future rate cuts would depend upon declines in both the current account deficit and inflation after it cut interest rates by 0.25 percentage points last month. Imports rose 6% to $45.58 billion, their highest ever monthly total. Imports of crude oil, the single biggest item, rose 6.9% from a year ago to $15.9 billion. The oil import bill is definitely a challenge, but for a growing economy, energy needs have to be met. The Reserve Bank of India is worried that India’s ability to fund its rising current account deficit is becoming increasingly stretched, and could lead to fresh pressure on the Rupee, which in turn could hike up Gold Prices in India if it starts weakening again. The high current account deficit is unsustainable as it can’t be funded for a long time with capital flows and it will get adjusted through the exchange rate. The exchange rate will depreciate when the correction happens. Portfolio inflows into India have been robust, with $8.34 billion so far this year after inflows of $31.41 billion in the whole of 2012. “Consumption cannot be stopped in India,” said Minawala, of the All India Gems and Jewelry Trade Federation. “Irrespective of all the measures that the government brings on, imports could touch 850 to 950 tons this calendar year,” he added.
In an attempt to curb physical Gold Demand & boost Gold ETFs, India’s securities regulator, Securities and Exchange Board of India (SEBI) has allowed Gold ETFs – Exchange Traded Funds to invest in GDS – Gold deposit schemes offered by banks. The move would also bring additional returns to Gold ETFs allowing them to beat their benchmarks. The total investment in GDS cannot exceed 20% of the total assets under management of any scheme. SBI, which launched a gold deposit scheme sometime ago, offered 1% interest on deposits of longer duration. Assuming fund houses use up the entire 20% limit prescribed by SEBI, it would result in up to 10-20% gains for investors even if banks pay just 1% interest. Analysts said the move was in line with India’s efforts to cut down gold imports and also to utilize idle assets of the precious metal for more productive purposes. A panel by the RBI has estimated that about 20,000 tonnes of idle gold is lying with the people. The Reserve Bank of India aspires to channelize the idle Gold Bullion for productive purposes and also check the demand for imports. As per SEBI guidelines, before investing in GDS, mutual funds would have to put in place a written policy related to the investment with due approval from the Board of the Asset Management Company and the Trustees.
Residents lined up in banks waiting to purchase the commemorative coins of the Year of Snake in Shaoxing, Zhejiang, on Jan 9, 2013. The Central Bank issued 80 million coins with a face value of 1 Yuan. Each resident is only allowed to purchase two. The commemorative coins can be circulated in the currency market with the same denomination as ordinary 1 Yuan coins. China’s central bank, The People’s Bank of China has issued a series of commemorative coins to mark the 2013 Year of the Snake. The program includes 8 Gold Coins, and 7 Silver Coins across a variety of sizes and shapes, with two primary designs. The inscriptions include the title of the PRC and the “2013? date. The reverse design which is used across eleven different coins includes a depiction of a snake against a background with a decorative snake pattern. The inscriptions include “Gui Si” (Snake) in Chinese and the legal tender denomination.
David P. Goldman / Spengler, “the world’s most brilliant intelligence service,” discusses in this exclusive interview some of his thoughts on various aspects related to gold. Inter alia, he explains why he supports a commodity price rule for monetary policy that is connected to the yellow metal.
David P. Goldman, in our view one of the most outstanding and relevant essayists of this time and age, has been in the past the global head of the fixed income research department at Bank of America (2002-2005) and global head of credit strategy at Credit Suisse (1998-2002). In addition, he worked in senior positions at Bear Stearns, Cantor Fitzgerald, and Asteri Capital. Today he runs the consulting service Macrostrategy.
During the 1980s, he served Norman A. Bailey, then Director of Plans of the National Security Council of the United States. From 1994 to 2001, Goldman was a columnist of Forbes magazine.
At Asia Times Online he regularly publishes since 2000 his “Spengler” essays (named after Oswald Spengler, the German historian and philosopher). An overall index of those columns can be found here.
“Ask anyone in the intelligence business to name the world’s most brilliant intelligence service, and we’ll all give the same answer: Spengler. David P. Goldman’s ‘Spengler’ columns provide more insight than the CIA, MI6, and the Mossad combined.” — Herbert E. Meyer, Special Assistant to the CIA Director and as Vice Chairman of the CIA’s National Intelligence Council, Reagan Administration.
In addition, Goldman writes for the monthly magazine First Things essays that also address a wide range of topics – from Jewish theology and economics to literature, mathematics, and foreign policy. Moreover, he is a columnist at PJ Media, while at Tablet he contributes music reviews. Goldman is the author of the book “How Civilizations Die (and why Islam is Dying, Too)”, published by Regnery Press. A collection of his essays, “It’s Not the End of the World – It’s Just the End of You,” was published by Van Praag Press.
He has spoken at many important business conferences, such as the annual meetings of the World Bank. His chapter on market failure in the “Bloomberg Book of Master Market Economists” (2006) is one of the examination scripts for the Certified Financial Analyst exam. He received a B.A. from Columbia University and entered a doctoral program at the London School of Economics. At the City University of New York he studied music theory. He taught music appreciation at Queens College of New York. At Mannes College of Music he taught music theory. He currently serves there on the Board of Governors. He also sits on the Board of Directors of the America-Israel Cultural Foundation and is a Fellow of the Jewish Institute for National Security Affairs. David P. Goldman lives in New York City, U.S.A.
Lars Schall: Mr. Goldman, what are your thoughts in general on the re-emergence of gold in international finance?
David P. Goldman: Gold is essentially a political issue. As long as you have positive real interest rates on relatively safe debt either of governments or private issuers, there is in my opinion no real reason to hold gold at all except as an emergency fallback. Gold is costly to store, you have to put it in a vault, you have to hire guards, and it’s inconvenient to transfer (if you want to pay somebody in gold you have to physically load it on some means of conveyance). As long as the governments of major countries can be trusted to manage their public debt in a sound way there is really no particular reason to hold gold. That’s of course a very big caveat, because governments can’t be trusted to manage their finances properly, and the reason that the gold price has risen from a few hundred dollars to nearly 2000 dollars an ounce over the last ten years is because of the markets’ lack of confidence in the debt management of major governments.
L.S.: But then also private banks are now interested in gold these days as a more or less zero-risk asset.
D.P.G.: Yes, but I consider that a marginal development at this point. One of the most important issues in the banking industry right now is the availability of sound collateral. The value of very high quality government securities is that you can use them to borrow against it at very low interest rates very flexibly. So the financing value of high quality government securities is an extremely important component of their desirability as an asset. There is now a global shortage of high quality collateral, and the reason is that government debt of many major countries has become compromised by extremely poor economic and financial management. So because there is a shortage of high quality collateral, banks are experimenting with gold as an asset because you can borrow against gold collateral at extremely low interest rates. So it’s beginning to filter into the banking system because of this collateral shortage.
This not just driven by the market, but it’s also driven in part by the regulators. You may be aware that the Bank for International Settlements’ supervisory committees have insisted that banks maintain a much higher degree of liquidity, in other words that a larger portion of their portfolio than in the past should be invested in highly liquid assets. That is from a supervisory standpoint a very reasonable suggestion. Remember that one of the big problems the banks had in 2008 was that they had levered enormous amounts of supposedly high quality assets, which turned out to be completely illiquid in the event of the crisis such as collateralized mortgage obligations with Triple A rating. As you are aware, the rating agencies are being sued by the government of the United States for billions of dollars for allegedly falsifying such ratings.
So with the demand from the regulators that banks maintain essentially a higher liquidity profile, it is physically difficult for them to do so because of the lack of high quality collateral. That’s why banks at the margin are interested in gold. And again, emphasizing the point that to the extent that governments mismanage their finances and the quality and the liquidity of government debt is compromised, gold will be seen as an important alternative. However, I think we are a very long way from a proper restoration of gold in the monetary system.
L.S.: China is buying gold big time.
D.P.G.: Yes, China is buying gold, but from a very low base. China has $ 3 trillion of foreign exchange reserves. If China were buying gold seriously, the gold price wouldn’t be at $ 1.600 / 1.700 an ounce, it would be at $ 5000 an ounce. As far as I can determine – remember it’s a state secret, the Chinese do not tell you what they own – and infer from partial data, the Chinese are buying everything – they are buying raw materials, they are buying technology, they are buying machine factories in Germany (last year, Chinese direct investment in Germany was three times the level of German direct investment in China, which is quite a difference from the past, and there had be some very high-profile acquisitions). From the Chinese standpoint, yes they want to increase their gold reserves, but they also want to increase their portfolio of technologies, they want to increase their access to raw materials, they want to do many different things. Their interest goes far beyond the monetary.
They have been very modest net-sellers of US treasury securities, I think they were down a bit less than $ 200 billion in holding US treasury securities last year, if I remember the numbers correctly. It’s a small but significant amount. I don’t see China engaging in a massive gold buying campaign. Instead I see it as a steady increase, but from an extremely low base. A couple of years ago China’s gold reserves were only 2 or 3 percent of their total reserves, which is extremely small. So it makes sense for them to increase from that little base.
There is another reason for the US dollar to remain an important reserve instrument for some time, and that is Japan. Here is where the politics come in: there has been a great deal of discussion, and I am sure that you are aware of it, about the possible development of an Asian reserve currency, which would perhaps involve a gold anchor. I think that’s idle speculation for a very simple reason: the Asians don’t get along with each other politically. The Japanese and the Chinese are at odds with each other, and as we have just seen today (referring to the Russian fighter incursion into Japanese airspace on February 7) the Japanese and the Russians are at odds with each other as well. If you look at the major economic powers outside of the United States – China, Japan, India, Russia, and after that you have to go to places such as Brazil, which really don’t count for much –, there is no possibility for any significant agreement among them, let alone a monetary agreement.
The Japanese according to reports that we have seen over the last months are expected to increase their reserve holdings of US treasuries by between $ 400 and $ 500 billion per year, as they intervene in the market to weaken the yen. Now, there are other ways to weaken the yen, and so the buying of that much US treasuries suggests to me that the Japanese still consider themselves pretty much as part of the American sphere in a monetary as well as in a military sense. Japans Prime Minister Abe has called for an alliance between the United States, Japan and India to contain China. This is a very popular theme among some American strategists as well – you read about it everywhere. So the idea that Japan would shift its reserve position – which is huge – away from the United States and towards some kind of Asian bloc is politically impossible. It’s completely unforeseeable in the existing constellation of world forces. That’s why I say that the emergence of gold as a reserve instrument or actually a gold standard of any kind is extremely unlikely for the foreseeable future – the politics simply aren’t there.
L.S.: However, you support a commodity price rule for monetary policy connected to gold.
D.P.G.: Yes, sure.
L.S.: Could you explain the concept behind that and why you support it, please?
D.P.G.: This is an idea that was advanced by Robert Mundell, but actually it goes all the way back to David Ricardo’s idea of the gold standard. Robert Mundell, of course, is the father of the euro and the father of supply-side economics, he’s a Nobel Prize winner, and he has been the most prominent economist advancing this idea; he has talked about it for roughly the last thirty to forty years. The idea is pretty simple: to create some kind of objective market-based rule which would limit the ability of central banks to create money and to debase their currencies, or on the other hand to act as a break against deflation. In other words: to use market observations of auction prices that reflect expectations of the overall price level in order to correct central bank errors.
There has been an enormous amount of debate for centuries now about what the criterias should be for central bank money creation and how important that is. Mundell’s argument is that the quantity of money is much less important than the way the market responds to central bank increases in high-powered money or in bank reserves and how that affects expectations of the price levels. So central banks should listen much more to the market.
And gold among all the commodities probably gives you the purest signal about future price expectations. There is a very simple reason for that: the amount of gold in stockpiles is many times – 25 to 30 times – annual consumption. So a change in desire to hold gold as an investment is a much more important determinant of the gold price than changes in current mining supply or changes in current consumption of jewelry or industrial applications. If you use copper or platinum or bauxite or other commodities, the stockpiles are extremely low relative to current use. And you also might have a technological change or an economic slump or a big increase of demand which would drastically affect the prices. So it’s much more difficult to interpret price signals from industrial commodities as an indication of expectations about the future price level. Gold gives you much better information. So it certainly has pride of place among all commodities as an indicator of expectations about the price level and as a guide to central bank activity.
That idea of a commodity-based standard which is to create confidence in the market place and to correct for central bank errors is the core of Mundell’s concept. I think it is an extremely good idea and I firmly believe monetary management in general would have done much better if we would have followed Mundell’s view and not the guess work of central bankers.
Certainly errors committed by the Federal Reserve in monetary policy contributed to the development of the financial bubble during the 2000s. During 2003, as you recall, the Federal Reserve eased because they were afraid of deflation – there was a big drop in the bond yield and they saw it as a deflationary signal. At the time my department at Bank of America produced a large body of research, arguing that this was not a deflationary signal, that the Federal Reserve was in error, and the Federal Reserve’s ease was mistaken. Therefore, I can think of a number of instances where the Federal Reserve would have been much better off to watch the gold price rather than bond yields or consumer price indexes or other things that they were watching.
L.S.: Do you consider it worthwhile to follow the gold market?
D.P.G.: Oh, absolutely! Gold gives you extremely important signals. The question that financial analysts should ask is not simply what the market expects, but what is the range of possibilities that the market expects and what probabilities are assigned. In other words, expectations should not be thought of as a point in the future – I think that the stock market is going up by 7.38 percent next year, that’s my expectation. Instead the expectation should be thought as a probability distribution. For example, if you are going off to rob a bank, you have a very screwed distribution – on the one hand you come away with 50.000 euros, on the other hand you get shot dead. If you invest in government bonds there you got a much narrower distribution.
So the willingness of the market to pay for hedges against extreme outcomes – and gold at this point is a hedge against extreme outcomes – is a very important indication of the market’s thinking. One interesting comparison is between gold and inflation tracking securities, like TIPS (Treasury Inflation-Protected Securities) in the United States. There is a very close relationship in the last five years between the gold price and inflation trackers as I have pointed out numerous times in the past in my research for clients. Both of them are hedges against extreme outcome. Right now when you buy into an inflation tracker in the United States, or in fact any of the better quality countries, you have a negative interest rate – that is, you invest a hundred euros at principle, and if nothing unexpected happens in ten years you get 99 euros back. Why would you accept a negative yield? Because if you have other extreme inflation or extreme deflation, TIPS will outperform other bonds and probably other stocks as well. So the fact that gold and TIPS track each other extremely closely is an indication that both of these instruments are hedges against extreme outcomes.
So the gold market is an extremely important signal, but it needs to interpreted carefully. Gold is not a good forecaster of inflation in any reasonable time horizon, say five to ten year time horizon. At this point gold is not a hedge against inflation, but a hedge against a very big change in unexpected inflation, a very big inflation surprise. So again, the gold market is extremely important analytically. I personally own gold as a hedge against extreme outcomes. It’s not really a great deal in my portfolio, but I have a substantial amount of gold as insurance.
L.S.: So I would guess that you don’t think the gold price is a bubble?
D.P.G.: No, absolutely not. The proof that gold is not a bubble is that gold and TIPS track each other so well. If that were true, one would have to say that TIPS is in a bubble, but that would make no sense. I’ve never heard anyone say the TIPS market is a bubble.
L.S.: Since you were once Bank of America’s global head of bond research: is the bond market mispriced?
D.P.G.: I think the Spanish bond market is mispriced. I wouldn’t own Spanish bonds at these levels because I think the Spanish government is covering up the real extent of their banking problems. I think the European Community made a decision to let the Spanish underestimate substantially how severe the problems are, because they want to dampen the perspective of the crisis. But as far as the United States is concerned, I think as long as growth is in the 1 to 2 percent range and you have a very substantial increase in government debt and the prospect of serious increase in inflation due to the American budget problems, the bond market is not necessarily in a bubble at all.
I like to look at American bond yields broken down to two components: TIPS, that is the inflation protected yield, versus the ordinary coupon yield. The difference between the TIPS yields and ordinary coupon treasury yields is typically called “break-even inflation”. The difference between those two yields is the inflation rate that will be required for TIPS and coupons to produce the same total returns. And in the last few weeks as bond yields have gone up, in fact TIPS yields have gone down, they have become more negative, which shows that people are willing to pay more for protection against an extreme outcome, but break-even inflation has gone up, it has gone up more.
So the fact that TIPS have such an enormous support, because yields have gone even more negative, tells me that bonds are still an important portfolio hedge against certain kinds of extreme outcomes. I also see a lot of international demand for US treasuries, particularly by the Japanese. So I don’t think we are going to see huge moves in bond yields. I do think that a large part of the credit market is much too optimistic. I think that the Federal Reserve’s purchases of mortgage backed securities have distorted the market, and so I think the price of risk in the credit market is much too low, I think there is some mispricing there.
L.S.: One final question: usually, debt crises end ultimately in a write-down of the debt. Do you think that we will see in the next few years an international summit where exactly this will happen because it needs to happen?
D.P.G.: Well, the write-down of government debt – that’s conceivable more in some of the European countries, but it is very unlikely. The reason why I think it is unlikely is because if you look at the amount of private wealth available in most European countries compared to government debt, private wealth vastly exceeds government debt. What governments do when they are in trouble to pay back their debt, as in Argentina, is to expropriate private wealth. So what I believe will happen in the extreme case well before you have any default on government debt, say in places like Italy or Spain, you will have some substantial wealth taxes.
In the case of the United States, we will add a lot of inflation. Inflation is a partial default on government debt. For example, let’s say that I lend you a hundred euros for a month, and a month later you come back and give me a hundred dollars. So I say: Well, Lars, what’s that – I gave you a hundred euros and you give me a hundred dollars? And you say: Look, a hundred is a hundred, take it or leave it. This is what governments do to bond holders when they devalue their currencies. A dollar worth euro 1.35 is not the same thing as a dollar worth euro 1.70. But if the United States were to continue a reckless fiscal policy and it lead to the devaluation of the dollar, then in effect you’ll be giving bond holders a different devalued debt repayment. The typical way governments default on their debt is through inflation. And I think that’s a very significant probability, that’s exactly why TIPS are considered so valuable and why people accept negative interest rates, because people are afraid that the government will do precisely that. But a global rescheduling of debt, I just don’t see it as very likely at all.
L.S.: Thank you very much for taking your time, Mr. Goldman!Courtesy: By Lars Schall
The economic situation looks under control currently, that’s because we are now in the eye of the storm. The longer this unbalanced situation goes on, the faster and more severe the eventual collapse will play out.
The main theme is that governments in the US and Europe have lost complete control over their spending and borrowing, which must ultimately result in a catastrophic crisis. Soaring debt accumulation, along with Europe Japan and USA race to devalue will continue until some kind of crisis arises; either internally or globally and when the markets blowup, it will bring about an abrupt END to this charade. The 2008 crisis was not the final collapse. The final chapter of the 2008 – 2009 meltdowns is still ahead of us. The same trend is forecasted for the rest of the world and up until now it is playing out almost exactly the way I have expected it to. Worldwide debt stands at $220 trillion, a figure that when compared with world GDP of $62 trillion, shows a debt to GDP ratio of 350% and still growing exponentially. Common sense should tell you that it is not sustainable.
There is no stopping the Euro’s demise – are you protected? History tells us that “Nationalism will emerge. Healthier countries will not see fit to spend ALL their hard earned RESERVES to bail out their less responsible neighbors who to this day refuse to make any adjustments to their spending.” And money will flow out of paper assets into gold and silver as debt creation continues to gain momentum and spread to the public. (Gold and Silver are the only forms of money that governments cannot debase by creating additional units of it.)
Treasury Bonds: They have always been and for the time being, still are functions of a general flight to safety. An ever shrinking part of the world is still looking at US Dollar denominated assets as safe havens even though the US government is taking on an ever increasing amount of debt. However, it is imperative to understand that the purchasers in the treasury market are mostly the central banks themselves. Their intention is to prop up fiat currencies by buying sovereign debt. What this really means is that governments are taking on too much debt and turning it into currency. Most people don’t see this process; it also remains unreported by the mainstream media. This process, historically, is the final stage of a country destroying its currency. Unfortunately, it is taking place on a global scale, so it will undoubtedly result in an implosion of the whole fiat currency concept.
Unfortunately I cannot tell you the exact timing of the coming debacle.
Where do we stand today? The number of people with jobs (actually working) as reported by the Government is up 2%, while the number of people on disability is up by 15%. And yet the percentage of the population with jobs is fast approaching the lowest figure in history: People living on food stamps are up 44%, standing at 46 million currently. One in four households lives on less than $25,000 a year.
Total debt has gone from 1.5 times GDP in 1980 to 3.5 times GDP today and climbing. 2012 was the 4th consecutive year in which the US ran trillion dollar plus deficits, with over $1.5 trillion projected for 2013 and continuing as far as the eye can see: When unfunded liabilities are included in the calculation (Medicare, Medicaid, Social Security which are nonetheless debt), the debt per family stands at over $2 million. The Government and the “Don’t Ask Don’t Tell” Media are trying to convince us that things are improving. The path to the final collapse has been slowed down by human nature. It takes a long time for people to change their beliefs on something. Our global society still believes that paper currencies still hold their value over time as they keep on accumulating and saving fiat based money.
A stanch Left Wing compliant media is a phenomenal tool for fooling people. Governments seem to be able to create as much currency as they want. But COMMON SENSE tells us that there are limitations. Yes, they can set interest rates at levels that signal to the market that economic conditions are fine: Even when underlying conditions are deteriorating. Lending at a very low interest rate gives the impression of a good creditworthiness. But that is a false premise. Nobody in their right mind lends money at ¼% to 0 % interest.
Markets and people tend to go with the flow during a bubble. However, history has shown that as awareness slowly but surely sinks in; people suddenly wake up (usually triggered by a Black Swan event and move extremely quickly (witness the LEHMAN BROS. affair). We also saw this in the last two bubbles. One year before the tech stock bubble imploded, everyone expected the future to be better than the past, but in the blink of an eye, the world was staring at a global depression. The same thing happened with the housing boom in 2008. Everyone was convinced that housing prices could only go up in 2007, yet one year later, the whole global financial system was on the verge of collapse. But the world still had full faith in the US Dollar and its Bond Market. Today, everyone believes in the safety of government bonds and they are parking their money there, even though they are not receiving any interest. Go figure. It is unknown when exactly the coming crash will take place (but it will) and the world will wake up suddenly, as their dreams become a nightmare… again!
The structure of our financial system is a fascinating topic to explore. It gives us insights to describe the anatomy of the coming collapse. The best analytical framework explaining today’s system is described in “Currency Wars” by Jim Rickards, published in 2011. The author explains how complexity in our system has risen to the point where it shows unique characteristics, the most important one being that the propensity for catastrophic failure is an exponential function of complexity. In simple terms, it means that, when the system doubles in size, the instability goes up tenfold. It means as well that it requires exponentially increasing amounts of money (debt) to keep the system growing. The framework is revolutionary in that it perfectly describes today’s reality. Today, governments need more and more debt to generate the same amount of GDP. We need to borrow more only to stay in place but at the cost of a huge (almost certain) collapse of the system. But more importantly, the problems have become so huge that there is no longer a Lender of Last Resort big enough to bail anybody out.
The longer this process goes on, the faster and more severe the collapse will be. Suppose the final collapse strikes in 2013/15. By then, the system will have grown so complex, and the amounts of debt will be so huge that there will be no way to control it – the crash will take on a life on its own.
As early as February 2005, I warned about both the size and the exponential growth of derivatives, growing without any collateral. In fact, they are the “complexity story”. What most people do not realize is that banks report their net derivatives position (their long versus short positions) and only the net position is shown as their risk. However, the gross position is the real relevant number. To put things into perspective, the earlier mentioned $62 trillion global GDP should be compared with the gross derivatives figure which stands at more than a Quadrillion dollars of notional value. (How much is a Quadrillion?)
A derivatives meltdown will play out almost instantaneously, which is why they keep pouring money into Greece because a default of even one small insignificant country, no matter how small, could be the Black Swan ( Lehman Bros.) that everyone fears, because it sets off a chain reaction of defaults. When one big bank faces some kind of trouble and fails, the banks with the largest exposure to derivatives (think JP Morgan, Citigroup, Goldman Sachs etc.) will realize that the bank on the other side of the derivatives trade (the counterparty) is no longer good for any of their obligations. All of a sudden their hedged positions become naked positions. The gross position becomes their net positions. The risk explodes instantaneously. Markets realize that all hedged positions are in reality not hedged anymore, and all market participants start bailing almost simultaneously. (Bail to where or to whom?) The whole banking and financial system freezes up. It might start in Asia or Europe, in which case Americans will wake up in the morning to find out that their markets are not functioning anymore; stock markets remain closed, money at the banks become inaccessible, etc.
It is really impossible to forecast the exact trigger that will cause the bubble to burst. What we clearly see today is that the fixed income (bond) market will be the epicenter of the coming shock. A lot of derivatives are hedges against bond portfolios, but most are against Sovereign Debt so the crack could start with trouble in Treasury Bond markets for example as US interest rates start rising or as no one except the Fed shows up for the next Bond Auction. The first reaction will be the Fed buying up all bonds that the US government is issuing, which would spook the markets instead of calm them down. This would set off a chain reaction as all bond holders try to dump their bonds.
Complex systems do not allow us (me) to determine things ahead of time. One of the few things we know, however, is that the mother of all bubbles will burst and that we created the conditions for this catastrophic failure.
You will then thank your lucky stars (and maybe me) that you have been accumulating Gold Eagles and Maple leafs for the last 12 years..
Precious metals are where we hide when we do not trust the rest of the world. When things start really spinning out of control, everything could potentially be destroyed, but the only things that cannot be destroyed are gold, silver, platinum, food, oil and probably the mining stocks, among other tangible assets. With a limited supply and availability, a massive demand for precious metals will translate into exponentially rising prices. The ongoing destruction of fiat currencies will become increasingly apparent in 2013 -15. An increasing number of investors will understand that precious metals are holding and increasing in value while other assets are not.
Central banks have already reversed their 30 year penchant for selling gold and are already moving back into gold. China as the best example, imported 800 tons of gold in 2012. To put that figure into perspective: Their official reserves were 1,000 tons. The same trend is taking place in other countries (although on a smaller scale) like, for example, Russia, Brazil and several Asian countries. This increasing demand will be a main driver for higher prices beginning in 2013.
Downwards suppression of gold and silver prices (manipulation) can be the only explanation for all the strange price action in 2012 and before. In December for instance, huge amounts of short selling took place during the most thinly traded moments (during overnight trading sessions when the major markets are closed.). That is not how a market participant closes out a large winning futures position because all the subsequent trades are happening at lower prices. Commercial banks, together with western central banks, actively try to depress gold and silver prices to validate the existence of their fiat currencies. It has resulted in a controlled price rise, instead of an exponential one. But their end is in sight. People and investors need to look at these selloffs as an opportunity. A slow and steady bull market makes it possible to accumulate the metals in a steady way into weakness. At the start of 2013, the fundamentals justify much higher gold and silver prices.
Another respected hedge fund, the Pacific Group, has decided to convert one third of its hedge-fund assets into physical gold. The Pacific Group Ltd., which manages assets of over $100 Billion, believes that gold will continue to rise as governments print more money to pay off debt. Thus, continues the trend of some of the smartest money in the world diversifying more and more of their holdings into physical gold.
“The way I look at it, gold is anywhere from being seriously undervalued to being grossly undervalued,” We’re in the early stages of what in my judgment will most likely turn out to be the world’s largest short squeeze in history.”
“Trust in central banks by other central banks is in great danger.”
The big news this past month was the initial announcement by Germany that they would be repatriating their gold back to Germany and the political rhetoric that followed.
“In what could be a watershed moment for the price and future of physical gold, not to mention the stability of the entire monetary regime based on rock solid, undisputed faith and credit in paper money, German Handelsblatt reports in an exclusive interview that all official 3,396 tons of it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Germany.” Andreas Dobret, member of the Executive Board of the German Bundesbank, adding that, “The Bundesbank will remain the Fed’s trusted partner in future, and we will continue to take advantage of the Fed’s services by storing some of our currency reserves as well as gold in New York.”
Seems to me like an attempt to calm the waters.
When Venezuelan President Hugo Chavez ordered the repatriation of 85% of the country’s bullion reserves from European Banks, most of which was held with the Bank of England, the move was dismissed as “unnecessary and expensive,” with others accusing Chavez of acting out of paranoia.
The reaction to Germany’s decision to do almost precisely the same thing is likely to be more muted so as not to start a stampede of other countries seeking to mimic the Bundesbank actions. Germany is the second largest gold holder in the world.
“This is a momentous development, one which may signify the end of mutual assurance and solidarity among central banks because if the central banks don’t have faith in one another, why should anyone else? Without trust the system falls apart. In the end, the criminals always turn against each other. This could be a sign that this end process is already underway.” I would have to agree with this assessment by Zero Hedge, especially on the heels of the “gold is money” announcement two months ago regarding the Basel III Accord, which should have gone into effect as of the first of the year (2013). Yet we haven’t seen or heard of any official announcement regarding this Why?
Taking into account the timing of these two events, how close they are in proximity to one another, it appears to me to be very bullish for gold. Yet the gold price for the moment seems to be caught in a very boring but tight trading range with little in the way of news to drive gold or silver significantly one way or the other. But this can and will change very quickly especially once the charts give a definite buy signal. So far, just as gold seems ready to break out to the upside, there is a sharp sell-off into the close of trading. DON’T LET THAT SCARE YOU. I would use any follow up selling at the morning opening as a BUYING OPPORTUNITY.
I try to keep a balanced perspective on where precious metals prices and everything else I own are heading and why. I try to think of everything I can for each case and then look at which argument is more compelling at any particular juncture. At the moment, the odds are stacked in gold’s favor for moving higher in the bigger picture, but lower in the immediate to short term due to governmental interference, which appears to be excessive as of late. When this happened in the past, it was a sure sign that all the precious metals would soon go higher. Especially as large holders (think China) who buy in the money options and then demand delivery instead of just cashing in their profits.
To think that the government intervenes in the precious metals markets should come as no surprise as they lie and manipulate on just about every piece of economic and financial data they report. To really understand the specifics on how this is done, you should follow John Williams at his www.shadowstatistics.com. I don’t talk much about government rigging of markets because in the end anyone who tries to manage a market always loses, but it is important to understand this is part of the process of being an investor in an asset that is despised by the government.
When you are running a fraudulent fiat currency scam, a rising gold price exposes the fraud and signals investors and citizens to protect themselves from government devaluation by owning the metal itself. Politicians typically hate gold or the thought of backing a currency with gold because it keeps them accountable to the people. Ah, what a concept, keeping these thieves accountable to us and not their puppeteers!
John Williams is one person who I trust completely in his analysis of the precious metals markets and governmental statistical reporting. His newsletter ShadowStats.com is worth every penny in bringing to light government fraud on many levels. Once you read his newsletter, you begin to understand you can’t trust anything that comes out about government statistics in the mainstream media. It’s all just a pile of lies and grand deceptions to keep the people in the dark.
Matt Taibbi, the reporter from Rolling Stone magazine said the following:
“The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue. Money wasn’t the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us. And it was all done in the name of helping regular little people and creating jobs. “It is,” says former bailout Inspector General Neil Barofsky, “the ultimate bait-and-switch.”
The bailout deceptions came early, late and often. There were lies at the very outset, and others still being told four years later. The lies, in fact, were the most important mechanisms of the bailout. The only reason investors haven’t run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 were all president’s Bush’s fault and have now been fixed. Investors may not actually believe the lie at first, but they been overwhelmed by how totally committed the government, Wall St. and the Media have been, to selling it” Besides where else can the little people go?
Another item in the news is a series of statements that came from Boston University Economics Professor Laurence Kotlikoff. He is worried about America’s dire financial situation. “The situation is getting worse and worse and worse. We are running a massive six decade Ponzi scheme, and it’s fast coming to a real breaking point.”
Dr.Kotlikoff calculates that the real government deficit is enormous and growing exponentially. “It’s $222 trillion. Last year it was $211 trillion. We grew the deficit by $11 trillion in one year,” He also says, “We are actually in worse shape than any other developed country. “Ben Bernanke is playing with fire here because we could easily have a tripling of the INFLATION level.”
Independent economist John Maudlin recently said it this way “the newest changes to the tax codes are full of pork barrel spending:“These giveaways of taxpayer money make my blood boil. We’re not yet at the endgame of the government’s wasteful spending, as they have yet to even address the problem “Washington’s debts are going to explode and crush us; they’re also going to distort the free markets for years to come.”
Overall, we have to consider the fact that government and their central banks are very adept and convincing us that their way is the only way: But the fact remains, THAT IT WILL AT SOME POINT BECOME NO LONGER TENABLE–
In my mind, the long term reasons why precious metals will go much higher continue to grow on a daily basis. The idea that governments and their central banks will reign in their wanton ways and actually balance a budget or tell the truth is beyond believable at this point. We know what they will do at each and every financial hurdle they face, which is to lie, cheat, and steal and blame everyone else but themselves, while creating more and more Fiat money and deny any negative effects of their own behavior.
Historically this has been done by many different groups of politicians and banksters throughout the world, always with the same sad results. I know that in investing, timing and patience is everything, but trying to pinpoint the exact timing of this disastrous conclusion to this ongoing financial calamity and debacle is not necessary, as long as you take possession of your precious metals and keep them out of the grasp of the Banks.
You should notice that although I have been calling for a rally to new all time highs for the last several months, I recommended building up you cash and buying gold into2 or 3 day 100$ Selloffs. I also only recommended a very few special buys such as DDD at 40 now at 70. Once the PM’S are safely in your possession, just sit back and enjoy the ride as much as you can while the circus show of smoke and mirrors continues. In the end, you’ll be very right and a lot richer than you are today. Plus you will have built up your cash to take advantage of the coming crash when the timing is right.
HOW NOW DOW?
The uncertainty around the Fiscal Cliff continues to frustrate markets, keeping moves mild with a lot of back and forth daily moves but with steady progress to our anticipated new all time highs. Stocks should see vertical trends that are significant. I am still expecting the Jaws of Death pattern to be completed sometime during the first half of 2013. My best estimate at this time would by the middle to late March 2013 – we should see that final top maybe as high as 15,000. Volatility should then rise dramatically and a long stair step decline should begin the multi-decade BEAR MARKET.
Rush to Safety: Americans buy half a billion dollars of gold and silver in January. There are no fundamental drivers for the almost daily and intraday back and forth wild swings, except for the market manipulation by the Bullion Banks, which they cannot seem to maintain.
The Bank of Korea increased gold reserves 20% last month to diversify investments, boosting holdings for the fourth time since June 2011 and underscoring increased demand by central banks. “Gold is a physical, safe asset,” the Bank of Korea said in the statement. The precious metal “is a way of diversification, which helps reduce investment risk in terms of our foreign-exchange reserves management.”
Russian Finance Minister Anton Siluanov speaking to reporters said that gold is seen by Russia’s central bank as a “rather stable” asset amid global monetary easing. The world’s biggest energy exporter saw gold and foreign exchange reserves rise to $524.3 billion in the week to Nov. 23. Central banks in South Korea, China and Russia realize that gold bullion is a safe haven asset, one that the western world does not yet seem to appreciate.
The HUI’s Weekly Full Stochastic is now at oversold levels, which has happened only 6 previous times in the past 5 years. In each instance, the HUI rose at least 100 points. Once we get a new upside breakout in the HUI the next strong rally should also begin for Gold. There is also a strong possibility that Gold has bottomed. If it has not, the next strong support level would be around 1,640ish.
We are into the most trying times in our nation’s history. We can either succumb to our Government’s folly and go down with the ship or personally prosper. As always, the choice is yours.Courtesy: gold-eagle.com
Gold Prices rebounded Monday on bargain hunting as expected, after touching a 6 month low amid a sharp sell-off on Friday last week. Gold Trading volume on the Shanghai Gold Exchange for the benchmark 99.99% purity climbed to a new record which exceeded 22 metric tons today for the first time ever as China returned to the markets after a week long Lunar New Year holidays. The slump in Prices in the past week provided great incentive for buying as many Chinese are still holding a bullish outlook on Bullion. China’s Gold consumption amounted to 832.18 tons in 2012, an increase of 9.35% from a year earlier. Gold Jewelry demand rose 10.09% year on year to 502.75 tons, while those of Gold Bars and Gold Coins gained 12.22% and 21.63%, respectively, to 239.98 tons and 25.3 tons. China produced 403.05 tons of Gold Bullion in 2012, making it the world’s largest producer for the sixth straight year. China is currently the world’s second-largest gold consumer after India.
Gold Demand from India has been above average after last week’s sell off. “Appetite from India has been quite unimpressive of late, although buyers did respond to last Friday’s sell off,” as reported by Bloomberg. Following strict instruction of the government,India’s second-biggest gold importer, state-run MMTC Ltd said it will take more steps to curb purchases of the yellow Bullion. MMTC expects its Gold Imports for the fiscal year ending March 31, 2013 are likely to fall to 30-40 tons from 160 tons a year earlier. The passion for Gold in India – the world’s top gold consumer is legendary & will take much more than a few duty hikes to wean off. Meanwhile if the INR continues its northbound journey, Gold Prices will seem attractive even with the duty hikes, which will in turn mean more imports.
Tighter US sanctions wiped off Turkey’s Gold-for-Gas trade with Iran and have stopped the Turkish state-owned lender Halkbank from processing other nations’ energy payments to the OPEC oil producer. US sought to prevent Turkish gold exports, which indirectly pay Iran for its natural gas, from providing a financial lifeline to Tehran. A group of countries including Britain, China, France, Germany, Russia and the United States, known as P5 +1, wants Iran to do more to prove that its nuclear program is for only non-military purposes and to permit wider U.N. inspections. An anonymous source said on Friday that the P5+1 plan to offer to ease sanctions barring trade in gold and other Precious Metals with Iran in return for Iranian steps to close down the nation’s newly expanded Fordow uranium enrichment plant. Rumors are that Iran has rejected offers by world powers to ease sanctions barring trade in Gold in return for steps to shut down a nuclear facility, Iran’s foreign ministry said the offer proposed was unacceptable & accused western powers to take away the rights of a nation in exchange for allowing Gold Trading.