Have you hear of the story of a child who cried “Wolf, Wolf” to fool people who would immediately come up to his rescue? Finally when the Wolf did attack, there was no one to save him from the ferocious beast. Just replace the Wolf with Inflation & you may very well understand the gravity of the situation. Investors have been seriously anticipating an Inflation rise since 2008 & so took shelter in the safety of Gold and Silver. But Economic data repeatedly (though well managed & manipulated) has displayed inflation to be exceptionally low & in fact, to the point that Inflation do not seem as a matter of any concern now. In fact the Bank of Japan & a few others are worried about excessive deflation & want the so-called wolf (Inflation) to attack. Traders & Investors who now have finally given up the shelter & safety of Gold and Silver due to manipulated reports & advise out of vested interests & are holding riskier assets face naked risk. What will happen now when the Wolf finally attacks?
Weak Economy Growth to Encourage More Central Bank Stimulus:
The International Monetary Fund yesterday trimmed its estimate for global Economy Growth this year to 3.3% from 3.5% in January. That will give central bankers justification for the record low Interest rates combined with massive monetary easing done till now & also encourage them to add bolder mega QE Programs. William C. Dudley, president of the Federal Reserve Bank of New York, and Charles Evans, president of the Chicago Fed, said yesterday in separate remarks there’s a need to continue the central bank’s $85 billion in monthly bond purchases. The Bank of Japan this month doubled its monthly bond buying to 7.5 trillion yen ($77 billion) with the aim of achieving 2% inflation within two years. European Central Bank President Mario Draghi said April 4 the bank stands ready to cut interest rates if the economy deteriorates further.
Gold and Inflation are not related – Say Intellectuals:
“Prior to this, markets were concerned that QE means inflation, but we’re having QE, not just at the Fed but at the Bank of Japan, and yet the global economy looks more uncertain than it did three to four months ago,” said Mackinnon, a former U.K. Treasury official. “Now, whether it’s wages or CPI inflation, the general picture is that inflation is still very subdued.”
Investors may be selling gold because they believe “recovery is coming and therefore gold is less useful as an asset,” said Marcus Grubb.
The plunge also may reflect a shift into equities as the outlook for the U.S. economy appears more clear, said Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi UFJ in New York.
The “goldbug/inflationista view of the world” in which buyers have sought to protect themselves from a surge in inflation “is, in fact, all wrong,” Nobel Prize-winning economist Paul Krugman said in an April 15 New York Times online posting. “Maybe, just maybe, the gold crash will finally bring intellectual capitulation,” he wrote. “But I wouldn’t bet on it.”
The odds also are increasing that the ECB becomes “more aggressive,” after previously resisting asset purchases as a way to help the economy, said Mark Vitner, a senior economist.
…..Whatever the reason, there’s a silver lining for Bernanke: It may help him deflect political barbs in the U.S. that his stimulus policies would trigger an inflationary surge and collapse in the dollar.
Central Bankers breath easy on weak Gold and Silver:
For the fourth year in a row, the year too began with noises about the imminent exit strategy, which then as usual, each year it eventually fizzles out. Central banks can be opportunistic and proceed with more intensive quantitative easing now the Gold Market is surrendering with regards to its hyperinflation fears. The Fed now will see cheaper commodities as reinforcing the need to keep buying assets through this year. Weaker prices will provide for the argument that weakness in commodity prices suggests a Economy growth concern and so all the more reason to keep QE going & provide stimulus for Economy Growth. That would reinstate a trend that began accelerating in 2008 as key central banks cut interest rates and then undertook increasingly more aggressive rounds of asset purchases to bolster their economies from recession and subsequent slow recovery. The Fed has defended its QE initiatives repeatedly for over 4 years insisting that Inflation will not be a point of concern at all.
Economy Status manipulated by Central Banks as Weak or Strong as & when required:
Data Reports examples: U.S. payrolls grew the least in nine months in March, US Stock Market drops after 2 weeks of rising to new highs each day, China is suffering the weakest expansion in two decades with growth below 8%, and unemployment among the 17 euro nations is a record 12%.
The statements one can expect after such reports would be like –
With the recent signs of weakness in Global Economy, I don’t see any likelihood of monetary stimulus being even ramped down any time soon. We haven’t recovered yet and we are not recovering fast. In no sense are we having an adequate recovery….
Effect: US Stocks up on continued QE but keeps Gold directionless.
Data Reports examples: Gold Prices rise for third month in a row, Gold starts new year on an upside on weak economy continuation, Demand for Silver Bullion hits the roof, Gold ETFs witness massive rise, Copper touches 4 month high on Chinese Economic data, India’s Gold Imports rise for another year yet again keeping India at number one position in the world as the largest gold buyer. 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. Central Bank Gold Bullion buying has shot to a 50 year high in 2012.
The statements one can expect after such reports would be like –
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. FOMC minutes said “many participants” expressed concern about “potential costs and risks arising from further asset purchases.” 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.
Effect: US Stocks up as US Dollar gains strength but makes Gold weak.
15 Tons of Gold Gone in just 3 Days:
India has an undying passion for Gold & Indian’s will always rush to buy Gold Bullion at the first given opportunity, irrespective of the price. After Gold Prices have been hit in a major way in the last few day’s, it was but obvious that Indian’s would be the foremost & the largest of gold buyers.
The Times of India reported -
Gold buyers made most of the dramatic fall in Gold Prices, picking up 10-15 tonne in the past three days, double the normal sales. Jewelers say the trend is likely to continue on Thursday, an auspicious day in the Hindu calendar. “During this time, buying generally happens on account of Akhshay Tritiya and wedding season. But as prices have fallen, we are seeing that the demand has doubled compared to the past year during this period. In all our 80 retail stores across Karnataka, we are witnessing hectic buying,” Siddharth Mehta, chief strategist, Rajesh Exports told ET. Spot gold price in India was hovering around Rs 26,180-26,200 per 10 gm on Wednesday. “Investors too have entered the market. Some of the analysts are saying that Gold Prices will start moving up in the long term which has prompted investors to buy Gold Bars and coins. In the last couple of days, nearly 10-15 tons of Gold have been consumed,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullion.
Gold – The Inflation Hedge gets Killed Right before Inflation Takes-Off:
Gold has tumbled 27% to $1,387.40 yesterday from the Aug. 22, 2011, close and is now in a bear market after a 12-year surge through 2012 that was fueled partly by investors expecting faster inflation and central-bank aid would buoy the metal as a protection of wealth. Its dive has come days before (or do I call it manipulation) international finance ministers and central bankers meet in Washington to discuss signs of slowing in the World Economy. They are sure to devise new ways to hike up national debts on the pretext of giving Economy Growth a new boost. The slump in Gold Prices is sure to embolden their Quantitative Easing endeavors & justify record low interest rates for an extended period of time. Time for a Perfect Storm of Inflation to Hit & show them how gravely wrong their deeds have been.
As for the US Dollar, its rally has been an Illusion. The dollar will soon collapse & could also touch the earlier lows as the consequences of QE to infinity ultimately show effect. There can be softer times of Illusion for some more time & stock markets may again rise on further liquidity. Stock markets & the US Dollar may seem bullet proof to most & that is the illusion that was intended to be displayed by the manipulators. But eventually & soon enough a full blown Currency Crisis is the US cannot be avoided. The US Dollar will be then shred of all its cosmetic beauty & weight. After all it is the QE to Infinity & not the real economy that is driving the Bull phase in the Dollar or US Stocks. With QE ending, it’s the Steroids dependent Stock Markets that will collapse & not Gold and Silver. Just Think!
Who is the Bigger Manipulator – The Big Money or the Gold and Silver Market itself?
We have all been speaking of how the Gold and Silver markets are being heavily manipulated. But it now seems that Gold and Silver are actually only playing up to the manipulators small time ploys & letting them win for the time being. It’s actually the Gold and Silver Market that will sooner than later manipulate the Core Manipulators to a No-Escape corner. The so-called masters of the manipulation game may not prove be so smart after all.