Currency Wars to shoot Gold High & Silver to Infinity
Gold and Silver Investors have nothing to worry on price declines & should if fact look at all such dips as an opportunity presented on a platter. Gold and Silver will soon break through all hurdles & previous Price barriers also. Silver (as explained in much detail in many of my previous articles & posts on Silver Investment) has the huge potential to rise to astonishing highs once the momentum picks up. Gold and Silver Market traders continue to monitor on-going developments regarding the potential for the so-called “Currency Wars”, which is bound have bullish impacts on the Bullion Prices. Currency Wars occurring would mean that major industrialized nations begin actively seeking to devalue their currencies, in order to stimulate their export sectors and boost economic growth. Japan’s new administration has been “jaw-boning” its currency down and the yen has seen substantial weakness in recent months, diving about 11% since early November versus the US Dollar. Selling the yen has been mostly a one-way bet since mid-November, based on expectations that Japanese Prime Minister Shinzo Abe would push the Bank of Japan into more aggressive monetary easing to beat deflation. G-20 Finance ministers are set to meet in Moscow on February 15-16 and Japan’s currency policies will no doubt be a topic of discussion. Push back will be seen by the Group of Seven (G-7) nations as the stated policy is that currency intervention is not an acceptable policy tool, except in cases of “excessive volatility.” Full blown Currency Wars would be highly supportive for Gold but even more so for Silver Prices. The policies in major economies of Monetary Easing and low interest rates will boost global liquidity, increase risk preferences in the markets and drive speculative funds into Silver, Base Metals, Equities of Emerging Nations like China or India as well as other risk assets rather than Gold now, though some size-able chunk will also be driven to Gold Investment. The so-called loose monetary policies and rising industrial consumption will support Silver Demand, according to Morgan Stanley, which described the metal as a “cheap Gold Proxy” in a Jan. 24 report. Prices have more than doubled since 2008 as the US Federal Reserve, which concludes a two-day policy meeting today, boosts stimulus to spur a recovery. The FOMC has already delivered an extraordinary open-ended (Limitless QE) $85bn/month promise to provide as much monetary policy stimulus as it takes to get labor markets, and therefore the economy, to accelerate convincingly. It is likely that the next several FOMC meetings will prove to be comparatively uneventful, except in the case that the QE programs are withdrawn, which again is very unlikely. The punch will thereby be only in the Fed’s statement of thoughts for the future.
The Gold and Silver Market Yesterday:
Silver for March delivery advanced for a second day, gaining as much as 1% to $31.50 an ounce on the Comex in New York. Comex Gold Prices yesterday saw some short covering and bargain hunting buying interest ahead of the FOMC policy announcement. Gold and Silver also got support from a weaker US Dollar & higher Crude Oil Prices, which hit a 5 month high. Crude Oil Prices could push above the important psychological level of $100.00 in the coming weeks, and in that case, it would likely be a bullish development for the Gold and Silver Markets as well as most other commodity markets. Open interest in Comex Gold, which is the number of open positions at the end of a business day posted one of the largest declines in the past year on Monday after Option expiry amid rollovers. CME Group reports that the number of open positions at the end of business Monday stood at 438,918 contacts, which was a decline of 19,020. February gold settled Tuesday with a gain of $7.90 to $1,660.80 an ounce. April contract, which now has the most open interest, added $7.70 to $1,662.70. The rise so far has squarely been due to large short covering, close to a major support level. The short covering in Gold Futures has also been triggered due to uncertainty surrounding the FOMC announcement due today. Traders are probably going to have a wait-and-see approach until they see what the Fed has to say. The US consumer confidence declined by more than expected in January, while home prices declined slightly in November. The slightly downbeat US Economic data added pressure to the US Dollar index and in turn helped Gold and Silver gain. The Federal Reserve ends a two-day policy meeting on Wednesday, and few market watchers expect any near-term shift in its current, very accommodative stance. The Fed is widely expected to reaffirm its commitment to super-easy policy until unemployment falls sharply, which could ease concerns about an early end to bond buying. Gold and Silver Investors will focus more on the statement for any clues to the Fed’s thinking on if and when it might pull back from its aggressive easing stimulus. Gold and Silver Market traders will also be looking out for the first estimate of U.S. fourth-quarter GDP due later on Wednesday, a couple of days before the January jobs report. Median forecasts are for annualized growth of just 1.1%, down from 3.1% in the third quarter. Such a lackluster result would likely support the doves at the Fed, particularly as tax hikes enacted this month could hamper growth for the first quarter as well. The impact was clear in the Conference Board measure of consumer confidence out on Tuesday which showed an unexpected slide to 58.6 for January, it’s lowest in over a year. “We see a prospect for sustained asset-price reflation in coming months, the result of G3 stimulus efforts and structural reallocation flows,” said Morgan Stanley said in a research note. “This has three implications: Reflation would lend support to higher-yielding emerging markets assets, safe-haven assets would continue to weaken, and expectations about emerging markets policy would likely shift.” The yen remained under pressure with the Bank of Japan set to pursue strong monetary easing as the Abe administration pushes for radical reflationary policies to end stubborn deflation. With theUS unemployment rate currently hovering at 7.8%, the FOMC may leave the QE measures untouched but this time around the dissent amongst members could be acute. Last time, James Bullard, a member of the Committee said that aggressive QE measures are making him a bit nervous and Esther George, another member warned of ‘risks of future financial imbalances’ and upside risks to Inflation when it comes to maintaining near-zero interest rates. Base Metals prices may witness robust growth soon as domestic demand inChina – the world’s largest consumer of metals, holds key this year. Beijing’s drive to urbanize inner China will boost infrastructure spending whileSoutheast Asia will also likely see expansion in domestic demand accelerating
Silver Coins sales – A barometer of long term investor demand & Price direction:
Silver Investment holdings reached an all-time high this month. A mind boggling 7.4 million American Eagle Silver Coins were purchased from the U.S. Mint in January, considerably higher than the previous record from early 2011. This has been the biggest monthly total since 1986, when the Washington-based Mint began the Silver Coins sale transactions. Sales of American Eagle Silver Coins by the US Mint jumped to a record this month on increased demand for an alternative to currencies as the US central bank presses on with unprecedented stimulus. After halting Silver coin production/sales for over a week, the Mint re-opened yesterday and demand once again surged. Having almost doubled from the first week in January, there remains two more days before the book is closed on January’s sales. At 140,000 ounces, the Mint has also sold the most ounces of Gold Coins in January in almost three years, suggesting the rising “Currency Wars” are stoking people’s ongoing rotation from paper-to-physical assets as their ‘wealth’ slowing loses its value. Historically, during the last two years, sales of Gold and Silver coins have been the strongest during the month of January, accounting for 15% and 17% of total annual sales, respectively. I have always maintained that, Physical Gold and Silver coin sales are a barometer of longer-term investor demand for quality hard assets and also an accurate price direction indicator.
Warning on Currency Wars:
China’s foreign-exchange regulator urged Group of 20 nations to improve collaboration to avoid any so-called Currency Wars while signaling he’s comfortable with the value of the Yuan Currency. On a global level, there needs to be “better communication and coordination” on foreign exchange among the G-20, Yi Gang, the deputy governor of China’s central bank, said. “Right now, it is pretty much close to the equilibrium level,” he said, referring to the Chinese currency exchange rate. German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the Yen Currency as a worry. “A Currency War, a series of tit-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank. “A Currency War would not be good for any country with a stake in the global economy.” The People’s Bank of China today set the daily Yuan fixing at the lowest level against the dollar since Jan. 7, and the currency fell for a seventh day in Hong Kong, headed for its longest losing streak since 2010. “Quantitative Easing for developed economies are generating some uncertainties in financial markets in terms of capital flows,” Yi, who is also head of China’s foreign-exchange regulator, told reporters. “Competitive devaluation is one aspect of it. If everyone is doing super QE, which currency will depreciate?” SAFE warned last week that China will see fresh speculative inflows of money after the U.S. and Japanese central banks said they would pump more funds into their financial systems. The Yen currency appreciated yesterday as Economy Minister Akira Amari denied that the government is trying to weaken the currency and data showed investors decreased bearish bets. Speculation the Bank of Japan will expand stimulus has driven the yen down 12% against the dollar and 16% against the euro since Nov. 14, when elections were announced. A 25-basis-point cut in interest rates & CRR from the Reserve Bank of India provides scope for modest appreciation of its Currency - the Indian Rupee & this is likely to promote greater economic growth and foreign equity inflows thereby. The latest entrants in global Currency Warfare: Taiwan, whose central bank overnight said it would step in the FX / Currency Market if needed, then Thailand, whose currency was weakened on market adjustment according to Prasarn, and of course South Korea, where the BOK said that global Currency War spreads protectionism. China PBOC deputy governor Yi Gang also Warned on the Currency Wars.
S&P 500 Index retreats after 8 day rally, longest since 2004:
The Standard & Poor’s 500 Index fell from a five-year high, losing 0.2% to 1,500.18. It had closed at the highest level since December 2007 last week. The index has rallied 5.2% this month, the best start to a year since 1987. Pension funds may need to sell stocks and buy fixed income to re-balance asset allocations, according to Societe Generale SA. US pensions may pull $22 billion from equities, strategist Ramon Verastegui wrote in a note. US durable goods orders increased 4.6% in December, surpassing the 2% median forecast in a Bloomberg survey.
US Credit Ratings still at Risk:
The retreat by Republicans from threats to push the United States into a debt crisis has stayed the hand of at least one credit ratings agency, but that does not mean the United States is suddenly safe, reported Reuters. The US has retained its top triple-A rating from Moody’s Investors Service and Fitch Ratings, despite rising debt levels. It was downgraded by one notch in 2011 by Standard & Poor’s after a chaotic debt ceiling battle. On Monday, Fitch said the recent debt ceiling extension eliminates the immediate risk to the rating. But going forward, the emerging signs of lawmakers working together are not likely to be enough to head off more downgrades ofU.S. government debt, which is used as a benchmark for borrowing costs and considered the safest of safe havens. There is no exact formula for what will trigger a downgrade, but statements and reports released by the agencies give some clues. Specifically, the U.S. debt-to-GDP ratio, currently at about 68%, is better than triple-A rated nations such as Canada, but far worse than Australia or Norway. “The negotiations for the medium-term deficit and debt trajectory are the most important things in our ratings,” said Steven Hess, lead U.S. sovereign credit analyst at Moody’s Investors Service. “We’re looking for a convincing downward trajectory in the debt ratios and we don’t think that that’s yet there.” The U.S. government has jumped from crisis to crisis in recent years, beginning with the 2011 debt ceiling battle, followed by the threat of the “fiscal cliff” of major tax increases and spending cuts that emerged late last year. It was also thought that Republicans would force drastic spending cuts by refusing to raise the debt limit, until recently merely a procedural matter. However, even with the parties in Washington behaving, that is still not enough until debt levels are addressed. All three of the major rating agencies have negative outlooks on the U.S. rating. Hess said Moody’s does not have a “particular number” when it comes to a debt-to-GDP ratio.
Interesting:GATA – Two major Swiss banks nudge customers into allocated Gold.
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