Commodity Trade Mantra

US Federal Reserve pulls all stops to kick Economy into higher Gear

US Federal Reserve

US Federal Reserve pulls all stops to kick Economy into higher Gear

The US Federal Reserve committed to buy $45 billion in longer-term Treasuries each month on top of the $40 billion per month in MBS – Mortgage Backed Securities they started purchasing in September. The FOMC repeated a pledge to keep pumping money into the economy until the outlook for the labor market improves “substantially.” “The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Federal Reserve’s policy-setting panel said after a two-day meeting. The US Federal Reserve will fund the new Treasury purchases with an expansion of its $2.8 trillion balance sheet. Under the expiring “Operation Twist” program, the Federal Reserve bought an identical amount, but paid for them with proceeds from sales and redemption’s of short-term debt. The newly unveiled numerical policy guidelines offered the most specific suggestion yet that the Federal Reserve is willing to tolerate slightly higher inflation as it tries to juice up a moribund economy and spur stronger job growth. Despite its unconventional and aggressive efforts, U.S. economic growth remains tepid. Gross Domestic Product grew at a 2.7% annual rate in the third quarter, but a Reuters poll published on Wednesday showed economists expect it to expand at just a 1.2% pace in the current quarter.

US Federal Reserve keeps foot on accelerator pedals for an extended period of time:

US Federal Reserve Chairman Ben Bernanke announced a new round of monetary stimulus as expected & also took the unprecedented step on Wednesday of indicating interest rates would remain near zero until unemployment falls to at least 6.5%. Bernanke lead the US Federal Reserve further into uncharted policy territory in combating joblessness by tying the bank’s interest-rate outlook to unemployment and Inflation, while committing to an even faster expansion of the central bank’s balance sheet. He called the current state of the labor market, with unemployment at 7.7%, “An enormous waste of human and economic potential” and said the benefits of more bond buying outweigh the potential risks. Bernanke said the new framework was consistent with the earlier calendar guidance, because officials do not expect the jobless rate to reach 6.5% until sometime in 2015. Bonds fell yesterday on the prospect of higher inflation after policy makers boosted their main stimulus tool by adding $45 billion of monthly Treasury purchases to an existing program to buy $40 billion in mortgage debt a month. That decision puts the Federal Reserve’s $2.86 trillion balance sheet on track to reach almost $4 trillion by the end of next year. US Stock Market erased gains as optimism about the Federal Reserve’s additional asset purchases faded and investors focused on the budget deadlock in Washington. Bernanke, who lowered the benchmark interest rate almost to zero four years ago, yesterday said the Federal Reserve’s “ability to provide additional accommodation is not unlimited,” which is “an argument for being a little bit more aggressive now.”

The US Federal Reserve previously said it expected to hold rates near zero through at least mid-2015, but policymakers were uncomfortable making a pledge based on the calendar rather than the economic goals they hope to achieve. “By tying future monetary policy more explicitly to economic conditions, this formulation of our policy guidance should make monetary policy more transparent and predictable to the public,” Federal Reserve Chairman Ben Bernanke told a news conference. Federal Reserve policymakers see GDP expanding between 2.3% and 3.0% next year. That is down from the 2.5% to 3.0% they forecast in September, but is still a bit more optimistic than most private forecasters. Crucially, the Federal Reserve doesn’t see inflation hitting its forward-looking upper 2.5% threshold at all, with the highest rate rising to between 1.7% & 2% not until 2015. The Inflation guidance for 2013, 2014 and 2015 all were lowered, with next year’s projected year-on-year rise in an inflation measure called the PCE price index seen between 1.3% and 2%, down from September’s forecast between 1.6% & 2%.

Traders trapped as Gold Declines on FOMC announcement:

As forecasted – Bearish Short Term Signs for Gold and Silver on FOMC Outcome

Gold dropped about 1% on Thursday after the Federal Reserve linked its monetary policy to unemployment, raising concerns that future economic stimulus could be limited. Gold generally benefits from easy monetary policy as it drives investors who fear diminishing value in fiat currencies to seek safety in hard assets such as Gold Bullion. The Federal Reserve’s announcement seemed somewhat confusing to Gold Investors and Traders as it linked policy to unemployment. The Federal Reserve’s expected move to buy bonds had pushed up Gold Prices to a near two-week top of $1,723.01 earlier on Wednesday. When Gold Prices dropped below the 100-day moving average above $1,705, stop-loss selling was triggered. Gold is likely to remain range bound to negative for the day, as many investors are closing books for the year, while the looming Fiscal Cliff fear & the seemingly very difficult US budget talks keep Gold Market traders away from big upside bets. Gold Markets expect the negotiation could drag on past Christmas given sharp differences between congressional Republicans and the White House on how to avert steep tax hikes and budget cuts. I expect some positive news coming out of the US soon & Gold and Silver may again resume upside movements. Silver holds some big time promise – for sure.

Levy on Gold could be Budget windfall – U.S. lawmakers

Revising a 19th-century U.S. law that governs the mining of Gold and other precious metals could add billions of dollars to federal coffers at a time of tight budgets, according to some Democratic lawmakers and a government study released on Wednesday. Taxpayers receive no royalties on metals pulled from federal land, and officials drew a blank when they tried to find out how much gold, silver, copper and other valuable metal is sold. “Federal agencies generally do not collect data from hard rock mine operators,” said the report from the nonpartisan Government Accountability Office which looked at the market in 2010 and 2011. But applying a metals levy of 12.5 percent – the benchmark government share for other resources – could deliver hundreds of millions of dollars a year to taxpayers, according to independent studies and U.S. Representative Raul Grijalva, who sought the report and other data from the mining industry. “As we face these fiscal challenges, these are the pennies that we should pinch,” said Grijalva, the leading Democrat on the panel that oversees public lands.

Grijalva, of Arizona, and Senator Tom Udall of New Mexico, who jointly called for the GAO report, say taxpayers should also benefit from a gold price surge that has boosted the bottom line for miners. Applying Grijalva’s royalty formula on the 1.1 million ounces of yellow metal pulled last year from Goldstrike mine in Nevada, the largest in North America, could have yielded $150 million to taxpayers, according to a Reuters tally of industry data. Taxpayers are entitled to a royalty from metal sales nevertheless, lawmakers said. Under Grijalva’s proposed formula, Freeport-McMoRan Copper & Gold Inc’s reserves of copper and molybdenum, which is used to toughen steel, would return about $700 million to taxpayers over the life of the mines, according to a Reuters tabulation of company data. The 1872 mining law that drove prospectors into western states such as California still governs much of the industry. But this no-royalty law is a costly anachronism when mining giants can stake a claim on federal land for a few dollars an acre, Udall said. The coal, oil and gas industries, by comparison, have no such exemption. “We are giving our Gold and Silver for free and don’t even know how much we are giving,” said Udall, whose father, Stewart, was secretary of the Interior during the 1960s and called mining law reform his great unfinished work. Lawmakers who have occasionally tried to reform the mining rules have never cleared all the hurdles to pass new laws, as the industry has strong political allies. Senate Majority Leader Harry Reid, a Democrat, counts on mining support in his home state of Nevada, and lawmakers say it will be difficult to persuade him to take a bite out of the industry. But on Wednesday, the two top senators on the Energy and Natural Resources Committee said they were open to considering reform. Whether or not mining reform can become law, some lawmakers are ready to target the hundreds of millions of dollars in tax breaks the mining industry claims each year, which they see as an easier political gambit.

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