Gold Bulls Retrench as Price Drops Most in 32 Years:

Posted: December 31, 2013 | Author: | Filed under: Bernanke, Central Banks, Forecasts, Gold, Hedge fund | Tags: , , , , , , , , , | Leave a comment

Hedge funds got less bullish on gold for the seventh time in eight weeks as the U.S. economy strengthens and inflation fails to accelerate, driving prices to the biggest annual drop in more than three decades.

The net-long position in gold fell 12 percent to 28,702 futures and options in the week ended Dec. 24, U.S. Commodity Futures Trading Commission data show. Short holdings gained 1.1 percent to 76,052, a three-week high. Net-bullish holdings across 18 U.S.-traded commodities climbed 4.5 percent to 768,354 contracts as copper wagers gained to a 34-month high.

Investors shunned gold in 2013, halting 12 straight years of price gains. Global equities rallied on improving growth prospects and inflation failed to accelerate, eroding demand for bullion as a preserver of wealth. Assets in exchange-traded products backed by bullion fell to the lowest since 2009 as holders including billionairesGeorge Soros and John Paulson sold. The International Monetary Fund signaled this month the U.S. economy will expand more than forecast.

“Gold is something we avoid,” said Michael Shaoul, the chief executive officer of Marketfield Asset Management LLC, which oversees about $17 billion. “The developed economies are growing,

and equities remain very interesting, so there is really no reason to be in gold.”

Futures in New York retreated 28 percent this year to $1,207.30 an ounce, poised for the first loss since 2000 and the biggest since 1981. The Standard & Poor’s GSCI gauge of 24 commodities slid 2.1 percent, while the MSCI All-Country World index of equities advanced 20 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3.4 percent. The Bloomberg Treasury Bond Index fell 3.2 percent.

Record Outflows

Investors pulled $38.6 billion from gold funds this year, the most in data going back through 2000, according to EPFR Global, a research company. Futures settled at a three-year low on Dec. 19, a day after the Federal Reserve cut the pace of its monthly bond purchases to $75 billion from $85 billion, easing concern that inflation would accelerate. U.S. consumer prices were unchanged in November after a 0.1 percent drop the prior month, according to Dec. 17 data from the Labor Department.

U.S. pending home sales climbed 0.2 percent in November, the first gain in six months, the National Association of Realtors said yesterday. There’s a “much stronger outlook” for U.S. growth in 2014, IMF Managing Director Christine Lagarde said in an interview broadcast Dec. 22 on NBC’s “Meet the Press.”

‘Grind Lower’

Prices are “likely to grind lower” through 2014, Jeffrey Currie, the head of commodities research at Goldman Sachs Group Inc. in New York, said in a telephone interview Dec. 19. The metal will reach $1,050 by the end of 2014, the bank said in a Nov. 20 report. The Fed will probably cut its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of economists conducted on Dec. 19.

Gold Befuddles Bernanke as Central Banks’ Losses at $545 Billion

Posted: October 7, 2013 | Author: | Filed under: Bernanke, Central Banks, Forecasts, Gold, Inflation | Tags: , , , , , | 1 Comment

Ben Bernanke, the world’s most-powerful central banker, says he doesn’t understand gold prices. If his peers had paid attention, they might have stopped expanding reserves that lost $545 billion in value since bullion peaked in 2011.

Bernanke, who holds economics degrees from Harvard College and the Massachusetts Institute of Technology and led the Federal Reserve through the biggest financial disaster since the Great Depression, told the Senate Banking Committee in July that “nobody really understands gold prices and I don’t pretend to really understand them either.”

Ben S. Bernanke, the world’s most- powerful central banker, says he doesn’t understand gold prices.If his peers had paid attention, they might have stopped expanding reserves that lost $545 billion in value since bullion peaked in 2011. Photographer: Dario Pignatelli/Bloomberg

Central banks, which own 18 percent of all the gold ever mined, will add as much as 350 tons valued at about $15 billion this year, the London-based World Gold Council estimates. Photographer: Scott Eells/Bloomberg

Central banks, which own 18 percent of all the gold ever mined, will add as much as 350 tons valued at about $15 billion this year, the London-based World Gold Council estimates. They purchased 535 tons in 2012, the most since 1964. Russia is the biggest buyer, expanding reserves by 20 percent since prices reached a record $1,921.15 an ounce in September 2011. Gold slumped 31 percent since then.

As policy makers were buying, investors were losing faith in the metal as a store of value. The value of exchange-traded products dropped by $60.4 billion, or 43 percent, this year, saddling hedge fund manager John Paulson with losses, according to data compiled by Bloomberg. Billionaire investorGeorge Soros sold his holdings in the biggest gold-backed ETP this year and mining companies wrote down the values of their assets by at least $26 billion.

Worst Drop

Gold, which entered a bear market in April, slid 21 percent to $1,316.28 in London this year on Oct. 4, set for the biggest drop since 1981. It rose sixfold as it rallied for 12 successive years through 2012, beating a 17 percent gain in the MSCI All-Country World Index of equities as the Standard & Poor’s GSCI gauge of commodities more than doubled. It’s this year’s third-worst performing raw material, after corn and silver. Gold today fell to $1,310.33 an ounce.

Policy makers, who are responsible for shielding their economies from inflation, often mistime gold investment decisions, buying high and selling low. They were reducing holdings when bullion reached a 20-year low in 1999 and as prices as much as quadrupled in the next nine years. Central bankers became net buyers just before the peak in 2011.

“Central bankers have typically bought when you probably should be selling and selling when you probably should be buying,” said Michael Strauss, who helps oversee about $25 billion of assets as chief investment strategist and chief economist at Commonfund Group in Wilton, Connecticut. “It’s going to be a difficult market and sometimes the price of gold is driven by emotions rather than fundamental factors. Central banks have been bad traders of gold.”

Policy Makers

Holdings were little changed from the start of 2008 through early 2009. Then, policy makers increased gold reserves as prices doubled and they have purchased a net 884 tons since the 2011 peak, International Monetary Fund data show. Russia was the biggest buyer, adding about 171 tons. Kazakhstan bought 67.2 tons and South Korea purchased 65 tons. Turkey’s reserves swelled about 371 tons in the past two years as it accepted bullion in reserve requirements from commercial banks.

In addition to buying when prices rose, central banks sold into slumping markets, disposing of about 5,899 tons in the two decades from 1988, equal to about two years of current mine supply.

The U.K. auctioned about 395 tons from July 1999, a month before prices reached a two-decade low, through March 2002. Gold averaged about $277 as the country was selling. The Bank of England’s hoard of ingots and coins, including a bar smelted in New York in 1916, now totals 310.3 tons, or 13 percent of the nation’s total reserves.

Gold Standard

Warren Buffett, the fourth-richest person in the Bloomberg Billionaires Index and the world’s most successful investor, has said the metal has no utility because it moves to vaults once mined. While countries from the U.S. to the U.K. adopted a gold standard by the 19th century to limit inflation, no central bank or government institution links currencies directly to the metal anymore. The Fed, created a century ago, cut the dollar’s ties to gold four decades ago.

Bernanke, when asked to explain gold’s volatility and the long-term impact of reducing economic stimulus, told the Senate Banking Committee July 18 that investors see a reduced need for “disaster insurance.” In a Congressional hearing two years ago, he described the commodity as an asset rather than money and said central banks own bullion as a “long-term tradition.”

Following that tradition has proved a poor investment decision. Kazakhstan almost doubled reserves the past two years and South Korea expanded them sevenfold since mid-2011.

“Bernanke was suggesting in his own way that too much importance is given to gold, it’s too hyped,” said Nouriel Roubini, professor of economics and international business at New York University. “Gold is not a currency.”

Inflation Hedge

Bullion rose 70 percent from December 2008 to June 2011 as the Fed debased the dollar by pumping more than $2 trillion into the financial system, spurring demand for a hedge against inflation. That protection hasn’t been needed, because U.S. consumer prices have risen at an

average annual pace of 1.7 percent in the past five years, compared with a four-decade average of 4.3 percent, Bureau of Labor Statistics data show.

After taking inflation into account, gold is worth almost half of what it was in 1980. It reached a then-record $850 that year after U.S. political and financial turmoil in the late 1970s caused a surge in consumer prices. The metal is valued at $464 in 1980 dollars, according to a calculator on the website of the Fed Bank of Minneapolis.

Price Forecasts

The most accurate analysts say the bear market will deepen. Goldman Sachs Group Inc. andSociete Generale SA correctly forecast this year’s rout. New York-based Goldman says prices will drop to $1,110 in 12 months and Societe Generale, in Paris, sees an average of $1,125 in 2014. Prices will average $1,300 in the fourth quarter, the lowest in three years, according to the median of 12 analyst estimates compiled by Bloomberg.

Central banks bought metal as the Fed’s balance sheet swelled fourfold since 2008 and policy makers around the world lowered interest rates to record low levels. Greece, Ireland, Portugal, Spain and Cyprus needed bailouts since the European debt crisis erupted four years ago, sparking concern that nations would be forced out of the euro.

“There was a widely-circulated belief that the euro as a currency will cease existing,” said Michael Aronstein, the president of Marketfield Asset Management LLC in New York, whose MainStay Marketfield Fund beat 97 percent of its peers in the past five years. “A lot of foreign central banks thought they cannot keep the euro and did not want to increase dollars. It was desperation and fear that drove the surge in demand.”

Currency Flight / Gold Insurance ” Is There Any Good News? “

Posted: August 22, 2013 | Author: | Filed under: Bernanke, Central Banks, Tax Havens, The Federal Reserve | Tags: , , , , , , , | Leave a comment
English: Metro TV News Van at Merdeka Square, ...

English: Metro TV News Van at Merdeka Square, Central Jakarta. (Photo credit: Wikipedia)

reprinted from The Tax Haven Guru ( WordPress)

 

 What’s happening in the global economy.

The news this morning tells us that Thailand is in recession. Indonesia is in a bear market.

India‘s currency is plunging so rapidly that the government is desperately implementing capital controls. Japan‘s trade deficit was the third worst on record last month. in Italy, unemployment is at a record high, and financial-related suicides have increased 40% over last year (which itself was a record).

Adding insult to injury, the Italian government has banned cash transactions above 1,000 euros and rolled out a new army of tax police to seize people’s assets in a guilty-til-proven innocent system.

A banker from a  boutique firm in Austria specializing in physical gold products, asked very plainly during lunch today: “Is there any good news?”

You bet.

The good news is that this fraudulent system of unchecked, unbacked paper currency is finally coming to an end.

Of course, our faux-scientists who have been awarded society’s most esteemed prizes for intellectual achievement tells us that our monetary system is good, solid, and just.

But it’s insane to think that four men control over 70% of the world’s money supply.

In their sole discretion, they can effectively control the prices of everything, from real estate to rice options to the rates at which governments can borrow.

This system is simply not natural. It’s not natural to grant such power and control to a tiny banking elite, no matter what the experts tell us.

It’s so unnatural, in fact, it’s about as sensible as hanging out with grizzly bears.

Governments and economists are there to tell us that the bears are safe and have been tamed by qualified professionals… that the trainers are the smartest guys in the world, and we should just trust them.

It might work for a while… but eventually, people are just going toget mauled.

That’s our monetary system. And it doesn’t take a rocket scientist to see that it’s obviously not working. The signs are everywhere, from Japan to Jakarta, India to Italy.

And, as uncomfortable and difficult as interim transition period may be, the end of this corrupt fiat experiment is definitely something to celebrate.

The Gold Correction Is Not Over : Jim Rogers

Posted: June 18, 2013 | Author: | Filed under: Bernanke, Central Banks, Federal Reserve, Forecasts, Gold | Tags: , , , , , , , | 1 Comment
English: American investor Jim Rogers in Madri...

English: American investor Jim Rogers in Madrid (Spain) during an interview. Español: El inversor norteamericano Jim Rogers en Madrid (España) durante una entrevista. (Photo credit: Wikipedia)

POSTED ON JUNE 18, 2013 BY 

Legendary commodity investor Jim Rogers has never been shy about vocalizing his opinions about the investing world. In particular, Rogers has an affinity for commodities like ags and precious metals. Gold has been one of the most talked about hard assets of the last two years, as the metal soared to all-time highs, only to watch its price take a tumble in the months that followed. All along the way, Rogers had been calling for a correction for gold, and it is a sentiment that he still holds today

Gold In a Free Fall

Since making highs in September of 2011, the price of gold has dropped nearly 30%, as equities have rallied and investor interest in precious metals has waned. This has all happened despite the current $85 billion monthly printing from Ben Bernanke and the Fed, which many thought would spark inflationthereby sending gold higher. Thus far, inflation has stayed low and the appeal of gold has simply faded, as investors have increased their risk appetites and sought higher yielding securities.

Gold

With the threat of QE ending and markets maintaining a bullish momentum, the outlook for gold looks more bleak as the days go on, fueling Rogers’ comments that gold has yet to finish its current correction

Rogers on Gold

One of Rogers’ major sticking points was the fact that gold had 12 straight winning years, something that is unheard of for a commodity. In fact, the SPDR Gold Trust (GLD) and iShares COMEX Trust (IAU) have never had a down year for as long as they have been around. 2013 is shaping up to be a poor yield for gold, and Rogers does not see it ending anytime soon.

“Until it scares a lot of people, the correction is not over. I would certainly like the correction to be over this afternoon and see gold go to $2,000 or to $3,000, but that’s not reality,” said Rogers. He did maintain that while he was not currently buying the asset, he also was not selling, as he firmly believes that gold will resume its bull market at some point over the current decade.

Thus far, Rogers has been right on the money with his predictions for gold over the last two years, granting more weight to his recent comments. If gold continues to fall over the coming months, it could be an enticing entry point for investors looking to time the bottom of this precious asset.

 

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. 

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U.S. States Promote Bullion As Legal Tender ( Bloomberg )

Posted: April 9, 2013 | Author: | Filed under: Bernanke, Coins, Gold, Silver | Tags: , , , , , , , | 2 Comments
Ben Bernanke, chairman of the Board of Governo...

Ben Bernanke, chairman of the Board of Governors, The Federal Reserve Board, USA. (Photo credit: Wikipedia)

Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.

Arizona is poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.

The measures backed by the limited-government Tea Party movement are mostly symbolic — you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.

“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”

Bernanke has pushed interest rates to near zero since the 18-month recession that began in December 2007. The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth.

Tame Inflation

Consumer prices rose just 1.3 percent in February from a year earlier, according to an inflation measure favored by the Fed. That was below the central bank’s 2 percent target and compares with occasional bouts of more-than 10 percent increases in the 1970s and early 1980s.

Bets that inflation would pick up because of economic- stimulus measures helped fuel a 78 percent jump in gold since December 2008. The dollar’s rise to less than 1 percent below a one-year high set in July and monthly increases of about 2 percent or less in the U.S. consumer price index have curbed demand for bullion. Since reaching a record $1,923.70 an ounce in 2011, gold prices have fallen and are near a bear market.

Gold futures for June delivery fell almost 0.2 percent today, to $1,573.20 an ounce on the Comex in New York and have lost 6.1 percent this year. The price touched $1,539.40 on April 4, a 10-month low for a most-active contract.

Texas Depository

In Texas, lawmakers are considering a measure supported by Republican Governor Rick Perry to establish the Texas Bullion Depository to store gold bars valued at about $1 billion and held in a New York bank warehouse. The gold is owned by the University of Texas Investment Management Co., or Utimco, which took delivery of 6,643 bars of the precious metal in 2011 amid concern that demand for it would overwhelm supply.

The proposed facility would also accept deposits from the public, and would provide a basis for a payments system in the state in the event of a “systemic dislocation in a national and international financial system,” according to the measure.

Should Texas take such a step, it would offer sovereign backing for deposits and make buying and storing gold easier, said Jim Rickards, senior managing director at Tangent Capital Partners LLC in New York and author of “Currency Wars: The Making of the Next Global Crisis.” He said the coin measures, while impractical, have symbolic value.

“We are seeing a distinct movement back to a world where gold is considered money,” Rickards said.

Inflation Protection

The measures give “people the option of using money that won’t lose any purchasing power to inflation,” said Rich Danker, economics director at the American Principles Project. The Washington-based public-policy group supports the steps as well as a return to the gold standard, which pegged the dollar’s value to bullion. President Richard Nixon formally ended the convertibility of U.S. currency to the precious metal in 1971.

“People in these states find the idea of having the option to use hard currencies appealing over these policies they have no control over,” Danker said.

The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender. The measure being considered in South Carolina would recognize foreign or domestic minted coins as legal tender.

Utah’s law applies only to U.S.-minted coins, while other states are less clear on whether privately produced coins qualify. Arizona leaves the door open for private coins if they are declared legal by a non-appealable court order.

Tax Breaks

In Utah and some other states, the measures also eliminate state capital gains or other taxes on the coins.

Critics say the state measures are unwieldy. In Arizona, Senator Steve Farley, a Democrat, unsuccessfully offered an amendment that would have recognized as legal tender other state commodities, such as citrus fruit, as well as sunbeams. The amendment was intended to reflect the absurdity of the bill, said the 50-year-old lawmaker from Tucson.

“It is simply grandstanding to get people afraid that somehow President Obama’s agenda is going to drive us into hyperinflation and economic collapse,” Farley said. “We have enough real problems to deal with. I don’t see undercutting our entire financial structure as a priority.”

In Utah, officials haven’t yet figured out how to accept gold and silver for tax payments — though some residents have asked to pay that way — or integrate the precious metals into commerce, state Treasurer Richard Ellis said. Lawmakers have established a task-force to study implementing the law and to examine how the state can accept gold and silver, with their fluctuating values, for payment, Ellis said. He’s not optimistic that it will work, he said.

Regulatory Barriers

“People point to Utah and say we are leading the way, but nothing much has happened because regulatory hurdles have gotten in the way,” said Ellis, a Republican. If gold and silver is being used in the state as legal tender, it is probably only in transactions between individuals, he said.

The Utah Precious Metals Association, established after passage of the 2011 law to advocate for the use of gold and silver coins, has about two dozen members enrolled in a two month-old bill-pay service in which their accounts are held in gold, said Lawrence Hilton, the group’s chairman. Hilton envisions a future with an alternative monetary system based on precious metals in which merchants accept silver coin while gold mostly backs electronic transfers.

Gold Producers

The Republican-sponsored Arizona measure passed the House of Representatives 36-22 today, after being amended last week. Before landing on the desk of Governor Jan Brewer, a Republican, the bill must go back for another vote in the Senate, where it was approved 17-11 on Feb. 28. Gold is mined in both Arizona and Utah, while Nevada is the largest U.S. producer, according to figures from the National Mining Association in Washington.

The bill’s sponsor, Senator Chester Crandell, 66 of Heber, said he is convinced the move is the “logical thing for the state of Arizona to do.”

“I think you look at some of the things that are happening and the amount of money printed by the Federal Reserve and who has control of that money, and I think anybody would be concerned,” Crandell said. “Gold and silver have been around a long time and people are secure with it and we should give them an opportunity to use it.”

Bernanke The Return Of The U.S. To The Gold Standard

Posted: April 1, 2013 | Author: | Filed under: Bernanke, Central Banks, Forecasts, Gold | Tags: , , , , , , , | 1 Comment
Ben Bernanke dollar

Ben Bernanke dollar (Photo credit: Gage Skidmore)

here is the headline for Gold Bugs and Conspiracy Advocates –

it is not the position of THE AMP

Bernanke Announces Return To Gold Standard

POSTED ON APRIL 1, 2013 BY 

For years, investors and analysts have heavily criticized the actions of Federal Reserve Chairman Ben Bernanke. Bernanke has earned himself a slew of nicknames for his money printing, with the most popular being “Helicopter Ben.” After studying the Great Depression for many years, Bernanke felt that the reason the U.S. slipped into such a rough patch was because of the lack of money supply in the economy. This is one of the main reasons that he has maintained his quantitative easing programs that have involved exorbitant money printing.

But after pumping trillions into the system, Bernanke seems to have found himself cornered. National debt is at an all time high, and the Chairman has decided that a bold and abrupt change is needed if the U.S. wants to continue on the path to prosperity. Late yesterday, Bernanke made the shocking announcement of the return to the gold standard, which was abandoned decades ago. “The safest way for the economy to proceed is through a new system that holds more accountability for the U.S. dollar and its value in the global markets,” Bernanke said in his statement [for more gold news and analysis subscribe to our free newsletter].

The Gold Standard

In something of a mea culpa moment, the Chairman admitted that while his increased money supply has done well to prop up markets for the time being, it is not a sustainable solution. The reversion to the gold standard, he hopes, will allow the economy to march forward in a more stable manner. “The flexibility of a fiat currency has guided the U.S. through the toughest era since the Great Depression, but the time has come for a change,” said Bernanke.

Ben BernankeThe move comes after a wave of fears sparked by the Cyrpus banking scare. At a time when investors have little to no confidence in their local bank, the Chairman wanted to ensure that savings and investments will always be safe on American soil, hopefully giving citizens peace of mind to continue to trust local financial entities [see also 50 Ways To Invest In Gold].

One important thing to note is that the timeline for the return will be relatively drawn out and smooth. The Fed mandates that by 2015 all currency must be backed by at least 30% of its value in gold. That figure will increase to 50% by 2017 and to 100% by 2020. The move brings up a number of big questions, like whether or not the Fed will audit For Knox or other institutions that conspiracy theorists have been attacking for years. For now, we will have to wait for more specifics, but investors can already begin preparing.

Prepping for a Gold Standard

With a hard seven-year timeline, investors can already begin allocating to gold as this move will surely spark interest in the commodity. Some may choose to utilize stocks and ETFs, but physical bullion will likely be the most popular, as this will likely spark fears of a gold confiscation in order for the Fed to have enough bullion to justify the move. While a confiscation is extremely unlikely, there are those who still fear such a move.

The final question that remains to be seen is what happens in 2014 when Bernanke’s term ends. The Chairman has already hinted that another term is likely not in the books for him, so what will happen when someone else takes the reigns? Hopefully the change will be relatively seamless, but it will be worth keeping an eye on [see also Investing In Gold: The Definitive Guide].

The Bottom Line

With such monumental news coming seemingly out of nowhere, there is something that investors need to keep in mind. Today is April 1st  April Fools day. Let’s be honest, Bernanke is going to print money until the U.S. runs out of ink. But for a few paragraphs, it was fun to live in the fantasy world of a gold standard reversion. Happy April Fools Day to all, feel free to get your friends and co-workers with this article!

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Bernanke Seen Buying $1.14 Trillion in Assets in 2014

Posted: January 29, 2013 | Author: | Filed under: Bernanke, Central Banks, Federal Reserve, Forecasts, Inflation | Tags: , , , , , , , | Leave a comment
English: With his predecessor, Alan Greenspan,...

English: With his predecessor, Alan Greenspan, looking on, Chairman Ben Bernanke addresses President George W. Bush and others after being sworn in to the Federal Reserve post. Also on stage with the President are Mrs. Anna Bernanke and Roger W. Ferguson, Jr., Vice Chairman of the Federal Reserve. (Photo credit: Wikipedia)

Federal Reserve Chairman Ben S. Bernanke’s latest round of bond buying will reach $1.14 trillion before he ends the program in the first quarter of 2014, according to median estimates in a Bloomberg survey of economists.

Bernanke will push on with purchases of $40 billion a month of mortgage bonds and $45 billion a month of Treasuries, according to the survey of 44 economists, even as some Fed officials warn his unprecedented balance-sheet expansion will impair efforts to tighten policy when necessary.

 Jan. 28 (Bloomberg) — Nobel Prize-winning economist Paul Krugman of Princeton University talks about U.S. fiscal policy, Federal Reserve monetary policy and his prescription for economic recovery. Krugman speaks with Trish Regan and Adam Johnson on Bloomberg Television’s “Street Smart.” David Walker, chief executive officer of Comeback America Initiative and a former U.S. comptroller general, also speaks. (Source: Bloomberg)

“To get to the point where Bernanke would be comfortable letting up, you have to have a good solid string of economic reports that you’re just not going to get” this year, said Eric Green, global head of rates and FX research at TD Securities Inc. in New York and a former New York Fed economist.

The Federal Open Market Committee will renew its commitment to asset buying during a two-day meeting starting today after determining the benefits from the program exceed any risk of inflation or financial instability, according to economists surveyed Jan. 24-25. Bernanke has said the policy will continue until there are “substantial” gains in employment.

Fed officials have a brighter outlook for the economy than many private economists. FOMC participants forecast growth this year ranging from 2.3 percent to 3 percent, while economists in a separate Bloomberg survey have a median estimate of 2 percent.

“The economy is not going to be able to generate growth above 2 percent” as it faces headwinds from federal tax increases and a weak global expansion, Green said.

Job Creation

Fed asset purchases will probably do little to help reduce 7.8 percent unemployment, economists said, with 57 percent of them predicting the program won’t help boost the number of jobs created this year.

Economists who expect gains from so-called quantitative easing say it will account for an increase of 250,000 jobs during 2013. Last year, the economy added 1.8 million jobs.

Employers probably hired 160,000 workers in January, after a 155,000 increase in December, based on Bloomberg News survey of economists before the Labor Department reports the figures on Feb. 1.

In the first round of purchases, begun in 2008, the Fed bought $1.4 trillion of housing debt and $300 billion of Treasuries. In the second round, beginning in November 2010, the Fed bought $600 billion of Treasuries.

Mortgage Bonds

In the current round, the Fed’s total purchases will be split between $600 billion of mortgage-backed securities and $540 billion of Treasuries, according to the median estimates of economists in the survey.

Asked what would prompt the Fed to halt its bond buying, 63 percent of economists said the central bank will act in response to substantial improvement in the labor market.

Only 13 percent said the Fed will end its purchases because of accelerating inflation or a rise in inflation expectations.

Inflation for the 12 months ending in November was 1.4 percent, according to the Fed’s preferred gauge. That’s below the central bank’s longer-run target of 2 percent. Investors expect inflation of 2.24 percent over the next five years, compared with 2.1 percent when the FOMC met Dec. 11-12, as measured by the spread between Treasury Inflation Protected Securities and nominal bonds.

At the FOMC’s meeting last month, participants differed over how long the bond purchases should last. Fed officials who provided estimates were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date, according to minutes of the gathering.

Committee Efforts

A number of policy makers are concerned the size of the Fed’s holdings “could complicate the committee’s efforts to eventually withdraw monetary policy accommodation,” according to the minutes.

The percentage of economists who consider monetary policy “somewhat too easy” rose to 40 percent compared with 27 percent in a survey prior to the FOMC’s Dec. 11-12 meeting.

Boston Fed President Eric Rosengren, an FOMC voter this year, sees Fed accommodation working, citing recent improvement in the housing market and in auto sales.

“The most interest-sensitive sectors have been responding to the monetary stimulus from the Fed, and this stimulus has provided a major source of strength for the economy last year,” Rosengren said in a Jan. 15 speech in Providence, Rhode Island. “And it is likely to be a source of support in 2013.”

Vehicle Sales

In December, light vehicles sold at an annualized pace of 15.3 million, down slightly from November’s pace of 15.46 million, which was the highest since 2008. Builders broke ground on new homes at an annual pace of 954,000 last month, also the highest since 2008.

“Housing data continue to corroborate that something real is going on here, that housing has turned the corner,” said Josh Feinman, the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset management unit that oversees about $228 billion, and a former Fed economist. “That’s been a huge headwind obviously holding us back.”

An improving economic outlook has helped drive stocks to the highest level in more than five years and yesterday pushed up the yield on Treasury 10-year notes briefly to 2 percent for the first time since April.

The Standard & Poor’s 500 Index closed Jan. 25 at 1,502.96, the highest since Dec. 10, 2007, and ended trading yesterday at 1,500.18, down 0.2 percent. The yield on the 10-year Treasury note rose yesterday one basis point, or 0.01 percentage point, to 1.96 percent in New York.

$3 Trillion

St. Louis Fed President James Bullard and Kansas City’s Esther George are among regional bank presidents voicing concern about the risks from bond buying, which this month pushed the balance sheet above $3 trillion for the first time.

Bullard told reporters in Madison, Wisconsin, on Jan. 10 that the Fed’s stance is “a very aggressive policy, and it is making me a little bit nervous that we’re over-committing to easy policy.”

George said in a Jan. 10 speech in Kansas City, Missouri, that “a prolonged period of zero interest rates may substantially increase the risks of future financial imbalances.”

George, Bullard and Rosengren, along with Chicago Fed President Charles Evans, assume voting seats on the committee this year in an annual rotation among the district bank presidents

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The Silver and Gold Price ‘Super Cycle’ Is Far from Over

Posted: December 8, 2012 | Author: | Filed under: Bernanke, Central Banks, Forecasts, Gold | Tags: , , , , , , , | Leave a comment
Seal of the United States Federal Reserve Syst...

Seal of the United States Federal Reserve System. The seal has most of the elements of the Board of Governors seal. A version is printed on all U.S. Federal Reserve Notes redesigned since 1996 (replacing the letter of the bank which printed the note, which was used in earlier designs). (Photo credit: Wikipedia)

“Money Morning’s Peter Krauth expects gold prices to reach all-time highs next year as global economies become increasingly inflated with fiat money, fresh supplies of gold remain low and demand for gold continues to increase, even among central banks.”

 

Looking at a 10-year gold prices or silver prices chart and seeing respective gains of 423% and 650% can get investors pretty excited, and for good reasons.

Whether you enjoyed the previous commodities bull run and are currently adding to your positions, or just initiating one, now is the time to buy gold and silver, as both are expected to continue climbing in value.

The “commodities super cycle is far from over” is a sentiment Money Morning Global Resource Specialist Peter Krauth has repeatedly shared with readers, and it was reiterated today by Jeffrey Currie, head of Commodity Research at Goldman Sachs Group Inc. (NYSE: GS).

“We believe current market developments are simply the next phase of a commodity investment cycle that commenced in the late 1990s and, like previous phases, it will create new investment opportunities and should therefore be viewed more as a renaissance,” Currie told Bloomberg News.

This “renaissance” is something investors should enjoy by having part of their portfolio invested in precious metals and other commodities.

Here’s why.

Gold Prices in 2013 Will Reach All-Time Highs

Both individuals and institutions are scrambling to buy gold as uncertainty surrounding the fiscal cliff and the dollar’s future weigh on investors’ minds.

Money Morning’s Krauth expects gold prices to reach all-time highs next year as global economies become increasingly inflated with fiat money, fresh supplies of gold remain low and demand for gold continues to increase – even among central banks.

Gold’s run has largely been spurred by central banks through their rapid and unprecedented increases to the global monetary supply.

The U.S. Federal Reserve is currently purchasing $85 billion a month in bonds and has plans to continue that for possibly two years, which would put the total bill for QE3 around $2 trillion. Europe is trying to keep up with the U.S. through stimulus measures of its own, and China and Japan aren’t too far behind.

From a demand standpoint, two of the fastest-growing nations, India and China, have grown to account for 47% of global demand for gold, up from 23% 10 years ago. Demand is also growing among central banks, which have already bought 493 tons of gold so far this year, surpassing last year’s total.

For all these reasons, we expect gold prices to set an all-time record nominal price in 2013, and to reach the $2,200 level in the process.

Silver Prices like “Gold on Steroids”

As history has shown, silver moves almost in sync with gold, but exaggerates its movements, both on the up and down sides.

That’s why we like to think of silver as “gold on steroids.”

Today, silver is trading around $33, but our 2013 silver price forecast now has the shiny metal going much, much higher.

What will cause this rise?

Since it’s slaved to its richer cousin, all the fundamentals for higher gold apply.

Besides technical indicators, such as the gold/silver ratio, and investor demand, silver prices are geared for a move upward on industrial demand alone.

From solar panels to electronics and medicine, silver has a wide range of industrial uses that translate into even more reasons to be bullish on silver.

And even if Ben Bernanke is replaced as Fed chairman, the fact that U.S. President Barack Obama will be appointing his replacement means more of the same fiscal policies that resulted in silver’s remarkable run in the first place.

That’s why Krauth now sees $54 as the next price target in silver’s relentless and historic climb.

For those looking to play other commodities that should continue their super cycle, check out the S&P GSCI Spot Index. It covers 24 raw materials from energy, industrial and precious metals, as well as other raw materials. The index is basically flat this year but has increased almost fourfold since 2001.

TGR: That makes a nice transition into gold. Precious metal investor and Cranberry Capital CEO Paul van Eeden recently said that gold was overvalued. Do you agree?

JH: Mr. van Eeden correctly pointed out that the problem in the U.S. is not inflation, but debt. And I agree with him that the predictions for imminent hyperinflation are overblown. But that is where our agreement ends.

“Precious metals equities are undervalued right now relative to bullion.”

I think his methodology for calculating money supply and gold’s true value is flawed in that he incorporates worldwide gold supply, but compares it only to the U.S. dollar. Demand is strong worldwide and gold has been making new highs in several currencies, not just the dollar.

I also disagree with his notion that the Fed will be able to easily sell assets back into the market to control the inflation that is likely to occur. I’m not sure there would be many buyers of such low yielding bonds in an inflationary environment. The Fed is already forced to buy over 50% of bonds the government auctions during the current environment of relatively low inflation.

Mr. van Eeden has been calling gold overvalued for years now. I think he is a bright analyst and I enjoyed his commentary on gold earlier in this bull market, but he has now joined the ranks of a few other gold bears who have been consistently wrong about the gold price. They will eventually be correct about gold being overvalued, but I suspect it will be a number of years and a few thousand dollars higher before that happens. That being said, I could see some sell-off in gold occurring as a knee-jerk reaction by leveraged investors, but interest rates would have to rise substantially above the true rate of inflation for any serious or lasting impact. Such a move would sink the stock market, which is not something the politicians or central planners would allow. They would prefer to print more money, debase the currency and present the illusion of continued prosperity rather than take their medicine. I do not see interest rates rising any time soon.

The only way to deal with a banking system that is so overleveraged and a government so burdened with debt is to allow the free market to reprice the debt—to reprice housing and equities to their true free market value. However, that would cause the banking system—and possibly the entire world economy—to collapse.

The alternative is to fire up the printing presses, inflate away the debt and hope that the bad loans will once again become solvent. If you study history, you are likely to forecast that the government will choose this option over a deflationary collapse, which will continue to push gold higher in dollar terms.

More broadly speaking, if you take two forms of money valued relative to each other (demand being somewhat constant), the one that increases in quantity faster will lose value against the other. Growth in the gold supply is relatively flat, about 1.5% annual growth. The growth of the supply of almost all fiat currencies ranges from 8–10% on average. To me, that says that gold priced in dollars or any other currency being debased will go up in value relative to that currency.

The other factor to consider is velocity of money, which has been low and has held inflation in check thus far. But in light of quantitative easing (QE) to infinity, which is essentially what QE3 is, recent improvements in housing and the stock market, and some proposed legislative changes to get banks lending, we might see this change in 2013. If velocity picks up, we could see inflationary forces start to take hold. If just a small amount of all of the new money created over the past five years were to begin flowing through the economy, the impact could be significant.

TGR: You rely on technical charts for your advice to your readers. What do your technical charts tell you gold will do in 2013?

JH: I just ran this exercise for my subscribers, and came up with a chart showing the minimum target price of gold at $2,200 an ounce (oz) and over $3,000/oz on the high end by the end of 2013. These prices represent gains in the 35–75% range from the current price. It is a much more aggressive annual return than I would usually forecast—much higher than the average annual rate over the past 10 years.

Gold chart

However, precious metals have been consolidating for well over a year. The chart has an incredible amount of pent-up upside potential for 2013. Plus, the gold price is now bouncing around the bottom line of its trend channel. A failure to push higher and break $2,200/oz by the end of 2013 would mean that gold has fallen out of its long-term trend channel and signal the end of the bull market. I put the likelihood of that outcome at less than 5%. Thus, I think the official, inflation-adjusted high of $2,400/oz will be taken out within the next 12 months.

TGR: Given that prediction, should investors be buying gold, gold equities or both?

JH: I recently published an article on this topic and the answer is: It depends. From 2001 to 2005, gold was up roughly 92% and gold stocks up 648%. In this period you would have seen seven times greater returns investing in gold stocks.

“I view technical analysis as just another data point for reference, not as a panacea for forecasting price movements.”

From 2006 to today, the NYSE Arca Gold BUGS Index (HUI) of gold stocks advanced by about 39% while gold itself is up 232%. That equals about a six times greater return for physical gold than mining shares.

However, if you combine both periods and look at the entirety of the current bull market, gold stocks have been the better investment. From 2001 through Nov. 12, 2012, physical gold has appreciated by 537%. However, gold stocks have gone up nearly twice the rate of gold for a gain of 936%. This is the leverage that seasoned investors remember and it drives our decision to allocate a significant portion of our portfolio to mining stocks. That said, I believe it is best to own both bullion and mining shares, because they serve different purposes.

Just from the start of August through mid-November, the gold price advanced 8%. Gold stocks were up 18%. That is leverage of roughly 2.4 times. It is hard to say if that will continue, but it is a positive sign for investors in mining stocks.

TGR: When you look at technical charts for precious metals equities, what do you look for, other than an upward trend?

JH: I view technical analysis as just another data point for reference, not as a panacea for forecasting price movements. In markets that are as manipulated as ours, where large firms tilt the level playing field via high-frequency trading and collocation, and banks use their leverage to push prices, I take technical analysis with a large grain of salt.

That being said, I look for the usual trend channels, support and resistance indicators, volume levels, momentum indicators, (Fibonacci) retracements, whether the stock is making lower lows or higher highs. I couple these insights with the timing of fundamental developments for miners: drill results, resource updates, upcoming preliminary economic assessments (PEAs) or feasibility studies to try to time our entry and exit points on trading positions. Our model portfolio also contains long-term holds or core positions that we do not trade.

TGR: What is your investment thesis for precious metals equities?

JH: The equities are undervalued right now relative to bullion. A lot of that has to do with distrust of the stock market and of Wall Street in general, after all of the fraud and failures in the past years. But if the market holds up for a while longer and current trends continue, I think we will see mining stocks continue to outperform gold.

TGR: Which precious metals equities are you telling your readers about?

JH: I have been an early advocate of the streaming royalty model in the mining sector. Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) pioneered it and some of its management broke off to start up a similar company in Sandstorm Gold Ltd. (SSL:TSX.V). I first bought Sandstorm at around $0.50/share; it now trades around $13/share and is up nearly 200% since our last purchase.

Streaming companies make an advance payment to a company with a pre-production stage mineral deposit in exchange for a negotiated percentage of the metal produced for the life of mine.

This model gives companies diversification and risk mitigation because it has agreements with several different miners. There is unlimited upside potential in that the deal is usually for a percentage of the production mine life and limited downside risk if a miner sees its profit margins squeezed as the agreed purchase price is fixed.

Streamers also enjoy an advantageous tax situation, with rates that are usually much lower than tax rates for mining companies.

The Gold Investor’s Handbook – click here for  investment profits and much more detail on the in’s and outs of investing in gold

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Gundlach Interview : Euro Defaults and Inflation Ahead

Posted: November 30, 2012 | Author: | Filed under: Bernanke, Bonds, Euro, Euro Zone, Forecasts, Inflation | Tags: , , , , , , , | Leave a comment
English: With his predecessor, Alan Greenspan,...

English: With his predecessor, Alan Greenspan, looking on, Chairman Ben Bernanke addresses President George W. Bush and others after being sworn in to the Federal Reserve post. Also on stage with the President are Mrs. Anna Bernanke and Roger W. Ferguson, Jr., Vice Chairman of the Federal Reserve. (Photo credit: Wikipedia)

Nov. 30

The cover story of the new Bloomberg Businessweek is an excellent and comprehensive profile of bond god Jeff Gundlach.

The reporters Seth Lubove and Alexis Leondis also laid out his longer term outlook for the world as the economy enters what he call “phase three.”

Deeply indebted countries and companies, which Gundlach doesn’t name, will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy — at the risk of higher inflation in coming years.
…
“I’m waiting for something to go kaboom,” Gundlach says in his office a week before the L.A. speech. “If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.”

According to the report, Gundlach recommends investors start positioning their portfolios now as there will be little warning when the “kaboom” happens.

For now, Gundlach recommends buying gemstones, art, commercial real estate, and other hard assets.

Gundlach’s DoubleLine Funds plans to off a long-short equity fund to provide inflation-adjusted returns.  He’s also sitting on cash because he expects there to eventually be extraordinary opportunities when asset prices tumble.

Adding color to his call, Gundlach discusses U.S. policy:

In the U.S., Gundlach sees a postelection, pre-fiscal cliff economy that’s growing anemically and only because of consumer loans, government stimulus and the Fed. He says inflation could jump by 2 percentage points if the Fed ramps up its purchases of government debt beyond what it has done so far.

Led by Chairman Ben S. Bernanke, the Fed has purchased $2.3 trillion in securities in two rounds of quantitative easing since 2008. And it may extend its third round through 2013 and climb past a total of $1 trillion in purchases, according to economists interviewed by Bloomberg.

“You’re just going to build up pressure in the pressure cooker, and when it blows, the lid will blow sky-high, and that’s when you get to phase three,” Gundlach says

 

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Happy Anniversary Helicopter Ben!

Posted: November 22, 2012 | Author: | Filed under: Bernanke, Central Banks, Inflation, Quantitative Easing, The Federal Reserve | Tags: , , , , , , , | Leave a comment

 

Happy Anniversary Helicopter Ben!

Posted: 21 Nov 2012 11:13 AM PST

Happy anniversary Helicopter Ben!

It was 10 years ago today that Mr. Bernanke gave his speech titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here” as at the time some “expressed concern that we may soon face a new problem, the danger of deflation or falling prices” as reported inflation rates were low at the time as the economy was in its post stock market bubble malaise.

In the speech he said, “US dollars have value only to the extent that they are strictly limited in supply. But the US Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

We conclude that, under a paper money system, a determined government can always generate higher spending and hence positive inflation.” He then went on to ironically say, “Of course, the US government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).”

The CRB index proceeded to rally 159% over the following six years and gold, on that day in 2002 at $317.60, has ‘only’ risen 444% since. We have now 10 years of economic results and the attached debt due to the Fed’s attempt to avoid deflation after the 2001-2002 stock market bubble popping induced recession.

http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
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