Posted: December 8, 2013 | Author: jackbassteam | Filed under: AMP Books and Seminars, Central Banks, Gold, Inflation | Tags: Currency, Gold, gold sovereign, Inflation, intrinsic value |
What makes a good currency?
First off, it doesn’t have to have any intrinsic value. A currency only has value because we, as a society, decide that it does.
That’s the other secret of gold’s success as a currency – gold is unbelievably beautiful”
As we’ve seen, it also needs to be stable, portable and non-toxic. And it needs to be fairly rare – you might be surprised just how little gold there is in the world.
If you were to collect together every earring, every gold sovereign, the tiny traces gold in every computer chip, every pre-Columbian statuette, every wedding ring and melt it down, it’s guesstimated that you’d be left with just one 20-metre cube, or thereabouts.
But scarcity and stability aren’t the whole story. Gold has one other quality that makes it the stand-out contender for currency in the periodic table. Gold is… golden.
All the other metals in the periodic table are silvery-coloured except for copper – and as we’ve already seen, copper corrodes, turning green when exposed to moist air. That makes gold very distinctive.
“That’s the other secret of gold’s success as a currency,” says Sella. “Gold is unbelievably beautiful.”
But how come no-one actually uses gold as a currency any more?
The seminal moment came in 1973, when Richard Nixon decided to sever the US dollar’s tie to gold.
Since then, every major currency has been backed by no more than legal “fiat” – the law of the land says you must accept it as payment.
Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed.
Continue reading the main story
Find out more
In Elementary Business, BBC World Service’s Business Daily goes back to basics and examines key chemical elements – and asks what they mean for businesses and the global economy.
And here lies the problem with gold. Its supply bear no relation to the needs of the economy. The supply of gold depends on what can be mined.
In the 16th Century, the discovery of South America and its vast gold deposits led to an enormous fall in the value of gold – and therefore an enormous increase in the price of everything else.
Since then, the problem has typically been the opposite – the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.
The demand for gold can vary wildly – and with a fixed supply, that can lead to equally wild swings in its price.
Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently.
That is hardly the behavior of a stable store of value.
So, to paraphrase Churchill, out of all the elements, gold makes the worst possible currency.
Apart from all the others.
Learn more with The Gold Investor’s Handbook for Amazon.com
Posted: November 4, 2013 | Author: jackbassteam | Filed under: Gold, Inflation, Jack a. Bass Managed Accounts, Peter Schiff, Precious Metals, Quantitative Easing | Tags: Euro Pacific Capital, Euro Pacific Capital Inc., Gold, Goldman Sachs Group Inc., Peter Schiff |
The unabashed gold bug’s Euro Pacific Capital Inc. manages a $20 million mutual fund that invests in stocks related to the metal and lost 6.4 percent since it began in July. The Philadelphia Stock Exchange Gold and Silver Index slid 1.8 percent in the same period.
Peter Schiff, chief executive officer and chief global strategist of Euro Pacific Capital Inc., predicts bullion will reverse its 21 percent year-to-date decline and probably surge 52 percent to reach a record $2,000 an ounce within a year. Photographer: Haruyoshi Yamaguchi/Bloomberg
Peter Schiff, chief executive officer and chief global strategist of Euro Pacific Capital Inc. Photographer: Jin Lee/Bloomberg
Schiff, 50, isn’t fazed that gold is heading for its first annual price drop in 13 years, or that Goldman Sachs Group Inc. has called it a “slam-dunk sell.” He predicts bullion will reverse its 21 percent year-to-date decline and probably surge 52 percent to reach a record $2,000 an ounce within a year. That’s just the beginning: Before President Barack Obama leaves office in 2017 the U.S. will default, the dollar will collapse, hyperinflation will strike and gold will skyrocket, he says.
“I’m waiting for the dollar crash, I’m waiting for the real crisis to hit that I know will benefit gold,” Schiff said Oct. 18 over lunch of spinach-and-beet salad and stewed rabbit in the sun room after the radio show. “The longer it takes, the longer I have to wait for that payday. But the longer it takes, the bigger that payday is going to be.”
Critics Laugh
With inflation at or below the Fed’s 2 percent target for the past 11 months, the Standard & Poor’s 500 stock index reaching record levels and the dollar strengthening against major currencies in the past year, Schiff knows his forecasts make some people laugh. He’s used to it. They also scoffed in 2006 when he predicted on television that housing pri
ces would plunge, lenders would go bankrupt and stocks would plummet, as they did two years later.
“They should take him seriously — he was right with a lot of other ones,” Ron Paul, the former Republican Representative from Texas who has called for abolishing the Federal Reserve and auditing the U.S. gold depository at Fort Knox, Kentucky, said by phone on Oct. 23. Schiff was an economic adviser to Paul’s presidential campaign in 2007.
No Danger
“They don’t want to admit that people in the free market are right because they would have to give up government planning and government power and give up their wars and give up the welfare state,” Paul said.
Schiff’s predictions don’t persuade Austan Goolsbee, an economics professor at the Booth School of Business at the University of Chicago and former chairman of the Council of Economic Advisers under Obama.
Gold bugs, investors who buy the metal as protection against a collapse in financial assets, fail to understand that the Fed’s pumping money into the economy only offsets banks’ tighter lending and stockpiling cash, Goolsbee said. Until credit conditions return to “normal,” there’s no danger of inflation, he said.
THE GOLD INVESTOR’S HANDBOOK – available now from Amazon.com
AMP Gold and Precious Metals Portfolio: The Gold Investor’s Handbook Paperback – September 18
Posted: October 7, 2013 | Author: jackbassteam | Filed under: Bernanke, Central Banks, Forecasts, Gold, Inflation | Tags: Ben Bernanke, Bernanke, Central bank, Central Banks, Golb, Inflation |
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.”
Posted: April 15, 2013 | Author: jackbassteam | Filed under: ETF, Forecasts, Gold, Inflation, The Federal Reserve | Tags: Agnico-Eagle Mines, Barrick Gold, Business Insider, Friday, New York Stock Exchange, Silver Wheaton, Toronto Stock Exchange, Yamana Gold |
English: Gold bars created by Agnico-Eagle (Photo credit: Wikipedia)
Gold (GC :US$1486.00)
SPDR Gold ETF (GLD : NYSE : US$143.64),
Barrick Gold (ABX : TSX : $22.93)
Agnico-Eagle Mines (AEM : TSX : $36.11),
Alamos Gold (AGI : TSX : $11.53), Net Change:
Allied Nevada Gold (ANV : TSX : $13.30),
Argonaut Gold (AR : TSX : $6.73),
B2Gold (BTO : TSX : $2.60),
Pan American Silver (PAA : TSX : $14.87),
Silver Wheaton (SLW : TSX : $26.75),
Yamana Gold (YRI : TSX : $13.25),
Gold’s Great Collapse.
Gold broke a key support level ($1,532) on Friday, which triggered some climactic panic selling. Silver was also crushed. Friday will be the day many will remember as the day that finally broke the hardened gold bulls’ back.
The SPDR Gold ETF traded monstrous volume on Friday, the ETF’s 30-day average volume is 9.1 million. Gold’s harsh correction year-to-date (down ~11.5% in U.S. dollars) has been explained by improving signals in the U.S. economy which has increased the perceptions of a shortened life to the Fed’s QE3 program.
We have seen liquidation in the COMEX non-commercial gold positions and ETF holdings and related redemptions in precious metals funds. As the Business Insider put it, “[T]he collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out.
It’s great that our economic elites know what they’re talking about, and have the tools at their disposal to address crises without creating some new catastrophe. Things aren’t great in the economy, but the collapse/hyperinflation fears haven’t panned out, and the decline in gold is a manifestation of that.” accelerated to the downside. Those who still remain bullish on gold and gold equities were found at their favourite watering holes on Friday uttering the following:
1) I believe that macro-economic conditions support sustainably high gold prices, including record global U.S. dollar liquidity, low real interest rates, and Eurozone sovereign debt concerns;
2) the gold price and equity valuation multiples appear oversold to the point where I have seen contrarian insider buying;
3) 2013 guidance generally appears conservative; and
4) the sector will likely be coming out of a peak in growth capital spending towards the end of this year which paves the way to increasing net free cash flows and potentially higher dividends.
Posted: March 4, 2013 | Author: jackbassteam | Filed under: Central Banks, Euro, Euro Zone, Gold, Inflation, Interest Rates |
Warren Buffett speaking to a group of students from the Kansas University School of Business (Photo credit: Wikipedia)
- Over the weekend, rising politician Beppe Grillo, leader of Italy’s anti-establishment Five-Star Movement, told German newspaper Bild that he supports an online, non-binding referendum on euro membership in Italy. Nearly half of Italians think they would be better off without the euro.
- During incoming Bank of Japan chief Haruhiko Kuroda’s confirmation hearing last night, Kuroda said he would do “whatever it takes” to end deflation. Using this phrase, Kuroda borrowed from ECB President Mario Draghi‘s playbook. Draghi famously said these words in July 2012, reversing the course of upward-spiraling government borrowing costs in the euro area. However, the Japanese yen did not continue its downward trajectory against the U.S. dollar on the news.
- Federal Reserve Chairman Ben Bernanke gave a speech on long-term interest rates on Friday night at 10 PM ET. In the speech, Bernanke sought gave an explanation of why interest rates are so low and sought to re-assure that the Fed is not looking to tighten monetary conditions any time soon.
- In an interview with CNBC this morning, Warren Buffett said he was buying stocks now, but not because he thought they would keep going up. Instead, he said he was buying them because they were a good value. The comments follow the release of Buffett’s annual shareholder letter after the closing bell on Friday.
- Sentix euro zone investor confidence tumbled to -10.6 from -3.6 in January. Economists were only predicting a much smaller drop to -4.3. According to Sentix (via the Guardian), “The reason for this setback is obvious: it is the outcome of the election in Italy which has caused uncertainty over the country’s future development to skyrocket….This has had a negative impact on the whole euro zone.”
Posted: February 18, 2013 | Author: jackbassteam | Filed under: Central Banks, Inflation | Tags: Ben Bernanke, Brussels, China, Currency war, Japan, London, Moscow, Tokyo |
English: Japanese Prime Minister Shinzo Abe at the G8 summit in Heiligendamm. (Photo credit: Wikipedia)
By PATRICK SMITH, The Fiscal Times
February 18, 2013
Finance ministers and central bankers—not to mention currency traders—were all a-dither last week, girding themselves to fight the arriving danger. The euro was too high and choking a nascent recovery; the yen had lost roughly 20 percent of its value against the dollar and the euro since last November; the dollar was at the $1.33 level against the euro after trading in the $1.20 range a few months ago. We must stop this “economic warfare,” one European official said.
“Abenomics,” as Japan’s new policies are known in the markets, is Keynesian deficit spending by any other name. And they have so far shown a positive result. Japan had a lousy fourth quarter, but that was not Abe’s doing. Apart from stimulating the economy, Abe has also brought down the value of the yen—by about 25 percent against the euro and 13 percent against the dollar since the start of the year. This is not currency manipulation. It is Keynesian economic policy.
RECOGNIZING THE DIFFERENCE
The best thing to come out of last week’s remarkable turmoil in the currency markets and the bland-beyond-belief communiqués to emerge from the Group of 7 in Brussels and the Group of 20 in Moscow is that we no longer have to worry about currency wars. This is so not because anybody has narrowly averted one. It is because we now know there is no such thing.
A snippet from the G–20 communiqué issued over the weekend said, “We will refrain from competitive devaluation.” “We will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open,” the group of advanced and middle income nations stated.
Currency values are an important feature of a nation’s economy. You want a strong currency if you want to be a safe haven for investors and if you want to invest overseas. You want a weak currency if you want your exports to do well and keep your economy globally competitive.
But currency values are not a function of policies, except in some developing countries. Neither Washington nor London nor Tokyo nor Frankfurt has a currency policy per se. In the era of free exchange rates, the worth of a given currency reflects the overall health and economic policies of the issuing nation, notably (but not only) its interest rates. Debt, deficits, and much else figures in.
THE CHINA EXCEPTION
The only exceptions are countries that manipulate their currencies, and in this respect China is getting away with something near murder. Presumably to get its signature on the G–20 communiqué, ministers and central bankers agreed not to single out China for “targeting” the exchange value of the yuan. Of course it does: China suffers a distorted dependence on exports. So in the case of China we are now in the business of saying the sky is not blue.
This brings us to what we are witnessing amid all the unnecessary turmoil in the currency markets and the statements and counter-statements issuing from ministerial offices. I count two important turns.
First, as the Japanese example demonstrates, what we are actually seeing—from Tokyo to Washington to Brussels and even to London—is not the start of a currency war but a shift in fundamental economic priorities from a neoliberal obsession with inflation and price stability to the need to stimulate jobs and therefore demand.
This is proceeding at various paces. Fed Chairman Ben Bernanke is on the record as of December: American interest rates will remain at historical lows until unemployment gets pounded down to 6.5 percent. That is not terribly different from what the Bank of Japan is now doing.
The Bank of England still puts price stability above “growth and employment,” as its mandate reads, but the Conservative government is coming under increased pressure—not least from Olivier Blanchard, the International Monetary Fund’s influential chief economist—to adjust its priorities.
The Europeans—leave it to them—are bickering about the pace at which they should shift toward stimulus, but they are getting there. French President François Hollande has been calling for a targeted exchange rate—meaning let’s bring the euro down as a matter of policy—but that is a misreading of the moment.
Second comes a more philosophic question. Is it time to call central bank independence the fiction that it is? Prime Minister Abe practically pinned the Bank of Japan’s governor to the wall to get his agreement on the inflation question. It is a case in point. The financial crisis that has now been with us five years has exposed the fallacy that central bank officials—think of Alan Greenspan, the pre-crisis “saint” —operate without reference to the political or ideological leanings of the administrations under which they serve. The Bank of Japan now reflects Tokyo’s economic policy; Ben Bernanke reflects the White House’s.
What we have been calling “the currency wars” these past couple of weeks is nothing more than a process of adjustment. Exchange values will settle. We have entered a period where economic priorities are changing on a global scale. This reflects a shift in views even from last autumn, when austerity was still the faith. This adjustment will have its effect on currency values, let there be no question. Do not mistake it for a war.
Posted: February 15, 2013 | Author: jackbassteam | Filed under: Central Banks, Eric Sprott, Gold, Inflation | Tags: Bank of America, Bloomberg, China, Credit Suisse, Goldman Sachs, Soros Fund Management, SPDR Gold Shares, US Securities and Exchange Commission |
English: Crystaline Gold (Photo credit: Wikipedia)
Gold traders are the most bearish in more than a year on mounting speculation that improving economic growth from the U.S. to China will curb demand for this year’s worst-performing precious metal.
Twenty analysts surveyed by Bloomberg this week expect prices to fall next week, while 11 were bullish and three were neutral, making the proportion of bears the highest since Dec. 30, 2011. Hedge funds cut bets on higher prices by 56 percent since October and are approaching their least bullish stance on gold since August, government data show. The metal fell to a five-week low yesterday, and billionaire investors George Soros and Louis Moore Bacon reported reduced stakes in exchange-traded products backed by gold.
First-time jobless claims in the U.S. decreased more than estimated last week, while a Chinese government-backedsurvey showed manufacturing expanded in January. Growth will accelerate in the world’s two largest economies in coming quarters, according to more than 100 economists surveyed by Bloomberg. Investors cut record bullion holdings in exchange-traded products this year and added to funds backed by other precious metals that are used more in industry.
“The global economic recovery is on track,” said Andrey Kryuchenkov, a commodity strategist in London at VTB Capital, a unit of Russia’s second-largest lender. “The persistently decent macro data is denying gold its usual safe-haven properties. You can get better returns elsewhere.”
Gold prices that rallied the past 12 years will probably peak in 2013, or already have, according to Goldman Sachs Group Inc. and Credit Suisse Group AG.
Gold Price
The metal fell 2 percent to $1,641.88 an ounce in London this year, reaching $1,637.95 yesterday, the lowest since Jan. 4. Gold climbed 7.1 percent last year in the longest annual rally in at least nine decades. The Standard & Poor’s GSCI gauge of 24 commodities is up 5 percent this year and the MSCI All- Country World Index of equities gained 4.8 percent. Treasuries lost 1.1 percent, a Bank of America Corp. index shows.
Gold’s drop compares with a 0.6 percent gain for silver this year. Platinum and palladium rose at least 9.4 percent on concern mine supply will fall as demand increases. An ounce of platinum bought as much as 1.054 ounces of gold yesterday, the most in 17 months, data compiled by Bloomberg show. Industrial usage accounts for about 10 percent of bullion consumption, compared with more than half for the other three metals.
Reduced Holdings
Gold ETP assets reached a record 2,632.5 metric tons on Dec. 20 as policy makers from the Federal Reserve to the Bank of Japan pledged more action to stimulate growth. Holdings are down 0.9 percent this year, while silver products rose 2.9 percent, platinum 9.9 percent and palladium 13 percent, data compiled by Bloomberg show.
Soros Fund Management reduced its investment in the SPDR Gold Trust, the biggest fund backed by the metal, by 55 percent to 600,000 shares as of Dec. 31 from three months earlier, a U.S. Securities and Exchange Commission filing showed yesterday. Bacon’s Moore Capital Management LP sold its entire stake in the SPDR fund and lowered holdings in the Sprott Physical Gold Trust. Paulson & Co., the largest investor in SPDR, kept its stake at 21.8 million shares, a filing showed.
2011 Peak
Bullion is unlikely to return to its September 2011 high of $1,921.15 because of accelerating U.S. growth and contained inflation, Credit Suisse said in a Feb. 1 report. Goldman forecast in a Jan. 18 report that gold will climb to $1,825 in three months and peak this year.
U.S. economic growth will accelerate every quarter this year to a median 2.7 percent in the final three months, according to 87 estimates compiled by Bloomberg. China’s expansion will pick up to a median 8.3 percent in the third quarter from 8.1 percent in the first, according to 34 estimates compiled by Bloomberg.
Even as the recession in Europe deepened more than economists forecast last quarter and Japan’s economy shrank, the International Monetary Fund predicts global growth will climb to 3.5 percent this year from 3.2 percent in 2012.
“There’s a lack of imminent financial disasters at the moment,” said John Meyer, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “Investors are going for a more risk-on approach and that tends to lead them away from gold.”
Inflation
Gold generally earns returns only through price gains and some investors buy it as a hedge against inflation and currency declines. While consumer-price gains are below the Fed’s 2 percent target, inflation expectations measured by the break- even rate for five-year Treasury Inflation Protected Securities jumped 13 percent this year and reached a four-month high on Feb. 6.
Finance ministers from the Group of 20 gather this weekend in Moscow amid concern of a fresh “currency war” as countries weaken their exchange rates to make exports more competitive.
Buying also may pick up as China’s markets open after this week’s New Year holiday. China accounted for about 25 percent of consumer gold demand last year and narrowed the gap between top buyer India to the smallest ever, the London-based World Gold Council said yesterday. The group said consumption from both countries may rise at least 11 percent in 2013.
Central Banks
Central banks from Brazil to Russia are buying more gold to diversify from currency holdings. They added 534.6 tons to reserves last year, 17 percent more than in 2011 and the most since 1964, the council said in yesterday’s report. Those purchases helped stem the first annual drop in total demand in three years, as investment slid 9.8 percent and jewelry demand fell 3.2 percent.
Money managers held a net-long position of 86,926 futures and options in the week to Feb. 5, U.S. Commodity Futures Trading Commission data show. That was 5.9 percent more than the previous week, when wagers on gains were the lowest since Aug. 14.
Gold’s 8.3 percent slump since Oct. 4 took prices below the 200-day moving average, indicating to some who study technical charts that more declines may follow. Prices are down 1.3 percent in February, and a fifth straight monthly drop would be the worst run since 1997. Gold fell in March in six of the last nine years, according to data compiled by Bloomberg.
Posted: February 4, 2013 | Author: jackbassteam | Filed under: Forecasts, Gold, Inflation | Tags: Business, Credit Suisse, Gold, Gold as an investment, MBIA, NASDAQ, Precious metal, Tom Kendall |
English: The old logo of Credit Suisse. (Photo credit: Wikipedia)
Gold
(GC : NASDAQ : US$1669.10)
? Credit Suisse published a noteworthy comment on gold Friday, “The Beginning of the End of an Era”.
Credit Suisse notes the past five years have been among the most tumultuous ever seen in global financial markets, with the collapse of Lehman Brothers in September 2008 unleashing a series of events without precedent since at least the 1930s. The financial underpinnings of the crisis, the potential consequences of the reflationary “fix”, along with the rolling financial issues in Europe, all contributed to an extraordinary flight to quality.
U.S. Treasuries and gold were among the clearest beneficiaries, with the precious metal enjoying a Renaissance period as its role as a financial asset was reappraised by central banks and investors. Given its historical role as a store of value, Credit Suisse says its not surprising that investor demand for gold increased substantially.
Now, however, with the acute phase of the crisis likely to be behind us, Credit Suisse believes the peak of the fear trade has now also passed. Despite the recent pullback in price, against any sensible benchmark gold still appears significantly overvalued relative to the long run historical experience. With global growth now improving and inflation expectations contained, Credit Suisse feels that downside risks are building for gold – it looks increasingly likely that the 2011 high will prove to have been the peak for the USD gold price in this cycle, and that the “beginning of the end” of the current golden era will come sooner than the Q3 which Credit Suisse had forecast in January.
Posted: January 29, 2013 | Author: jackbassteam | Filed under: Bernanke, Central Banks, Federal Reserve, Forecasts, Inflation | Tags: Ben Bernanke, Eric Rosengren, Federal Open Market Committee, Federal Reserve System, FOMC, Josh Feinman, New York, United States Treasury security |
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
Posted: January 21, 2013 | Author: jackbassteam | Filed under: Gold, Inflation | Tags: George Soros, Hong Kong, John Paulson, PaineWebber, Paulson & Co, Soros Fund Management, SPDR Gold Shares, US Securities and Exchange Commission |
The Pacific Group Ltd., founded by a former PaineWebber Inc. trader, is converting one-third of its hedge-fund assets into physical gold, betting that prices will go up as governments print more money to pay off debt.
The Hong Kong-based asset manager plans to take delivery of $35 million worth of gold bars that can be traded on the London Bullion Market Association and other international markets, William Kaye, its founder and chief investment officer, said in a telephone interview on Jan. 18. It has secured vault space at Hong Kong International Airport to store the gold, he said.
Investors disillusioned with government money printing to service “insurmountable” public debt may seek alternatives to fiat currencies, Kaye said. Asset managers, including Soros Fund Management LLC, Paulson & Co. and Sprott Inc., are betting on the precious metal even after a 12-year rally has cemented the longest bull market in at least nine decades.
“Gold, the way we look at it, is anywhere from being undervalued to being seriously undervalued,” Kaye said. “We’re in the early stages, in our judgment, of what would likely be the world’s largest short squeeze in any instrument.”
Fiat currencies have no tangible backing, such as gold or silver, except governments’ good faith and can become worthless due to hyperinflation or loss of public faith.
Pacific Group’s $95 million Greater Asian Hedge Fund, which started trading in 2001, returned 2.8 percent last year, taking the cumulative net return since its February 2000 inception to 195 percent. It suffered two down years in 2008 and 2011, according to its December 2012 newsletter.
Soros, Paulson
Gold for immediate delivery finished last year up 7 percent at $1,675.35 an ounce, off the high of $1,900.23 reached on Sept. 5, 2011. Prices retreated for three consecutive months to December, as the easing European debt crisis and faster growth from the U.S. and China spurred speculation that central banks will scale back stimulus. Spot gold finished last week up 1.3 percent at $1,684.30 an ounce, a second consecutive weekly advance.
Soros Fund Management, founded by the billionaire George Soros, raised its stake in the SPDR Gold Trust (GLD), the biggest gold-backed exchange-traded product by 49 percent in the third quarter to about $215 million, U.S. Securities and Exchange Commission filings show. Paulson & Co., led by John Paulson whose wager against the subprime mortgage market made him a billionaire in 2007, has a bet of about $3.6 billion through the trust, according to the filings.
Investors would seek the safest assets while governments spend to stimulate their economies, raising the risk of accelerating inflation, Eric Sprott, the founder and chairman of the Canadian fund manager said in July. Sprott manages funds that invest mainly in gold, silver and precious-metals equities.
‘Financial Catastrophe’
Central banks have so far been able to manipulate interest rates to allow governments to service their debt at low costs, averting market seizures, Kaye said. Still, the next big rally in precious-metal prices may be 18 months to two years away, triggered by a “financial catastrophe,” he added.
Ownership of gold through financial instruments based on it, such as Comex futures contracts, now represents more than 100 times the physical gold that exists above ground worldwide, Kaye said, citing the Pacific Group’s own analysis.
“All you actually need for a major upward revaluation of gold is for a small fraction of people to physically reclaim from major central banks or other depositories that are holding your gold and using it for their purposes,” he added.
The Pacific Group has just converted the first tranche of such investments, buying gold bars from local refineries, Kaye said without giving the exact value of the delivery.
Kaye was a manager of the arbitrage department of PaineWebber in New York and also worked in the mergers and acquisitions department of Goldman Sachs Group Inc., according to a biography posted on his company’s website. In 1991, he set up the Pacific Group, which also has made private-equity investments.
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