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.”

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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Gold Gears Up For A Rebound

Posted: March 26, 2013 | Author: | Filed under: Uncategorized | Tags: , , , , , , , | Leave a comment
President Barack Obama and Warren Buffett in t...

President Barack Obama and Warren Buffett in the Oval Office, July 14, 2010. (Photo credit: Wikipedia)

POSTED ON MARCH 25, 2013 BY 

It was Warren Buffett that urged investors to be greedy when others are fearful, and fearful when others are greedy. At a time when it seems like equities are unstoppable, investors have been pouring into stocks and increasing their overall risk appetite. As a result, safe-haven assets like gold have taken a big hit, as there is less perceived risk in the economy than in the recent past. But what goes up must come down, and savvy investors have an opportunity to turn a profit based on current trends [for more gold news and analysis subscribe to our free newsletter].

Gold Slaughtered

The precious commodity has not been performing well as of late; it’s been steadily dropping as markets continue to test uncharted territory. Since October, gold has dipped nearly 10% while the S&P 500 has jumped over 6% during the same time period. This same time period also saw the SPDR Gold Trust (GLD) surrender nearly $5 billion in assets, while the SPDR S&P 500 ETF (SPY) enjoyed net inflows topping $3.1 billion.

GoldMarkets have continued their charge higher throughout the first quarter of the year, but many are not convinced that the rally will be long lived. A number of analysts are calling the current stock environment a “Fed Bubble” that will collapse at the first sign of Ben Bernanke pulling the open-ended quantitative easing off the table. Should that ever happen, the rush out of stocks and into gold will be immense. But even if that event is nowhere on the horizon, gold is sitting at an enticing low that investors should keep an eye on [see also 50 Ways To Invest In Gold].

When to Buy Gold

While every analyst and legendary investor has a different entry point laid out for this precious metal, the general consensus seems to be that gold will be a strong buy sometime in the near future. Those looking to get into the commodity would do well to keep an eye on current trends and developments in the market. For example, the recent Cyprus scare sent gold up more than 1%, showing that investors are still willing to flee into their favorite safe haven at the first sign of trouble.

The key for your portfolio will be timing. Those looking to buy in should closely monitor support levels for gold in the next few months. Most importantly, investors should not be afraid to be greedy in a sector that others are fearful of, especially given the recent bull run on Wall Street.

 

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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Central Banks Shifting Away From Fighting Inflation – To Funding Stimulus

Posted: February 18, 2013 | Author: | Filed under: Central Banks, Inflation | Tags: , , , , , , , | Leave a comment
English: Japanese Prime Minister Shinzo Abe at...

English: Japanese Prime Minister Shinzo Abe at the G8 summit in Heiligendamm. (Photo credit: Wikipedia)

By PATRICK SMITH, The Fiscal Times

February 18, 2013

When Shinzo Abe was elected Japan’s prime minister in December, he immediate announced a $118 billion economic stimulus plan — despite a national debt equal to 200 percent of GDP, the world’s highest ratio. Then he went to the Bank of Japan and bullied the governor to raise the nation’s inflation target from 1 percent to 2 percent. Abe’s intent was plain: to re-orient economic policy toward job creation and inflate away part of the national debt.  Instead, he ignited rumors of a global currency war.

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.

 

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.U.S. Mint Silver-Coin Sales in January Climb to a Record

Posted: January 30, 2013 | Author: | Filed under: Coins, Precious Metals, Silver | Tags: , , , , , , , | Leave a comment
American Eagle, design by Adolph Weinman.

American Eagle, design by Adolph Weinman. (Photo credit: Wikipedia)

Sales of American Eagle silver coins this month by the U.S. Mint jumped to a record on demand for an alternative to currencies.

Sales of the coins surged to 7.42 million ounces so far in January, the biggest monthly total since 1986, when the Mint began the transactions, Michael White, a spokesman, said in a telephone interview today.

Silver prices in New York have more than doubled since 2008 as the Federal Reserve increased its balance sheet with debt purchases aimed at spurring an economic recovery. The central bank, which concludes a two-day meeting tomorrow, has pledged $85 billion in monthly bond buying in its latest round of stimulus measures.

“The quantitative easing has helped boost sales as people are worried about currency debasement and future inflation,” Anthem Blanchard, the chief executive officer of Blanchard Vault, a Las Vegas-based online retailer of gold and silver, said in a telephone interview. “We expect demand to remain buoyant.”

Global holdings of silver in exchange-traded products reached a record 19,699 metric tons on Jan. 18, data compiled by Bloomberg show. Prices are up 3.2 percent this month in New York, after advancing 8.3 percent in 2012, as central banks from the U.S. to Japan pledged more stimulus measures to boost economic growth.

Monthly Purchases

Fed Chairman Ben S. Bernanke will push on with purchases of $40 billion a month of mortgage bonds and $45 billion a month of Treasuries until the first quarter of 2014, according to a Bloomberg survey of 44 economists.

Silver futures for March delivery rose 1.3 percent to $31.184 an ounce today on the Comex in New York, the biggest gain for a most-active contract in two weeks.

The Mint resumed silver-coin sales yesterday after transactions were suspended for more than a week because of a lack of inventory.

Sales of American Eagle gold coins so far in January are up 84 percent from December to 140,000 ounces, which would be the highest monthly total since July 2010, Mint data show

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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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FED announces new round of stimulus: What the analysts say

Posted: December 13, 2012 | Author: | Filed under: Uncategorized | Tags: , , , , , , , | Leave a comment


  • The Federal Reserve ramped up its stimulus to the economy on Wednesday, expressing disappointment with the pace of recovery in employment as contentious U.S. budget talks heighten uncertainty about the outlook.

    KEY POINTS:

    * The central bank replaced a more modest stimulus program due to expire at year-end with a fresh round of Treasury purchases that will increase its balance sheet. It committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September.

    * In a surprise move, the Fed also adopted numerical thresholds for policy, a step that had not been expected until early next year. In particular, the Fed said it will likely keep official rates near zero for as long as unemployment remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than 2.5 percent, and long-term inflation expectations remain contained.

    * “The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Fed said in a statement.

    COMMENTS:

    IRA JERSEY, INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW YORK:

    “The (Chicago Fed President Charles) Evans rule was a little bit surprising this early. By having a relatively high unemployment threshold at 6.5%, it is really an unchanged policy stance. They are basically taking out the same amount of duration that they were in Twist, but they are buying less in the long-end than they had been before. They are buying less in 7s through bonds and buying some of the 5s, which they weren’t doing before. People also think that when the Fed does QE that the economy is going to get better, so it’s a steeper yield curve.”

    FRANK LESH, FUTURES ANALYST AND BROKER AT FUTUREPATH TRADING LLC IN CHICAGO:

    “There is not much change and not much surprise in this announcement. A lot of this is as expected. The next thing is to wait for someone real to talk here …we got that extra $45-billion.”

    ERIC STEIN, VICE PRESIDENT AND PORFOLIO MANAGER, EATON VANCE MANAGEMENT MANAGERS, BOSTON:

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    “It’s a very dovish statement. I’m surprised they went with the threshold language right now. I thought they would wait until next year. They will continue the mortgage buying program and they are going to continue the buying part of Operation Twist without the selling. That is what most people expected. But the surprise is they basically replaced the mid-2015 reference point for near-zero interest rates with a 6.5% threshold for unemployment. You do see longer-term Treasuries selling off because that’s somewhat inflationary. The dollar is weakening. Gold prices are up.”

    J.J. KINAHAN, CHIEF DERIVATIVES STRATEGIST, TD AMERITRADE, CHICAGO:

    “The Fed basically didn’t do anything that wasn’t ’built in’. I think it was a smart move for them because you don’t want to spook the market one way or another when the markets could easily get a jolt from any news regarding the fiscal cliff.”

    TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

    “For the most part the Fed’s announcement was as expected. The more explicit target of its threshold and how long they will policy will stay easy until is what is different and what stands out the most.”

    BRAD BECHTEL, MANAGING DIRECTOR, FAROS TRADING, STAMFORD, CONNECTICUT:

    “The $45-billion number confirms what the market was looking for. It’s additional QE, which should be risk-positive. Yields are backing up a bit, which should be supportive for dollar-yen. It underpins the equity market and, to me, is a nice framework for a risk rally that I would expect to carry over into the first quarter. The fiscal cliff is obviously a concern but if we get through that, it should be risk-positive.”

    JOSEPH TREVISANI, CHIEF MARKET STRATEGIST, WORLDWIDE MARKETS, WOODCLIFF LAKE, NEW JERSEY:

    “In the Fed view the economy has deteriorated enough to warrant additional support measures. Considering the meager success of the past four years in fostering economic growth with asset purchases, the Fed finds itself in a policy box with no exit, unable to improve the economy but afraid to temper its stimulative policies for fear that the economy will collapse. This will have very little impact on the dollar as it is a continuation of current policies and has already been priced in.”

    MARKET REACTION:

    STOCKS: U.S. stock indexes added to gains
    BONDS:  U.S. bond prices declined, boosting yields
    FOREX:  The dollar was little changed against the euro

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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