The Impact of Federal Stimulus Measures on the Price of Gold
Posted: February 24, 2014 Filed under: Federal Reserve, Gold, Quantitative Easing, The Federal Reserve | Tags: Federal Reserve, Gold, Gold Prices, Gold Values, Price of Gold, Stimulus and Gold, The Federal Reserve Leave a commentThe Impact of Federal Stimulus Measures on the Price of Gold
Historically, the value of gold and fluctuations in its price have been linked directly to the wider economic performance. As a general rule, the value of gold tends to be most resolute during periods of recession, as investors look to commit their capital into physical assets that deliver genuine financial security.
The most recent statistics underline this trend, with the price of gold set the retreat from a near three-month high in the face of measured stimulus tapering in the U.S. A string of poor data releases had forced the government to initially reconsider their approach to stimulating economic growth, only for the Federal Reserve to reaffirm their commitment to restoring long-term growth.
The Facts and Figures: Gold Values in 2014
It was during the last week that the price of gold hit a three-month high, amid rising global shares and continued economic uncertainty in the U.S. While the Federal government had spoken at length during the first financial quarter about tapering their stimulus measures and laying the foundations for more sustainable, long-term growth, underperformance within the labour market has persuaded them to reconsider their stance. As a result on this, investors were encouraged to believe that the ultra-easy stimulus policy would continue for the foreseeable future.
Incoming Federal Reserve Chair Janet Yellen performed a sharp-about turn this week, however, by reiterating the U.S. Central Bank’s commitment to a measured tapering of its gold-friendly stimulus policy. While Yellen has stated that has a strong belief in the current bullion and monetary policy measures, however, the sudden drop in gold prices has forced many to question the wisdom of her decision making. More specifically, it could trigger a sudden rise in interest rates and force investors to develop a more risk-averse approach in the financial markets.
Does Gold Represent a Good Investment in 2014?
The decision to taper bullion stimulus measures will only serve to undermine the appeal of gold as an investment opportunity still further. While the presence of under-employment may have caused growth in the labour market to slow, investors have continued to disregard this and similar macroeconomic factors as being insufficient to derail the tentative global recovery. This has had a direct impact in reducing the appeal of gold, and the sudden depreciation in value will force a growing number of investors to consider alternative precious metals and commodities.
If it would be fair to say that gold holds minimal investment appeal as we approach the second financial quarter of this year, however, it is worth considering the performance of additional market options such as silver and platinum. The former, which has experienced considerable growth during the last eighteen months fell by 0.3% in the wake of recent events, while the latter gained a respectable 0.1% amid global political issues. The upshot of this appears to be that investors are likely to avoid the precious metal market for the foreseeable future, at least until the U.S. economy has adapted to its new monetary policies.
Jim Sinclair says QE3 is the End Game and Gold At $3500 Is Coming
Posted: September 21, 2012 Filed under: Gold, Precious Metals, Quantitative Easing | Tags: Balance sheet, Exchange-traded fund, Federal Reserve, Federal Reserve System, New York Stock Exchange, Tanzanian Royalty Exploration Corporation, Toronto Stock Exchange, United States Leave a comment
Verifying balance sheet (Photo credit: s_falkow)
Jim Sinclair is the Chairman and CEO of Tanzanian Royalty Exploration Corporation (TRX: Altanext NYSE platform, TNX: Senior Toronto Stock Exchange).
- The crisis not seen by Fed observers is the true balance sheet condition of the loses on the trillions of dollar of worth-less paper fraudulent paper because numbers are given but no independent mark to market audit has been or is likely performed.
- As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.
- The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.
Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.
Now you know what brings about the end game.
Those of you invested in gold and silver vehicles of all kinds (with the exception of ETFs and futures) rest well this weekend. $3500 will easily be a place gold trades.
end of article from Jim Sinclair’s Mineset
Gold at $2400 by End of 2014 : Commodities Exchange Centre IAMGOLD Rockets
Posted: September 20, 2012 Filed under: Forecasts, Gold, Precious Metals | Tags: Bank of America, Bank of America Merrill Lynch, Federal Reserve, Federal Reserve System, Gold as an investment, History of Federal Open Market Committee actions, Morgan Stanley, United States Treasury security Leave a comment
$500 Million Dollar Series 1934 Federal Reserve System Federal Reserve Certificate for Bond numbers Federal Reserve System “Federal Reserve Certificate” surrounding 2,500 Metric Tons of gold bullion tied to two-hundred fifty ( 250 ) Series 1934 Federal Reserve Note Coupon Bonds ( $500,000,000 each ) serial numbered “D 45183601 A” through “D 45183850 A.” (Photo credit: Wikipedia)
In one of the most bullish gold calls since the Federal Reserve announced a new round of easing
last 
week, one strategist sees a 36 percent jump in the metal’s price (CEC:Commodities Exchange Centre: GCCV1), to $2,400 an ounce, by the end of 2014.
“The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December,” wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.
“Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy,” Blanch added. “In our view, this is unlikely to happen until the end of 2014.”
Fed’s ‘QE-Infinity’ Will Push Gold to $2,400: Pro
“The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December,” wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.
“Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy,” Blanch added. “In our view, this is unlikely to happen until the end of 2014.”
Last week, the Federal Reserve announced its third round of stimulus since the financial crisis, saying it would buy $40 billion in mortgage-backed securities each month.
The Fed used open-ended language in describing how long so-called QE3 would last, saying in its statement it would continue these purchases – and possibly employ other methods – until the outlook for the labor market improves substantially.
“The combination of open-ended MBS purchases and the possibility of additional Treasury bond purchases starting in December could further lift gold prices by adding over $2 trillion to the Fed’s balance sheet over the next two years,” explained Blanch in his report entitled “Gold Under QE-Infiniti.”
Gold is up two percent since the Fed’s statement as others besides Bank of America pile into the metal on fear these actions may spark inflation and leave the metal as the only store of value in a world of paper currencies. Morgan Stanley also upped its gold forecast today, saying the metal would average about $1,800 an ounce next year.
“Since the Roman Empire, all fiat currencies have ended poorly,” said Guy Adami, managing director of StockMonster.com and a long-time bullion bull. “With that in mind, all roads lead to gold.”
Bullion Bulls Turn to Iamgold
Canadian gold miner Iamgoldhas been rocking higher, and bullish traders piled into the stock on Friday.
OptionMonster’s real-time tracking systems detected the purchase of almost 9,000 March 18 calls, most of which priced for $0.90 against open interest of just 15 contracts. There was also heavy volume in the January 12.50 and March 19 calls.
Calls lock in the purchase price of a stock, so they can generate some nice leverage in the event of a rally, but they will expire worthless if the shares don’t move.
Imagold shares [IAG 15.98 
-0.18 (-1.11%) 
] rose 7.49 percent to $15.79 and is up about 50 percent since early August. The entire precious-metals space has been strong recently as the euro has climbed and as investors have correctly anticipated more money-easing policies by the Federal Reserve. Other commodities, including petroleum, have also benefited.
Overall option volume in Iamgold was 12 times greater than average on Friday, with calls outnumbering puts by 7 to 1.
” The Magnidude Of the Mess We’re In ” – The Wall Street Journal
Posted: September 19, 2012 Filed under: Politics, Quantitative Easing | Tags: Fed, Federal Reserve, Federal Reservesystem, Michael Boskin, Obama, United States, United States public debt, Wall Street Journal Leave a comment
The Middle Class Beatdown: Decline of the American Dream (Photo credit: Cory M. Grenier)
Sept 19
There is an article in the Wall Street Journal called ” The Magnitude Of The Mess Wer’e In ” by George Shultz, Michael Boskin, John Cogan, Allan Melzer and John Taylor that everyone in the States should be reading…but unfortunately, they aren’t.
The American debt is now reaching the scale of the Greek debt and one worries we could be in for something unbelievable.
“Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion?
With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.
The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.
The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.
President Obama’s budget will raise the federal debt-to- GDP ratio to 80.4% in two years, about double its level at the end of 2008, and a larger percentage point increase than Greece from the end of 2008 to the beginning of this year.
Under the president’s budget, for example, the debt expands rapidly to $18.8 trillion from $10.8 trillion in 10 years.
The interest costs alone will reach $743 billion a year, more than we are currently spending on Social Security, Medicare or national defense, even under the benign assumption of no inflationary increase or adverse bond-market reaction. For every one percentage point increase in interest rates above this projection, interest costs rise by more than $100 billion, more than current spending on veterans’ health and the National Institutes of Health combined.”
Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.
The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?
The Fed’s policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.
The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed’s Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury’s traditional debt management.
This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.
The problems are close to being unmanageable now. If we stay on the current path, they will wind up being completely unmanageable, culminating in an unwelcome explosion and crisis.
The fixes are blindingly obvious. Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. The need is clear. Why wait for disaster? The future is now.
Related articles
- Low Interest Rates Alone Won’t Do It (wallstreetpit.com)
- The Federal Reserve don’t know squat – ChicagoNow (blog) (chicagonow.com)
Divergence in Oil, Gold and Silver Prices
Posted: September 19, 2012 Filed under: Forecasts, Gold | Tags: August, Federal Open Market Committee, Federal Reserve, Federal Reserve System, Money supply, Silver, Silver as an investment, Spot price Leave a comment
Gold and silver prices have definitely found new footing in this market—a market with a great deal of uncertainty, hope and fear. I have to say that the latest economic news on U.S. manufacturing in August wasn’t encouraging and there’s also continued weakness in eurozone manufacturing that’s deflating hope for economic recovery.
If you look at the spot price action in oil, gold and silver, capital markets are telling us something and it isn’t good. Investment risk is going up—way up; and it doesn’t matter if the Federal Reserve acts next week or not. Sovereign debt, austerity measures, government spending…it all means that economic growth is going to be a very difficult thing to achieve in mature economies going into 2013.
Gold and silver prices look particularly attractive going forward. More action by the Federal Reserve puts pressure on the U.S. dollar. Increases to the U.S. money supply put pressure on the U.S. dollar. A lack of confidence in the euro currently is helpful to the U.S. dollar, but it also is helpful to gold and silver prices as some investors begin to look for another store of value. I’m absolutely convinced that investors with a mixed portfolio of holdings just have to have some exposure to gold going forward. The fundamentals just keep getting better for gold and silver prices.
The stock chart on Argonaut Gold Inc. (TSX/AR) highlights the recovery in spot gold prices. This gold stock is only about one point away from its all-time high and you can see the significant upside performance commensurate with the spot price acceleration in August.
MORGAN STANLEY: ‘Recent Fed Action Is A Game Changer For Gold’
Posted: September 18, 2012 Filed under: Central Banks, Gold, Precious Metals, The Federal Reserve | Tags: Citigroup, Federal Reserve, Federal Reserve System, Gold as an investment, Hussein Allidina, Morgan Stanley, Morgan Stanley Smith Barney, Quantitative Easing Leave a comment
English: Morgan Stanley’s office on Times Square (Photo credit: Wikipedia)
Here’s what Morgan Stanley wrote in a note to clients this morning:
“We remain convinced that the interest rate outlook, the likelihood of continuing risk aversion because of the Eurozone debt crisis, and strong physical market fundamentals justify exposure to gold,” writes commodities analyst Hussein Allidina.
As a base case, Morgan Stanley sees gold rising to $1,750/ounce in Q4 and averageing $1,816/ounce in 2013.
With the Federal Reserve now embarking on QE3, or unlimited quantitative easing, Morgan Stanley is only more convinced that the yellow metal will continue to head north.
The adoption of QE3 is positive for gold, and reinforces our long-held bullish view on the metal. In a significant monetary policy development, the Fed’s move was not only supportive of risk assets in general but is likely to undermine the value of the USD, diminishing a key headwind to higher gold prices evident in 1H 2012.
Here’s a chart showing gold and stock price performance during dovish monetary policy actions:
Morgan Stanley
Ultra Gold Bull Run – $10,000 Gold – The Sum Of All Fears
Posted: September 17, 2012 Filed under: Forecasts, Gold, Precious Metals, Quantitative Easing | Tags: Barron, Business, Citigroup, Economy, Erste Group, Federal Reserve, Federal Reserve System, Gold, King World News, Pareto principle Leave a comment
English: A picture from the gold vault of the Federal Reserve Bank of New York (Photo credit: Wikipedia)
With the U.S. national debt passing $16 trillion and the Federal Reserve launching a unlimited quantitative easing, the gold bulls will increasingly tell you that the sum of their fears are coming true.
In this week’s issue of Barron’s, Jim McTague spoke to Guggenheim Partners Scott Minerd:
Hedging against the most pessimistic case without crippling the upside potential of a better or even miraculous case appears to be as unsolvable as the proverbial Gordian knot. Alexander the Great “solved” the intellectually challenging knot riddle by severing it with his sword. Scott Minerd, chief investment officer of Guggenheim Partners, offers a more reasoned but equally simple solution to the hedging conundrum: gold. In extreme circumstances—like miscalculations regarding inflation by the Federal Reserve—the metal could hit $10,000 per troy ounce, he asserts. Thursday, after the Fed disclosed its latest financial-stimulus scheme, the metal rose about 2% to $1,768.
The ultra bullish forecasts for gold aren’t without precedent. Applying the “Pareto principle” – the idea is that 80 percent of the effects of something come from just 20 percent of the causes – Erste Group analyst Ronald-Peter Stoeferle argued that we could see $8,300 gold by the spring of 2015.
Citi’s Tom Fitzpatrick also has an extremely bullish gold scenario out there. “We see no reason
why this gold trend cannot perform as well as the last bull market in gold between 1970 and 1980,” he told King World News. “If you replicated that move exactly, it will take gold to $6,300.”
Inflation and technical pattern aren’t the only ways to get to extremely high values for gold. Richard Russell and QB Asset Management’s Lee Quaintance and Paul Brodsky have proposed pegging the dollar to gold at $10,000 per ounce.
Bottom line: expect more gold bulls to present their ultra bullish cases for gold.
Related articles
- Gold Break Out – Finally Above 200 Day Average (ampgoldportfolio.com)
Gold Poised To Break Above $ 1700
Posted: September 3, 2012 Filed under: Central Banks, Forecasts, Gold, Politics, Precious Metals, Quantitative Easing, The Federal Reserve | Tags: Ben Bernanke, Commodity Futures Trading Commission, Federal Reserve, Federal Reserve System, Gold dollar, Gold Standard, January, Republican National Convention, Short (finance), Standard & Poor, United States 1 Comment
US Gold Standard Balance (Photo credit: hyperion327)
Gold and silver prices posted very strong finishes to the end of last week, and look like they could at long last be at the start of a significant trending move higher. Gold gained 3.46% over the week, with silver recording an impressive 8.98% weekly gain. The white metal has broken above an important resistance level at $30, and judging from the price action this morning looks like it could launch a quick assault on $32.50 – a level that marked stubborn resistance for much of the first half of this year.
Our Exclusive Richardson / Bass quant continues to forecast $ 2000 gold before the next 12 months – and the momentum of the call for stimulus is likely to increase after Fridays job report. Forecasts are now at the 125,000 level – down from the last month and confirming Ben Bernanke‘s gloom at the speed of the recovery.
Shorts May Be forced To Cover
Over at KingWorldNews Dan Norcini notes the rash of short covering that took place in the silver market last week. He points to $35-$35.50 as the last “line in the sand” for these speculative shorts, and thinks that we could see a huge new influx of money on the long side of the market if this price level is bested. $40 will then be in play again.
The story is similar in gold. If the yellow metal rises above $1,700, we can expect to see speculators dashing to cover their short positions. Aside from the increasing likelihood that the Federal Reserve is getting ready to launch another money printing scheme within the next few weeks, gold bugs have also been encouraged by chatter about the Republican National Convention discussing a platform calling for a “gold commission” to study the feasibility of relinking the US dollar to gold.
Similar congressional commission was convened in the early 1980s, and to nobody’s great surprise endorsed the (non gold standard) status quo. Given the restraints that a genuine gold-dollar link would impose on federal spending, it is in fact almost inconceivable to imagine Washington voluntarily agreeing to return to a gold standard. However, the talk about gold gives impetus to more investors to become holders of bullion and the gold mining shares . The rise of the commodity price and constant news about the sector becomes a self fufilling prophesy for driving the price higher.
Lather, rinse, repeat” as the old saying goes. The problem (one of many), as we’ve discussed on this site before, is the law of diminishing returns associated with money printing: the more you do it, the bigger and bigger the stimulus doses have to get in order just to achieve the same “high” as last time. The more central banks resort to this, the more painful the inevitable economic correction, which makes going “cold turkey” on the money printing even more difficult.
Bloomberg Reports :Speculators Buying
Speculators increased bets on rising gold prices to the highest since March as mounting speculation that the Federal Reserve will expand its record stimulus drove the metal to its second-biggest monthly gain this year.
Money managers raised their net-long positions by 19 percent to 131,687 futures and options contracts in the week to Aug. 28, U.S. Commodity Futures Trading Commission data show. Combined bets across 18 U.S. commodities fell 1.9 percent to 1.3 million contracts, still near the highest in 15 months. The Standard & Poor’s GSCI Spot Index of 24 raw materials gained for the fifth straight week, the longest rally since June 2011.
Gold Wagers Jump to 5-Month High as Fed Spurs Rally
Sergio Dionisio/Bloomberg
Gold climbed 4.5 percent last month, exceeded this year only by January’s 11 percent jump.
Gold climbed 4.5 percent last month, exceeded this year only by January’s 11 percent jump. Photographer: Sergio Dionisio/Bloomberg
Investors accumulated record holdings last week in exchange-traded products backed by gold, exceeded only by the U.S. and Germany when compared with national reserves. Fed Chairman Ben S. Bernanke pledged in an Aug. 31 speech to promote growth with “additional policy accommodation as needed.” The price of the metal rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.
Anytime they’re putting more money into the economy, it’s good news for gold,” said Dan Denbow, a fund manager at the $1.8 billion USAA Precious Metals & Minerals Fund in San Antonio. The outlook for monetary stimulus “allows the risk-on trade to come back in to the market.”
“As long as there is a worldwide monetary bias toward liquidity, easier money, quantitative easing and other measures, the underlying environment for an increase in commodity prices is favorable,” said Michael Cuggino, who manages about $17 billion at San Francisco-based Pacific Heights Asset Management. While Bernanke “didn’t really say anything new, he kept the door very, very open to further action down the road,” he said.
AMP Gold and Precious Metals Portfolio 