Thursday, September 30, 2010
From Gold Core:
Gold has remained well bid above the $1,300/oz level and silver has risen another 0.7% and looks set to challenge the $22/oz level. Participants at the LBMA conference see gold rising to over $1,450/oz over the next year due to concerns about central banks' reaction to the economic crisis. LBMA delegates forecast silver to trade at $24/oz in 12 months time which it is a conservative estimate given the very strong technical and fundamental situation.
Gold is currently trading at $1,308.98/oz, €961.14/oz, £829.10/oz.
Silver looks very well technically and the gold/silver ratio has fallen to below 60 (59.84 - 1308/21.86) with 55 and 50 looking potential targets in the coming months. The relative undervaluation of silver to gold and the fact that it remains less than half of its (nominal) record price in 1980 is leading to strong demand for silver internationally and in Asia particularly. A period of high inflation or stagflation as was seen in the 1970s would again be bullish for silver and it would likely again outperform gold.
NEW YORK, Sept 28 (Reuters) - The U.S. dollar and the British pound fell against the euro on Tuesday as speculation rose those countries' central banks would provide more stimulus to their economies, which sent gold to record highs.
The euro surged to a five-month high against the greenback and to a four-month high against the pound on expectations the Federal Reserve and the Bank of England were likely to pump more money into their anemic economies, a process known as quantitative easing.
Gold futures rose to $1,310 an ounce and silver hit a 30-year high as a weaker-than-forecast U.S. consumer confidence reading and a report that U.S. home prices dipped in July boosted the precious metals' safe-haven appeal.
European stocks fell after the early U.S. data showing weakness while Wall Street closed higher as investors rushed to buy up stocks with strong performance and positive outlooks to avoid missing out on the 9 percent rally in September, typically the year's worst month for stocks.
"For lack of a better term, it really is a 'classic QE day,'" said Tom Fitzpatrick, chief technical strategist at Citigroup in New York. "Bonds rally, equities rally, the dollar goes down and gold hits new highs. At this point, that is what's driving the markets."
The Fed is likely preparing a fresh round of quantitative easing measures to announce at the end of its Nov. 2-3 meeting, hedge fund adviser Medley Global Advisors said in a report on Tuesday, a market source told Reuters.
The Fed is also weighing a more open-ended, smaller-scale bond buying program, the Wall Street Journal reported.
The Bank of England's Adam Posen became the first of the central bank's policymakers since November to urge more credit easing for Britain in order to avoid the kind of slump Japan experienced in the 1990s.
"The growing realization that ultra loose monetary policies may debase currencies is leading to continuing safe-haven demand for gold," analysts at GoldCore said in a note.
The weak U.S. dollar and low bond yields reflect falling investor confidence in the strength of the recovery, analysts said.
Gold for December delivery GCZO reached an all-time high of $1,311.80 an ounce before slipping back to settle at $1,308.30, a rise of $9.70. Silver XAG= rose to $21.65, a three-decade high on the spot market after the U.S. data.
Shown above is the Australian $200 coin, produced by the Royal Canberra Mint in 1980.
It was minted from 10.0 grams of 0.9167 fine gold (22 carat) which converts to 0.2948 ounces of gold.
At the time the gold value of the coin was less than $200, and if memory serves me right it was sold to collectors for approx. $240.
Why I describe it as Australia's last true coin is that like the silver 50cent coin from 1966 it is true money every sense of the world. It is of a standard purity and weight and has most importantly has acted as a store of value.
Why do I say the $200 gold coin is a store of value? Well today that coin is worth $430, but a pile of ten $20 notes from 1980 are worth? yes that is right $200. So now the question is do you want to save your "money" in plastic notes or as a digital balance in your bank account, or would you rather trust gold and silver to protect your savings?
By Ambrose Evans-Pritchard:
Stimulus leaking out of the West's stagnant economies is flooding into emerging markets, playing havoc with their currencies and economies.
Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows.
Peter Attard Montalto from Nomura said quantitative easing by the US Federal Reserve and other central banks is incubating serious conflict. "It is forcing money into emerging market bond funds, and to a lesser extent equity funds. There has truly been a wall of money entering many countries," he said.
"I worry that we are on the cusp of a competitive race to the bottom as country after country feels they need to keep up."
Brazil's finance minister Guido Mantega has complained repeatedly over the past month that his country is facing a "currency war" as funds flood the local bond market to take advantage of yields of 11pc, vastly higher than anything on offer in the West.
"We're in the midst of an international currency war. This threatens us because it takes away our competitiveness. Advanced countries are seeking to devalue their currencies," he said, pointing the finger at America, Europe and Japan. He is mulling moves to tax short-term debt investments.
Goldman Sachs said net inflows have been running at annual rate of $520bn (£329bn) in Asia over the last 15 months, and $74bn in Latin America. Intervention to stop it creates all kinds of problems so the next step may be "direct capital controls", the bank warned.
Brazil's real has been one of the world's strongest currencies over the past two years, aggravating a current account deficit nearing 2.5pc of GDP. The overvalued exchange rate endangers Brazil's industry, especially companies that compete with Chinese imports. The real has appreciated to 1.7 to the dollar from 2.6 in late 2008, and by almost the same amount against China's yuan.
"Everybody is worried that global growth is fading and they are trying to use exchange rates to protect exports. Brazil has watched as the Asians intervened and feels it can't stand by," said Ian Stannard, a currency expert at BNP Paribas.
Brazil has used taxes to slow the capital inflows but the allure of super-yields and the country's status as a grain, iron ore, and commodity powerhouse have proved irresistible. It is a textbook case of the "resources curse" that can afflict commodity producers.
A $67bn share issue by Petrobras has been a fresh magnet for funds, forcing the central bank to buy an estimated $1bn of foreign bonds each day over the past two weeks. Such action is hard to "sterilise" and can it fuel inflation.
Japan has begun intervening to stop the yen appreciating to heartburn levels for Toyota, Sharp, Sony and other exporters. A strong yen risks tipping the country deeper into deflation.
Switzerland spent 80bn francs in one month to stem capital flight from the euro, only to be defeated by the force of the exchange markets, leaving its central bank nursing huge losses.
Stephen Lewis from Monument Securities said the Fed is playing a risky game toying with more QE. There are already signs of investor flight into commodities. The danger is a repeat of the spike in 2008, which was a contributory cause of the Great Recession. "Further QE at this point may prove self-defeating," he said.
Meanwhile, Dominique Strauss-Kahn, managing director of the International Monetary Fund, tried to play down the fears of a currency war, saying he did not think there was “a big risk” despite “what has been written”.
By Jonathan Kosares:
With the number of financial bubbles inflating and bursting over the past decade and a half, it isn't surprising that financial analysts have their "bubble-dar" honed and active. What is surprising though is the large number who have resoundingly dubbed the gold market as "the next big bubble." But is it? Most gold owners reject claims that gold is in a bubble, but they might not be sure exactly why. The most concrete and convincing evidence against gold being in a bubble, though, is right in front of us.
In the last 15 years, there have been two generally acknowledged, easily quantifiable bubbles: NASDAQ's tech bubble in 1999, and the briefer Crude Oil bubble in 2008. (Many would say housing was also a major bubble, but doing so may prove erroneous. Extreme home value loss is limited to certain areas of the country, and is not nearly as conclusive as the tech stock and oil collapses.)
Two characteristics are consistently present in the formation of a bubble. The first is magnitude, and the second is velocity. Long-term advances in prices do not necessarily represent a bubble just because of the duration, and neither does volatility as long as it is within a reasonable range. However, when prices rise sharply in a short period of time, and then drop sharply in an equally short period of time, one can reasonably conclude a bubble formed, and then burst. In other words, when magnitude and velocity combine to cause extreme volatility, that market likely is in a bubble.
Market bubbles defined
This study seeks to define exactly the level of volatility that separates a bubble from a non-bubble. One effective method for quantifying price volatility is to compare the daily price performance of a market against its 200-day moving average......read on
In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1,250 on gold and $20 on silver.
$1,500 Gold and $30 Silver By 2011
On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1,500 gold and $30 silver by 2011.
Gold and Silver Have MUCH Higher to Run
Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.
The above analyses are in keeping with the projections of 102 other prognosticators, the majority of whom see gold reaching a parabolic price peak of at least $5,000 (see here for the 102 individuals and their projections and here for comments on Jim Sinclair's $1 million dollar bet that gold will reach $1,650 by January, 2011), and silver going as high as $712 (see here for the rationale for such an extremely high price based on $10,000 gold and here for the reasoning behind James Turk's contention that silver is going to $400 by 2015 and gold to $8,000).
While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the U.S. but are global. If the US dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970's bull market in gold and silver was largely driven by U.S. buyers, a panic to buy precious metals within the next 5 years will be driven globally.
As I said in the opening paragraph, "gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher."
Given what you have read above would you not agree that you should buy some (or more) gold and/or silver at the first sign of any temporary weakness in price? I certainly think so!
By Mark J. Lundeen:
We should always keep in mind that the DJIA is only 30 blue chip companies, so it's not the stock market. But the Dow has told the market's story very well for 125 years.
The "Experts" are making much of the nice rise in the DJIA this week. But I don't see anything to get excited about. For one thing, the Dow has been stuck between its BEV -20% & -30% lines for almost 11 months now. That is a long time for the DJIA to be stuck in a 10% trading range. This is especially so when we consider this is an election year, a time when politicians want happy voters. Nothing makes voters happier than a rising DJIA!
Since 1993, dividend yields have been below 3%, except during the 2008-09 crash when yields spiked up to 4.74%. But who was buying stocks in March 2009? People with more guts than me! The point of the small dividend since 1993 is that people have been buying stocks for capital gains, not income. But since last November, there haven't been any capital gains. Puts on indexes have been losers too. Look at the chart below. With capital gains in the stock market so hard to find, no wonder trading volume is so low.....read in full
By Steve Saville:
An article entitled "How Hyperinflation Will Happen" has garnered a lot of attention. According to this article:
"...hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same -- because in both cases, the currency loses its purchasing power -- but they are not the same.
Inflation is when the economy overheats: It's when an economy's consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.
Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It's not that they want more money -- they want less of the currency: So they will pay anything for a good which is not the currency."
Except for the part about hyperinflation encompassing a loss of faith in the currency, the above is almost completely wrong. In particular, economies don't "overheat", economic growth causes prices to fall rather than rise, and hyperinflation is very much an extension of inflation. The author of the article doesn't even mention money-supply growth. Trying to explain inflation or hyperinflation without reference to growth in the money supply is like trying to explain why the moon orbits the Earth without reference to gravity.
All historical episodes of hyperinflation that we know of -- and we know of many -- have been step-by-step processes set in motion by, and sustained by, increases in the supply of money. After the supply of money grows at a rapid rate for a period of at least a few years, some people conclude that the inflation will be endless. These people act today in anticipation of tomorrow's money-supply-induced price rises. As time goes by, more and more people come to the realisation that the inflation will most likely be endless and begin to act (meaning: buy stuff immediately) in anticipation of future price rises, which eventually leads to the situation where prices are rising much faster than the supply of money.
At this point it would still be possible for the central bank to clamp down on the inflationary trend by stopping, or even just slowing, the expansion of the money supply, because rapidly rising prices throughout the economy would result in a money shortage unless the supply of money were given a substantial boost. At the same time, however, the central bank could be under considerable political pressure to accelerate the monetary expansion given that doing otherwise would lead to extreme short-term economic pain. This, in effect, is what happened in Germany during the early-1920s: at every step along the multi-year path from inflation to hyperinflation to the complete collapse of the currency it was deemed by the central bank to be less economically damaging to maintain or accelerate the inflation than to suddenly bring it to an end.
The point we are trying to make is that hyperinflation doesn't just happen 'out of the blue' one day when nobody expects it. Instead, it requires persistently high money-supply growth and evolves over many years due to a gradual increase in the awareness of the population. It is part of a PROCESS and definitely is an extension of inflation, but most episodes of inflation don't lead to hyperinflation because the authorities stop the monetary expansion before it's too late.
Lastly, it should be noted that while most episodes of inflation don't extend to the point where the economy experiences hyperinflation, all paper currencies eventually get inflated to oblivion. The reason is that circumstances finally arise whereby the most politically expedient move is to risk hyperinflation by continuing the monetary inflation way beyond 'normal' limits. In this regard, today's paper currencies won't be exceptions.
Wednesday, September 29, 2010
A good article from the Telegraph, seems they have all become Gold Bugs in the finance section - good for them, they might even become interested in silver one day. But I digress, gold is no where near its peak in the current bull market, the general public, especially the public of anglo-saxon ethnicity, has not even woken up to the fact gold has been the best performing asset class of the last 10yrs - most could not even tell you the price within $300. As to buying physical gold, well they haven't even started.
From the UK Telegraph:
Gold has surged to a new record price of $1,308.90 – the eighth time it has hit a new high in the past two weeks.
During the past year, the price of the yellow metal has risen by about 30pc.
Over the past two decades or so, gold prices have increased more than fivefold from a low of around $250 per ounce in 1999 and have almost doubled since the peak of the global financial crisis in late 2008.
Participants at the start of a two-day precious metals conference in Berlin organised by the London Bullion Market Association (LBMA) forecast on average that the price of would be $1,406 in September 2011.
At last year's LBMA conference in Edinburgh, participants were overly cautious, forecasting that gold would reach $1,181 by this year's gathering.
Adjusted for inflation, however, the price is still well below its all-time peak set in 1980, estimated at around $2,300 in today's money, giving investors hope for more upwards movement.
"Gold is going to continue to rise for the next one to three years because it's bedlam on the global currency markets right now," Josef Kaesmeier, chief economist at German bank Merck Finck, told AFP.
"The United States has an interest in the dollar staying weak, the euro is suffering because of debt problems in southern Europe and the yen is behaving in an inexplicable manner," he said. "The only currency that people want to buy is the yuan, but China doesn't want that. So gold is the only thing left."
The rise has been so strong that European central banks have recently put the brakes on their strategy of the past 20 years to offload their gold reserves in exchange for something offering a better return. It has also drawn new players to the market.
"The attitude towards gold has changed incredibly," said Shayne McGuire from Texas, one of the largest US pension funds, who have emerged as major buyers in recent years. Everyone wants it in their portfolio."
New investment tools like index funds giving buyers greater access to precious metals have also helped make gold "really accessible," McGuire said in Berlin.
But for Merck Finck's Kaesmeier, this is a worrying sign.
"Once pension funds start buying en masse, then I see the risk of a bubble," he said. "I see now that gold has started to become a big issue, front page news. I don't like that.
Graham Birch, the industry veteran who used to manage the BlackRock Gold & General fund, agrees. "If your taxi driver starts telling you to buy gold, you'd better sell it because this means the market has peaked."
Tuesday, September 28, 2010
I never thought I would ever see Ambrose write a piece like this. After 25yrs of largely supporting the fiat money status-quo Ambrose has had an epiphany and has come out hard against reckless inflation creation and further quantitative easing. Ambrose is welcome in the ABC Bullion store anytime.
By Ambrose Evans-Pritchard:
I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.
My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION. If the Federal Open Market Committee cannot see the difference, God help America.
We now learn from last week’s minutes that the Fed is willing “to provide additional accommodation if needed to … return inflation, over time, to levels consistent with its mandate.”
NO, NO, NO, this cannot possibly be true.
Ben Bernanke has not only refused to abandon his idee fixe of an “inflation target”, a key cause of the global central banking catastrophe of the last twenty years (because it can and did allow asset booms to run amok, and let credit levels reach dangerous extremes).
Worse still, he seems determined to print trillions of emergency stimulus without commensurate emergency justification to test his Princeton theories, which by the way are as old as the hills. Keynes ridiculed the “tyranny of the general price level” in the early 1930s, and quite rightly so. Bernanke is reviving a doctrine that was already shown to be bunk eighty years ago.
So all those hillsmen in Idaho, with their Colt 45s and boxes of krugerrands, who sent furious emails to the Telegraph accusing me of defending a hyperinflating establishment cabal were right all along. The Fed is indeed out of control.
The sophisticates at banking conferences in London, Frankfurt, and New York who aplogized for this primitive monetary creationsim – as I did – are the ones who lost the plot.
My apologies. Mercy, for I have sinned against sound money, and therefore against sound politics.
I stick to my view that Friedmanite QE ‘a l’outrance‘ is legitimate to prevent a collapse of the M3 broad money supply, and to prevent outright deflation in economies with total debt levels near or above 300pc of GDP. Not in any circumstances, but where necessary, and where conducted properly by purchasing bonds outside the banking system (not the same as Bernanke “creditism”).
The dangers of tipping into a debt compound trap – as described by Irving Fisher in Debt-Deflation Theory of Great Depresssions in 1933 – outweigh the risk of an expanded money stock catching fire and setting off an inflation surge later. Debt deflation is a toxic process that can and does destroy societies as well as economies. You do not trifle with it.
But deliberately creating inflation “consistent” with the Fed’s mandate – implicitly to erode debt – is another matter. Nor can this be justified at this particular juncture. M3 has been leveling out. M2 has begun to rise briskly. The velocity of money has picked up. The M1 monetary mulitplier has jumped.
We have a very odd world. The IMF has doubled its global growth forecast to 4.5pc this year, and authorities everywhere have ruled out a serious risk of a double dip recession.
Yet at the same time the Bank of Japan has embarked on unsterilised currency intervention, which amounts to stimulus, and both the Fed and the Bank of England are signalling fresh QE.
You can’t have it both ways. If the US is not in deep trouble, the Fed should not be thinking of extra QE. It should step back and let the economy heal itself, if necessary enduring several years of poor growth to purge excess leverage.
Yes, U6 unemployment is 16.7pc. But as dissenters at the Minneapolis Fed remind us, you cannot solve a structural unemployment crisis with loose money.
Fed is trying to conjure away the hangover from the last binge (which Greenspan/Bernanke caused, let us not forget), as if to vindicate its prior claim that you can always clean up painlessly after asset bubbles.
Are the Chinese right? Are the Americans and the British now so decadent that they will refuse to take their punishment, opting to default on their debts by stealth?
Sooner or later we may learn what the Fed’s hawkish bloc of Fisher, Lacker, Plosser, Hoenig, Warsh, and Kocherlakota really think about this latest lurch into monetary la la land, with all that it implies for moral hazard and debt contracts.
If I have written harsh words about these heroic resisters, I apologise for that too.
From China Hush:
China’s bizarre phenomena: buildings die unnaturally September 24th, 2010 by Annie Lee
As one of the most architectural productive country, China aggregates 2 billion m2 of new building area every year, consuming about 40% of the world’s concrete and steel. However, on the flip side of the new building fever, there lie the rubbles and remains of other “older” buildings: people tear down four-star hotels to build five-star ones and bulldoze newly developed construction sites before they are even finished. Lots of young strong buildings are down, fulfilling their unnatural destiny in the roaring noise of blasting. (Source from ifeng.com and people.com.cn)
1. Vienna Wood Community in Hefei City(合肥维也纳森林花园小区), died before born on Dec. 10th, 2005. The community covered about 20,000 m2 construction area with the main structure raised to 58.5 m high. The tens of millions yuan worth building was blasted as a whole when its 16th floor was still under progress. According to local government, the community punctuated the central divide of Hefei City, blocking the scenery between Huangshan Road and Dashushan Mountain. They couldn’t straighten Huangshan Road unless the community was out of the way.
2. The Bund Community in Wuhan(武汉外滩花园小区), 4 years old, blasted on March 30th, 2002. “I give you the Yangtze River” the slogan of the community captured many people’s hearts, so did its view over the magnificent Yangtze River and Wuhan’s historic spot Yellow Crane Tower. It took only 4 years to build the community that was documented and verified by relative departments. Then it also took only 4 years for the once legitimate community to be identified as illegitimate buildings that violate the country’s flood protection regulations. Force demolition soon took place, resulting in over 200 million yuan direct economic losses, not to mention the costs that were times of its original investment government had to cover for the demolition and restoration of bund environment.
3. Yuxi Exhibition Center(瑜西会展中心), 5 years old, down on Aug. 20th, 2005. The landmark building in Yongchuan City, Chongqing Municipality cost 40 million yuan to build, and 250 kg dynamite and about 5000 detonators to blow up. Besides holding exhibition, the center was also used as administrative reception center due to its convenient location and sound facility. However, the mine boss who bought the center for 30 million yuan decided it was an even better idea for the center to become the city’s first five-star hotel instead of holding some stupid exhibitions. Thus down with the landmark exhibition center and here was 250 million yuan to build the glorious five star hotel. To welcome the city’s first five-star hotel, vice mayor of Yongchuang City came down to the site in person and helped monitor the blasting process.
4. Zhongyin Building in Wenzhou City(温州中银大厦), 6 years old, life ended on May 18th, 2004. Situated at the city’s golden area since 1997, the 93 m high building was never put into use as it was identified as unsafe building and soon brought out the city’s biggest financial crime ever, involving 43 suspects and over 30 million yuan corruption. And for that reason, it was also remembered as corruption building. Solving all of the building’s safety problems would demand more than the cost of building a new one, the authority then blow it up.
By Ambrose Evans-Pritchard (UK Telegraph):
States accounting for two-thirds of the global economy are either holding down their exchange rates by direct intervention or steering currencies lower in an attempt to shift problems on to somebody else, each with their own plausible justification. Nothing like this has been seen since the 1930s.
“We live in an amazing world. Everybody has big budget deficits and big easy money but somehow the world as a whole cannot fully employ itself,” said former Fed chair Paul Volcker in Chris Whalen’s new book Inflated: How Money and Debt Built the American Dream.
“It is a serious question. We are no longer talking about a single country having a big depression but the entire world.”
The US and Britain are debasing coinage to alleviate the pain of debt-busts, and to revive their export industries: China is debasing to off-load its manufacturing overcapacity on to the rest of the world, though it has a trade surplus with the US of $20bn (£12.6bn) a month.
Premier Wen Jiabao confesses that China’s ability to maintain social order depends on a suppressed currency. A 20pc revaluation would be unbearable. “I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs,” he said.
Plead he might, but tempers in Washington are rising. Congress will vote next week on the Currency Reform for Fair Trade Act, intended to make it much harder for the Commerce Department to avoid imposing “remedial tariffs” on Chinese goods deemed to be receiving “benefit” from an unduly weak currency.
Japan has intervened to stop the strong yen tipping the country into a deflation death spiral, though it too has a trade surplus. There is suspicion in Tokyo that Beijing’s record purchase of Japanese debt in June, July, and August was not entirely friendly, intended to secure yuan-yen advantage and perhaps to damage Japan’s industry at a time of escalating strategic tensions in the Pacific region.
Brazil dived into the markets on Friday to weaken the real. The Swiss have been doing it for months, accumulating reserves equal to 40pc of GDP in a forlorn attempt to stem capital flight from Euroland. Like the Chinese and Japanese, they too are battling to stop the rest of the world taking away their structural surplus.
The exception is Germany, which protects its surplus ($179bn, or 5.2pc of GDP) by means of an undervalued exchange rate within EMU. The global game of pass the unemployment parcel has to end somewhere. It ends in Greece, Portugal, Spain, Ireland, parts of Eastern Europe, and will end in France and Italy too, at least until their democracies object.
It is no mystery why so many states around the world are trying to steal a march on others by debasement, or to stop debasers stealing a march on them. The three pillars of global demand at the height of the credit bubble in 2007 were – by deficits – the US ($793bn), Spain ($126bn), UK ($87bn). These have shrunk to $431bn, $75bn, and $33bn respectively as we sinners tighten our belts in the aftermath of debt bubbles.. The Brazils and Indias of the world are replacing some of this half trillion lost juice, but not all.
East Asia’s surplus states seem structurally incapable of compensating for austerity in the West, whether because of the Confucian saving ethic, or the habits of mercantilist practice, or in China’s case by the lack of a welfare net. Their export models rely on the willingness of Anglo-PIGS to bankrupt themselves.
So we have an early 1930s world where surplus states are hoarding money, instead of recycling it. A solution of sorts in the Great Depression was for each deficit country to devalue, breaking out of the trap (then enforced by the Gold Standard). This turned the deflation tables on the surplus powers – France and the US from 1929-1931 – forcing them to reflate as well (the US in 1933) or collapse (France in 1936). Contrary to myth, beggar-thy-neighbour policy was the global cure.
A variant of this may now occur. If China continues to hold down its currency, the country will import excess US liquidity, overheat, and lose wage competitiveness. This is the default cure if all else fails, and I believe it is well under way.
The latest Fed minutes are remarkable. They add a new doctrine, that a fresh monetary blitz – or QE2 – will be used to stop inflation falling much below 1.5pc. Surely the Fed has not become so reckless that it really aims to use emergency measures to create inflation, rather preventing deflation? This must be a cover-story. Ben Bernanke’s real purpose – as he aired in his November 2002 speech on deflation – is to weaken the dollar.
If so, he has succeeded. The Swiss franc smashed through parity last week as investors digested the message. But the swissie is an over-rated refuge. The franc cannot go much further without destabilizing Switzerland itself.
Gold has no such limits. It hit $1300 an ounce last week, still well shy of the $2,200-2,400 range reached in the late Medieval era of the 14th and 15th Centuries.
This is not to say that gold has any particular "intrinsic value"’. It is subject to supply and demand like everything else. It crashed after the gold discoveries of Spain’s Conquistadores in the New World, and slid further after finds in Australia and South Africa. It ultimately lost 90pc of its value – hitting rock-bottom a decade ago when central banks succumbed to fiat hubris and began to sell their bullion. Gold hit a millennium-low on the day that Gordon Brown auctioned the first tranche of Britain’s gold. It has risen five-fold since then.
We have a new world order where China and India are buying gold on every dip, where the West faces an ageing crisis, and where the sovereign states of the US, Japan, and most of Western Europe have public debt trajectories near or beyond the point of no return.
The managers of all four reserve currencies are playing fast and loose: the Fed is clipping the dollar; the Bank of England is clipping sterling; the European Central Bank is buying the bonds of EMU debtors to stave off insolvency, something it vowed never to do just months ago; and the Bank of Japan has just carried out two trillion yen of “unsterilized” intervention.
Of course, gold can go higher.
The following is a report from the UK Telegraph. It is amazing that the guys in charge of the Bank of England don't seem to have the faintest idea how Capitalism works. You need Capital to have Capitalism! If people aren't encouraged to save, by greater than inflation returns, then there will be no capital to provide loans to business to manufacture goods and employ people. No wonder many Britons are turning to gold &silver to protect their wealth when people like this are in charge of the money supply.
From the UK Telegraph:
Savers should stop complaining about poor returns and start spending to help the economy, a senior Bank of England official warned today.
Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.
They should "not expect" to live off interest, he added, admitting that low returns were part of a strategy.
His remarks are likely to infuriate savers, who are among the biggest victims of the recession. About five million retired people are thought to rely on the interest earned by their nest-eggs. But almost all savings accounts now pay less than inflation.
The typical savings rate has fallen from more than 2.8 per cent before the financial crisis to 0.23 per cent last month.
Mr Bean said he "fully sympathised". But he continued: "Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."
He added: "Very often older households have actually benefited from the fact that they've seen capital gains on their houses."
In an interview with Channel Four News on Monday night, he said that savers "might be suffering" from the low Bank Rate. But they had done well from higher rates in the past and would do so again.
Mr Bean said that encouraging Britons to spend was one reason why the Bank had cut interest rates. They have been held at 0.5 per cent for 18 months, hitting rates offered on savings accounts.
The strategy had led to Mervyn King, the governor, receiving many letters of complaint.
But it was designed to return the economy to a reasonable level of activity as quickly as possible, he said. "The faster we can achieve that, the sooner interest rates will get back to more normal levels."
Had the Bank not acted, "unemployment would have been higher, wage growth would have been lower," Mr Bean added.
The comments angered groups representing the elderly and those putting money aside. The Daily Telegraph has campaigned for protection for savers.
Ros Altmann, director-general of Saga, said: "Savers are being taken advantage of. They did the right thing and have been let down at the other end of the deal.
"I don't think this is what most people would consider fair."
Dot Gibson, of the National Pensioners Convention, said: "For years we've been told to put money aside for our retirement only to find that interest rates have sunk and now we have to use our savings just to pay the bills."
Jason Riddle, of Save Our Savers, said: "The Bank was aware that there was a lack of saving before the financial crisis, but those who were prudently saving while others spent, are being heavily punished."
Official figures show that savers have lost about £18 billion a year in interest as a result of the Bank's response to the worst recession in a generation.
The amount Britons save has fallen by more than a fifth since the start of the year, a survey showed today.
The average person is saving £102 a month, down from £130 in February, according to Santander.
From The Equedia Network Corporation:
It finally happened. Through months of struggle, silver has finally managed to crack the $20/oz mark.
In past newsletters, we touched on the positive signs of why silver, along with gold, should outperform and continue to see new highs. After months of what many believed to be market manipulation, silver finally took the edge and surpassed the $20 barrier.
Although a few dollars above recent highs may not seem important, there's much more to it than meets the eye. The Gold to Silver Ratio (GSR) has finally broken the technical downside. This not only signals a strong push in silver prices, but it also means an increase in both industrial and investment demand for silver.
For the last five thousand years, the GSR has been somewhere around 16 to 1. This means that one ounce of gold can buy 16 ounces of silver. Coincidentally, that ratio remains relatively constant for the amount of silver versus gold in the world. For every ounce of gold in the ground, there is roughly 17.5 ounces of silver.
In recent years, the average gold and silver price spread has been about 60 to 1. If silver where to catch up with the GSR that has been around for the last five thousand years, silver prices today should be nearing $80/oz. Of course, this isn't going to happen anytime soon. However, silver is now trading even better than gold. Shorts and sell-offs are increasingly shallow and silver is now managing to close higher when gold has been lower.
That's because silver is not just a safe haven play. Unlike gold, which goes up during times of great political, economic, and social strife, silver is also an industrial metal that can climb with a growing economy - not to mention the possibility of price manipulation.
The Debt Debacle
We already know that US and worldwide government debts are climbing. This should mean an increase in the price of both gold and silver. But that's where silver has its advantage. As economies around the world recover and grow in the next year, demand for industrial use silver will, too. This means when market environments appear safer, silver will continue to climb - but gold may fall.
The Double-Edged Metal
Silver is one of the most-versatile metals, with new silver patents exceeding those for any other metal, leading to new industrial uses every year, and ever-increasing demand. Even the monitor of your computer screen or that new HD flatscreen you were just watching, has a few ounces of silver in them.
Meanwhile this same industrial demand is strengthened by the biggest surge in investor demand for silver in several decades.
The trace-uses of silver result in vast quantities of silver being "consumed" every year, permanently reducing the amount of available silver in the world - unlike gold, where all quantities ever mined are available or recoverable......read on
Resistance is futile. Gold is charting into new frontiers. We're now on the road towards $1,500 Gold and $30 silver. Both targets should be reached with this move which should last until perhaps spring.
There will be consolidations and corrections along the way, but it really doesn't get much better than this. Let's get right into the fantastic looking charts this week.
Gold rose nicely, by 1.73% on the week and butted up against the psychological resistance at $1,300 early Friday before falling due to profit taking the rest of the day.
The $1,300 level may take a bit of time to clear, but then again maybe not. When something is in all-time high territory there is no telling what can happen and when. What I can say is that I'm very, very impressed with Golds move so far.
It's moved up slowly and steadily, backing and filling and testing and holding support levels along the way. It's textbook, and very pleasing to see.
If anyone tells you this is a bubble or parabolic blowoff their crazy! This is a sustainable move. Many stocks I was trading last week moved up well above 3% in a single day while Gold was up under 2% on the whole week.
The GLD ETF saw good fairly strong volume on the week with very strong showings a couple of days. All in all the volume tells me we should continue to move slowly, steadily higher.
Silver rose a strong 3.42% for the week and it is right at bull to date highs dating back to March 2008. To find a silver price any higher you'd have to go all the way back to the 1980 era.
If silver moves up even a few cents it could spark the move to $30. It could happen quite quickly. Silver has certainly moved up rather quickly but who's to argue with it?
All you can do now is enjoy the ride until it ends......read on
By Brady Willett:
Gold broke above $1300 an ounce on Friday and silver ended at a new 30-year high. Whether these gains are sustainable over the near term is impossible to comment on. What can be said is that gold is likely to remain in a long-term uptrend so long as the central banks continue to try and manipulate currency and asset prices, and/or the outlook for fiscal deficits remains worrisome. In other words, gold and silver today serve as both a hedge against the downfall of fiat money and the threat of major sovereign default(s).
The Demand Drivers
There used to be a time when the COT data was important; when the investor looking to buy or sell gold could study the data to glean excellent points of entry/exit. To say that the COT statistics have become completely irrelevant may be an overstatement. However, the recent data is definitely of little utility to the average investor. In the case of last week (as of September 21), commercial short interest as a percentage of open interest declined for the third week in a row and net small spec long interest barely moved higher even as the price of gold launched by more than $25 an ounce. If the small specs are not chasing rallies and the commercials are not looking to short the heck out of any large move higher, why bother to even look at the COT data? Quite frankly, the expectation of a commercial triggered wipeout in the price of gold (and silver for that matter) has all but vanished. This is not to say that forces will not pile on to try and trigger stops and/or manipulate prices when a pause in buying arrives, only that it is impossible to forecast such an event beforehand.....read on
Monday, September 27, 2010
From Business Insider:
Property stocks in China were weak today due to media reports that the Beijing and Shanghai authorities were investigating the high vacancy rate for Chinese property. Markets are worried they'll be shocked by what they discover and clamp down on speculation even harder than they have.
How large might the vacancy problem be? Here's a taste:
Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.
Why would so many properties be held vacant? They're seen as long-term investments, even if renters aren't available. This is due to the dearth of investment options available to most Chinese, butting up against their rapid wealth creation.
They need to put their money somewhere, but the stock market is under pressure and bank interest doesn't cover inflation. So they plunk their money into a new property, just as a place to store their wealth, even if they don't intend to live in the place and can't find renters.
Multiply this behavior by a few hundred million, and the result is enough vacant properties to house over half of America.
BEIJING, Sep.25 (Xinhuanet) -- International gold prices rallied to record highs on Friday, with spot prices nearing 1300 US dollars an ounce. China's gold prices followed the trend and continued to climb. But consumer enthusiasm hasn't been affected.
It's China's traditional gold rush. The peak season for gold sales coincides with the two national holidays.
Impacted by a weaker US dollar and holiday consumption, international gold prices hit record highs.
In China,the price of pure gold exceeded 340 yuan per gram (?). But consumer enthusiasm is just as high as the gold prices.
One resident said "For us, the price is very high. But we need to buy gold now since the price continues to increase."
Consumers have flooded into gold shops, to find their perfect accessory.
Liu Ru, Sales Manager of Gold Shop said "Chinese people share a concept. That is to buy gold when the price is climbing. Since now it is holiday, many customers buy gold accessories as presents for relatives and friends. And also it is wedding season, increasing gold demand."
Silver prices have also soared, and even reached a 30-year high... making investments in the grey metal more attractive than ever.
Analysts say the continuous decline of the US dollar has stimulated investors to choose safe haven products such as gold.
And with high consumption and investment demand, gold prices will continue to rise in coming days.
As anticipated by LEAP/E2020 last February in the GEAB No. 42, the second half of 2010 is really characterized by a sudden worsening of the crisis marked by the end of the illusion of recovery maintained by Western leaders
(1) and the thousands of billions swallowed up by the banks and the economic « stimulation » plans of no lasting effect. The coming months will reveal a simple, yet especially painful reality: the Western economy, and in particular that of the United States
(2), never really came out of recession
(3). The startling statistics recorded since summer 2009 have only been the short-lived consequences of a massive injection of liquidity into a system which had essentially become insolvent just like the US consumer
(4). At the heart of the global systemic crisis since its inception, the United States is, in the coming months, going to demonstrate that it is, once again, in the process of leading the economy and global finances into the « heart of darkness »
(5) because it can’t get out of this « Very Great US Depression
(6) ». Thus, coming out of the political upheavals of the US elections next November, with growth once again negative, the world will have to face the « Very Serious Breakdown » of the global economic and financial system founded over 60 years ago on the absolute necessity of the US economy never being in a lasting recession. Now the first half of 2011 will dictate that the US economy take an unprecedented dose of austerity plunging the planet into new financial, monetary, economic and social chaos (7). ........read on
From the NIA:
In recent days, Japan has intervened in the foreign currency market to artificially drive down the value of the yen. Japan's actions to weaken the yen have driven it from 83 to 85.73 against the U.S. dollar. Most analysts in the mainstream media are portraying this as Japan's attempt to "head off a deflation spiral". Almost everybody is applauding Japan's move, saying it was needed in order to "shore up its export-driven economy".
The truth is, although Japan claims to be helping Japanese citizens with this move, Japanese citizens are the ones who will actually suffer. Despite Japan's economy entering into recession last year, the Japanese were able to maintain their same standard of living because prices were falling due to their strong currency. Some of the largest Japanese exporters like Toyota and Sony saw their revenues decline last year by 20.8% and 12.9% respectively, but this was only bad for shareholders of these companies. Despite rapidly declining revenues for Japanese exporters, Japan's unemployment rate only reached a peak of 5.6% last year and is now down to 5.2%.
The Japanese should be happy and grateful for how strong their economy is compared to the U.S. economy. When it comes to exporters in Japan, their problem is not the strong yen, but the weak U.S. dollar. If Japanese exporters allow the U.S. dollar to collapse, their revenues will continue to decline substantially, but that is a healthy part of a free market economy. Within a year or two, a strengthening yen would allow the Japanese to spend more on their own goods, and revenues for Toyota and Sony would come back strong.
Japan's efforts to postpone a few Japanese corporations going through a brief but tough readjustment period are helping to artificially prop up the standard of living for Americans one last time. NIA believes that the Japanese better be careful what they wish for. Never before in world history has nearly every developed country been in battle with each other to have the weakest currency. Asian producing countries want their currencies to be the weakest so that they can have the honor of shipping their products to Americans who can't afford them......read on
By Rick Ackerman:
For nearly twenty years, we haven't flinched from our prediction that the massive debt build-up of the last generation would precipitate out as a deflationary bust. That is what we still expect, although we now believe there is likely to be a hyperinflationary phase at some point as the financial system implodes. But the bottom line is that no matter how things play out, America 's standard of living will fall more steeply than at any other time since the Great Depression. As for the deflation-vs.-hyperinflation "debate," it is useful only to the extent it helps predict how mortgage debtors will fare as economic disaster unfolds. We seriously doubt they will be "saved" by the kind of hyperinflation that would put hundred-thousand-dollar bills in Joe Homeowner's wallet. Imagine how mortgage lenders would react if Joe could peel off three or four of those bills and say, "Okay, pal, we're square." This scenario will seem particularly unlikely to those who believe that these economic hard times have been engineered by Masters of the Universe intent on stealing our property. Trust us on this: If there's a hyperinflation, it is the rentiers who will get screwed most ruinously, not the little guys.
Even so, that doesn't rule out the prospect of a fleeting, hyperinflationary spike on the way down, since widespread notions concerning the dollar's true value could change precipitously overnight. We mention this because notions are already beginning to change in ways that leave the dollar increasingly vulnerable to a global run. The exploding caldera of fear that will eventually bring this about bubbled to the surface yesterday when the Fed made clear that it is absolutely clueless about how to get the economy moving. The central bankers' muddled talk of yet more "quantitative easing" (QE2) is about as reassuring as the promise of more sanctions against Paul Krugman may be the last person in America who still believes that additional heaps of "stimulus" will do the trick. On Wall Street, however, the belief is clearly ascendant that QE2 will only wreck the dollar without providing any lift to the economy. That could explain why stocks fell yesterday while gold and silver soared. Not that the yahoos on Wall Street exhibited perfect knowledge. To the contrary, the broad averages shot up initially, driven by headless-chicken panic; and T-bonds finished the day with anomalously big gains despite the louche tittering about further easing.
Peter Schiff has provided the most plausible scenario for a hyperinflation. He foresees a day when confidence in the dollar collapses, forcing the Fed to become the sole buyer of Treasury debt. When municipal and corporate bond traders realize on that same day that there is no official support for their markets, private debt will go into a death spiral, forcing the Fed to monetize all bonds. Under the circumstances, the Fed would not become merely domestic debt's buyer of last resort, but the only buyer. Voila! Hyperinflation.
It should be noted that it is not some certain quantity of money injected into the banking system that will cause hyperinflation; rather, it will be the repudiation of all dollars already in circulation. Holders of physical dollars will panic to exchange them for anything tangible, causing the dollar's value to fall to zero in mere days. Everything needed to trigger this collapse is already baked in the pie, and it is only the truly benighted, Nobelist Paul Krugman foremost among them, who cannot see the obvious. As for mortgage debt, you will still owe $250,000 on your home the Day After, except that your home will be much more deeply underwater than before - worth perhaps $20,000 instead of $180,000. Mortgage lenders will have to work with you - work with scores of millions of homeowners in the same boat - to bring about a reconciliation. No one can predict how already-unpayable mortgage debt will ultimately be paid, but it is almost certain to require a radical change in our laws in order to avoid the kind of social upheaval that could jeopardize the very rule of law.
Sunday, September 26, 2010
Seems the Communist Govt. of South Africa is chaffing at the bit to Nationalise the country's mines. South Africa is currently the worlds leading supplier of Platinum and 4th largest for Gold. Of course any talk of nationalisation is going to scare off investment dollars for new mines and the expansion of existing mines - let alone the disaster that would occur if the Communists think they could actually run the mines themselves.
Nationalisation of South Africa's mines is on the agenda for this week's national general council of the ANC, but no final decision will be taken until 2012, says ANC secretary general Gwede Mantashe.
After a series of mixed signals, he told reporters: "The question of nationalisation is going to be debated, views are going to be expressed."
At the same time, however, Mantashe rapped the youth league over the knuckles for trying to force its proposal on the broader ANC.
"What we are raising is that if you table an issue for discussion in the ANC, never pretend to have a monopoly of wisdom on that issue. Open it up, allow different views to be expressed. Nobody must be supressed, nobody must be intimidated," he said.
Malema has repeatedly warned senior ANC leaders and the party's alliance partners, the SACP and Cosatu, that anyone who opposed nationalisation would be brought down by the youth.
Mantashe said the proposal was on the agenda for discussion in the commission on economic transformation, which would also look at the role of the state in the economy, the correct influence of the public sector and other aspects of a developmental economic strategy.
President Jacob Zuma was widely interpreted to have put a lid on the nationalisation debate when he said in a departure from the prepared text of his opening address yesterday that the NGC was a review meeting and not a place to introduce new policies.
Seen alongside his stinging rebuke for the Julius Malema's Youth League, Zuma appeared also to be stifling its flagship project.
But Mantashe praised the ANCYL for raising issues about economic policy that needed to be debated.