Unlike Gold – Stimulus Is Effective Only Under Certain Circumstances
GoldSeek
A recently published paper that studied the stimulus efforts in 44 countries showed some interesting findings. Ethan Ilzetzki of the London School of Economics and Enrique G. Mendoza and Carlos A. Vegh of the University of Maryland argued in their National Bureau of Economic Research paper that fiscal stimulus can be quite effective in low-debt countries with fixed exchange rates and closed economies.
But stimulus measures are generally not as effective in countries like the U.S. with high debt and floating exchange rates. The authors of the paper pointed to a series of specific circumstances that throw a wrench into the effectiveness of increasing public spending: How much of the stimulus money ends up flowing abroad? How do investors respond to fear of future interest rate increases?
New York Times columnist David Brooks mentioned the study and wrote in a column this week:
When you look around the world at the countries that have come through the recession best, it’s not the countries with the brilliant and aggressive stimulus models. It’s the ones like Germany that had the best economic fundamentals beforehand.
It all makes one doubt the wizardry of the economic surgeons and appreciate the old wisdom of common sense: simple regulations, low debt, high savings, hard work, few distortions. You don’t have to be a genius to come up with an economic policy like that.
Our take is that the Fed knows that the stimulus is going to work as advertised, but they decided to go with it anyway, simply because they are desperate.
Speaking of geniuses and economic surgeons, in an unusual move, top Fed officials came out this week to defend their recent move to inject $600 billion more into a sluggish economy. The Federal Reserve has come under attack both at home and abroad with a torrent of criticism from foreign leaders, Congressional officials, economists and Alan Greenspan, the former Fed chairman.
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Gold Jumps Towards Euro Record as Irish Crisis Hits Spanish Bond Sale
International Business Times
Gold held onto yesterday's sharp jump against all major currencies in Asia and London on Wednesday, trading within 2% of this year's record highs for Euro and Sterling investors Buying Gold as global stock markets bounced.
Crude oil also rallied from Tuesday's sell-off, and Silver Prices stood little changed from last week's finish at $27.50 per ounce.
Prices for default insurance on Eurozone debt jumped - and Spain was forced to delay the sale of €13.5 billion in state-guaranteed bonds - after German chancellor Merkel repeated her call for bond-buyers to bear some level of bail-out costs.
Two South Korean civilians were meantime found dead following yesterday's attack by the Stalinist North on the disputed island of Yeonpyeong.
"Geopolitical news typically causes knee-jerk reactions in the gold market, with gains never sustained," says MKS Finance in Geneva, Switzerland today, citing the fears the Eurozone debt crisis could spread from Ireland have continued to support gold."
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China, Russia Quit Dollar
China Daily
Su Qiang and Li Xiaokun
St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.
"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.
The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.
"That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries," he said.
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Gold Climbs as Investors Seek Safety After Korea Clash
MarketWatch
Claudia Assis
Gold futures rose 1.5% Tuesday after military hostilities on the Korean peninsula gave investors more reason to seek safety in the metal.
Gains in gold for December delivery /quotes/comstock/21e!f:gc\z10 (GCZ10 1,376, +18.30, +1.35%) accelerated during the session, and the metal settled up $19.80 to $1,377.60 an ounce on the Comex division of the New York Mercantile Exchange.
Gold futures rose modestly Monday, helped by worries about European sovereign debt as investors wanted to hear more details about a bailout package for Ireland.
North Korea and South Korea, however, have become the latest focus of worry for investors.
The two countries exchanged artillery fire at a South Korean island near their western border, according to reports. South Korea’s military had gone to its highest state of alert. Read more on Korean tensions.
A rising dollar kept gold prices from ballooning even higher. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 79.69, +1.01, +1.28%) , which gauges the U.S. unit against a basket of six other currencies, gained 1.2% to 79.615.
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Can Gold Replace Dollar as New Global Currency
Commodity Online
David Lew
What happens if China, that has overtaken South Africa as the largest producer of gold, begins to put much of the country’s foreign exchange reserves to buy the precious yellow metal?
As countries battle for currency supremacy, the question of China playing with its foreign exchange reserves—much of them held in the US dollar—is an interesting subject under discussion among analysts and economists the world over.
Here is an extract from an opinion that Martin Murenbeeld of Dundee Wealth Inc. shares on global foreign exchange reserves and the Chinese appetite for more gold.
“Global foreign exchange reserves grew by $7.2 trillion between 2002 and 2009, according to Martin, and most of that money found its way into the international capital markets.
"This money has made a hell of a mess of housing markets around the world," he explained. "This was far too much money that got recycled. It should never have happened. And the IMF was asleep at the switch."
As of August 2010, China had foreign exchange reserves of $2.6 trillion; Japan, $1.01 trillion; Russia, $436 billion; Saudi Arabia, $422 billion; Taiwan, $372 billion; Korea, $281 billion; Hong Kong, $260 billion; India, $256 billion; and Brazil, $254 billion.
And what do central banks do with these reserves? Some are choosing mining investments.
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Gold Settles $19.80 Higher Today
International Business Times
Mike Daly
Gold continued its rally today as global uncertainties offered investors chose safer haven alternative investments today. The fragility in the European Union remains prevalent as comments from Germany's Chancellor Angel Merkel to reporters in Berlin bear out. She stated that is cause for "great concern"...and said the Euro was in an "exceptional serious situation"...She also revealed that Germany and the Netherlands were working diligently on a permanent crisis resolution mechanism.
North Korea launched artillery shells on a South Korean island of Yeonpyeong causing several casualties and escalating the tensions of the region... Earlier in the week North Korea revealed their hidden uranium enrichment program which indicates that their nuclear capabilities are much further along than previous estimates. Gold is often a refuge for investors during warring environments.
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Gold Rises Most in Two Weeks on Haven Demand Amid Europe, Korea Concerns
Bloomberg
Pham-Duy Nguyen
Gold jumped the most in two weeks on demand for a haven amid Europe’s sovereign-debt crisis and escalating tensions between North and South Korea.
The euro headed for the biggest drop since August against the dollar as credit markets focused on deficits in Spain and Portugal after Ireland sought a rescue package. North Korea lobbed artillery shells near South Korea’s border in the worst attack in at least eight months. Gold has gained 26 percent this year, reaching a record $1,424.30 an ounce on Nov. 9.
“People are shedding risk and going to flight-to-quality assets like gold,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “People are viciously selling off the euro on contagion fears and the Korean conflict.”
Gold futures for December delivery rose $19.80, or 1.5 percent, to settle at $1,377.60 at 1:57 p.m. on the Comex in New York, the biggest gain for a most-active contract since Nov. 4. The metal advanced 0.4 percent yesterday after declining 3.2 percent in the previous two weeks.
“People are putting money back into metals in a reinvestment wave,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.
German Chancellor Angela Merkel said the prospect of serial European bailouts was “exceptionally serious” as officials estimated saving Ireland will cost 85 billion euros ($114 billion).
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Gold, Silver to Keep Winning Run Next Year
Commodity Online
Major financial services provider Societe Generale SA said all the precious metals would continue their golden run up to the next year and investors on the same shall gain richer dividends in coming year too.
According to Soc Gen gold may gain another 11 percent, palladium 21 percent and silver 19 percent in a year.
In the sighting of Ireland’s bailout plan from European Union and IMF, investors have preferred gold over currencies. According to the Bank forecasts Corn and wheat will gain about 1 percent over the next 12 months, while raw sugar may drop 33 percent. Spot gold has advanced 24 percent this year, palladium up to 75 percent and silver 64 percent.
The Federal Reserve has guaranteed to spend an extra $600 billion buying Treasuries to pull out from the killing global recession. The U.S. currency has lost about 4 percent against the euro this year.
Goldman Sachs Group Inc. forecasts that Precious metals will produce the best commodity returns in the next year.
Deutsche Bank AG Global Head of Commodities Research Michael Lewis added agricultural commodities including corn, soybeans and wheat along with the precious metals.
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Gold, Silver Correct but Up-Trend Intact
Business Standard
The two precious metals – gold and silver – have entered a corrective mode after a stupendous rally since July and August. The uptrend on both metals is still intact.
A look at the charts shows that silver had a greater correction than gold, as the white metal rallied much more strongly.
Silver began its rally in August to move from $18 to $29, a whopping 63 per cent rise in price. Gold, on the other hand rallied from $1,180 to $1,425, an increase of 20 per cent. It is hence logical that silver should have a great correction given the rally it had.
The immediate reason for the sell-off in metals is due to the fact that dollar rallied strongly over the past two weeks, from a support area. Despite the quantitative easing injection plan of $600 billion by the US Federal Reserve, the greenback rallied. Immediately after the announcement of the quantitative easing plan, the Dollar index fell into a support area of 75.50. The index measures the dollar against a basket of six major currencies.
The rally in the Dollar led to a selloff in the precious metals as they are inversely related in the medium term. However, note that gold has been relatively stronger than the dollar for several years. Since 2005 the dollar index has been range bound between 70 and 90. However, gold continued to make new highs.
Silver on the other hand was range bound like to dollar, but broke out to new highs in early October 2010. With the Dollar range bound and the metals making new highs, we are still bullish on gold and silver.
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Bernanke Takes Aim at China
Wall Street Journal
Jon Hilsenrath
![[bernanke1119]](http://si.wsj.net/public/resources/images/OB-KY354_bernan_G_20101119063605.jpg)
Federal Reserve Chairman Ben Bernanke fired back amid criticism at home and abroad of the Fed's easy-money policies, arguing that China and others are causing global problems by preventing their currencies from strengthening as their economies boom.
By keeping their currencies artificially weak, Mr. Bernanke argued in Frankfurt Friday, China and other emerging markets are allowing their economies to overheat, preventing trade imbalances from adjusting and worsening what he called a "two-speed" global recovery.
Their "strategy of currency undervaluation" is preventing more "balanced and sustainable" global growth, he warns, echoing a view expressed by Obama Administration officials.
Mr. Bernanke has come under attack for the Fed's decision to purchase $600 billion in U.S. Treasury bonds in an effort to drive down long-term interest rates. Critics in the U.S say it could cause inflation. Critics abroad say the flood of dollars that the Fed is effectively printing to finance its bond purchases is pouring into overseas markets and could cause asset bubbles.
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