A few members of the Federal Open Market Committee meeting said the central bank may soon have to consider more asset purchases, while others said the economic outlook would have to deteriorate first.
A few members said economic conditions “could warrant the initiation of additional securities purchases before long,” according to minutes of their Jan. 24-25 meeting released today in Washington. “Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain” below 2 percent in the medium run.
The central bank said at its meeting last month that it plans to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment, extending a previous date of mid-2013. Fed Chairman Ben S. Bernanke has since repeated the pledge, which was made before a report this month showing that the jobless rate fell to a three-year low of 8.3 percent in January.
Policy makers said it was unlikely that the Fed would soon begin reducing the size of its balance sheet by selling some of the Treasury and mortgage bonds amassed in the course of two rounds of large-scale asset purchases.
“Most participants saw sales of agency securities starting no earlier than 2015,” said the minutes, which included, for the first time, “qualitative information regarding participants’ expectations for the Federal Reserve’s balance sheet.”
Economic data since the Fed meeting have pointed to strength in the world’s largest economy. A Fed report earlier today showed output at factories increased 0.7 percent after a revised 1.5 percent gain in December, reflecting gains in demand for automobiles and business equipment that may keep manufacturing at the forefront of the expansion.
“The bias at the time of the meeting was clearly for additional asset purchases,” said Dan Greenhaus, chief global strategist for BTIG LLC in New York. “The improvement in various indicators since the time of the last meeting probably means that for the average FOMC member the appetite for additional purchases is lower.”
A Feb. 3 report from the Labor Department showed employers added 243,000 jobs to payrolls last month, exceeding the most optimistic forecast in a Bloomberg Survey of 89 economists.
The minutes said “almost all members agreed to indicate” that economic conditions would warrant an “exceptionally low” federal funds rate level “at least through late 2014.” The minutes said “several members” anticipated that unemployment would still be higher than their estimates of its longer-term normal rate, and inflation would be at or below the committee’s longer-run objective of 2 percent, in late 2014.
U.S. stocks extended declines amid concern Greece was moving closer to default. The Standard & Poor’s 500 Index lost 0.6 percent to 1,342.39 at 3:09 p.m. in New York. The index is up more than 6 percent this year on evidence of a strengthening economy. The yield on the 10-year Treasury note fell was little changed at 1.93 percent.
Fed policy makers said forward guidance on the federal funds rate would help provide more accommodative financial conditions. Still, “some members” said the rate outlook “would be subject to revision” in response to significant changes in the economic outlook.
For the first last month, policy makers published their own projections for the path of the Fed’s target interest rate. The central bank also announced a goal to hold inflation to 2 percent, along with a pledge to return the economy to maximum employment, which it currently sees as a jobless rate between 5.2 percent and 6 percent.
All FOMC members voted to adopt the Fed’s statement of its goals except Governor Daniel Tarullo, who abstained because he “questioned the usefulness of the statement in promoting better communication of the committee’s policy strategy.”
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Gold futures log their first gain in four sessions Wednesday, as rising tensions between Iran and Israel as well as ongoing uncertainty over Greece’s debt problems buoyed the metal’s safe-haven appeal.
“The time is limited to avoid spreading the euro-zone debt crisis from Greece to countries with a larger economic impact, such as Portugal, Spain and Italy, [and] most of the efforts have been to contain the crisis,” said Jeff Wright, a precious-metals analyst with Global Hunter Securities.
Gold for April delivery rose $10.40, or 0.6%, to settle at $1,728.10 an ounce on the Comex division of the New York Mercantile Exchange. Prices had tallied a three-session decline of more than $23 an ounce.
European Union officials may delay parts or all of the second bailout program for Greece until after expected April elections in that country, according to a Reuters report.
“The situation in Europe is causing huge global uncertainties,” said David Beahm, vice president at precious-metals retailer Blanchard & Co.
“Even if Greece’s problems are solved, there are three or four more countries that are on the verge of needing the same type of help,” he added. “The problem is no one has the money to help, therefore the [European Central Bank] is going to have to print billions of euros to fight the debt problems Europe is facing.”
At the same time, “the geopolitical issues in the Middle East, specifically between Iran and Israel, are supporting the price of gold as well,” Beahm elaborated. “Gold is acting as a safe haven for what could be a situation that gets way out of control.”
Gold’s gains Wednesday came as Asian and European markets got a lift after Gov. Zhou Xiaochuan of the People’s Bank of China voiced optimism that Europe can overcome its sovereign-debt crisis and said that China will expand investments in the euro zone.
“If events spiral out of control, even with [People’s] Bank of China intervention, I can see how the euro currency dissolves or the more stable Northern European countries allow for a controlled default by Greece, Portugal and Spain,” said Global Hunter Securities’ Wright.
“While these events would strengthen the U.S. dollar and negatively impact gold in the short run, gold will continue to appreciate over the long term,” he added.
Gold also found support in advance of U.S. inflationary data due out Thursday and Friday, according to Wright.
He expects a continuation of the trend, seen in December at the producer level, showing signs of initial inflationary pressure. The “real impact will come when inflation hits CPI; gold will turn sharply higher on signs of price inflation.”
Silver futures also advanced in Wednesday’s Comex trading, finding support from upbeat U.S. manufacturing data. March silver SI2H +0.16% tacked on 6 cents, or 0.2%, to close at $33.41 an ounce.
The Empire State manufacturing index rose to a reading of 19.5 in February, its highest since June 2010, according to the Federal Reserve Bank of New York. The size of the February gain surprised analysts.
Separately, the Federal Reserve reported that U.S. manufacturers boosted output in January, though industrial production as a whole was unchanged.
“Silver is both a precious and industrial metal, with over 60% of demand for industrial applications, [meaning] positive signals for economic growth provide a leg up for silver,” said Wright. “Also, silver has not seen the same level of attention which gold has in the past couple quarters and should not be ignored.”
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Gold rose on Wednesday after Chinavowed to continue to invest in euro zone government debt, increasing gold's appeal as a hedge against inflation fueled by ample liquidity in the financial system.
Bullion broke ranks with the euro and U.S. equities, even though it was off session highs as the dollar recovered losses on news euro zone finance officials are looking to delay a second bailout program for Greece.
The metal rose as much as 1 percent after China's central bank governor said China and other emerging nations such as Brazil, Russia or India were waiting for the right time to help the euro bloc, but there were no concrete promises on fresh funding.
"For China to make a commitment like that is enough to give gold the psychological boost and to...increase the potential for inflating commodities and precious metals prices," said Jeffrey Sica, chief investment officer of SICA Wealth Management with more than $1 billion in assets.
Spot gold was up 0.4 percent at $1,725.79 an ounce by 3:04 p.m. EST (2004 GMT).
U.S. COMEX gold futures for April delivery settled up $10.40 at $1,728.10. Volume was about 30 percent below its 30-day average, in line with its recent pace.
Gold was lifted by crude oil's gains, while the euro and Wall Street fell after initial rallies fizzled.
The metal, though viewed as a safe haven, has tracked the fortunes of riskier assets in the past few months, as market turbulence caused by the euro zone debt crisis forces investors to sell gold to cover losses elsewhere.
"The correlation between gold in the short term and some of the risk markets is higher than people probably expect," said Pau Morilla-Giner, head of equities, commodities & alternative investments at London and Capital Asset Management.
"Gold continues to trade about 60 to 70 percent of the time as an alternative currency, which clearly has to do with being a better store of value than nominal currencies that are being abused by excessive quantitative easing (QE) across the board," he added.
A few Federal Reserve officials in January believed another round of central bank bond buying would be needed before long to support the U.S. economy, but others dissented, minutes of the Fed's last meeting showed.
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It is once again a great pleasure to address the attendees at this conference following the GATA Workshop I participated in this morning. I'd like to thank Bill Murphy for his kind introduction. As many of you may know, Bill and I have become great friends as the result of our mutual struggles in the gold and silver markets over the past 13 years. That struggle has simultaneously represented the most exhilarating and the most frustrating experience in my nearly 49 years in the investment business.
After acknowledging my longevity in the business, I'd love to say that I started when I was 12 years old but that unfortunately is not true. I'm just getting old, which, at least so far, beats the alternative.
The main subject I want to address today is the staggering debt situation throughout the industrialized world and the impact it will have on the value of paper money and by extension, gold and silver. However, before I get to that topic, I would like to make a few comments about the price action of gold and silver in the last four months of 2011, price action that incidentally set the stage for the explosive price rises we've seen in the first six weeks of this year.
Up until Labor Day last year, gold was enjoying an excellent year, rising by comfortably over 30 percent in price in eight months. This strong advance reflected the turmoil in Europe, the U.S. debt rating downgrade, excessive money creation worldwide, and widespread economic and financial deterioration generally. Ergo, gold was acting exactly as it should in these circumstances.
However, this also represented the worst nightmare for the powers that be, essentially revealing to the public that all was not well.
Thus, in response, the Western world governments, their central banks, and their bullion bank allies sprung into action. Gold plummeted nearly $300 in a month and silver dropped by a third despite not an iota of visible improvement in the world economic and financial backdrop. It was just the same tired old criminal drill that we have seen throughout the more than decade long powerful bull market in gold and silver. These muggings took place primarily in the paper markets of the LBMA and the COMEX while the regulators, most particularly the Commodity Futures Trading Commission here in the U.S., blissfully slept on.
Then, after gold subsequently re-established its equilibrium above $1,700 and silver bounced back into the mid 30s, both collapsed again in the wake of a totally failed European summit in early December. In the absence of any palatable solutions to their many intractable problems, the Europeans undoubtedly knew the scope of the quantitative easing they were going to have to unleash to hold things together. Thus, they and their American counterparts deemed it essential that gold and silver not be seen as an attractive and essential alternative to their beloved pure fiat currency system, which was failing rapidly in plain view. Gold dropped well over $200 and silver fell by 20 percent in a three-week period, with much of the damage occurring in the traditionally very quiet week between Christmas and New Year's Day.
Desperate people tend to do very stupid things and I can assure you that the powers that be are getting increasingly desperate.
Despite these offensive raids, gold still posted an 11-percent year-over-year price gain in 2011, marking the 11th consecutive year the price had been up, a feat the venerable investment letter writer Richard Russell termed unprecedented in any significant asset class.
However, in spite of this exemplary performance over the past decade the vast proportion of society remains blithely unaware of what is unfolding in the gold and silver markets. This stems from many sources, the first being the relentlessly negative press from the mainstream media on the subject. How many times does the public have to be subjected to the views of the likes of Jon Nadler of Kitco and Jeff Christian of CPM Group, to name but two? They are not true analysts but purely and simply establishment propagandists whose sole purpose, in my opinion, is to provide disinformation to keep the unsuspecting public away from precious metals.
Then the anti-gold cartel, with its insidious paper raids, creates wild volatility and totally counterintuitive price action that further discourages all but the most knowledgeable and committed believers in the only real money, gold and silver.
In reality, to date, the public hasn't had a chance. Whenever they have stuck their toe in the water, almost without exception they have been burned as yet another raid knocked them out of the box. When that happens often enough, most people just give up and go away and that is exactly what has occurred.
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