Copper and Gold Gain After China Eases
MarketWatch
Copper and gold gained Monday after China cut reserve requirements for lenders and markets anticipated that European finance ministers would approve another loan for Greece.
“The metals and markets in general have been boosted following the cutting of reserve ratios in China,” William Adams, head of research at FastMarkets.com, wrote in emailed research.
“Given the emergence of more quantitative easing the weight of money is likely to remain a bullish factor so although we don not feel the fundamentals justify these high price levels, it is likely to take a catalyst to trigger a more meaningful correction,” he added.
Copper futures for March delivery HGH2 -1.08% rose 1.1% to $3.748 a pound in electronic trade on the Comex division of the New York Mercantile Exchange. Gold futures for April delivery GCJ2 +0.41% climbed $10.10, or 0.6%, to $1,736 an ounce.
U.S. markets were closed Monday for the Presidents Day holiday.
The policy easing by China, a major consumer of metal and other commodities, supported investor appetite for riskier assets. The People’s Bank of China Saturday said it was reducing the amount of money banks need to hold in reserve to spur lending and increase liquidity. The move comes after a like step in December.
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Middle-East Situation May Push Gold Prices: World Gold Council
Economic Times
Gold prices may go up in the near future because of uncertainty in the Middle-East, but this may not dampen the buying spirits among the Indians, the World Gold Council (WGC) said on Thursday.
"India's gold demand is likely to be positive this year in value terms. In volume, it may be same as last year or slightly higher," WGC Managing Director, Middle East and India, Ajay Mitra said here, after releasing the latest report on the precious metal.
"Prices in the short term may go up due to the uncertainty in the Middle East," he said. Tensions between Israel and Iran would lead to investors seeking refuge in gold, considered as a safe haven. Gold rates are ruling firm at Rs 28,340 per ten gram in Delhi today on seasonal demand and strong global cues.
Asked about the trends in the gold Electronically Traded Funds (ETFs), Mitra said, the option will retain investors' interest, including from the corporates.
"At present, about 50 per cent of investment in gold ETFs is from the corporates, who park their spare funds for better returns. This is very unique to India and due to this we see a similar investment demand trend in 2012 as well," he added.
Since the last two years, he said, WGC has also witnessed flow of funds from High Networth Individuals in the ETFs. He said demand for coins will continue to be stronger than bars. There is also a declining trend in recycled jewellery in the market mainly due to the rise in gold finance options.
When asked about jewellery demand for 2012, Mitra said, the current retail trend is positive. "The trend in the first half will give us a feel for the rest of the year in terms of jewellery demand ...", he said. In India, people normally buy gold during festivals as gifts and investments and for marriages.
Last year, 1,037 tonnes of gold was available in the domestic market, of which 969 tonnes was imported and the rest was from other sources, according to the 'Gold Demand Trends 2011' report.
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While You Were Sleeping, Central Banks Flooded The World In Liquidity
Zero Hedge
There are those who have been waiting to buy undilutable precious metals in response to a headline announcement from the Fed that it is starting to buy up hundreds of billions of Treasuries or MBS. This is understandable - after all that is precisely the trigger that the headline scanning robots which account for 90% of market action in the past year are programmed to do. And the worst thing that one can do is put on the right trade at the wrong time. Yet it may come as a surprise to some, that while the world was waiting, and waiting, and waiting, for Bernanke to hit the Print button, virtually every other central bank was quietly unleashing it own mini tsunami of liquidity. In fact, as Morgan Stanley puts it, "the Great Monetary Easing Part 2 is in full swing." But wait, there's more: in an Austrian world, where fundamentals don't matter and only how much additional nominal fiat is created is relevant, it is sheer idiocy to assume that the printers will stop here... or anywhere for that matter. They simply can't, now that the marginal utility of every dollars is sub 1.00 relative to GDP creation. This means that by the time the Global Weimar is in full swing, we will see much, much more easing. Sure enough, MS anticipates an unprecedented additional round of easing in the months ahead. So for those waiting to buy gold et al at the same time as DE Shaw's correlation quants do, the time will be long gone. Because slowly everyone is realizing that it is not the Fed that is the marginal creator of fake money. It is everyone.
Behold, the Great Monetary Easing part 2:
MS Summary:
The Great Monetary Easing Part 2 is in full swing – and begets inflation risks. Global monetary policy interconnectedness, the impact of central bank easing on commodity prices, and the possibility of an improved outlook for the real economy could mean a return of the Global Inflation Merry-Go-Round:1) Super-expansionary monetary policy in the major developed economies, particularly the US, a) contributes to commodity inflation and b) is imported by EM central banks through (US dollar) soft and hard pegs.
2) Price pressures rise in EM due to domestic overheating and higher commodity prices. Inflation is then re-exported to DM through more expensive goods exports.
3) More expensive imports from EM and dearer commodities raise inflation in DM. In turn, DM central banks initiate the next round by maintaining – or increasing – monetary accommodation.
2013 might yet look like 2011 on the inflation front.
...and Detail:
The Great Monetary Easing (Part 2), is in full swing … In response to a slowing global economy and further downside risks emanating from the possibility of an escalating Eurozone debt crisis, central banks all over the world – and across the DM-EM divide – have been deploying their arsenal for a while now, and should continue to do so. The result is aggressive monetary easing on a global scale – what we have dubbed the Great Monetary Easing, part 2 (GME 2 - see Sunday Start: What Next in the Global Economy, January 22, 2012); this follows on from GME1 in 2009-10. The GME2 is now in full swing. Last week, the Bank of England announced a further GBP 50bn of gilts purchases, to take place over the next 3 months. On Tuesday, the Bank of Japan upped the target of its Asset Purchase Program by 50%, from JPY 20trn to JPY 30trn, with the increment concentrated exclusively on JGB purchases. We think Sweden’s Riksbank will pick up the baton from the Bank of Japan on Thursday and cut the repo rate by 25 basis points.
A Few on FOMC Saw Need for More Bond Buys
Bloomberg
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.”
Factory Production
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.
‘Exceptionally Low’
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.
Interest-Rate Path
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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Debt Saturation Ensures Much Higher Gold and Silver
GoldSeek
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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Tune out. Buy gold. Be happy.
MoneyWeek
Where we part company with Warren Buffett...
The Sage of Omaha explained in Fortune magazine why bonds are dangerous.
He went on to explain why he doesn’t like gold either. He points out that since 1965, the total return on gold (not adjusted for inflation) was 4,455%. But the total return on stocks was higher, at 6,072%.
The difference between the two is that gold is a ‘sterile’ investment, says Buffett. Stocks are not.
He’s right. Gold is only useful at protecting purchasing power when the monetary system is in danger. At almost all other times, you’re better off with stocks, businesses, farmland or another productive asset.
That’s why Buffett now prefers stocks. And it is why we now prefer gold.
Buffett willingly gives up the protection of gold in order to the get the upside from stocks. We willingly give up the upside from stocks in order to get the protection from gold.
Who’s right?
Only time will tell. Our guess is that time will tell us that Buffett is right in the near term. But we’re still not going to switch to stocks. Because the risk is too high that time will be on our side.
In other words, the most likely outcome, as far as we can tell, is that the financial world will stumble along more or less in the same direction it is going now. Perhaps for many years. Gold, already expensive in terms of purchasing power, may go nowhere or even down. After all, we’re still in a Great Correction. As long as we follow in Japan’s footsteps there’s no particular reason for gold to rise.
But we do not bet on the most likely outcome. We bet on the outcome that is underpriced. The outcome that is most likely to pay off or blow us up. In our view, investors do not yet fully appreciate the risks of a financial catastrophe, a war or a revolution.
In yesterday’s news, we learned that hundreds of thousands of Greeks had taken to the streets.
Meanwhile, hardly a day passes that we don’t hear of an impending attack on Iran.
The developed economies are borrowing money at two to five times the rate of GDP growth.
And the world’s major central banks eagerly print money.
Maybe Buffett will be right. Maybe the next 47 years will be like the last. But it seems like a bad bet to us. All the key circumstances are completely different – even opposite.
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Bank of England Pumps More Cash Into Economy to Support Recovery
Reuters
The Bank of England voted to inject more cash into the economy to shore up a fragile recovery and shield the country from fallout from the unresolved euro zone debt crisis.
The central bank said on Thursday it would buy another 50 billion pounds of assets - mostly government bonds - with freshly printed money, taking the total to 325 billion pounds, as economists had expected. The BoE also left its key interest rate at a record-low 0.5 percent.
The cash boost is welcome news for the government, which has come under pressure again to loosen its austerity drive after the economy shrank at the end of 2011 and unemployment hit its highest level in more than 17 years.
"Some recent business surveys have painted a more positive picture and asset prices have risen," Bank of England Governor Mervyn King said in a letter to finance minister George Osborne, explaining the decision.
"But the pace of expansion in the United Kingdom's main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries," he added.
The central bank said inflation would have probably fallen below the target of 2 percent over the medium term without further easing, as a significant amount of unused capacity in the economy was bearing down on prices.
Some improvement in Britons' real incomes was set to support a gradual recovery this year, though the tight credit conditions and the government's austerity measures presented headwinds.
Osborne said the central bank's loose monetary policy continued to play a "critical" role in supporting the economy as he continued his austerity program, and remained the main tool to respond to changes in the outlook.
VOTE SPLIT?
Sterling rose to a session high against the U.S. dollar while gilts reversed gains on Thursday after the BoE decision.
The BoE surprised markets in October by deciding to restart its program of gilt purchases funded earlier than expected, going on to buy 75 billion pounds' worth of gilts over four months, largely to shield Britain from the euro zone crisis.
This time around, a majority of analysts polled by Reuters had penciled in a 50 billion pound injection over three months. But most were surprised by what the BoE described as an "operational" decision to focus its gilt purchases on slightly shorter maturities than before, to avoid market frictions.
Many economists expect further increases in quantitative easing in May, although they also noted that some policymakers may already have second thoughts about more easing.
"We still think that QE2 has much further to go," said Vicky Redwood from Capital Economics. "There is a chance that today's decision was not unanimous, with those members less convinced that inflation will fall sharply, for example Spencer Dale, perhaps voting to keep the asset purchase program at 275 billion pounds."
The minutes from the two-day Monetary Policy Committee meeting will be released in two weeks, but economists will get an earlier steer when BoE Governor Mervyn King presents fresh quarterly inflation forecasts next week.
Inflation fell from the three-year peak of 5.2 percent in September to 4.2 percent in December, and policymakers have voiced confidence that it will dip below the BoE's 2 percent target later this year, as predicted in November.
With the government's hands tied by its pledge to erase the country's huge budget deficit over the next five years, the onus to boost the faltering economy is firmly on the central bank, though doubts about the impact of its easing continue to linger.
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Gold Prices Driven Higher by Europe and China
GoldSeek
Preserving wealth in a volatile political and financial world is a job for gold. Greg Weldon, publisher of Weldon's Money Monitor newsletter and Grant Williams, a portfolio advisor at Vulpes Investment Management in Singapore, will share their insights at the Cambridge House California Investment Conference Feb. 11–12. In this exclusive interview with The Gold Report, they answer the question: How low and high can gold go?
The Gold Report: Recent headlines continue to focus on the debt crisis in Europe as more countries are having their debt downgraded. Greg, you have diagnosed the problem as credit addiction and said that the European Union won't be able to recover until leaders take painful measures necessary to kick their addiction. What does this mean for commodities and commodity equities?
Greg Weldon: It's critical for asset prices across the globe. It is a debt addiction, debt refinancing and deficit financing problem, not only in Europe, but also in the U.S. and Japan. Austerity is the real answer to the fact that there is too much debt, and austerity measures in an economic sense are not positive.
My fear is that it's going to be very difficult to see how economies in Europe, the U.S. and Japan can stand on their own two feet without the assistance of central banks debasing currency through debt monetization. I liken it to filling the sink halfway up with water and pulling the plug out of the drain. Of course, the water level will recede unless you turn the faucet on and start more water pouring into the sink. The level of water represents asset prices, the water flowing out of the faucet represents liquidity provided by global central banks and the drain represents the real macro economy, which has not been fixed.
At the end of the second round of qualitative easing, when the Fed shut off the faucet, the water level (asset prices) started to go down. But now the water is running again—particularly with some of the measures instituted by the European Central Bank, with its three-year loan program, the federal liquidity swaps and the back-ended way that it's managed to involve the International Monetary Fund.
The problem with all of this is it does nothing to fix the underlying problem, which is too much debt. This is not sustainable. Central banks turning on the water faucet is good for asset prices. The real solutions of fiscal austerity, which are probably not palatable to most politicians in Europe, are the real struggle as we go forward. This problem is not going to go away.
TGR: Grant, in your Things That Make You Go Hmmm…. newsletter, you painted a picture of the final implosion of the euro and U.S. municipal bond meltdown. What would this mean for resource stocks?
Grant Williams: That was part of a prediction piece that I wrote at the end of 2011. It was semi-tongue-in-cheek. My contention was that as volatile as 2011 played out, we didn't actually get any resolution. And it feels like 2012 will be the year those resolutions start to take place. One of the primary ones is the European situation. A Greek deal to solve the crisis seems to constantly be on the horizon, but they can't seem to come up with an absolute solution to the public sector involvement haircut issue. When they do, I think it's going to be the start of a whole slew of legal action to try and either trigger credit default swaps or negate any haircut from those who don't want to sign up. Greece has a big refinancing coming up in March. It has to raise a little over €14 billion (B), and between now and then it somehow has to get a $130B loan package approved from the Troika. It is very hard to see how Europe can just keep pumping money into Greece. It's very likely we'll see Greece exit the Eurozone then, and that's going to focus everyone's attention on Portugal. I think Italy will be OK. Spain worries me more than Italy because the economy there structurally is in far worse shape. But if a bunch of countries pull out, that leaves the question of how people unwind any obligations they have in the current euro construct.
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Greek Bailout Talks Near Point Of No Return, Gartman Offloads Gold
Forbes
Greek politics have once again taken center stage as the Troika (ECB, IMF, and EU Commission) try to force Greece to accept stricter austerity measures in order to receive a crucial second bail-out that will allow the country to avoid default. Some, like Dennis Gartman, have expressed their skepticism and still believe Greece will have to default and exit the Eurozone.
German-imposed austerity versus Greek political resistance. That’s the crucial struggle, the fateful face-off global markets are being forced to watch closely. The latest set of negotiations have, once again, very quickly approached the point of no return.
After weeks of excruciating negotiations, Greek leaders appear to have reached an agreement with creditors over the so-called private sector involvement (PSI) as part of their plan to restructure their debt. While the actual terms haven’t been disclosed (private sector creditors are expected to take a 70% haircut), the negotiations have now focused back on structural reforms.
Research by Barclays suggests the PSI has “technically been agreed [on],” but it won’t “go ahead until the government has guaranteed the requested reforms.” The Greek government, headed by technocrat Lucas Papademos has already agreed to extend spending cuts to account for about 1.5% of GDP, or something like €3 billion ($3.94 billion). But troika appears to have demanded that the country further cuts the minimum wage (by about 15% to 20%), lay off additional public sector employees (about 150,000 according to Barclays), and end banking bonuses, among other things. Update: The Greek government appears to have accepted to trim about 15,000 workers as they work toward a final agreement, according to Trade the News. It was also reported that Greece is committed to its plan to cut at least 150,000 public sector jobs by the end of 2015.
The discussion has turned purely political, at this point. Opposition leader Antonis Samaras has expressed concern as to how much austerity Greece can take. But the country needs to roll over €2 billion ($2.63 billion) in debt this month and a troubling €14.5 billion ($19 billion) by March 20, making that day the de facto deadline for an agreement.
In other words, the risk of a Greek sovereign debt default is quite high. While ECB action has lowered the risk of a credit crunch and diminished the possibility of contagion, via the LTRO lending facility, a disorderly default could easily counteract many of Mario Draghi’s containment policies.
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States Seek Currencies Made of Silver and Gold
CNN Money
A growing number of states are seeking shiny new currencies made of silver and gold.
Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.
"In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System ... the State's governmental finances and private economy will be thrown into chaos," said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.
Unlike individual communities, which are allowed to create their own currency -- as long as it is easily distinguishable from U.S. dollars -- the Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make "gold and silver Coin a Tender in Payment of Debts."
To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law. And since gold has grown exponentially more valuable, while the U.S. dollar continues to lose ground, the notion has become increasingly appealing to state lawmakers, he said.
The state gold rush: Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law last March that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins -- which include American Gold and Silver Eagles -- are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.
Since the face value of some U.S.-minted gold and silver coins -- like the one-ounce, $50 American Gold Eagle coin -- is so much less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.
Local currencies: In the U.S., we don't trust
"A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins," said Rich Danker, a project director at the American Principles Project, a conservative public policy group in Washington, D.C.
South Carolina Republican Representative Mike Pitts proposed a currency system that would allow people to use any kind of silver or gold coin -- whether it's a Philippine Peso or a South African Krugerrand -- based on weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors, that the state is facing "an economic crisis of severe magnitude."
Republican representatives from Washington State followed suit in January, introducing a bill that would also allow any gold and silver coins to be considered legal tender based on metal values. Minnesota, Iowa, Georgia, Idaho and Indiana are also considering similar proposals.
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