Dollar Falls Before Fed Considers More Pumping…Gold Rebounds

December 10, 2012

The US dollar is starting to fall against world currencies as investors anticipate more stimulus by the Federal Reserve.

The dollar weakened against most of its major counterparts today amid bets the U.S. central bank will add to monetary stimulus. The U.S. currency fell versus the euro and the yen before the Federal Reserve starts a policy meeting tomorrow amid forecasts it will expand bond-buying plans.

“People are looking ahead to the Federal Reserve this week, which should be an event that is positive for risk and negative for the dollar,”  Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, told Bloomberg News this afternoon.

The U.S. currency declined versus 10 of its 16 most-traded counterparts.

The U.S. Federal Open Market Committee meets for the last time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.

“There’s a good chance that the Fed will announce a new round of money printing and bond buying,” which would be negative for the dollar, said Imre Speizer, a strategist in New Zealand atWestpac Banking Corp. (WBC).

Not surprisingly, the weakness in the dollar pushed gold higher. Spot gold was last quoted up $8.00 per ounce to $1,713.00.

Gold tends to move higher on a weaker dollar for two reasons:

1. Gold is priced in dollars, so a weaker dollar naturally pushes up the price of gold in dollars.

2. Gold is considered a main rival to the dollar as the world’s reserve currency, therefore, when confidence in the dollar wanes, demand for gold tends to rise.

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Gold American Eagle Sales Are Soaring Due to Fiscal Cliff Threat

December 10, 2012

Demand for gold coins among American investors has soared since the presidential election, as investors are growing increasingly worried about the lack of action to address America’s debt problems.

The US Mint’s sales of American Eagles, the most popular bullion coin, soared 131 per cent in November, hitting the highest level in over two years. November was also the strongest month in 2012 for gold Maple Leaf coin sales for the Royal Canadian Mint.

The political gridlock in Washington and the prospect of further quantitative easing when the Federal Reserve’s “Operation Twist” expires at the end of 2012 have fuelled demand for gold investments among investors.

While the jump in gold bullion coin sales highlights gold’s role as the preferred safe haven for investors, investors should realize that bullion coins make up a relatively minor sector of the investment market for gold coins.

Rare gold coins, for example, offer security, privacy and performance advantages over gold bullion coins. They are immune from possible government restrictions on private gold ownership. They are anonymous and, because of their scarcity, they can appreciate even when the price of gold is falling.

The experts at Coin Trader can help you select the gold investments that are right for you.

2% “fabrication premium”  we have today for bullion coins like American Eagles is similar to jewelry premiums in Asia.


1987 Redux?

November 16, 2012

Many investors do not remember October 19th 1987.

That was the day the stock market crashed. The Dow fell over 500 points/23% in one day. The crash was a culmination of a decline that had started in August.

It is important to note that gold served as the best source of liquidity during that crisis and increased in price between October and the end of 1987.

We bring this up because there is an important article on Marketwatch that points out distinct parallels between the conditions that existed in 1987 and today:

Current drop echoes 1987 crash prelude

By Jon D. Markman

The Dow Jones Industrials have fallen 450 points over the past two days, and a lot of the blame has been placed on the re-election of the president. But anyone paying attention to the market over the past three months recognizes that the peak was actually made the week that the Federal Reserve announced a third round of quantitative easing. That was expected to be a positive event, but in retrospect, it ushered in a rolling thunder of value-eroding news events.

Soon after began a very underwhelming earnings reporting season, word of a deepening industrial slump in China, a broadening recession in Europe and the martyrdom of Spain. And then this week it suddenly dawned on people that if U.S. lawmakers can’t stop acting like stuck-up brats, then $1.2 trillion worth of ham-handed spending cuts and tax increases are about toplotz on red states and blue states alike in the coming year.

Independent estimates suggest that would shave four percentage points off GDP faster than you can say “sequestration,” or “defenestration” for that matter, and lead to millions of lost jobs. It looks like the president would be OK with that, since he booked a tour of Myanmar for next week.

In short, the election put an exclamation mark on a parade of indignities, but it is far from the only proximate cause. Investors have liquidated U.S. assets for a while; it’s just more noticeable this week.

http://www.marketwatch.com/story/current-drop-echos-1987-crash-prelude-2012-11-09?dist=afterbell


Gold Opens 4th Quarter By Hitting 7-Month High

October 1, 2012

The bulls once again ruled the gold market on the first day of the 4th quarter of 2012. This positive 4th quarter trading day comes on the heels of an excellent 3rd quarter for the yellow metal. The price of gold increased by 10.6% during the 3rd quarter, its strongest quarterly showing since the 2nd quarter of 2010.

The spot price of gold rallied $8.70 per ounce to finish above $1,780 per ounce.

Gold was buoyed by a positive manufacturing report, continuing weakness in the US dollar, thanks to the Fed’s QE3 monetary policy, and by the fact that Fed Chairman Ben Bernanke gave a speech in Indiana at mid-day. Though the speech contained nothing surprising for gold investors, as often happens in Bernanke’s case, the Fed chairman managed to spook the financial markets, derailing what was a much stronger rally on Wall Street.

Meanwhile, Barclay’s bank, one of the United Kingdom’s biggest banks, turned bullish on gold with the following market comment:

“With the dollar weakening and debates over inflation and fiat currency debasement now likely to move back to center stage, QE3 is likely to support the recent pickup in physical and futures market buying, which should help to bring to an end gold’s position as one of the weakest commodity markets in 2012.”

 


Marc Faber Issues a Warning to Investors on QE3, the Global Economy, Stocks and Bonds

September 27, 2012

Marc Faber is one of the most respected investment analysts and has for many years published the Gloom, Boom, & Doom Report. Faber is also a frequent guest on TV financial news networks.

Recently, Faber issued a warning that investors should pay close attention to…

On the QE3 program recently started by the US Federal Reserve:

“It is difficult to tell what will happen. I happen to believe that eventually we will have a systemic crisis and everything will collapse. But the question is really between here and then. Will everything collapse with Dow Jones 20,000 or 50,000 or 10 million? Mr. Bernanke is a money printer and, believe me, if Mr. Romney wins the election the next Fed chairman will also be a money printer. And so it will go on. The Europeans will print money. The Chinese will print money. Everybody will print money and the purchasing power of paper money will go down. And I don’t like bonds. I don’t particularly like equities, but I think equities are a better space to be in than bonds.”

“The fallacy of monetary policy in the U.S. is to believe this money will go to the man on the street. It won’t. It goes to the Mayfair economy of the well-to-do people and boosts asset prices of Warhols…Very happy. Very good for the Fed. Congratulations, Mr. Bernanke. I’m happy. My asset values go up but as a responsible citizen I have to say the monetary policies of the U.S. will destroy the world.”“I think there is a huge misconception and fallacy that money printing can actually improve the rate of employment because the money flows down into the system. It goes first into the banking system and into financial institutions, into the pockets of well-to-do people. If you drop money into my pockets and you have at the same time increased government involvement in the economy and we have the government growing with its regulation and legislation that stifles economic development. I don’t want to build a new business. But what I may do is look around the world, where are the distressed assets. So I will go and buy existing assets, takeovers. But takeovers don’t add to employment. They destroy employment.Secondly, I would just like to mention one thing. This money printing business, they have been saying that for the last 15 years that bailing out LTCM were necessary. Then they say the NASDAQ collapsed after March of 2000. We need to create another bubble, print money. They created a gigantic credit bubble and the misery that we have today.”

“I think there is a huge misconception and fallacy that money printing can actually improve the rate of employment because the money flows down into the system. It goes first into the banking system and into financial institutions, into the pockets of well-to-do people. If you drop money into my pockets and you have at the same time increased government involvement in the economy and we have the government growing with its regulation and legislation that stifles economic development. I don’t want to build a new business. But what I may do is look around the world, where are the distressed assets. So I will go and buy existing assets, takeovers. But takeovers don’t add to employment. They destroy employment.

“I think that the trend for gold prices will be steady, but the trend for the dollar and other currencies will be down. In other words, in dollar terms the price of gold will trend higher.How high it will go, you have to call Mr. Bernanke and at the Fed, there are other people actually that make Mr. Bernanke look like a hawk. So they are going to print money. And they have done it for ages already and where has it led? To record high unemployment essentially since the Great Depression and structural unemployment. Unemployment goes among low paying jobs, not high paying jobs. So, you ought to own some gold, but don’t store it in the U.S. because the Fed will take it away from you one day.”

Pay particular attention to the last line in Faber’s warning. He is predicting that the US Treasury will once again confiscate privately owned gold. He recommends owning gold outside the USA, but this is obviously both impractical and unwise. The better solution is to own gold in a manner that protects your wealth from gold confiscation laws.

Rare gold coins fall outside the provisions in the gold confiscation regulations.

 

Investment rating firm Egan-Jones cuts US credit rating due to QE3

September 17, 2012

Wall Street may be euphoric over the Fed‘s new QE3 scheme, but they’re only looking at the short term bump that the stock market is getting.

The true adults in the financial world are very much concerned. The rating firm Egan-Jones went against the conventional wisdom last week and downgraded the US credit rating specifically because of QE3. This story was not widely reported because much of the world’s attention was focused on a Middle East in flames due to protests at US embassies across the Islamic world.

The rating agency on Friday downgraded its credit rating for the U.S. to AA- from AA, citing the Fed’s latest round of stimulus. From Egan-Jones:

[T]he FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US…. From 2006 to present, the US’s debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%. 

While Egan-Jones is not as widely known as S&P or Moody’s, there are those on Wall Street who say they have the best track record in recent years of all the ratings agencies.

Note that undermining the value of the dollar, which is what Egan-Jones says QE3 will do, is very positive for gold investments for two reasons:

1. Gold is priced in dollars, so a decline in the value of the dollar tends to push the price of gold higher.

2. Because the dollar is currently considered the world’s reserve currency of choice, gold is a natural rival to the dollar. When the dollar weakens, investors naturally gravitate to gold investments.


Gold Soars to $37 to 6-month High on News of QE3

September 13, 2012

Against a backdrop of turmoil and violence in the Middle East, the Federal Reserve today announced a new round of monetary stimulus to jump start the stagnant US economy.

As a result of this announcement the price of gold shot up $37 per ounce to a six-month high, closing at just under $1,770 per ounce.

Stocks also soared in response to the announcement in hopes that the new Fed policy would succeed better than QE and QE2 in getting the US economy humming along again. The Dow finished higher by over 206 points.

The nature of QE3 amounts to the Fed going out in the open market and buying $40 billion worth of Treasury bonds every month, thus increasing demand for US Treasury securities and injecting more dollars into circulation.

We are not at all sure that this will result in a healthier US economy, but we are sure that it will result in a weaker dollar and higher inflation. Because of that, we expect that the current bullishness in stocks will eventually expire and the bullishness in gold investments will continue. A weaker dollar and higher inflation have historically been bearish for the stock market and bullish for gold.

Flooding the world with more dollars can only mean a weaker dollar and such stimulative monetary policies have historically led to higher inflation. We expect that inflation will make itself felt in the form of higher oil and gasoline prices in the short term and in other areas down the road.

All of this should prompt investors to buy gold investments now because it appears that gold has a ways to run. And the best way to take advantage of higher gold prices is to buy rare gold coins, which have added profit potential due to their scarcity.