Oct 29

QE Finished, Gold Fans Clearly Crackpots

Gold Price Comments Off on QE Finished, Gold Fans Clearly Crackpots
The US Fed just ended quantitative easing. Anyone thinking history or gold worth a look must be a crackpot for worrying…
 

TIME WAS the Gold Standard simply existed…like rain or snooker tables, writes Adrian Ash at BullionVault
 
Zero rates and quantitative easing are the monetary equivalents today. Doing anything else puts a cental bank into the “hall of shame” according to Bloomberg. The Financial Times gasps that today the US Fed’s “grand experiment is drawing to a close…”
 
Oh yeah? The world hasn’t yet seen the last of US quantitative easing, we think. Not by a long chalk. QE is getting new life after 15 years in Japan, the world’s fourth largest economy, and it has barely begun in the single largest, the Eurozone. 
 
Only China to go, and the QE Standard will be truly global. But financial markets and pricing mechanisms the world over are already through the looking glass. After $3 trillion of US Fed asset purchases, climbing back to the other side will take more than a month’s rest from extra money printing. 
 
The Gold Standard, meantime, now exists only to fill space when financial hacks run out of other silly things to talk about. 
 
Take this classic Phil Space nonsense, for instance, from the Washington Post.
 
To recap… 
 
Over a week ago, billionaire tech-stock investor and former PayPal boss Peter Thiel appeared on right-wing shock jock Glenn Beck’s TV show. He mumbled something about the value of money…reality…and the virtual world of monetary politics we’ve all lived in since 1971. 
 
Nothing to see or hear in that. Even the laziest gold bug can see US president Nixon’s decision to end the Dollar’s gold link changed nothing and everything all at once. Metaphysical mumblings are the best anyone’s since managed in trying to understand how humanity got beyond itself in that moment.
 
Yet on Friday, Thiel’s comments were picked up by a right-leaning think tank blogger…and finally last night, this “unthink” piece appeared at the Washington Post online. 
 
So what? Well, George Selgin, new Cato Institute director, said earlier this month that anyone challenging the way money currently works must do better if they want to be taken seriously. Amateur bug-o-sphere stuff only makes things worse.
 
But Selgin underplayed the task ahead, I fear. QE, zero rates and unlimited money-supply growth are big, important issues. Today’s US Fed meeting proved that once again. 
 
On the other side of the debate however, even the most qualified and serious economist daring to doubt the sanity of printing money to buy up government debt, mortgages, stocks or other nation’s currencies now looks like a “crackpot” to most politicians, financiers and reporters today.
 
Because, hey! Nothing bad has happened. No inflation, currency destruction or financial apocalypse fuelled by money-from-nowhere. 
 
Not yet. And now the Fed is turning off the taps. For now.
 
What could possibly go wrong? We must be crazy to bother owning gold as financial insurance, never mind worrying about how money itself…as basic to civilization as the written word…is being bent and remade in the latest central-bank experiments.
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Oct 23

An End to QE? A Good Man in Congress?

Gold Price Comments Off on An End to QE? A Good Man in Congress?
God knows what Ron Paul was ever doing in US politics…
 

OVER the weekend, we were down in Nashville at the Stansberry Conference Series event, along with Ron Paul, Porter Stansberry, Jim Rickards and others, writes Bill Bonner in his Diary of a Rogue Economist.
 
The question on the table: What’s ahead for the US?
 
Ron Paul took up the question from a geopolitical angle. He told the crowd that the military-security industry had Congress in its pocket.
 
As a result, we can expect more borrowing, more spending and more pointless and futile wars. They may be bad for the country and its citizens, says Paul, but they are good for the people who make fighter jets and combat fatigues.
 
“We’ve been at war in the Middle East for decades,” he said…
“We supported Osama bin Laden against the Soviets in Afghanistan…and the result of that was the creation of al-Qaeda.
 
“Then we supported Saddam Hussein against Iran. Saddam and bin Laden hated each other. But after 9/11 we attacked Saddam, using a bunch of lies to justify it. We sent over military equipment worth hundreds of billions of Dollars. This equipment is now in the hands of ISIS – another enemy we created…and a far more dangerous one.”
Ron Paul is such a pure-hearted soul. What was a man like him doing in Congress?
 
It must have been some sort of electoral accident. Good men rarely run for public office. And when they do, it is even rarer for them to win.
 
Poor Ron is retired from Congress now. And he spends his time trying to “get the word out.” He thinks that if people only realized what was happening they would vote for more responsible leaders and more sensible policies.
 
Alas, that’s not the way it works. The further the country goes in the wrong direction, the more people there are who have a financial interest in staying on the same road.
 
We visited Ron in his office on Capitol Hill. He held a breakfast meeting with a small group of congressmen, trying to convince them to vote his way; we don’t remember what was at issue.
 
It was an uphill battle. Only a few members of Congress attended. And those few worried that their districts would lose money…or that the labor unions wouldn’t like it if they voted no…or that they might not get a plum committee assignment if they bucked their own party leadership. Ron was alone.
 
Politics favors blowhards, hustlers and shallow opportunists, we concluded. Which makes us wonder how Ron Paul ever got elected to Congress in the first place.
 
But not only did he get elected…once in Washington, he never sold out. Neither to the right nor the left. He opposed zombies, malingerers and bullies wherever he found them.
 
Which brings us to the subject of our own presentation to the Nashville crowd. We were following the (QE) money. “St. Louis Fed president James Bullard let the cat out of the bag last week,” we explained.
 
As Bullard told Bloomberg TV last week:
“I also think that inflation expectations are dropping in the US. And that is something that a central bank cannot abide. We have to make sure that inflation and inflation expectations remain near our target.
 
“And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.
 
“So…continue with QE at a very low level as we have it right now. And then assess our options going forward.”
We didn’t think it would happen so fast. We thought the central bank would wait. We expected a little more hypocrisy…a bit more posturing…a little more phony resistance…a few denials…
 
…the Fed should have played it cool…coy…elusive…hard to pin down, making investors really sweat before coming to the rescue.
 
We knew where the Fed would end up…but we didn’t know it would go there so quickly and easily!
 
Bullard is admitting to a staggering act of vanity and hypocrisy. In the land of free minds and free markets, apparently only the Fed knows what prices equities should fetch.
 
Henceforth, it will approve all price movements on Wall Street.
 
To bring you fully into the picture, dear reader, the US central bank has the economy, and the markets, hooked on cheap credit and printing-press money. It has been supplying both on a grand scale for the last five years.
 
But it had promised to stay away from the playground, beginning this month. Now that the economy is recovering, goes the storyline, the Fed will back away from its emergency measures and allow things to return to normal.
 
QE ends this month. Higher interest rates are expected next year.
 
No bubble has ever been created that didn’t have a pin looking for it. And nobody likes it when the two meet up. Last week, it looked as though the Fed’s bubble and Mr. Market’s pin were coming closer. Then quick action by Bullard helped push them apart on Friday.
 
QE began in November 2008. And zero interest rates began a month later. This has perverted prices for stocks, bonds, houses…and just about every other asset price on the planet. Stocks are worth more than twice what they were at the bottom of the crisis. The average house is worth $60,000 more.
 
Now QE is ending. And that means a lot less money gushing into financial markets.
Instead of increasing at a 40% rate as it did in 2012, what Richard Duncan calls “excess liquidity” – the difference between what the Fed pumps out via QE and what the government absorbs via borrowing – will go up only 6% this year.
 
Next year, there will be even less.
 
With less new money coming from the Fed…and still no real recovery…something’s gotta give. No matter what Fed officials say. And since stocks periodically go down anyway, this seems like as good a time as any.
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Oct 16

Marc Faber: Get Gold, Get Ready for QE99

Gold Price Comments Off on Marc Faber: Get Gold, Get Ready for QE99
Tapering QE to zero, if it happens this month, will be temporary reckons Marc Faber…
 

SWISS-BORN and -educated Marc Faber’s distinct voice is a common sound on CNBC and Bloomberg TV when it comes to big-picture forecasting in investments, says Sumit Roy at Hard Assets Investor.
 
Publisher of the Gloom, Boom & Doom Report, Faber’s views on the markets are highly regarded. Here I spoke to him about the recent moves in stocks, the Dollar and gold.
 
HardAssetsInvestor: What’s your view on the stock market? Is the recent volatility a sign of a top or will stocks hit new records by the end of the year?
 
Marc Faber: The likelihood that we have something more serious now is quite high. There has been considerable technical damage in the market, with approximately half of Nasdaq and Russell 2000 shares already down 20% or more from their highs. Combine that with the fact that Treasury bond yields have again declined meaningfully, and it suggests the economy is not on a very sound footing.
 
We are in a period of elevated prices. From real estate to equities to bonds, there is a lot of excess. Going forward, the return on these assets will be very disappointing.
 
HAI: The strength in the bond market has surprised a lot of people. We’re seeing record-low interest rates for German and other European bonds. And even in the US, the 10-year yield is now hitting a new low for the year. Why are investors buying these bonds?
 
Marc Faber: The bond market is manipulated by central bank buying of government debt. Yields are lower than they would otherwise be if the Fed and other central banks didn’t buy them. Secondly, the decline in yields may be a sign that bonds buyers don’t believe in the global recovery story when it comes to the economy. In fact, the low yields on bonds would suggest that we may be entering a period of deflation.
 
HAI: The US Dollar has been rising and hit a four-year high earlier this month. Is the Dollar going to continue to rally from here?
 
Marc Faber: The trade and current account deficit of the US has been coming down because the balance in the energy trade has improved a lot. The US is almost oil self-sufficient. It’s become the largest crude oil producer in the world.
 
And even though the US economy is not doing particularly well, it’s in a slightly better position than the European economy. Thus, there are some reasons the Dollar should be stronger.
 
That said, based on sentiment figures, everybody is now bullish on the US Dollar. Usually when you have this kind of consensus, what can happen is a powerful contra-move. In other words, the Dollar could weaken for a while. That would be good for stocks and precious metals.
 
Additionally, if the Fed finds that the Dollar is too strong, it can print money. But you just don’t know what these academics will eventually decide to do. That’s why I recommend investors have a diversified portfolio, because nobody knows what the world will look like five years from now.
  
HAI: The Fed has said it’s going to end QE this month and raise interest rates sometime in 2015. Do you believe that will happen?
 
Marc Faber: It won’t raise interest rates for a long time. Certainly not in real terms. It’s possible that it’ll end QE4 and that the asset purchases come to an end. But only temporarily. When it introduced QE1, my view was that it would go to QE99. And I still maintain that view.
 
HAI: You’re saying that it’ll have to come back and do QE again sometime in the future?
 
Marc Faber: Yes. One of the reasons we have weak growth in the Western world, and in the US, and in Japan, is because of government interventions with fiscal policies. Spending – supported by money printing – has led to an ever-expanding government as a percent of the economy. And the bigger the government is, the slower economic growth will be. The extreme is when the government controls everything in the economy, such as under the socialist/communist planning system.
 
HAI: One way investors can hedge against all these risks is gold. We saw prices reach a low of $1183 last week, but it’s bounced back since then. What do you make of gold right now?
 
Marc Faber: I’ve advocated owning gold since the late 1990s. It is a safe investment in times of monetary uncertainty and monetary inflation. I would keep roughly 25% of my assets in gold.
 
HAI: Do you consider it an investment that’s going to stay stable? Or something that can increase in value from current levels?
 
Marc Faber: We had a huge bull market in gold that outperformed just about any other investment between 1999 and September 2011. We’re now three years into a correction phase. Can gold drop below $1000 first before it goes up meaningfully? It’s possible. Because as you know, there has been some manipulation in the gold market. However, gold will go higher over time.
 
HAI: Do you have any thoughts on oil’s big decline? Prices are down $20-25 per barrel since June.
 
Marc Faber: The markets have become quite volatile, largely because of money printing. This concerns not just oil, but all commodities. The price of corn, wheat, soybeans are all down around 50% from the highs. They can be down for a while, but in my view, they will not stay down.
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Oct 09

Central Banks "Face a Mess" Buying Gold, Platinum & Palladium

Gold Price Comments Off on Central Banks "Face a Mess" Buying Gold, Platinum & Palladium
Swiss gold referendum held as Kremlin looks to buoy platinum and palladium prices with state purchases…
 

The CENTRAL BANKS of Russia and Switzerland are weighing the merits of buying gold and other precious metals, but for very different reasons.
 
Now holding the world’s 5th largest state gold reserves, Russian central bank chiefs plan to meet with officials from South Africa – the world’s No.1 platinum mining nation – to discuss buying platinum and palladium in the open market to support prices, according to a Kremlin official.
 
Moscow’s precious metals and gems repository, Gokhran, already holds unreported quantities of palladium, of which Russia is the No.1 mine producer. Gokhran’s director, Andrey Yurin, last month repeated comments he made in May about returning to buy palladium in 2015, after focusing on buying gold this year.
 
The Swiss National Bank meantime faces a popular vote on buying gold – aimed at re-instating the Franc’s bullion backing – but is campaigning against the move.
 
Voters in Switzerland in 1999 approved an end to the legal requirement for gold reserves to back the Franc’s value, and approved large sales starting at what proved two-decade lows, now some 70% below current prices.
 
To win a place on Switzerland’s next referendum, scheduled for 30 November, the “Save Our Swis Gold” initiative secured over 100,000 signatures on a petition. Its proposals risk the central bank’s ability to ensure price stability and stable economic growth, finance minister Eveline Widmer-Schlumpf said Tuesday. Peter Hegglin – head of the Swiss cantons’ conference of finance directors – also joined SNB president Thomas Jordan’s repeated calls for voters to reject the move.
 
“A gold supply that can’t be touched isn’t an emergency supply,” Hegglin told a press briefing in Bern.
 
The Swiss National Bank would on one estimate need to buy perhaps 1,500 tonnes of gold to meet the referendum’s terms, which set a minimum 20% gold target for the SNB’s balancesheet, swollen through quantitative easing to buy Euros and maintain the Franc’s peg against its weak, neighboring currency on the forex market.
 
“Palladium is not a gold and currency reserve,” said Russian palladium miner Norilsk’s CEO Vladimir Potanin this spring, when Gokhran hinted it was considering buying the precious metal. “It should be sold rather than bought by the state…We could help, and not only by buying those volumes, but by marketing the deal.”
 
Named by Moscow’s minister for natural resources Sergei Donskoi as being involved with the proposed Russian-South African cartel, Norilsk said in late September it is raising funds to buy palladium from the Russian government, according to Bloomberg.
 
Neither the Russian central bank nor Norilsk have yet confirmed Donskoi’s remarks.
 
“My initial reaction is they could probably do it,” says US law professor Harry First, commenting to specialist site Mineweb on the proposed Russia-South Africa cartel. Apparently aimed at buoying metal prices after platinum and palladium hit multi-year lows in the open market, such a move would however face strong opposition from PGM consumers led by auto-makers, not least in China.
 
Between them, Russia and South Africa account for four-fifths of the world’s known platinum-group reserves as yet unmined.
 
But “They’d really be stepping into a mess,” says First.
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Sep 08

India’s Gold Deposit Scheme Targets "Easy" 200 Tonnes

Gold Price Comments Off on India’s Gold Deposit Scheme Targets "Easy" 200 Tonnes
Refiner MMTC-Pamp aims to mobilize household gold as CAD hits 1-year high…
 

INDIA’s much-awaited gold deposit schemes can “easily” unlock 200 tonnes per year from existing household stockpiles, according to state-backed refiner MMTC-Pamp, helping boost legal supplies and reduce smuggling in the world’s No.1 gold-buying nation.
 
“The annual [private-sector] requirement is around 900 tonnes,” said managing director Rajesh Khosla last week, “and the economy can afford to import around 700 tonnes.
 
“The balance will be easily bridged by effective schemes.”
 
With no domestic mine output, India’s world-beating gold demand has to date been met by imports from abroad. But surging demand on the gold price crash of spring 2013 helped take the country’s current account deficit (CAD) with the rest of the world to record levels near 5% of GDP.
 
Faced with a sharp drop in the Indian Rupee’s exchange rate, the government and central bank responded with a raft of anti-gold import rules, effectively shutting legal inflows in summer 2013. Since then, and with perhaps 25,000 tonnes of gold held by Indian households and temples – the world’s heaviest buyers until mid-2013’s strict rules – banks and government officials have repeatedly talked about “mobilizing” some of India’s existing stockpiles.
 
MMTC-Pamp – a joint venture between the state-owned refiner MMTC and Switzerland’s Pamp – says it is now working with commercial banks to launch a savings account with a 3-year term, into which consumers can deposit physical gold.
 
The depositor’s gold will be sold to help meet new consumer demand. Then, on maturity, says managing director Khosla, “the interest is [paid] not in Rupees but in gold and the investor has more gold in the account.”
 
Similar gold deposit schemes announced by the All India Gem & Jewellery Trade Federation last October as ‘Suvarna Nivesh Yojna’ still have yet to launch, because although “the previous regime was happy, [it] could not decide upon” details, according to the GJF.
 
Illegal gold smuggling into India since the anti-import rules were introduced last summer has been estimated at perhaps 200 tonnes by market-development organization the World Gold Council.
 
In the last 2 months alone, security agents at Delhi’s Indira Gandhi Airport have recovered nearly 6 kilograms of gold – worth a quarter of a million US Dollars – from toilets in Terminal 3.
 
“The toilets,” says India Today, “are being used by inbound smugglers as a place to leave the gold, where it is picked later by an accomplice, almost always an airport employee.”
 
A slight relaxation of India’s gold rules in June saw imports of the metal jump 65% from May, helping take India’s CAD to a 1-year high during the April-June quarter at 1.7% of GDP.
 
News of that surge comes as trade body the GJF says investment gold sales fell 70% over the last 5 months compared with the same period in 2013.
 
The rising import level, says precious metals analyst Jonathan Butler at Japanese conglomerate Mitsubishi, “adds to evidence that physical gold demand in India is improving.
 
“With the busy wedding and festival season now getting underway, this may indicate a degree of price support for gold from the physical side in the coming weeks.”
 
Despite failing to roll back the key anti-gold import rules as many jewelers and supporters expected, India’s new BJP government – led by Narendra Modi – is likely to be relaxed about the rising CAD, other analysts believe.
 
“The deficit is getting easily financed,” Bloomberg quotes Nomura bank’s chief economist in Mumbai, Sonal Varma.
 
“As the economy grows, imports will grow, so there will be some widening in the CAD. But we don’t expect it to be above sustainable levels.”
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Aug 29

Gold’s $1200-1400 Trading Range

Gold Price Comments Off on Gold’s $1200-1400 Trading Range
Gold fund manager talks technical and fundamental state of market…
 

JOE FOSTER is investment team leader for Van Eck’s flagship gold fund, the Van Eck International Investors Gold Fund.
 
He also serves on the investment teams for the Van Eck Global Hard Assets Fund and the Van Eck VIP Global Hard Assets Fund, and is an advisor to the Market Vectors ETF Trust – Gold Miners ETF (NYSEArca:GDX) and Junior Gold Miners ETF (NYSEArca:GDXJ).
 
Working in the gold mining and investment business for more than 25 years, Foster is now frequently quoted in the Wall Street Journal and Barron’s as well as being a frequent guest on CNBC and Bloomberg TV. Here he speaks to Hard Assets Investor‘s managing editor Sumit Roy about his latest outlook for gold…
 
HardAssetsInvestor: Gold zoomed higher during the first quarter, but it hasn’t really done much since then. Do you expect volatility to return to gold at some point this year?
 
Joe Foster: Gold has been range-bound. It’s basically been hanging around the $1300 level since March. Normally, we see strength in the fall for a variety of reasons. Seasonally, the price of gold seems to pick up as we move toward year-end. We could test the highs again later in the year, which would be around $1400 an ounce. If we do that, we’ll probably see a little more volatility. And then if something happens in the market that gets it through that $1400 level, certainly I would see it becoming more volatile.
 
HAI: Do you follow that technical picture at all? Is $1400 a key level?
 
Joe Foster: Yes, technically speaking, $1200 to $1400 is the range we’ve been in since the middle of 2013. We’ve been in this range for a year now.
 
HAI: Is it surprising to you that gold is holding in there despite the fact we’re seeing the US Dollar rally?
 
Joe Foster: No, it’s not surprising, because we saw gold collapse last year. That was a historic collapse in gold price. Any negativity in the market toward gold was already priced in last year. This year, even though we’re seeing Dollar strength, gold is standing up to that because pretty much everyone who wanted to sell got out last year.
 
That other thing that is supporting gold is the geopolitical risks we’re seeing around the world. And that’s also supporting the Dollar. Both gold and the Dollar are being used as safe-haven investments in this environment.
 
HAI: Seemingly every day we’re getting some headline about the geopolitical situation either in Iraq or Russia or Ukraine. Are these going to be drivers of gold going forward, or are they merely an excuse to trade on a day-to-day basis?
 
Joe Foster: I call them supporters, not drivers. They’re supportive of the market and they generate short-term gains in gold. But I don’t regard them as longer-term drivers.
 
HAI: You manage gold mutual funds for Van Eck, and of course Van Eck is also the issuer of the very popular ETF, Market Vectors Gold Miners ETF (NYSEArca:GDX). Of course, there’s also a host of other ETFs tied to physical gold out there. How should an investor decide what to buy to get exposure to the gold that they want?
 
Joe Foster: Whether it be physical gold, gold bullion ETFs or gold equities, they all give you exposure to gold. There’s a very high correlation between gold equities and gold. They really are proxies for gold itself; that’s why you invest in these things.
 
Gold equities have had a very tough time for several years, up through 2013. When you look at the fundamentals as far as what’s the right type of gold investment in this environment, we like equities because a lot of the things that caused the gold stocks to underperform have gone away.
 
The companies are better run now than they were several years ago. They’re hitting their targets, they’re meeting expectations and that’s allowing the gold stocks to outperform gold.
 
HAI: Given that they’ve done better than gold this year, could that be an early sign that perhaps the bottom is in for that sector?
 
Joe Foster: Yes, I think so. It’s not just a reversion to the mean, it’s based on fundamentals. The companies have had serious problems with controlling their costs, and now they’re bringing their costs under control. They’re much better businesses now, so fundamentally they’re a more attractive investment today than they were a year or two ago.
 
HAI: Is silver a metal you cover? Do you see it performing in line with what gold does?
 
Joe Foster: Yes, we invest in silver stocks too. Within the gold funds, we have a number of silver stocks. I invest in the silver for the same reason as gold. Silver is also a monetary metal and it moves on the same fundamentals as gold.
 
HAI: Finally, much has been written about the marginal cost of gold production, or the level at which gold mining becomes unprofitable for the industry. Analysts at Goldman recently said they thought that level was $1200. Do you have any thoughts on that?
 
Joe Foster: $1200 is definitely a critical level. We talked about the technicals, but looking at the fundamentals of the gold price, one of the reasons I think $1200 is a firm base is that that’s where these companies have geared their business. And if it were to drop below $1200, we would see a significant increase in the number of mine closures and cutbacks due to low gold prices.
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Aug 29

How Central Bankers Blew Up the World

Gold Price Comments Off on How Central Bankers Blew Up the World
$2.2 trillion here, a 3% jump there, and soon you’ve got S&P 2,000…
 

ALL OVER the world stocks are rising, writes Bill Bonner in his Diary of a Rogue Economist.
 
In the US, the S&P 500 rose over the 2,000 mark for the first time in history. The Dow is over 17,000.
 
And if you want to buy a share of online TV network Netflix, Inc. (Nasdaq:NFLX), you will pay $144 for every Dollar the company earned over the last 12 months.
 
If you bought the company outright, in other words, you’d have to wait until 2158 to earn your money back.
 
But this story is playing out from Timbuktu to Taiwan to Texas. Here’s the latest from Bloomberg:
“Shares worldwide added more than $2.2 trillion in value since Aug.7, according to data compiled by Bloomberg. Optimism that central banks will support economic growth sent the MSCI All-Country World Index up 3.8% from its low this month. The S&P 500 has risen for 10 of the last 13 days and the Nasdaq Composite Index is about 10% from an all-time high.”
Put them all together, and publicly traded equities are now worth more than $66 trillion – just shy of total world GDP. That’s $12 trillion more than they were worth in the beginning of 2013…and it’s $30 trillion more than they were worth 10 years ago.
 
What has happened during the last 10 years to make stocks so much more valuable?
 
We remind readers that shares are titles to ownership of real assets and the earnings they produce. And in a competitive economy, they shouldn’t be able to diverge too far from the cost of creating those assets.
 
Typically, investors have paid from 10 to 20 times annual earnings for shares. But when they are bearish, as they were in 1982 and again in 2009, they will want to pay less than 10 times earnings. And when they are bullish, the sky’s the limit…but seldom more than 20 times.
 
Currently – except for China and Russia – almost all major country stock markets are closer to the top of the range than the bottom. With the S&P 500 now trading on a Shiller P/E (which looks at the average of 10 years of inflation-adjusted earnings) of 26.5.
 
What would make investors so bullish? And why would this bullishness extend to practically the entire globe?
 
After all, corporate incomes depend on corporate sales. And one corporation’s sales can only increase if a) it takes business from other corporations (which would mean no net increase for the world’s sales) or b) the world economy is growing.
 
But that’s the curious thing. As stocks have gone up…growth rates have come down, from a high of nearly 5% in 2009 to just 2% last year.
 
Last year, in the US, stocks rose 10 times faster than the economy beneath them.
 
Go figure.
 
The old-timers tell us that “the stock market always knows more than we do.” If that is so, what is it that the market knows that we don’t? Is there another Industrial Revolution coming? 
 
Are birth rates exploding? Not as far as we can tell.
 
So, what’s behind the big run-up in asset prices?
 
Here’s our guess: Janet Yellen, Mario Draghi and Shinzo Abe.
 
At the recent central bank meeting in Jackson Hole, Wyoming, Janet Yellen let it be known she was in no particular hurry to let markets discover prices on their own again. Instead, she’ll put prices where she wants them.
 
And that means setting interest rates at vanishingly low levels…and asset prices at in-your-face new highs.
 
Mario Draghi, meanwhile, is faced with a triple-dip recession in Italy, a flat economy in France and negative growth in Germany. From Bloomberg:
“[S]aid Patrick Spencer, head of US equity sales at Robert W. Baird & Co. in London, ‘Draghi gave clear indication that he’s standing ready with further measures to stimulate growth and that’s helping overall sentiment’…”
As for Shinzo Abe, the Japanese prime minister, he seems ready for any sort of mischief in the name of increasing inflation and GDP – including encouraging women to cut down trees!
 
Shhh…No need to accuse us of male chauvinism, as though we had something against women doing hard labor. We don’t. In fact, we’re in favor of it. But if you could raise prosperity by increasing the number of female lumberjacks, half the world’s women would already be wearing plaid shirts.
 
Shinzo, Janet, Mario…Surely there is a clever magazine somewhere readying a cover story…
 
“The Committee to Blow Up the World,” is the headline we propose.
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Aug 27

Gold Bullion Rallies Again from 2-Month Lows as Equities, Eurozone Bonds Hit Record Highs

Gold Price Comments Off on Gold Bullion Rallies Again from 2-Month Lows as Equities, Eurozone Bonds Hit Record Highs

GOLD BULLION prices rallied again from near 2-month lows against the US Dollar Wednesday morning, creeping 0.2% higher to $1287 per ounce as world stock markets extended their new record highs.

Now valued above $66 trillion, global equities have gained 3.5% so far this month, according to Bloomberg data.

Gold bullion in Euro terms has risen 1.8% as the single currency has dropped, holding near last week’s highs of €976 per ounce on Wednesday.

“It’s pretty straightforward,” Bloomberg quotes one German bank analyst.

“More and more investors are expecting something big to be announced [by the European Central Bank] at the beginning of September.”

“Whichever tool they choose,” agrees Marcus Grubb, investment director at market-development organization the World Gold Council, “whether it’s [lower] interest rates or even quantitative easing…if you look at the latest [gold ETF trust fund] numbers globally in July and August, we’ve had net new creates.

“I think those two things are related.”

Gold bullion held to back shares in the world’s largest gold ETF – the SPDR Gold Trust (NYSEArca:GLD) – slipped for a second day Tuesday, shedding another 1.5 tonnes to reach 795.6 tonnes, a five-year low when first hit in January.

With the European Central Bank set to meet and decide policy next week, rising bond prices today pushed yields on Eurozone bonds from Austria to Ireland and Italy down to new modern-era lows, after a drop was reported in both Italian and German consumer confidence.

Ten-year German Bund yields fell to fresh record lows beneath 1.0% per annum, with Berlin’s debt offering negative yields to new buyers of all maturities up to 3 years. 

German import prices fell last month at the fastest pace since March, new data said Wednesday, dropping 1.7% from July 2013.

US data in contrast continue to signal stronger growth, with Tuesday’s Durable Goods report giving the best print on record as consumer confidence hit a 7-year high.

“One has to say though that gold’s resilience is fairly impressive at the moment,” says David Govett at brokers Marex Spectron in London.

“The numerous sources of geopolitical crisis,” says Wednesday’s note from commodities analysts at Germany’s Commerzbank, “are evidently preventing the gold price from slumping.”

Over in China on Wednesday, Shanghai gold premiums slipped but held positive near $2.50 per ounce above London quotes on solid trading volume.

“There’s been some scattered bargain hunting by physical buyers,” says Swiss refiner and finance group MKS trader Bernard Sin in Geneva.

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Aug 05

Gold Prices Flat Again But Shanghai Premium "Healthy" as London Gold Borrowing Rates Rise

Gold Price Comments Off on Gold Prices Flat Again But Shanghai Premium "Healthy" as London Gold Borrowing Rates Rise
GOLD PRICES held in a tight range again Tuesday morning in London, trading less than 0.2% down from last week’s finish as crude oil ticked higher with major government bond interest rates.
 
European stock markets continued their rally from last week’s 4.5% drop, but Asian equities were muted after new data showed China’s services sector flat-lining in July.
 
Sinking from June’s 15-month high, the Markit consultancy’s non-manufacturing PMI of 50.0 was the lowest reading since the series began in 2005.
 
Gold prices in Shanghai closed Tuesday slightly lower in the Yuan, but extended their $2 per ounce premium above London quotes of $1291.
 
“The premium in Shanghai,” Bloomberg quotes analyst Nikos Kavalis at London-based consultancy Metals Focus, “might be a sign that the inventory overhang in China we saw earlier this year is not a big issue.”
 
“We expect a very healthy rebound in physical demand in the last four months of the year.”
 
Suggesting tighter supply in London – heart of the world’s wholesale trade – the cost of borrowing gold in one-month deals today held near the highest levels since May, with gold lenders asking for a rate of interest on top of the cash interest they earn during such gold-for-money swaps.
 
This rare situation, as shown on data collected from the market-making members of the London Bullion Market Association, applied throughout summer 2013’s sharp gold rally from 3-year lows, and again as prices rose this spring.
 
Amongst private investors in the West, BullionVault users last month grew their aggregate holdings to a new record above 33 tonnes of gold as prices slipped 2.6%.
 
Sales of gold and silver products by Australia’s Perth Mint, in contrast, fell to a 3-month low.
 
That took year-to-date sales of gold to 8.3 tonnes, data from the government-backed mint said, down 43% from the first 7 months of 2013.
 
The US Mint has sold 56% fewer American Eagle gold coins so far in 2014 than the same period last year.
 
Yesterday saw the gold bullion needed to back shares in the SPDR Gold Trust (NYSEArca:GLD) drop by 1.8 tonnes, taking the world’s largest exchange-traded gold fund’s holdings back to 800 tonnes – a five-year low when first reached last December.
 
“While the present negative factors remain,” says a note from Germany’s Commerzbank – “a strong US Dollar, weak physical demand in Asia, and weak coin sales in the West – we do not envisage any serious price gains” in gold.
 
Facing what Baring Asset Management calls “increasing global demand for resources,” mining-stock manager Duncan Goodwin says “Investors should focus on investing in companies not commodities.”
 
The Baring Global Resources Fund shows an average annual return of -11.6% since August 2011, according to data from MorningStar.
 
The Philly Gold Bugs Index of gold and silver mining stocks (IndexNasdaq:XAU) has a compound annual growth rate of -20.5% over the last 3 years.
 
Physical gold bullion shows a compound annual return of -12.4% from its summer 2011 records above $1900 per ounce, hit at the start of September that year.
 
Israeli troops meantime pulled out of Gaza Tuesday morning amid the 72-hour ceasefire starting last night, but militant Syrian rebels again clashed with Lebanese troops at the border town of Arsal.
 
The United Nations said today that the number of internal refugees from the fighting in eastern Ukraine has jumped to 100,000 in the last two months.
 
A white paper adopted Tuesday by the Japanese cabinet calls China’s recent actions over disputed islands “profoundly dangerous“, making the security situation in East Asia “increasingly severe.”
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Aug 01

Numb to Risk, Oblivious to Gold

Gold Price Comments Off on Numb to Risk, Oblivious to Gold
Gold investing isn’t needed now money managers are cocooned from risk by zero-rate dope…
 

SO WE know the financial crisis blew in on a blizzard of cocaine, writes Adrian Ash at BullionVault.
 
But what are traders snorting today – heroin? Chloroform? Analgesics of some sort, for sure.
 
Investors are “numb to risk“, reckons Swiss bank UBS analyst Dominic Schnider…too numb to buy gold, he believes. Thank zero rates and continued quantitative easing, we guess. 
 
Current central-bank policy acts as an anaesthetic, in short, and the people running everyone’s money are high. How else to explain the idea that “QE tapering” so far in 2014 meant money was getting tighter, even as rates stayed at zero and the Fed cooked up another $385 billion of QE cash?
 
The bond market didn’t buy it, but it did keep buying bonds…pushing longer-term government yields down further. With all that QE and zero-rate cash in their veins, bond markets are also “desensitized” says Marc Ostwald, now at ADM Investor Services in London, to Bloomberg.
 
What will the pain make them buy when their bubble bursts?
 
A friend, a general practitioner in London from the early 1960s, witnessed the arrival and growth of recreational drug use – notably cocaine and amphetamines – and especially in the gay community.
“Those drugs have the effect of increasing people’s self-confidence,” he explained, “and are very addictive.  The more people took the more self-assured they became and the further over the top they went…oblivious to caution.”
The hard-partying disco crowd crashed with the AIDS epidemic of the 1980s and ’90s. In terms of broader adoption, “Fashions in the population at large generally seem to follow about 10 to 15 years behind,” he wrote to me as the 2008 depression slumped into the Lehmans crash. “For some years now, bank notes have been reported as being contaminated with traces of cocaine – including in the City – after being used to snort the drug up the nostrils. I suspect that increasingly widespread cocaine usage lies at the root of the financial crisis, even though I have not personally had any dealings with cocaine users since the late ’70s.”
 
Too much? Journalists we introduced to him certainly thought so. Yet as QE and zero-rate cash flooded the markets, coke’s role in Wall Street and City culture…if not in the crash directly…began to be noticed. Inside Job, the US documentary on the mortgage-bond bubble, cited cocaine as a factor in Wall Street’s risk-seeking behavior. “Bankers use cocaine and got us into this terrible mess,” agreed David Nutt, a British professor, who – effectively begging to be sacked from his job as the UK government’s drug czar in 2009 – made headlines by saying ecstasy was about as dangerous as horse-riding. Nutt called cocaine the “perfect drug” for City traders, fuelling their “culture of excitement and drive and more and more and more. It is a ‘more’ drug.”
 
Other experts have long agreed there’s a link, too. Trevor Robbins, professor of cognitive neuroscience at the University of Cambridge, told Bloomberg in 2009 that dopamine – the brain’s own “feel good chemical” – surges both when we roll up a banknote and snort coke or roll up a client’s banknotes and throw them at high-risk investments. Professional risk-takers apparently have lower levels of dopamine receptors, so they “try to shock the brain into a boost…They’re also more likely to become addicted.”    
 
Here in 2014, however, risk-taking is not where it’s at. Risk oblivion is the big trip, so trippy in fact that traders maybe think they can see into the future while still cocooned in the warm embrace of QE and zero rates. Perhaps they’re right to shrug off Gaza, Ukraine, and Libya’s new upturn in murder. “The oil market still appears unaffected by the numerous sources of geopolitical crisis,” notes Commerzbank’s commodities team. It calls this “complacent attitude…amazing in view of the considerable risks to supply.”
 
Look at markets outside the rich West and you’ll find constricted pupils peering back at you too, even where real and present pain is ongoing. Moscow’s main stock indices are off, dropping over 10% as the last month of sanctions and sabre-rattling take hold. But that only puts the RTS down at 3-month lows, and it’s been slipping more broadly since 2011 anyway. Likewise the Ruble currency, whipping but not breaking below its 25% downtrend of the last 3 years. Further east, “the military coup in Thailand in May,” reports Business AsiaOne, “barely caused a blip in regional stock markets.” The Yuan meantime looks immune to China’s slow-bursting credit and real estate bubble, regaining its uptrend after edging 3.5% lower over the first-half of the year. Tokyo’s stockmarket stands only just shy of January’s 5-year highs – a feat which needs a whole heap of pain relief from the central bank’s QE program to bear the stings of Japan’s relentless and apparently incurable deflation.
 
Global equities thus stand at record highs, and junk bond issuance just hit a record high as the yields paid to investors (via their money managers) hit record lows. Volatility is retreating to new multi-year lows everywhere, most of all in the currency market. Risk doesn’t count when nothing can hurt you. And as the financial crisis proved, investors tend to use gold as a form of financial insurance. So today’s non-existent risks mean less perceived need for gold.
 
The best-performing tradable asset of the last decade, gold bullion had already trebled however from its 2001 lows by the time Lehman Brothers collapsed in 2008. Buying gold early pays best. But it’s tough to time that against the broader view of fund and money managers. And it’s their wall of money, of course, which actually moves prices up and down. 
 
No doubt the typical summer lull is also weighing on gold prices right now. But any re-pricing of risk as the QE buzz fades – or investors hit a moment of clarity when the Fed cooks up the next batch – could very quickly shake gold from its stupor as well.
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