I recently wrote in these pages about the Bank of International Settlements (BIS) proposing to reclassify gold bullion as the safest and the highest quality of asset for central banks and all other banks around the world: Tier 1 capital.
Regardless of how the central banks wish to classify gold bullion, it is the market that will eventually decide the value of gold bullion, which has retained its value and played a significant role as a monetary asset for 5,000 years.
The central bank in the U.S.—the Federal Reserve—has recently released a memo to possibly change the status of gold bullion in this country. (Source: Federal Deposit Insurance Corporation, June 18, 2012.)
Currently in the U.S. and in many parts of the world, gold bullion is classified as a risk asset on which banks are allowed a 50% weighting. This means that for every $1.00 of gold bullion held, $0.50 worth is recognized as value on the books of the banks or central banks. The whole $1.00 is not recognized, because there is a risk, according to the classification, that gold bullion could lose its value rapidly.
Again, these are classifications created by central banks and have no bearing on the true value that the market will place on gold bullion.
Still, it is significant that the U.S. is proposing to reclassify gold bullion as a zero-risk asset, as early as January 1, 2013. This means that gold bullion will join the very short list of assets considered zero-risk by the Federal Reserve: U.S. Treasuries; the U.S. dollar; and assets and/or claims with the International Monetary Fund.
So the central bank of the U.S. has joined the BIS in raising the status of gold bullion. Should the reclassifications indeed be instituted in 2013, it should increase demand for gold bullion by the banks here in the U.S., as gold bullion would be worth dollar-for-dollar on the balance sheet what a particular bank paid for it.
Furthermore, there is new legislation for banks around the world with Basel III. Basel III requires banks to increase their holdings of Tier 1 capital. If gold bullion is reclassified as Tier 1, then the banks can now use gold bullion as a diversification from other assets on their balance sheets.
Central banks around the world are taking steps to reclassify gold bullion to the status that is has held for 5,000 years: money. The proposed and very significant change by the Federal Reserve here in the U.S. should increase the demand for gold bullion and subsequently the price for the yellow metal. (Also see: “Japanese Pension Fund Buys Gold as Currency.”)
Jan 21, 2012
FRANKFURT (Dow Jones)--Italian Prime Minister Mario Monti and European Central Bank President Mario Draghi are calling for the European Stability Mechanism's volume to be boosted to EUR1 trillion from EUR500 billion, increasing pressure on the German government to approve an increase, Germany's Spiegel magazine reports Saturday in a pre-release of its latest edition without citing sources.
The article alleges Monti views such a step as a way of increasing confidence in the currency union, which would cause interest rates on European sovereign bonds to fall.
Monti has already informed the German government of his wishes, Spiegel reports, and has the support of the ECB's Mario Draghi.
Draghi has suggested taking unused funds from the provisional European Financial Stability Facility, or EFSF, and putting them at the disposal of the new ESM, according to Spiegel, a step which in itself would boost the ESM's volume to about EUR750 billion.
Magazine website: http://www.spiegel.de
Jan 19, 2012
Just released great book by Michel Dube: The Dollar Freefall...
-America is in deep trouble?
-Our government is broken?
-The government is just postponing the inevitable catastrophe by just printing more money?
-Your freedoms are rapidly being stolen from you?
-That politicians have become our masters instead of our servants?
-Inflation and unemployment are much worse than we're being told?
-Are you looking for better ways to keep the government out of your wallet?
I was watching this interview and scepticism towards knowledge of basic economics of both interviewer and interviewee was rising as video progresses. It has reached the top at about 14 minutes of viewing, when Chrystia Freeland makes a remark that if there would be no borrowing no one would afford a house and Ron Brownstein agreed to her. Both of them have no clue about basic economics and Reuters editors for that matter for posting the interview on their website
People in America and around the world were able to buy houses before "mortgages" were created. If no one can borrow money to buy a house, the house prices will automatically go down to the point where supply meets demand. Houses used to cost $10,000 and many people could afford them even with salary of $500 per month. After 4 years of saving 50% of your income anyone can own a house. How attractive is it vs living in the house you have to pay for 30 years?
If we can not borrow to buy a car, the car prices will go down, if we can not borrow towards education, the tuition will go down, and this is true for everything we borrow. If we can not borrow no one can borrow and therefore product will not be bought until equilibrium in supply and demand is reached. Borrowing for personal needs creates financial instability and consequent collapse of the economies.
The borrowing was created by lenders to enrich themselves, specifically when money are borrowed against fixed assets, the lender can take a possession of it at a cheap price and resell it to cover. This was rule of thumb for many years until US banks including US Governments ignored it and started giving away mortgages without any collateral (down payment). This practice removed the cushion for the lenders to make profit if borrower fails on its' obligations. Lenders should look at a value of collateral at destressed market price, but they were looking at prices during normal market conditions or even worse - future gains by asset class.
To get onto right path and live in the world of affordable low prices, borrowing for personal needs should be abolished and become illegal. This contradicts to human psychology of the west today and may not be attainable until western economies collapse and we come to our basis.
Apr 15, 2011 – 9:00 am
These are the personal views of Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
Comments by GoldenMoney
Friday, the U.S. Labor Department reported consumer prices were up 0.5% in March, driven by 3.5% and 0.8% jumps in energy and food prices.
This is the fourth straight month of large gains in consumer prices. While food and energy prices may be volatile, international conditions indicate commodity prices will continue surging, and the Fed's emphasis on core inflation is absolutely misplaced.
With inflation running at 6% a year, it will be tough for the Federal Reserve to deny inflation and continue quantitative easing and low interest rates generally. Similarly, with unemployment likely to remain above 8% for the balance of the year, the Fed will find it tough to raise interest rates too much.
Fed will be blindly denying inflation and will continue with QE-3. This is needed to support huge US deficit. Someone has to buy Treasuries, neither Chinese, Japanese or Russians are willing to buy substantial amounts as they did before. Basically, Fed developed a Ponzi scheme to pay for matured Treasuries with newly printed dollars.
The U.S. economy is headed for stagflation thanks to failed banking and international economic policies that lie largely beyond the Fed's control.
When country prints money and inflation is going through the roof supported by low interest rates, the country is on path to hyperinflation.
At the heart of the Great Recession and now stagflation are two dysfunctions--problems in U.S. banking, and China's currency policy and Germany's privileged position in the European Union. For different reasons, but with the same effect, China and Germany enjoy undervalued currencies and protected domestic markets, and are creating imbalances in demand for goods, services and workers globally.
Rather than blame others for your problems, look at yourself. Germany and China enjoy the world of appreciation for their hard work. Both countries produce products, which are being bought through out the world. On the other hand the US created service oriented economy. US Government killed jobs in manufacturing sectors with high corporate taxes, minimum wage laws, tremendous regulations and support for Labour Unions. Everything above has to go before US can regain its' industrial power and start competing against Germans and Chinese. Interestingly enough, when Euro started to rise against dollar, Germans did not see slow down at their orders and commented following: "We are not concerned with rasing Euro, as people around the world appreciate German Quality Products and still willing to pay the price". US on the other hand started to lower the Dollar to become competitive. China is taking the market by mass production of cheap products, while Germany is taking global market by quality of produced goods. US can't do either.
Recent banking reforms have not changed how Wall Street does business--the emphasis is still on trading instead of making sound loans. Whereas before the recession banks made reckless loans, based on the shady practice of pushing loan-backed securities on unwitting investors, now they are starving small and medium-sized businesses for the credit needed to create jobs.
"Too Big to Fail" is continued to be the case and in the event their investments bets to go south, US Government and Fed will once again (read US taxpayers) pay the price to bail them out. Look at the latest JP Morgan Financial - majority of their income came from trading and they lost "not as much as anticipated on their credit card loans".
Also, Beijing subsidizes imports of oil and other commodities with the dollars it obtains selling yuan to keep its value low. In the case of oil, it gives to refineries dollars it obtains selling yuan to offset the high price of imported oil. That pushes up oil and other commodity prices globally. Simply, China's currency policy is a global inflation machine.
China is trying to stop inflation with whatever measures is has in its' arsenal. It hiked interest rates, increased bank deposit rates to 20%, but US Fed "inflation machine" is unstoppable". China is worried about inflation the most, the reason being, is dictatorship of the Communist Party. If inflation in China goes through the roof, people will go out on the streets and remove Politburo from the power. China does not want inflation.
In combination, China's currency policy starves its trading partners of demand for goods, services and workers with subsidized exports of consumer goods and pushes up inflation in those economies by elevating oil and other commodity prices. That makes China's currency policy a global stagflation machine too.
Two trillion dollars printed, another trillion in the pipeline combined with low interest rates is the real cause of inflation around the world. Add another over 100 trillion yen printed by Japanese Central Bank.
This week the Group of 20 finance ministers, representing the largest developed and developing countries, are meeting in Washington. And again China and Germany block progress. Instead, they prefer to lecture other countries about the genius of their policies, when those policies are nothing more than beggar thy neighbor protectionism, exporting unemployment and fiscal crisis to their trading partners.
It is hard to tell "lazy" that he is lazy and expect him to start working, he will find multiple excuses not to work and blame the "hard working guy" for working too much.
The Obama administration needs to give up on failed multilateral groups and lead concerted action with a few other major nations in responding directly, or as necessarily, act unilaterally to respond to Chinese and German protectionism. If not, Americans can look forward to high unemployment, damaging inflation, falling real incomes, and continuing economic woes.
Obama has to demolish socialism in the USA, stop government spending, reduce corporate taxes, remove all minimum wages, disband Labour Unions, stop subsidizing health care, housing, education to help America to get back on its' feet. But he has no will power nor strength to do that.
The author can be reached at email@example.com
Peter Schiff on The Economy Mar 4, 2011
March 2, 2011 – 4:05 pm
by Elspeth Lodge
Toronto Police are searching for 95 gold bars allegedly bought in Montreal with a fraudulently obtained bank draft.
The bank draft, worth $1,895,751, was withdrawn in February in Montreal.
Two suspects have been detained for trying to sell some of the bars in Toronto, but so far police have only recovered one 10-ounce (nearly 300 grams) bar (pictured, above). And seventy-four like it — from Australia's Perth Mint, with the mint's symbol on one side and a kangaroo on the other — are still missing. Police are also looking for nineteen one-kilogram gold bars and two 100-gram bars.
Police are still seeking the identity of the person or persons who obtained the bank draft.
"We're barking up a few trees, it's an ongoing investigation" said Detective Ruth Moran of the Financial Crimes Unit on Wednesday.
"They could be from anywhere," said Constable Tony Vella of the Toronto Police of the suspects. He asked the public to come forward with any information regarding the incident, and warned jewellery and metal businesses to be lookout for the bars.
The first suspect was arrested on February 14 when he tried to sell a bar to a Toronto gold company, said Constable Vella. Two days later, the gold bar was recovered when officers caught a second man allegedly attempting to sell it.
Toronto residents Thevarajah Thambipillai, 55, and Senthuran Kanapathipillai, 32, are both charged with possession of property obtained by crime.
The Canadian Bankers Association is offering a reward of up to $50,000 to anyone who can provide information that leads to the recovery of the gold bars.
Feb 12, 2011
By Martin Brooks
Bernanke’s Mission Part 3
Let us now rejoin the crew of the "Memphis Belle" as they prepare to ditch in the lake of liquidity in Southern England.
"…….don't worry men, I've got this situation contained….just a few more seconds…."
"Lieutenant Bernanke Sir!! Nose Gunner Geithner here – there's a British Lancaster ditched in the lake – it's directly in our path Sir!!"
"Damn Brits …. So they won the race to the bottom. "
"Lieutenant! There's something rising out of the water….it's some giant creature! …..Sir I think it's Bondzilla! He must have been hiding in the liquidity….Jesus Sir!! He's tearing that Lancaster to pieces!! Permission to fire Sir!!"
"Granted Gunner Geithner! Take him Down!! Take him Down!! Splash Bondzilla!! Splash Bondzilla!! [Nose guns firing]
"Lieutenant! It's no good….he's too big….our rounds are just bouncing off….he must of just kept spreading and growing in the liquidity!"
"Cease firing! Men, the Brits may have given us a chance….I'm attempting a restart on engine 2 …..come on…come on…..[Engine splutters and roars into life] …Yes!!!....I knew it!!"
"How Lieutenant?? It's a miracle Sir!!"
"It's a miracle called a Flight to Safety….we'll be all right while Bondzilla is busy consuming the Lancaster. Men, there's a dam at the North end of this lake….I don't know how long our engines will last and we have no landing gear so I'm going to ease the 'Belle' down close to the dam wall. When we ditch I want you all to swim for the dam wall and then head to the nearest land. ………..Okay, here we go….reducing power….max flaps….nose up….easy…brace for impact!…"
Thus the "Memphis Belle" finally settled into the lake of liquidity. The intrepid crew swam for their lives and safely reached the dam wall.
"Men, well done, keep moving along the wall to the lake shore…..wait….anyone hear an aircraft?"
"Lieutenant, to the South….another Lancaster…heading towards us at low altitude….gee they must be flying at about 60 feet….what's that in the bomb bay….some kind of round bomb?"
"I'm not sure Obama…..doesn't look like a bomb….Strange……whatever it is, it seems to be spinning ……those Brits……always coming up with new gadgets…..Let's give them a wave as they pass over us."
Meanwhile…. in Northern France…..German intelligence has intercepted a message in the 'clear' from "Maestro" (Captain Greenspan) stating "I don't expect any balloon to go up in 1944." In response an irrationally exuberant German High Command has transferred 3 Panzer Divisions to the Eastern front, General De Gaulle has awarded the Croix De Guerre to Captain Greenspan for his brilliant misdirection and Prime Minister Winston Churchill is already penning an appreciative letter to President Roosevelt praising American ingenuity, …. "Never before… in the history of the world …has so much been owed …by so many …."
Feb 5, 2011
Is there really Gold Bubble? by Golden Money
Feb 4, 2011
By Shyamal Mehta
Commodity Online : After Federal Reserve Chairman Ben Bernanke’s speech, Gold prices on Comex rose by more than 20 USD per ounce.
Bernanke commented about the continued Fed support for the economy facing challenges. He said that Fed’s continued buying programme of bond is working. The central bank’s bond-buying programme under QE II shall come to an end in June this year.
The economic growth of US is mainly because of stimulus packages that is injecting liquidity into the market each month.
Moreover, ongoig crisis in Eqypt also supported the gold prices to rise yesterday. The situation has worsened in the last couple of days.
Gold in international markets last traded at 1349 USD an ounce. Gold is trading in a narrow range and with lower volumes on Friday because of lack of participants from many countries due to China’s Lunar New Year public holidays.
Gold has already discounted ongoing tension in Egypt. Gold prices are likely to fall in the short term and could touch 1300-1290 levels. Traders are advised to sell gold on every rise.
Gold has lost its appeal as a safe haven asset because of investors is gaining confidence on the improvement of US economy.
Moreover, likely strength in USD against major currencies may put a pressure on gold as stronger USD makes a Dollar denominated commodities more expensive for other currency holders.
The yellow metal may find a resistance near 1355 and 1375. While supports levels for the gold is seen at 1305 and 1270.
Jan 15, 2011
Who is to blame for inflation?
After two years of unprecedented low interest rates around the globe and numerous massive intervention into currency market by various governments, inflation start to show its' ugly head. Tunisia is the first county where people went out on to the streets to protest against high food and energy prices. The result - the president has fled the country in fear of angry crowd.
US Federal Reserve has printed 2 trillion dollars during the past two years. Brazil, India, Korea, Japan, China, Russia and many other countries were printing vast amounts of local currency and bought US dollars on Forex market to suppress rise of their own currencies. This resulted in runaway inflation in the majority of developing countries. The governments in those countries were under pressure from local big corporations to undervalue their currency so the corporation can stay competitive on international market. Now the same corporations are forced to raise salaries, so their workers can afford food and energy and do not go on strike or worse revolt against goverment fiscal policies..
The governments are trying to blame commodity speculators for betting up commodity prices on the market. Of course they can't blame themselves. So the witch hunt began: "Let's find the scapegoat and punish him". This will result in attempts to further regulate free market by putting ceilings in place and maybe throw someone in jail. Good example of the past would be Khodorkovsky in Russia. There is a chance India or China will follow good example of Mr. Putin jailing few commodity traders. Will it stop inflation? No. Free market will fight any regulations and rules governments will try to put in place. Throughout the history those measures always fail and if people cannot make money legally, black market is formed where gains outperform risks.
Surprisingly, Chile was not part of the bunch till recently when it decided to sell USD$ 1 Billion every month for the next 12 months to suppress peso rise. It seems like Chilean politicians did not learn their lesson, at the times when Korea, India, China fell into inflation trap by doing the same over the past 2 years. It seems like we never learn by others mistakes.
The problem lies with plentiful of cheap US dollars on the market. If the Central banks of these countries try to raise interest rates, more inflow of hot dollars will enter their banking system, resulting in "no impact" or even negative impact on their inflation rate.
Soon these governments will be faced with tough decision: combat inflation or allow people to riot and overthrow the governments. Obviously they do not want latter to happen, but fighting inflation means to sell all their US dollars they have accumulated over the past 2 years on open market and therefore send US dollar in downward spiral wiping out their own holding of reserve funds denominated in US currency. If this is to happen it may very well send price of gold to the levels never seen before.
However, local currencies will appreciate making products produced in these countries less competitive on international market, sending many corporations into bankruptcy and creating high unemployment. The question is, will they do it and when. As humans we often wait till the last moment before we decide to take such dramatic actions. For example, for China it will mean wiping out US$ 3 trillion in reserves and putting US into default. As a result world economy will be devastated. Majority of developing countries will benefit from such move on the long run. On short run, there will be few winners who disposed of US assets first and losers who will try to support US dollar further. But as soon as the race to dump US assets begins, it will be unstoppable. US and majority of developed world countries will be in ruins for many years to come and will be forced to change their economy system back to 18th century state with no government regulations, no minimum wage laws and adoption of gold standard. If this is to happen, we will witness the history to repeat itself in a spiral. The counties with free political system, natural resources and vast manufacturing capacities will finally emerge to prosper.
Jan 9, 2011
Ever wondered about Ben Bernanke's Real Mission?
by Martin Brooks
I don't think the young Lieutenant Ben Bernanke began to fully understand the scope of his mission until a be-goggled and grinning Captain Greenspan bailed out of the "Memphis Belle", shouting as he fell, "How could I have known we'd be shot at? How could anyone?"
Quickly moving into the pilot seat Ben realised that his mentor had left out a few details regarding the flightworthiness of the "Belle". With two engines out and a third spluttering, with major system malfunctions everywhere and crew stations damaged, several crew members were rendered effectively jobless on the aircraft. Oil was pouring from the aircraft into the English Channel. Ben quickly started downwardly easing the angle of attack, building up a little extra speed and enabling damaged control surfaces to find some more lift for the "Belle".
Someone suddenly shouted out "No Dubya...Don't! Oh sheet, Lieutenant Bernanke sir? Bombardier Bush just jumped Sir – He said "This sucker's goin' down" and just bailed. Sir? We gonna crash? Should we jump too?
This was Ben's moment in history. This was the mission for which he would be remembered.
"No men, we're not going to crash. I've studied aviation crashes and I know how to avoid them. I promise I won't make the same mistakes. Men, I'm afraid however this is going to be something of a race to the bottom. We've got to maintain air flow over the control surfaces and that means constant easing of our angle of attack. We only have very limited control over our descent. Let's hope other aircraft will spot our smoke and take evasive action. Have faith, I'm sure I'll get this bucket of bolts down on the deck. In fact, you can bank on it!".
We will leave Lieutenant Bernanke at this point, as he confidently lowers the non-existent landing gear just as engine number 3 fails. It is also at this precise moment that Ben realises the aircraft is now too low for the rest of the crew to bail out.
Meanwhile, in Northern France, Captain Greenspan has been found by the French Resistance and has already offered to manage their finances and help operate their radio equipment.
Bernanke's Mission Part 2
Before we rejoin the crew of the "Memphis Belle", just as they lose their third engine, let me take a moment to recount some sombre news relating to Bombardier Bush.
The fate of Bombardier Bush was particularly tragic. But the story needs to be told even though I fear it may upset some of the more gentle souls at Cerebrals. The sad fact is that after bailing out of the "Belle" "Dubya's" chute was caught up on the periscope of a submerging German U-Boat in the English channel. His now seemingly prescient comment "This sucker's goin' down" finally came to pass. Bummer...Dubya.....let us now all take a moment to remember Dubya's prowess with the Norton bombsight and his many humorous verbal bombshells.
Meanwhile the human drama unfolding aboard the "Memphis Belle" is reaching fever pitch.
"Lieutenant Bernanke Sir? Crewman Obama just went down into the belly-gun blister and says the landing gear has been blown away, Sir!"
"That's impossible, I just lowered the gear. Crewman Obama, can you hear me? What are you doing down there?
"Obama here – I read you Lieutenant – I was just trying to fix the machine guns and I noticed the landing gear was gone"
"Crewman Obama, this is not the time to be fixing the machine guns! Did you notice how close the ground is?! You say the gear is gone? How can that be? I don't think we can fix that."
"Yes we can Sir!! I'm sure that you've still got some tools left. If we work together we can Change our situation Sir!"
"There's no time and no more tools! Men, I see a lake ahead. I'm going to try and ease the "Belle" down into a liquid environment. Okay....Assume Crash Positions! .... That's it......Steady...... Don't worry men, I've got this situation contained....Just a few more seconds...."
Meanwhile, in Northern France, German intelligence is having no luck in breaking the new French resistance radio codes introduced by Captain Greenspan. They appear to be random nonsense but the Germans know that this can't be the case and have assigned dozens of code-breakers to this perplexing task.
Jan 1, 2011
Will investment in Commodities produce good returns in 2011?
by Golden Money
In 2011 you can invest practically in any commodity and deliver good returns over time and there are several factors to it, assuming the trend will continue
Two major factors:
Devaluation of US dollar
Devaluation of other currencies (currency war, just announced before last G20)
I would advise to look at it from different perspective: Commodity prices are constant and value of paper currencies is going down in value. The trust to certain governments is decreasing. Paper currencies are valued by "trust" to nations governments" - axiom. If you look at it this way, your understanding of what is happening will be of better quality>
US Money Printing (dollar being world reserve currency)
Japanese Money Printing
Slowly increasing wealth of Chinese, Indian, Russian and Latin American population (creation of middle class)
World population growth specifically in Asia
ndian and Chinese industrialization
Scarcity of commodities
US rising external debt (dollar being world reserve currency) and ability to pay it off
Self propelled or relational cost of commodity extraction
(example: it takes oil, water, wood, steel, food for human resources, etc. to extract gold, if oil, water, wood, food rises in cost, gold extraction will rise in cost. If producer wants to keep the same profit margins, the gold price will have to rise)
Paper investment and physical investment both have risks and benefit associated with it when investing in ETFs on Stock Market or buying commodity contracts.
Easy to invest
No need for storage (expenses of storing goods included in underlying costs)
Usually brokerage accounts have direct link to your bank account for easy access to paper currency
Hard to access to physical inventory
Ability to confiscate
Ability to freeze
Ability to tax capital gains
Ease of access to physical inventory
Protected by private property laws (where applicable)
Hard to confiscate
Absence of government control
Your choice to pay or not to pay taxes on gains
However one has to think twice: If commodity price is stable and value of paper currencies is dropping, thus giving you ability to control your buying power. Inflation is robbery by governments - axiom. Basically, if you decide to pay taxes on commodities gains, treat it the same as giving the robber more of what he robbing you off already.
Liquidity (it will take time before you will be able to trade your physical investments anywhere on the street and supermarket will accept gold or silver as methods of payments)
Storage and risks associated (robbers, paying for safety deposit box)
In addition to the above please look at the following anomaly:
As a recent example, on Dec 30, 2010, US economics figures have shown positive development in reduced unemployment claims and increase in Chicago PMI index. What happened to the market? Commodities dropped, US dollar gained, DOW and other indices dropped - positive news produced "negative results"? News channels used old rhetoric as "profit taking" and other BS. What really happened is the reduction of percentage of chance that FED may follow with QE3 after QE2. What you will see in the future: bad US economic news will propel stock markets and commodities amid QE3 being next on US Fed's agenda, further devaluing US dollar and vice versa.
December 30, 2010 at 23:35
Marc Faber says buying long-term Treasuries is 'suicidal'
Rita Nazareth, Bloomberg
Marc Faber, who advised investors to buy U.S. stocks in March 2009 as the Standard & Poor's 500 Index began a rally of as much as 86%, said U.S. Treasuries are a "suicidal" investment.
Government bonds are likely to decline, said Faber, who publishes the Gloom, Boom and Doom report. After bottoming in December 2008, the 10-year Treasury yield rose as high as 3.9859% in April on government measures to stimulate the economy. Concern about a second recession in three years sent yields lower through October.
"This is a suicidal investment," Faber said in a telephone interview from St. Moritz, Switzerland. "Over time, interest rates on U.S. Treasuries will go up. Investors will gradually understand that the Federal Reserve wants to have negative real interest rates. The worst investment is in U.S. long-term bonds."
On Nov. 3, the Fed said it would buy an additional US$600-billion of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation. U.S. bond funds had withdrawals of US$8.62-billion in the week ended Dec. 15, the most in more than two years, according to Washington-based Investment Company Institute.
Treasury 10-year note yields will rise to 5% from yesterday's level of 3.349%, Faber said, without specifying a time frame. As bonds fall over the next decade, he said investors should buy precious metals, real estate or equities. U.S. debt has returned 5.7% in 2010, more than erasing last year's 3.7% loss, according to a Bank of America Merrill Lynch index.
Treasuries fell today as reports showed initial jobless claims dropped more than forecast, U.S. businesses expanded at the fastest pace in two decades and pending home resales beat expectations. The yield on the benchmark 10-year note advanced 0.04 percentage point to 3.39% at 1:54 p.m. in New York, according to BGCantor Market Data.
Faber correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3%. He was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 then climbed 10% to its record of 1,565.15 seven months later, and ended the year up 3.5%.
Faber said equities may continue to advance as the dollar weakens as a result of loose monetary policy.
"If you print money, the currency goes down and the S&P 500 goes up," he said. "By the end of 2011, people will look at 2012 and think 2012 could be a very bad year because the policies applied are not sustainable and create a lot of instability. Investors may look at 2012 and 2013 with horror."
December 30, 2010 at 16:35
Home Prices Are Still Too High
By PETER D. SCHIFF
Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.
Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.
Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.
By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that set off a national mania for real-estate wealth and a torrent of temporarily easy credit.
If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.
In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.
How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.
Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.
With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.
From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.
In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.
Mr. Schiff is president of Euro Pacific Capital and author of "How an Economy Grows and Why it Crashes" (Wiley, 2010).
December 27, 2010 at 23:35
The Star.com: Police suspect arson in blaze at Harold the Jewellery Buyer in Toronto
by Jayme Poisson
Toronto Police say arson caused a fire that ripped through a North York jewellery store engaged in a rivalry with a neighbouring jeweller.
"The fire was deliberately set. There's no doubt about that," said Staff Sgt. Courtney Chambers.
Fire crews responded shortly after 2:30 a.m. Monday to Harold the Jewellery Buyer's store at Bathurst St. and Glencairn Ave., south of Lawrence Ave. W. in Toronto.
By mid-morning, the store sat gutted and charred, broken glass strewn across the sidewalk. Police tape cordoned off the front.
Toronto police and the Ontario Fire Marshal's Office are investigating. Throughout Monday, forensics officers were examining the scene and looking at video surveillance from neighbouring businesses. No arrests have been made.
Chambers said it looks as if an incendiary device was thrown through the storefront window.
December 27, 2010 at 16:31
GoldenMoney: Gold and Silver quickly rebounded after Chinese Central Bank increased rates
Gold dropped almost $12 an ounce and silver dropped 30 cents an ounce after PBoC announced of lending rate increase by 25 basis points. Immediately after both rebounded to their previous levels and higher. Chinese rate increase still leaves real interest rate in China negative due to high inflation. Markets and metals shruged the news as they were ready for it. US dollar closed lower on the day, $US Index 80.31
December 23, 2010 at 09:54
GoldenMoney: Gold and Silver took a dive on poor US economic data
Gold dropped about $12 per oz and Silver dropped 30 cents per oz on poor US manufacturing data. What market does not realise is that US factories produce less goods, to trade with their international partners, therefore increasing US trade deficit. More US dollars will be exchanged for other currencies to buy product from outside of the country. The markets are not being rational with the move. Basically, this data shows higher probability of QE3 with FED further devaluing US dollar while trying to keep USA competetive in international marketplace. When US manufacturing capacities are decreasing and less goods are being produced, US$ looses its' value at the same time, increasing value of precious metals and other commodities.
December 21, 2010 at 02:05
Weddings, price dip lift gold jewellery sales
MUMBAI (Commodity Online): During the past 15 days, gold prices witnessed a slight fall and buyers cashed in on this opportunity to purchase gold which resulted in more sales at jewellery shops.
Another reason for this sudden swell in jewellery sales during the past fortnight is that it was the peak time for marriages. Indian witnessed a surge of marriages in November and December as most brides and grooms wanted to ties the know before the start of the kamurta period in India which is inauspicious for weddings.
According to jewellery shop owners, sales witnessed around 20 per cent increase during the past fortnight. The rise was due to more consumer footfalls following a 1.6 per cent correction in prices.
Globally, gold prices fell by nearly $48 during the period from $1,423 an ounce to $1,375.45 an ounce.
The fall boosted consumers' sentiment. Consumers have realised that gold prices will remain upbeat until the US economy shows significant recovery resulting in its currency's growth against global peers.
Traders believe any further decline in prices would attract more consumers to shop for wedding and festival season ahead.
Generally, the wedding season starts in India around the third week of November and with the beginning of this season, gold jewellery demand commences. But, sales of retail jewellery were dim until the first week of December due to high prices.
According to analysts, sales will increase further if prices fall below Rs 20,000 in India. The nature of jewellery sales in the south is different from that of the north. There is a lull on in the south since the last one month. Sales have been steady due to the lack of any seasonal spark. But, the north is compensating the poor demand of the south.
Gold jewellery demand continued to outshine investment products even during the last quarter of the current financial year. Traders say gold's sale as an investment product has slightly moderated due to high prices. Investors see little opportunity ahead in the yellow metal.
Assuming the forecast proves true, as has been in the past, gold and silver prices will translate into Rs 22,500 per 10 gm and Rs 42,000 a kg respectively. During the third quarter of the current calendar year, average gold prices rose 44 per cent in dollar terms and 105 per cent in rupee terms.
On achieving this forecast, gold's demand in India, the world's largest consumer, may decline, said a trader.
India's gold imports during the current calendar year are likely to surpass all previous records with arrival surpassing 750 tonnes in the first nine months of the current year.
Monday, December 20, 2010; 10:48 PM
Asian shares rise as Korean tensions ease
The Associated Press: OKYO -- Asian stock markets rose Tuesday as tensions on the Korean peninsula eased a few notches.
Investors spent the previous day worried about possible North Korean retaliation against South Korean military drills on a frontline island that was shelled by the North last month.
Instead, Pyongyang backed off threats to strike back and reportedly offered concessions on its nuclear program.
Japan's Nikkei 225 stock average rose 0.7 percent to 10,291.68 ahead of a policy decision by the central bank. The Bank of Japan is expected to keep monetary policy unchanged at the current super loose setting after a key survey last week showed deteriorating business sentiment.
Japanese exporters climbed, with Sony Corp. up 1.7 percent and Canon Inc. adding 1 percent. Shares of Fuji Heavy Industries Ltd. rose 0.6 percent after the Nikkei financial daily reported that the company is in talks with Chinese carmaker Chery Autuomobile Co. to establish a joint-venture factory.
Elsewhere, Hong Kong's Hang Seng index added 1.3 percent to 22,940.58. South Korea's Kospi advanced 0.9 percent to 2,038.87 and Australia's S&P/ASX 200 was up 0.9 percent at 4,776.80.
China's Shanghai Composite Index gained 0.9 percent to 2,877.11. Markets in Taiwan, India, and Singapore also rose.
In New York Monday, low trading volumes and a lack of economic reports kept stocks confined to a narrow range Monday. Indexes finished mixed and bond yields were barely changed.
The Dow Jones industrial average fell 13.78, or 0.1 percent, to 11,478.13. The broader Standard and Poor's 500-stock index rose 3.17, or 0.3 percent, to 1,247.08. The Nasdaq composite index gained 6.59, or 0.3 percent, to finish at 2,649.56.
In currencies, the dollar slipped to 83.69 yen from 83.78 yen late Monday. The euro rose to $1.3169 from $1.3126.
Benchmark oil for February delivery rose 19 cents at $89.56 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 77 cents to settle at $89.37 on Monday.
Dec 15, 2010
Gold-Silver ratio continues to fall NEW YORK (Commodity Online):
Gold-Silver ratio is the most important barometer for commodities traders and futures market dealers.
Even though bullion prices have been on a bullish run all these months, the gold-silver ration continues to fall.
According to a Bloomberg report, the gold-silver ratio slipped to 46.6, the lowest amount in nearly four years, when one ounce of gold
purchased 46.6 ounces of silver in London. By serving as a relatively safe haven for wealth preservation, precious metals are having a strong year.
The gold/silver ratio continues to fall and is now at 47.14. Silver remains more than 30% below its nominal price in 1980 and given
the very sizeable quantities of silver used in industrial applications in the last 30 years and in the 20th century, the ratio is likely to continue
to revert to the historical long term average of 15 to 1.
Meaning that 15 ounces of silver should in time be able to buy 1 ounce of gold.
This makes sense from a supply perspective as geologically there are 15 parts of silver to every 1 part of gold in the earth's crust.
"The gold-silver ratio reached an important support at 47.5/46," Stephanie Aymes, a cross-commodity technical analyst with Societe Generale in London,
told Bloomberg. "Gold will outperform silver to 56/58."
Thus far this year, silver has increased nearly 70 percent.
Gold's value has increased 26 percent as it hurtles toward marking its 10th-straight year of annual gains against a backdrop of global economies
struggling to emerge from the recession.
Both precious metals reached peak values last week when silver rose to $30.7025 per troy ounce, a 30-year high.
The highest value for immediate-delivery gold futures thus far this year is $1,431.25 per troy ounce, its value on December 7.
The ratio between gold and silver last week was 48.3054.
How to get best price for your gold
So you have old gold jewelry or other gold items laying around and you want to sell it. It's hard not to see the advertisements for gold buying lately.
But unfortunately, the majority of people who are selling their old gold jewelry and scrap gold are doing so for a much lower price than necessary.
Even worse, many of them are completely unaware they could get a better price by doing a small amount of research online.
The difference between a fair price and what they actually receive is often in the hundreds, even thousands, of dollars.
If you're thinking about selling your broken gold bracelets, old class rings, and other pieces of jewelry, take the time to find the best price.
It's simpler than you might think. Below, we'll provide a few key suggestions to help you get started. The following tips will help you avoid
buyers who will offer you much less for your scrap gold than you deserve.
The first thing you should do is assess the value of your scrap gold.
Don't assume the price you see on a buyer's website reflects the current market price. Often, it merely reflects the price the buyer is willing to pay sellers.
Look in the newspaper - or online - to find the current spot price per troy ounce. Next, separate your gold pieces into individual piles by the number of karats.
24 karats is considered pure gold while 8 karats is the least pure. The number of karats determines the percentage value of the price per troy ounce.
Use a jewelers scale to weigh each pile, and then calculate its value by weight and carats.
It's important to know how much your old jewelry and scrap gold is worth prior to approaching potential buyers.
Otherwise, you'll run the risk of accepting a low ball offer that doesn't truly reflect your items' worth.
It is wise to avoid gold parties, pawnshops and jewelers.
Some of the most common places people visit to sell their gold watches, chains, earrings, and rings are unlikely to offer a fair price.
Gold parties are popular because there is a social element that makes attendees feel at ease.
A host invites her friends and acquaintances to the party, and encourages them to bring their scrap gold pieces. A buyer is on hand to offer cash.
However, the price offered is rarely, if ever, fair to the seller. Pawnshops are limited in the price they can offer because the owners need to sell
the items for a profit.
Keep in mind they will have a difficult time selling broken jewelry to their customers, so are unlikely to offer a fair price based
on the gold content alone. The advantage of working with a pawnshop is that you'll receive cash within minutes.
The drawback is that you would
have received far more from an online buyer. Jewelers won't sell your old gold jewelry to customers. They'll simply "flip" your pieces to another
buyer up the food chain. Thus, the price they'll offer you must be low enough to allow them to make a quick profit.
If your goal is to find the best price,
avoid the buyers described above. There are online buyers who are easy to work with, and will offer a fair price base on the gold content in your jewelry.
It is best to work with a reputable refiner. Over the last few years, there has been an enormous increase in the number of online gold buyers.
Most people are unaware these buyers are brokers. They will purchase your gold pieces, and sell them quickly for a profit.
Often, they will sell the pieces to a refiner who smelts them before assaying and refining the gold.
The metal is then recycled back
into the market for use in new jewelry. As mentioned earlier, a small amount of research will open the door
to higher prices for your gold chains,
brooches, earrings, and even old dental work. Depending on the size of your collection, the difference
might be measured in the thousands of dollars.
Gold tumbles as US Dollar moves higher
Gold futures on the COMEX Division of the New York Mercantile Exchange suffered a major setback on Wednesday, pressured by
about of U.S. dollar strength against other major currencies as well as investors' profit-taking. Silver and platinum both retreated.
The most active gold contract for February delivery plunged 18. 1 dollars, or 1.3 percent, to 1,386.2 dollars per ounce.
A trader mentioned that the dollar gained momentum against other major currencies on Wednesday after Moody's ratings agency
warned that it was considering cutting Spain's sovereign debt rating, adding to the persistent fear over the eurozone's financial woes.
Meanwhile, the U.S. economic data released on Wednesday seemed quite positive, which bolstered investors' confidence that the U.S. economic
recovery is on the right track. The U.S. government reported that industrial production climbed more than forecast in November and consumer
prices' rise slowed, which justified the U.S. Federal Reserve's plan to purchase 600 billion dollars of bond in order to further boost the economy.
Gold, which usually moves inversely to the dollar, was hammered on Wednesday morning by the newly gained strength of the greenback,
as this made dollar-denominated gold more expensive for investors holding other currencies.
And the upbeat U.S. economic data also dulled
the shine of the precious metal as a hedge against inflation. A trader mentioned that more market participants are inclined to book in profits
and remain on the sidelines before the end of the year.
Silver futures for March delivery fell 53.5 cents, or 1.8 percent, to 29.253 dollars per ounce.
January platinum lost 9.5 dollars, or 0.6 percent, to 1,704.4 dollars per ounce.