Gold dropped on Monday in U.S. trading, pulling away from the record levels it challenged last week. Bullion for February delivery closed at $862.00 an ounce, down $3.70 on the session. Prices moved as low as $857.80 in electronic trading.
The precious metal's hedge value was lower as the U.S. dollar saw some strength against other majors. The greenback moved higher amid uncertain trading against the euro and climbed back above par against the Canadian dollar. The buck was flat with the pound and yen, but gained on the aussie.
Oil prices also fell on Monday, further reducing gold's hedge value. Crude dropped sharply on Monday in U.S. trading and fell below $95 a barrel in intraday trading, as a warm front in the Northeast has reduced the demand for heating energy. The drop took oil away from the record $100 levels of last week.
Gold also moved lower on Friday and pulled back from the 28-year high the metal reached in the previous session. The metal moved to as high as $871.80 following the release of disappointing jobs data in the U.S., but could not sustain the rally. Data showed that job growth for the month of December came in well below economist estimates and also revealed a bigger than expected jump in the unemployment rate.
Bullion chased a record high on Thursday, eventually closing up $9.10. Prices moved as high as $872.90 in mid-day trading, a 28-year high. The record-high is $875.00, reached in January of 1980. The metal also soared on Wednesday, pushed by $100 crude oil and weak ISM data. February bullion ended at $857, up $22.10 from the previous close. Crude oil traded above $100 a barrel on Thursday, helping gold's value. Crude oil prices moved lower on Friday.
There are no major economic reports scheduled for release on Monday. Tuesday, traders will watch for data on pending home sales from November. More bad news on the US housing sector will likely cement expectations for as much as a 50 basis point rate cut from the Fed later in January.
Monday, January 7, 2008
Will silver beat gold in New Year?
MUMBAI: Will silver beat gold in the New Year? If the hints from commodity specialists are any indications, the silver is set to outshine gold this year with around 27 per cent increase while the yellow metal may witness a 17 per cent rise.
According to analysts, average gold price will be around $814 an ounce in 2008; while silver is more likely to average $17 an ounce.
Gold was up in Asian trade by $5 at $838.70 an ounce on Wednesday, while silver was up six cents at $14.85 an ounce.
According t experts, last year, gold averaged $695.39, while silver was at $13.38.
Another worry for those who invest in gold is the dollar fall against several currencies, including rupee.
According to analysts, this year investors should be cautious on the yellow metal. The market sentiment is truly mixed and 2008 would be a tug of war between gold bulls and bears.
New upsides in gold
The gold market has three stages spanning over 12 years, with price largely determined by currency devaluation in the first four years.
The next four years are dominated by global investment demand and the final stage is the speculative mania.
According to analysts, average gold price will be around $814 an ounce in 2008; while silver is more likely to average $17 an ounce.
Gold was up in Asian trade by $5 at $838.70 an ounce on Wednesday, while silver was up six cents at $14.85 an ounce.
According t experts, last year, gold averaged $695.39, while silver was at $13.38.
Another worry for those who invest in gold is the dollar fall against several currencies, including rupee.
According to analysts, this year investors should be cautious on the yellow metal. The market sentiment is truly mixed and 2008 would be a tug of war between gold bulls and bears.
New upsides in gold
The gold market has three stages spanning over 12 years, with price largely determined by currency devaluation in the first four years.
The next four years are dominated by global investment demand and the final stage is the speculative mania.
The Role of Gold Today
"Often has it crossed my fancy, that the city loves to deal
"With the very best and noblest members of her commonweal,
"Just as with our ancient coinage and the newly-minted gold.
"Yea for these, our sterling pieces all of pure Athenian mould,
"All of perfect die and metal, all the fairest of the fair,
"All of workmanship unequalled, proved and valued everywhere
"Both amongst our own Hellenes and Barbarians far away,
"These we use not: but the worthless, pinchbeck coins of yesterday,
"Vilest die and basest metal, now we always use instead.
- Aristophanes, The Frogs
By Sean Corrigan
For the past two and a half millennia, the Lydian king Croesus has been a byword for fabulous wealth.
He was the prime beneficiary of vast riches accumulated partly by the trading skills of his subjects and partly as a result of the copious alluvial deposits of electrum – a naturally-occurring alloy of gold, silver, and copper – which were to be found in the country's rivers.
These deposits, we are told, were placed there when the even more legendary Midas washed away the curse of his golden touch. Indeed, it was here in Lydia that the first stamped and standardized coins began to circulate, at the turn of the 6th century BC; a development which allowed for a wider monetization of trade and hence unleashed what some historians have called a 'commercial revolution' across the Ancient world.
The idea that financial innovation can provide a stimulus to real activity – warranted or otherwise – is one with which we should all be very familiar, but there is a slightly darker parallel at the core of Croesus' extreme affluence.
Namely, the official Lydian coins show a suspiciously low 50-60% gold content, in sharp contrast to the 80% and higher constituency to be found in the unadulterated local alloy.
The strong implication is that, not content with earning a modest degree of seignorage from the royal mint – and too impatient to wait for genuine economic growth to add to his storied pile – Croesus greatly enhanced his status as the prototypical Über-High Net Worth individual by practicing the world's first recorded instance of surreptitious currency debasement and by profiting all the more from the ensuing inflation.
Gold, Persia and Pre-o-Neocon Politics
The analogy goes further, because Croesus – professing himself alarmed at the rise of Persian power on his borders – decided to spend some of his immense hoard in launching a pre-emptive strike on his neighbors' upwardly-mobile ruler Cyrus. (Doesn't all this sound horribly familiar?)
Croesus was bolstered in his aggression by a quintessentially Delphic prophecy that if he crossed over the border into hostile territory he would bring down a great empire. But alas! Our Pre-o-Neocon plutocrat forgot to ask the Pythia just which empire she meant exactly, and he nearly paid the ultimate price for 'sexing up' the intelligence in this manner when, shortly thereafter, he found himself at Cyrus' mercy, having been delivered into his conqueror's hands during the sack of the Lydian capital, Sardis.
Even if we can't link Croesus' inflationary policies directly to his subsequent military humiliation, we can share Hemingway's sour observation that for such "political and economic opportunists" as he, the "first panacea for a mismanaged nation is inflation of the currency; the second is war" and that while "both bring a temporary prosperity" they also both lead to "permanent ruin".
The Role of Gold Today
Morality tales aside, however, does this have any relevance to the role of gold in one's portfolio today? We think the answer is, yes.
But, before expanding upon this assertion, the first thing we have to make clear is that – however ardently the Goldbugs may wish it were – gold is no longer, in any sense, a 'money': that is, it does not function as the present good par excellence, the medium of exchange, the one thing universally accepted, on demand and at par, for all the other goods and services one wishes to buy with it.
In short, you can't easily settle your bar bill with a bar of bullion, nor – under current political circumstances – are you ever likely to be able to, no matter how much better off we all might be were the yellow metal to be reinstated in its rightful place at the heart of economic life.
Accordingly, the fact that gold is no longer money means we have to turn its historic function upside down and accept that it is no longer able to provide protection during those rare periods when money itself becomes painfully scarce – i.e. during a deflation (properly defined).
In microcosm, we can see an example of this axiom at work whenever we suffer that lesser species of contraction, a margin-driven liquidation of market positions. Hence gold's near-7% decline when the global credit crunch first began to bite in August of 2007.
Conversely, ever since this uniquely liquid, highly fungible, easily storable, durable, scarce, real asset has been denied its monetary birthright by virtue of its intrinsic lack of compatibility with the workings of populist-democracy welfare states, it has had to be thought of as a kind of anti-money: one largely to be held during periods of inflation, when the impaired currency we actually use is in a dangerous overabundance.
Gold's late run has therefore come about since the Bernanke Fed was first panicked into cutting the discount rate, since the ECB abandoned its stance of "strong vigilance" to send the Eurocopters flying over its shaky banks, and since the Old Lady of the Bank of England begrudgingly bailed out Northern Rock (and hence all its counterparts) under explicit government duress.
The arguments may still be raging about exactly who, or what, was responsible for the recent financial turmoil, or to what extent it will come to affect the wider economy. But one unavoidable conclusion can already be reached: namely, that the sustained inflation of money and credit has become such an integral part of our modern way of life that our rulers fervently believe that it must never be allowed to slow (much less reverse) for fear of toppling over the whole, precarious house of cards which we have so painstakingly built about ourselves.
During the past few months, the stark truth is that our central bankers have once more revealed – both in word and deed – that, as Charles Goodhart explicitly put it a few years back, "deflation is a policy choice"; the unspoken corollary to which is that "inflation is, and always will be, the preferred policy choice."
Gold & Inflation
The prudent investor cannot afford to ignore the implications of this doctrine. He must realize that the money which he holds in his hands – and in which he routinely calculates both his profit and loss and his overall wealth – is not to be trusted. His money is doomed to lose value – now at a slower rate, now at a faster rate. But it will always be diminishing in worth.
Not only must the investor contend with this broad, underlying current of depreciation, but he must also be aware that the quickening and slowing of its stream, as well as the twists and turns which make up its course, give rise to the business cycle itself. This makes the longer-term preservation of capital all the more difficult to accomplish.
Forget all the fine words about containing "inflation expectations" or "preserving price stability". From their very first incarnations in 17th century Sweden and England, central banks have been purposeful mechanisms for shoring up profligate governments (whether these are buying guns or butter without properly funding the purchase) while serving as a backstop to the inherently flawed and highly unstable practice of fractional reserve banking.
Thus, at the first sign that a crisis is about to erupt in a financial system which could only have become so perilously over-extended because of a prolonged episode of central bank laxity, the first priority will invariably be to rescue the principal culprits by dousing the wildfires raging about them with exactly the same brand of flammable liquid which was used to fuel them in the first place.
In running true to form at this particular juncture, we can only underline that we feel the price risks being run by the central banks are extraordinary. Not the least of these is the danger that the US will provoke the fourth great reserve currency crisis in a century – the previous three being the abandonment of the gold standard during the Great War, the collapse of the gold exchange standard during the Great Depression, and the break-up of Bretton Woods at the start of the 1970s' Great Inflation.
Since this is a chronicle of the successive adulteration of money and of the serial acceptance of a more bastardized replacement when the burdens of the previous one become too much for political expediency to bear, we can expect profound consequences to follow – social and political, as well as purely financial – if the ailing Dollar does, indeed, end up being widely forsaken by its anxious sponsors.
A flight to real values might well be unleashed in such a pass, potentially boosting the price of our anti-money, gold, to unheard of heights along the way.
At the same time, the full panoply of protectionism, export bans, income support, wage freezes, and the direct administration of prices – already surfacing in several countries around the world – could devastate entrepreneurial activity and usher in a nasty and protracted recession.
Should this transpire, the thing to bear in mind is that, in the two years from the first quarter of 1973, annualized, quarterly real GDP in the US plunged from 10.6% to -4.7%, yet the Gold Price tripled, oil quadrupled, and wheat's gain to the monthly peak was 160%.
Nor was this an isolated incident, for worse was to come, just five years later. During the two years from the second quarter of 1978, the US economy underwent an even more remarkable swoop from +16.7% to -7.8%. That time, wheat rose 70%; the price of a barrel of crude was well on its way to tripling; and the number of rapidly shrinking Dollars needed to buy an ounce of gold quintupled.
Along the way, the world painfully re-learned the truth that inflation and recession were not mutually exclusive. Perhaps the lesson is about to be repeated for a generation which has again forgotten the rudiments of proper, pre-Keynesian economics.
Inflation: Solon's "New Deal" Athens
Back in 6th Century BC Lydia, Cyrus' first impulse was to have his captured enemy, Croesus, burnt at the stake. However, soon after the faggots were lit, his royal victim could be heard plaintively uttering the name of Solon.
Piqued by this, the Persian ordered the flames to be doused and inquired of his erstwhile foe what he had meant, only to be told that the famous Athenian law-giver had once warned Croesus that fortune was so fickle that it was impossible to say which man was truly fortunate until his life had finally ended and a full account of it rendered.
Recognizing true wisdom when he heard it, Cyrus immediately ordered Croesus to be spared and, indeed, went so far in his reconciliation as to make him a senior member of his council – a far-sighted piece of clemency well beyond the ken of the present era's serial regime changers.
As for Solon...well, he would have been fully at home today. A well-known establishment figure who was appointed to the archonship amid the severe credit crisis mowing down broad swathes of woefully over-mortgaged smallholders, he first absolved the sad, deluded 'condo flippers' of his day of all responsibility for the unpayable debts imposed upon them by oligarchic 'predatory lenders'.
Next, he attempted to counteract the deflationary affects of this officially sanctioned mass default by means of a 37% devaluation of the drachma – moves which laid him open to charges that he had allowed his certain of his acquaintances (later branded the Repudiators) into the secret ahead of time, so enabling them to profit inordinately from the eventual rescue plan.
Plus ça change! Today we see Treasury Secretary Henry Paulson scrambling to prevent the contemporary mortgage crisis from worsening, while the Fed has cut rates in the face of a Dollar declining at an annualized pace not that far removed from Solon's one-off parity change.
With almost preternatural resonance, Chairman Bernanke has also been reviled for naively sounding out the opinions of the good and great immediately before he started cutting rates, while Paulson, for his part, has been accused of tipping off the members of his notorious Working Group early enough for them to take a lucrative advantage of the imminent policy easing. Neither charge, however unfounded it might be, has done much to restore confidence in either the credit system or the ailing Dollar.
Gold: Scarcity vs. Abundance
so, where for a Gold Price which has already had a spectacular – if, so far, brief – run to well beyond what (unsurprisingly) proved the largely illusory 'barrier' of $800 per ounce?
Well, in the short run, caution must be exercised as the speculative throng on the main COMEX exchange have built up an unprecedented long position. To put it into perspective, the size of the bet works out to roughly four months' mined supply of metal. With so much hot money having been brought to the party in so short a time, it is little wonder that the recent price action has been so savage.
Looking beyond this, however, consider that, over the past two years alone, broad money in the US, the UK, the Eurozone, and the BRIC quartet (of Brazil, Russia, India, and China) has risen a combined $11.5 trillion – equivalent to around $70,000 for every ounce of newly-mined gold wrested from anything down to 4.5 kilometers deep in the Earth's crust in that same period.
Bear in mind also that the outstanding notional stock of derivatives has soared to more than $1/2 quadrillion over this horizon, representing an extra $1.7 million haystack in which to search for the poisoned needle of mathematically-abstruse, systemic risk for each and every, readily-valued, new ounce of metal brought laboriously up from the Stygian gloom and into the broad light of day.
Such are the risks and so great is the disproportion entailed in this orgy of overtrading and speculation that a clamor has arisen on both sides of the Atlantic for the central banks to undertake yet more inflation in order to stave off a potentially damaging aftermath.
You see, no matter how big the inflationary bubble, an offsetting deflation is merely a policy choice to be avoided in its wake. No cold turkey will be endured here – no emetic will be taken to purge the poison – only a stiff hair of the dog administered to spare the drunk the worst of his pain.
In light of this – and with gold still some 60% off its CPI-adjusted peaks in Dollars, Deutschemarks, and in terms of US average wages – we can confidently argue that while the metal may have undergone an impressive degree of reassessment already in this young century, it has hardly exhausted all its strength in this latest round of its multi-millennium struggle against the endemic evil of inflation – an inference that is likely to hold even if a misguided American electorate fails to give Ron Paul the chance to restore both the long-lost Jeffersonian Republic and the sound money, based on a true gold standard, so essential to its future maintenance.
"With the very best and noblest members of her commonweal,
"Just as with our ancient coinage and the newly-minted gold.
"Yea for these, our sterling pieces all of pure Athenian mould,
"All of perfect die and metal, all the fairest of the fair,
"All of workmanship unequalled, proved and valued everywhere
"Both amongst our own Hellenes and Barbarians far away,
"These we use not: but the worthless, pinchbeck coins of yesterday,
"Vilest die and basest metal, now we always use instead.
- Aristophanes, The Frogs
By Sean Corrigan
For the past two and a half millennia, the Lydian king Croesus has been a byword for fabulous wealth.
He was the prime beneficiary of vast riches accumulated partly by the trading skills of his subjects and partly as a result of the copious alluvial deposits of electrum – a naturally-occurring alloy of gold, silver, and copper – which were to be found in the country's rivers.
These deposits, we are told, were placed there when the even more legendary Midas washed away the curse of his golden touch. Indeed, it was here in Lydia that the first stamped and standardized coins began to circulate, at the turn of the 6th century BC; a development which allowed for a wider monetization of trade and hence unleashed what some historians have called a 'commercial revolution' across the Ancient world.
The idea that financial innovation can provide a stimulus to real activity – warranted or otherwise – is one with which we should all be very familiar, but there is a slightly darker parallel at the core of Croesus' extreme affluence.
Namely, the official Lydian coins show a suspiciously low 50-60% gold content, in sharp contrast to the 80% and higher constituency to be found in the unadulterated local alloy.
The strong implication is that, not content with earning a modest degree of seignorage from the royal mint – and too impatient to wait for genuine economic growth to add to his storied pile – Croesus greatly enhanced his status as the prototypical Über-High Net Worth individual by practicing the world's first recorded instance of surreptitious currency debasement and by profiting all the more from the ensuing inflation.
Gold, Persia and Pre-o-Neocon Politics
The analogy goes further, because Croesus – professing himself alarmed at the rise of Persian power on his borders – decided to spend some of his immense hoard in launching a pre-emptive strike on his neighbors' upwardly-mobile ruler Cyrus. (Doesn't all this sound horribly familiar?)
Croesus was bolstered in his aggression by a quintessentially Delphic prophecy that if he crossed over the border into hostile territory he would bring down a great empire. But alas! Our Pre-o-Neocon plutocrat forgot to ask the Pythia just which empire she meant exactly, and he nearly paid the ultimate price for 'sexing up' the intelligence in this manner when, shortly thereafter, he found himself at Cyrus' mercy, having been delivered into his conqueror's hands during the sack of the Lydian capital, Sardis.
Even if we can't link Croesus' inflationary policies directly to his subsequent military humiliation, we can share Hemingway's sour observation that for such "political and economic opportunists" as he, the "first panacea for a mismanaged nation is inflation of the currency; the second is war" and that while "both bring a temporary prosperity" they also both lead to "permanent ruin".
The Role of Gold Today
Morality tales aside, however, does this have any relevance to the role of gold in one's portfolio today? We think the answer is, yes.
But, before expanding upon this assertion, the first thing we have to make clear is that – however ardently the Goldbugs may wish it were – gold is no longer, in any sense, a 'money': that is, it does not function as the present good par excellence, the medium of exchange, the one thing universally accepted, on demand and at par, for all the other goods and services one wishes to buy with it.
In short, you can't easily settle your bar bill with a bar of bullion, nor – under current political circumstances – are you ever likely to be able to, no matter how much better off we all might be were the yellow metal to be reinstated in its rightful place at the heart of economic life.
Accordingly, the fact that gold is no longer money means we have to turn its historic function upside down and accept that it is no longer able to provide protection during those rare periods when money itself becomes painfully scarce – i.e. during a deflation (properly defined).
In microcosm, we can see an example of this axiom at work whenever we suffer that lesser species of contraction, a margin-driven liquidation of market positions. Hence gold's near-7% decline when the global credit crunch first began to bite in August of 2007.
Conversely, ever since this uniquely liquid, highly fungible, easily storable, durable, scarce, real asset has been denied its monetary birthright by virtue of its intrinsic lack of compatibility with the workings of populist-democracy welfare states, it has had to be thought of as a kind of anti-money: one largely to be held during periods of inflation, when the impaired currency we actually use is in a dangerous overabundance.
Gold's late run has therefore come about since the Bernanke Fed was first panicked into cutting the discount rate, since the ECB abandoned its stance of "strong vigilance" to send the Eurocopters flying over its shaky banks, and since the Old Lady of the Bank of England begrudgingly bailed out Northern Rock (and hence all its counterparts) under explicit government duress.
The arguments may still be raging about exactly who, or what, was responsible for the recent financial turmoil, or to what extent it will come to affect the wider economy. But one unavoidable conclusion can already be reached: namely, that the sustained inflation of money and credit has become such an integral part of our modern way of life that our rulers fervently believe that it must never be allowed to slow (much less reverse) for fear of toppling over the whole, precarious house of cards which we have so painstakingly built about ourselves.
During the past few months, the stark truth is that our central bankers have once more revealed – both in word and deed – that, as Charles Goodhart explicitly put it a few years back, "deflation is a policy choice"; the unspoken corollary to which is that "inflation is, and always will be, the preferred policy choice."
Gold & Inflation
The prudent investor cannot afford to ignore the implications of this doctrine. He must realize that the money which he holds in his hands – and in which he routinely calculates both his profit and loss and his overall wealth – is not to be trusted. His money is doomed to lose value – now at a slower rate, now at a faster rate. But it will always be diminishing in worth.
Not only must the investor contend with this broad, underlying current of depreciation, but he must also be aware that the quickening and slowing of its stream, as well as the twists and turns which make up its course, give rise to the business cycle itself. This makes the longer-term preservation of capital all the more difficult to accomplish.
Forget all the fine words about containing "inflation expectations" or "preserving price stability". From their very first incarnations in 17th century Sweden and England, central banks have been purposeful mechanisms for shoring up profligate governments (whether these are buying guns or butter without properly funding the purchase) while serving as a backstop to the inherently flawed and highly unstable practice of fractional reserve banking.
Thus, at the first sign that a crisis is about to erupt in a financial system which could only have become so perilously over-extended because of a prolonged episode of central bank laxity, the first priority will invariably be to rescue the principal culprits by dousing the wildfires raging about them with exactly the same brand of flammable liquid which was used to fuel them in the first place.
In running true to form at this particular juncture, we can only underline that we feel the price risks being run by the central banks are extraordinary. Not the least of these is the danger that the US will provoke the fourth great reserve currency crisis in a century – the previous three being the abandonment of the gold standard during the Great War, the collapse of the gold exchange standard during the Great Depression, and the break-up of Bretton Woods at the start of the 1970s' Great Inflation.
Since this is a chronicle of the successive adulteration of money and of the serial acceptance of a more bastardized replacement when the burdens of the previous one become too much for political expediency to bear, we can expect profound consequences to follow – social and political, as well as purely financial – if the ailing Dollar does, indeed, end up being widely forsaken by its anxious sponsors.
A flight to real values might well be unleashed in such a pass, potentially boosting the price of our anti-money, gold, to unheard of heights along the way.
At the same time, the full panoply of protectionism, export bans, income support, wage freezes, and the direct administration of prices – already surfacing in several countries around the world – could devastate entrepreneurial activity and usher in a nasty and protracted recession.
Should this transpire, the thing to bear in mind is that, in the two years from the first quarter of 1973, annualized, quarterly real GDP in the US plunged from 10.6% to -4.7%, yet the Gold Price tripled, oil quadrupled, and wheat's gain to the monthly peak was 160%.
Nor was this an isolated incident, for worse was to come, just five years later. During the two years from the second quarter of 1978, the US economy underwent an even more remarkable swoop from +16.7% to -7.8%. That time, wheat rose 70%; the price of a barrel of crude was well on its way to tripling; and the number of rapidly shrinking Dollars needed to buy an ounce of gold quintupled.
Along the way, the world painfully re-learned the truth that inflation and recession were not mutually exclusive. Perhaps the lesson is about to be repeated for a generation which has again forgotten the rudiments of proper, pre-Keynesian economics.
Inflation: Solon's "New Deal" Athens
Back in 6th Century BC Lydia, Cyrus' first impulse was to have his captured enemy, Croesus, burnt at the stake. However, soon after the faggots were lit, his royal victim could be heard plaintively uttering the name of Solon.
Piqued by this, the Persian ordered the flames to be doused and inquired of his erstwhile foe what he had meant, only to be told that the famous Athenian law-giver had once warned Croesus that fortune was so fickle that it was impossible to say which man was truly fortunate until his life had finally ended and a full account of it rendered.
Recognizing true wisdom when he heard it, Cyrus immediately ordered Croesus to be spared and, indeed, went so far in his reconciliation as to make him a senior member of his council – a far-sighted piece of clemency well beyond the ken of the present era's serial regime changers.
As for Solon...well, he would have been fully at home today. A well-known establishment figure who was appointed to the archonship amid the severe credit crisis mowing down broad swathes of woefully over-mortgaged smallholders, he first absolved the sad, deluded 'condo flippers' of his day of all responsibility for the unpayable debts imposed upon them by oligarchic 'predatory lenders'.
Next, he attempted to counteract the deflationary affects of this officially sanctioned mass default by means of a 37% devaluation of the drachma – moves which laid him open to charges that he had allowed his certain of his acquaintances (later branded the Repudiators) into the secret ahead of time, so enabling them to profit inordinately from the eventual rescue plan.
Plus ça change! Today we see Treasury Secretary Henry Paulson scrambling to prevent the contemporary mortgage crisis from worsening, while the Fed has cut rates in the face of a Dollar declining at an annualized pace not that far removed from Solon's one-off parity change.
With almost preternatural resonance, Chairman Bernanke has also been reviled for naively sounding out the opinions of the good and great immediately before he started cutting rates, while Paulson, for his part, has been accused of tipping off the members of his notorious Working Group early enough for them to take a lucrative advantage of the imminent policy easing. Neither charge, however unfounded it might be, has done much to restore confidence in either the credit system or the ailing Dollar.
Gold: Scarcity vs. Abundance
so, where for a Gold Price which has already had a spectacular – if, so far, brief – run to well beyond what (unsurprisingly) proved the largely illusory 'barrier' of $800 per ounce?
Well, in the short run, caution must be exercised as the speculative throng on the main COMEX exchange have built up an unprecedented long position. To put it into perspective, the size of the bet works out to roughly four months' mined supply of metal. With so much hot money having been brought to the party in so short a time, it is little wonder that the recent price action has been so savage.
Looking beyond this, however, consider that, over the past two years alone, broad money in the US, the UK, the Eurozone, and the BRIC quartet (of Brazil, Russia, India, and China) has risen a combined $11.5 trillion – equivalent to around $70,000 for every ounce of newly-mined gold wrested from anything down to 4.5 kilometers deep in the Earth's crust in that same period.
Bear in mind also that the outstanding notional stock of derivatives has soared to more than $1/2 quadrillion over this horizon, representing an extra $1.7 million haystack in which to search for the poisoned needle of mathematically-abstruse, systemic risk for each and every, readily-valued, new ounce of metal brought laboriously up from the Stygian gloom and into the broad light of day.
Such are the risks and so great is the disproportion entailed in this orgy of overtrading and speculation that a clamor has arisen on both sides of the Atlantic for the central banks to undertake yet more inflation in order to stave off a potentially damaging aftermath.
You see, no matter how big the inflationary bubble, an offsetting deflation is merely a policy choice to be avoided in its wake. No cold turkey will be endured here – no emetic will be taken to purge the poison – only a stiff hair of the dog administered to spare the drunk the worst of his pain.
In light of this – and with gold still some 60% off its CPI-adjusted peaks in Dollars, Deutschemarks, and in terms of US average wages – we can confidently argue that while the metal may have undergone an impressive degree of reassessment already in this young century, it has hardly exhausted all its strength in this latest round of its multi-millennium struggle against the endemic evil of inflation – an inference that is likely to hold even if a misguided American electorate fails to give Ron Paul the chance to restore both the long-lost Jeffersonian Republic and the sound money, based on a true gold standard, so essential to its future maintenance.
Shrinking Dollar and Surging Gold
Want a racing certainty for the coming year? Take a look at the US Dollar & gold... Who can say what 2008 may bring? A post-Olympics crash in China, perhaps, tipping its near-10% annual rate of expansion into an historic slump.
The first annual fall in UK house prices since 1995, maybe, unwinding a chunk of the near-quadrupling of London real estate values...
In the United States, a bottom might finally be found in Florida or Californian real estate. But we'd expect Paris Hilton to win the White House with Ron Paul as her running mate before then.
Yes, the Dow Jones stock index could push higher still to new all-time highs...even measured in terms of the Euro, rather than simply counted in the fast-vanishing US Dollar.
But the New Year has already brought the world one new all-time high that clearly says otherwise – and it only took one trading session for the Gold Market to jump 2% and break its three-decade record of $850 per ounce.
The anti-everything-else, gold clearly signals more trouble ahead for the rest of the world's investment markets – starting with the very value of money itself. That's the nagging doubt that drove Gold Prices higher every year between 2001 and 2007.
And here at BullionVault, we think it will take more than a bounce in the Dollar to reverse gold's seven-year bull market, too.
We don't doubt that newly-penned gags on Jay Leno's Tonight show might turn up this year alongside a pause in the Dollar's collapse.
By the end of Sept., says the latest data from the International Monetary Fund (IMF), the US Dollar accounted for less than 64% of foreign currency reserves worldwide. That might cue the Greenback to thumb its nose at the Euro, now risen above 26% of official cash reserves worldwide.
Factor in the Dollar-doom cover stories from magazines including The Economist and Newsweek, and the case for a contrarian play only gets stronger. Everyone agrees the Dollar looks sure to keep falling, even the policy wonks of the world's central banks! And as a very successful options trader once reminded me, the markets are always sure to do whatever it takes to screw the most people the most.
So maybe it's time for a surprise from the Greenback, now one-third cheaper than this time six years ago. Spanking the world's central bankers – and sucker-punching private investors, now busy gearing up on the forex markets – a turnaround in the US currency might just coincide with a genuine political crisis in the 13-nation Eurozone, too.
But "with Bernanke at the Fed and Paulson at the Treasury, and a Euro that could
face some problems (a break-up, some believe) because of badly deteriorating economic conditions in Italy, Spain, Portugal, and Greece," as Marc Faber writes in the latest edition of his Gloom, Boom & Doom report, "precious metals are likely to outperform financial assets for some years to come."
Indeed, whatever comes in the Presidential race – and no matter what happens to inflation in the cost of living, now running at multi-decade highs in Europe and China, despite their surging currencies – the real driver of gold's seven-year bull market looks to be the New Year's one racing certainty.
Governments and central banks the world over will refuse in 2008 to protect cash savers and bond buyers. They'll cut or hold interest rates in the forlorn hope of helping debtors instead, destroying the buying power of all official money.
Yes, gold might fail to rise as a result. But that would prove a heart-stopping shock, far more surprising than the most likely "shock" – that gold keeps on rising even if the US Dollar stops falling against other government currencies.
Just take a look at how the Gold Market got here today. The new record highs hit on 2 Jan. 2008 came for nearly everyone Buying Gold on the last trading day of 2007, no matter whether they bought in US Dollars, the Euro, British Pounds, Swiss Francs...Canadian, Aussie or New Zealand Dollars...Indian Rupees or South African Rand...Thai Baht or Chinese Remnimbi.
Only Japanese investors still hold a currency today worth more against gold than at some point in the past. And the irony there is so tasty, Burger King should offer it on the Whopper.
Near-zero interest rates failed to kick-start the Japanese economy for 18 years after its real-estate and financial bubbles popped. Tinkering with target rates of less than 1% since 1995, the Bank of Japan still hasn't worked any magic by trying to destroy the value of the currency it prints.
Yet it's the Japanese lesson of the early 1990s that's now pushing the US Fed, Bank of England, ECB in Frankfurt and pretty much every other developed-world central bank to offer up more money via cheap interest rates as a way of defending the current financial bubble from collapse.
How come? Mistaking more money for more wealth whenever they look at Japan, central bankers now have this error scratched onto their corneas. "The failure to end deflation [meaning falling prices, wages and real estate values] in Japan does not necessarily reflect any technical infeasibility of achieving that goal," announced Ben Bernanke in a speech of Nov. 2002.
Blaming instead a "structural" need to restore Japanese banks and corporations to solvency – an eerie forecast, perhaps, of the huge short-term liquidity injections co-ordinated by the Fed, ECB, Bank of Canada and Bank of England right now – the current chairman of the Federal Reserve added that:
"I do not view the Japanese experience as evidence against the general conclusion that US policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States."
Put that another way, as Bernanke himself did in 2004, and "excessively cautious monetary policy did play a role in [Japan's] lost decade...because it did not do all that it could have done to arrest and reverse the deflation."
Excessively cautious monetary policy? The Bank of Japan took interest rates for cash savers below 0.2%...and it's left them there for the last 13 years. The only Japanese citizens to benefit so far have been investors choosing to Buy Gold.
Nearly two decades after the Japanese offered the world a lesson in what can happen when excess credit and financial innovation turn first to bubble and then bust, average wages are still falling, down another 2.1% in November. Household spending fell 0.6%, whilst industrial production dropped by 1.6%...and the cost of living rose by 0.4%.
All this in a currency that stubbornly refuses to sink, meantime, despite the Bank of Japan's best efforts to destroy the very money that it prints. Proof positive, in fact, that a falling currency isn't necessary for Gold Prices to rise. Need more? Gold gained 31% last year for British investors – its eighth annual gain on the run – even as the Pound itself hit a two-decade top versus the Dollar. The European single currency gained nearly one-fifth versus the US currency last year, but the Gold Price in Euros also rose, gaining more than 21%. (That also disproves the common belief that gold and the Euro move in sync.)
Indeed, the price of gold measured against the world's five most important currencies – the US Dollar, Euros, Yen, Pound Sterling and Canadian Dollar – has now gained more than 150% since the start of this decade. Real rates of interest, on the other hand, have trended sharply lower, falling across the world even as oil-driven inflation – itself stoked by excessively easy money policy – has begun to roar.
"Japanese equities are out of favor and so, as a contrarian play for 2008, are among my top picks," says Marc Faber in the Gloom, Boom & Doom report. Funnily enough, "aside from Japanese equities, a contrarian play would be to buy the US Dollar," he goes on.
"Sentiment and headlines are so universally negative that at least a short-term rally should get underway shortly. The only problem I have with being positive about the Dollar is that, whereas people are universally bearish about the Dollar, they are also universally still long a gargantuan quantity of dollars!"
As for Dollar alternatives, on the other hand, "among commodities and currencies my preferred asset remains physical gold held outside the United States, for the simple reason that – depression or inflation – it is very likely to outperform financial assets.
"For gold, I believe the best is yet to come!" concludes Faber. Whereas Dollar rally or not, we believe here at BullionVault, the currency markets will prove just a suck of ever-shrinking real worth in 2008.
The first annual fall in UK house prices since 1995, maybe, unwinding a chunk of the near-quadrupling of London real estate values...
In the United States, a bottom might finally be found in Florida or Californian real estate. But we'd expect Paris Hilton to win the White House with Ron Paul as her running mate before then.
Yes, the Dow Jones stock index could push higher still to new all-time highs...even measured in terms of the Euro, rather than simply counted in the fast-vanishing US Dollar.
But the New Year has already brought the world one new all-time high that clearly says otherwise – and it only took one trading session for the Gold Market to jump 2% and break its three-decade record of $850 per ounce.
The anti-everything-else, gold clearly signals more trouble ahead for the rest of the world's investment markets – starting with the very value of money itself. That's the nagging doubt that drove Gold Prices higher every year between 2001 and 2007.
And here at BullionVault, we think it will take more than a bounce in the Dollar to reverse gold's seven-year bull market, too.
We don't doubt that newly-penned gags on Jay Leno's Tonight show might turn up this year alongside a pause in the Dollar's collapse.
By the end of Sept., says the latest data from the International Monetary Fund (IMF), the US Dollar accounted for less than 64% of foreign currency reserves worldwide. That might cue the Greenback to thumb its nose at the Euro, now risen above 26% of official cash reserves worldwide.
Factor in the Dollar-doom cover stories from magazines including The Economist and Newsweek, and the case for a contrarian play only gets stronger. Everyone agrees the Dollar looks sure to keep falling, even the policy wonks of the world's central banks! And as a very successful options trader once reminded me, the markets are always sure to do whatever it takes to screw the most people the most.
So maybe it's time for a surprise from the Greenback, now one-third cheaper than this time six years ago. Spanking the world's central bankers – and sucker-punching private investors, now busy gearing up on the forex markets – a turnaround in the US currency might just coincide with a genuine political crisis in the 13-nation Eurozone, too.
But "with Bernanke at the Fed and Paulson at the Treasury, and a Euro that could
face some problems (a break-up, some believe) because of badly deteriorating economic conditions in Italy, Spain, Portugal, and Greece," as Marc Faber writes in the latest edition of his Gloom, Boom & Doom report, "precious metals are likely to outperform financial assets for some years to come."
Indeed, whatever comes in the Presidential race – and no matter what happens to inflation in the cost of living, now running at multi-decade highs in Europe and China, despite their surging currencies – the real driver of gold's seven-year bull market looks to be the New Year's one racing certainty.
Governments and central banks the world over will refuse in 2008 to protect cash savers and bond buyers. They'll cut or hold interest rates in the forlorn hope of helping debtors instead, destroying the buying power of all official money.
Yes, gold might fail to rise as a result. But that would prove a heart-stopping shock, far more surprising than the most likely "shock" – that gold keeps on rising even if the US Dollar stops falling against other government currencies.
Just take a look at how the Gold Market got here today. The new record highs hit on 2 Jan. 2008 came for nearly everyone Buying Gold on the last trading day of 2007, no matter whether they bought in US Dollars, the Euro, British Pounds, Swiss Francs...Canadian, Aussie or New Zealand Dollars...Indian Rupees or South African Rand...Thai Baht or Chinese Remnimbi.
Only Japanese investors still hold a currency today worth more against gold than at some point in the past. And the irony there is so tasty, Burger King should offer it on the Whopper.
Near-zero interest rates failed to kick-start the Japanese economy for 18 years after its real-estate and financial bubbles popped. Tinkering with target rates of less than 1% since 1995, the Bank of Japan still hasn't worked any magic by trying to destroy the value of the currency it prints.
Yet it's the Japanese lesson of the early 1990s that's now pushing the US Fed, Bank of England, ECB in Frankfurt and pretty much every other developed-world central bank to offer up more money via cheap interest rates as a way of defending the current financial bubble from collapse.
How come? Mistaking more money for more wealth whenever they look at Japan, central bankers now have this error scratched onto their corneas. "The failure to end deflation [meaning falling prices, wages and real estate values] in Japan does not necessarily reflect any technical infeasibility of achieving that goal," announced Ben Bernanke in a speech of Nov. 2002.
Blaming instead a "structural" need to restore Japanese banks and corporations to solvency – an eerie forecast, perhaps, of the huge short-term liquidity injections co-ordinated by the Fed, ECB, Bank of Canada and Bank of England right now – the current chairman of the Federal Reserve added that:
"I do not view the Japanese experience as evidence against the general conclusion that US policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States."
Put that another way, as Bernanke himself did in 2004, and "excessively cautious monetary policy did play a role in [Japan's] lost decade...because it did not do all that it could have done to arrest and reverse the deflation."
Excessively cautious monetary policy? The Bank of Japan took interest rates for cash savers below 0.2%...and it's left them there for the last 13 years. The only Japanese citizens to benefit so far have been investors choosing to Buy Gold.
Nearly two decades after the Japanese offered the world a lesson in what can happen when excess credit and financial innovation turn first to bubble and then bust, average wages are still falling, down another 2.1% in November. Household spending fell 0.6%, whilst industrial production dropped by 1.6%...and the cost of living rose by 0.4%.
All this in a currency that stubbornly refuses to sink, meantime, despite the Bank of Japan's best efforts to destroy the very money that it prints. Proof positive, in fact, that a falling currency isn't necessary for Gold Prices to rise. Need more? Gold gained 31% last year for British investors – its eighth annual gain on the run – even as the Pound itself hit a two-decade top versus the Dollar. The European single currency gained nearly one-fifth versus the US currency last year, but the Gold Price in Euros also rose, gaining more than 21%. (That also disproves the common belief that gold and the Euro move in sync.)
Indeed, the price of gold measured against the world's five most important currencies – the US Dollar, Euros, Yen, Pound Sterling and Canadian Dollar – has now gained more than 150% since the start of this decade. Real rates of interest, on the other hand, have trended sharply lower, falling across the world even as oil-driven inflation – itself stoked by excessively easy money policy – has begun to roar.
"Japanese equities are out of favor and so, as a contrarian play for 2008, are among my top picks," says Marc Faber in the Gloom, Boom & Doom report. Funnily enough, "aside from Japanese equities, a contrarian play would be to buy the US Dollar," he goes on.
"Sentiment and headlines are so universally negative that at least a short-term rally should get underway shortly. The only problem I have with being positive about the Dollar is that, whereas people are universally bearish about the Dollar, they are also universally still long a gargantuan quantity of dollars!"
As for Dollar alternatives, on the other hand, "among commodities and currencies my preferred asset remains physical gold held outside the United States, for the simple reason that – depression or inflation – it is very likely to outperform financial assets.
"For gold, I believe the best is yet to come!" concludes Faber. Whereas Dollar rally or not, we believe here at BullionVault, the currency markets will prove just a suck of ever-shrinking real worth in 2008.
2007 proves plentiful for Saudi gold
Saudi Arabia gold sales rocketed up about 17% in volume and 30% in value during its prosperous 2007.
Moaz Barakat, managing director of the World Gold Council in the Middle East, told Reuters he thinks the market still looks positive.
"Increasing demand from tourists lifted the market, and if Dubai, the heart of the UAE, was not affected by volatile prices in September and October, we would have seen better figures," he told the news service.
Moaz Barakat, managing director of the World Gold Council in the Middle East, told Reuters he thinks the market still looks positive.
"Increasing demand from tourists lifted the market, and if Dubai, the heart of the UAE, was not affected by volatile prices in September and October, we would have seen better figures," he told the news service.
Oil slips but gold trades near highs
Following last week’s flying start to the new year for commodity markets, oil prices fell $3 on Monday but gold traded near record highs.
Traders continued to speculate about the size of new investment flows and the possible impact from this week’s annual re-weighting of the largest commodity indices. There were also concerns about the outlook for the US economy after disappointing manufacturing and employment data last week.
Traders continued to speculate about the size of new investment flows and the possible impact from this week’s annual re-weighting of the largest commodity indices. There were also concerns about the outlook for the US economy after disappointing manufacturing and employment data last week.
Treasurys rise on US-Iran worries
NEW YORK (AP) - Treasury prices rallied Monday, capitalizing on concerns about U.S.-Iranian tensions and a slowing economy.
Treasury prices opened almost flat but shot into positive territory after midmorning reports that the Bush administration warned Iran against repeating a Sunday incident in which Iranian boats allegedly harassed three U.S. Navy ships in the strategic Strait of Hormuz.
White House spokesman Tony Fratto said: "We urge the Iranians to refrain from such provocative actions that could lead to a dangerous incident in the future."
Treasurys, which are backed by the federal government, often perform well when there are worries that international tensions could destabilize markets and undermine assets, or when the economy appears to be in danger.
"It does look like the Iranian situation has added a little geopolitical risk into the market," said Kim Rupert, managing director of fixed income at Action Economics.
The benchmark 10-year Treasury note rose 11/32 to close at 103 11/32 with a yield of 3.84 percent, down from 3.87 percent late Friday. Prices and yields move in opposite directions.
The 30-year long bond gained 29/32 to 111 with a yield of 4.34 percent, down from 4.38 percent late Friday.
The 2-year note was unchanged at 100 20/32 with a yield of 2.75 percent, unchanged from late Friday.
The yield on the 3-month note rose to 3.27 percent from 3.19 percent Friday as the discount rate advanced to 3.19 percent from 3.11 percent.
The renewed concerns about U.S.-Iranian relations built on a Treasury market rally at the start of 2008 that was triggered by worries that the U.S. economy is weakening and could slip into recession.
Treasury Secretary Henry Paulson in a speech on Monday stressed that there is no simple solution to the housing crisis and that the correction now seen in residential real estate is "inevitable and necessary."
Although investors may not wish to see a recession, they are aware that a protracted slowdown could convince the Federal Reserve to stimulate the economy with generous rate reductions this year. The central bank's next monetary policy meeting is on Jan. 29-30.
The Fed in 2007 reduced the federal funds rate, the interest banks charge each other on overnight loans, by a full percentage point.
The Treasury market Friday announced an auction of $8 billion in 10-year Treasury Inflation Protected Securities, which are adjusted regularly so investors do not lose value from inflation.
The auction, which will be held on Jan. 15, could meet strong demand as there are growing concerns about rising inflation, given recent increases in the price of crude oil and other commodities.
Treasury prices opened almost flat but shot into positive territory after midmorning reports that the Bush administration warned Iran against repeating a Sunday incident in which Iranian boats allegedly harassed three U.S. Navy ships in the strategic Strait of Hormuz.
White House spokesman Tony Fratto said: "We urge the Iranians to refrain from such provocative actions that could lead to a dangerous incident in the future."
Treasurys, which are backed by the federal government, often perform well when there are worries that international tensions could destabilize markets and undermine assets, or when the economy appears to be in danger.
"It does look like the Iranian situation has added a little geopolitical risk into the market," said Kim Rupert, managing director of fixed income at Action Economics.
The benchmark 10-year Treasury note rose 11/32 to close at 103 11/32 with a yield of 3.84 percent, down from 3.87 percent late Friday. Prices and yields move in opposite directions.
The 30-year long bond gained 29/32 to 111 with a yield of 4.34 percent, down from 4.38 percent late Friday.
The 2-year note was unchanged at 100 20/32 with a yield of 2.75 percent, unchanged from late Friday.
The yield on the 3-month note rose to 3.27 percent from 3.19 percent Friday as the discount rate advanced to 3.19 percent from 3.11 percent.
The renewed concerns about U.S.-Iranian relations built on a Treasury market rally at the start of 2008 that was triggered by worries that the U.S. economy is weakening and could slip into recession.
Treasury Secretary Henry Paulson in a speech on Monday stressed that there is no simple solution to the housing crisis and that the correction now seen in residential real estate is "inevitable and necessary."
Although investors may not wish to see a recession, they are aware that a protracted slowdown could convince the Federal Reserve to stimulate the economy with generous rate reductions this year. The central bank's next monetary policy meeting is on Jan. 29-30.
The Fed in 2007 reduced the federal funds rate, the interest banks charge each other on overnight loans, by a full percentage point.
The Treasury market Friday announced an auction of $8 billion in 10-year Treasury Inflation Protected Securities, which are adjusted regularly so investors do not lose value from inflation.
The auction, which will be held on Jan. 15, could meet strong demand as there are growing concerns about rising inflation, given recent increases in the price of crude oil and other commodities.
Comex Gold Dips Further On Oil, Stock Market
Comex Gold Dips Further On Oil, Stock Market
1556 GMT [Dow Jones] - Gold futures are increasing their losses as oil dips, equities are "looking shaky" and the dollar provides little impetus, an analyst says. Crude is "largely taking gold with it," says Andrew Montano, director of precious metals at Scotia Mocatta. The "dollar is relatively stable, so it's not providing any particular thrust." Comex Feb gold is down $6.10 at $859.60 an ounce. (MWH)
1556 GMT [Dow Jones] - Gold futures are increasing their losses as oil dips, equities are "looking shaky" and the dollar provides little impetus, an analyst says. Crude is "largely taking gold with it," says Andrew Montano, director of precious metals at Scotia Mocatta. The "dollar is relatively stable, so it's not providing any particular thrust." Comex Feb gold is down $6.10 at $859.60 an ounce. (MWH)
Economists say 2008 will be a year to forget
NEW ORLEANS (MarketWatch) -- Gathered in this city struggling to regain its footing after Hurricane Katrina, a group of leading economists said the U.S. is getting hit by another damaging storm: the global credit crunch.
Many analysts gathered at the American Economic Association's two-day annual meeting spoke of a recession as almost a given but differed over how severe it will be.
"The recession is likely to be a serious one," said Dean Baker, co-director of the Center for Economic and Policy Research.
He estimated losses in prime mortgages will be two to three times the $160-$200 billion hit seen in the subprime sector. This, he said, will lead to large losses at banks and difficulty for Fannie Mae and Freddie Mac.
University of Chicago professor of finance and former chief economist at the International Monetary Fund, Raghuram Rajan, said questions in the media over whether the U.S. economy will fall into recession are really only about semantics.
"We are going to have very low growth in the first two quarters of the year. Whether it is negative or zero, it is going to feel like the same thing," Rajan said.
But he added that it remains an "open question" whether an even more serious slowdown develops in the second half of the year.
"One of the big issues is the extent to which the credit crunch initiated by the subprime crisis starts spreading and how much does it affect smaller corporations and poorly rated corporations," he said. "Do we have a bank credit crunch which starts impacting on retail credit for small and medium enterprises? There is some uncertainty."
Alistair Milne, a professor at the City University of London's Cass Business School, told MarketWatch he's expecting "a really weak year," but added that "it is too early to say how deep the crisis is going to get."
"There has been a substantial credit expansion in many areas -- not just subprime -- over the past five to 10 years," he said. But now, with credit now under pressure, he sees the risk of a vicious cycle developing where the decline in bank lending pushes down growth, which further reduces bank lending.
"If there is a severe enough downturn, it will make all the credit problems worse," he said, adding that the crisis would also hit credit card debt and leverages buyout loans.
But Milne also pointed to a bright spot, namely sovereign wealth funds pouring money into troubled banks, which shores up capital and could help prevent an extreme economic downturn.
He also said that the Federal Reserve is moving in the right direction and that the European Central Bank is likely to follow with rate cuts within six months, adding that a negative economic shock will take the pressure off inflation eventually.
Still, he said, the economy won't likely get back on track until 2010 and will require more capital from overseas.
Many analysts gathered at the American Economic Association's two-day annual meeting spoke of a recession as almost a given but differed over how severe it will be.
"The recession is likely to be a serious one," said Dean Baker, co-director of the Center for Economic and Policy Research.
He estimated losses in prime mortgages will be two to three times the $160-$200 billion hit seen in the subprime sector. This, he said, will lead to large losses at banks and difficulty for Fannie Mae and Freddie Mac.
University of Chicago professor of finance and former chief economist at the International Monetary Fund, Raghuram Rajan, said questions in the media over whether the U.S. economy will fall into recession are really only about semantics.
"We are going to have very low growth in the first two quarters of the year. Whether it is negative or zero, it is going to feel like the same thing," Rajan said.
But he added that it remains an "open question" whether an even more serious slowdown develops in the second half of the year.
"One of the big issues is the extent to which the credit crunch initiated by the subprime crisis starts spreading and how much does it affect smaller corporations and poorly rated corporations," he said. "Do we have a bank credit crunch which starts impacting on retail credit for small and medium enterprises? There is some uncertainty."
Alistair Milne, a professor at the City University of London's Cass Business School, told MarketWatch he's expecting "a really weak year," but added that "it is too early to say how deep the crisis is going to get."
"There has been a substantial credit expansion in many areas -- not just subprime -- over the past five to 10 years," he said. But now, with credit now under pressure, he sees the risk of a vicious cycle developing where the decline in bank lending pushes down growth, which further reduces bank lending.
"If there is a severe enough downturn, it will make all the credit problems worse," he said, adding that the crisis would also hit credit card debt and leverages buyout loans.
But Milne also pointed to a bright spot, namely sovereign wealth funds pouring money into troubled banks, which shores up capital and could help prevent an extreme economic downturn.
He also said that the Federal Reserve is moving in the right direction and that the European Central Bank is likely to follow with rate cuts within six months, adding that a negative economic shock will take the pressure off inflation eventually.
Still, he said, the economy won't likely get back on track until 2010 and will require more capital from overseas.
Gold ends lower amid dollar gains, crude decline
NEW YORK (MarketWatch) -- Gold futures finished down Monday, as gains in the U.S. dollar and declining crude-oil prices dampened demand for the precious metal.
Gold for February delivery fell $3.70 to end at $862 an ounce on the New York Mercantile Exchange.
"Given the recent surge in metal prices, a period of consolidation is healthy for the longevity of the current bull-trend," said James Moore, an analyst at TheBullionDesk.com, in a research note.
Gold futures also ended down Friday, losing $3.40 an ounce, but the benchmark contract tallied a weekly gain of $23, or about 2.7%.
"With little improvement in the health of the U.S. economy, interest rates still forecast to move lower, record oil prices creating inflationary pressure and little improvement in the geopolitical climate, gold should remain in a strong mood and look to challenge $900 an ounce during the first quarter," Moore said.
The dollar rose against most major counterparts, as investors covered short positions taken after last Friday's dismal U.S. payrolls data. The dollar index, which tracks the performance of the greenback against a basket of other currencies, gained 0.6% to 76.210.
Crude-oil futures tumbled nearly 3%, as traders rushed to lock in gains amid escalating worries that a worsening economic slowdown could lower U.S. oil demand. See Futures Movers.
"Volatility looks set to increase in the gold market, but the fundamentals remain strong with the poor jobs report further showing a slowing US economy which nevertheless faces considerable inflationary pressures," said Mark O'Byrne, director of Gold and Silver Investments Ltd., in a research note.
A government survey showed Friday that U.S. payrolls grew at the slowest pace in more than four years. Meanwhile, Treasury Secretary Henry Paulson said Monday that the White House won't rush to propose a fiscal stimulus plan to boost the U.S. economy. See full story.
"Let me be clear that no single policy or action will undo the excesses of the last few years," Paulson said, in excerpts of a speech planned for later on Monday.
Also on the Nymex, March silver dropped 17.20 cents, or 1.1%, to $15.920 an ounce. January platinum fell $14.90 to $1,524.20 an ounce and March palladium dropped 90 cents to $376.85 an ounce. In a report released to the media Monday, Merrill Lynch analyst Michael Jalonen also forecast silver prices averaging $14 an ounce this year. Increased costs -- up 5% to 7% in 2008 -- will continue to weigh on gold producers, but Jalonen said higher gold prices and credits for other mining byproducts will offset higher cash costs.
Gold for February delivery fell $3.70 to end at $862 an ounce on the New York Mercantile Exchange.
"Given the recent surge in metal prices, a period of consolidation is healthy for the longevity of the current bull-trend," said James Moore, an analyst at TheBullionDesk.com, in a research note.
Gold futures also ended down Friday, losing $3.40 an ounce, but the benchmark contract tallied a weekly gain of $23, or about 2.7%.
"With little improvement in the health of the U.S. economy, interest rates still forecast to move lower, record oil prices creating inflationary pressure and little improvement in the geopolitical climate, gold should remain in a strong mood and look to challenge $900 an ounce during the first quarter," Moore said.
The dollar rose against most major counterparts, as investors covered short positions taken after last Friday's dismal U.S. payrolls data. The dollar index, which tracks the performance of the greenback against a basket of other currencies, gained 0.6% to 76.210.
Crude-oil futures tumbled nearly 3%, as traders rushed to lock in gains amid escalating worries that a worsening economic slowdown could lower U.S. oil demand. See Futures Movers.
"Volatility looks set to increase in the gold market, but the fundamentals remain strong with the poor jobs report further showing a slowing US economy which nevertheless faces considerable inflationary pressures," said Mark O'Byrne, director of Gold and Silver Investments Ltd., in a research note.
A government survey showed Friday that U.S. payrolls grew at the slowest pace in more than four years. Meanwhile, Treasury Secretary Henry Paulson said Monday that the White House won't rush to propose a fiscal stimulus plan to boost the U.S. economy. See full story.
"Let me be clear that no single policy or action will undo the excesses of the last few years," Paulson said, in excerpts of a speech planned for later on Monday.
Also on the Nymex, March silver dropped 17.20 cents, or 1.1%, to $15.920 an ounce. January platinum fell $14.90 to $1,524.20 an ounce and March palladium dropped 90 cents to $376.85 an ounce. In a report released to the media Monday, Merrill Lynch analyst Michael Jalonen also forecast silver prices averaging $14 an ounce this year. Increased costs -- up 5% to 7% in 2008 -- will continue to weigh on gold producers, but Jalonen said higher gold prices and credits for other mining byproducts will offset higher cash costs.
BlackSquare Makes Global Macro Offering, Preps L/S Commodity FoFs
U.K-based BlackSquare Capital launched the BlackSquare Capital Global Macro Fund of Funds on Jan.1 with some US$30 million in assets.
The Global Macro Fund, a concentrated multi-manager portfolio, launched with 11 discretionary and systematic macro hedge fund managers managers, many of whom are closed to new investment. The portfolio includes managers such as Caxton Associates, Moore Capital Management, Fortress Investment Group’s Drawbridge Commodities Fund and Winton Capital Management, and will be equally split between equities, commodities, interest rates and foreign exchange. Eventually, the portfolio will contain between 15 to 20 managers.
“I’ve spent the majority of my career at Salmon Brothers on the fixed-income sales desk covering the macro hedge funds throughout the 1990s, and it’s an area where Ive spent the majority of my career in,” said Christopher Peel, CEO of BlackSquare. ”When I look at the world today and going forward, I view the current environment give the level of uncertainty in interest rates and revaluation of equity/debt markets, is a very good environment for top-down thematic macro investing more so now than any time over the last 10 years.”
The Global Macro Fund of Funds charges a 1% management fee and a 10% incentive fee with a US$100,000 minimum investment requirement.
Next quarter, the firm is also looking to launch a long/short commodities fund of funds. “What we want to do is create a product that will complement investors currently invested in long-only products so we want to have a discretionary but fundamental fund that will trade across global commodity markets,” said Peel.
The firm currently manages US $300 million in its flagship Access Fund, which began trading in March 2006. The fund is a concentrated portfolio of holdings in seperate alternative products managed by Caxton or former traders of Caxton.
The Global Macro Fund, a concentrated multi-manager portfolio, launched with 11 discretionary and systematic macro hedge fund managers managers, many of whom are closed to new investment. The portfolio includes managers such as Caxton Associates, Moore Capital Management, Fortress Investment Group’s Drawbridge Commodities Fund and Winton Capital Management, and will be equally split between equities, commodities, interest rates and foreign exchange. Eventually, the portfolio will contain between 15 to 20 managers.
“I’ve spent the majority of my career at Salmon Brothers on the fixed-income sales desk covering the macro hedge funds throughout the 1990s, and it’s an area where Ive spent the majority of my career in,” said Christopher Peel, CEO of BlackSquare. ”When I look at the world today and going forward, I view the current environment give the level of uncertainty in interest rates and revaluation of equity/debt markets, is a very good environment for top-down thematic macro investing more so now than any time over the last 10 years.”
The Global Macro Fund of Funds charges a 1% management fee and a 10% incentive fee with a US$100,000 minimum investment requirement.
Next quarter, the firm is also looking to launch a long/short commodities fund of funds. “What we want to do is create a product that will complement investors currently invested in long-only products so we want to have a discretionary but fundamental fund that will trade across global commodity markets,” said Peel.
The firm currently manages US $300 million in its flagship Access Fund, which began trading in March 2006. The fund is a concentrated portfolio of holdings in seperate alternative products managed by Caxton or former traders of Caxton.
Gold set to smash all-time record
THE price of gold, which last week hit a new record, is set to scale new heights before the end of 2008, bullion traders predicted this weekend.
Prices topped $860 an ounce last week � well above the $850 record set in 1980. The weakness of the US currency has helped to boost the dollar price of gold, but the metal has also been lifted by the geo-political tensions raised by upheavals in Pakistan and fears that inflationary pressures are increasing.
And a survey of gold analysts due to be published this week is expected to show that they predict prices this year will be well ahead of the $695-an-ounce average seen in 2007, continuing a bull run that has lasted for seven years.
Ross Norman, a director of Thebulliondesk.com, forecast that the average price of gold in 2008 is likely to be about $950 an ounce, and the year could see prices spiking as high as $1,150. “It might possibly even touch $1,200,” he said. It started last year at $640.75.
The opening of exchanges for trading gold has increased the metal’s attractions to investors. China has had a spot market for gold for two years and is to open a futures market on Wednesday. Dubai already has an exchange and Vietnam and Pakistan plan to follow suit.
Gold has also become more accessible to investors in the past 18 months with the emergence of exchange-traded funds whose prices are closely linked to the bullion price. One of the participants in the market, ETF Securities, saw the value of its assets under management � including funds covering industrial metals, energy and agricultural commodities as well as gold � mushroom from $200m to $2.4 billion.
Prices topped $860 an ounce last week � well above the $850 record set in 1980. The weakness of the US currency has helped to boost the dollar price of gold, but the metal has also been lifted by the geo-political tensions raised by upheavals in Pakistan and fears that inflationary pressures are increasing.
And a survey of gold analysts due to be published this week is expected to show that they predict prices this year will be well ahead of the $695-an-ounce average seen in 2007, continuing a bull run that has lasted for seven years.
Ross Norman, a director of Thebulliondesk.com, forecast that the average price of gold in 2008 is likely to be about $950 an ounce, and the year could see prices spiking as high as $1,150. “It might possibly even touch $1,200,” he said. It started last year at $640.75.
The opening of exchanges for trading gold has increased the metal’s attractions to investors. China has had a spot market for gold for two years and is to open a futures market on Wednesday. Dubai already has an exchange and Vietnam and Pakistan plan to follow suit.
Gold has also become more accessible to investors in the past 18 months with the emergence of exchange-traded funds whose prices are closely linked to the bullion price. One of the participants in the market, ETF Securities, saw the value of its assets under management � including funds covering industrial metals, energy and agricultural commodities as well as gold � mushroom from $200m to $2.4 billion.
Gold Bull - Alive And Well!
Big Picture Reveals $2000+ Gold within a few years!
Gold: $858 / HUI: 444
January 07, 2007
It sure has been a week for gold and its shares this first week of 2008. Right from the start gold blasted through its 1980 all time high and the gold shares exploded to the upside as well thereby finally showing some signs of strength after failing to out perform gold for quite a while. Now what can we expect from gold and its shares this year? Is this bull market coming to an end as many of the gold bears want you to believe? Or are we nowhere near an end of this bull market yet? Yes, reading gold market analysis from many different sources can be quite disturbing and confusing for the average gold investor. Remember the gold pundits declaring the end of the gold bull market last year when gold hit $680? Gold was supposed to be overvalued then and bound to correct to $500. Well, obviously the bears were wrong since gold went exactly the opposite way and challenged its old all time high by end of last year.
Since gold slashed its old 1980 all time high people are wondering where to go from here?
Well, it's my strong belief gold will top $1000 this year and a multiple of that in the years to come. Sure enough there will be corrections here and there but the thing is that you shouldn't be scared about them since they could provide excellent 'BUY' opportunities (such as happened on December 18 last year, see below). The thing is to keep the BIG picture in mind. It goes far beyond the scope of this article in order to discuss all critical drivers pointing towards higher gold prices in the years ahead like inflation, supply/demand and an eroding dollar, but I like to highlight a few important charts which you should keep in mind each time the gold bears are preaching a top in gold again.
DOW/GOLD ratio says gold bull market nowhere near its end
Gold's Long Term Inflation Adjusted Average says gold still cheap
Gold/OIL ratio says Gold is a bargain
Gold: $858 / HUI: 444
January 07, 2007
It sure has been a week for gold and its shares this first week of 2008. Right from the start gold blasted through its 1980 all time high and the gold shares exploded to the upside as well thereby finally showing some signs of strength after failing to out perform gold for quite a while. Now what can we expect from gold and its shares this year? Is this bull market coming to an end as many of the gold bears want you to believe? Or are we nowhere near an end of this bull market yet? Yes, reading gold market analysis from many different sources can be quite disturbing and confusing for the average gold investor. Remember the gold pundits declaring the end of the gold bull market last year when gold hit $680? Gold was supposed to be overvalued then and bound to correct to $500. Well, obviously the bears were wrong since gold went exactly the opposite way and challenged its old all time high by end of last year.
Since gold slashed its old 1980 all time high people are wondering where to go from here?
Well, it's my strong belief gold will top $1000 this year and a multiple of that in the years to come. Sure enough there will be corrections here and there but the thing is that you shouldn't be scared about them since they could provide excellent 'BUY' opportunities (such as happened on December 18 last year, see below). The thing is to keep the BIG picture in mind. It goes far beyond the scope of this article in order to discuss all critical drivers pointing towards higher gold prices in the years ahead like inflation, supply/demand and an eroding dollar, but I like to highlight a few important charts which you should keep in mind each time the gold bears are preaching a top in gold again.
DOW/GOLD ratio says gold bull market nowhere near its end
Gold's Long Term Inflation Adjusted Average says gold still cheap
Gold/OIL ratio says Gold is a bargain
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