Gold Prices and Quantitative Easing

By Cesar Zambrano, Forex Fraud

In 2008 when The Great Recession erupted with the failure of Lehman Brothers and several other major financial firms, the Federal Reserve committed to slashing short-term interest rates to historically low levels and injecting unprecedented amounts of stimulus into the economy.  The reason was simple.  Fed Chairman Ben Bernanke had watched Japan suffer through a severe recession during the late 1980’s that shared strikingly similar characteristics to the U.S. problems.  The recession in Japan was caused by a credit bubble that caused real estate prices to become dramatically overvalued; eventually, when the bubble burst in Japan, the Japanese government, in most economists’ opinion, waited too long to take real, practical steps of injecting monetary stimulus into the global economy.

When the Bank of Japan did finally inject stimulus into the economy, it was too little too late; in fact, Japan has attempted to stimulate its economy in a myriad of ways over the last 15 years, and since Japan waited too long to initially jumpstart the economy, it slipped into an extended period of deflation that has famously become known among economists as “The Lost Decade.”

This entire scenario in Japan is one of the primary reasons that Fed Chairman Ben Bernanke was so quick to move at the outset of the crisis.  His economic belief, whether right or wrong, is that government must play a large role in stimulating an economy during times of economic contraction, and he therefore believes the “help” must be big and swift at the outset of a crisis, so that an economy never slips in deflation.  Mr. Bernanke’s willingness to print money in order to stimulate the economy was clearly outlined in a speech he gave in the early 2000’s when he said that, if need be, he would print money and drop it from helicopters to stimulate the economy.  This earned Mr. Bernanke the nickname of “Helicopter Ben” by the financial media.  Traders bet against the dollar at various .

Thus, we come to the current economic slow-down in the U.S. economy.  At the outset of the recession, the Federal Reserve injected massive stimulus into the economy in the form of quantitative easing.  Although politicians and economists argue whether the first round of stimulus was effective, the economy did rebound nicely off its early 2009 lows.  In fact, by March/April of 2009, it seemed that the greatest economic threat of modern times had been averted.  Equity markets rebounded, property markets stabilized, economic growth resumed, and it appeared the global economy was headed for a V-shaped recovery.

Then, in late spring/early summer of 2010, the U.S. economy began to show signs of significant slow-down.  Key economic data out of the U.S. began disappointing in steady fashion throughout June, July, and August of 2010, and in late July Mr. Bernanke testified before Congress and stated that his economic outlook for the U.S. economy was “unusually uncertain.”  This slow-down in the U.S. caused Bernanke and his team to resume talks of possibly instituting another round of quantitative easing measures.

A is a great way to practice trading the U.S. dollar.

In late September, the Federal Open Market Committee statement made it clear the Fed would be instituting another round of quantitative easing in either November or December.  The market began pricing this action into several assets including the U.S. dollar and gold.

First of all, the U.S. dollar has fallen precipitously in September as investors have been pricing in further quantitative easing from the Fed.  Primarily, quantitative easing exponentially increases the supply of U.S. dollars in the real economy, and this decreases the amount of a currency.  Gold, on the other hand, is now at all-time HI’s above $1,300/ounce due to the global uncertainty that the current U.S. slow-down is causing.  Investors are fearful of possible deflation and want safety of capital, and gold is a hard asset that investors believe will not lose value over the long-term.

If the Fed does continue to institute further quantitative easing measures, then gold should continue to increase in value, even though it is at all-time HI’s.  Although it will most likely have to correct in order to find further buying support in the near and mid-term, gold should continue to move upwards as the Federal Reserve expands its balance sheet at a historically unprecedented pace.

Mid-Week Market Report on SP500, Oil, Gold & Dollar

By Chris Vermeulen, TheGoldAndOilGuy

Wednesday the market didn’t tell us anything new. The equities market is still over extended on the daily chart but the market is refusing to break down. Each time there has been seen selling in the market over the past two weeks, the market recovers. Equities and the dollar have been trading with an inverse relationship and it seems to drop every in value each selling pressure enters the market, which naturally lifts stocks.

That being said, sellers are starting to come into the market at these elevated levels and it’s just a matter of time before we see a healthy pullback/correction. The past 10 session volatility has been creeping up as equities try to sell off. There will be a point when a falling dollar is not bullish for stocks but until then it looks like printing of money will continue devaluing of the dollar to help lift the stock market. Some type of pullback is needed if this trend is to continue and the markets can only be held up for so long.

Below is a chart of the USO oil fund and the SPY index fund. Crude has a tendency to provide an early warning sign for the strength of the economy. As you can see from the April top, oil started to decline well before the equities market did. This indicated a slow down was coming.

The recent equities rally which started in late August has been strong. But take a look at the price of oil. It has traded very flat during that time indicating the economy has not really picked up, nor does it indicate any growth in the coming months. This rally just may be coming to an end shortly.

This daily chart of the SP500 fund shows similar topping patterns. This looks to be the last straw for the SP500. Most tops occur with a gap higher or early morning rally reaching new highs, only to see a sharp sell off by the end of the session which generates a reversal day. From the looks of this chart that could happen any day.

In short, volume overall in the market remains light which is why we continue to see higher prices. Light volume typically gives the stock market a positive bias while Sell offs require strong volume to move lower. That being said every dip in the equities market which has been close to a breakdown seems to get lifted back up by a falling dollar, but that can only happen for so long because one the volume steps back into the market the masses will be in control again.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more info across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Due to more analysis and that I want to keep the service personal the price of the service will be going up Oct 1st, so join today.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

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Is Inflation “Too Low”?

By The Mogambo Guru

John Mauldin, in his Frontline Weekly Newsletter, had a graph of Total Consumer Credit Outstanding, showing that it had peaked at the end of 2008 after running up to almost $2.6 trillion.

I instantly leap to my feet, howling in outrage because there are less than 100 million private-sector workers in the Whole Freaking Country (WFC), and private-sector workers are the only people that can show a profit, with which to pay debt, by their labors.

“This means,” I go on, “that each of these 100 million private-sector workers must produce enough in profits to pay off, in one way or another, $26,000 in credit card bills, plus, at an average of 16% interest on the unpaid balance, paying $4,160 a year in interest charges, too, which doesn’t even start talking about paying off a whopping $13.6 trillion national debt!”

You can see the look of impatience on Mr. Mauldin’s face as I ramble on and on, as this must all be elementary to him, but it is, as I prove, endlessly fascinating to tragic halfwits like me. Embarrassed, I just shut up and sat back down.

And I am glad I did, because the more surprising thing, and thus more fascinating to guys like me who have intellectual deficits and the associated poor table manners, hygiene, and lack of self-control, was when he went on that Total Consumer Credit Outstanding “had been growing steadily for 65 years until this last recession.”

Being Completely Freaked Out (CFO), I could only admire Mr. Mauldin for his calm serenity, which has allowed him to write that sentence without at least one exclamation point to indicate the importance of 65 years of steadily-growing personal debt! Hell, I can’t seem to write a sentence about it that DOESN’T end with a damned exclamation point, to show you how CFO I am!

Perhaps my agitation explains why I re-wrote Mr. Mauldin’s sentence for inclusion in my quarterly report to Glaxxnorgg, the new overlord of this sector of the galaxy. My excuse is that I was in a rush since I had trouble finding the memo containing the new obligatory salutation for our new hotshot in charge, which turned out to be, if I decoded the message correctly, “Greetings, Glorious and Magnificent Glaxxnorgg, Supreme Overlord, whose wisdom is surpassed only by his good looks, or maybe the other way around, depending on mood and time of day.”

It took a lot longer than I thought to find the misplaced memo, and so, in my rush to beat the nearing deadline, I hastily re-worded Mr. Mauldin’s sentence as, “Earth on Red Alert: Total Consumer Credit Outstanding grew for 65 freaking years in a row, and then it suddenly stopped! Stopped!! 65 years of accumulating a massive, crushing debt of just under 2.6 trillion freaking dollars to buy the massive flood of goods and services that grew an idiotic, distorted, malignant, cancerous economy based on financed consumption and government deficit-spending instead of production! And now the necessary, lifeblood of new debt has not only stopped growing – horrors! – but is – horror of horrors! – dropping, although by less than $100 billion a year! These idiot Earthlings are freaking doomed!!”

I am sure that you, as did Glaxxnorgg and Junior Mogambo Rangers (JMRs) around the galaxy, grasped the significance of the plethora of exclamation points, actually ending with two of them, so I shall not belabor the point.

I concluded my report with the summation, “Things are looking worse and worse here because the idiot central banks keep creating money so that their respective governments can borrow it to deficit-spend, and you know how that kind of Really Stupid Crap (RSC) always works out.”

As if to prove the point, I am still in a semi-reclusion defensive position since the last FOMC announcement when the foul Federal Reserve decided that they would make inflation in prices worse because inflation was “too low.”

Inflation being “too low” is, to a guy who has seen the historical record of inflation in prices, means that I am more petrified than ever of inflation in prices, which is the Big Nasty Killer (BNK) of people, economies and countries.

The FOMC statement was enough of a shock to me that I quit working immediately, but fortunately not for Scott Lanman and Joshua Zumbrun of Bloomberg.com, who apparently did a little research and found that the Federal Reserve said, significantly, “for the first time, that too-low inflation, in addition to sluggish growth, would warrant taking action,” which is interpreted as taking the Fed “closer to a second wave of unconventional monetary easing” to, as completely un-freaking-believable as it is to even say such a thing, cause higher inflation in prices!

This is outrageous! The “mission statement” for the Fed, and the purpose of the Fed’s very existence, is to keep prices stable! Stable! Meaning no inflation! Gaaakkkk!

That “Gaaakkkk!” was the sound of an original scream of outrage and fear of impending doom from inflation in prices that was suddenly choked off by my suddenly remembering, to my immense happiness, that I can just buy gold, silver and oil stocks!

Their prices will go up and up and up, guaranteed by the deadly resolve of a desperate, deficit-spending federal government and desperate, money-creating insanity by the Federal Reserve to accomplish it.

And with that kind of guarantee, all you do is buy gold, silver and oil, and all you can say is, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Is Inflation “Too Low”? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

New Bill Would Authorize Uncirculated and Proof Silver Eagle Coins

The United States Congress could help the United States Mint strike 2010 American Eagle Silver Proof Coins and 2010 American Eagle Silver Uncirculated Coins.
One part of a multifaceted bill recently introduced in the U.S. House of Representatives authorizes the U.S. Mint to produce the collector versions of the Silver Eagles even if that cut into the supply […]

Murray Pollitt: As intervention fails, only gold market has a pulse

12:38a ET Thursday, September 30, 2010

Dear Friend of GATA and Gold:

In his latest market letter, Murray Pollitt of Pollitt & Co. in Toronto remarks that the financial markets lack much of a pulse except in the precious metals, because “we now appear to have come to the end of another 30 years of intervention in the gold market.” Gold, Pollitt writes, “will lead other commodities and wealth-creating stocks higher while sending all these overvalued currencies lower.” Pollitt’s commentary is titled “Pulse” and he generously has allowed GATA to share it with you here:

http://www.gata.org/files/MurrayPollitt-09-21-2010.pdf

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

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U.S.-China relationship has messed up the world, Davies tells King World News

12:30a ET Thursday, September 30, 2010

Dear Friend of GATA and Gold:

Hinde Capital CEO Ben Davies tells Eric King of King World News that the U.S.-China trade relationship and the imbalances it has caused are at the root of the international financial turmoil, the recklessness of Wall Street being only a symptom. You can listen to the interview at the King World News Internet site here:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/9/29_B…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

Douglas interview on Fox Business is at 11p ET; Paul interviewed as well

9:17p ET Wednesday, September 29, 2010

Dear Friend of GATA and Gold:

GATA board member Adrian Douglas’ appearance on the Fox Business program “Money Rocks” is to be rebroadcast at 11 p.m. tonight, not 10 p.m. as reported to you earlier.

U.S. Rep. Ron Paul appeared on the program just prior to Douglas and was interviewed by Eric Bolling about returning gold backing to the U.S. dollar. That interview is 7 minutes long and can be watched at the Fox Business Internet archive here:

http://video.foxbusiness.com/#/v/4354239/ron-paul-on-eliminating-the-fed…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

SLV Inventory Reaches Record High

Tim Iacono submits:

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Does Silver’s ‘Smooth Ride’ Lead Past $30?

Jeff Nielson submits:

Regular readers will know that I shun short-term charts and “technical analysis”. Such tools carry a low degree of reliability, since they are built upon numerous false assumptions (beginning with “free and open markets”, and “perfect information”). I submit to readers that markets have never been less “free and open”, and information has never been so far from “perfect”.

Worse still, almost none of the people who engage in such analysis have any theoretical training in statistics. Lacking such education, they are simply oblivious to how much accuracy is lost with such tools – when we shorten the time-horizon.

Read more »

The Interesting Metals Story Is in Emerging Markets

Jim Farrish submits:

Is it just me, or does it seem like every other headline is focused on gold? The rise to $1308 has received top billing and plenty of speculation from analysts on how high it will rise. Silver has joined the party, climbing more than 20% over the last five weeks. The base metals are equally impressive relative to gains as the commodities renew their push higher.

GLD, the SPDRs Gold Trust, has gained more than 30% since breaking above the $1000 resistance in September 2009. GDX, Market Vectors Gold Minders ETF, has gained more than 37% over the same period. Many investors are looking for comparable returns in the coming year. The base metals such as copper, steel, aluminum, platinum and others have seen similar returns, but the volatility has been pointedly greater.

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