15-Oct (USAGOLD) — Gold has fallen to a new 4-week low at 1728.76 as corrective pressures that emerged last week persist. Essentially gold has returned to the level it was at when Fed chairman Bernanke announced QE3 on 13-Sep. Global growth concerns are ascendent once again, despite massive monetary stimulus from central banks around the world; amid a growing realization that monetary policy is not a panacea.
This is a sentiment reiterated by Bernanke in Tokyo over the weekend: “As I have said many times, however, monetary policy is not a panacea.” And while the Fed is not likely dismayed by softer gold prices, US equities has also retraced all of their QE3 related gains. A weak stock market is a problem for the Fed as the diminished wealth effect that results tends to have negative impact on consumption; and consumption of course is the life blood of the US economy.
What does the Fed do from here? Well, I doubt they throw up their hands and say there’s nothing more they can do. More growth risks and declines in stocks may well lead to an increasing expectation that QE3 will be expanded to include more outright Treasury purchases. We’re arguably too far down the path to turn back now. So the best hope perhaps is that rather than back-track, we find a new path that will ultimately address some of the underlying fiscal problems that are the root causes of the economic malaise that we find ourselves in.
In that vein, Presidential candidate Mitt Romney has pledged to dump Fed chairman Ben Bernanke. The recent narrowing of Presidential race polls, in the wake of Romney’s Denver debate performance, have raised the odds that he just might get that opportunity to sack Bernanke. That uptick in uncertainty is causing some short-term duress in the market.
Make no mistake though, a President Romney would be very unlikely to appoint a true monetary hawk to head the Fed. Instead, he would likely look for someone who would alter course gradually. That would likely mean that even under new leadership, the Fed’s balance sheet would continue to grow for some time, although perhaps at a slower pace.
• US business inventories +0.6% in Aug, near expectations of +0.5%, vs +0.8% in Jul; sales +0.5%.
• Canada existing home sales surprise at +2.5% in Sep, on expectations of -5.0%; -15.1% y/y.
• US Empire State Index rebounded to -6.2 in Oct, below expectations of -5.0, vs -10.4 in Sep.
• US retail sales +1.1% in Sep, above expectations of +0.8%, vs positive revised +1.2% in Aug; ex-auto +1.1%.
• Turkey unemployment rate (nsa) rose to 8.4% in Jul, vs 8.0% in Jun.
• Switzerland PPI +0.3% m/m in Sep, vs +0.5% in Aug; +0.3% y/y.
• China CPI +1.9% y/y in Sep, vs +2.0% y/y in Aug.
• China PPI -3.6% y/y in Sep, vs -3.5% y/y in Aug.
• Japan industrial production (sa) revised down to -1.6% in Aug, vs -1.3% previously.