Category Archives: U.S. Dollar

Should Investors Prepare for a Dollar Doomsday?

08-Apr (Bloomberg) — James Rickards, managing director at Tangent Capital Partners and author of “The Death of Money,” explains his view of a coming collapse for the U.S. dollar and the role confidence plays in supporting the currency on Bloomberg Television’s “Market Makers.”

“Money is a perpetual, non-interest bearing liability issued by an insolvent central bank.”

[video]

PG View: Rickards is always a great interview. He remains steadfast in advocating that gold should be a part of every investor’s portfolio.

Posted in Central Banks, Gold Views, U.S. Dollar |

Russia prepares to attack the petrodollar

04-Apr (Voice of Russia) — The US dollar’s position as the base currency for global energy trading gives the US a number of unfair advantages. It seems that Moscow is ready to take those advantages away.

The existence of “petrodollars” is one of the pillars of America’s economic might because it creates a significant external demand for American currency, allowing the US to accumulate enormous debts without defaulting. If a Japanese buyer want to buy a barrel of Saudi oil, he has to pay in dollars even if no American oil company ever touches the said barrel. Dollar has held a dominant position in global trading for such a long time that even Gazprom’s natural gas contracts for Europe are priced and paid for in US dollars. Until recently, a significant part of EU-China trade had been priced in dollars.

Lately, China has led the BRICS efforts to dislodge the dollar from its position as the main global currency, but the “sanctions war” between Washington and Moscow gave an impetus to the long-awaited scheme to launch the petroruble and switch all Russian energy exports away from the US currency .

[source]

PG View: Efforts to terminate the “exorbitant privilege” afforded the U.S. because of the reserve status of the dollar seem to be escalating.

Posted in U.S. Dollar |

Things That Make You Go Hmmm…: Fight Club

by Grant Williams
01-Apr (Mauldin Economics) — Sometimes the sand shifts beneath your feet without your realizing it. Other times you can see it happening.

…Countries are maneuvering for a place in the post-US-dollar world they see rushing towards them as US hegemony comes under increasing pressure, both from inside its borders (it has the largest deficit in world economic history) and abroad (major powers are aligning with the explicit purpose of reducing dependence on the increasingly shaky US dollar).

Make no mistake: should the Chinese ever announce some kind of commodity-backed currency (and that commodity would most likely be gold), or should the GoP announce a central peg of their own around which they could (and would) all trade, they would supplant the dollar as the world’s reserve currency, and it would be game over for the US.

Nothing would please Russia more, and China would shed not a tear.

…How this plays out is anybody’s guess right now, but this much I know: one should NEVER underestimate the ability of the average Russian to bear hardship, nor should one ever underestimate the West’s lack of fortitude once any situation becomes politically unpalatable.

I also know that everywhere you look around the world, electorates are just itching to vote for change and to hand power to new parties and new leaders, many of which are extreme in nature and possess the ability to seriously upset the status quo.

What else do I know? Well, I know that neither Russia nor China feels the US’s place at the top of the food chain is either justified or indefinitely sustainable, and they both smell weakness.

[source]

Posted in Geopolitical Risks, Gold Views, U.S. Dollar |

Euro heads for worst week in 16 months on ECB bets

01-Nov (Reuters) — The euro fell for a fifth day against the dollar on Friday, heading for its biggest weekly loss in 16 months, on growing expectations the European Central Bank will ease monetary policy further to protect growth.

More losses are likely as traders said the single currency’s climb in recent months was overdone. The euro hit a 23-month high above $1.38 last Friday, a gain of more than 8 percent from early July.

Plunging euro zone inflation is raising the specter of deflation in some areas and fueling bets the ECB will be forced to ease monetary policy in coming months. A rate cut will erode the euro’s interest rate advantage over other major currencies.

[source]

Posted in Central Banks, Monetary Policy, U.S. Dollar |

Euro on the ropes after dive in inflation

01-Nov (Reuters) — The euro tumbled to a two-week low on Friday after a plunge in euro zone inflation left markets suddenly eyeing the outside chance of a cut in interest rates by the European Central Bank next week.

…After its biggest fall in six months in the previous session, the euro fell to $1.3530, on course for a fall over the course of the week of two percent.

“It is clear that there has been a major sentiment change on the euro,” said John Hardy, head of FX strategy at Saxo bank in Copenhagen.

“The ECB’s single mandate has always been on inflation so this gives Draghi and co further reason to do something at next week’s meeting. We see considerable further downside. The likes of euro/dollar back into the old range, down towards $1.30.”

[source]

PG View: I would suggest that the recent gains in the greenback are less a function of actual dollar strength, and more a function of renewed euro weakness amid heightened easing expectations.

Posted in Currency Wars, Deflation, inflation, U.S. Dollar |

Dollar edges up but stays close to nine-month low on Fed view

28-Oct (Reuters) — The dollar edged higher on Monday but held close to a nine-month low against a basket of currencies, with most investors convinced that the Federal Reserve will maintain its ultra-loose monetary policy this week and in the months ahead.

The Federal Open Market Committee, the Fed’s policy-making arm, is unlikely to make any shift to policy at its meeting on Tuesday and Wednesday as the Fed awaits more evidence of how badly Washington’s budget battle has hurt the U.S. economy.

Many economists believe the Fed could stand pat for the rest of the year. Most expect the central bank not to begin withdrawing its $85 billion per month bond buying program until March 2014.

“It may turn out that a neutral FOMC is a green light to keep selling the dollar until November headline data begin appearing in early December, but as we note above there is already a lot of dovishness priced in,” said Steven Englander, global head of foreign exchange strategy at CitiFX, a division of Citigroup in New York.

[source]

Posted in Central Banks, Monetary Policy, QE, U.S. Dollar |

China is now overtly pushing for the US dollar to be replaced as the world’s reserve currency

by Alasdair Macleod
21-Oct (ZeroHedge) — Xinhua, China’s official press agency on Sunday ran an op-ed article which kicked off as follows:

“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”

China does have a broad strategy to prepare for this event. She is encouraging the creation of an international market in her own currency through the twin centres of Hong Kong and London, side-lining New York, and she is actively promoting through the Shanghai Cooperation Organisation (SCO) non-dollar trade settlement across the whole of Asia. She has also been covertly building her gold reserves while overtly encouraging her citizens to accumulate gold as well.

There can be little doubt from these actions that China is preparing herself for the demise of the dollar, at least as the world’s reserve currency. Central to insuring herself and her citizens against this outcome is gold. China has invested heavily in domestic mine production and is now the largest producer at an estimated 440 tonnes annually, and she is also looking to buy up gold mines elsewhere. Little or none of the domestically mined gold is seen in the market, so it is a reasonable assumption the Government is quietly accumulating all her own production without it becoming publicly available.

…The West selling its stocks of gold has become the biggest strategic gamble in financial history. We are committing ourselves entirely to fiat currencies, which our central banks are now having to issue in accelerating quantities. In the process China and Russia have been handed ultimate economic power on a plate.

[source]

PG View: If you personally are disinclined to commit yourself entirely to fiat currency, now is the time to get some gold…

Posted in Gold News, Gold Views, international reserves, U.S. Dollar |

Japanese Money-Pumping Spells Worthless Yen, Says Axel Merk

24-Jul (Bloomberg) — The yen will extend its world’s worst performance among major currencies this year as a reinforced Japanese government continues pumping cash into the economy, according to Axel Merk of Merk Investment LLC.

“Our price target for the yen is infinity, meaning we think the yen is going to be worthless down the road,” Merk, president and founder of the Mountain View, California-based company, said today in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “They’re going to try to pump as much money into the economy as possible and at some point they’re going to break their own neck with that.”

[source]

Posted in Currency Wars, U.S. Dollar |

About That Supposed Correlation Of The U.S. Dollar And Gold…

08-Jul (ZeroHedge) — One of the most widely accepted truisms in what passes for our financial media is that the dollar and gold are correlated: when the dollar weakens, gold rises, and when gold rises, the dollar declines.

Nice, except this vaunted correlation isn’t remotely visible in the charts.

…the peaks and troughs do not align–not even close.

…The supposedly inversely correlated DXY and GLD have risen in tandem for several significant stretches of time.

[source]

Posted in Gold News, Gold Views, U.S. Dollar |

Dollar shines after Fed signals stimulus withdrawal

20-Jun (Reuters) — The dollar rose broadly on Thursday and was poised for further gains after the Federal Reserve signaled it would begin withdrawing stimulus this year as the U.S. economy improves.

Chairman Ben Bernanke said the Fed was likely to end its bond-buying program by the middle of 2014, prompting traders to reestablish bets on a higher dollar.

Analysts also said the dollar’s resurgence could put an end to the recent resilience of the euro, potentially pushing it below $1.30 as markets become wary about the prospect of lower European Central Bank interest rates.

[source]

Posted in Central Banks, Monetary Policy, QE, U.S. Dollar |

Indian Rupee Hits Record Low

10-Jun (New York Times) — The rupee fell to a new low against the dollar on Monday, hitting 58 rupees per dollar at one point. The previous low was recorded in June 2012 at 57.33 rupees for a dollar.

While the sharp fall in the rupee was caused mainly by the strength in the United States currency, experts say that India was particularly affected because of its widening current account deficit, brought about by huge imports of crude oil and gold over the past year.

[source]

Posted in U.S. Dollar |

Dollar Falls Against Euro Amid Fed Stimulus Bets; Franc Weakens

21-May (Bloomberg) — The dollar fell against the euro for a second day as comments from Federal Reserve policy makers fueled speculation Chairman Ben S. Bernanke will tell Congress tomorrow the pace of monetary stimulus should be maintained.

The greenback pared gains versus Japan’s currency after St. Louis Fed President James Bullard said the central bank should keep buying bonds under quantitative easing. New York Fed President William Dudley said policy makers had previously been overly optimistic about economic growth. The yen fell earlier as Japanese Economy Minister Akira Amari backed away from weekend comments that prompted it to rally. The Swiss franc weakened.

[source]

Posted in Central Banks, Monetary Policy, QE, U.S. Dollar |

Dollar Falls as Risk Appetite Increases Amid Central-Bank Bets


11-Apr (Bloomberg) — The dollar weakened against the majority of its most-traded peers as investors bet that central banks around the world will maintain stimulus measures, bolstering demand for higher-yielding assets.

The yen halted a decline versus the U.S. currency that took it to within 0.2 percent of 100 per dollar as data showed Japanese investors sold foreign bonds. The New Zealand dollar strengthened to the most since August 2011. The euro rose to the strongest level in six weeks versus the dollar as Italian borrowing costs fell at an auction.

“It’s more central-bank liquidity; I don’t think the macro has changed from yesterday,” Fabian Eliasson, vice president of corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York, said in a telephone interview of the dollar’s decline.

[source]

Posted in U.S. Dollar |

$100 bills are becoming one of America’s leading exports


09-Apr (Washington Post) — Cash is very far from dead. A new report (pdf) out from the Federal Reserve Bank of San Francisco finds that the amount of U.S. currency in circulation has been soaring in recent years:

But, writes SF Fed President John C. Williams, there’s a bit of a paradox here. The amount of dollars in circulation is at an all-time high. But cash transactions have actually been shrinking as a portion of the U.S. economy in recent years. That’s a bit odd. What are people doing with all these dollars if not spending it? Stuffing them in mattresses?

As it turns out, the vast majority of those dollars are going abroad. Over at Economix, Bruce Bartlett points out that by far the biggest growth in cash in circulation has come from $100 bills. And about two-thirds of those $100 bills are going overseas. Many are no doubt used for black-market purchases and other illegal transactions. But many are simply held onto as savings, particularly in volatile nations like Cyprus or Greece.

[source]

PG View: A dollar might be better than a euro in some minds, but gold is probably the better choice if you’re looking to preserve wealth.

Posted in U.S. Dollar |

Dollar strengthened by speculation Fed could change course

11-Mar (Reuters) — The dollar held near a 3-1/2-year high against the yen and was little changed against the euro on Monday after last week’s stronger-than-expected U.S. jobs growth fueled speculation the Federal Reserve could back off its ultra-loose monetary policy sooner than anticipated.

The possibility that the Fed could rein in stimulus measures after the government on Friday reported surprisingly strong job gains in February and a fall in the jobless rate to a four-year low is likely to keep the dollar buoyant for now.

[source]

Posted in Central Banks, Monetary Policy, QE, U.S. Dollar |

US Dollar Outperforms in Best Month Since May on Budget Cut

01-Mar (Bloomberg) — The dollar led gains in world markets last month, beating global measures of bonds, stocks and commodities, as the threat of U.S. budget cuts proved no barrier to investors snapping up American assets.

Intercontinental Exchange Inc.’s Dollar Index (DXY), which tracks the currency against those of six major U.S. trading partners, climbed 3.5 percent in February, ending a two-month decline. Global fixed-income assets rose 0.6 percent, including reinvested interest, Bank of America Merrill Lynch indexes show. The MSCI All-Country World Index of stocks added less than 0.1 percent after dividends. The Standard & Poor’s GSCI Total Return Index of metals, fuels and agricultural products slid 4.4 percent, its biggest retreat since May.

The dollar’s advance underscores how investors are backing the world’s biggest economy to weather the effects of the spending reductions, known as sequestration, that take effect today. While the non-partisan Congressional Budget Office said the cuts will wipe 0.6 percent off U.S. growth this year, home sales, consumer confidence and employment are improving at the same time that the Federal Reserve vows to continue its unprecedented support.

“Even if the U.S. isn’t growing rapidly, it’s still looking more robust than others, including the euro area, the U.K. and Japan,” Alan Ruskin, global head of G-10 foreign- exchange strategy at Deutsche Bank AG in New York, said Feb. 25 in a telephone interview. “Pretty much everywhere in the G-10 is looking soft on a relative basis.”

[source]

Posted in U.S. Dollar |

No Way Fed Will Stop Easing: Jim Rickards

25-Feb (KitcoNews) — An excellent interview with James Rickards, the Senior Managing Director at Tangent Capital Partners and the author of Currency Wars: The Making of the Next Global Crisis.

Rickards reminds us of the Fed’s desire to devalue the dollar. He dissects the nuances of the latest FedSpeek, noting that the doves remain firmly in charge of the FOMC. The Fed is “nowhere close to tightening,” says Rickards.

With that in mind, further dollar losses are likely and that bodes well for gold. Rickards goes on to warn that eventually there will be a “generalized loss of confidence in the dollar and all paper currencies.”

[video]

Posted in Gold Views, Monetary Policy, QE, U.S. Dollar |

Threat of Currency War Looms Over The Alps

22-Jan (The Wall Street Journal) — As financial heavyweights head to Davos for their annual alpine conclave, they might have expected some solace from the world’s markets, which are in much better shape than they were this time last year. Instead it seems they’ll be worrying about the possibility of currency wars.

Some have already started. Bank of England Governor Mervyn King told the Economic Club of New York in December that 2013 could be marked by widespread competitive devaluation, or “actively managed exchange rates” as he put it with central-banker nuance. In short he feared that national leaders would seek to boost their country’s economic growth by weakening its currency.

This gloomy prognosis already seems prescient. By Jan. 16 the deputy head of Russia’s central bank Alexei Ulyukayev felt moved to warn that we are now “on the verge of very serious and confrontational actions in the sphere, which is, not to get too emotional, called ‘currency wars’.” Not much nuance there.

…In Europe, Bundesbank President Jens Weidmann warned Japan Monday not to “politicize” the exchange rate with aggressive policy, reflecting mounting concern in Europe that Tokyo won’t be alone in doing exactly that.

[source]

Posted in Monetary Policy, QE, U.S. Dollar |

Russia Says World Is Nearing Currency War as Europe Joins

16-Jan (Bloomberg) — The world is on the brink of a fresh “currency war,” Russia warned, as European policy makers joined Japan in bemoaning the economic cost of rising exchange rates.

“Japan is weakening the yen and other countries may follow,” Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said at a conference today in Moscow.
Enlarge image Russia Says World Is Nearing Currency War as Europe Joins Battle

The push for weaker currencies is being driven by a need to find new sources of economic growth as monetary and fiscal policies run out of room. The risk is as each country tries to boost exports, it hurts the competitiveness of other economies and provokes retaliation.

[source]

Posted in Monetary Policy, QE, U.S. Dollar |

Dollar drops most since September after ECB

10-Jan (MarketWatch) — The dollar dropped Thursday, pushing the euro up by the most since September, after comments by the chief of the European Central Bank lowered expectations that an interest-rate cut will be forthcoming soon.

The ICE dollar index, which measures the greenback against a basket of six major currencies, fell to 79.916 from 80.514 late Wednesday.

The euro EURUSD +1.50% rallied to $1.3216, up from $1.3065.

Against the Japanese yen, the shared currency hit its highest level since last summer, buying ¥116.54, up from ¥114.78 late Wednesday.

…“It is clear that the Japanese authorities have a fresh determinism to weaken the Japanese yen,” said strategist Mitul Kotecha at Credit Agricole.

[source]

Posted in U.S. Dollar |

Prepare for zero real growth in the U.S. in 2013

03-Jan (MarketWatch) — The fiscal-cliff deal — the tax half of the deal anyway — is now past us, and the reflation trade continues along. However, what we now see, which the very scary Paul Farrell pointed out this week, is a number of very strong headwinds developing for 2013 and 2014. Farrell is primarily looking for the Black Swan, which is the in vogue thing to do since 2008, but there are much more evident storms coming to eventually find shelter from.

Not among the headwinds is the trillion new dollars coming out of the Fed this year. The Fed has committed to buying back debt of about $85 billion a month for the duration of the year and will almost certainly continue to do so at some level into at least 2014. That flow of money is strong and is largely responsible for tempering the effects of the demographic depression which has flattened aggregate demand.

Consider that right now the Mississippi River is low on water due to drought and environmental factors. Now imagine that there was a giant faucet at the north end of the mighty river that could be turned on to raise the water level. The Fed is that faucet for the American economy. The Fed is a pump that is connected to the world’s biggest money aquifer — the reserve currency.

The Fed pump is not inexhaustible, however. At some point, if the pump runs too long, bad things can happen.

[source]

Posted in Debt, Economy, Fiscal Cliff, Monetary Policy, QE, U.S. Dollar |

BoE’s King warns of growing currency competition

10-Dec (Reuters) — The head of the Bank of England warned on Monday that too many countries were trying to weaken their currencies to offset the impact of the slow global economy and the trend could grow next year.

“You can see, month by month, the addition to the number of countries who feel that active exchange rate management, always to push their exchange rate down, is growing,” Mervyn King said in a speech.

“My concern is that in 2013, what we will see is the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy,” he told the Economic Club of New York. King did not identify any countries.

[source]

Posted in U.S. Dollar |

The Fed Will Keep Printing Until the Dollar Gets Weaker: Jim Rickards

21-Nov (YahooFinance) — When it was released a year ago this month, James Rickards’ Currency Wars: The Making of the Next Global Crisis was widely hailed and quickly adopted as a guidebook of sorts for economic conservatives, Fed critics and gold bugs — especially gold bugs given Rickards’ support for a return to the gold standard.

Since the book’s release, the Federal Reserve has tripled-down on its policy of quantitative easing, effectively pledging to keep rates at zero indefinitely — or until the job market dramatically improves. Nevertheless, predictions of the dollar’s demise have proven unwarranted, or certainly premature. Among other issues, concerns about Europe’s debt crisis have driven global investors into the greenback, rather than fleeing from it as Rickards (among others) predicts.

[source]

Posted in Monetary Policy, QE, U.S. Dollar |

Chinese currency plays complex, crucial role in U.S. economy

29-Oct (Chicago Sun Times) — The Chinese currency has taken center stage in some of the economic policy debates leading up to the election. That is because of the perception that China is the source of all our jobs woes as their economy continues to grow at a rate four times as fast as ours. The theory is that by keeping their currency artificially “cheap” against the dollar, it encourages America to import more goods from China — while encouraging job growth there to make all those products.

But this discussion of the Chinese currency leads to some interesting revelations of our general ignorance about Chinese currency, and our trading relationship…

… Both political parties have been critical of Chinese currency policies, which have facilitated cheap imports into the United States, and which subsidize manufacturing in China. Early in the Obama administration, there were strident calls to “do something” about the weak Chinese currency. And now Mitt Romney has said he would label China as a “currency manipulator” and act to raise tariffs on imports of Chinese goods into America.

It is ironic that these calls would come just as the RMB is growing stronger against the U.S. dollar. But it is even more ironic that both parties seem to be demonizing China in this election. After all, many of the dollars we send to China are used by their central bank to buy U.S. Treasury securities — helping us to fund America’s budget deficits at low-interest rates.

In fact, China now owns roughly $1 trillion of our $16 trillion national debt. If they stopped buying — or didn’t earn the dollars that they use to buy our debt — the United States might have to attract other buyers of our debt by raising our interest rates.

[source]

PG View: For better or worse, we seem to have a ready and willing buyer of the Federal debt in our own central bank…

Posted in Monetary Policy, QE, U.S. Dollar |

The Daily Market Report

The Dollar Index and Gold


The dollar index has probed above the 80.00 level today as weak corporate earning, continued uncertainty surrounding the eurozone debt crisis and persistent global growth concerns prompt renewed risk aversion. The 80 level in the DX seems hauntingly familiar. In fact, it pretty much defines the midpoint (actually 80.20) of the range that has dominated since the index initially fell below 80.00 back in September of 2007. Since then, the dollar has passed back and forth across this level many times.

Coming off its 2001 peak at 121.00, the DX actually first approached 80.00 in December of 2004, when it established a temporary bottom at 80.39. Arguably the dollar (as measured by the dollar index) is effectively “unchanged” over the past seven years.

Noting how the financial press is very quick to attribute price fluctuations in gold to the rise and fall of the dollar, my colleague Jonathan Kosares posed the following question in our October newsletter: “If the dollar index is so important to predicting and explaining the value of gold, then how does one explain that seven years after hitting the low of 80.77 (close), the dollar index is still trading in the same range – just above 80 today – yet gold has quadrupled?”

Falling back on the perceived inverse correlation between the dollar and gold is easy to do. As I write about the gold market every day, I have done it many times myself. If you look at this daily chart of the dollar index, with the gold price overlayed, you can see why:

Chart by NetDania

However, it’s always worthwhile to take a step back and re-familiarize ones-self with the longer-term perspective. The monthly chart drives home Jonathan’s point pretty effectively; gold’s secular bull market commenced in the midst of a dramatic rally in the dollar index from the late-90s through the early-00s.

Chart by NetDania

After the dollar index peaked, it lost a third of its value over the course of about three-years. The corresponding correction in gold was less than 20%, at which point the yellow metal rebounded, while the dollar resumed its fall. From its high in 2001 at 121.00 to its low in 2008 at 70.79, the DX plunged 41.5%.

During the worst days of the financial crisis, we saw the DX and gold become correlated as investors delevered and sought safety both in gold and the greenback. While gold went on to establish a series of new all-time highs, ultimately reaching $1920.74 a little more than a year ago, the dollar index recovered less than a third of the losses realized in the preceding years before coming under renewed pressure.

During the more recent consolidative phase the two markets have been inversely correlated. Nonetheless, Kosares goes on to suggest that “the long accepted inverse correlation between the dollar index and the gold market is flawed and needs to be abandoned. Not just because it fails to explain the last seven years of gold’s performance, but it stands to only become more irrelevant, and even potentially misleading, moving forward.”

What’s important to remember, is that the DX is a measure of the value of the dollar relative to other major currencies. The zero interest rate policies, competitive currency devaluations and interventions of the last several years have forced down the values of many currencies simultaneously. In that context, it’s not surprising that the dollar is at best treading water in a draining pool. “Race to the bottom” is a phrase bandied about by many that have made note of the escalating currency wars.

What’s truly significant from a consumer’s perspective is that the purchasing power of the dollar has eroded significantly against the things most families spend their money on, seemingly in conflict with the perceived stability of the dollar.

On average, the items charted above are 45% more expensive than they were in January 2005, with gasoline costing double. I would expect the FOMC to reiterate today that “inflation has been subdued,” although anyone who goes to the grocery store or drives would likely beg to differ.

The takeaway here is: Don’t be deceived by the relative “stability” of the dollar index, nor the notion that inflation is subdued. The gold market is trying to tell us something; in fact, many things. And one of them is that there are indeed price risks percolating just below the surface of this subdued economy. Gold is a critical component in a well diversified portfolio, that can truly shine in an inflationary environment.

Posted in Daily Market Report, Gold News, Gold Views, inflation, U.S. Dollar |

Yen falls on intervention speculation

15-Oct (Financial Times) — The yen continued to fall against the US dollar amid speculation among currency traders that Tokyo could intervene to weaken the Japanese currency.

It fell against all other major currencies following warnings from Japanese officials at the International Monetary Fund’s annual meeting in Tokyo last week that the strength of the yen was a serious problem for the economy.

[source]

Posted in U.S. Dollar |

Are the Central Bank Vaults Empty?

08-Oct (GoldSeek) — Is it possible that the vaults of the world’s central banks, believed to be stacked with gold bullion, are really empty? Is all the gold actually there?

Something about the numbers doesn’t seem to add up.

The importance of the question accelerates in the face of global money-printing, which is also accelerating. Since the start of the economic meltdown five years ago, the balance sheets of the world’s central banks have been growing at a frantic pace.

The U.K. has led the pack, up 362%, followed by the United States, which is up 223% – even before QE III. China is printing money as well, up 151% during the period, the European Central Bank, 146%, and Japan, 83%.

But take heart, because while the currencies of all those countries are absolutely, 100% fiat – redeemable in nothing but more of the same paper – the world’s central banks are said to have huge reserves of gold bullion. The U.S., U.K., the euro zone, Switzerland, Japan and the International Monetary Fund report having gold reserves of 23,349 tons among them.

…At this point, Eric Sprott, of the estimable Sprott Asset Management, enters the discussion, asking some inconvenient questions. Because something about the gold numbers – supply and demand – doesn’t seem to add up.

[source]

Posted in Gold News, Gold Views, international reserves, U.S. Dollar |

Active Central Banks Crush Currency Volatility


08-Oct (The Wall Street Journal) — Currency options prices, a barometer of expected volatility, have plummeted to prefinancial-crisis levels, in response to heavy stimulus measures by central banks around the world.

The potentially unlimited Federal Reserve quantitative easing and European Central Bank bond buying have created a one-way flow in key fixed-income markets, which in turn has made currency trends more predictable and eased volatility. Euro options, for example, are down 66% from their peak in December 2008, according to J.P. Morgan, JPM -0.40% as a tide of easy money from the world’s top central banks has calmed anxiety in the market.

The new environment is a dramatic shift from the last four years, when fallout from the U.S. subprime crisis and Europe’s sovereign-debt problems prompted investors to keep options in high demand. With volatility now broadly held in check by central-bank policies, analysts say any jump in instability caused by economic and political events may be more short-lived.

[source]

Posted in Monetary Policy, QE, U.S. Dollar |

The Daily Market Report

Asia Slowdown Portends More Stimulus


08-Oct (USAGOLD) — Gold is defensive at the start of the week, as mounting global growth concerns lead to risk aversion and a rebound in the dollar. Trading is expected to be thin during US hours today, due to the Columbus Day holiday.

The World Bank lowered its outlook on Asia, citing the “considerable risks” to export demand posed by the eurozone debt crisis and the looming US fiscal cliff. The World Bank now expects 7.2% growth in the region for this year, down from 7.6% forecast in May. That revised estimate is an 11-year low. The bank’s 2013 projection was lowered to 7.6%, from 8.0%.

The Asian Development Bank comes up with an even weaker assessment of Asia, although it take a broader look at the region than the World Bank. The ADB is calling for just 6.1% growth in 2012 and 6.7% next year.

The Brookings Institution-Financial Times Tiger (Tracking Indices for the Global Economic Recovery) index reveals waning global economic momentum as well. The FT also reports that the IMF will cut their global growth forecast to 3.3% for 2012, and 3.6% for 2013 on Tuesday.

In a weekend FT article, Professor Eswar Prasad of the Brookings Institution, said: “The global economic recovery is on the ropes, battered by political conflicts within and across countries, lack of decisive policy actions, and governments’ inability to tackle deep-seated problems such as unsustainable public finances that are stifling growth.”

When Professor Prasad speaks of a “lack of decisive policy actions,” I presume that he’s speaking of fiscal policy actions, because the monetary policy actions of global central banks have been nothing short of mind-blowing.

Chart by Also Sprach Analyst

Given the unprecedented monetary policy response over the last several years, what’s really astounding (or perhaps not…) is the absence of results on the growth front. Of course, the king of expansive monetary policy by the ‘percentage of GDP’ metric is China, as this second chart by Also Sprach Analyst clearly shows. However, interestingly the PBoC’s balance sheet has been shrinking at an accelerating pace lately.

Chart by Also Sprach Analyst

The World Bank assessment suggests that there is room for additional fiscal stimulus in Asia, and the PBoC hinted at as much over the summer. However, make no mistake, if Chinese manufacturing and exports continue to slow to the point where unemployment starts getting uncomfortably high, the PBoC would likely have a monetary policy response as well.

Such a response, on top of all the other global of stimulus — both monetary and fiscal — should continue to underpin the gold market. While recent tests of the upside have faltered ahead of $1800, corrections should continue to be shallow and short-lived do to robust investment and central bank demand.

It’s also worth noting the rebound of the gold/silver ratio above 52.00, following a number of unsustained probes below 51.00. I suggested in commentary on 26-Sep that the ratio seemed to be trying to bottom and there was potential for a rebound to the 54.00 level. Today’s gains make me more confident in that call and naturally the significant rise in growth risks would indeed tend to have a more negative impact on a more industrial metal like silver, relative to a more monetary asset such as gold.

Posted in all posts, Daily Market Report, Debt, Economy, European Debt Crisis, Fiscal Cliff, Gold News, Gold Views, Monetary Policy, U.S. Dollar |

The Federal Reserve and the Currency Wars

02-Oct (Project Syndicate) — The United States Federal Reserve’s recent decision to launch a third round of “quantitative easing” has revived accusations by Brazil’s finance minister, Guido Mantega, that the US has unleashed a “currency war.” In emerging-market countries that are already struggling with the impact of rapid currency appreciation on their competitiveness, expansionary measures announced in recent weeks by the European Central Bank and the Bank of Japan have heightened the sense of alarm at the Fed’s decision.

My sense is that both sides are right. The Fed was right to adopt new expansionary monetary measures in the face of a weak US recovery. Furthermore, tying it to improvements in the labor market was a particularly important step – one that other central banks, especially the ECB, should follow.

Of course, monetary expansion should be accompanied by a less contractionary fiscal stance in industrial countries. But the advanced economies’ room for fiscal maneuver is more limited than it was in 2007-2008, and America’s political gridlock has deepened, all but ruling out further stimulus through budgetary channels. Although the effectiveness of a new round of quantitative easing will be limited, as Mantega argues, the Fed had no choice but to act.

But Mantega is also right. Given the role of the US dollar as the dominant global currency, the Fed’s expansionary monetary policy generates significant externalities for the rest of the world – effects that the Fed is certainly not taking into account.

[source]

Posted in Monetary Policy, QE, U.S. Dollar |