Why China thinks gold is the buy of the century (. . . In one easy lesson)

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We’ve just released the October issue of USAGOLD’s Review & Outlook.  This Special Report reviews China’s strong interest in gold in light of its massive $4 trillion in foreign exchange reserves.  China is not just a buyer of gold, it is a willing buyer with massive pent-up purchasing power.

To read the details, we invite you to visit this month’s issue.

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The End of Monetary Policy

28-Sep (MauldinEconomics) — The Organization for Economic Cooperation and Development has a marvelous website full of all sorts of useful information. Let’s start by looking at inflation around the world. This table is rather dense and is offered only to give you a taste of what’s available.

What we find out is that inflation is strikingly, almost shockingly, low. It certainly seems so to those of us who came of age in the ’60s and ’70s and who now, in the fullness of time, are watching aghast as stupendous amounts of various currencies are fabricated out of thin air. Seriously, if I had suggested to you back in 2007 that central bank balance sheets would expand by $7-8 trillion in the next half-decade but that inflation would be averaging less than 2%, you would have laughed in my face.

…Gross domestic product around the developed world ranges anywhere from subdued to anemic to outright recessionary:

The G-20 itself is growing at an almost respectable 3%, but when you look at the developed world’s portion of that statistic, the picture gets much worse. The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.

Let’s put those stats in context. We have seen the most massive monetary stimulation of the last 200 years in the developed world, and growth can be best described as faltering. Without the totally serendipitous shale oil revolution in the United States, growth here would be about 1%, or not much ahead of where Europe is today.

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PG View: Mauldin’s insights about deflation, anemic growth and rising debt levels are supported by The Geneva Report that also came out this week. In combination, the two reports should illicit a level of concern among investors that should prompt defensive portfolio adjustments that very-well should include gold.

Posted in Central Banks, Debt, Deflation, Economy, Monetary Policy |

China Aims For Official Gold Reserves At 8500t

29-Sep (BullionStar) — China should accumulate 8,500 tonnes in official gold reserves, more than the US, according to Song Xin, President of the China Gold Association, General Manager of the China National Gold Group Corporation and Party Secretary. He wrote this in an opinion editorial published on Sina Finance July 30, 2014. Gold is money par excellence in all circumstances and will help support the renminbi to become an international currency as “gold forms the very material basis for modern fiat currencies”, Song notes.

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Posted in Gold News, Gold Views |

Mass default looms as world sinks beneath a sea of debt

29-Sep (Telegraph) — As if the fast degenerating geo-political situation isn’t bad enough, here’s another lorry load of concerns to add to the pile.

The UK and US economies may be on the mend at last, but that’s not the pattern elsewhere. On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.

I exaggerate only a little in depicting this apocalyptic view of the future as the conclusion of the latest “Geneva Report”, an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy.

Aptly titled “Deleveraging? What Deleveraging?”, the report points out that, far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further. The raw numbers make explosive reading.

Contrary to widely held assumptions, the world has not yet begun to de-lever. In fact global debt-to-GDP – public and private non financial debt – is still growing, breaking new highs by the month.

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Posted in Debt, Economy |

ZeroHedge: America’s most important housing metro flashing red

30-Sep (HousingWire) — ZeroHedge has long stated that San Francisco is the canary in the American housing coalmine, and after a double round of bad housing news, that canary is looking green around the gills.

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PG View: In this morning’s Case-Shiller housing report, San Francisco was the only city to see a house prices drop in July.

Posted in Economy |

Euro tumbles on ECB easing speculation

30-Sep (Financial Times) — The euro sank to its lowest level against the dollar for more than two years as the latest eurozone inflation data heightened expectations for further easing measures from the European Central Bank.

The single currency dipped below the $1.26 level for the first time since early September 2012 as the figures showed the headline rate of consumer price inflation slipping to a five-year low of 0.3 per cent this month.

Core inflation, which excludes volatile food and energy prices, unexpectedly fell to 0.7 per cent.

“This will clearly be of serious concern to the ECB as it keeps the deflation spectre in sight, especially given current stuttering eurozone economic activity and weak oil prices,” said Howard Archer, chief European economist at IHS Global Insight.

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Posted in Central Banks, Deflation, inflation, Monetary Policy, QE |

The Daily Market Report: Gold Bounces Again From Infront of $1200


30-Sep (USAGOLD) — Gold slipped to another eight-month low at 1204.35, as the euro collapsed to new two-year lows, pushing the dollar index to a four-year high. However, the approach to $1200 sparked renewed buying interest, which pushed the yellow metal up more than $15 intraday.

Eurozone inflation slowed further in September to a mere 0.3% y/y, despite the extraordinary measures already implemented by the ECB. The escalates pressure on the ECB to take that final step and launch its own version of QE. The euro plunged below 1.26 versus the dollar for the first time in more than two-years. Ongoing weakness in the single currency — and the yen as well — has driven the dollar index to a four-year high of 86.21.

That being said, gold is actually holding up pretty well. The following charts put the recent dollar rally in perspective:

The long term trend in the greenback remains clearly negative. The recent rally is more a function of ongoing — and mounting expectations of further — debasement of the euro and yen. One has to wonder how much further our Fed is prepared to let the dollar go before their guidance starts shifting in an effort to take the wind out of the greenback’s sails before the strength adversely impacts the economy.

Perhaps that is already happening, based on the dovish comments of Chicago Fed President Evans yesterday. See yesterday’s DMR.

Additionally, details of the latest Geneva Report came out yesterday:

The 16th annual Geneva Report, commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers, predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash. — Financial Times

The report warns that another global economic crisis may be brewing, as a result of the “poisonous combination” of record debt and slowing growth. The Geneva Report suggests rates will have to stay low for a “very, very long” time. Based on the double adverb, I assume that is longer than the Fed’s official “considerable time” and Evans’ “quite some time”. In fact, the age of easy monetary policy is probably nowhere close to being over, which is pretty clearly illustrated by this tweet from Ambrose Evans-Pritchard:

Easy money. Mounting growth risks. Currency wars. They all make pretty compelling arguments for buying gold at these low prices.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

US consumer confidence sank to 86.0 in Sep, below expectations of 92.3, vs positive revised 93.4 in Aug.

Posted in Economic Data |

US Chicago ISM fell to 60.5 in Sep, below expectations of 62.0, vs 64.3 in Aug.

Posted in Economic Data |

US S&P Case-Shiller Home Price Index (20-cities) +0.6% (nsa) to 173.3 in Jul, vs 172.3 in Jun; +6.7% y/y.

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Eurozone HICP inflation flash estimate dropped to +0.3% y/y in Sep, vs +0.4% in Aug, escalating pressure on ECB to do more. Euro tumbles, pushing dollar higher..

Posted in Economic Data |

Gold lower at 1208.00 (-8.41). Silver 17.22 (-0.264). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.51% (+3 bps).

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Key Inflation Reading Slips Further Below Fed’s 2% Target

29-Sep (The Wall Street Journal) — Consumer prices held flat in August, resulting in a closely watched inflation gauge slipping further below the Federal Reserve’s 2% target.

The price index for personal consumption expenditures—the Fed’s preferred inflation measure—advanced just 1.5% in August from a year earlier, the Commerce Department said Monday. August was the 28th straight month the inflation reading undershot the Fed target.

Excluding volatile food and energy prices, so-called core prices also advanced 1.5% year over year.

The pace of overall price gains decelerated compared with July’s 1.6% pace, while the core price reading held steady for the fourth straight month.

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PG View: Fed tightening expectations are getting nudged back as evidenced by the 10-year yield being back below 2.50%.

Posted in Deflation, inflation |

Geneva Report warns record debt and slow growth point to crisis

28-Sep (Financial Times) — A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday.

The 16th annual Geneva Report, commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers, predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash.

The warning, before the International Monetary Fund’s annual meeting in Washington next week, comes amid growing concern that a weakening global recovery is coinciding with the possibility that the US Federal Reserve will begin to raise interest rates within a year.

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Posted in Central Banks, Economy, Monetary Policy |

The Daily Market Report: Gold Underpinned by Geopolitical Tensions, Dovish FedSpeak


29-Sep (USAGOLD) — Gold is consolidating at the low end of the recent range, weighed by a strong dollar, but supported by mounting geopolitical risks and ongoing uncertainty about the health of global economies. The latter is contributing to uncertainty about central bank policies moving forward.

Democracy protests in Hong Kong grew over the weekend, adding to already heightened geopolitical risks. Protesters and the police clashed and the Chinese government is reportedly concerned that the movement might inspire similar protests elsewhere in the country. The Economist called it “one of the most difficult tests of Chinese rule since Tiananmen.”

With the Chinese economy slowing, civil unrest is the last thing the communist leadership needs right now. This may prompt them to be overly harsh on the Hong King protesters. It also may make them a little more aggressive in efforts to maintain growth above the 7.5% target.

Renewed fighting has broken out between pro-Russian rebels and the Ukrainian military in Donetsk. Nine Ukrainian forces were reported killed in fighting around the Donetsk airport. At least three civilians have apparently been killed as well. While officials continue to say the three-week old ceasefire is holding, in reality, that doesn’t seem to be the case.

Chicago Fed dove Charles Evans gave a speech today, entitled “Is It Time to Return to Business-As-Usual Monetary Policy? A Case for Patience“. His answer to that question is an unequivocal ‘no’. Evans says, “I am very uncomfortable with calls to raise our policy rate sooner than later.”

In a pre-speech interview with Steve Liesman on CNBC, Evans says it will be “quite some time” before the Fed hikes rates. At one point Liesman asks Evans how he justifies “extreme policies” at this time. To which Evans responded “…you have to be kidding me…” before launching into a list of the problems presently facing Europe, Japan and the emerging markets.

I’ve said repeatedly that it strikes me as unlikely that the Fed will raise rates with Europe and Japan moving aggressively in the opposite direction. Mr. Evans seems to agree. That being said, it may be that the markets have overpriced ‘policy-divergence’ and the dollar and gold need to correct.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

QE: New York Fed purchases $2.135 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

A tough test for China’s leaders

29-Sep (Economist) — It is a most unusual sight on Chinese soil, and most unsettling for leaders in Beijing. On September 28th and 29th tens of thousands of demonstrators surrounded government offices and filled major thoroughfares around Hong Kong, braving rounds of tear gas from riot police to call for democracy and demand the resignation of Leung Chun-ying, the territory’s Beijing-backed chief executive. One image broadcast and shared around the world, of a lone protester holding his umbrella aloft in a cloud of tear gas (pictured above), has given the non-violent protests a poetic echo of “tank man” from the crackdown at Tiananmen Square in 1989.

It also captures precisely what Communist Party leaders in Beijing fear from Hong Kong and its special status under the “one country, two systems” arrangement it has enjoyed since the territory’s handover from Britain in 1997. Not only are its people willing (and allowed by law) to challenge their government openly, but they also could become an inspiration for protests elsewhere in China. The spread of news and images of the protests has been blocked or heavily censored on the mainland, but as the protests carry on, so does the risk of contagion. In that sense it marks one of the most difficult tests of Chinese rule since Tiananmen.

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PG View: The rising risk of the unrest spilling over into mainland China may factor into the governments decision to apply further stimulus to the softening economy.

Posted in all posts, Geopolitical Risks |

US NAR pending home sales index -1.0% in Aug to 104.7, below expectations of -0.5% to 105.3, vs negative revised 105.8 in Jul.

Posted in Economic Data |

Gold edges up as shares fall on Hong Kong protests


29-Sep (Reuters) – Gold prices edged up on Monday as political unrest in Hong Kong hit share markets and boosted some investment demand for the metal, while the dollar was trading below a four-year high against a basket of currencies.

Spot gold rose 0.1 percent to $1,220.46 an ounce by 1226 GMT, while U.S. gold futures gained $5.90 to $1,221.30 an ounce. Cash prices had reached a nine-month low of $1,206.85 on Thursday, before recovering slightly.

European equities fell, following a tumble in Asian stocks, after Hong Kong riot police advanced on pro-democracy protesters in the worst unrest since China took over the former British colony two decades ago.

Gold is traditionally seen as an alternative investment during times of political instability.

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Posted in Gold News, Gold Views |

Hong Kong Protests Swell as Riot Police Withdraw

29-Sep (The Wall Street Journal) — Pro-democracy rallies in Hong Kong grew on Monday as newcomers joined protesters across the city, while riot police pulled back after failing to disperse crowds overnight with tear gas and pepper spray.

The protests—centered on Beijing’s decision to impose limits on how Hong Kong elects its leader—took on an air of spontaneity, growing as the day progressed despite the hot sun.

As new protesters joined tired marchers who had battled police the night before, crowds swelled in three important districts in the city—Admiralty, where the rallies began, and the shopping district of Causeway Bay as well as in Mong Kok, another busy area across Victoria Harbour in Kowloon.

Some schools and offices were closed Monday. Still, much of Hong Kong’s business district was operating as normal. As people left work Monday evening, many joined protesters.

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Posted in Geopolitical Risks |

US personal income +0.3% in Aug, in line with expectations, vs +0.2% in Jul; PCE +0.5%, above expectations of +0.4%.

Posted in Economic Data |

Gold steady at 1219.70 (+0.90). Silver 17.53 (-0.10). Dollar firm. Euro lower. Stocks called lower. US 10yr 2.50% (-3 bps).

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The most important chart about the American economy you’ll see this year

26-Sep (Vox) — Pavlina Tcherneva’s chart showing the distribution of income gains during periods of economic expansion is burning up the economics internet over the past 24 hours and for good reason. The trend it depicts is shocking:

For a long time, most of the gains from economic growth went to the bottom 90 percent of the income distribution. And, after all, the bottom 90 percent includes the vast majority of people. Since 1980, that hasn’t been the case. And for the first several years of the current expansion, the bottom 90 percent saw inflation-adjusted incomes continue to fall.

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Posted in Economy |

U.S. Dollar Strength Not Likely to Dampen Inflation Much

26-Sep (The Wall Street Journal) — A recent spike in the U.S. dollar is unlikely to put sufficient downward pressure on import prices to have a significant negative effect on inflation, according to researchers at the Federal Reserve Bank of Cleveland.

The U.S. dollar has been on a tear, hitting a four-year high against a basket of major currencies Thursday amid mounting expectations the Federal Reserve will raise interest rates next year while its counterparts in Europe and Japan consider further measures to raise inflation and spur growth.

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Posted in inflation, U.S. Dollar |

A Vivid Glimpse of the Fed’s Cozy Relationship With Goldman

26-Sep (Bloomberg) — “The Ray Rice video for the financial sector has arrived,” Michael Lewis declared in a column on Bloomberg View this morning. He’s referring to new recordings reported by ProPublica’s Jake Bernstein that take a look at how bank supervisors soft-pedaled their oversight of Goldman Sachs. The audio recordings were made by Carmen Segarra, a former examiner with the New York Fed who was detailed to the team supervising Goldman in 2011 and 2012. The story, which is also the subject of a full episode of This American Life that airs today, provides an unprecedented look into how bank examiners—the front lines in ensuring the safety and soundness of the financial system—at times defer to the banks they are supposed to oversee.

When Segarra felt her aggressive stance towards the bank was getting her into trouble with her bosses, she bought a tiny audio recorder and began taping her meetings. All told, she caught about 46 hours on her recordings. These two examples of what the recording, made in internal meetings and when the Fed interacted directly with Goldman, show what happens when Fed supervisors try to push back on the bank.

Conflicts of interest: The story says that over the course of many months, Segarra determined that Goldman had no formal documents that would come close to what the Fed considered to be a conflicts of interest policy. In a recording, she asks a Goldman executive whether the bank has a written “definition of a conflict of interest, what that is and what that means.” The executive responded, “No.”

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Posted in Central Banks |

The Secret Goldman Sachs Tapes


By Michael Lewis
26-Sep (Bloomberg) — Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street’s regulators are people who are paid by Wall Street to accept Wall Street’s explanations of itself, and who have little ability to defend themselves from those explanations.

Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn’t pay it much attention.

That may very well change today, for today — Friday, Sept. 26 — the radio program “This American Life” will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.

You sort of knew that the regulators were more or less controlled by the banks. Now you know.

[source]

Posted in Central Banks |

University of Michigan sentiment (final) unrevised at 84.6 in Sep, in-line with expectations, vs 84.6 previously and 82.5 in Aug.

Posted in Economic Data |

Global Anxiety Roils Markets

26-Sep (The Wall Street Journal) — Money managers began issuing the warnings late last year: Financial markets would be more volatile in 2014 than in 2013. They were right.

After posting sharp but limited declines in January, April and July, the Dow Jones Industrial Average on Thursday fell 264.26 points, or 1.5%, to 16945.80, its largest one-day point and percentage decline since July 31. It was the third day of declines this week, but because the Dow hit a record last Friday, it still is only 1.9% off that record. Other major indexes also declined, and stocks fell in early trading Friday in Asia.

Traders and money managers blamed the same things that have roiled markets before: high stock prices, the uncertain global economy and international conflicts.

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Posted in Economy |

Gold Heads for First Weekly Increase This Month

26-Sep (Bloomberg) — Gold headed for the first weekly advance this month as a retreat in global equities and tensions in the Middle East boosted demand for a protection of wealth, countering expectations for higher U.S. borrowing costs.

Bullion for immediate delivery rose as much as 0.6 percent to $1,228.51 an ounce, before trading at $1,225.78 at 2:28 p.m. in Singapore, extending yesterday’s 0.4 percent advance, according to Bloomberg generic pricing. The metal is 0.8 percent higher this week, rebounding from a drop on Sept. 22 to $1,208.40, the lowest since Jan. 2.

Gold remains on course for the first quarterly loss this year as the Bloomberg Dollar Spot Index climbed to a four-year high. A report today may show the U.S. economy grew more than previously estimated after data yesterday showed jobless claims rose less than forecast. Saudi Arabia, Jordan, Bahrain, Qatar and the United Arab Emirates joined the first wave of U.S.-led airstrikes against Islamic State militants in Syria this week.

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Posted in Gold News, Gold Views |

Economics Enigma: How Slow is China Willing to Grow?

26-Sep (The Wall Street Journal) — As China considers a change of guard at its central bank, Chinese leaders face a larger question: Are they willing to tolerate slower economic growth? As the WSJ’s Lingling Wei reports:

Top-level discussions about the possible departure of Zhou Xiaochuan, the long-serving governor of the People’s Bank of China and a strong advocate for market-oriented reforms, come as the likelihood is rising that the world’s No. 2 economy may fall short of the government’s annual economic growth target, 7.5% for 2014, for the first time since the Asian financial crisis of 1998.

Many economists say Beijing may have to resort to more big-bang measures—such as a blanket interest-rate cut that, according to central bank advisers, has been fended off by Mr. Zhou—to rev up economic activity.

Those moves, however, would mean Beijing returning to its old handbook of putting a priority on stoking growth. The emphasis on growth might exacerbate already high levels of debt and delay reforms leaders say they want to put the economy on a more sustainable path.

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Posted in Central Banks, Economy, Monetary Policy |