Debt-to-GDP and Misdiagnosing a Bubble Economy’s Ills. Guest Post by Tim Iacono

A few economists seem to be catching on, but not nearly enough…

About a year ago, St. Louis Fed President James Bullard wondered whether too much faith was being placed in what models say economic growth should be but, as detailed in When Models Trump Common Sense, he was rebuffed by nearly the entire establishment (or at least “a small army of bloggers with PhDs in economics”).

Now, in a story at Project Syndicate, Raghuram Rajan, Professor of Finance at the University of Chicago Booth School of Business and the IMF’s youngest-ever chief economist tries to explain Why Stimulus Has Failed and, in doing so, questions whether the root cause of our current economic troubles is simply a lack of demand, casting himself as an Austrian sympathizer in the process: Read more…

About Tim:

Tim Iacono is the founder of the investment website ‘Iacono Research’ (http://iaconoresearch.com/), a subscription service providing market commentary and investment advisory services specializing in natural resources. He also writes a financial blog, formerly known as ‘The Mess That Greenspan Made’, a sometimes irreverent look at the many and varied after-effects of the Greenspan term at the Federal Reserve.

Disclaimer:

The views expressed in the posts and comments of this blog do not necessarily reflect APMEX Inc. They should be understood as the personal opinions of the author. No information on this blog will be understood as official.

 

Gold Dips- Jobless Claims Down

Analysts had expected an increase in jobless claims but the number of Americans filing for unemployment benefits fell to its lowest level since January 2008.  This is the second straight week of falling claims.  The unemployment rate held steady at 7.8 percent.  Although is appears many companies are not laying off workers as anticipated, they are adding new jobs at a slow rate. Some economists caution while interpreting these numbers, there is usually a lot of volatility this time of the year.

The Gold price fell overnight without breaking a key technical level.  For five days the Gold price has been just below $1,695 and ounce, an important level for Gold.  Additional pressure came against Gold as the U.S. House voted to suspend the nations borrowing limit until May 19 in effect pushing the debt ceiling threat down the road.

At 9 a.m. (EST), the APMEX Precious Metals spot prices were:

  • Gold, $1,674.70, Down $14.00.
  • Silver, $31.86, Down $0.62.
  • Platinum, $1,683.70, Up $8.10.
  • Palladium, $723.90, Down $3.30.

APMEX’s Account Managers now have extended hours Mondays through Thursdays and are here to serve you until 8 p.m. (EST)! Or call us Fridays until 6 p.m. (EST)! If you have any questions about investing in precious metals or simply would prefer to place your order by telephone, we are here to help.

Precious metals moved by the U.S. election: Weekly Gold and Silver Market Recap for Nov 9, 2012

Precious metals moved by the U.S. election:

After months of speculation and questions about the political scene in the United States, this week brought forth closure to the subject. Before the votes were counted, many people believed each choice for president would shape the market for gold and other metals. The speculation on which candidate will be elected and what they will bring to the table has been strong today as many have shared their outlook for what it could mean for Gold. Phil Streible, senior commodities broker at RJO Futures offered his comments. To the possibility of President Obama being re-elected, he said we would continue to see, “fiscal irresponsibility, (Federal Reserve Chairman) Ben Bernanke going all the way through [his term], quantitative easing full throttle, weaker dollar.” Streible then speculated on a Mitt Romney victory, saying, “You get Romney and he’s planning on shrinking the government, cutting spending, becoming more fiscally responsible … so you’re probably going to see a stronger dollar, weaker metal on him.” After the votes were counted Wednesday morning gave light to the near future. The Gold price is giving up some early gains it enjoyed after President Barack Obama won a second term in the White House last night. Though the election is over, important issues are far from ending. Next up on the docket is the fiscal cliff at the end of the year. The President is now tasked with reaching a deal with a Republican-held House of Representatives, which is exactly the scenario that proved nearly impossible to solve over the past year or so. One analyst said, “I personally believe this will get sorted, but not after a lot of haggling and negotiating and this will create a lot of uncertainty and volatility in the markets.” By the end of the hectic week, the gold price rose and hit a three week high. There is an expectation that U.S. monetary policy will continue to favor Gold investors. Gold’s safe haven appeal grows when money flows easily into the economy as it does with the quantitative easing programs. Nic Brown, head of commodities research at Natixis said, “An Obama victory enhances the likely longevity of ongoing quantitative easing.” Outside of the U.S., China’s Gold demand is expected to grow 1 percent this year. This would be a record of 860 tons of Gold.

Europe’s financial problems grow:

While the world watched as the United States had an election, Europe continued losing ground in their economic crisis. One of the countries in the spotlight is Greece and this week was no different.  In Greece, the parliament is set to vote on budget cuts to help secure loans from lenders. However, the people of Greece are far from pleased with these proposed cuts. Today started a massive walk-out by two of the largest labor unions in the country. The estimated number of protesters was about 16,000, but could grow. The Greek people are not at a loss for words regarding the situation. “The measures are wrong, the politicians and the rich aren’t paying their taxes and the only ones paying are those on 300 and 500 euros a month,” said Dimitris Karavelas 42, who has been forced to shut down his small construction company. The bad news is not just in Greece but, in the entire region. In Europe, the outlook for the next year is far from optimistic. “Europe is going through a difficult process of macroeconomic rebalancing and adjustment which will last for some time still,” European Union Economic and Monetary Commissioner Olli Rehn told reporters in Brussels. The eurozone economy is forecasted to almost completely stop expanding within the next six months. Even Germany, who is the largest economic force in the eurozone, has had their economic forecast cut by more than half in 2013. All of these factors will make it even more difficult to bring the region back to a stable economic situation. While this is bad news for the Europeans, it is not for the precious metal investors. The Gold price has risen today, following the euro’s rise after the European Central Bank (ECB) reaffirmed its intentions to pursue recently adopted monetary policy. Europe is in the spotlight today “with the ECB keeping accommodative policy in place and rates steady,” Jeffrey Wright, a managing director at Global Hunter Securities, said. “ECB policies, much like our own, eventually lead to inflation, which support Gold.” ECB President Mario Draghi announced plans to keep the central bank’s key lending rate at 0.75 percent. “Economic activity in the euro area is expected to remain weak,” Draghi stated as he pronounced a continuance of economic stimulus for the region.

End of Week Report: Gold Fails to Break $1,800 an ounce

TAKING GOLD PROFITS:
Gold’s failure to break $1,800 an ounce this week, along with positive U.S. economic data, had many investors looking to cash out gains. This week’s retail sales data shows Americans bought more of everything in September and could indicate greater than expected growth in the third quarter. “The University of Michigan data on Friday, retail sales today — it all adds up to suggest that the U.S. economy is starting to step in line, and the downward revisions we saw in the past half of the year may be coming to an end,” Danske Bank analyst Christin Tuxen said. This week also saw positive news out of China indicating reduced inflation and growing exports.  As the United States election draws near, the economy is by far the number one topic of debate. This week’s reports from the Federal Reserve shone a positive light on the U.S. economy, as industrial production rose in September. Reports have shown that consumer spending and the housing markets have also improved. “The economy is regaining momentum it appeared to have lost in the spring,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
 
EUROPEAN SUMMIT MOVES THE MARKET:
Gold is set to end the week down as the euro softened in anticipation of the EU summit’s closing in Brussels. Plans for immediate assistance to the profoundly struggling nations of Greece and Spain went largely unmentioned as the falling euro dragged Gold down with it. Though the metal has descended sharply from recent highs near $1,800, many analysts are still bullish on Gold for the long-term. “There is a clear lack of momentum in the Gold price at the moment,” BNP Paribas analyst Anne-Laure Tremblay said. “The recent correction from $1,800 to $1,735, and possibly a bit lower, is likely to be a temporary pause in a wider upward trend.” French President Francois Hollande believes the eurozone is “on track” to fixing the problems in the region, but he’s not fooling anyone. A statement from the summit claimed that banking supervision was coming, but as Alex White of JPMorgan said, “The statement repeated the passage from the June summit word for word – indicating how little progress has been made. While France and the periphery continue to see banking sector support coming early next year, the German vision still looks like it is based around a timeframe from 2015 and beyond.” If this is true, it could be more than two years before the eurozone is on track again.
 
AFRICAN MINING SUSPENDED:
Africa’s leading Gold mining operation has been suspended as a reported 19,500 of the 26,700 workers have gone on strike. “The current impasse is extremely unfortunate, not only for the industry and its employees, but also for future growth and development in South Africa, given the critical role that Gold mining plays in our country’s economic development,” Elize Strydom, the mines chamber’s senior executive for employer relations, said in an emailed statement. South Africa was the fifth-largest Gold producing country in 2010.

Gold & Silver Prices Moving Down in Morning Trading

Whether it is the effects of the QE3 announcement wearing off or investor’s taking profits off the table, gold and silver prices have been moving down throughout the morning. There was news coming out this weekend from the International Monetary Fund (IMF) meeting in Tokyo. Federal Reserve Chairman Ben Bernanke found himself defending QE3. International criticism is centered on currency valuations. The International community feels that Federal Reserve actions are artificially boosting their currencies, which puts them at a disadvantage for exporting their goods and services. This dialog brings into play a reoccurring theme that global currencies are in a race to the bottom.

Regarding the above mentioned race to the bottom, IMF Managing Director Christine Lagarde is urging Europe to roll out a bailout. The European bailout would look much like the US QE3. The European Central bank is being urged to aggressively begin buying bonds to lower the borrowing costs of the respective nation. Such measures will pump more euros into the marketplace and most likely will continue to depress the valuation of the euro. IMF’s Lagarde is also requesting that Greece be given more time to get their financial house in order.

U.S. retail sales rose more than expected in September as U.S. consumers spent more on gas and cars. The core retail sales (which do not include cars & gas) rose 0.9%. Analysts had expected a gain of 0.3%. This indicates that consumer sales from July- September were stronger than expected. The New York Federal reserve “Empire State” report was not as positive. This report is seen as a gauge of general business conditions. It did rise from a minus 10.41 to a minus 6.16, but economists were expecting minus 4.55.

At 9AM EDT the APMEX precious metal prices were:

  • Gold price –$1,744.00 – down $15.20
  • Silver price – $33.16 – down 51 cents
  • Platinum price – $1,641.30 – down $15.00
  • Palladium price – $639.00 – down $1.00