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

Weekly Gold and Silver Market Recap for Oct 5, 2012

Gold showed mixed results this week:

This week has been active to say the least in the gold market pricing. While the market is still riding the high of monetary easing around the globe, there have been a few bumps in the road during the week. The prices are still being supported by easing monetary policy and lingering eurozone troubles. Chicago Fed President Charles Evans “was extremely dovish” about the third round of quantitative easing in the U.S., according to RJO Futures’ Phillip Streible. “He was full-throttle on QE.” The Gold price neared an 11 month high this week, supported by an overall lackluster feeling from investors regarding the global economy. Gains increased after the release of the ADP jobs report, which, including reductions in previous months’ estimates showed a net increase of 133,000 jobs, well below expectations of 153,000. Federal Reserve officials have recently announced that until jobs numbers improve, QE3 will continue. Tom Kendall of Credit Suisse said, “We’ve seen intra-day moves triggered by the ADP numbers before, so it wouldn’t be a surprise if there was a bit of intra-day volatility around that number. To get this market over $1,800 and trending higher again, what we need to see is greater participation in places like India on the buy-side.” Despite Friday’s dip in market price due to the U.S. jobs report, strategists at Deutsche Bank expect fiscal fears, spurred on by recent quantitative easing and expectations of a U.S. credit downgrade, which will increase in the fourth quarter. “This will prove to be most beneficial to the Precious Metals complex and specifically gold,” the strategists wrote in a research report.

Global economic issues continue to make headlines:

Economic struggles have been taking a toll on markets around the world. It shows that the global marketplace is very much intertwined between countries. The European issues have been a main topic of conversation and this week Spain was back in the spotlight. There is some thought the Spanish government will soon request a bailout, which some consider a necessary step to alleviate the eurozone’s debt crisis. Paul Mendelsohn, chief investment strategist at Windham Financial services in Charlotte, Vermont said, “I think the market feels that we are closer to some type of action and resolution in terms of the Spanish problem, (and) that’s certainly helping markets this morning.” While some have predicted an end to the Euro, they are not willing to buy into that notion. An boost came with news that the European Central Bank would hold steady on interest rates again, at 0.75 percent, with a zero percent interest rate on its deposit facility. ECB President Mario Draghi said at his monthly press conference that the eurozone’s recent bond buying plan has eased regional tensions. He also repeated earlier statements that the euro is “irreversible.” The reassurance that fiscal assistance will persist has once again bolstered the Gold price, which is close to breaching the $1,800 mark. “Indications from Mario Draghi […] that the European version of quantitative easing will go on as planned no matter what happens in the U.S.” provided support for Gold prices, said Brien Lundin, editor of Gold Newsletter.

The United States Federal Reserve keeps easing opened and other U.S. news:

Federal Reserve Chairman Ben Bernanke spoke at the Economic Club of Indiana this week, stating the Fed’s objectives of price stability and maximum sustainable employment have not changed. Bernanke said, “These goals mean, basically, that we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable.” During the United States’ recession of 2007-09, the Fed lowered borrowing costs to almost nothing and purchased $2.3 trillion in mortgage and Treasury securities to create and sustain growth. Not everyone has been on board with the Fed’s decisions to lower interest rates or to create further easing but Bernanke believes the measures will boost the economy. The national debt in the United States has been the topic of discussion for years, and now that it is an election year those talks are magnified. The situation is clear when you look at the numbers. The national debt is more than $16 trillion and the gross domestic product (GDP) is approximately 11 percent less than that. That gap between the debt and the GDP is very alarming to most economists. Pimco’s Bill Gross said Tuesday, “Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive.” The other major news of the week was the unemployment report. The addition of jobs in September was disappointing, but the unemployment rate fell by 0.3 percent to 7.8 percent, which is the lowest level since January 2009. Since the newest round of quantitative easing by the Fed is expected to continue until jobs numbers improve, reports such as this one will carry more weight than they may have previously.

Gold & Silver Prices are Holding at 7 Month Highs

Gold & silver prices are holding on to recent gains in early morning trading. Last week, gold and silver was up for the 4th week in a row. Gold prices have risen 13.2%, so far in 2012. According to Peter Fertig, a consultant for Quantitative Commodity Research, “if we do not see $1800 this week, that would not be a problem as, nevertheless, the signs are that precious metals are moving higher ECB Rally Sputters as Leaders Fail to Act on Spain, Greece — Business News – CNBC.”

Stocks in the European market are falling today, as once again their leaders fail to act on Greece or Spain. Markets had received a boost on the European Central Bank’s bond buying announcement, as well as the Federal Reserve QE3 announcement last week. Investors are frustrated because it would appear that instead of taking advantage of this “breathing space”, European finance ministers are in even less of a hurry to tackle critical issues. These policy makers decided to wait on three urgent issues: a bailout for Spain, a decision on Greece’s request for a two-year extension on bailout terms, and a common supervisor for European banks.

At 9AM EDT the APMEX precious metal prices were:

  • Gold price – $1,771.70 – up 10 cents
  • Silver price – $34.63 – down 4 cents
  • Platinum price – $1,698.80 – down $15.90
  • Palladium price – $692.70 – down $6.60