Tag Archives: Federal Reserve System

Analyst: Time for QE3

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Modern-day meeting of the Federal Open Market ...

Modern-day meeting of the Federal Open Market Committee at the Eccles Building, Washington, D.C. (Photo credit: Wikipedia)

Precious Metals are trading higher this morning in anticipation of the Federal Reserve meeting tomorrow.  After last week’s dismal jobs report, analysts believe the time is now for the Fed to act.  Mike Dueker of Russell Investments wrote, “If many (Federal Open Market Committee) members meant what they said about needing to see ‘substantial and sustainable strengthening in the pace of the economic recover’ in order not to implement a third around of quantitative easing, then it is time to act.”

Germany’s Federal Constitutional Court blocked requests for an injunction which would rule German support of the eurozone rescue fund unconstitutional.  German Chancellor Angela Merkel said that the ruling sends “yet another strong signal to Europe and beyond: Germany is accepting its responsibility as the largest economy and reliable partner in Europe.”

The Platinum price is gaining at a much greater pace than other metals today due to the unrest in South Africa.  The top Platinum producer in the world, Anglo American Platinum, is now being affected by striking miners, who blockaded roads leading to shafts.  “Fear of intimidation and threats by unidentified individuals in and around” certain locations caused some non-striking miners to be unable to report for work, according to a statement.

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

  • Gold – $1,738.90 – Up $5.00.
  • Silver – $33.71 – Up $0.15.
  • Platinum – $1,646.10 – Up $38.10.
  • Palladium – $679.50 – Up $4.60.

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Gold gaining momentum, Germany worried about U.S. debt

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Spot gold is trading around six month highs today as the euro is gaining strength against the dollar. Gold has a positive relationship to the euro right now and over the past two months has grown to be at its most positive, a +0.75. There is growing expectations about what will come out of Thursdays Federal Reserve meeting; speculation is that a quantitative easing announcement could send the price of gold over $1,800.

German Finance Minister Wolfgang Schaeuble has brought into question the United States’ high level of debt. He is quoted saying in a speech to the lower house of parliament that “U.S. debt (is) a burden for the global economy.” He underscores the fact that the rest of the world is keeping their eye on the U.S. elections and is concerned about our ability to deal with it once the elections are over. This comes just after the U.S. reached an inauspicious $16 trillion debt.

Adding insult to injury, the U.S. trade gap widened in July. This was the first time in four months that demand for U.S. produced goods decreased. The gap grew 0.2 percent to $42 billion. The positive side to this is that is smaller than projected. The trade gap is due in part to stagnant economies in Europe.

At 9AM EDT the APMEX precious metals prices were:

  • Gold price – $1,736.10 – Up $5.30
  • Silver price – $33.82 – Up $0.19 cents
  • Platinum price – $1,608.00 – Up $3.20
  • Palladium price – $675.80 – Up $3.00

 

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South African Strikes Continue; Citigroup Estimates Probability of QE3 at 99%

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Gold and silver are trading relatively flat today while platinum and palladium are up following news of further unrest surrounding South African miners and leading platinum producer Lonmin plc. Reports were released today that 10,000 striking platinum miners – many of whom were armed with sticks and machetes – marched on several Lonmin mine shafts threatening violence against strike breakers who are continuing to work. The recent strikes have inspired laborers in South African gold mines to rebel against their own employers. The result has been a stoppage of production at two Gold Fields (the world’s fourth largest gold producer) mines in the last several days. “We haven’t been given any demands but the pattern is the same as KDC East. It is intimidation. The strikers went around from hostel to hostel yesterday to prevent the others going to work,” Gold Fields spokesman Sven Lunsche said.

Despite the conflict, the Gold price has yet to be seriously impacted by concern over a significant stoppage in production. The main focus for investors is the looming concern over the Federal Reserve’s announcement of a third round of bond-buying known as quantitative easing (QE3). An analysis of current market factors and recent news surrounding the state of the U.S. economy have prompted Citigroup Inc. to estimate the chances of QE3 at 99% as many experts await more definitive language from the Fed regarding the steps it will take to aid the struggling economy. “Nervousness and continued agony over in Europe, the fiscal cliff, election uncertainty means there are a lot of headwinds,” said Mark MacQueen, partner and money manager at Austin, Texas-based Sage Advisory Services Ltd., which oversees $10 billion. “Everything is lining up to be more difficult. The Fed will give us language that reassures the market they intend on doing more.”

At 1PM EDT the APMEX precious metals prices were:

  • Gold price – $1,731.10 – down $8.40
  • Silver price – $33.57 – down 12 cents
  • Platinum price – $1,605.00 – up $7.70
  • Palladium price – $672.20 – up $17.40
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The “Bond King”- PIMCO’s Bill Gross says Buy Gold!

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Bill Gross says to buy gold not bonds. In an interview on Bloomberg News today, Mr. Gross said that to continue believing that stocks or bonds can return 10% is a dying belief. Mr. Gross commented that, “Gold cannot be reproduced. It could certainly be taken out of the ground at an increasing rate but there is a limited amount of gold. And there has been an unlimited amount of paper money over the past 20 to 30 years now – in this period of central bank expansion where it’s QE1 or QE2, or whether it’s the LTROs of the ECB or this potential new program…then central banks are at their leisure to print money.” He further goes on to say that with central banks writing checks for trillions of dollars, it is a good idea to own something that cannot be reproduced such as gold.

Profit taking is the most probably reason that precious metals markets are down slightly this morning. The big event this week is the Wednesday-Thursday Federal Reserve meeting and the high expectation of many, that Fed Chairman Bernanke will announce QE3 on September 13. The sluggish jobs report on Friday might be the event the finally triggers this announcement. The ECB and China announced stimulus plans last week.  many expect the U.S. to be next.

At 9AM EDT the APMEX precious metals prices were:

  • Gold price – $1,731.30 – down $8.30
  • Silver price – $33.50 – down 19 cents
  • Platinum price – $1,594.50 – down $2.80
  • Palladium price – $659.00 – up $4.30
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End of week Gold and Silver recap: Gold breaks $1,700

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Model of the ECB's new headquarters, which is ...

Model of the ECB’s new headquarters, which is due to be completed in 2014. (Photo credit: Wikipedia)

Written by John.Foster@APMEX.com

Gold Breaks $1700:

Gold continued it march past $1700 an ounce as growing signs the European Central Bank will take action added to disappointing U.S. economic data this week.  Fridays United States nonfarm jobs report showed 96,000 jobs were created in August. The number was disappointing because it fell short of the 125,000 that had been expected. The August manufacturing report showed the largest drop in more than three years. The nation’s factory activity was rated at 49.6, which indicates an unforeseen contraction in the sector. United States construction also fell off by 0.9 percent; as with the manufacturing report, experts had predicted an increase, as well.  This news was bullish for Gold and boosted the possibility of financial stimulus from the Federal Reserve. The expectation is that the Federal Reserve will announce the next round of quantitative easing, better known as QE3, this year. Jeremy Friesen at Societe Generale in Hong Kong said he believes the Fed will act possibly this month. He said, “We think the payrolls number will be very poor, which should be positive for Gold, as it would confirm that the Fed will do something at the next FOMC (Federal Open Market Committee) meeting.”

Europe Announces Bond Program:

The European markets started the week strongly on hopes that the ECB would announce a plan to curb widespread debt in the region. Many economists in the area believed there would be a large bond buying plan to offset short term debt. One media report went as far to say the ECB will spend “unlimited” amounts to do so, and that caused quite a stir. “I think the market saw the word ‘unlimited’ and jumped before realizing that the ECB would not expand its balance sheet as it would sterilize all its purchases, and thus this was not the kind of aggressive monetary expansion that FX traders were looking for,” said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.  On Thursday the European Central Bank announced its intention to rebuild the eurozone with new stimulus measures by purchasing sovereign bonds. Alex Merk at Merk Investments commented on how the market may be more interested in the euro. “Now, I’m not going to pretend that everything is going to be great in the eurozone, but it (the ECB’s measures) does take off the so called ‘tail risks,’ it makes the euro less risky.” On a positive note, Merk added, “We think the euro is going to do well in the years to come. … It is becoming a different currency with different dynamics in place.”

China’s Economy Slowing:

The United States and Europe may not be the only economies on the verge of receiving a stimulus. Although the Chinese government has yet to implement any stimulus measures in the face of a slowing Chinese economy, there is additional evidence that the Chinese economy is slowing. On Saturday (09/01), the official manufacturing sector survey reported a 49.2 reading in August. This falls below the level of 50 that separates expansion from contraction. In another survey more focused on small to midsize businesses, published by HSBC, the number was 47.6.  Gordon Chang, author of “The Coming Collapse of China,” spoke with CNBC regarding China’s economy and how some data reflect zero growth for that nation. Chang said that manufacturing surveys, price indices and electricity production are all key indicators of economic growth, and those factors suggest no growth in China’s economy. Chang said, “By far the most reliable indicator of Chinese economic activity is the production of electricity. When you look at the period of April through July electricity production increased by less than an average of 1.2 percent.”  He said electricity production typically outpaces economic growth

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