Bernanke, LIBOR and lack of positive economic indicators

BEN BERNANAKE’S TESTIMONY BEFORE CONGRESS

Chairman of the Federal Reserve Ben Bernanke testified before congress this week.  Feedback from some in Congress to Bernanke’s testimony was that the Federal Reserve is the best hope for economic stimulus. “Given the political realities, particularly in this election year, I’m afraid the Fed’s the only game in town,” said Sen. Charles Schumer (D-NY). “I would urge you to take whatever actions you think would be most helpful in supporting a stronger economic recovery.”  However, Bernanke himself urged Congress to handle the looming “fiscal cliff” and avoid the brinksmanship that brought the nation to a standstill during last year’s battle over the debt ceiling. Bernanke took Congress to task over their collective inaction, saying, “The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long run sustainability and the fragility of the recovery.”

NOT MANY POSITIVE ECONOMIC INDICATORS THIS WEEK

It’s tough to find good news about the economy these days. Many economists say the American economy is poised for an anemic second half of the year. “We’ll have very slow growth,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. “The excess supply of homes will weigh on housing for quite some time. Manufacturing is starting to suffer a bit. The labor market remains pretty soggy.” According to a Bloomberg survey, Americans are more pessimistic than any time in the past six months. “A soft labor market and political tensions surrounding potential changes in tax policy are weighing on consumer sentiment,” said Joseph Brusuelas, a senior economist at Bloomberg LP.  American retail sales fell for the third straight month in June, further eroding confidence in a fragile economic recovery. Analysts expected retail sales to rise by 0.2 percent, but data released Monday morning by the Commerce Department show spending slipped by 0.5 percent.  Along with the disappointing retail data, the National Association of Realtors reported today that sales of previously occupied homes fell to the lowest point since October.

LIBOR MANIPULATION SCANDAL RAISES MORE QUESTIONS ABOUT ETHICS AT BANKS

Big banks doing bad things are again in the news. The Justice Department is investigating potential criminal charges against big banks and individuals for manipulating key global interest rates. LIBOR is the London interbank rate that is set by a small and select group of major banks. Barclays Bank already has been fined $450 million for fixing LIBOR. Other banks being investigated include Citigroup, JP Morgan Chase, the Royal Bank of Scotland and Deutsche Bank AG. Another question is whether regulators knew about the situation but turned a blind eye.

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Gold Prices Pause Awaiting Bernanke Testimony

Fed Chairman Ben Bernanke will give his semi-annual testimony before a Senate panel on Tuesday and the House Financial Services Committee on Wednesday. Although investors will be keeping a close watch for any mention of QE3, it is expected the Mr. Bernanke will once again scold/warn politicians that we are rapidly approaching a financial cliff, if Congress fails to act soon. This cliff could be as much as $720 billion as tax breaks expire on December 31 and automatic spending cuts kick in January 1. At this time, there appears little chance that Congress will act prior to the November elections. Mr. Bernanke should make it clear that QE3 is still on the table if the economy continues to deteriorate, but many analysts feel he will wait until his Jackson Hole speech in August, before brings up the subject of QE3.

Big banks doing bad things are once again in the news. The U.S. Justice Department is investigating potential criminal charges against big banks and individuals for manipulating key global interest rates. Libor is the London interbank rate that is set by a small and select group of major banks. Barclays Bank has already been fined $450 million for fixing Libor. Other banks being investigated include Citigroup, J.P. Morgan Chase, the Royal Bank of Scotland and Deutsche Bank AG. There is also the question of whether regulators knew about the situation, but turned a blind eye.

Retail sales fell for the third straight month in June, further eroding confidence in a fragile economic recovery. Analyst expected retail sales to rise by 0.2%, but data released this morning by the Commerce department shows spending slipped by 0.5%. This report could raise hopes the Federal Reserve will have to come in sooner or later with a new round of quantitative easing.

At 9AM EST the APMEX precious metal prices were:

  • Gold price – $1,590.60 – down $2.90
  • Silver price – $27.35 – down 10 cents
  • Platinum price – $1,421.90 – down $13.30
  • Palladium price – $582.90 – down $3.80
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Gold down almost 1.5 pct as selling snowballs

Gold down almost 1.5 pct as selling snowballs (Reuters)

JPMorgan lobbied CFTC a day after losses revealed (Reuters)

U.S. Recovery Hits Home (WSJ)

Largest Greek Banks to Receive Financing (NY Times)

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Monday Links: Gold Down to Fresh 2012 Low

Gold Down To Fresh 2012 Low (WSJ)

‘Au’-sterity for gold as prices plunge (CNN)

Gold Erases Year’s Gain as Europe Concern Boosts Dollar (Bloomberg)

Euro drops to near 4-month low on Greek deadlock (Reuters)

Analysis: Fed regulators in hot seat over JPMorgan loss (Reuters)

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Weekly Gold and Silver Market Recap for May 11, 2012

by John Foster. Email John.

Silver Lining in Gold’s Fall:

While gold finished this week down nearly 2% there looks to be some Good news for Gold pricesas a survey conducted by Bloomberg showed that 14 of 32 analysts anticipate prices to gain next week. The Gold price is currently being affected by the political uproar in Europe, which is pushing the euro down, and positive American economic news, which is strengthening the doll

Silver bullion bar 1000oz top view

Silver bullion bar 1000oz top view (Photo credit: Wikipedia)

ar. “When the market gets very nervous, then they buy dollars, and Gold finds it difficult to rally,” said Jesper Dannesboe, an analyst at Societe Generale SA in London. “Given what’s going on in the markets at the moment, any rally will probably just be a bounce before another setback.”  One hedge fund manager is predicting tough times ahead for stocks, which could be positive for gold and silver, considering the negative correlation the metals historically hold to stocks. Referring to the Federal Reserve’s “Operation Twist,” he says that “the Fed has effectively found a way to keep long-term interest rates low … and cleverly engineered another bull rally (for stocks). … The U.S.A. will have to start dealing with issues that some market participants refer to as Taxmageddon.” “Taxmageddon” is the term being given to the coming months before the U.S.A. presidential election, when many decisions on tax breaks are due. Continue reading