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Thursday, February 14, 2013

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China still unable to surpass Indian gold demand – but getting close

Posted: 14 Feb 2013 04:27 PM PST

Particularly strong demand for gold jewellery, a big jump in Q4 consumption in India and a continuing high level of Central Bank purchases offset a decline in investment during Q4 2012

Gold equity underperformance – is there a turn coming?

Posted: 14 Feb 2013 12:58 PM PST

Many analysts believe that investors have overreacted, leaving the potential for a rebound in line with general sentiments for the yellow metal, says Tom Cleveland.

Gold Breaks Downward Sloping Channel

Posted: 14 Feb 2013 12:35 PM PST

Warning: Even the Federal Reserve's own governors are warning its policies could be creating a disaster

Posted: 14 Feb 2013 12:09 PM PST

From Bloomberg:
 
A Federal Reserve governor is joining those warning that junk-debt investors are poised for losses, while his institution's policies spur them to keep buying the debt.
 
Yields on a record 38 percent of the $1.1 trillion of notes sold by the neediest U.S. borrowers were trading below the 10-year average rate for investment-grade debentures last month, Barclays Plc data show. Investors poured a record $1.3 billion into U.S. leveraged loan funds last week as covenants on the debt weaken the most ever.
 
The central bank's policy of keeping benchmark borrowing costs at about zero for a fifth year is pushing investors into riskier debt, even as Fed Governor Jeremy Stein warns that the market for speculative-grade debt may be overheating. While U.S. prosecutors are suing Standard & Poor's for deliberately failing to provide warnings against losses on collateralized debt obligations before the credit crisis, the government's stimulus is fueling demand for similar products now.
 
"No matter how loud the chorus gets that this is crazy, the bulls are going to continue to run because there's nowhere else to put money in fixed income," said David Tawil, the co- founder of Maglan Capital LP, a distressed-debt hedge fund that manages about $50 million. "If I'm saying now that the deals are getting laughable, if things don't change, six months from now, the deals are going to be stupid."
 
Covenant-Lite Boom
 
Sales of so-called covenant-lite loans represented about 55 percent of the debt sold to non-bank lenders in January, the greatest proportion ever, Morgan Stanley analysts wrote in a Jan. 25 report. Covenant-lite debt does not carry lender protection such as financial maintenance requirements.
 
Firms from Credit Suisse Group AG to Symphony Asset Management LLC sold $8.7 billion of collateralized loan obligations in January, the busiest month of issuance since November 2007, according to JPMorgan Chase & Co. CLOs pool high-yield, high-risk loans and slice them into securities of varying risk and return.
 
Borrowers are selling speculative-grade bonds that have the weakest covenants in at least two years, according to Moody's Investors Service. About $506 billion of dollar-denominated junk bonds are trading above the price that their issuers may buy them back at later, limiting potential gains, Morgan Stanley data show.
 
Rich 'Valuations'
 
"Valuations are rich," said Morgan Stanley credit strategist Adam Richmond in New York. "The pendulum is swinging in favor of issuers. It does seem like the peak in credit quality is probably behind us."
 
Leveraged loans and high-yield bonds are rated below Baa3 by Moody's and lower than BBB- at S&P.
 
Elsewhere in credit markets, the cost of protecting corporate debt from default in the U.S. rose, with the Markit CDX North American Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, increasing 0.6 basis point to a mid-price of 90 basis points at 11:51 a.m. in New York, according to prices compiled by Bloomberg.
 
The index typically rises as investor confidence deteriorates and falls as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
 
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings added 0.2 to 116.3.
 
Rate Swaps
 
The U.S. two-year interest-rate swap spread, a measure of debt market stress, rose 0.47 basis point to 15.85 basis points as of 11:52 a.m. in New York. The gauge widens when investors seek the perceived safety of government securities and narrows when they favor assets such as company debentures.
 
Bonds of Fairfield, Connecticut-based General Electric Co. are the most actively traded dollar-denominated corporate securities by dealers today, accounting for 3.8 percent of the volume of dealer trades of $1 million or more, at 11:52 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
 
More than one-third of dollar-denominated junk bonds were carrying yields below 4.75 percent, the 10-year average rate for investment-grade bonds, on Jan. 31, Barclays data show. That's up from about 2 percent of the notes carrying such low yields in September 2011, according to the data.
 
Junk Yields
 
"High-yield is as overbought as I have ever seen it," Dan Fuss, whose $22.7 billion Loomis Sayles Bond Fund beat 98 percent of its peers in the past three years, said last month in an interview in London. "This is absolutely, from a valuation point, ridiculous."
 
Yields on the notes globally plunged to 6.31 percent on Jan. 25 from a peak of 23.2 percent in December 2008 after investors funneled $72.4 billion last year into funds that buy the debt, according to the Bank of America Merrill Lynch index and EPFR Global data.
 
Investors deposited $12 billion into floating-rate funds in the past 34 weeks, according to Bank of America Corp. Last week's unprecedented inflow helped boost the funds' net assets by 6 percent year to date and offset the $1.3 billion of withdrawals from global junk bonds in the period.
 
Stein's Warning
 
"We are seeing a fairly significant pattern of reaching-for-yield behavior emerging in corporate credit," the Fed's Stein said in a Feb. 7 speech in St. Louis. If the observation is accurate, he said, "it does not bode well for the expected returns to junk bond and leveraged-loan investors."
 
Investors bought $100 billion of loans last year that didn't restrict the borrowers' debt to earnings or interest expense, JPMorgan strategists led by Peter Acciavatti wrote in a report last month. That exceeds the prior high of $99 billion in 2007. Covenant-lite loans now account for a record 29 percent of the outstanding debt, topping the 18 percent share before the credit crisis.
 
Junk-rated borrowers sold debentures that received an average covenant score of 4.15 in November on a scale from one to five, with five being the least restrictive, according to Moody's Covenant Quality Index. That was the weakest level in data going back to January 2011.
 
"It's crazy," Maglan's Tawil, who said his fund gained 41 percent last year, said by phone from New York. "The government is going to continue to fuel this."
 
Low Rates
 
The Fed has held benchmark interest rates at about zero since December 2008 and plans to purchase $85 billion in bonds to ignite an economy still recovering from the worst financial crisis since the Great Depression. The government intends to suppress borrowing costs for the world's largest economy as long as unemployment remains above 6.5 percent and inflation remains no more than 2.5 percent.
 
The jobless rate rose to 7.9 percent last month from 7.8 percent in November and December.
 
The U.S. is seeking to galvanize an economy wounded by $2.1 trillion in global writedowns and credit losses from the financial crisis that began in 2007. The U.S., in a lawsuit filed Feb. 4 in federal court in Los Angeles, is alleging that S&P defrauded investors by failing to accurately reflect the risk on mortgage-backed securities and CDOs because it was afraid of losing business.
 
There were about $54 billion of CLOs created last year, quadrupling the $12.3 billion formed in 2011, according to S&P's Capital IQ Leveraged Commentary & Data. Wells Fargo & Co. is forecasting as much as $70 billion in CLO origination this year.
 
Of the $925 billion of junk bonds outstanding, 55 percent are trading above the price at which issuers can repurchase them later, according to a Morgan Stanley analysis using the Citi High Yield Market Index.
 
"The idea here is to keep rates low enough for a long enough time that the economy builds up enough steam," Tawil said. "I don't know if our economy is capable of picking up the steam necessary."
 
To contact the reporters on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net; Krista Giovacco in New York at kgiovacco1@bloomberg.net.
 
To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Faris Khan at fkhan33@bloomberg.net.
 
More on the Federal Reserve:
 
 
 

Casey Research shares some "lessons learned" from 20 years of resource speculation

Posted: 14 Feb 2013 12:09 PM PST

From Louis James, Chief Metals and Mining Investment Strategist, Casey Research:
 
Dear Speculators,
 
Realizing that we were about to put out our 500th alert, we decided to pause in company recommendations and reflect on the almost 20 years of this service.
 
Flashback 1
 
Doug Casey was traveling the world, spending time in Spain and Hong Kong, building equity positions, real estate holdings, and, of course, buying gold stocks as the mid-1990s gold bull was well underway. As always, there was a lot going on in the world then, and Doug was active in many fields, speculating on the TED spread, more typical Wall Street picks, and even some government bonds.
 
Originally, before he got his first portable computer with a telephone modem, Doug would take notes in the field with a pad and pen, and write up his reports by hand on the plane on the way home, or back at his desk if it wasn't urgent. These would be typed up and faxed out to alert service subscribers.
 
The paper-only nature of the service back then is why we do not have older alerts in our online archive – many of those editions didn't survive, even on paper (so we haven't been able to scan them). But Doug remembers many of the picks he made back then, including his famous +5,000% gain recommendation on Bre-X – and his all-important call to cash out before that stock went to zero as a result of one of the worst scandals to rock the mining industry.
 
Flashback 2
 
It was 2004. I was sitting in some exploration company's office with Doug and the company's management team, which was diligently going through its corporate presentation. I don't remember which company it was, but I remember I was there with Doug, learning the ropes, seeing how he did things. Doug was looking distracted, not quite staring out the window, but looking more than a bit bored.
 
There was a pause in the sales pitch, and Doug said: "That's $300 rock, at today's prices. How much do you think you have?"
 
With this single point and question, Doug showed that he followed and understood everything we were hearing. He mentally applied the grade of the several metals that were in the ore (it was a polymetallic deposit) and came up with a value that was great enough that it made matters of recovery rates and strip ratios less pressing, so he skipped those questions and went right to the chase. What was going to move that stock was how big a deposit the company might be able to report, and that's what Doug asked about.
 
I was so impressed; while I don't remember the details of the company, I remember Doug's face perfectly, as he put his finger on the critical question.
 
Flash Forward
 
Today, your analyst hits the road in much the same fashion Doug did 20 years ago. I use my smartphone to take notes, instead of a pad and a pen (the phone works in the dark, which is cool, but doesn't much like the dripping water and mud I often encounter underground), and type up my own reports on my laptop, but the MO is the same. We go, we kick the rocks, evaluate the results, and write them up – or not, if they don't make the 8 Ps grade.
 
Every day, I apply what I learned from Doug, some of which I'd summarize this way...
 
 
More from Doug Casey and Casey Research:
 
 
 

The world's biggest hedge fund is super-bullish on stocks and commodities now

Posted: 14 Feb 2013 12:09 PM PST

From Bloomberg:
 
Bridgewater Associates LP, the $140 billion hedge fund founded by Ray Dalio, is betting on global stocks and oil as it expects money to move into equities and other assets amid increased economic confidence.
 
Bridgewater, the world's biggest hedge fund, is bullish on stocks, oil, commodities, and some currencies as it expects cash to shift to riskier assets, co-chief investment officer Bob Prince said on a client conference call on Jan. 23.
 
"You want to be borrowing cash and hold almost anything against it," Prince said, according to a transcript of the call obtained by Bloomberg News. "We are at a possible inflection point right now with respect to the pricing of economic conditions in markets and then the actual conditions that are likely to occur."
 
Global stocks have rallied 10 percent in the past six months as the U.S. housing market recovers, European leaders take steps to contain their debt crisis, and reports in China suggest economic growth is accelerating. This year will be a "game changer" as investors reallocate money after risks such as Europe's sovereign-debt crisis recede, Dalio said last month at the World Economic Forum in Davos, Switzerland. Investors from David Tepper, who runs the $15 billion hedge fund Appaloosa Management LP, to Carlyle Group LP co-founder David Rubenstein have said they're bullish on the U.S. economy.
 
A spokesman for Westport, Connecticut-based Bridgewater declined to comment on the firm's conference call.
 
'Bullish Shift'
 
Bridgewater likes oil because of the potential for falling stockpiles at wholesalers and economic growth in the U.S. and China, Prince said.
 
"If you get better growth in the U.S., better growth in China, inventories coming down some, and then the incremental supply coming down some -- we're seeing some shifts in the supply-demand balance in oil," Prince said, according to the transcript. "A bullish shift there for oil."
 
Bridgewater, which is also betting on the price of gold to increase, forecasts U.S. growth of about 2.5 percent, Prince said during the call without citing a time period, according to the transcript. Economists estimate an average increase of 2 percent in 2013 gross domestic product, according to a Bloomberg survey of 82 respondents.
 
Not 'Gangbuster'
 
"The point is not so much that we're going to be in the gangbuster period of growth," Prince said during the call. "It's more that growth is likely to be better, particularly in the United States, than it has been. It's more of a movement of capital. The money moving out the risk curve and into risk assets won't take much growth to trigger that kind of shift."
 
Bridgewater is "long equities around the world" and "generally shifting to long commodities positions," Prince said during the call. Hedge funds that make long bets are anticipating the prices of various securities will rise. The firm also has a "moderate long position in developed market corporate credit," he said.
 
Bridgewater is positive on currencies including the British pound, Korean won, Mexican peso and Russian ruble, according to a chart in the transcript showing the firm's current views, which Prince referred to during the call. The firm is bearish on the Japanese yen, Australian dollar, and Canadian dollar, the chart shows.
 
Shorting Yen
 
The yen has dropped about 20 percent in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, in anticipation of the greater stimulus advocated by Prime Minister Shinzo Abe. The Group of Seven nations pledged to avoid devaluing their exchange rates in pursuit of stronger economic growth, to calm concern the world is on the brink of a currency war, officials from G-7 countries said today.
 
"We're now short the yen, largely related to the change in their balance of payment circumstances and, subsequent to that, the emphasis on a more aggressive monetary policy," Prince said. "We are bullish on sterling, largely related to differences in capital flows and the impacts of monetary policy between the U.K., Europe, and United States."
 
The pound is coming off its biggest weekly gain since 2011 versus the euro amid speculation the Bank of England will refrain from extending stimulus, while its European counterpart may cut interest rates further. Sterling rose against all but one of its 16 major counterparts last week after Bank of England Governor-designate Mark Carney suggested current monetary policy may be sufficient to support the economy even as he stands ready to add more stimulus if needed. European Central Bank President Mario Draghi said the recent appreciation of the euro could damp inflation.
 
Bond Bets
 
Bridgewater is wagering on European bonds and betting against those in the U.S., Japan, U.K., and Australia, the firm's chart shows. It's bearish on emerging sovereign credit.
 
The move from cash to riskier holdings would support an increase in the value of assets and improve balance sheets, credit, and economic growth, Prince said. That cycle will continue only until the U.S. Federal Reserve moves toward tighter policy, he said.
 
"You're likely to do reasonably well until you hit the tail end of that cycle, where you get the central banks pulling back on liquidity," Prince said. "That can continue for some time until the Fed no longer continues to inject liquidity. That would end that cycle and push all yields up which would, of course, hurt asset returns."
 
Bridgewater Pure Alpha rose 0.8 percent last year, according to a table in the transcript. The fund has posted an annual return of 14 percent since inception in 1991. Bridgewater All Weather posted a 15 percent gain in 2012 and 9.4 percent annual return since inception in 1996, according to another table.
 
To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net.
 
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.
 
More on the markets:
 
 
 

Barrick Gold's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Posted: 14 Feb 2013 12:00 PM PST

Barrick Gold Corporation (ABX)

Q4 2012 Earnings Conference Call

February 14, 2013, 08:30 AM ET

Executives

Jamie C. Sokalsky - President and CEO

Ammar Al-Joundi - EVP and CFO

Igor Gonzales - EVP and COO

Kelvin Dushnisky - SEVP

Rob Krcmarov - SVP, Global Exploration

Greg Panagos - SVP, IR and Communications

Analysts

Kerry Smith - Haywood Securities

Jorge Beristain - Deutsche Bank

Patrick Chidley - HSBC

Stephen Walker - RBC Capital Markets

Greg Barnes - TD Securities

Tony Lesiak - Macquarie Capital Markets

Steven Butler - Canaccord Genuity

George Topping - Stifel, Nicolaus & Co., Inc

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Barrick Gold Q4 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, February 14, 2013.

I'd


Complete Story »

These Are The Beneficiaries From The Pipeline Revolution In North America (Part III)

Posted: 14 Feb 2013 11:50 AM PST

ByValue Digger:

The oil and liquids boom has created a huge need for new infrastructure which is critical to ease the current bottleneck in Oklahoma and North Dakota pushing the black gold and the liquids and the natural gas around USA and Canada. The necessary grid is being built and the ongoing pipeline projects are going to be the lifeblood of economic growth for the US. These big projects add a backlog of work to the construction companies reinvigorating the economy and boosting employment as well. The jobless claims did not drop accidentally once again last week.

After the first and the second Part, this is the last part with the companies which have the potential to reap the benefits from the ongoing "Pipeline Revolution" in North America.

Once the readers check my comments for all the five following companies, they may wonder why


Complete Story »

Gold – more than just an investment teddy bear

Posted: 14 Feb 2013 11:46 AM PST

According to Adrian Ash, adding gold to a diversified portfolio makes a lot of sense if 35 years of data is to be trusted.

Navigant Consulting Management Discusses Q4 2012 Results - Earnings Call Transcript

Posted: 14 Feb 2013 11:40 AM PST

Navigant Consulting (NCI)

Q4 2012 Earnings Call

February 14, 2013 10:00 am ET

Executives

Julie M. Howard - Chief Executive Officer and Director

Thomas A. Nardi - Chief Financial Officer and Executive Vice President

Lee A. Spirer - Executive Vice President and Global Business Leader

Analysts

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Stephen Sheldon

David Gold - Sidoti & Company, LLC

Jason Kreyer - Craig-Hallum Capital Group LLC, Research Division

Randle G. Reece - Avondale Partners, LLC, Research Division

Patrick Wang

Presentation

Operator

Good morning, and welcome to Navigant's Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time.

I would like to introduce today's speaker Ms. Julie Howard, Chief Executive Officer of Navigant. Ms. Howard, you may begin.

Julie M. Howard

Thank you. Good morning, everyone. With me today in


Complete Story »

Our Problem With Yamana Gold

Posted: 14 Feb 2013 11:38 AM PST

ByItinerant:

Yamana Gold (AUY) is a great company. Just look at the chart below where we compare the share price performance of Yamana Gold with some of its peers including Barrick Gold (ABX), GoldCorp (GG) or Newmont Mining (NEM). Yamana Gold has executed brilliantly on their ambitious growth plans and has been one if not the top performer in the senior gold producer space. They even beat the S&P500 index over the past two years which is a rare feat for gold producers in recent times.

(click to enlarge)

And then look at the chart below showing the development of dividends and yield since the maiden installment in 2006.

(click to enlarge)

We have analysed Yamana Gold's assets and have duly noted that Yamana Gold has some of the lowest cost operations with plenty of mine life and obviously competent management. We have followed them with growing admiration when they


Complete Story »

South Africa’s gold output down 21.2% in December

Posted: 14 Feb 2013 11:29 AM PST

Data released by Statistics South Africa shows that the country's gold output fell by 21.2% in volume terms in December 2012.

Harmony Gold to re-open Kusasalethu mine

Posted: 14 Feb 2013 11:25 AM PST

The gold miner says the start-up plan will begin on Friday and the mine should be back to normal by the end of June.

Jim Willie: Only a Gold & Silver Standard Can Cure the World of Financial Metastatic Cancer

Posted: 14 Feb 2013 11:00 AM PST

By Jim Willie, GoldenJackass.com The Competing Currency War has reached a new elevated fever pitch, with the major central banks delivering powerful damage to each other while defending themselves. The unintended consequences have been a predictable unfolding of events to the sound money gold crowd, with years of warning and even a label given to [...]
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Gold prices rally as central bank demand shows jump

Posted: 14 Feb 2013 10:24 AM PST

Gold priced in Sterling ticked higher to 1060 pounds per ounce while UK government debt prices fell again, pushing 10-year gilt yields up to a 10-month high of 2.27%.

The Currency War, Part II

Posted: 14 Feb 2013 10:22 AM PST

In Part I, readers saw how our political "leaders" were deliberately destroying our economies (at the request of the Corporate Oligarchs whom they serve) in order to boost the short-term corporate profits of these Oligarchs – by destroying the wages of their own workers. Readers also saw the additional costs of this economic suicide: massive unemployment, spiraling debts, and soaring inflation.

This comes in the context of a convoluted Bloomberg article, which discusses the current financial summit of the G-20; where the G-7 sub-group issued a quasi-denial that they were planning a "currency war". This is, of course, a ludicrous lie – since we have roughly a decade of actions by these same G-7 nations which totally contradict their hollow words.

For the past ten years or so "competitive devaluation" has been the official monetary policy of these governments: competing to see who could destroy the value of their currency the fastest. So how would a "currency war" differ from our present "competitive devaluation"?

At most, a currency war would simply be a greater degree of what these corrupt governments have already been doing for the past ten years. At least, the difference is pure semantics. Thus when Bloomberg speaks of our governments efforts to "calm concern" about a currency war, the sham is utterly transparent.

Our dishonest governments are attempting to reassure us that they aren't "planning" on doing (in the future) the same thing they have been doing for the past decade. This is much like a heroin addict (with needles sticking out of his pockets) assuring anyone who will listen that he has "no plans" on shooting-up with more heroin.

This leads us to two closely related questions. Why are our governments lying about their currency destruction? Why is the success of this lie of such vital importance to these governments? The answer to these questions requires ½ arithmetic and ½ understanding human nature.

One thing which humanity has always been good at is destroying things. Thus when our governments "compete" to destroy their own currencies, we know they will be successful. From the moment that competitive devaluation began, the only possible outcome was all these debauched currencies going to zero – i.e. the definition of hyperinflation.

However, even our dim-witted political servants can comprehend the inevitable result of competitive devaluation: all their paper currencies utterly worthless; the fraudulent Paper Empires of their Oligarch masters nothing but confetti. The only way to delay this outcome is to:

a) Lie about what they are doing.

b) Manipulate markets to hide the effects of their actions.

Hyperinflation should be an event of pure arithmetic. Exponentially increasing money-printing (i.e. an exponentially increasing rate of currency-dilution) should produce identical, but inverse  curves. One curve shows the money-printing going to infinity; while its mirror-image shows the value of currency going to zero at the same rate.

However, hundreds of years of empirical evidence shows us that the typical hyperinflation is not an arithmetic event but rather a "crisis of confidence".  To properly understand this requires understanding a colloquial term: the "con-man."

Lynn Parramore: The GOP Plan to Flush Your State’s Economy Down the Toilet

Posted: 14 Feb 2013 10:19 AM PST

By Lynn Parramore, senior editor at Alternet.

The GOP has plans for a comeback. But it may cost you a lot. The idea is to capitalize on recent Republican state takeovers to conduct an austerity experiment known as the new "red-state model" and prove that faulty policies can be turned into gold.

There will be smoke. There will be mirrors. And there will be a lot of ordinary people suffering needlessly in the wake of this ideological train wreck.

We already have a red-state model, and it's called Mississippi. Or Texas. Or any number of states characterized by low public investment, worker abuse, environmental degradation, educational backwardness, high rates of unwanted pregnancy, poor health, and so on.

Now the GOP is determined to bring that horrible model to the rest of America.

In Kansas, the Wall Street Journal reports that Governor Sam Brownback is aiming to up his profile "by turning Kansas into what he calls Exhibit A for how sharp cuts in taxes and government spending can generate jobs, wean residents off public aid and spur economic growth." In remarks quoted in the same article, Brownback announced that "My focus is to create a red-state model that allows the Republican ticket to say, 'See, we've got a different way, and it works.' "

Brownback's economic inspiration is Reagan-era supply-side economist Arthur Laffer and the folks at Americans for Prosperity, the conservative outfit backed by the deep coffers of the Koch brothers.

This new austerity talk focused on "fiscal innovations" is emboldening Republicans in other states that have been gerrymandered into submission to the GOP, including Indiana, Louisiana, Nebraska, Ohio, Oklahoma, and alas, my home state of North Carolina.

Republications have been eyeing the Tar Heel state with interest due to its recent swing status in presidential elections. The state was also the target of a gerrymandering strategy that worked out wonderfully for the Republicans, but not so well for democracy. Sam Wang, the founder of the Princeton Election Consortium, wrote recently in the New York Times about how Republican redistricting thwarted Democratic voters:

"Although gerrymandering is usually thought of as a bipartisan offense, the rather asymmetrical results may surprise you….I have developed approaches to detect such shenanigans by looking only at election returns. To see how the sleuthing works, start with the naïve standard that the party that wins more than half the votes should get at least half the seats. In November, five states failed to clear even this low bar: Arizona, Michigan, North Carolina, Pennsylvania and Wisconsin. … In North Carolina, where the two-party House vote was 51 percent Democratic, 49 percent Republican, the average simulated delegation was seven Democrats and six Republicans. The actual outcome? Four Democrats, nine Republicans — a split that occurred in less than 1 percent of simulations. If districts were drawn fairly, this lopsided discrepancy would hardly ever occur."

The lesson of North Carolina tells you that the GOP red-state model is based, first and foremost, on efforts to flagrantly disregard the will of the people. NC's discount-store mogul Art Pope, a longtime GOP donor and champion of free-market fundamentalism, has been appointed state budget director by the new Republican governor, Pat McCrory. In an incredible display of money buying political influence, Pope has gone well beyond his donor-counterparts in other states. Instead of just funding the politicians he wants, he has gone for direct rule by occupying government himself. Tax repeal is the centerpiece of his announced plans, but his hatred of public investment means he has much more than that in store for one of the most progressive states in the South. Pope is said to be more powerful than the governor, giving rise to the term "Pope administration" to describe the new political reality.

GOP pols are vying to out-do each other in extreme red-state programming. NC state senator Bob Rucho is pushing a plan to eliminate the state's income taxes altogether. Such plans go hand-in-hand with calls for increasing the sales tax. Because low-income people pay a higher proportion of their income in sales taxes, abolishing income taxes and raising sales taxes shoves tax burdens onto them. Obviously, the Republicans will not give up on their passionate desire to cut taxes on the wealthy and stick it to the poor and the middle class.

Pope's ideological opposition to public investment is ringing alarm bells. North Carolina, a state where progressives have fought conservative forces tooth and nail to achieve an enviable university system and a reputation for high-tech and research, is now in danger of being thrown into a period of regressive darkness. University of North Carolina sociologist Andrew Perrin put it this way: "Public investment is part of what has set North Carolina apart from our neighbors in the South."

But Pope is hell-bent on turning North Carolina into Mississippi.

The GOP economic plans not only subvert common sense and the lessons of history (being played out right now in places like the U.K., where austerity has failed dramatically), they also flip a giant middle finger at the American voter. Unable to win support at the national level for their foolhardy economic programs, Republicans have turned their attention to state-level action because that's where gerrymandering really works wonders.

Red-state model proponents claim that their maneuvers will spark economic growth. But that was basically what George W. Bush had in mind when he supported a similar program for cutting taxes on the rich. That didn't work out so well, and increased the very deficits Republicans decry.

But here's the really scary part. Slashing taxes, squeezing workers and throwing out environmental protections can indeed lure businesses to states where they won't have to pay their fair share and can get away with all sorts of abuse. If a state like North Carolina promotes such policies, businesses from nearby states like Virginia may indeed move their operations down the road. Unless you believe in the "Confidence Fairy," as Paul Krugman calls the naïve GOP faith that making everybody poorer is the way to become rich, then you know that what results is simply trade diversion, not genuine growth. In other words, one state's gain is another state's loss. The result is a headlong race-to-the-bottom whereby the states losing business will be pressured to slash their taxes and burden their workers and ordinary citizens, too. Nobody wins in that game — except the 1 percent.

The blue-state model, evident in high-income states like Massachusetts, has long been associated with high levels of state investments in education, transportation and other public goods. And guess what? It's also associated with economic strength. The red-state model, on the other hand, is linked to backwardness, second-rate educational systems and economic weakness.

What the GOP wants to do is create an image-problem for blue states where taxes have been raised to balance budgets and continue vital services and jobs by crying "Look, Ma! No taxes!" in the states where they've taken control.

They'll soon be able to say, "Look, Ma! No economy."

*RAID! 90 Million Ounces of Paper Silver Dumped to Smash Silver Towards $30

Posted: 14 Feb 2013 09:40 AM PST

Another day another waterfall decline for silver, as the metal just dropped nearly $1 vertically to $30.21 as 90 million ounces of paper silver were dumped on the market as the cartel attempts to induce a $20 handle for silver. … Continue reading →

Greg Mannarino: Time to Bet Against US Debt

Posted: 14 Feb 2013 09:20 AM PST

In his latest update, Greg Mannarino states that the US is now the laughing stock of the world as history's biggest debtor nation.  He states that the entire system is based on the acquisition of debt into infinity, and that the moment we stop borrowing it is over and the system will collapse.   This is [...]
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I Had a Revelation

Posted: 14 Feb 2013 09:15 AM PST

READ THE FULL NEWSLETTER

I had a revelation.  After listening to Hedrick Smith, I think I understand why all of the people Backwoods Jack talks to, including the president of the fifth largest bank in America and people from Wall Street and industry, and like his friends in upper management at Cargill, are all so upbeat on the economy.   They don't see the real problems, floating beneath the surface on Main Street.  For the last four decades, the money has flowed UP.  They are doing fine.  They own our politicians.  Tough economy?  How can that be?  Just look at the (false) data released from the BLS and the Wall Street analysts.

But if you are or were formally a part of the middle class, the world looks very different to you.  It used to be that the bankers I knew, and the captains of industry had a heart.  They wanted others to succeed.  Nowadays, these people want to see how much profit they can generate (by cutting jobs and expenses) so that their bonuses will be larger.

To Backwoods' friends, everything is coming up roses.  To the people who need financial assistance because they lost their job and/or their home, life looks very different.  Backwoods, I understand.  You've gotta start hanging out with "real" Americans, not just the ultra-privileged.  And by the way, Pres. Obama, the "RICH" are NOT people who earn $250,000 a year – or even $500,000 a year.  Get real.  If you want to "tax the rich," then target the rich.  You are way, way into middle class territory, or what's left of it.

Nothing is as it seems.  Everything is an illusion.  Everywhere we turn we get false signals, false information and promises that will never be kept.  And that, my friends, is why I buy gold and silver.  They speak the truth!  Hang in there, the bull market is not finished and 2013 will be a good year for gold and silver.

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Gold finds safe-haven demand after poor economic numbers

Posted: 14 Feb 2013 09:09 AM PST

Gold prices are trading with modest gains early Thursday, on some fresh safe-haven investor demand following downbeat economic data coming out of Europe and Asia.

Silver stalls, gold rallies on Eurozone GDP; Japanese buy gold for 1st time since '05

Posted: 14 Feb 2013 09:03 AM PST

Altogether in 2012, global gold demand was the second-highest on record, down 4% by weight from 2011 but rising 2% by value to $236 billion.

Using silver options to capitalize on the debt ceiling

Posted: 14 Feb 2013 07:55 AM PST

As debates over the sequester ramp up and uncertainty over the debt ceiling looms, it is likely that investors will look to buy metals as a "safe-haven" trade. With increasing demand by commercial and industrial manufacturing, silver should see some significant upside in months to come.

Record dollar value gold demand in 2012 — India, China and central banks buy

Posted: 14 Feb 2013 07:33 AM PST

Gold edged up on Thursday, as bargain hunters showed buying interest and gold was particularly strong in euro terms after data from Europe confirmed the continent remains very vulnerable to economic shocks.

Gold miners make bigger than expected write-downs on rising costs

Posted: 14 Feb 2013 07:30 AM PST

Barrick Gold was out earlier today with its Q4 earnings results and they weren't pretty. Via Bloomberg: Barrick Gold Corp., the world's largest producer of the metal, posted an unexpected fourth-...

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Currency Wars are Real—Yra Harris

Posted: 14 Feb 2013 07:30 AM PST

Legendary trader Yra Harris (often quoted by Jim Sinclair) says, "The currency wars are real, and the game is on." Harris says the global currency war is what helped Volkswagen gain market share in the last few years. So, what is Japan doing? It is cutting the value of its currency so Toyota will gain [...]
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Gold futures prices poised to move lower

Posted: 14 Feb 2013 07:19 AM PST

Gold futures prices started Wednesday under pressure as a rally in the dollar continued to erode the value of the yellow metal. Gold futures have also felt the pinch of investors looking to rotate out of alternative assets classes and back into stocks.

2013 Silver Canadian Maples As Low As $1.99 Over Spot!!

Posted: 14 Feb 2013 07:02 AM PST

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Gold Is Money: Central Bank Actions Send Investors a Clear Message

Posted: 14 Feb 2013 06:15 AM PST

Germany recently made big news by announcing its plan to bring home part of its massive gold reserves. By retrieving 300 tons from New York and all 374 tons from Paris, 19% of its holdings – $36 billion worth – will be repatriated. By 2020, Deutsche Bundesbank expects to have 50% of its gold reserves stored in its Frankfurt vaults.

While Germany's announcement is no longer front-page news, it is important to consider the reasons behind this move, and the message being sent to investors by central banks around the globe – gold is money. So fasten your seatbelt, this around-the-world tour is about to begin.

Germany

The reason given by the German central bank for its recently announced repatriation plan was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." Keeping reserves in London and New York – both international markets with great liquidity – affords Germany the ability to complete transactions quickly. Furthermore, Bundesbank has made it clear that this is not to be taken as a sign that it will be selling gold. Quite the opposite, as it also stated that this move is a "pre-emptive" measure "in case of a currency crisis."

Venezuela

You'll likely recall Hugo Chávez's repatriation of Venezuelan gold in late 2011 – a decision that was widely believed to be motivated by fears of US sanctions and frozen assets. Chávez, however, said the move was to"safeguard against volatility in financial markets." Admittedly, Chávez's decision did not hold the same weight as Germany's in the eyes of the world. Germany is an ally of the US, after all. However, having repatriated his gold just months before Europe's debt crisis took hold, it's hard to dismiss the foresight demonstrated by the 15th-largest gold holder in the world.

Russia

Russia, with the eighth-largest holding of gold in the world – almost 938 tonnes (over $50 billion) – has been increasing its gold holdings hand over fist in recent years. In 2012, its gold reserves increased a hair shy of 55 tonnes, more than 6%. The reason given, according to Reuters, is "to diversify its foreign reserves away from paper assets it views as risky."

Switzerland

In 2011, an alarm was raised as many realized that more than half of the Swiss national gold had been sold off. This gave rise to the "Gold Initiative: A Swiss Initiative to Secure the Swiss National Bank's Gold Reserves." Launched by four members of the Swiss parliament, the goal of the initiative is clearly identified in the name; to keep gold reserves secure through three requirements.

  1. The gold of the Swiss National Bank must be stored physically in Switzerland.
  2. The Swiss National Bank does not have the right to sell its gold reserves.
  3. The Swiss National Bank must hold at least twenty percent (20%) of its total assets in gold.

Two of the main reasons given for desiring to secure these reserves are: "the United States Federal Reserve and the European Union (with the European Central Bank ECB) are in the process of a de facto devaluation of their respective currencies, by printing tremendous amounts of Dollars and Euros"; and "These actions strongly affect the Swiss National Bank, as the Swiss franc runs the risk of being devaluated as well." As is stated clearly, "The greater the risk, the more important it is to maintain a sufficient gold stockpile!"

The Netherlands

Of the Netherlands' 612.5 tonnes of gold, only about 11% is in Dutch vaults. Over half is in New York, with the rest divided between London and Ottawa. While recently the Dutch Christian Democratic Appeal Party has made an official appeal to repatriate Netherlands' gold reserves, interestingly, this is nothing new. In January, 2012, Willem Middelkoop warned that "The Netherlands should repatriate its gold as soon as possible."

China

While the World Gold Council reports China as owning just over 1,054 tonnes of gold, it's a well-known fact that the Asian powerhouse is very secretive about its true holdings until it sees an advantage in reporting. Even then, speculation abounds as to the verity of its claims. Some have estimated that, in light of the 1,054 tonnes being reported in 2009, by the end of 2013 China may hold as much as 4,000 tonnes of the yellow metal. Even if this is true, it would still only represent approximately 8% of its total reserves. However, the gold market could react quite strongly if China announces reserves anywhere near these levels.

As the world's largest gold producer for the past six years, China is perfectly capable of building reserves under the radar. Furthermore, due to its secrecy regarding its holdings, don't hold your breath waiting to find out how much gold it's holding. It seems somewhat incongruous that, unlike most central banks, the People's Bank of China encourages citizens to buy precious metals and pursues means of making them readily available. In light of gold's value as a hedge against currency devaluation, one can't help but wonder why.

Turkey

Boasting the first known coin – the slater of Lydia (6th century BC) – Turkey has a rich and ancient relationship with precious metals. A great deal of speculation abounds regarding how much silver and gold the people have stashed as personal reserves. Turkey's central bank has launched an all-out campaign to persuade citizens to deposit these hoards in their vaults. This is the result of two changes in the banking system. The first was thatgold's monetary stability was recognized more fully when banks were allowed to increase their gold reserves from 10% to 30%. Second, as of the fall of 2011, banks were also allowed to include any gold deposited by customers as part of their reserves.

Azerbaijan

While it's entirely possible you've not read about Azerbaijan in the headlines recently, it's interesting to note that the largest of the Caucasus states bought almost 15 tonnes of gold last year as part of a two-year goal to acquire 30 tonnes for its reserves. Recently it's begun taking delivery of the gold, formerly stored in JP Morgan's London vaults, moving it to Central Bank of Azerbaijan vaults in Baku.

An Old Relationship Renewed

It's quite evident that the relationship between the world's central banks and gold has been changing in recent years. Just fifteen years ago, many were selling gold reserves at rock-bottom prices, seeing no real value in maintaining such vast quantities in their reserves. Today these same countries are facing public outcry as the citizenry realizes, albeit too late, that the real sovereign wealth of their nation has been squandered by myopic monetary policies. Other central banks are aggressively increasing their gold reserves.

You, the Investor

As investors, we should take note. After a couple decades of shunning gold as a useless relic, banks are refixing their sights on the yellow metal for many reasons. Central to these is the reality that gold represents the world's true money. Whether we're attempting to diversify our portfolios or hedge against inflationary fiscal policy, true money is one of the few tangible monetary investments backed up by its own intrinsic value.

  • Devaluation of fiat currencies highlights the importance of maintaining a sufficient gold stockpile
    • Central banks are embracing policies of anywhere from 5% to 90% gold reserves. Carefully consider their reasons, and whether you are sufficiently diversified.
  • At one time only a Tier 3 asset, as of the first of the year gold is regarded as a Tier 1 asset, meaning that it is assessed at 100% of its value.
    • Banks now consider gold a 0%-risk asset. Expect demand to increase in light of gold's growing status.
  • Gold is considered a safeguard against volatility in financial markets.
    • This is exemplified by its impressive gain following the debt crisis of 2008 (28.5% gain in the four months between November 4, 2008 and March 2, 2009).
  • Banks are pursuing international allocation to fit the needs of changing world monetary dynamics.
    • Hard Assets Alliance has storage facilities for investors like us in the US, Zurich, London, Melbourne, and Singapore.
  • Banks are proactively diversifying away from paper assets.
    • With a SmartMetals™ account from Hard Assets Alliance, you'll buy or sell fully allocated lots of gold, silver, platinum, or palladium – single coins to multi-ounce bars – instantly, online.

While banks certainly overexposed themselves, leading to the debt crisis of 2008, this was followed by reducing risk through the implementation of more stringent guidelines. When those "more stringent" and less risky guidelines perceive gold more favorably, we need to sit up and take notice. If bank confidence in gold is growing even as confidence in paper currency exposure wanes, we seriously need to ask ourselves which we'd rather be exposed to. Gold clearly offers a solid opportunity in diversity and stability.

The Price Of Gold In The Cold-Gold War

Posted: 14 Feb 2013 06:12 AM PST

The collapse of the USSR in 1991 was seen as the triumph of capitalism over communism. The 40-year cold war was over and the West had won. That perception, however, was as premature as it was misleading. The struggle of world powers wasn't over. Today, the struggle continues in a far more fundamental venue; on capitalism's home court in the arena of paper money.

The West, as Mao Tse-Tung once claimed, is not a paper tiger; unless, of course, you're referring to its paper money.

In 1991, communism was, in fact, collapsing. But capitalism, unbeknownst to itself and others, was bankrupt after its costly decades-long struggle with communism. Today, the former communist super-powers, Russia and China, have re-emerged and are playing the high-hand of gold against England, the US and the West and their now vulnerable paper currencies.

England's debt-based paper banknotes were the reason for the West's three hundred year global hegemony. Because of its ability to wage war on credit and pass off its debt-based paper banknotes as money, England in the 18th and 19th centuries and, later, the US in the 20th achieved a level of world power not seen since the Roman Empire.

In the 1900s, Russia and China escaped the West's capitalist dominion by adopting communism, an alternate economic paradigm, based on the theories of Karl Marx, Friedrich Engels and Vladimir Lenin. Communism was, in fact, a potent and dysfunctional amalgam of untested theories, unfounded hopes and totalitarian state oppression.

Ostensibly offering a more equitable distribution of wealth than the banker's paradigm of credit and debt, Marxism/Leninism was, in fact, a bloody and costly trap into which Russia and China would both fall in their attempts to escape the West's economic and political domination.

The West's attempts to subjugate Russia and China would, however, ultimately cost the West its foundation of economic and political power, i.e. the ability to pass off debt-based paper banknotes as money.

In capitalist economies, debt-based paper money possessed intrinsic value because it was convertible to gold upon demand. In fact, gold was capitalism's 'secret sauce', the essential ingredient that transformed the bankers' debt-based banknotes into something other than government-issued IOUs.

Since 1971, however, the West's paper banknotes are no longer convertible to gold. This is because after WWII, the US, in its attempts to militarily subjugate Russia and China overspent its massive gold reserves, forcing it to end the gold-convertibility of the US dollar. As a result, all currencies in the world formerly tied to the US dollar and hence to gold became fiat, i.e. currencies who have value only because of government fiat, i.e. command.

After 1971, it was only a matter of time until the bankers' debt-based paper banknotes—without the convertibility to gold—would become increasingly unstable and ultimately worthless; and, today, in 2013, the former has happened and the latter is underway.

The value of today's paper money is determined solely by currency speculators placing leveraged bets in the hopes of achieving short-term gains. Once the gold-convertibility of paper money ended, modern currencies became paper coupons with expiration dates written in invisible ink.

Today, the West and its bankers are desperately hoping that no one will notice, hoping thereby to prevent a hyperinflationary collapse of paper money should confidence in fiat paper money evaporate.

Russia and China, however, are preparing for that very day. Russia and China are stockpiling gold as fast as they can in anticipation of a coming currency crisis triggered by the West's increasingly suspect paper money.

For the former communist powers, Russia and China, it's payback time; but for England and the US, it's blowback time

blowback capitalism gold silver insights

THE EAST IS GOLD WITH A RED TINGE

On February 6, 2013, in China Gold Imports from Hong Kong Climb to record on Wealth, Bloomberg New reported:

Exports of gold to Hong Kong from China more than tripled to 310,861 kilograms in 2012 from about 95,529 kilograms a year earlier, according to Bloomberg calculations. Shipments were 29,718 kilograms in December, up from 28,978 kilograms in November.

chinese gold imports from hong kong gold silver insights

In the article, Bloomberg News also noted the growing relationship between China's wealth and the ownership of gold:

China's urban per capita disposable income rose 12.6 percent in nominal terms in 2012 to 24,565 yuan, the National Bureau of Statistics said on Jan. 18. Per capital rural net income increased 13.5 percent in nominal terms, and 10.7 percent in real terms…

china private gold savings gold silver insights

Not only is China buying record amounts of gold, Russia is buying even more. On February 11th  in Putin Turns Black Gold Into Bullion as Russia Outbuys World, Bloomberg News reported that Russia's President Putin is investing Russian's oil income in gold bullion at a record rate:

When Vladimir Putin says the U.S. is endangering the global economy by abusing its dollar monopoly, he's not just talking. He's betting on it…. His central bank has added 570 metric tons of the metal in the past decade, a quarter more than runner-up China, according to IMF data compiled by Bloomberg. The added gold is also almost triple the weight of the Statue of Liberty.

russia gold reserves gold silver insights

China, the world's number one producer of gold, and Russia, the world's fourth largest producer, also no longer allow domestically-mined gold to be sold outside their countries. This means Russia and China are accumulating gold both by buying and mining it in record amounts.

GEOPOLITICS AND THE PRICE OF GOLD

Money and power are two sides of the same coin and both are at the center of today's gold market. With growing demand for gold from both China and Russia, it would be assumed that prices should be rising as supplies of gold are becoming increasingly tight.

Sandeep Jaitly is the author of the Gold Basis Service, a subscription-only commentary on developments in the gold and silver bases and the 'implications about future movements for prices'. In his February newsletter, Jaitly referred to an earlier statement from January 25th:

The bases/co-bases across all maturities for both gold and silver are falling/rising indicating substantial demand for physical bullion that is not being adequately accommodated. February gold has entered backwardation as of last week. As a consequence of the fall/rise in the bases/co-bases, volatility of bullion against fiat is likely to increase. The opportunity to exchange gold for silver should be taken if the gold/silver ratio rises substantially (above 55.)

Sandeep Jaitly's observations about gold and silver have been remarkably consistent over the past year. Demand for both gold and silver have been constant while supplies of both metals have been pressured leading to indications that an upswing movement in prices can be expected and the accumulation of both metals is encouraged.

In the past year, however, gold and silver have not performed in accordance with such expectations. I believe this temporary anomaly is attributable to two factors: (1) the increasing determination of Western central and bullion banks to prevent another almost-vertical price movement in gold as happened in July/August of 2011 when gold rose 27% in only 60 days; and (2) the current Chinese strategy to purchase gold at the lowest price pointspossible.

On February 11th when gold collapsed to a low of $1642, Takoa de Silva of Bull Market Thinking asked a trader who runs a market-making desk in London's gold market to explain the drop in gold.

Commenting on today's collapse he said, "I'm not that worried about the sell-off today, it's just the logical thing. I was surprised they waited so long [to take it down], because many opportunities to push it to that level existed before…and it finally happened, and that's good for the market. This is actually a blessing. We are still not at the lows of January at $1625…but at the moment this is probably as far as it's going to go [$1642]. There's good support here."

He further added that, "This is actually the typical reaction of the Chinese New Year, because the shorts, they know there will be no physical demand for a couple of days, there won't be support there, and so they are smart. This is smart money just pushing it to the extremes. For me this is an opportunity to get something cheap in for the mid-term. But you can't fight the trend at the moment in terms of what's in the air for the Fed-speak etc., but the long-term money stays and sits."

The statement, the opportunity to get something cheap describes China's buying strategy perfectly. Both China and Russia want to buy the West's gold at the lowest possible price and they will do so accordingly. All investors should do the same.

In my current youtube video, Bankers, England and Israel, I explain the role of England and bankers in the creation of the state of Israel. As stated previously, money and power are two sides of the same coin. The creation of the state of Israel is no exception.

Sandeep Jaitly's observations about the gold and silver markets are correct. The accumulation of both metals is encouraged. Regarding the continuing struggle between gold and paper money, precious metal investors have already put their money where their beliefs are—and they should keep it there.

Buy gold, buy silver, have faith  |  Darryl Robert Schoon

www.survivethecrisis.com
www.drschoon.com

Record Dollar Value Gold Demand In 2012 – India, China and Central Banks Buy

Posted: 14 Feb 2013 06:10 AM PST

According to the World Gold Council's Q4 2012 report issued today, Global gold demand in Q4 2012 reached 1,195.9 tonnes, up 4% from Q4 2011. In value terms gold demand for the quarter was 6% higher year-on-year at $66.2bn marking the highest ever Q4 total and driving annual demand in 2012 to a record value [...]
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American ‘cash 4 gold’ stores to face new regulations?

Posted: 14 Feb 2013 06:00 AM PST

The 'cash for gold' - or "cash 4 gold" if you prefer - business has been booming in recent years, but such ventures operating in America are facing the prospect of ...

Houston to Bullion Dealers – ‘Get Out!’

Posted: 14 Feb 2013 05:50 AM PST

Houston City Council apparently passed an onerous and probably unconstitutional requirement forcing bullion dealers to photograph and thumbprint law abiding sellers of precious metals . 

The new ordinance will not make any meaningful difference to criminals, except perhaps the stupidest of them, but good, law abiding, hard working folks will likely do business outside the largest city in Texas, or online.  Why submit to Gestapo tactics by this out of control city government?   

20130214 Annise ParkerThe city, under Mayor Annise Parker is following the California example of burdening their businesses with so many regulations and requirements they opt to locate elsewhere.  Like any one of a dozen smaller but vibrant communities that surround Houston.

Houston City Council might as well have shouted to coin, bullion and jewelry dealers:  GET OUT!

The exodus of rational, reasonable, productive business from this anti-Texan city government is accelerating. 

To our many friends in the business in Houston, our sympathies.  Moving is such a hassle.  We strongly suspect your clientele will find you in Richmond, Sugar Land, Rosenberg, Manvel, League City, Spring, Conroe, The Woodlands… et al. 

A related story from the Houston Chronicle follows below.   

 

Brown calls new rules on jewelry dealers 'safety theater'

 By Mike Morris |  February 6, 2013

Houston City Council on Wednesday passed new rules on precious metals dealers despite a lengthy attempt to water down the ordinance by Councilwoman Helena Brown, who called it "safety theater" that would burden businesses and invade jewelry sellers' privacy.

Officers in the Houston Police Department's precious metals unit said reputable dealers already implement many of the new rules but said the ordinance - which requires a photograph and thumbprint of each seller and mandates dealers enter  transactions into an online database - will help them catch crooks and recover stolen goods.

Brown sought to remove criminal penalties for violating the ordinance, to allow dealers more flexibility in when and how to report transactions and to scrap the rule requiring sellers to have a photo and thumbprint taken. Each amendment was easily defeated.

"Why even ask the legal, law-abiding people to submit to this? It's not going to prevent crime and it's not going to solve any crimes," Brown said. "It's ludicrous. We've gone way beyond what our Founding Fathers envisioned for this nation."

She paraphrased a quotation, which she attributed to Thomas Jefferson, saying those who would give up liberty for safety deserve neither.

Officers Rick Barajas and Todd Harris, of HPD's precious metals unit, said they have spent a year on the ordinance, visiting 250 gold dealers and holding several stakeholder meetings. HPD formed the unit after noticing 4,800 burglaries of jewelry valued at more than $10,000 between July 2010 and June 2011; monetary losses in jewelry-related crimes doubled from 2007 to 2011 as prices rose, along with thieves' interest.

One exchange between Brown and the officers got testy, and Brown later buttonholed Harris outside the chamber, but other council members were on board. Councilman Al Hoang said he had planned to vote against the new rules but was swayed by the officers' explanations.

Mayor Annise Parker did not weigh in at length during Brown's efforts, but did make an offhand comment.

"And for the record," she said, "it was a Benjamin Franklin quote."

From Chron.com

http://www.chron.com/default/article/Brown-calls-new-rules-on-jewelry-dealers-safety-4258168.php

 

Silver price up 1% after bouncing off short-term support levels despite a 0.5% rise in the dollar

Posted: 14 Feb 2013 05:41 AM PST

After a break lower through the rising support level at the start of the week the silver price quickly fell to its short-term support level around $30.75. Silver tried to rally off this level on...

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Ian Fraser: Stephen Hester, the Great Escape Artist

Posted: 14 Feb 2013 04:57 AM PST

By Ian Fraser, a financial journalist who blogs at his web site and at qfinance. His Twitter is @ian_fraser.  [An edited version of this article was published on pages 34-35 of the Sunday Herald on February 10th, 2013].

It has been described as the biggest banking felony in history … yet no-one has been prosecuted for the Libor fixing scandal. Ian Fraser looks at the RBS sacrificial lambs.

During Royal Bank of Scotland's IT meltdown last summer, chief executive Stephen Hester referred to the risk "that you turn over rocks and find new things [that you have to clean up]." Last Wednesday, nearly five years on from the £45.5 billion taxpayer funded rescue of the Edinburgh based lender, a vast rock was hoisted aloft by three regulators. What lurked underneath was not a pleasant sight.

In a deferred prosecution deal with the United States Department of Justice, Commodities Futures Trading Commission and the London-based Financial Services Authority, the bank admitted that between 2006 and 2010 staff based in London, Singapore, Tokyo and the US conspired to manipulate the global financial benchmark, the London Interbank Offered Rate (Libor) calculated in both Swiss Francs and Japanese Yen. They did this in order to make money for themselves and the bank at the expense of others. Libor is a global benchmark used to price some $300 trillion of contracts, ranging from mortgages to student loans to interest-rate swaps, calculated by averaging out submissions from up to 40 global banks

"This is the biggest scandal, the biggest anti-trust felony, in the history of the world, and it continued for years," said Bill Black, associate professor of economics and law at the University of Missouri-Kansas City, and a world leading expert on financial crime. "Even after the investigation became public knowledge, the felony continued, and it continued with greater efforts being made to cover it up, with people being instructed to no longer to use instant messages and such like in order to make it harder for the regulators.

"What is most stunning is that these traders and submitters were willing to say these things, knowing that there was a verbatim record being kept. What does that tell you not just about the institution itself, but also about the FSA and the Serious Fraud Office? That is the one of the most important and revealing fact that comes out of this. The perception inside the bank was 'we don't need to worry about those clowns'."

By pleading guilty to one count of wire fraud in its Japanese arm, RBS managed to avoid having its US operations shut down by the US Department of Justice. Over and above the plea, and a two-year deferred prosecution in the United States conditional on good behaviour in that jurisdiction, RBS is paying a fine of $612m (£390m) to three regulators. "We are holding RBS accountable for a stunning abuse of trust," said assistant US attorney general Lanny Breuer. "Our message is clear: no financial institution is above the law."

The penalties, handed out alongside revelations of hundreds of lurid, sexist and semi-literate 'IMs' or instant messages in which RBS traders and managers laughed as they displayed a casual disregard for the law, were unveiled at 1pm on Wednesday. They included one from Neil Danziger, a yen foreign exchange trader, who the bank dismissed in 2011, dated 15 September 2009. Danziger celebrated one successful falsification of the Libor rate by comparing his actions to those of a hooker pulling up and down her underwear. "im [sic] like a whores drawers," he messaged.

Two other global banks have reached settlements along similar lines over Libor crimes. UBS was fined $1.5 billion (£950m) in December, and Barclays was fined $451m (£287m) in June 2012. A further 20 or so global banks are have yet to reach settlements. In the UK they are thought to include Lloyds Banking Group and HSBC.

RBS received a heftier fine that Barclays because the bank effectively bribed interdealer brokers, including RP Martin, to persuade other banks to also misrepresent their Libor borrowing costs. The Edinburgh-based bank did this via so-called 'wash' trades – matching buy and sell trades placed with the same counterparty for the same amount on the same day, which earn the broker a commission, but cancel each other out.

The regulatory documents reveal how Tom Hayes, a derivatives trader at UBS who has been characterised as the "Jesse James" of the global Libor rigging scandal, and RBS's Danziger (who worked together at RBS in 2002-03) expedited corrupt payments to brokers "to increase [their] influence over the broker firms," the FSA said. Together Hayes and Danziger gave £211,000 in bribes to brokers, one of which was RP Martin, as part of their push to manipulate global interest rates so their own rate-related bets would come up trumps, regulators said.

"Can you do me a favor," one broker asked Danziger on September 19, 2008, just days after the Lehman Brothers collapse. "You're not going to get paid any bro for this and we'll send you lunch around for the whole desk." As the broker outlined the trade, he said "Take it from UBS, give it back to UBS. He wants to pay some bro," referring to fees. "Yeah, yeah," Danziger replied. Later that day, the broker asked Danziger if he could "do another 100 yards" or 100 billion, increasing the size of the transaction. "Flat switch," the broker said. "I know I'm pushing my luck."

Another reason RBS's fine was marginally bigger than Barclays's was because it allowed the Libor rigging to continue for longer, and because it failed to stamp out the wrongdoing even after FSA launched its investigation. However on the plus side, unlike Barclays and UBS, RBS's top management was not found to have low-balled the bank's Libor numbers in order to deceive investors about their institution's financial health in the build up to the global financial crisis.

Since being found out by regulators, RBS's strategy has been to blame junior and middle-ranking people for the scandal, claiming that no one at the top of the bank knew it was going on. This is surprising, given that in September 2007, the Financial Times's Gillian Tett highlighted concerns that Libor was "a bit of a fiction" [FT 25 September 2007], and that in April 2008 the British Bankers' Association sent a memo to 'panel' banks including RBS asking them to check their Libor submission processes and ensure they were "submitting honest rates" after the Wall Street Journal's Carrick Mollenkamp highlighted "growing suspicions about Libor's veracity" [WSJ 16 April 2008]. And the financial rewards of rigging rates were, and are, immense. For example RBS's rates, currencies and commodities group — the one where Libor rigging and other forms of market manipulation are believed to be commonplace — saw its income rise by 87% in the half year to June 2008, at a time when the overall income RBS Global Banking and Markets fell 10%, according to the bank's former finance director Guy Whittaker.

Some RBS traders who have been dismissed for Libor rigging argue that they are being used as scapegoats, claiming that their superiors in in GBM in London 'condoned collusion'. In court papers filed with the Singapore High Court last year, Tan Chi Min, RBS's ex-head of Japanese Yen interest-rate trading , declared that Libor rigging was a well-known and common practice at the bank in 2006-11. He is suing RBS for wrongful dismissal, claiming the bank condoned the practice saying: "The defendant's [RBS] consequent internal investigations were intended to create the impression that such conduct was the conduct not of the defendant itself, but the conduct of specific employees. Tan, also known as 'Jimmy' Tan, worked for RBS from August 2006 to November 2011 and is claiming £1 million in bonuses and 3.3 million RBS shares.

Hayes, a former RBS trader also known as 'Rain Man' as a result of his reported lack of social skills, "dwarfed them all" where Libor rigging was concerned, as he "spearheaded a massive effort" to manipulate benchmark rates, according to the CTFC. On leaving RBS, Hayes, who also made massive trading profits for each subsequent employer, jumped ship to Royal Bank of Canada, then to UBS, then to Citigroup. Hayes, 33, was seen as a valuable commodity in investment banking circles due to the strength of his strong network of contacts who could help him nudge the Libor rate up and down. His pay package more than doubled from $2m to $5m  when he moved from UBS to Citi.

However, Hayes was fired by Citi in September 2010 and in December 2012 he was arrested by the Serious Fraud Office and bailed without charge. Separately, he was charged with wire fraud, price-fixing and conspiracy by the US Department of Justice. According to an article in the Wall Street Journal, Hayes is now 'singing like a canary', and seeking to prove to the authorities that Libor rigging was condoned at the highest levels at his former employers. Jennifer Arcuri, a close friend of Hayes, said he is helping police with their inquiries. "He believes he's innocent," Arcuri told the WSJ. She added that trying to rig Libor "was common industry practice. It was like spanking children in the 1970s – it wasn't bad."

On Thursday RBS said it had thrown a couple of senior people overboard, confirming that global head of treasury markets, Scott Nygaard, and global head of short-term interest-rate trading, Kevin Liddy, had gone. Nygaard was a member of the Bank of England's money markets liaison group, set up to advise the central bank on City developments. On Wednesday the bank said that Jezri Mohideen, its head of rates trading for Europe and Asia-Pacific, and Paul Walker, head of money-markets trading, had also been dismissed. It has not clarified how much of their bonuses will be clawed back, but the UK government is determined that the RBS's fines will come out of the bonus pot, even of workers who had nothing to do with Libor rigging. So far, RBS said that eight of the 23 individuals who appear to have been implicated in the price-fixing scam have been dismissed. Eight left before the main disciplinary process started, and six have either been disciplined or going through a disciplinary process.

Black, author of 'The Best Way to Rob a Bank is to Own One' and a former senior US regulator with the Federal Home Loan Bank Board and the Office of Thrift Supervision, believes this is wholly inadequate. "They're talking about keeping six of the people who were part of the largest anti-trust violation in history and they're talking about internal discipline?! This is becoming more and more like a Eugène Ionesco play. It does look as though no-one – or at least no-one senior – Is going to be prosecuted for this. It's all being presented as if there were just a few rogues who operated for between six and ten years of rogue-dom."

Seemingly determined to protect Hester, chancellor George  Osborne was instrumental in persuading the bank to oust its head of investment banking, John Hourican, at the same time relieving him of Hourican of some £4m in unvested bonuses. In a memo to staff, Hourican, who oversaw the division in which Libor rigging occurred from October 2008, said he bore "some responsibility for the continuing actions of all our employees" but had no knowledge or involvement in Libor rigging.

Some are questioning how long Hester can remain in post. One problem for Hester is the bank's seeming nonchalance about Libor rigging, even three years after Hester replaced Fred Goodwin as chief executive. The FSA said that, in March 2011, RBS misled the regulator, indicating that it had put proper systems and controls in place when it had not. FSA enforcement head Tracey McDermott said: "The FSA takes it very seriously when firms tell us that they have appropriate systems but do not." On Wednesday, Hester said the RBS board had turned down his offer to resign. "The people who sit in judgement of us can dismiss us at any time if they feel that the bad bits get to be bigger than the good bits."

The FSA and the Serious Fraud Office are still reported to be considering prosecutions. And a spokesman for Crown Office in Edinburgh told the Sunday Herald "COPFS continues to consider all information published or received as part of its investigation into the Scottish banking sector announced last year."

Last Wednesday's settlement is far from being the end of RBS's Libor woes. The bank had its London offices raided European Union in October 2011 as part of an EU inquiry into the rigging of Libor, Euribor and other alleged market abuse. The results of the Brussels-led anti-trust probe are not due until 2014. In Canada, the competition bureau is investigating RBS for alleged collusion with other banks to manipulate a number of interest rates and has subpoenaed the bank for information, but RBS is refusing to cooperate, citing data privacy laws in the UK. In Switzerland, the competition commission is investigating whether traders at 12 financial institutions including RBS rigged Libor and Tibor to manipulate "market conditions regarding derivative products based on these reference rates". There is also a potential £15 billion damages bill arising from civil actions from investors and others who lost out as a result of the Libor manipulation, some of which were buoyed by Wednesday's settlement. Cenkos analyst Sandy Chen said that, assuming there was just 0.05% mispricing in interbank rates over four years – much less than the 0.4% that some class action lawsuits allege – RBS could face damages of £80bn. That would mean bankruptcy.

In one of the biggest cases, the City of Baltimore has filed a class action on behalf of entities and individuals who purchased financial instruments indexed to Libor in the United States between August 2007 and May 2010. The most valuable parts of the RBS deferred prosecution agreement for these plaintiffs are the underlying documents, including details of the instant messages, according to legal experts. But to gain access to those documents, the plaintiffs may have to survive a motion to dismiss by the defendants. In the Baltimore case, a hearing on RBS's motion to dismiss will be heard on March 5 by US District Judge Naomi Reice Buchwald in Manhattan. William Carmody, a lawyer for the city of Baltimore, said last week he had not carefully studied RBS's deferred prosecution agreement, but added that the statement of facts contained in it was remarkably detailed. "It's incredibly helpful for our case," he said.

There are further stones to turn over at RBS. One is an ongoing US Department of Justice and Federal Reserve inquiry into money laundering for rogue states by its US arm Citizens Financial, which some informed sources predict will lead to a bigger fine than Libor rigging. RBS said: "The Group is co-operating fully with these investigations. It is not possible to reliably measure what effect these investigations, any regulatory findings and any related developments may have on the Group, including the timing and amount of fines or settlements."

Another scandal on the horizon for RBS involves the alleged manipulation of exchange rates between the Vietnamese Dong, Indonesian Rupiah and Malaysian Ringgit on the non-deliverable currency forwards (NDFs) market. These are derivatives that allow speculation in or hedging of emerging market currencies that cannot be traded directly or freely due to exchange controls. The effect of manipulation  on the performance of NDFs can be spectatular, with one trader likening it to the "financial equivalent of a cyclist on steroids." The probe has already seen Ken Choy, a Singapore based director in RBS emerging markets foreign exchange trading unit, who was an active player in Singapore's NDF market, put on leave, according to Bloomberg News.

Many people believe the UK government and UK authorities, together with those in the US, are being too soft on financial crimes, seeing mollycoddling miscreant financial institutions that it majority owns as more important than seeking justice. The fact that RBS's share price rose on the day of its settlement suggests investors believe it got off lightly. Referring to the RBS deferred prosecution, Neil Barofsky, former special inspector-general of the Troubled Asset Relief Programme and author of Bailout, said: 'It seems some banks are still too big to jail."

In a an op-ed in the Financial Times last week, Barofsky added: "This forbearance will have potentially devastating long-term effects, as each settlement on favourable terms reinforces the perception that, for a select group of executives and institutions, crime pays. It is only rational. They know that they will get to keep all of the ill-gotten profits if they go undetected, and on the small chance that they're caught, most probably only the shareholders will pay – and only a relatively minor fine at that. The lack of meaningful consequences for those committing these frauds encourages future fraudulent conduct. Ultimately, the financial crisis was a game of incentives gone wild, and the lack of accountability in the aftermath of the crisis has only reinforced those bad incentives.

"Breaking those incentives requires ditching the 'Geithner doctrine', which has led to the banks becoming even larger and more systemically significant than they were before the crisis … To reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all."

Black said: 'Why does RBS exist? The bank is too big to prosecute, it's too big to run honestly, it creates enormous distortions, it's created catastrophic harm to the British people. It should be shrunk and divided up into vastly more efficient entities. But none of that seems to be on the table. Instead we get inadequate solutions like the 'electric ring-fence' to separate retail and investment banking. In essence, RBS holds the British economy and the British people hostage.'

Stocks slump in Europe as the eurozone recession deeper than expected

Posted: 14 Feb 2013 04:39 AM PST

Fourth quarter GDP did not only turn negative in the US, the GDP data from the eurozone today showed a worse than expected 0.6 per cent fall. Stock sold-off heavily in response with US futures also lower. The euro fell against the US dollar.

Is the eurozone about to have another of its periodic hiatuses? The fall in GDP was the biggest quarterly decline since the Lehman Brothers collapse…

WGC - 2012 sees gold demand hit record value level

Posted: 14 Feb 2013 04:38 AM PST

20130214 gold bullion WGCQ4 2012 up 4% year-on-year as India, China and central banks drive demand

In value terms, gold demand in 2012 was US$236.4bn – an all-time high. Gold demand in value terms for the final quarter of the year was 6% higher year-on-year at US$66.2bn, marking the highest ever Q4 total.

Global gold demand in Q4 2012 was 1,195.9 tonnes(t), up 4% on the same quarter in 2011. In Q4 2012, the average gold price reached a record level of US$1,721.8/oz, up 1% on the previous record average price in Q3 2011. The average price during 2012 was US$1,669.0/oz, up 6% from US$1,571.5/oz in 2011,

The key findings from the report are as follows:

  • Whilst Indian full year demand was down 12% on the previous year, the market performed strongly in the final quarter with total demand at 261.9t, an increase of 41% on the same period last year.  Both jewellery and investment demand reached their highest levels for six quarters. Demand for jewellery was up 35% year-on-year to reach 153.0t, and strong retail demand led to 108.9t of investment buying.  In India the prospect of duty increases, which came in to force in January 2013, may have added to strong buying in the final quarter to beat the anticipated price rises.
  • Chinese demand was flat year-on–year, reflecting the impact of economic slowdown. However looking at Q4, total demand was up 1% on the previous quarter to 202.5t. Jewellery demand was137.0t up 1% on Q4 2011 and investment demand was 65.5t, up 2% on the previous year. These increases may reflect the fact that the economic slowdown in China appears to have been shorter than expected.
  • Central bank buying for the full year rose by 17% compared to 2011, totalling 534.6t, the highest level since 1964. Central bank purchases stood at 145.0t in Q4, up 29% on the corresponding quarter in the previous year, making this the eighth consecutive quarter in which central banks have been net purchasers of gold.
  • Global investment in ETFs in 2012 was up significantly by 51% on the preceding year, though Q4 was down 16% to 88.1t when compared with the high levels recorded in Q3 2012.

Marcus Grubb, Managing Director, Investment at the World Gold Council said:

20130214 Marcus Grubb"China and India remain the world's gold power houses, and by some distance, despite challenging domestic economic conditions. In India, consumer sentiment towards gold remained strong despite measures aimed at curbing demand, reaffirming gold's role in Indian society. In an underdeveloped financial system in India, gold has an important role to play.

"Notwithstanding the predicted economic slowdown in China, investment demand was up 24% in Q4 on the previous quarter and jewellery consumption held steady at 137.0t.

"Central banks' move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace.  The official sector purchases across the world are now at their highest level for almost half a century.

"Despite the turbulent macroeconomic climate throughout the year, as well as the regional uncertainties affecting India and China, the two largest gold markets, annual demand was 30% higher than the average for the past decade."

Gold demand and supply statistics for Q4 and full year 2012:

  • Fourth quarter gold demand of 1,195.9t was up 4% compared with Q4 2011 but down 4% on the full year.
  • The value measure of gold demand in Q4 2012 was 6% higher year-on-year at US$66.2bn and 2% up over the full year at a record US$236.4bn.
  • The Q4 2012 average gold price reached a record level of $1,721.8/oz, up 1% on the previous record average price in Q3 2011.
  • Investment demand (the sum of ETFs and total bar and coin demand) was 424.7t, down 8% compared to the same quarter last year, but was 19% above the five year quarterly average. Demand for ETFs and similar products in Q4 was down by 16% on the corresponding quarter in 2011 to 88.1t, but was up by 51% on the full year.
  • Demand in the jewellery sector was up 11% to 525.3t compared to 472.4t in the same quarter in 2011. Jewellery demand for the full year 2012 was down 3% on 2011 in tonnage terms.
  • Fourth quarter demand for gold in the technology sector was down on Q4 2011 by 3% at 100.9t which is in line with expectations, following moves by manufacturers to substitute gold bonding wire. This was as much a reflection of the inventory cycle, as of weaker demand for electrical items. Technology demand for the full year 2012 was down 5% on 2011 in tonnage terms.
  • The Q4 2012 supply of gold from mines was up 2% year-on-year, while recycling was down 5% against the same period. Full year supply in 2012 remained stable against 2011 levels.
  • Official sector purchases stood at 145.0t in Q4, up 29% on the corresponding quarter in the previous year, making this the eighth consecutive quarter in which central banks have been net purchasers of gold. Central bank buying for the full year rose by 17% compared to 2011, totalling 534.6t, the highest level since 1964.

The Q4 and full year 2012 Gold Demand Trends report, which includes comprehensive data provided by Thomson Reuters GFMS, can be viewed here: and on our new iPad app which can be downloaded from www.itunes.com and a video can be seen here.

For further information please contact:

James Murray
World Gold Council
T +44 20 7826 4754
E james.murray@gold.org

Giles Abbott
Capital MSL
T +44 20 7307 5340
E giles.abbott@capitalmsl.com

Note to editors:

World Gold Council
The World Gold Council is the market development organisation for the gold industry. Working within the investment, jewellery and technology sectors, as well as engaging in government affairs, our purpose is to provide industry leadership, whilst stimulating and sustaining demand for gold.

We develop gold-backed solutions, services and markets, based on true market insight. As a result, we create structural shifts in demand for gold across key market sectors.

We provide insights into the international gold markets, helping people to better understand the wealth preservation qualities of gold and its role in meeting the social and environmental needs of society.

Based in the UK, with operations in India, the Far East, Europe and the US, the World Gold Council is an association whose members include the world's leading and most forward thinking gold mining companies.

Source: WGC

http://www.gold.org/media/press_releases/archive/2013/02/gdt_q4_2012_pr/

WGC - Gold investment statistics commentary

Posted: 14 Feb 2013 04:11 AM PST

Investment commentary: Q4 and full year 2012

Overview

This commentary summarises gold's price performance and relevant statistics in various currencies and the macroeconomic factors that influenced gold's behaviour during the fourth quarter and 2012 as a whole. It complements the investment statistics analysis updated on a regular basis. It also discusses likely future developments ahead that will underpin the fundamental drivers of gold in 2013, as well as others that may provide challenges.

Q4 and full year 2012 in summary

  • 2012 marked the 12th consecutive year of annual gains. Despite a weak fourth quarter, gold in US dollars ended 2012 up 8.3% at US $1,657.50 /oz on the London PM fix, marking the 12th year of annual gains.
  • Low volatility despite continued uncertainty. The fall in gold prices in the last quarter came amidst low volatility. Gold in US dollars had an annualised volatility of 11.5%, well below its long-term average of 16% and the third lowest quarterly volatility in the past 10 years, in line with a drop in volatility seen in many other assets classes.
  • Correlations drop on lack of activity and lower systemic risk. Correlations fell during Q4 2012 as a dearth of macroeconomic events during the quarter left gold's other fundamental drivers and speculative positioning in charge. Gold's correlation to the trade-weighted US dollar, global bonds and equities were all lower than in Q3 2012 and Q4 2011.

Macroeconomic developments likely to influence gold in 2013

  • Global growth - brighter but fragile. Q4 provided welcome signs of economic recovery in several countries, most notably in the US and China. Yet there are still lingering economic difficulties, which may keep market risks elevated, constrain efforts to reduce sovereign- and private-sector indebtedness, and act as a brake on corporate-sector profit growth. But the role of sentiment should not be underestimated as it could provide an additional boost to economic activity in 2013.
  • Policy normalisation? Recent releases of positive economic data and some utterances from the Federal Reserve (Fed) have caused some investors to question whether the era of low interest rates and unconventional policy might be drawing to a close. However, while things look less uncertain than during the first half of 2012, the underlying environment suggests a return to normal1 is some way off in the US, and further still in Europe and Japan.

Macroeconomic events: support and challenges

Over the fourth quarter, gold prices across multiple currencies edged lower. Macroeconomic events were sparse and mixed in their support for gold (see Chart 1 and Table 1), and with year- end approaching, selling pressure dominated.

The re-election of President Obama provided some support for gold apparently securing the continuation of existing Fed monetary-policy programmes - through an extension of Chairman Bernanke's term.

A softening in Indian demand may have been expected by some - though anecdotal evidence suggests otherwise - as the largest gold consumer saw a resumption of currency depreciation ( 3.7% in the fourth quarter).2 India's continuing struggle with a trade deficit in 2012 led to regulatory action intended to curb gold imports.

Continued support from central banks' quantitative-easing programmes came in the form of the 12 December statement from the Fed. With the end of "Operation Twist", the Fed's monetary policy committee (FOMC) announced a transition from its yield-curve-adjustment programme to a new round of monetary expansion. This will take the form of straight purchases and continues the Fed's four-year programme of unconventional easing. However, exercising caution, the Fed also announced thresholds for policy normalisation in addition to the existing date-based thresholds. Although this was not the first time markets had to digest the finite nature of unconventional monetary policy, the additional bitter pills precipitated a sharp reactionary rise in longer-term interest rates. These dynamics elicited a mixed response from gold. On one hand, the continued debasement of the US dollar and the longer-term risks of higher inflation played into the hands of some investors. On the other hand, some market participants were concerned that the Fed's more reticent support for open-ended and unlimited support would signal an approaching end of current monetary accommodation - reducing systemic risk and inflation fears.

National elections were held in the world's third largest economy, Japan. The Liberal Democrat Party, led by Shinzo Abe, returned to power with tough rhetoric on the economy and regional diplomatic crises - two themes that provide support for gold via expansion of unconventional policy and a rise in geopolitical tension.

Central banks continued to add to reserves, as announced by the IMF in December, with a surprise resumption of purchases by Brazil's central bank after more than a decade of inactivity. A compilation of central banks' gold transactions can be found at https://www.gold.org /government_affairs/gold_reserves/.

As 2012 drew to a close, uncertainty surrounding the ability of Congress in the US to avert an immediate automatic spending and taxation hit to the economy, also known as the 'fiscal cliff', influenced gold positioning. However, as confidence of a resolution grew - even one that would not address some of the broader problems in the US - investors' minds were eased and flows into equities increased.

Continue reading this update from the World Gold Council at the link below:

Source: World Gold Council

http://www.gold.org/investment/research/regular_reports/investment_statistics_commentary/ 

Ron Paul – Trade War & Economic Collapse Coming

Posted: 14 Feb 2013 04:00 AM PST

Ron Paul was on Bloomberg's Lunch Money discussing the developing currency wars.  Paul states that the currency wars have been ongoing for decades, but they are now gearing up, but that government's always compete to devalue their fiat currencies. Paul informs the Bloomberg host that the loss in purchasing power from currency devaluation in a [...]
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Silver (probably) now the best asset in the world - Mylchreest

Posted: 14 Feb 2013 03:04 AM PST

Silver (probably) now the best asset in the world - Mylchreest

Thunder Road Report writer, Paul Mylchreest, predicts a sharp rise in the silver price within the next six months based on historic cyclical data.

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