Month: November 2012

By Central Bank News

By MoneyMorning.com.au

The worldwide game of currency chess on means you need to reckon with the world’s central planners before buying stocks. This week’s Money Weekend will tackle why.

Before we do, we must consider Australia’s second largest trading partner, Japan.

There’s no getting away from it, the news just keeps getting worse for Japan.

This week car maker Mazda downgraded its profit forecast on slumping sales in the Chinese market. Other big car companies like Toyota and Honda have also copped a pasting from lower Chinese sales.

Why? Well, the spat between China and Japan over the disputed Senkaku/Diaoyu islands hasn’t helped.

But it gets worse…

Japanese electronics giant Panasonic lost 765 billion yen (US$9.6 billion) this year. That’s the second year in a row of big losses.

To give you an idea of the scale, Panasonic is Japan’s third largest employer. And according to Bloomberg, the company cut its dividend for the first time in 50 years. It has also cut 39,000 jobs in the last year and the share price has ‘plunged the most in at least 38 years in Tokyo trading.’

Not only that, but fellow electronics company Sharp is a rumored to be on the verge of bankruptcy. It’s been in business for a hundred years.

Part of this story is the loss of market share to companies like Samsung and Apple. They’ve successfully outmaneuvered the big Japanese technology companies. But the other part to this story is the Japanese yen. There’s no doubt the strong yen is seriously hurting the Japanese export sector.

That’s bad news for Japan, because the only genuine chance it has to grow is if it can export to foreign markets. That’s because it won’t find much joy at home. The domestic economy is shrinking, as is the population.

The Bank of Japan tried to lend a hand this week by expanding its asset purchase program. It didn’t seem to help. You’d think they’d learn after twenty years.

But looking ahead, the more important question is whether the Chinese central bankers will learn from Japan’s mistakes…

Medicine that Can’t Heal

One thing Chinese leaders have done is engineer a weak currency. They have done this by loosely pegging the renminbi to the US dollar. But anytime a central bank intervenes, it always creates an unintended outcome. First, holding down its currency hurts Chinese savers.

But it also shows the risk that a rising renminbi poses for China. One of these is the realization that China’s foreign exchange reserves aren’t simply an enormous slush fund they can dip into whenever they want.

This is something Greg Canavan, editor of Sound Money. Sound Investments, points out in his recent white paper .

But he’s not the only one to warn about China’s financial position. British hedge fund manager Hugh Hendry made the same point in a recent speech. Hendry has a reputation as an unconventional thinker and someone who calls things as he sees them.

He warned that China was in a difficult financial position because the government had directed spending to so many marginal and dubious projects. Plus, he says it’s wrong to think of China’s trillion-plus US dollars in reserve as some sort of medicine that can fix the economy. He says it’s more like poison.

Why?

His position is that any move by China to sell its US Treasury holdings would immediately put upward pressure on its currency and wreak havoc on the Chinese export sector. He put it like this:

‘If we don’t have a sustained world economic recovery, then I’m very fearful of the events that could befall the Chinese. And don’t tell me that they’ll sell their US Treasuries. It’s not an asset. An asset is something you can sell to protect yourself. If they sell Treasuries, the renminbi goes higher and higher and higher…and their little companies that export go bust.’

China wants a weaker currency to protect the domestic economy. But as Hendry points out, the market wants China to adjust the renminbi’s value…except the Chinese government prevents this by maintaining a loose peg to the US dollar.

In order to maintain the peg with the USA, the People’s Bank of China must print money at the same rate the US Fed prints money. Thanks to the Bearded One, Ben Bernanke, that means printing a lot of money. This means the renminbi falls as the USD falls, rather than the renminbi rising.

But printing money leads to inflation, which raises prices and has the potential to unleash civil unrest as the Chinese people lose purchasing power. As Greg points out in his white paper , the main aim of the communist party is social stability. Inflation threatens social stability.

So what does all this mean for Aussie investors?

The Cost of a High Aussie Dollar

Foreign currency values are important to Aussie investors because they affect the value of the Aussie dollar. This in turn affects earnings and the value of stocks. Look at the chart below. Greg Canavan showed this to his subscribers back in September.

It shows the Reuters/Jefferies CRB index (a US dollar index) priced in Aussie dollars. The index includes commodities such as base metals, agriculture, energy and precious metals. It DOESN’T include iron ore and coal. But it helps explain why the Aussie share market index is at about the same level it was back in late 2005.

Here’s what Greg wrote at the time:

‘For many Aussie based commodity producers (who denominate revenues and costs in Aussie dollars) there has been no price boom. Making things worse, cost inflation over the decade, coupled with a price collapse since 2009, means profitability for many producers must be near all-time lows.

‘The other obvious conclusion to draw is that if other commodities are in the doldrums, the bulk commodities — coal and iron ore — must have been doing all the heavy lifting. In other words, the commodity boom, especially over the past few years, has been dangerously narrow…

‘In my view the iron ore and coal bubble is in the process of going bust. A bubble bust is a process where prices ALWAYS overshoot on their mean reversion journey. Those hoping that bulk commodity prices will rebound strongly or that further Chinese stimulus will come to the rescue are unwittingly churning out that well-worn phrase…this time is different.’

Now, if the Aussie dollar goes down, Aussie producers might see an increase in profitability. But what could drive the value of the Aussie dollar down? In Greg’s view, understanding the Chinese government holds the key.

After all, the central planners in Japan thought they could engineer a recovery after the Nikkei bubble burst back in 1989. Over twenty years later, the world is still waiting.

But there’s much more to this story, including which stocks Greg thinks stand to benefit. To check out his thoughts, go here .

Callum Newman
Co-Editor, Scoops Lane

From the Archives…

Does Excessive Government Spending Make You the World’s Best Treasurer?
26-10-2012 – Kris Sayce

Why a Return to the Gold Standard Could Actually Be Bad
25-10-2012 – Kris Sayce

A Safer Than Super Investment?
24-10-2012 – Nick Hubble

Agricultural Commodities – The Best Way to Play Rising Food Prices
23-10-2012 – Merryn Somerset Webb

Stock Market ‘Barometer’ Speaks: The Bulls Won’t Like it…
22-10-2012 – Kris Sayce

How the Aussie Dollar is Caught in a Worldwide Game of Currency Chess

By MoneyMorning.com.au

During the last debate, Mitt Romney emphatically stated he would blast China for manipulating its currency the first day he takes office.

Talk about priorities. Of all the nation’s pressing issues, the minute the oath is over, he’ll be calling out China for manipulating the yuan.

A remark like that should cause exasperation for anyone in the know. As Mary Anastasia O’Grady writes in The Wall Street Journal, ‘To be consistent, Mr. Romney should call out the Federal Reserve on day two for engaging in its own currency manipulation by way of “quantitative easing”, which undermines the value of the dollar relative to Latin American currencies.’

About a month ago, Brazilian Finance Minister Guido Mantega called out Ben Bernanke for manipulation, blasting the Fed’s QE3 (or QE Infinity) policy for setting off currency wars.

Again this year we’ve had the Fed, the ECB, and the Bank of Japan all announcing easing within days of each other. And the effects are inflation in China, food riots in Egypt, stock bubbles and consumer price inflation in Brazil, and higher unemployment in developing countries.

International Monetary Fund Managing Director Christine Lagarde took the central banks to task in a speech delivered at the IMF’s October meeting, warning that easy money from developed country central banks creates asset price bubbles in developing countries.

Romney’s hectoring of China is not so harmless. Combine the Romney rhetoric with the Federal Reserve’s stated policy to keep interest rates at virtually zero until… forever, these are the sounds of Currency War III (CWIII) in its initial stages.

Why Governments Devalue Their Currencies

The big picture is that governments inevitably reduce the value of their currencies to the value of their physical content.

But in the meantime, politicians are looking for votes, and governments look for advantage over competing governments. It is not just rockets and bombs that are fired; war is raged on the economic front, with currency manipulation as the primary weapon.

While American politicians talk about peace, America’s military-industrial complex wages war all over the world.

At the same time, we constantly hear noise about a strong dollar, while America has been a leading advocate of currency debasement for the past 200 years: through the Revolution, the Civil War, the Great Depression, the inflation of the Carter years and now Bernanke’s QE Forever.

James Rickards in his book Currency Wars warns of a complete collapse of the dollar. He says that Fed chair Ben Bernanke ‘is engaged in the greatest gamble in the history of finance.’ He says the dollar crash is overdue and that it’s not a matter of guesswork – the preconditions are already in place.

Bernanke’s attempt to print America’s way out of its economic jam is, in essence, the declaration of a currency war on the entire world. And the major central banks are retaliating. Rickards writes, ‘The new currency war is the most meaningful struggle in the world today – the one struggle that determines the outcome of all others.’

The author explains that while currency wars are fought on the world stage, they begin with a domestic economy lacking in growth, high unemployment, a weak banking sector, and worsening public finances.

With economic growth stymied, time and time again, countries look to depreciate their currencies to promote export growth and investment. Sound familiar?

There was once a classical gold standard in the world, and it was self-equilibrating, operated like a club, with members strictly adhering to the unwritten but well-understood rules.

Free-market forces prevailed; government interventions were minimal; exchange rates were stable. It worked because there was no U.S. central bank to mess up monetary matters.

Enter the ‘Creature from Jekyll Island’

This monetary tranquility was jarred with the creation of the Federal Reserve in 1913. The Federal Reserve Act was just a part of the wave of legislation brought about by the Progressive movement.

Big business was tired of competing and continually innovating to stay ahead of falling prices. Business would much rather use the power of government to establish and maintain cartels in an effort to ensure high profits. The plan was to transform the economy from more or less laissez-faire to centralized and coordinated statism.

What Rickards calls Currency War I began with the German hyperinflation in 1921 and ended with France breaking with gold in 1936 at the same time England was devaluing the pound sterling. In between were continual monetary fireworks.

Moviegoers who’ve seen Midnight in Paris probably wonder how or why an amazing collection of literary and creative U.S. expatriates ended up in Paris in the mid-1920s. The answer is that the French franc collapsed in 1923, allowing Ernest Hemingway, Scott and Zelda Fitzgerald, and Gertrude Stein to afford comfortable lifestyles in Paris by converting their dollars from home.

By this time, the classic gold standard was long gone, replaced by a deeply flawed gold-exchange standard that allowed centrals banks to inflate, causing the boom of the 1920s, which therefore brought about the required correction of the 1930s, exacerbated by government policy.

FDR started his term in office by closing banks and then confiscating the people’s gold. The language of FDR’s order is chilling, giving citizens until May 1, 1933, to deliver to the Federal Reserve System ‘all gold coin, gold bullion, and gold certificates now owned by them’ with the threat of a $10,000 fine or 10 years in prison.

Citizens received $20.67 per ounce from the government, only to watch their new president move the price up to $35 an ounce over three months – a 70% devaluation.

The Second Currency War

Rickards places Currency War II from 1967 to 1987. In between CWI and CWII was the Bretton Woods era (a phony gold standard scheme) that both Henry Hazlitt and Jacques Rueff predicted would collapse, setting the stage for CWII.

CWII began with a number of crises in the British sterling and then a flight from the dollar into gold, with French president Charles de Gaulle calling for a return to the gold standard. The French president ‘helpfully offered to send the French navy to the United States to ferry the gold back to France.’

This all led up to Richard Nixon preempting Bonanza on Aug. 15, 1971, telling the nation he was closing the gold window, because of evil international speculators.

Of course, it was money printing and budget deficits that were to blame. Nixon also instituted a 10% surtax on all imports, effectively devaluing the dollar in the trade arena.

The devaluation was to spur employment, but within two years, the United States was mired in recession. The United States suffered three recessions from 1973 to 1981, while purchasing power dropped by half from 1977 to 1981. Suddenly, “stagflation” was on the tip of everyone’s tongue.

Paul Volcker took over as Fed chairman and quickly hiked interest rates, looking to stop the price inflation. The price of gold collapsed along with the inflation rate, and the dollar strengthened.

But dollar strength finally got in the way of export jobs and the Plaza Accord of September 1985 was an attempt to drive down the greenback’s value primarily against the yen and the mark. And it worked, from 1985 to 1988: The dollar fell 40% against the French franc, was cut in half against the yen, and fell 20% against the mark.

However, the devaluation did little for the U.S. economy, and by 1987, monetary authorities met in Paris at the Louvre. The Louvre Accord was hatched to stop the dollar’s fall.

The Bank of Japan’s willingness to expand its money supply to depreciate the yen would fuel one of the biggest stock market bubbles of all time, with the Nikkei stock average roaring from around 10,000 in 1985 to a peak of 38,957.44 on Dec. 29, 1989. More than two decades hence, that market still hasn’t recovered.

The Currency War Today

Currency War III has just begun, and after 40 years of massive money printing and the explosion of derivatives, CWIII will be fought on a massive scale, with a real risk of a collapse of the entire monetary system.

So how’s this currency war to end all currency wars going to turn out? Let’s use Ludwig von Mises’ outline of the three stages of inflation.

In Mises’ stage one, government prints all the money it can, because prices don’t rise nearly as much as money supply.

In stage two, the demand for money falls, which intensifies price inflation.

Finally, in stage three, prices go up faster than money supply. A shortage of money develops, and people urge government to print more; when the government does this, prices and money supply spiral upward.

A small change in preferences among just a few people could lead to a collapse, because the financial framework is a weakly constructed Keynesian contraption of fiat money, government deficits and financial alchemy. Any one of thousands of events could trigger the collapse, and the last straw will not be known until after the fact.

It’s been said that war is the health of the state. Currency war is a desperate government willing to wreck it citizens’ lives to benefit its own agenda. Chaos is the most likely outcome of the latest currency war. It won’t be pretty.

After the government gets desperate, it gets mean. After currencies collapse, the government freezes people’s assets, gold is confiscated, and capital controls are imposed.

A currency war is neither a spectator sport nor a game. We all have to participate. It’s the government’s war on each and every one of us. It’s not a matter of if: The war has already started.

Douglas French
Contributing Writer, Money Morning

Publisher’s Note: This article originally appeared in Laissez Faire Today

From the Archives…

Does Excessive Government Spending Make You the World’s Best Treasurer?
26-10-2012 – Kris Sayce

Why a Return to the Gold Standard Could Actually Be Bad
25-10-2012 – Kris Sayce

A Safer Than Super Investment?
24-10-2012 – Nick Hubble

Agricultural Commodities – The Best Way to Play Rising Food Prices
23-10-2012 – Merryn Somerset Webb

Stock Market ‘Barometer’ Speaks: The Bulls Won’t Like it…
22-10-2012 – Kris Sayce

The Currency Wars: The Greatest Gamble in the History of Finance

A government with the policy to rob Peter to pay Paul can be assured of the support of Paul

— George Bernard Shaw

TV show Breaking Bad, says Bill Gross, is an appropriate analogy to America’s approaching fiscal cliff. The story is about a terminally ill high school chemistry teacher who turns to making crystal meth to save money for his family. Once started, it is hard to stop, as Gross reports:

“Hooked on the temporary high of tax cuts and increased entitlements over the past several decades, the nation’s capital is approaching the end of the line traveled by most addicts: Reform, or suffer the consequences.

At first blush, the comparison to a meth head might seem a bit of a stretch. Despite approaching the edge of the fiscal cliff with a deficit equivalent to 8% of gross domestic product, the United States is still considered the “cleanest dirty shirt” in global financial markets. Whenever an authentic crisis (Lehman Brothers in 2008) or a minor aftershock occurs, investors buy U.S. Treasury bonds, the dollar rises and this country’s reserve-currency status is reaffirmed. The United States still seems to be the first destination of global capital in search of safe (although historically low) prospective returns.

Our fiscal chemistry lab, however, may be conducting more destructive experiments than investors acknowledge. Warning signs and distress flares are being sent out by more than the credit rating agencies. Recent annual reports issued by the International Monetary Fund, the Bank for International Settlements and our own Congressional Budget Office speak to what economists term a fiscal gap — a deficit that must be closed if a country is to stabilize its debt as a percentage of GDP.

It is not necessary, these reports say, to be totally drug-free; a small deficit, after all, has been a trademark of the United States for decades. But a fiscal gap that exceeds minor levels — 2-3% of GDP — must be closed, or a country’s financial foundation and, ultimately, its economy may unravel. Its growth rate will almost surely slow down and fail to lower high levels of unemployment.

The United States, it turns out, is a fiscal-gap serial offender by the standards of all three of these respected independent authorities, approximating an average gap of 8% of GDP. Compared with Germany and Canada, the United States is addicted to deficits and committed to future spending far beyond reasonable comparison. In fact, the company we keep includes Greece, Spain, Britain and Japan — a rogues’ gallery of debtor nations that have abused deficit financing for decades

Following Orders

Wall Street was closed yesterday on account of the big storm. Here in Baltimore, the howling wind and sheets of rain produced little real damage. Still, public officials used the opportunity to train the population to follow orders.

The streets were clear this morning. But the authorities told residents not to venture out. Only a few defied the order. Docility is encouraged; initiative is punished.

That is what happens when a society reaches an advanced stage of decadence. It pays to know someone… have an inside angle… and get in on some scam.

And now, with the election a week away… and with the storm damage on every TV… many people are pleased to know the Barack Obama, the President of All the Americans, has magnanimously offered to pick up the tab.

Yes, it’s a national emergency. We will all pay for it…

Get Ready to Get Soaked

But how? Already, the feds borrow 50 cents for every dollar they collect in taxes. How can they do more?

But don’t worry. We’re headed for “the cliff.” The law, as it stands, says that spending will automatically be cut on Jan. 1. Trouble is, it’s not nearly enough. Gross continues:

The CBO’s fiscal gap of nearly 8%, for instance, suggests we need to raise taxes or cut spending by an amount equal to $1.6 trillion per year. Yet the expiration of the Bush tax cuts and other provisions included in the congressional supercommittee’s “grand bargain” was a $4 trillion battle plan over 10 years, or $400 billion per year.

A little short. And most likely, it will get even shorter, after the polls in Washington have their say.

To repeat: The fiscal cliff is turning into a fiscal waterslide. It will be exciting… and we’ll all get soaked.

But at least the waterslide takes us in the right direction. Sort of. The Democrats don’t like it because it cuts out some of the zombies from social spending. The conservatives don’t like it because it “sequesters” the money that would have gone to the military zombies.

Our old friend Grover Norquist explains that sequestration isn’t so bad. From Politico:

“Sequestration is not the worst thing,” said Grover Norquist, the influential head of Americans for Tax Reform. “There are better ways to reduce government spending,” he told Politico, “but Congress didn’t get there… We’ve got to get away from this idea that, if the defense sequester got put off, or cut in half, or redirected, then somehow they’ve dodged a bullet and we don’t have to do anything on defense.”

“Sequestration isn’t ideal, but on the whole, sequestration is fine… I think it’s been a relatively positive exercise [because] it forces people to address defense spending,” said Andrew Moylan, the outreach director for the conservative R Street organization. “We’ve learned Congress won’t reduce spending unless it is forced.”

“The automatic sequester, while not perfect for a number of reasons, is going to be a lot better than any sort of deal they come up with in the lame duck,” argued David Williams of the Taxpayers Protection Alliance.

As for Norquist, he said that even if Republicans could control all the levers of government, they shouldn’t drop the defense cuts to zero.

“We have to dramatically reduce the cost of defense, whether there is a sequester or not. Maybe the sequester focuses their attention, and to the extent it does, that’s a helpful thing,” he said. “We need to look at defense the way we look at welfare and education — just because somebody calls something by a good name doesn’t mean that every dollar is spent wisely or constructively.”

P.S. Here’s an Unusual Play that Goes Up as America Leaps off the Fiscal Cliff… There’s one unusual position that will not only protect you from America’s swirling debt storm — but it also tends to shoot up in price during economic calamities.

It’s not gold…but it is completely legal, simple and ethical. You can’t control the gov’t’s out of control spending and money printing. But you can do this to insulate yourself from their meddling and mistakes…

Other Related Articles

• A Thoughtful Look at the Candidates
• The New Currency of the Unconventional Economy
• Going Back to Old Cliches

By TraderVox.com

Tradervox.com (Dublin) – According to an independent review report on the performance of the Bank of England, the forecasting ability of the back have deteriorated considerably in the last five years resulting to large errors. The report indicated that this calls for a thorough investigation for the shortcomings. The report by a former Federal Reserve official David Stockton, suggested that the there is need to have more assertive staff to challenge the central bank’s house view and incorporating financial-stability risks into forecasts. The review is one of the three commissioned by the BOE’s governing council after lawmakers pushed for an independent inquiry to the affairs of the central bank. The need to have the BOE reviewed arouse as a it sought to get powers to regulate the whole financial system.

The report was released as the BOE published reports on its framework for providing liquidity to the financial system and the emergency aid to banks. According to Stockton, the Monetary Policy Committee, which is tasked with the responsibility of deciding the monetary policy to be adopted, has continued to make erred predictions after the crisis that are marginally worse than predictions of outsiders. He went ahead to propose that the bank and the MPC in particular should introspect more deeply and systematically on the lessons that can be learned from large forecast errors.

The report and comments were received well by the Bank of England Governor Mervyn King and his deputies Paul Tucker and Charles Bean. In a joint statement, the three indicated that the review has given them many ideas that they will consider as they try to improve the banks performance. The head of Parliamentary committee that scrutinizes the central bank, Andrew Tyrie said that the report is a step forward in achieving high performance but criticized the BOE management. He noted that the fact that the review took too long to be conducted shows the lack of effectiveness in central bank’s management.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By Central Bank News

By TraderVox.com

Tradervox.com (Dublin) – The loonie advanced against dollar from an almost three-month low as the manufacturing index unexpectedly gained in the US. The Canadian dollar gained against most of its counterparts as a private report from the US showed that companies added more workers than it was forecast. The increased risk appetite has boosted the loonie after it had fallen prior to data projected to show that Canadian job growth slowed while the US unemployment rate increased. The Canadian dollar is expected to close the week just above parity after the reports are released today.

Eimer Daly, a currency analyst in London at Monex Europe Ltd has indicated that the positive US manufacturing data has pushed the Canadian dollar high against the greenback. She noted that the majority of the Canadian exports are to the US, hence good performance for in the US is a positive for the loonie. The loonie has strengthened beyond its 200-day moving average of 99.94 cents against the US dollar. It had breached this level of October 30, to touch its 100-day moving average of 99.68. The Canadian dollar had dropped below its 50-day moving average on October 18. Moving averages are levels used by some Forex traders, where they are construed as turning points in the direction of a security price.

The loonie pared losses after the company-hiring and US manufacturing PMI reports were issued. The ISM factory index rose from 51.5 in September to 51.7 last most. Most economists were projecting a decline to 51. A report by ADP Research Institute of Roseland showed that US companies employed 158,000 Americans in October, after adding 114,000 in September. The market was expecting a lower figure of 131,000.

The Canadian dollar advanced by 0.3 percent against the dollar to trade at 99.65 at the close of trading yesterday in Toronto. It had earlier declined by 0.2 percent to trade at $1.0013, which kept it under parity for the fourth day.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

London Gold Market Report
from Ben Traynor
BullionVault
Friday 2 November 2012, 07:15 EDT

SPOT MARKET prices to buy gold in Dollars dropped to below $1710 an ounce Friday morning, reversing gains from earlier in the week, while stocks and commodities fell and the US Dollar rallied ahead of the release of key US jobs data.

The Bureau of Labor Statistics is due to publish its monthly ‘Employment Situation’ report at 08.30 EDT, which will include the official nonfarm payrolls estimate for the number of private sector jobs added in October. Consensus forecast among analysts is for 125,000 jobs added, while the unemployment rate is expected to tick higher to 7.9%, up from 7.8% in September.

Silver prices meantime fell below $32 an ounce this morning, extending losses from the day before.

“[Silver] bulls tried for a breakout [on Thursday] but were met with selling pressure,” said a technical analysis note from bullion-dealing Scotiabank.

“Despite the disappointing close, downside momentum appears to have waned somewhat.”

Like gold, silver traded lower Thursday following the release of a better-than-expected ADP Employment Report, a release that is widely regarded as an indicator for the official nonfarms release.

Over in India meantime, traditionally the world’s biggest gold buying nation, Rupee prices to buy gold fell to their lowest in nearly a month, following gains this week for the Rupee against the Dollar.

“We are hoping for good Diwali sales,” one jeweler told newswire Reuters, although trader noted that demand could dry up ahead of the November 13 festival should gold prices climb higher.

Heading into the weekend, gold and silver were little changed on the week by Friday lunchtime in London, although analysts say they expect the nonfarm payrolls release could impact on prices.

“If the nonfarm payrolls data is very good, it will be bearish for gold, as it will cut expectations for any additional quantitative easing, and it will be fairly positive for the Dollar as well,” says Nick Trevethan, Singapore-based senior strategist at ANZ.

“If the payroll data is much above the 125,000 [jobs] consensus the Dollar is likely to go down,” disagrees Standard Bank analyst Steve Barrow.

“The Fed is not going to respond to stronger-than-expected data with tighter policy and, more importantly, the interest rate markets are not going to expect the Fed to change course…instead, the focus clearly seems to be on the fact that firm data lifts stocks, lowers risk aversion and so tends to lift ‘riskier’ currencies against the ‘safe-haven’ Dollar.”

A note from Swiss bank UBS this morning said funds tracking the DJ-UBS Commodity Index will need to buy gold and silver, since the precious metals are due to form a bigger part of the index when it is reweighted at the start of next year.

“In gold’s case, its weight will be raised to 10.82% from 9.79% and silver will increase to 3.90% from 2.77%,” UBS said.

“The settlement prices on the fourth business day of January will determine the final amounts to be bought.”

Here in Europe, Eurozone manufacturing activity continued to contract last month, with the pace of contraction accelerating from September, according to purchasing managers index data published Friday. The single currency areas four biggest economies – Germany, France, Italy and Spain – all published PMIs below 50.

The Bank of England meantime said it welcomes three independent reviews into its operations, forecasting ability and handling of the financial crisis that were published Friday.

One review, that looked at the Bank’s framework for providing liquidity to the banking system, concluded the Bank is “centralized and hierarchical…with a large decision-making burden  residing with the Governor and senior management.”

The review of the Bank’s forecasting capability meantime said that “recent forecast performance has been noticeably worse than prior to the crisis, and marginally worse than that of outside forecasters.”

In South Africa, AngloGold Ashanti, the world’s third-largest gold mining producer, has suspended operations at the TauTona mine, with 300 protesting workers conducting a sit-in.

Earlier this week two striking coal miners were shot dead by security guards at South Africa’s Magdalena mine, with reports saying the two men tried to break into the mine’s armory.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Central Bank News
    The central bank of Romania held its policy rate steady at 5.25 percent, as expected, saying that it would continue to ensure “firm liquidity management in the banking system,” and retained the current levels of minimum reserve requirements on both leu and foreign currency deposits.
    The National Bank of Romania (NBR), which has cut its policy rate by a total of 75 basis points in the first three months of the year, also said it would release the quarterly inflation report on Nov. 7.
    Inflation in Romania rose to 5.3 percent in September, the highest in 15 months, up from 3.4 percent in August. The NBR targets inflation of 3.0 percent in 2012 and 2.5 percent in 2013, with a one percentage point variation band.
    Its current forecast calls for inflation of 3.2 percent at the end of the fourth quarter of 2012, and in 2013 inflation is forecast to range from 2.6 percent end-first quarter to 3.0 percent at the end of the fourth quarter.
    Romania’s Gross Domestic Product rose 0.5 percent in the second quarter from the first, for an annual growth of 1.7 percent.

    www.CentralBankNews.info
   

By The Sizemore Letter

In the first day of trading after Hurricane Sandy pounded New York, the S&P 500 had its best trading day in seven weeks.

I’m not one to assign a lot of significance to a single day’s trading, but I did find it encouraging.  It suggests that the damage left behind was less severe than the Street feared.  Life is already returning to normal in Manhattan, and power and transport are being restored bit by bit.  The damage tally will not be small, and the disruption will likely take a bite out of 4^th quarter GDP.  But the rebuilding efforts should create a nice jolt in economic activity leading into the new year.

Stocks have been stuck in a sideways pattern for the better part of the past two months, as a string of disappointing earnings releases and economic data kept a lid on investor enthusiasm.  But with the bad news now mostly digested—and with the Fed, the ECB and the rest of the world’s major central banks still maintaining the loosest collective monetary policy in history—I expect the animal spirits to return for the last two months of the year.

Sizemore Capital has been pleased with the performance of our Dividend Growth and Sizemore Investment Letter models at Covestor.  Both are beating the S&P 500 for the year without taking significantly more risk.  In a year like 2012, when so much is determined by macro and political risks outside of the control of company managements, an income-focused strategy is the only strategy that makes sense.

Within the Dividend Growth portfolio, we are focusing most heavily on mid-stream oil and gas partnerships and conservative triple-net retail REITS.  In our view, these sectors are attractively priced and throw off healthy amounts of cash.  These are investments we would be happy to hold for the next 1-5 years, come bull or bear market. Given the current pricing of bonds and other mainstream income investments, we expect these investments to outperform by a wide margin with very little risk of principal loss.  In many cases, dividend yields are well in excess of 5%—not a bad income return in a low-yield environment.

The Sizemore Investment Letter portfolio is slightly more speculative and is not limited to a pure income focus (strong dividend growth is one of many investment criteria covered).  In this portfolio, we see the greatest opportunities in European blue chips with substantial operations in emerging markets.  As the European Union slowly congeals into a more “American” style federal system, we see investor risk appetites for European stocks returning.  And in the meantime, we get access to high emerging-market growth rates and a steady stream of dividends.

You can view our Covestor profile here.

The post After Sandy: Now What? appeared first on Sizemore Insights.

Related posts:

• When the Market Reopens: What to Expect After Hurricane Sandy