Month: June 2013

By Profit Confidential

The Japanese economy is a prime example of what happens when central bank–infused “economic growth” crumbles.

Quantitative easing may have been needed in the U.S. economy when the financial system was on the verge of collapse, but artificially low interest rates and vast amounts of paper money printing could be creating major troubles for our future, just like it did in the Japanese economy.

The Bank of Japan and the Japanese government have taken a strong stance on bringing economic growth to the Japanese economy. The Bank of Japan has taken the concept of quantitative easing to a new level, and it plans to continue increasing the country’s money supply. Similar to what’s happening here in America, the Bank of Japan is printing new money to buy government bonds. Japan’s central bank has become heavily involved in the stock market of the Japanese economy by buying units in exchange-traded funds (ETFs) and real estate investment trusts (REITs).

Sadly, the outcomes of this rigorous quantitative easing are dismal. The Japanese economy isn’t improving. Rather, the currency of the country has become a major victim, and the stock market in the Japanese economy is bursting.

Take a look at the chart below, which shows the value of the Japanese yen (black line) declining continuously, while the stock market is rising and bursting (red/black line).

Chart courtesy of www.StockCharts.com

On May 23, the stock market in the Japanese economy took a turn downward; since then, it has been declining quickly.

When I look at this, it makes me question the stability of the key stock indices here in the U.S. economy. The Federal Reserve is still going ahead with its quantitative easing and printing $85.0 billion a month to spur economic growth. As a result of this, the stock market has risen significantly, giving investors a false idea about prosperity here in the U.S.

I still continue to be skeptical about the rise of the stock markets in the U.S. economy. Many are questioning whether the rise in American stock markets is a direct result of the Fed’s quantitative easing program.

The stock market in the Japanese economy tumbled more than 3,000 points in a matter of weeks as its bubble burst; it wouldn’t be a surprise for me to see the Dow Jones Industrial Average do the same.

What He Said:

“Consumer confidence does not change overnight. In the U.S., 70% of GDP is based on consumer spending. And in my life, all the recessions I have seen or studied have only come to an end when consumers started spending. With consumer sentiment getting worse, and with the U.S. personal savings rate at near record lows, it may take two or three years for consumers to start spending again.” Michael Lombardi in Profit Confidential, February 25, 2008. By the end of 2008, the rest of the world was realizing the recession would be much longer and deeper than most had realized.

Article by profitconfidential.com

By WallStreetDaily.com

“I think you should call your broker immediately so that you can try to get some shares in the IPO… I expect it to be red hot.”

So said the bombastic CNBC host, Jim Cramer, in reference to today’s debut for Milpitas, California-based Gigamon (GIMO).

Given that Cramer is a tad prone to overhyping a situation (it’s what attracts viewers, right?), let’s step back for a moment and give reason a chance to prevail.

Let the Record Show…

Not that I’m keeping track or anything, but I did beat Cramer to the punch – singling out Gigamon as an IPO to watch back in December 2012. And the reasons for my optimism couldn’t be more straightforward…

The company is leveraged to one of the most promising “forever growth” trends: Big Data.

As I pointed out to Tech & Innovation Daily readers recently, the amount of data we create and share continues to boggle the mind. Based on the latest estimates, it’s expected to more than triple by 2015.

Gigamon fits into this trend nicely, as it helps companies manage their networks and the flow of data across them. Specifically, its patented Flow Mapping Technology helps blue-chip companies ensure the reliability, performance and security of their network infrastructure.

This isn’t about simply being positioned to grow, though. It’s about growing in the here and now. And Gigamon is doing that rapidly. In the last quarter, sales increased an impressive 55%.

The company is profitable, too, which is a true rarity in the world of tech IPOs. Gigamon reported annual earnings per share in 2010, 2011 and 2012 of $0.19, $0.58 and $0.21, respectively.

On such merits, I have to agree with Cramer (even though I hate to admit it). The company does, indeed, possess the potential to be “red hot.”

Not to mention that it’s coming to market at precisely the right time…

Up, Up and Away

According to Renaissance Capital, a total of 74 companies have gone public so far this year, raising $17 billion.  On average, they’ve rallied 19% over their offering prices, which is a tad better than the performance of the S&P 500 Index.

However, digging into the data reveals that technology IPOs – particularly those tied to the cloud-computing space – have fared much better.

Take Marketo (MKTO), for example. It’s up 66% from its IPO price of $13. And then there’s Tableau Software (DATA), which is up 78% from its IPO price of $31.

It’s important to put those gains in perspective, too. Both companies debuted less than one month ago. So, again, Gigamon appears to be hitting the market at a time when investors’ appetite for tech IPOs is rabid.

The key question remains, though: Is it attractively priced?

If the Price is Right…

By the time you read this, underwriters will have already priced Gigamon’s IPO, and trading will be set to begin later this morning.

For the purposes of our analysis, though, let’s assume that it priced at $20 per share (the high end of the proposed range).

That’s being conservative, mind you. As John Fitzgibbon of IPOScoop.com said in a note to subscribers yesterday afternoon, the deal is possibly five times oversubscribed.

So anyone who followed Cramer’s advice to call their broker for an allocation wasted their time. There won’t be any shares available for us lowly retail investors. And we’re bound to see pent-up demand for shares once trading begins (more on that in a moment).

For right now, let’s work with numbers we can reasonably expect. At $20 per share, Gigamon would debut at a valuation on par with its peers – Infoblox (BLOX) and F5 Networks (FFIV) – based on their enterprise-value-to-sales ratios.

Of course, there’s a slim chance that the stock will begin trading anywhere close to where it officially prices. It’s common for compelling IPOs to “pop” once trading begins. Especially when (as I mentioned above) there’s so much interest leading up to the debut.

That’s what happened with Tableau Software. Despite pricing at $31 per share, the first trade in the aftermarket crossed the tape at $47 per share (52% higher).

Same goes for Marketo. It “popped” 25% out of the gate to trade at $20 per share.

Now, Gigamon is growing sales at nearly identical rates to both Marketo and Tableau (at around 60%). So it’s certainly a possibility that Gigamon will experience a similar opening day boost. That would put shares in the $25 to $30 range when trading begins and we finally get a shot to buy.

Bottom line: Again, I hate to admit it, but Cramer is right. Gigamon represents a compelling “Buy” under $25 per share.

That being said, I typically insist on a profit potential of at least 25% when investing in IPOs. So we should look for a pullback closer to $20 per share before entering a position.

I doubt we’ll witness that in the first day of trading. But it’s worth putting Gigamon on your watch list for an opportunity to buy on the dips in the coming weeks.

Ahead of the tape,

Louis Basenese

Article By WallStreetDaily.com

Original Article: Smash Hit or Trash It: Gigamon’s Upcoming IPO

By MoneyMorning.com.au

If you’ve ever jumped out of a plane, off a bungee-jump ledge, or even just off a cliff-top into the ocean, then you’ll know about the ‘Zero-G feeling’.

It’s the rush of adrenaline as the fundamentals of physics accelerate you towards Earth at 9.8m/s2.

Right now, there is something else experiencing that same Zero-G feeling: the Australian Dollar.

It just keeps on falling. It hit 93.27c last night, which is its lowest level since 2010.

This means that in the space of just two months, the Australian dollar is now off by 12.1%. This may not sound like much, but for a currency, it is a HUGE short-term fall.

And importantly…this huge fall is translating into a much-needed dose of adrenaline for mining stocks…

You see, if your operating costs are in Australian dollars, and your product sells in US Dollars…a lower Aussie Dollar means bigger profits.

So a 12% fall in the Aussie Dollar is a real shot in the arm for mining stocks.

It’s that simple.

Lower Australian Dollar = Stronger Mining

It’s the same for anyone selling a local product to the global market; miners, farmers, and tourism operators, for example. A lower currency makes the process much more profitable.

Since the Australia Dollar cracked in earnest at the start of May, the Aussie market is down by 10%.

But in direct contrast, the Metals and Mining index has held its ground because a weak Aussie has been a breath of fresh air.

Click to enlarge

Admittedly, simply holding its ground is hardly shooting the lights out. However it’s notable given the wider market carnage. It’s also an improvement on the two and half years of falls in the mining sector that preceded it.

A falling Aussie only works in the favour of mining stocks providing it’s not matched with a corresponding fall in commodity prices (caused by a rise in the US Dollar equal to the fall in the Aussie).

And so far, commodity prices are holding. The commodity price indices like the CRB and CCI are off by just a few per cent each. Those indices are internationally focused.

However, a more locally tailored measure, the Australian commodity price index from Commonwealth Bank, is flat (in $US terms) at 366 compared to the start of May, and rising strongly in Aussie dollar terms.

How much the plummeting Aussie will affect a miners’ bottom line will also depend on currency hedging, which varies between companies.

All the same, the broad theme across the sector is that operating costs (in Aussie dollars) are falling, and prices of finished product (in US Dollars) are holding steady. The outcome is better profits, and they couldn’t come at a better time.

Aussie Dollar: ‘Whipping Boy’

For a country with just 23 million people, it’s surprising that our currency is the fourth most traded globally (after the USD, EUR and JPY).

It has long been a favourite for foreign exchange traders, as it’s liquid and is a good China proxy. But after making a fortune trading it all the way up, these traders have turned on the Aussie. In fact, the mood has turned to the extent that our national currency now has the nickname ‘Whipping Boy’ at trading desks globally.

A whipping has been well overdue. The Aussie dollar had been stuck in a rut around $1.05 for two long years. Rate cuts from 4.75% in 2011 to 2.75% in 2013 didn’t touch the sides. Falls in key commodity prices like coal and iron ore made no difference. Only hot-money yield-hunters kept it up. Something had to give.

Then George Soros hit the ignition. Rumours circulated he had a big short position against the Aussie Dollar last month. Even though it wasn’t a huge bet, it was the catalyst needed.

A rate cut, suggestions of more, and weak data from Australia and now China, and the trade just keeps going. Prominent funds like Blackwater and Blackrock are on board. Duquesne Capital expects the Aussie to ‘come down, and to come down hard’.

But just how far could the Aussie fall?

Well if you ask the Organisation for Economic Co-operation and Development (OECD), they thought the Aussie was 60% overvalued when it was $1.06. This means 66c would be fair value! Is a fall that low possible? It’s hard to imagine today, even though we saw it in the GFC.

Our resident technical trading expert, Murray Dawes of Slipstream Trader,  predicted this move. Now that it’s under the 93.8 level seen in 2011, he emailed me this morning to say:

‘The unwinding of carry trades is now entering its serious phase. The Aussie/Yen is being hit very hard and the AUD/USD is not far behind. The 2011 low of $0.9386 is the last line of support for the Aussie battler and I suspect that we will end up seeing a false break of that level and then a large short squeeze before keeling over and plumbing new lows.

‘If this level can’t hold the next line of support is down at $0.88c and from there to the low US$0.80′s. I think we will end up in the US$0.80′s at some point this year but as always the market never moves in a straight line and the Aussie dollar is looking very overstretched on the downside.’

So we may see a short bounce first, but Murray sees it falling after that. More Zero G for the Aussie Dollar will be music to the ears of miners. Not just for profitability of current operations, but the profitability of future operations.

Part of the reason capex spending has been cut back (which is why the sector is in such a bad mood today) is that the high Aussie dollar made future operations unviable. So the whipping the Aussie dollar has taken could be a game changer in the capex department too.

There’s no denying that mining stocks are in the doldrums today, but investors are overlooking the effect a lower Australian dollar could have on mining stocks. Already it has seen stock prices stabilise after falling for two and a half years. And if the Aussie had further to fall, the turnaround in stocks may have much further to run.

This is all happening while the mood is still intensely negative on the mining sector, which to me spells an opportunity worth watching.

It’s in these dark days that real opportunities are born.

History tells us this lesson again and again, though when you are at the end of two-and-half-year bear market in resources, it’s a lesson you have to remind yourself of. One of my favourite illustrative tales comes from the year 1839.

Opportunities in Adversity

In my weekly update to Diggers and Drillers subscribers last week I included a story from the book The Birth of Melbourne which recalls an account of a man sailing from Plymouth to try his luck as a merchant in ‘Australia Felix’.

His was a frank account of the trials of migration in the 19th Century. For starters, his son almost died during the journey. Then when they arrived they couldn’t afford accommodation. Work was very hard to come by. Disease was rife. Prices were exorbitant.

Here’s an extract:

‘Our tents one after another had been upset in the middle of the night. On two or three occasions, the wet had come through the top of the tents with running streams passing through the centre. Our furniture was drenched, blown down and broken. Sophia and the children were repeatedly unwell and to add to our dilemma the weather prevented the workmen from erecting our cottage.

‘And it was quite out of the way to think of endeavouring to find house room anywhere, single small rooms letting from one or two pounds a week in bare wooden sheds.

‘Added to this I had enough to do to attend to my family and was unable to commence business… and with a family such as I had with me, the matter became so serious that I believe I once expressed a wish to Sophia that I had not come. Under this feeling I refrained from writing, but I still think it right to tell you exactly how I felt and was situated.’

It’s an emotional account, and there was plenty more hardship. But he persevered. And slowly and stubbornly he became a standout success. It’s a classic tale of the pioneer spirit, and I’d recommend the book for this chapter alone.

So why am I telling the tale?

Firstly, the author was none other than Jonathan Binns Were, better known as J.B. Were.

He went on to establish one of Australia’s biggest stock broking firms, and one that still stands today as a well-respected wealth management firm.

Secondly it’s a good illustration of the opportunities in adversity. J.B. Were would have faced the same challenges as the many other hopefuls.

But when things are at rock bottom…if you play your cards right, and keep your head when others are losing them, then the only way is up. And that is exactly how I view the mining sector today.

This is the bottom; this is when you get involved. This is when the real opportunities appear. And with the Australian Dollar crashing, the turnaround is starting now.

Dr Alex Cowie
Editor, Diggers & Drillers
Join me on Google+

Special Report: Buy These Four Yen Dive Stocks Now

Daily Reckoning: The Upside of a Dive to 85 for the Australian Dollar

Money Morning: Three Technology Breakthroughs You May Have Missed…

Pursuit of Happiness: Improving Your Life Through New Technology

Diggers and Drillers:
Why You Should Invest in Junior Mining Stocks Now

By MoneyMorning.com.au

Across the board global markets were down; lots of red and lots of gloom. Dow, NASDAQ, FTSE, Nikkei, you name it, it was down.

But we don’t care about the indices. Indices aren’t revolutionary. But technology companies are revolutionary and exciting. And even when markets look sad there’s plenty of technology stocks to get excited about.
Because among all this market craziness a battle is being fought.

However you probably didn’t even realise this battle is happening. There’s a lot at stake in this war. We’re almost certain that there’s been a fair amount of cyber espionage going on between these two (not that you could ever really prove it though).

It’s remarkable when one makes an announcement the other one almost immediately has the chance to rebuke and strike a counter-blow.

It’s a bit like a boxing match. A couple of jabs then a right hook. Then the other has the audacity to throw a lead right.

And these two superpowers come from two sides of the globe. One is in the Asian region and the other is of course from the USA.

You’d be easily mistaken to think we’re simply taking about the US and the Chinese governments. Both are currently embroiled in a cyber-war and there’s cyber espionage carried out daily. Thanks to Edward Snowden (whistle-blower) we now know the US uses Google, Apple, Microsoft, Oracle, Facebook and Twitter (amongst others) to monitor the world’s data.

This latest leak of the PRISM program has sent a shockwave through technology markets. It’s a genuine threat to our privacy. But that’s another story for another time.

Here we’re not talking about the US and the Chinese. When it comes to this unknown battle, we’re not even talking about two countries.

Battle of the Cyber Giants

We are talking about two of the biggest technology giants in the world. One is Microsoft and the other is actually Japanese; it’s Sony.

In the last few days the gloves have come of and these two giants of technology have brought to market (hopeful) game changers.

For the last 23 years the console war has played out in living rooms around the world. The console wars actually started in the 90′s and continue today. But early on where names like Sega, Panasonic and Atari existed, now it’s really down to Microsoft [NASDAQ:MSFT], Sony [NYSE:SNE] and Nintendo [TYO:7974]. Sadly with Nintendo’s latest lacklustre gaming console, the big three is withering down to the big two.

This console war might sound trivial, but to capture market share of the video game industry is market changing.

Consider this to see how significant this is;

Avatar (the movie) was the highest grossing film of all time. It pulled in over $2.4 billion at the box office. World of Warcraft (the video game) has grossed in excess of $10 billion. Call of Duty: Black Ops pulled in over $1.5 billion. These figures dominate Hollywood’s highest earners.

Further to that 67% of the people in the US play video games. That’s over 210 million US citizens. And for anyone that thinks games are ‘just for kids’, half of all gamers are aged between 18 and 49, with the average age being 34.

So right now it’s Sony vs. Microsoft with $70 billion in annual revenues up for grabs.

And overnight Sony let loose its biggest weapon, the new PlayStation 4. This was following the lead of Microsoft who only a few weeks earlier had unleashed their weapon, the Xbox One.

The last iteration of these gaming consoles combined sold over 120 million units worldwide. It spawned gaming revenues in the billions of dollars and over the next five years will create billions more.

But in these battles, although both end up making profit, only one will win the war. And so far Sony is winning.

Microsoft has given a launch price of the Xbox One at $499 USD. Funnily enough, as if they knew this would happen, Sony undercut them and the PS4 will launch at $399 USD.

Microsoft has placed strong restrictions on the sale and sharing of used games. And as though they have a crystal ball, Sony has said there will be no restrictions or restraint on sharing and selling used games.

Intentionally Sony has done everything that the gaming market wants, which happens to be distinctly opposite to what Microsoft have done. Cyber espionage anyone?

The more technical details of the release of the Xbox One and PS4 are also significant as they both use hardware from other big tech players.

Advanced Micro Devices [NYSE:AMD] provides some of the hardware that make the Xbox and PS4 come alive. So it’s not always just the big names on the box that benefit from these battles.

Either way, the game is on (so to speak). And it’s telling that Sony already has the upper hand because in a sea of red amongst global markets, Sony, thanks to their big release just happened to post a gain. And Microsoft? Well for their sake let’s hope the technology speaks for itself.

Sam Volkering
Technology Analyst
Join me on Google+

From the Archives…

Bernankenstein’s Financial Monster
7-06-2013 – Vern Gowdie

Six Revolutionary Technology Trends for the Next 20 Years
6-06-2013 – Sam Volkering

The Incredible World of Graphene
5-06-2013 – Dr Alex Cowie

After the Correction: Gold Stocks Set for the Biggest Gains
4-06-2013 – Dr Alex Cowie

The Single Best Way to Build Wealth: Invest in Business…
3-06-2013 – Kris Sayce

GBPUSD is facing 1.5683 resistance, a break above this level will signal resumption of the uptrend from 1.5008, then next target would be at 1.5700 area. Initial support is at the upward trend line on 4-hour chart, as long as the trend line support holds, the uptrend will continue. On the other side, a clear break below the trend line support will suggest that lengthier sideways consolidation is underway, then the trading range would be between 1.5488 and 1.5705.

Forex Forecast

The U.S. Dollar Under Pressure Again

EURUSD – The EURUSD Holds Above 1.3180

Having started decreasing yesterday, the EURUSD tested the support around 1.3180, managed to stay above it and increase up to 1.3268 then. During the Asian session, the pair passed this resistance and increased to 1.3291. Thus, the pair remains positive, being in demand on wanes as well – this allows it to trade above the acsending support line and 20 day MA. The RSI on the 4 hour chart entered the overbought zone again, thus the EURUSD may return to the 32nd figure in the absence of updated drivers, whose loss would make the pair decrease to 1.3130-1.3100.

The GBPUSD was consolidating after its increase to 1.5683 and trading between 1.5494 and 1.5586. During the Asian session, the bulls tested 1.5601, after which they retreated to 1.5579. The pair’s wanes are small, but continue attracting the purchasing interest. As a result, the pair is trading above the 20 day MA, as well as ascending resistance line, maintaining its further growth potential. But the Parabolic SAR is above the price chart, and the RSI is showing signs of being overbought, thus the pair’s consolidation phase is likely to continue. The loss of the 1.5494 support would weaken the bulls and make the pair drop to 1.5430, which would not mean the end of the rising dynamics.

The U.S. dollar tried to win back lost positions against the Swiss franc, having increased to 0.9418, but there it faced the bears’ onslaught which made the pair return to 0.9317, but during the Asian session they had no scruple to test 0.9305. This support managed to keep the dollar from its further decrease – this makes the bulls believe the pair will return to the 94th figure. However, until the dollar is trading below 0.9500-0.9555, these levels will limit the bulls and the pair will continue being put under pressure.

The USDJPY continued its recovery which started on Friday, but its increase was not energetic. However, having rebounded from 97.70, the dollar managed to increase to 99.28 before it came under pressure again. As a result, the rate decreased to 97.79, which was able to constrain the bears’ onslaught during the Asian session – thus, the pair pulled back to 98.47. The fact that the dollar failed to hold above the resistance near the 99th figure is the negative factor – this indicates the continuing trend towards the downward correction.

provided by IAFT

By www.CentralBankNews.info     Mozambique’s central bank cut its benchmark standing facility rate (FPC) by 50 basis points to 9.0 percent, saying inflation had gradually recovered from the impact of massive flooding earlier this year so the bank could now “proceed with measures to align interest rates in the context of the macroeconomic targets set for 2013.”
     The Bank of Mozambique (CPMO), which cut rates by 550 basis points in 2012 but had held them steady this year until today, also cut the rate on its standing deposit facility by 50 basis points to 1.75 percent but maintained the required reserves ratio at 8.0 percent.
    The CPMO said it would intervene in interbank markets to meet the monetary base target of 40.787 billion meticais by the end of this month, up from the target of 39.7 billion at the end of May.
    Mozambique’s inflation rate rose to 4.9 percent in May from 4.79 percent in April, continuing its steady climb since hitting a recent low of 1.41 percent in August last year. However, this is still well below of peak in inflation of 16.6 percent at the end of 2010.
    Extensive flooding in the southern and central parts of Mozambique at the start of this year lead to reduced harvests and food, contributing to a change in inflation along with a depreciation of the metical currency, higher school fees and higher prices for some commodities.
    The CPMO forecast last month that this would lead to higher inflation in the second quarter and an average inflation rate of 7.0 percent in 2013, up from 2.09 percent in 2012.
    The International Monetary Fund (IMF) forecast medium-term inflation of 5-6 percent.

     The impact of flooding also lead the central bank to reduce its economic growth forecast for 2013 to 7 percent from a previous 8 percent, down from 7.4 percent in 2012.
    Mozambique’s government has forecast growth of 8 percent this year.
    Mozambique’s economy has been expanding on the back of higher coal production, along with an expansion of financial services, transport and communications and agriculture.
   
    www.CentralBankNews.info

By www.CentralBankNews.info

Germany’s Constitutional Court will hold a key hearing on bond buying this week.

The German central bank, the Bundesbank, will have a central role in this week’s Federal Constitutional Court hearing on complaints filed against the permanent European bailout fund known as the European Stability Mechanism (ESM) and the bond purchase program of the European Central Bank (ECB). It makes clear in its written statement that the bond purchases announced by the ECB are “to be judged critically”.

Legal information

Video by en.jyskebank.tv

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 11 June 2013, 07:00 EDT

SPOT GOLD fell to three week lows below $1370 an ounce Tuesday, as stocks and commodities also fell amid ongoing speculation over when the US Federal Reserve might begin reducing the size of its quantitative easing program.

“Gold remains bearish while trading below the $1424 current June high,” reckons Commerzbank senior technical analyst Axel Rudolph.

Gold exchange traded funds tracked by Bloomberg saw their gold bullion holdings fall by 6.1 tonnes yesterday, although the world’s largest gold E.T.F. SPDR Gold Trust (ticker GLD) added metal for only the sixth day this year, raising its holdings by 2.7 tonnes to 1009.8 tonnes.

Silver meantime dropped back below $21.60 an ounce, falling towards three-week lo0ws touched yesterday.

Major European stock markets were down nearly 1.5% by Tuesday, after losses in Asia that followed the Bank of Japan’s decision to leave its QE program unchanged.

“Upbeat sentiment over the US economic outlook continues to feed concerns of increasing US yields and an easing pace to [quantitative easing],” says VTB Capital analyst Andrey Kryuchenkov.

“Volumes in Asia will be subdued due to holidays in China,” he adds, referring to tomorrow’s Dragon Boat Festival.

Ratings agency Standard & Poor’s raised its outlook for its AA+ US credit rating from ‘negative’ to ‘stable’ Monday.

“We do not see material risks to our favorable view of the flexibility and efficacy of US monetary policy,” said a statement from S&P.

A stable outlook implies the chance of a downgrade in the rating is less than one-in-three.

“The last time the rating agency moved to downgrade US credit in August of 2011, the markets were sent into a tizzy with equities plunging and gold soaring to a record high of $1920 an ounce a month later,” says a note from Ed Meir, metals analyst at brokerage INTL FCStone.

“However, this time around, the move by S&P did not cause much of a stir, as investors seemed to be more focused on erratic growth patterns evident across most industrialized economies, coupled with growing uncertainties with respect to what the Federal Reserve is going to do with regard to its stimulus program.”

So-called ‘Fed tapering’ – the potential reduction in the size of the Fed’s asset purchase from the current $85 billion a month – “is a big issue” former World Bank president Robert Zoellick said Tuesday.

“The question,” said Zoellick, “will be, as the Fed eventually moves away from the monetary easing policies, what will be the effect of [withdrawing]the wall of money that’s moved around the world?”

“[US] Labor market conditions have improved since last summer, suggesting the [Federal Open Market] Committee could slow the pace of purchases,” James Bullard, president of Federal Reserve Bank of St Louis, which is not an FOMC member this year, said Monday.

“But surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame.”

The Bank of Japan meantime left its main policy interest rate on hold at 0.1% Tuesday, while reiterating its quantitative easing commitment to grow the monetary base by an annual up to 70 trillion Yen ($720 billion).

UK industrial production meantime fell by 0.6% in the year to April, according to official figures published this morning, while manufacturing production, a subset of industrial production, down 0.5% over the same period.

Over in Europe, Germany’s Constitutional Court today began hearing testimony on the European Central Bank’s Outright Monetary Transactions program, by which the ECB has pledged to buy the debt of distressed sovereigns on the secondary market to mitigate borrowing costs.

Bundesbank chief Jens Weidmann, who has publicly criticized OMT, is expected to testify at the hearing, which has been added to an existing case before the Court over whether the European Stability Mechanism rescue fund breaches Germany’s constitution.

Weidmann’s fellow German Joerg Asmussen, who sits on the ECB’s Executive Board, is also expected to appear, as is finance minister Wolfgang Schaeuble.

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 can be found on Google+

(c) BullionVault 2013

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.