Month: December 2013

By MoneyMorning.com.au

Champagne chilled, firework display scheduled and secure knowledge that a taxi after midnight won’t be found in under two hours for any price. That’s the extent of our New Year’s Eve preparations. We hope yours involve more guaranteed fare of fine food, good cheer and speedy transportation to bring in 2014. But before you do, we ask you to reckon with us one last time in 2013. Because 2014 won’t have quite the fresh start for the world economy all of us hope for – if our colleague Vern Gowdie is right.

Vern, as you may know, joined the team this year and made no bones about the case for stocks: in his opinion, there isn’t one. He’s not changing his stance for 2014, either. That’s because the debts from 2013 are still on the ledger, as are those from 2012, and 2011, and 2010 and…you get the idea.    

To Vern’s eye, stocks look poised on a wonky precipice. The only thing stalling the deflationary downturn is unprecedented central bank intervention. That’s one reason Vern is as wary of the share market as Kevin Pietersen is of Peter Siddle. Today he’ll show you why the world is mired in a deflationary spin. But it could turn on a dime at any moment.  Or, as Bill Bonner likes to put it, Japan now, Argentina later. Please enjoy…

Place Your Bet on Japan Now, Argentina Later

By Vern Gowdie, Chairman, Gowdie Family Wealth  

Inflation has been such a constant companion of the global economy that we automatically assume it will always be so. We have known nothing else…unless of course you were an adult through the Great Depression. When the Fed embarked on QE to Infinity, the automatic assumption was that higher inflation or even hyper-inflation would be the consequence of this policy.

The CRB (Global Commodity) Index confirmed this initial reaction to potentially higher inflation (commodities are sensitive to inflation).

However, around April 2011 commodity prices began to fall. What’s interesting about this is QE3 ($85 Billion per month asset purchases) began in late 2012, yet commodity prices have not recovered the ground lost since April 2011. Something else is going on in the global economy.

The Great Credit Contraction is a deflationary force. Look at the chart to see how much ‘air’ was pumped into the credit bubble from 1980 to 2010. As the chart says ‘this is not normal’. The last time anywhere near this amount of ‘air’ was pumped into a credit bubble it ended with The Great Depression.

Click to enlarge

Credit is an advance on tomorrow’s income. There is simply not enough income in the system to repay the debts accrued over the past 30 years.

What we have from the private sector is a slow leak in the credit bubble. The global economy inflated on credit and it will deflate on the contraction of credit (whether that contraction is voluntary or involuntary). One way or another the debt has to leave the system…just like it did from 1930 to 1950.

The easier way would have been to allow the GFC to fully express itself. The harder way is for the authorities to stand in the path of the Great Credit Contraction with their various boondoggles. Like it or not we are on the harder path.

To give you some perspective on the pain that awaits us, look at this next chart from FRED on the total credit in the US economy. Look where it was in 1980 compared to today…from $5 trillion to $60 trillion.

Click to enlarge

That is not the biggest issue of this graph. Look at the little blip downwards in the grey shaded area of 2009. This little blip was the GFC.

The reversal of this blip is courtesy of government debt. The point I am making is if this little tick downwards put the skids under the global economy in 2008/09, what is going to happen if/ when debt levels reset back to 130% of GDP (as they did in 1950)?

To put this into perspective, US GDP of $17 trillion x 130% = $22 trillion in credit. Now, mentally trace the thin blue line down to $22 trillion and see the extent of the fall the Great Credit Contraction may have in store for us. It makes the 2008/09 blip look like a pimple on an elephant’s behind.

This amount of credit leaving the system (by repayment, default or restructure) is deflationary. The other option to achieve a debt to GDP ratio of 130% is for GDP to rise (due to higher inflation) and for debt levels to stay the same.

For that to happen US GDP would need to rise from $17 trillion to $44 trillion…a 160% increase. With an inflation rate of 10% it would take a decade (compounding) for $17 trillion to reach $44 trillion.

OK it is possible, but what happens to an economy where debt levels stagnate for a decade and interest costs (due to higher inflation) are three to four times higher than US borrowers are paying today?

I do not pretend to know all the unintended consequences of these effects; suffice to say it would not be pretty.

No matter which way we slice or dice it, the system has too much lead in its saddlebags. Either we get rid of some of the lead or get a bigger horse.

I’m leaning towards the ‘lead reduction’ option.

How inflation could happen

The GDP of an economy is the equation of:

Money Stock x Velocity of Money Stock = GDP

To simplify this equation, let’s say you and I are the only two people in the economy. You have $100 and I have nothing. You pay me $100 for a good or service.

I then pay you $100 for a good or service. The money stock is $100.

The velocity of money is 2 (once to me and once to you).

GDP = $200.

Again courtesy of FRED, here is the US M2 Money Stock. Since the GFC, US money stock has increased by $4 trillion (from $7 trillion to $11 trillion).

This is what the inflationists are concern concerned about…more money in the system. Similar to the rampant money printing in the Weimar Republic and Zimbabwe, which resulted in hyper-inflation.

Click to enlarge

However, there are two parts to inflation – money supply AND credit growth. The Great Credit Contraction is slowly but surely shrinking the private sector debt pile. So credit growth is not stoking the inflationary fire. This is evident from the steep decline in Velocity of M2.

Click to enlarge

The additional money is not changing hands as quickly as it used to – the Fed and banks are stockpiling it.

Based on these charts here is the equation for the
US economy:

(M2) $11 Trillion x (Velocity of M2) 1.55= $17 Trillion economy.

So here’s how inflation could happen. As mentioned above, everything is ‘mean-reverting’. If Velocity of money mean-reverts to the 1.7 to 1.8 range AND the Money Stock keeps rising (which sure looks like it is going to be the case), then the US economy will easily leap into the $20+ trillion level.

Given the Fed’s gross incompetence behind the wheel of the economy, it is not too much of a stretch to see the economy being whip-sawed from deflation to inflation.

In the pursuit of economic growth at all costs, the authorities over the past three decades have created a monster. Which way this monster will unleash its fury is an unknown. However the one thing I am reasonably certain of (due to the precedent of history) is that the monster will break the central bankers’ flimsy shackles. When it does, we will see whether its destructive power is deflationary or inflationary.

As I said earlier, my guess (and that is all anyone can do in these uncertain times) is on deflation.

Vern Gowdie+
Chairman, Gowdie Family Wealth

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By MoneyMorning.com.au

Source: Kevin Michael Grace of The Gold Report (12/30/13)

http://www.theaureport.com/pub/na/miners-must-mind-their-margins-rob-cohen

Mining success is not measured in ounces and dollars but instead by healthy margins, argues Robert Cohen, lead portfolio manager with Dynamic Funds. In this interview with The Gold Report, Cohen declares that investors should seek out projects that will earn profits of 20–35%, regardless of size, and takes us on an around-the-world tour of companies that hit this sweet spot.

The Gold Report: Since you last spoke to The Gold Report in March, the price of gold has collapsed. What happened?

Rob Cohen: Gold has collapsed when compared to the U.S. dollar, but not when compared to other hard assets. For instance, since gold was allowed to float in 1971, its average price ratio per ounce to the price of a barrel of oil has been 15:1. Right now, it’s about 13:1, so it’s not that far from the mean. We remain a little puzzled by what has happened. Going back to 2008, there’s been a strong correlation between the expanding balance sheet of the Federal Reserve and the rising price of gold, but that link has been cut, at least for now.

We have also had some positive economic data out of the U.S.

TGR: Is this positive data really all that positive?

RC: We do question the fundamentals underneath the data. Unemployment numbers are beating expectations, but the U.S. doesn’t count “discouraged workers” as unemployed. So the true number is not 7% but really about 11.3%. The trade deficit has narrowed, but this is due to increases in domestic oil and gas production and not from increasing exports.

TGR: Do you think that $1,300/ounce ($1,300/oz) is gold’s new ceiling?

RC: Not necessarily. There are a lot of signs that the U.S. dollar could crack. It faces serious stresses from trade deficits with China and Europe and countries—like China—that manipulate their currencies in order to put U.S. exporters at such a disadvantage. This cannot go on indefinitely. If the U.S. dollar loses purchasing power for whatever reason, this will be manifested in a higher gold price.

TGR: To what extent is the price of gold affected by Indian purchases? The government of India has moved against gold buying to protect the rupee. Is this a battle it can win?

RC: I don’t think so. Don’t forget, Indians were buying gold quite happily at much higher prices than today. India is a country where the fiat currency is not that dependable as a store of value. Restricting gold means smuggling, and the current illegal premium is estimated to be the old import tax plus $200/oz. And now the Indian government isn’t getting that tax.

The world has mined about 2,500 tons/year of gold for the past decade or so. With the falloff in the demand from India, whatever it may be, China and other countries have stepped in and picked up the slack. There is no evidence of huge amounts of gold floating around with nowhere to go.

TGR: Is Asia becoming the dominant continent for ownership of gold bullion?

RC: The desire is there, but the amount of gold available is so restricted, there’s a perennial demand for more. China has more than $3 trillion of foreign exchange reserves, and if it wanted to back that with gold, it would need to buy hundreds of tons a year. This year is perhaps unique because 800 tons were released when investors flooded out of exchange-traded funds. China would have had the capacity to absorb that, but it is a Communist country, and it doesn’t announce its gold purchases to the world.

TGR: In this depressed market, how do companies stand out from the pack and prove their worth to investors? Are healthy margins essential in this respect?

RC: I look at this industry as having a relatively constant profit margin in the 20–30% range. In other words, when gold prices go up, the cost structure will go up. Expenses such as oil, chemicals, tires, Caterpillar equipment, etc., are not as much in the control of companies as investors might think. Market prices are determined by the purchasing power of a dollar, and when dollars lose purchasing power, absolute price levels move up.

TGR: Have precious metals miners cut costs substantially?

RC: In Q3/13 many companies met or beat expectations and patted themselves on the back for getting their costs down. But many of these costs fell because of the dollar’s increased purchasing power. Let’s say a company produces gold for $1,000/oz. Many people think that’s an absolute that will withstand time, but that’s not quite true. If the price of gold fell to $1,000/oz, that would not wipe out profits. Eventually, costs would come down to say $800/oz, and companies would still have an approximate 20% margin. And if gold goes up to $1,300/oz and beyond, costs such as energy prices will have an equivalent rise.

TGR: Is there a right way and a wrong way to cut costs?

RC: Absolutely. We have companies saying, “OK, we’ve cut our exploration budget in half,” but they haven’t truly cut that budget until they’ve truly cut the amount of meters drilled. If a company cuts the number of meters drilled in half, exploration costs should probably be one-quarter. The market should be better attuned to whether management is truly cutting, say by cutting employees and creating efficiencies, as opposed to taking credit for reduced costs on the downside.

We can expect the oil/gold ratio to stay at probably at least 13:1. So if gold goes up, oil will likely go up correspondingly—as will mining companies’ energy bills. This cannot be controlled. Investors should learn to focus on profit margins, rather than absolute dollar margins. They should think of companies producing at 20% margins regardless of the gold price.

TGR: Given how low equities have fallen, do you anticipate a wave of takeovers?

RC: We’ve already had quite a few this year. However, most of the acquisitions are head scratchers as far as I’m concerned—companies buying cheap but not necessarily profitable ounces.

Some examples are IAMGOLD Corp.’s (IMG:TSX; IAG:NYSE) acquisition of Trelawney Resources, New Gold Inc.’s (NGD:TSX; NGD:NYSE.MKT) acquisition of Rainy River and B2Gold Corp.’s (BTG:NYSE; BTO:TSX; B2G:NSX) acquisition of Volta Resources Inc. (VTR:TSX). All these projects have fairly skinny economics at these gold prices. As did Osisko Mining Corp.’s (OSK:TSX) acquisition of Queenston Mining at the end of 2012.

I would rather have seen companies buying projects with robust economics, even at today’s gold prices.

TGR: Which companies are well placed to buy small companies with robust projects?

RC: Companies with really good balance sheets in a good position to do acquisitions include Goldcorp Inc. (G:TSX; GG:NYSE) and Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE). But any company with a half decent balance sheet could make an astute buy in this market.

TGR: What would you consider an astute buy?

RC: The companies out there owning projects with 25–35% rates of return, as opposed to some of the acquisitions we’ve seen, which have rates of return in the 10% range.

I’ll name two examples. The first would be Papillon Resources Inc. (PIR:ASX), an ASX-listed company with a $310 million ($310M) market cap. Its Fekola open-pit gold project in Mali has more than 5 million ounces (5 Moz) at 2.35 grams/ton (2.35 g/t).

TGR: You’ve called Fekola a world-class discovery.

RC: Yes. In the early years of the mine, Papillon can mine a higher grade, which would enhance the economics and allow a somewhat faster payback. We don’t typically find open pits with relatively low strip ratios capable of producing gold around $500/oz, like Fekola. Open pits in Nevada or in Canada, such as Osisko’s Canadian Malartic mine, typically grade 1 g/t.

Fekola is 20% held by the Mali government and 4% by a local joint venture partner, so with its 76% credit, Papillon could produce about 245,000 ounces (245 Koz) a year and have a fairly comfortable cash flow, even at these prices, of $110M a year. Against capital costs, this would result in a two-and-a-half-year payback. Its rate of return would be 25% at today’s gold price, which is considered unhealthy, but pretty healthy given the size of the project.

TGR: And the second company?

RC: Roxgold Inc.’s (ROG:TSX.V) Yaramoko underground gold project in Burkina Faso, which has barely 1 Moz gold but extremely high grade at 11.5 g/t. It has a $100M capital expense, which isn’t huge, but it can throw off $50M/year in cash flow, so that’s a two-year payback. Even at this gold price, that equates to about a 34% rate of return.

TGR: Many of the top 10 holdings in the Dynamic Strategic Gold Class Fund are in Africa. What do you like about Africa, and how are your holdings affected by considerations of country risk?

RC: Africa is one of the less explored gold regions, so there is certainly a lot more low-hanging fruit to pick. Generally, you find projects there that have 25–35% rates of return, which helps compensate for political risks.

Having said that, we’ve seen lots of problems with companies getting permits right here in the U.S. and Canada. There aren’t any slam dunks anywhere anymore.

TGR: Burkina Faso is certainly rated highly in West Africa. What else do you like there?

RC: Orbis Gold Ltd. (OBS:ASX), which has the Natougou open-pit gold project in Burkina Faso. We’re talking 3.5 g/t average grade, about 1.5 Moz so far and a lot of growth potential. There is a high strip ratio, in other words, a lot of overburden to remove, but because the grade is so high, it pays for the removal of that overburden. Again, this is a project that should have a less than two-year payback.

TGR: You mentioned Randgold earlier. How do you rate its operations?

RC: Randgold has been one of the best senior gold companies for delivery and execution. In 2013, it is expected to produce around 900–950 Koz gold at $700–750/oz. It just started up its Kibali mine in the Democratic Republic of the Congo, slightly ahead of schedule. Its other important project is the Loulo-Gounkoto project in Mali. And it has the Tongon project in Cote d’Ivoire.

TGR: Randgold just announced a quarter-on-quarter profit increase of 80%.

RC: That is because the company is growing production. In 2014, this should rise to 1.2 Moz because Kibali will have booked a full year. By 2017, Randgold’s balance sheet could rise to about $1.5 billion, which means free cash flow of about $500M per year. That would support a dividend policy. Actually, the company has completed a large part of its capital-spending phase, so it could start paying dividends now.

TGR: How bad is Mexico’s new taxation regime for mining?

RC: I think we can weather it. Certainly, introducing this at a time when the industry is struggling is not great timing and does eat into company profits. This is another example of why it would be good for the industry to foster a margin-driven attitude. Governments see a company producing gold for $800/oz, and then, when gold surges to $1,800/oz, they assume falsely that the company has a $1,000/oz profit margin. Governments need to be taught that these measures cut more heavily into margins than they think.

TGR: How do you rate the Mexican companies you follow?

RC: Alamos Gold Inc. (AGI:TSX) is advancing its projects in Turkey, but all its production currently comes from Mexico. It has done a fantastic job navigating the bear market and has maintained a very healthy balance sheet, with $430M in cash. Production in 2014 should be about 190 Koz gold. Its all-in cash costs at its Mulatos mine in Mexico should be around $850/oz. It has good exploration growth potential. Alamos is probably in the top quartile or even top decile of all gold companies.

TGR: And Fresnillo Plc (FRES:LSE)?

RC: Fresnillo is the world’s largest primary silver producer. It has had a problem with an ejido (communal land activists) around Herradura, the gold mine in Mexico it holds in a joint venture with Newmont Mining Corp. (NEM:NYSE). Its blasting permit around the ejido area has been suspended, but the company is working swiftly toward a resolution. It is working with the ejido group on that. Fresnillo is a well-run company with some of the premier silver mines in the world. It has good prospects and a 12.3% compounded annual growth rate in silver production over the next five years. It might not be the cheapest stock, but it is quality.

TGR: Does resurgent resource nationalism globally make companies operating in Canada more attractive to investors?

RC: It depends on what commodity you’re looking at. Canada is a big producer of iron ore and nickel and, to a lesser degree, gold and copper. I always look first at the quality of projects. Yes, we have a couple of new copper projects being built, but for the most part, I think our status will not necessarily rise. Operating mines will probably become more attractive when investors are ready to get exposure to those commodities.

TGR: Osisko announced last month that Canadian Malartic had surpassed production of 1 Moz gold total. What does the future hold for Malartic?

RC: It is a fantastic ore body, very homogeneous. I expect the free cash flow to really pick up now that the mine has ramped up to nameplate capacity. It can start opening up the pit, now that it is getting deeper. Osisko had to be quite cautious previously because it was mining right up against the edge of the town.

Malartic also has the higher-grade South Barnat open pit to still develop. Before this can happen, the highway that passes through the town must be rerouted. Osisko is working its way through the permits on that, but when it actually gets into South Barnat, this will certainly add more fuel to its profits. I think Malartic will have excellent years to come.

TGR: Any other companies you’d care to mention?

RC: Regis Resources Ltd. (RRL:ASX) in Australia and Tahoe Resources Inc. (THO:TSX; TAHO:NYSE) in Guatemala. Regis is a mid-cap gold producer. The startup of its Garden Well project in Western Australia has been a disappointment, as there have been grade-reconciliation issues. But overall, it has been a company that has executed fairly well on building its mines and delivering. It has, like its entire sector, been challenged by this market, but, overall, it still has good value.

TGR: Tahoe’s Escobal silver project in Guatemala just produced its first concentrate.

RC: That’s correct. Escobal is one of the best new silver mines in the world and is one of our preferred methods of getting exposure to silver.

TGR: Tahoe Resources has had a significant increase in its stock price since its low of around $13/share in July.

RC: That’s because Escobal has been derisked. During its construction phase, it was plagued with protestors from local groups and non-governmental organizations. We’ve seen this in Guatemala before. What happens is that once a mine goes into production there, its opponents realize they have lost the battle and then pick a different project to attack.

I talked with management just the other day. Tahoe is working on getting its recoveries up to a steady state. Startups can be very tricky. This one is going fairly smoothly.

TGR: Rob, thank you for your time and your insights.

A mineral process engineer by training with 20 years experience in the industry, Robert Cohen is lead portfolio manager for Dynamic Precious Metals Fund and Dynamic Strategic Gold Class. Named a TopGun portfolio manager by Brendan Wood International in 2009, 2010 and 2011, Cohen has been lead portfolio manager for the Dynamic Precious Metals Fund since 2000 and the Dynamic Strategic Gold Class since its inception, with top-performing mandates also in distribution in Europe and the United States. Cohen completed his Bachelor of Applied Sciences in mining and mineral process engineering at the University of British Columbia in 1992. He received his Master in Business Administration in 1998 and his CFA designation in 2003.

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DISCLOSURE:

1) Kevin Michael Grace conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Roxgold Inc. and Tahoe Resources Inc. Goldcorp Inc. is not affiliated with The Gold Report. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Robert Cohen: I or my family own shares of the following companies mentioned in this interview: New Gold Inc. and Osisko Mining Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.

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By CentralBankNews.info
    The final week of 2013 provided few fireworks in global monetary policy with financial markets largely in an upbeat mood over the prospects for 2014 – already dubbed ‘Year of the Taper’ – following the previous week’s decision by the U.S. Federal Reserve to start winding down its asset purchases beginning in January in a predictable and calm manner.
    Six central banks took policy decisions last week, with Tunisia raising its rates, Armenia cutting its rates and the other four (Angola, Israel, Taiwan and Zambia) keeping rates on hold.
    The general message from these six central banks was that global economic growth is slowly improving and inflation is largely in check, except in a few hot spots, such as Tunisia and Zambia.
    Tunisia’s central bank, which raised its policy rate for the second time this year, embodies the struggle that many emerging and frontier market central banks have been facing most of this year. International investors have withdrawn funds in favor of advanced economies, leading to depreciating currencies, upward pressure on current account deficits and inflation.
    Credible and resolute political leadership is the answer to such troubles, and in the case of Tunisia there are signs that three years of unrest following the political uprisings that gave birth to the Arab Spring may be easing as a caretaker government takes over in early January in the run-up to an election and new constitution.

    Through the 52 weeks of this year, the 90 central banks followed by Central Bank News cut their policy rates 117 times, or 23.2 percent, of this year’s 505 policy decisions, steady from the previous week but down from 25.3 percent mid-year.
    Nine percent of this year’s rate cuts were carried out by developed market central banks, 18 percent by frontier market central banks, 32 percent by emerging market central banks and 41 percent by central banks in other countries.
    There were 27 rate rises this year, or 5.3 percent of this year’s 505 policy decisions, up from 4.7 percent after the first half of this year, reflecting this year’s rate rises by Brazil, Indonesia, India and a few other countries, such as Pakistan, Ghana, Gambia and Zambia.
    Of this year’s rate rises, 13, or 48 percent, came from emerging market central banks compared with only one rate rise from developed market central banks. Denmark was the lone rate riser among developed market central banks but that move reflected easing upward pressure on its currency rather than a strong economy as investors returned to euro zone assets, allowing the Danish central bank to normalize its policy that is aimed at holding the krone in a narrow band to the euro.

• Israel holds rate, 2014 growth seen rising moderately
• Angola holds rate, cites trend in economic indicator
• Armenia cuts rate 25 bps, sees further rate cuts in 2014
• Taiwan holds rate, sees higher 2014 growth, inflation
• Tunisia raises rate 50 bps on inflation, FX, C/A concern
• Zambia holds rate steady, sees inflationary pressures

By HY Markets Forex Blog

Gold traders might benefit from knowing about how many global market participants have been shunning the precious metal.

Many investors have been either reducing their exposure to the metal or shorting it at a time when gold has plunged almost 30 percent in 2013 alone, according to Reuters. As a result of this sharp depreciation, the commodity is currently on pace to experience its worst annual performance since the early 1980s.

Gold has had a rough 2013
The precious metal fell into a bear market in April, having lost more than 20 percent of its value since hitting a recent high in 2011. Then, in the following months, it continued to lose ground, dropping below $1,200 per ounce in June. As a result of these losses, gold fell to its lowest price in close to three years. The metal did manage to recover after that month, appreciating until it reached a bull market in August.

“Prices will likely remain under pressure over the short-term as a combination of stronger U.S. macro statistics, higher equity markets and continued outflows of money from gold exchange-traded funds weigh on sentiment going into 2014,” INTL FCStone analyst Edward Meir told the news source.

The change in how many feel about the precious metal has been illustrated recently by industry data indicating that many investors have been pulling out of gold funds, according to Bloomberg. Figures provided by research firm EPFR Global have indicated that so far in 2013, $38.8 billion has been withdrawn from gold funds.

In addition, hedge fund managers have recently indicated their bearish feelings about the precious metal, as data provided by the U.S. Commodity Futures Trading Commission indicated that during the week that ended on Dec. 17, these market participants cut their net-long exposure to the commodity by 2.8 percent to 32,524 futures and options, the media outlet reported. In addition, the total short positions held rose within 6 percent of the record they hit in July of this year.

Gold faces many headwinds
Just in case the aforementioned data is not enough to paint a picture of gold having a difficult time that could get even worse, the precious metal could easily encounter substantial headwinds from a wide range of factors. The commodity is frequently viewed as a safe haven that investors flock to in times of economic uncertainty, as the desire that global market participants have for risk is illustrated by the robust gains that stocks around the world have enjoyed in 2013.

“Gold was probably one of the easiest shorts of all time,” Uri Landesman, who serves as president of New York-based hedge fund Platinum Partners, told Bloomberg. “It has fallen out of favor because people felt its general security wasn’t needed in this market. People wanted to take on risk this year.”

QE tapering could push gold lower
Aside from individuals seeming to have a greater tolerance for risk, the challenges that gold could encounter as a result of the Federal Reserve’s tapering of quantitative easing were illustrated when spot contracts for the precious metal fell to a six-month low during the week ending on Dec. 20, after the central bank specified that starting in January, it will reduce this monthly regimen of bond purchases, according to Reuters.

The Fed revealed at the conclusion of a two-day policy meeting that in January, it will begin purchasing $75 billion worth of financial instruments every month. Since late in 2012, the central bank has been buying $85 billion worth of these securities on a monthly basis. QE is important to those who trade gold since the robust stimulus has been seen as driving up the risk of inflation, which has given global investors less incentive to purchase the metal as a hedge against the risk of rising prices.

In addition to the headwinds that could be created for gold as a result of tapering QE, the U.S. dollar is currently on track to experience its strongest annual performance since 2008, Bloomberg reported. A higher value for the greenback relative to other currencies frequently proves bearish for gold.

Also, HSBC analysts have stated that the precious metal could encounter downward pressure in the near-term as a result of the buying activity that traditionally happens during the holidays, according to Reuters.

“Quiet holiday trading leaves bullion open to volatile movements in either direction as relatively little buying or selling can move the market in thin conditions,” analysts said, the media outlet reported. “The next support level for gold is $1,180. If the market breaks this level we could see a test of $1,150.”

In addition to these short-term predictions, Jeffrey Currie, the head of commodities research at Goldman Sachs Group Inc., has forecast that the precious metal will likely fall in value next year, according to Bloomberg. On Nov. 20, the major investment bank released a report predicting that by the end of 2014, the commodity could fall to $1,050 per ounce.

The post Gold Traders – A 2013 Summary of the Precious Metal appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By WallStreetDaily.com

Last week, we began looking back at some of the most popular – and most hated – Wall Street Daily articles of the year.

Now I’d like to focus on one last top five category…

As you know, one theme I often cover at Wall Street Daily is busting Wall Street’s most widely accepted (and inaccurate) wisdom.

So without further ado, here are the top five myths I busted this year…

Myth #5 Never Stood a Chance:
Will the Real Unemployment Rate Please Stand Up?

Governments like to paint an overly rosy picture whenever possible. And when it comes to reporting the “official” unemployment rate (known as U-3 unemployment), that’s exactly what they do. Luckily, we’re here to set things straight.

Myth #4 Verified? Say it isn’t So!:
Is This the Most Reliable Stock Market Indicator EVER?

I’m sure you’ve heard the market adage, “As the S&P 500 goes in January, so goes the year.” Well, this year we witnessed the strongest January rally since 1997. So I took some time to see if the myth held any merit…

Myth #3 Didn’t Even Put Up a Fight:
The Shocking Truth About Insider Selling

Many investors believe that corporate insiders possess superhuman investing skills. And since 2009, every time insider selling ramps up, the mainstream financial headlines predictably urge caution. Based on the data I uncovered, however, insiders could be the most unreliable stock market indicator of all time.

Myth #2 is Finally Dead and Buried:
The Biggest Myth About Taxes

Think taxes don’t influence behavior? Think again! When the 2% Social Security payroll tax holiday ended in January, it had a profound impact on both consumers and companies alike. As a result, I urged readers to practice caution when investing in any sectors that could be jeopardized by unexpected and significant tax increases.

Myth #1 is Finished Screwing Investors:
Fire Your Broker if He Recommends This Old-School Investment

For almost half a century, Wall Street has been telling us a whopper. Specifically, that a so-called “balanced” portfolio – 60% in stocks and 40% in bonds – is an ideal way to stay invested in the stock market while reducing risk. And like lambs to the slaughter, countless Americans have allocated their assets accordingly. If you read this article back in January, you know that’s a huge mistake.

Well, that concludes our rundown of the most talked-about Wall Street Daily articles of the year.

If you can think of any other myths we busted that should have made it into our top five today, let us know by commenting below.

Ahead of the tape,

Louis Basenese

The post 2013′s Best of Wall Street Myth Busting appeared first on Wall Street Daily.

Article By WallStreetDaily.com

Original Article: 2013′s Best of Wall Street Myth Busting

Article By RoboForex.com

Analysis for December 30^th, 2013

EUR/USD

New chart structure implies that price continues forming horizontal triangle [B].

If this assumption that price continues forming correction [B] is correct, then probably Euro finished ascending zigzag (D) of [B].

Probably, pair finished ascending zigzag (D) of [B] and started forming descending zigzag (E).

Possibly, pair started forming descending zigzag (E).

GBP/USD

New chart structure implies that possible correction (B) of [B] is taking form of horizontal triangle and may complete quite soon.

If this assumption about triangle (B) of [B] is correct, then probably price completed ascending zigzag D of [B].

Probably, pair completed ascending wave D of [B] and started forming descending zigzag E of (B).

Possibly, pair started forming descending zigzag E of (B).

USD/CHF

New chart structure implies that Franc is still forming correction (4) in form of skewed triangle.

If this assumption about skewed triangle is correct, then probably price finished descending zigzag D of (4).

Probably, pair finished descending zigzag D of (4) and started forming ascending zigzag E of (4).

Probably, price started forming ascending zigzag E.

USD/JPY

Current chart structure implies that Yen is forming ascending zigzag [4] of large descending diagonal triangle.

If this assumption about ascending zigzag [4] is correct, then right now price is finishing ascending impulse (A) of [4]. In this case, later pair is expected to start descending correction (B) of [4].

Probably, price is finishing ascending impulse 5 of (A), which may be followed by new descending trend inside large correction (B).

Possibly, price is finishing ascending wedge [v] of 5 of (A). If this assumption is correct, then later pair is expected to start descending correction (B).

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

By HY Markets Forex Blog

Those who trade forex might benefit from learning about the recent surge in the EUR/USD to its highest level in more than two years.

The euro rose to as much as $1.3893 on Dec. 27, which was its highest level since Oct. 31, 2011, according to Bloomberg News. The appreciation in the common currency relative to the dollar was attributed to statements that European Central Bank Governing Council member Jens Weidmann made when speaking with the German newspaper Bild.

Several measures that compare the value of the greenback to other currencies also dropped, MarketWatch reported. The WSJ Dollar Index declined to 73.66 from its prior reading of 73.92. In addition, the ICE dollar index fell to 79.983, from 80.488 late in the previous day in North America.

Impact of Weidmann statement
“We must take care to raise interest rates again in a timely manner should inflation pressures build,” the paper quoted Weidmann as saying, according to Bloomberg News. “The euro area is recovering only gradually from the most severe economic crisis in the postwar period; pricing risks are slight. That justifies low benchmark rates.”

At least one market expert noted the key importance of the statements made by this government official, the media outlet reported. John Hardy, who works for Saxo Bank A/S in Copenhagen as head of foreign-exchange strategy, told the news source about this impact.

“The euro is trading to new highs since late 2011 on a Weidmann interview, in which he talks up the risks of ‘arbitrary monetary policy easing’ and the need to hike rates quickly if inflation returns,” he told the news source. “Illiquid holiday trading” is helping to make these fluctuations more severe, he emphasized.

Hardy is certainly not the only individual who observed the impact that the lack of trading activity has had on the price movements of the euro, as traders indicated that the lack of liquidity helped make these fluctuations in value more severe, according to Reuters.

EU banks prepare for AQR
Another factor that some have cited as helping to drive up demand for the common currency is lenders in the European Union making an effort to bolster their existing balance sheets so that they can be ready for an assessment that the ECB plans to conduct at the end of this year, according to Reuters.

Traders have told the news source that because these organizations want to improve their existing position, this objective has helped support demand for the euro. The evaluation is being conducted so that the region’s central bank can perform an asset-quality review early in 2014. The AQR will be conducted by the ECB so that the financial institution can pinpoint the banks in the region that need additional capital.

Impact of Fed tapering
Another factor that helped to push the EUR/USD higher in value by moving the greenback lower was speculation that the even though the Federal Reserve recently announced a timeline for reducing its bond purchases, the central bank will likely not increase its interest rates for some time, according to Bloomberg News.

At the end of the most recent meeting of the Federal Open Market Committee, it was revealed that starting in January, the Fed will start buying $75 billion worth of bonds every month. This figure compares to the $85 billion that the central bank has been purchasing every month since late in 2012.

As a result, the balance sheet of the central bank, which has surpassed $4 trillion, will continue to grow, although at a slightly reduced pace. This announcement was made at a time when the ECB has pulled back in terms of making bond purchases.

“The Fed did decide to taper, but the amount was minimal and we have yet to see what the policy outlook will be going forward,” Marito Ueda, senior managing director at currency-margin company at Tokyo-based FX Prime Corp., told Bloomberg. “Some bets on dollar gains are being unwound into year-end. The dollar is being sold across the board.”

The amount of time that the central bank will use to eliminate bond purchases entirely remains to be seen. Ben Bernanke, chairman of the Fed, shocked markets earlier this year when he announced at the conclusion of a policy meeting in June that these bond purchases could potentially be cut off altogether as early as 2014. This statement caused a sell-off that resulted in the decline of the value of many different assets.

He later provided some context around these statements, testifying before Washington lawmakers that for the bond purchases to be reduced, there would need to be significant improvement in crucial indicators of the economy. Since Bernanke made such statements, there has been substantial speculation circulating surrounding the timeline that the Fed will use to wind down its bond purchases.

Those who trade forex might benefit from knowing about a recent poll conducted by Bloomberg, in which economists predicted that the bond purchases of the Fed will be lowered at each one of the next seven FOMC meetings – by $10 billion per event.

The post What Can Forex Traders Learn from EUR/USD Surge? appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

Article By RoboForex.com

Analysis for December 30^th, 2013

AUD/USD

At daily chart, Australian Dollar is moving inside bearish trend; price is supported by Super Trend. If price rebounds from it, pair will start new descending movement. Closest target is at 0.8550.

At H4 chart, price is just several tens of pips away from breaking the 0/8 level and entering “oversold zone”. Possibly, price may try to test the -2/8 level in the beginning of the next year.

EUR/JPY

EUR/JPY continues moving upwards fast; last Friday bulls were able to keep price above the 6/8 level. If they don’t face any significant resistance from the 7/8 level, price will reach the 8/8 one quite soon.

At H4 chart, price is moving inside “overbought zone” and supported by Super Trends. After pair breaks the +2/8 level, lines at the chart will be redrawn.

SILVER

Silver is being corrected; I’ve got one buy order, and one stop order, in case price starts falling down fast. Instrument isn’t likely to stay above local maximum for a long time.

Silver is moving in the middle of H4 chart. If price is able to stay below Super Trends, bears may return to the market. Probably, instrument may break the 0/8 level quite soon.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

By MoneyMorning.com.au

Cat, meet pigeons, meet oil, meet water, meet elephant, meet room. Meet Phil Anderson.

Back in March we dropped a stink bomb in your inbox. We tendered the following:

‘If you’re waiting for the Australian property market to cool down before you buy a house…what if you’re waiting for something that isn’t going to happen?‘

This was – indeed, still is – the contention of leading economic forecaster and friend Philip J Anderson.

If you’re a long-time reader you’ll know that Phil fired this controversial idea into the PPP-sphere for the first time back in 2009 at our Australia in the Red show in Melbourne.

It wasn’t what delegates expected to hear.

And yet…they lapped it up. Phil was mobbed in the foyer at drinks. He never made it back into the auditorium for the second half of the show. Sceptical readers, waiting dutifully for Australian housing to begin its inevitable death-spiral, suddenly wanted to know when they should buy.

Our views on the credit bubble were, with respect, wrong, Phil told us, to our faces. Suddenly, we weren’t the alpha-contrarians in the room anymore.

Banks will create ‘as much credit as is needed’ to support high property prices in a boom. It’s all to do with economic cycles. And right now, we’re in the buying phase of an 18-year cycle: 14 years up, four down, Phil told (and still tells) our readers.

We kept in touch with Phil because we like him. We like him because he deals in facts. He’s not a spruiker. He’s not employed by the government / real estate / banking complex. He’s independent. He has no professional interest in house prices going up OR down.

Mostly he’s a voracious accumulator of economic facts and data. He’s an analyst. He looks for patterns. He extrapolates. And he reports. In fact, he talks all over the world about economic cycles and how to interpret them, how to forecast using them, and how to make money from them. He has done for more than 20 years, boom or bust.

And he does so dispassionately, despite being passionate about his research. That’s why we’re drawn to Phil, even though his views are diametrically opposed to those held by most of our editors. He doesn’t care if you believe him or not. He doesn’t care if we believe him or not.

Because we know his research comes from a place of honesty and conviction, we’re more than happy to publish it. In fact, we’re super-excited to publish it, even though we copped it big time when we launched Phil’s Remembering the Future project back in the first week of June.
 
To remind myself of the stink we caused, I somewhat reluctantly revisited the DR Inbox at arm’s length last week. Here’s a small sample of the printable invective still lurking in there …

• ‘Unmitigated drivel‘
• ‘I reckon you’ve lost the plot and taken a bribe from the real estate industry…‘
• ‘Sending out rubbish makes you look a fool…‘
• ‘Quite frankly if I changed my opinion on this market as you have I would be considered unstable as a professional.‘

Some of the unprintable emails stripped the paint from our walls here at HQ. But just to clarify: yes, I did know both of my parents. No, I never realised you could do that with a horse.

But let’s look forward, dear reader. Has the argument for higher house prices moved on since we booted the hornets’ nest?

I wanted to find out. So I called Phil up last week and asked him some of the questions I figured you’d want answering about Aussie housing, about economic cycles, and about what you can expect from the property market in 2014.

Here’s what he told me…

SIMON MUNTON: What do you see happening in the Australian property market in 2014?

PHIL ANDERSON: Steady gains / sideways moves, but those will remain location specific, to do with anything happening with mining infrastructure, the building of roads, rail or ports anywhere, as is always the case. Brisbane looks to be the best buyer’s market. 

SIMON: What do you see happening in the US property market in 2014?

PHIL: continued recovery, but 2014 will be more of a year of consolidating gains rather than country-wide increases in prices. The US stock market is likely to make a retracement in 2014 of the prior five years’ gains; this may make a few people nervous but is a normal part of market behaviour

SIMON: Why should investors believe in the 18-year real estate cycle?

PHIL: Some years the economy does well, some years it doesn’t. 200 years of US history clearly shows US real estate to be cyclical; this cycle has averaged 18 years (never shorter than 17 years, never longer than 20). The cause of this cycle is still with us, so future booms and busts are as assured as the sun rising each morning

SIMON: Why have we seen a renewed appetite for buying residential property in Australian capital cities this year?

People are making money; they have to put their money somewhere and the Australian tax office is very generous (skewed) towards investing in property.

SIMON: Has the ability to invest in property within SMSF had a positive impact on Australian property prices, or is that not really a factor in rising prices?

PHIL: I don’t know enough about that topic – probably yes.

SIMON How much credit can banks create to support a property boom? How much is too much?

PHIL: Banks can create as much credit as there is demand. Whilst unemployment stays reasonably low, it is hard to see such demand decreasing. Banks are totally dependent on rising property prices to support further lending

SIMON: Will I have to borrow money on 30 or 40 year mortgage terms just to buy a house In Australia?

PHIL: This may become a reality after 2019. Most mortgages, however, are paid off by Australians well before this time, for various reasons.

SIMON: What effect does foreign investment in Australian housing have on residential property prices?

PHIL: this is clearly distorting markets, especially inner city housing and flats, and anything built new. This situation is going to worsen in the next decade. Get used to it. Governments now, worldwide, have become totally dependent on rising house prices and all the taxes associated with property. Real estate itself has now become a world-wide game, with international payment easy, travel to visit the place very easy, and the world’s wealthiest 10% generating income like never before.

SIMON: What would you say to someone who told you: ‘I’m waiting for the housing market crash before I buy property?‘

PHIL: This reminds me of the four women at the table, each discussing their idea of the perfect man and waiting for him to show up. Like that’s ever going to happen. Queue the next shot, 35 years later and the four women have turned into skeletons…

SIMON: Could there be an Australian house price crash in 2014?

PHIL: Anything is possible. The cycles, however, indicate this to be unlikely. Rising productivity, increased technology developments and massive energy price reductions coming out of the US make this exceedingly unlikely. Even asking the question itself, which a number of people have been doing for years now – since the last one in 2008 – make it unlikely. When people STOP asking the question, this is when it will happen. 

So there you have it dear reader. If you’re waiting for house prices to drop before you buy a place, you know what to do:

Stop asking about a property market crash!

Enjoy the holidays.

Sincerely,

Simon Munton
Assistant Publisher

PS: If you want to read Phil’s argument for higher property prices in Australia, in greater detail go here.

PPS: Phil will be speaking at World War D, our mega event next March. If you don’t know anything about our 2014 show, go here. There are a handful of tickets left.

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By MoneyMorning.com.au

By CentralBankNews.info
    Zambia’s central bank maintained its policy rate at 9.75 percent, saying upward pressures on inflation is expected to come from a seasonal rise in food prices along with the lagged pass-through effects of the recent deprecation of the kwacha currency.
   “The current relatively tight monetary policy stance being pursued remains appropriate to mitigate the sustenance of these risks,” said the the Bank of Zambia in a statement from Dec. 27.
    Zambia’s inflation rate rose slightly to 7.1 percent in December from 7.0 percent. above the central bank’s 6.0 percent target.
    The central bank raised rates in June and July by a total of 50 basis points.
    Like many other currencies, the kwacha fell in late May through early July but then rebounded and rose until mid-October when it again fell. Since the start of the year, the kwacha is down just over 6 percent against the U.S. dollar, trading at 5.56 today.

    www.CentralBankNews.info