One of the consequences or side effects of central banking monetary inflation (creating money out of thin air) is it masks over the benefit of the free market in lowering costs. That means the average person and investor doesn't understand how the battle between the free market and central banking is going, who is winning, and what is coming our way over the long term as a result.
As the size of the money supply continues to rise - which is what allows the faulty fractional reserve banking system to operate even while it's failing - it results in inflation. That is the reason the free market can be thriving, but the economy can have the appearance of struggling, because of the hidden costs associated with the monetary policies of central banks.
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Now that Ben Bernanke and the FOMC have implemented another round of quantitative easing - one that could go on indefinitely with the promise to purchase $40 billion in mortgaged-backed securities on a monthly basis - gold and silver prices are about to go ballistic, as there's absolutely nothing in the way now to keep them from resuming their upward climb.
Gold shot up by over $38 an ounce on the news, while silver climbed over 4 percent in response to the highly anticipated move, which was more aggressive than thought by most.
The U.S. dollar is about to reverse directions, set to weaken in response to the stimulus move.
As for gold in general, there is nowhere for prices to go except up, at least until there is a reversal in job numbers in the U.S., which could take years to improve if we are to measure it by the prior response to QE1 and QE2 by the U.S. economy.
What has been a volatile and unsure economic environment because of there being no response from the Fed in the recent past concerning more stimulus, has now become much more stable in the sense of knowing what is coming from the central bank in the near and long term.
That will result in investors moving into commodities in droves as they seek to protect their assets from inflation and the falling value of the U.S. dollar.
In the short term we'll also see a big boost in the equity markets, but that has a lot more risk to it with stimulus than commodities do.
Barrick Gold jumped, trading at $1.50, up 3.78 percent, as of 2.51 PM EDT. Silver Wheaton was at $38.22, up 2.00, or 5.52 percent, as of 2:52 PM EDT. Goldcorp (GG) was trading at $45.17, up $2.11, or 4.90 percent. First Majestic Silver was at $21.91, up $0.87, or 4.13 percent.
Gold prices may be poised to rebound as several elements are combining to give the yellow metal a probable boost.
Federal Reserve Chairman Ben Bernanke made a statement that rising oil prices could spark inflation, the U.S. dollar has been under pressure, and jewelers in India are ending a 5-day shutdown protesting proposed tax increases from the Indian government; all of which could push gold prices up quickly over the short term.
Another major factor is the ongoing sovereign debt crisis in Europe, which continues to weigh down the Zone. The media has neglected it recently, so it hasn't been part of the conversation, even though it's a significant factor in the movement of gold prices.
Bernanke was extremely bearish on European banks, which points to the fact there will be more quantitative easing coming, which is also very bullish for gold.
So far in 2012 gas prices in the U.S. have soared 18 percent, reaching a ten-month high of $3.864 a gallon Wednesday. Not only is inflation a trigger for gold prices to rise, but in the case of higher gas prices, it takes away from consumer spending, which weakens the economy, which also can push gold prices higher.
Gold for April delivery on New York Mercantile Exchange the Comex division of the New York Mercantile Exchange settled at $1,650.30 an ounce, up $3.30, or 0.2 percent.
Wells Fargo (NYSE:WFC) was downgraded by Rochdale analyst Richard Bove, citing concerns over inflation and whether or not investors will dump the stock because of it.
Bove said, “The expectation is that inflation will grow slowly at first but then accelerate by the end of 2012 into 2013 and the United States may find itself with a 1970s problem. The initial rise in prices is likely to push interest rates and consequently bank earnings higher. Ultimately, if rates keep rising then the values on bank balance sheets will be questioned and it will be assumed that real book values are falling. Thus, banks will not be able to raise their asset values in the expected inflation they will see their asset values fall.”
Including the uncertainty surrounding the seemingly endless number of regulations that are strangling and threaten to destroy the banking industry, the low demand for loans and the rising costs of servicing mortgages, and you have a case for Wells Fargo remaining in limbo for some time concerning its share price.
Of course that's not much different than its peers, which it wouldn't be surprising to hear they're being downgraded as well.
Wells Fargo closed Thursday at $28.54, falling $0.29, or 1.01 percent. Bove lowered his price target on the giant bank from $39.50 to $32.50.
Even though gold prices reached new all-time highs on Monday, that wasn't the direction for most gold companies, such as Newcrest Mining (OTC:NCMGY.PK), Ivanhoe Mines Ltd. (NYSE:IVN), Eldorado Gold Corporation (NYSE:EGO) and Jaguar Mining (NYSE:JAG), which all closed down on the day.
Spot gold jumped as high as $1,497.20 an ounce Monday after Standard & Poor’s downgraded its credit outlook for the United States, revealing the risks associated with its own sovereign debt crisis.
U.S. gold futures for June delivery settled up $6.90 an ounce at $1,492.90.
The sovereign debt crisis in Europe continues to boost gold as well, as the euro and U.S. dollar continue to face pressures on out-of-control government spending and refusal to make meaningful spending cuts.
Global inflation and unrest in the Middle East also continue to be major factors in the gold price equation.
As to why most gold miners have been pulling back, a lot of that is based on the fact the majority of the miners are based in Canada, and so the weaker U.S. dollar as it relates to the Canadian dollar is a major factor a lot of investors in gold companies don't take into account.
Ivanhoe Mines Ltd. closed Monday at $25.65, dropping $0.95, or 3.57 percent. Jaguar Mining closed at $4.98, falling $0.14, or 2.73 percent. Newcrest Mining ended the day at $43.15, down $0.73, or 1.66 percent. Eldorado Gold Corporation closed at $17.76, losing $0.30, or 1.66 percent.
On Friday gold prices soared toward the $1,500 an ounce mark, trading as high as $1,488 an ounce in afternoon action until closing at $1,486.50 an ounce. Royal Gold (Nasdaq:RGLD), Kinross Gold (NYSE:KGC), Yamana Gold (NYSE:AUY) and Gold Fields (NYSE:GFI) traded mixed as many gold miners pulled back after pushing up last week.
Inflation continues to be a major factor in gold price movement, as food and fuel prices in the U.S. continue to soar and consumer prices in China jump.
The ongoing weakness in the U.S. dollar, sovereign debt crisis in Europe and the unrest in the Middle East makes gold an attractive safe haven alternative for capital.
Gold Fields closed Friday at $17.88, falling $0.09, or 0.50 percent. Kinross Gold closed at $15.67, dropping $0.21, or 0.13 percent. Yamana Gold closed at $12.80, gaining $0.05, or 0.39 percent. Royal Gold ended the session at $53.77, up $0.33, or 0.62 percent.
Shares of most silver miners were up as silver jumped again Thursday, although Silver Standard Resources (NASDAQ:SSRI), Hecla Mining (NYSE:HL), Mines Management (AMEX:MGN) and Great Panther (AMEX:GPL) were trading mixed.
Silver climbed $1.427, or 3.6 percent, to $41.664 an ounce.
Gold for June delivery rose $16.80 to settle at $1,472.40 an ounce on the Comex division of the New York Mercantile Exchange.
Spot gold was up 1.4 percent to $1,474.30 an ounce, closing in on its record $1,476.21 set on Monday.
The collapsing U.S. dollar, tightening in China, sovereign debt crisis in Europe, unrest in the Middle East, increasing inflation and consequences of the Japanese earthquake are just some of the negative catalysts affecting the price movements.
The U.S. dollar was close to session lows, resulting in a further impetus to gold. The U.S. currency traded as low as 74.617, its lowest level since December 2009.
In base metals trading, May copper dropped 1.05 cents to settle at $4.284 a pound, July platinum increased $18.40 to $1,795.60 an ounce and June palladium was up $8.95 to $774.25 an ounce. May copper fell 1.05 cents to settle at $4.284 a pound
Great Panther closed Thursday at $4.16, gaining $0.16, or 4.00 percent. Mines Management closed at $2.88, up $0.02, or 0.70 percent. Hecla Mining ended the day at $9.53, up $0.34, or 3.70 percent. Silver Standard Resources closed at $33.98, rising $0.26, or 0.77 percent.
Gold prices took a breather Monday after soaring for several days, ending up with gold miners like NovaGold Resources Inc. (AMEX:NG), Gold Fields (NYSE:GFI) and Gammon Gold (NYSE:GRS) dropping in price.
On Monday gold prices closed lower, falling $6 to $1,468 an ounce on the Comex division of the New York Mercantile Exchange. The contract had set a new all-time in the last session, reaching $1,478 a troy ounce.
June gold settlements were $1,468.10, down $7.90; Range was $1,465.40-$1,472.80.
Much of the recent jump in gold prices is based upon the collapsing U.S. dollar, pullback in China, sovereign debt crisis in Europe, unrest in the Middle East, deepening inflation and consequences of the Japanese earthquake are just some of the negative factors hitting the markets.
A stronger dollar on Monday pressured gold prices down. The U.S. dollar battled back to gain lost ground from the euro, with the European currency trading at $1.4426, down from $1.4480 on Friday.
Gammon Gold closed Monday at $10.37, falling $0.13, or 1.24 percent. NovaGold Resources closed at $13.13, down $0.63, or 4.58 percent. Gold Fields closed at $18.14, dropping $0.41, or 2.21 percent.
Gold and silver prices are roaring again after languishing for some time on unwarranted optimism which has resulted in gold miners like
Barrick Gold (NYSE:ABX), Gold Fields (NYSE:GFI) and Harmony Gold Mining (NYSE:HMY) soaring with the precious metals.
On Friday gold prices hit another new record, reaching a high of $1,476 an ounce. Silver prices rose to a 31-year high, closing at 40.60 an ounce, after reaching a high of $40.63 an ounce during the session.
Most of this is based upon the collapsing U.S. dollar, pullback in China, sovereign debt crisis in Europe, unrest in the Middle East, deepening inflation and consequences of the Japanese earthquake are just some of the negative factors hitting the markets.
Amazingly, many investors are acting as if these are some parenthetical events that have little bearing on the markets and commodity prices.
Gold Fields closed Friday at $18.55, gaining $0.40, or 0.40 percent. Barrick Gold closed at $54.37, rising $0.60, or 1.12 percent. Harmony Gold Mining closed at $15.56, jumping $0.23, or 1.50 percent.
The CEO of Wal-Mart (NYSE:WMT), Bill Simon, said in an interview with USA Today that he sees inflation having an impact on price in the latter part of 2011, causing retailers like JC Penney (NYSE:JCP), Home Depot (NYSE:HD), Target (NYSE:TGT), Lowe's (NYSE:LOW), Macy's (NYSE:M) and Office Depot (NYSE:ODP) to all fall.
Food companies have already had to begin to endure the higher prices, as input costs rise as food demand surges around the world. In that case the companies have responded more by lowering the amount of product in some packaging, rather than raising prices or suffering the loss of margins and earnings.
Of course general retailers, for the most part, don't have that luxury, and so will be force to raise prices or allow earnings to underperform, something most will most likely not be willing to allow to happen.
Bottom line is it appears in an environment of higher fuel costs retailers will have to boost prices, making it a difficult time for the overall sector going forward, in an a price sensitive situation.
Based on their exposure to copper and gold, Southern Copper (NYSE:SCCO) and Newmont Mining (NYSE:NEM) could be in good position to benefit from the price of both going up, as well as demand.
Copper and gold prices jumped on anticipated demand, and in the case of gold, safe haven status, as investors continue to be jittery on global events and economic uncertainty.
For copper, the demand from China and India, along with the emerging demand from Japan as it looks to rebuild after the earthquake, gives a strong impetus for prices to remain strong going forward.
Gold is also expected to continue to rise, and will get a boost from growing inflation as investors move to protect their wealth.
Southern Copper closed Wednesday $41.55, gaining $1.37, or 3.41 percent. Newmont Mining closed at $54.83, $1.66, or 3.12 percent.
Economists are warning that rising inflation is a growing threat to the economy and poses new challenges to Federal Reserve policymakers. A survey conducted by JPMorgan (NYSE:JPM) found that concerns are growing that core inflation rates, or inflation stripped of volatile food and energy prices, are on the rise despite the Fed's claims to the contrary.
The JPMorgan poll of financial professionals finds that in the U.S., core inflation will be running 1.8 percent a year from now, up from 1.4 percent from a previous survey conducted in November and up from February’s 1.1 percent forecast, according to The Wall Street Journal. Respondents pegged overall inflation at 2.9 percent.
"The report notes the recent jump in oil prices and the longer-running increase in commodity prices may be skewing responses. But the report notes core inflation rates have already been rising in the U.S. and the U.K.," the newspaper reports.
"Sixty-one percent of those surveyed think inflation will be running above the Fed’s target, generally thought to be around 2 percent. Of those respondents, 12 percent thought inflation would be 'significantly' above target."
Source
Jim Rogers said in an interview on "Breakout," the new financial show offered by Yahoo! Finance (NASDAQ:YHOO), that the Ben Bernanke and the Federal Reserve continue to be a disaster, and if he was instated as Chairman of the Federal Reserve, he would shut it down quickly in order to start working on the problems it has created.
He says Bernanke continues to make things worse by throwing "fuel on the fire," rather than dealing with the underlying issues.
Rogers ultimately sees higher interest rates and inflation going forward, and a major pullback in equities, especially in the tech sector.
Many investors consider results from the last quarter as largely looking in the rearview mirror, including those for Lowe's (LOW), Home Depot (HD) and Toll Brothers (TOL), which all exceeded expectations.
The crisis in the Middle East, ongoing concerns over the European sovereign debt crisis which never goes away, and rising inflation are among the factors weighing on markets.
This will be good for energy stocks for sure, as it appears the unrest in the Middle East has a long way to play out, which will especially be a boost to companies with strong crude exposure.
For those companies like Lowe's (LOW), Home Depot (HD) and Toll Brothers (TOL), it appears to underscore the fragility of the so-called recovery, and the economic jitters still being entertained by the majority of investors.
Goldman Sachs (NYSE:GS) is getting even more bullish than they have on the U.S. economy, increasing its economic growth projections for 2011 and 2012 from 3.4 percent to 3.5 to 4 percent. This year they peg it at 5 percent GDP growth.
Jan Hatzius, Goldman Sachs' Chief U.S. Economist said, "It's a reasonably upbeat view. It’s certainly a reminder that there are still some significant risks in the global economy (food inflation), and of course especially to the extent that it affects oil prices and commodity prices more generally. Having said that, our outlook for global growth and the U.S. economy is pretty positive. We think close to 5% GDP growth this year and next year in the global economy and sort of 3.5-4% over the next two years in the U.S."
One good thing Hatzius admits which others are slow to, is that food price inflation isn't included in economic data at this time, and is still several months out.
He said once that happens there will be upward pressure on the headline CPI numbers.
Even so, Goldman sees consumer spending improving as the year goes on. "I think the first quarter looks a lot softer than a fourth. The number now on record for the fourth quarter is 4.4% ... I think it will come down a bit in the wake of the downwards revisions to the retail sales report. I think the first quarter will be softer. Over the next year or so, I would expect something like 3.5% consumer spending growth, definitely better than what you have seen for the last few years, though not as strong as the recent spurt," added Hatzius.
Somewhat surprisingly, Hatzius also said he sees unemployment dropping to 8 percent by the end of 2012, much lower than his previous estimate of 8.75 percent.
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