With economies around the world slowing down, currencies plummeting, and the commodity sector beaten down, there is more to the stock market correction, then, well, being a correction. That's good news for those that have been waiting for gold prices to gain some momentum.
There of course is also the tough decision ahead for the Federal Reserve, which until recently, was almost sure to raise interest rates. That's more than in question at this time, as global markets take a big hit.
Even if the Fed decides to boost interest rates, gold is still looking good, as there are just too many negative catalysts out there to make that the determining factor in the price of gold.
Not only that, but there is a growing number of people that believe not only won't the Fed raise interest rates, but the global and domestic U.S. economy may be far worse than it is, which points to the possibility of another round of quantitative easing. And we all know how gold prices would jump in case of that event. If the Fed decides to hold off for now, that is also positive for gold. So whatever way you look at it, gold prices will start to rise, and will continue to do so over the next year at least; possibly further out as well.
Safety is going to be a dominating part of the investment landscape, and gold will be one of the leading assets investors seek to protect their capital.
SPDR Gold Trust (GLD) reported it experienced its biggest gold outflow of gold for one day since August 2011. Gold bullion held by the ETF fell by 20.77 tons on Wednesday when the market made a big correction.
Much of this was the result of the orchestrated move by the Federal Reserve to allow the appearance some of its members are questioning whether it should continue with its quantitative easing policy even if it doesn't reach its unemployment target.
A hedge fund rumor floated throughout the day that one had to sell a lot of gold to cover itself. That proved to be unfounded, although combined with the Fed minutes and uncertain economic outlook made for the perfect storm to drive the market and price of gold down.
After the outflow of gold, SPDR currently holds about 1,300 tons of gold. The highest amount it has held as in the last month of 2012, when the total reached 1,353 tons.
Most of this is benign, but it did plant the concern in some investor's heads that the bull gold run may be nearing an end; undoubtedly one of the reasons the Fed released the minutes.
SPDR Gold Shares closed Thursday at $152.62, gaining $1.18, or 0.78 percent.
Senior economist at Longview Economics, Harry Colvin, said gold will rally from $300 to $400 an ounce in 2013 whether inflation comes or not.
Colvin said this in an interview on CNBC:
Everyone is always bearish at the lows, that's the time to buy it, we're going to get a good rally this year I think.
We don't need inflation for a gold price rally. We haven't had inflationary pressures in recent years. The only inflationary pressures we have is from QE pushing commodity prices up.
Gold's gone sideways for sixteen months, that's because the balance sheet in the Fed has gone sideways for the last sixteen months. The balance sheet is about to expand rapidly. And with that we're going to get a rally in the gold price, it's going to go hard this year and probably into the next.
Joseph M. Foster, who is the lead investment team member for its flagship fund, Van Eck International Investors Gold Fund, said in an interview with The Gold Report that he sees gold prices and gold mining companies, especially midtiers and junior stocks, as ready to soar.
Citing the implementation of QE3 as a catalyst for gold, whereby the price of gold has jumped about 6 percent since August 2012, and the fund he is lead investor on up close to 20 percent since August, he sees that as continuing to be the performance of the asset class and mining companies serving it.
When asked if he sees this performance continuing, Foster said this:
Yes, for a couple of reasons. First, the boards of the large gold companies that have been missing expectations have woken up to the fact that management changes are needed. Some very high profile CEOs and COOs have departed. There has been a shift in focus toward more profitability and less growth. That shift toward profitability, shareholder returns and returns on capital should bode well for the industry.
Second, costs could be coming more under control in the months to come. The slowdown in the global economy caused a slowdown in mining activity across base metals, coal companies and iron ore companies. More labor is now available. Lead times for equipment and materials are shorter. That should translate into less cost pressure as we move through 2013. That could be another catalyst for the industry.
Although it could go either way, it's increasingly likely the Federal Reserve and Ben Bernanke are could act sooner rather than later in attempts to stimulate the economy with another round of quantitative easing.
The market responded to the news by jumping in the morning, pulling back as the day went on. The DJIA closed the day at 12,657.05, jumping 58.73, or 0.47 percent.
The NASDAQ didn't get much help, as Apple (AAPL) and Radio Shack (RSH) took big hits on disappointing earnings. It closed at 2,854.24, losing 8.57, or 0.31 percent.
For the S&P 500, it closed slightly down at $1,337.89, falling 0.42, or 0.03 percent.
Not unexpectedly, commodities jumped on the rising expectations of a sooner than expected stimulus, with gold, silver, copper and oil all settling up on the day.
Gold closed at $1,603, up $27.30, or 1.73 percent. Silver climbed to finish at $27.285, jumping $0.47, or 1.77 percent. Copper ended the session at $3.385, inching up $0.03, or 0.95 percent. Oil closed at $90.669998, up $0.61, or 0.68 percent.
The growing weakness of the U.S., European and Chinese economies has put pressure on the Fed to attempt to get the U.S. economy growing again, as the pace it's currently at isn't considered enough to strengthen it enough to grow on its own.
There is no longer a question of if the Fed will move, if some still believed that was the case (many oddly enough still do), but rather of how quickly to move and with what mechanism.
It's most likely it'll acquire mortgage-backed securities, but that's not a surety. Now that the economy is continuing to sputter, the Fed will probably attempt to make a statement by whatever means is uses to try to support the economy in a way that will inspire confidence. Anything too small would possibly be ignored or more detrimental than not doing anything at all.
For some time it was believed the Fed would wait until September before announcing any stimulus, but that is increasingly unlikely as each day goes by and pressure mounts for something to be done in light of its next meeting starting on July 31.
Now that the assumption the Fed will moved shored up the markets after three straight days of triple-digit losses, it's even more likely we'll see some action taken very quickly.
What is challenging for the Fed, and increasing the pressure on the institution is, do they wait until September and risk being perceived as weak and behind the times if the economy continues to tank, or do they wait for a couple of months to see which direction the economy goes.
I think the failure risk is too great for the Fed to wait. But we'll find out in a few days either way. My guess is they'll announce another round of stimulation next week.
With expectations the Federal Reserve will be forced to provide another round of quantitative easing, Merrill Lynch said they see the price of gold jumping to $2,000 an ounce.
According to Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research at Merrill, he sees the Fed adding up to $500 billion more to its asset-purchasing program sometime in the second half of 2012.
Blanch said this on Squawk Box:
"We think that $2,000 an ounce is sort of the right number. We believe that ultimately the Fed will be forced to do quantitative easing. If it happens in September, as our economists expect, we will get a rally sooner in gold. If it happens after the election, we will get the rally a little bit later; probably we will touch $2000 an ounce sometime next year."
Many high profile investors concur with the bullish view on gold, as they assert the Federal Reserve and other central banks won't be able or willing to refrain from attempts at "stimulating" their economies, even though it had done nothing to help in the past.
That points to eventual inflation, which favors gold, silver, and other commodities which trade in U.S. dollars, which will also eventually plunge from its temporary lofty position.
Some people even think that when Ben Bernanke talks to Congress next week about the economy that he could at that time announce another stimulus package.
Since the U.S. dollar has risen to fast and high recently, Bernanke could in fact make a move next week, as he favors a weak dollar as his tactic for attempting to alleviate a recession.
Another factor on the U.S. side is the presidential election, where the horrible American economy threatens the reelection of Obama. There will be pressure behind the scenes to make it look like something is being done to address the issue in order for Obama to look good.
More stimulus is a certainty. It's only a matter of when, not if. At that time the price of gold will soar again, pulling up many other commodities with it.
Shares of Newmont Mining (NEM), Goldcorp (GG) and Eldorado Gold (EGO) were trading mixed today as the price of gold moved slightly positive and negative on the day, with fears continuing to affect the markets.
Many gold miners, including the above-mentioned three, started June off with a bang, as the gold miners started to catch up some with the price of gold, which they have been lagging for some time.
The miners took a hit the last couple of days on news there would be no quantitative easing in the near future, although so-called "Operation Twist" was extended.
So investors chose to place their money in U.S. dollars, as safety is the primary thing on their minds at this time, even though the U.S. dollar is a very flawed and weak currency itself.
Once the Federal Reserve announced little would be done to aid the economy, investors were forced to sell their gold to cover their losses.
The reason gold isn't plummeting in price is because the market still believes there will be another round of quantitative easing. It's only a matter of when, most believe, not if.
With the commitment by the Fed to wait until 2014 at minimum before boosting interest rates, any type of stimulus would send the price of gold, along with other commodities, soaring, as the dollar would drop in value and people would look for protection against inflation.
While it's highly probable the Fed could add stimulus to the economy, it has done virtually nothing in the recent past, and adding hundreds of billions to the national debt while doing nothing to help is something even Ben Bernanke appears slow to want to implement.
The other side of the argument is the extremely weak American economy, the sovereign debt crisis in Europe, the high unemployment in the U.S., and the ongoing weakness in the Chinese economy. All of that is what investors and economists look at when being almost certain more stimulus is in the near future.
Then you have to consider the presidential election in the U.S., as well as other national elections around the world to ascertain the liklihood of more quantitative easing.
In China its factory segment contracted for the eigth month in a row, as did the business sector in the euro zone for the fifth straight month, while the manufacturing sector in the United States dropped to its lowest level in almost a year.
Just as the price of gold has been flittering back and forth at a flat level, so has the share price of Newmont Mining (NEM), Goldcorp (GG) and Eldorado Gold (EGO), which were slightly down and up during the trading day.
Eldorado Gold was trading at $12.35, up $0.10, or 0.82 percent, as of 3:43 PM EDT. Goldcorp was at $37.04, down $0.13, or 0.35. Newmont was trading at $47.98, gaining $0.18, or 0.38 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.
After solid reports from the Chicago purchasing managers' index and factory orders, shares of Alcoa (NYSE:AA) and Caterpillar (NYSE:CAT) helped push the Dow up, as it moved slightly into positive territory on the year.
In early trading the S&P 500 (SPX) climbed 10 points, or 0.9%; and the Nasdaq Composite (COMP) was up 21 points, or 0.8%.
On Friday the August report for jobs will be released, with expectations of the economy adding about 80,000 new jobs. The unemployment rate should remain at 9.1 percent.
It also appears there will be another round of quantitative easing, with the question apparently only what form it'll take, not if it'll be implemented. That will put downward pressure on the U.S. dollar and push gold and other commodities up.
Alcoa was trading at $12.77, up $0.41, or 3.32 percent, as of 11:59 AM EDT. Caterpillar was at $91.70, jumping $1.87, or 2.08 percent.
Speculation the Federal Reserve will introduce another round of quantitative easing had the price gold surpassing the $1,890 mark early in the trading day, as investors continue to migrate toward safety in the volatile and weak economy.
Gold broke $1,890 in New York and London, as the failed Obama economic policies continue to weigh on the global economy.
While some continue to talk double-dip recession, we at Everything Gold have maintained we've never left the recession, as the data continue to confirm.
Others who believed in the recovery myth are now talking entering a recession, which has helped offer support to the price of gold, as well as the ongoing sovereign debt debacle in Europe. An earlier-than-expected QE3 adds more fuel to the gold price fire, and could cause an inevitable correction in gold to be somewhat subdued in comparison to what it may have been.
Barrick Gold (NYSE:ABX) was trading at $52.61, gaining $1.83, or 3.60 percent, as of 11:48 AM. Yamana Gold (NYSE:AUY) was trading at $15.94, jumping $0.43, or 2.77 percent. Newmont Mining (NYSE:NEM) was at $63.23, climbing $3.15, or 5.24 percent. Goldcorp was trading at $53.96, increasing $2.31, or 4.47 percent. Eldorado Gold was at $20.12, up $0.73, or 3.76 percent. Novagold was trading at $10.05, gaining $0.49, or 5.13 percent.
Bond purchases by the Federal Reserve of $11.9 billion in the second round of its quantitative easing, has brought the total assets held by the central bank to $2.55 trillion.
As of Wednesday, the Fed increased the amount of Treasuries held by $22.8 billion to $1.24 trillion. Mortgage-backed securities held by the Fed dropped by $9.27 billion to $948.9 billion. Federal agency debt was cut by $870 million to $143.2 billion.
Since November 12, the Federal Reserve has acquired $396.1 billion in Treasuries. Through June the central bank has a goal of acquiring $600 billion in government debt. They will also reinvest capital from maturing mortgage debt as well.
For the week ending February 21, the M2 money supply increased by $10.6 billion, according to the Fed. That means it's growing at an annual rate of 3.9 percent over the last year.
The difference between M1 and M2 ways of measuring the money supply is that M2, which is followed more than M1, includes savings and private holdings in money market, while M1 only measures capital held by companies and consumers for spending, in checking accounts and travelers checks.
M1 rose $25.7 billion, and over the last year jumped 9.2 percent.
Bank of America Corp.'s (NYSE:BAC) head of Americas G- 10 currency strategy at Bank of America Corp. in New York, Paresh Upadhyaya, commented on the relationship of the U.S. dollar and the euro after the U.S. payrolls report, which was considered disappointing.
Upadhyaya said, “Overall, the tone for the dollar should be stronger as most of the data has been coming in on the stronger side and that funding problems still weigh on Europe.”
As for the payrolls report, Upadhyaya added “They were clearly disappointing. The market had high hopes of a strong number due to the rising employment component in the regional manufacturing surveys.
“It is mixed data and therefore the dollar’s reaction is likely to be choppy.”
Because the U.S. dollar is the reserve currency of the world, it maintains the unique position of being able to go up in value even when it is weak itself, as its relationship with the euro shows.
That's why the dollar and gold can break its usual inverse relationship at times and move up together in value.
Long term this won't help the dollar, as it continues to be flawed because of the policies of the Federal Reserve.
But it will trade up at times as the real story of weakness in the EU and by extension, the euro, continues to unfold.
Noting C.H. Robinson Worldwide (NASDAQ:CHRW) is a pure domestic play, UBS (NYSE:UBS) sees them benefiting from the extension of the Bush tax cuts as well as implementation of QE2 by the Federal Reserve.
UBS said, "Given the recent uptick in sentiment regarding the near-term outlook for the US domestic economy - driven in part by the Fed’s QE2 program and Congress’ extension of the Bush tax cuts - we are raising our price target on C.H. Robinson, which remains largely a US domestic play...UBS price targets are defined as a 12-month outlook and we roll forward every quarter; so we’re now basing our target multiple on 2012 EPS ($3.23) rather than Q4/11-Q3/12 EPS ($3.09). The net impact is obviously to take our target higher."
UBS maintains a "Buy' on C.H. Robinson Worldwide, which closed Monday at $81.51, up $1.32, or 1.65 percent. UBS boosted their price target on them from $78 to $89.
Contrary to the assertions from some politicians and academics in America, Bank of America's (NYSE:BAC) T.J. Bond, chief Asia economist at Bank of America, said he sees the renminbi at "close to fair value."
Bond said, “We don’t agree with what academics and politicians in the United States are saying, that the renminbi is significantly undervalued.”
The renminbi is just another name for the yuan, the Chinese currency.
“For the first time in many years, we actually think Asian currencies are roughly fairly valued,” Bond added. “Given the strength of the story: strong growth, rising inflation, we think Asian currencies will continue to appreciate, but as they’ve reached fair values, we don’t actually expect much appreciation against the U.S. dollar.”
That assessment could be wrong based on the additional $600 million in so-called quantitative easing being implemented by the Federal Reserve, which will continue to debase the U.S. dollar
The reporting by the financial or economic press has been largely dismal, especially in relationship to the so-called recovery, as they circled the wagons around Obama. Unfortunately for Best Buy (NYSE:BBY) they drank the media kool aid, believing there was some type of recovery going on, and so focused on brand-name high-end consumer items which people couldn't afford.
Best Buy Chief Executive Brian Dunn said noted, "The newer technologies, like 3D and IPTV (Internet Protocol TV), which we assort more broadly than anyone, have been slower to take hold."
It's easy to see a lot of people being fooled by the reporting that we're in an economic recovery, but a CEO of a giant retail chain like Best Buy should know better.
Anybody that believes Americans are all ready to open their wallets like they did in the past are delusional, as the Best Buy fiasco shows.
Anyone understanding business at all knows people are bargain hunting, and even though November retail sales were reported as better-than-expected by the U.S. Commerce Department, the vast majority of that will be found to come from bargain hunters and stores that met their needs and pocketbooks.
Reporting that consumers in the United States were buying more is misleading as well, as they are buying more of less expensive items, not necessarily spending more money.
When retailers report their earnings, we'll find out revenue was generated by sacrificing margins. It's as simple as that.
A small few may escape that outcome, but the vast majority of retailers will have lower earnings next quarterly report.
The fact of the misguided implementation of another round of quantitative easing should have been a warning to everyone that the economy is still in a recession. Even Warren Buffett has admitted to this.
If the economy is doing so well, why is the Federal Reserve ready to throw another $600 billion into it in an attempt to give it a boost? The answer is obvious: the economy is still in a recession, and that will continue on for some time.
The point for Best Buy and their management, is how could they have made such a bad decision. They should have known the general and mainstream financial media was going to paint the most positive picture they could, picking out any tidbit that makes it look like a recovery.
Best Buy closed Tuesday at $35.52, down $6.18, or 14.82 percent. Volume was almost 10 times the 3-month daily average.
General Electric (NYSE:GE) Chief Executive Officer Jeffrey Immelt announced the company has the goal of buying back the $8 billion in preferred securities he sold to Warren Buffet's Berkshire Hathaway Inc. (NYSE:BRK-A) in the latter part of 2008.
After siphoning billions off of taxpayers, General Electric has ended up in a much stronger position, but the ongoing recession could change that extremely quickly, although the misguided $600 billion quantitative easing program being implemented by the Federal Reserve could artificially prop up the economy and GE again.
Immelt also clarified GE's strategy going forward, which will be to continue to pursue strategic acquisitions, repurchase shares, and eventually boost the dividend.
Also causing some nervousness among shareholders in GE was Immelt's statement the company may be flush with over $30 billion in cash by 2013.
Concerns over the ability to integrate large acquisitions was the immediate response to the large size of the possible cash holdings of GE.
Immelt responded saying, “We are not going to let it go to $30 billion.” He said the $30 billion estimate was meant to be only conceptual; to get shareholders "dreaming."
Bank of America (NYSE:BAC) economist Ethan Harris said he believes there's a strong possibility the Federal Reserve will continue the implementation of quantitative easing past the end of the first half of 2011.
Another round of quantitative easing to the tune of $600 million will be flushed into the economy, with little expectation it'll do any good, as past QE actions have shown.
Harris said, "I think the dark cloud in this otherwise sunny outlook is we have no plan for the budget deficit." I'm not sure what sunny outlook he's talking about, but the quantitative easing is definitely a dark cloud that will continue to get darker with no political will to deeply slash the unsustainable deficits in America.
Ben Bernanke and most politicians continue to kick the can down the road and hope the fallout won't happen on their watch. The day of reckoning will come, and it'll be extremely painful for most Americans.
With little hope QE2 will do anything to boost the job market, we could say an unknown extension of quantitative easing will be the way of life in America, as the government can never do anything to create jobs, neither the so-called independent Federal Reserve.
Expectations are until the unemployment rate plummets, the Fed will continue to pump money into the economy, no matter what the future consequences will be.
Unemployment today stands at 9.8 percent.
Early in the trading session gold prices surged on the comments made by Federal Reserve chairman Ben Bernanke that he was open to increasing the $600 billion the central bank has already committed to injecting into the economy.
The already-applied $1.7 trillion has done nothing to create jobs, so it's hard to know why Bernanke would institute an even larger amount of money to waste and throw away, while ultimately created a huge increase in inflation.
Gold prices have pulled back right after noon, as usual, when prices skyrocket quickly, as traders and speculators take advantage of the quick jump.
Long term though, every time Bernanke asserts he's going to increase the money supply, it's good news for gold investors, as it's a prelude, over the long term, for gold prices to continue to soar, which they will for some time.
Gold prices went slightly negative after traders sold, with spot gold down to $1,414.40 an ounce, dropping $0.10 as of 1:30 PM EDT.
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