Wednesday, 2 October 2013

Dollar Slides as U.S. Shutdown Boosts Fed QE Bets

The dollar traded at almost the lowest since February as a partial shutdown of the U.S. government boosted speculation the Federal Reserve will persevere with asset purchases that tend to weaken the currency.

The euro touched its highest level against the greenback in almost eight months as political wrangling threatened to curb U.S. growth. Lawmakers still need to agree on raising the U.S. debt limit to avoid a default after Oct. 17. The yen rose as Japanese Prime Minister Shinzo Abe proceeded with a sales-tax increase and stimulus measures. Sweden’s krona jumped as a report showed manufacturing expanded faster than economists predicted.

“The dollar is trading with a very slight or mildly weaker bias,” Nick Bennenbroek, the head of currency strategy at Wells Fargo Securities in New York, said in a phone interview. “The market is in a bit of wait-and-see mode. The recent experience in terms of political battles, shall we say, has been that the impact on markets has been limited.”

…“The market is anticipating that a shutdown means the Fed will also maintain its easy policy stance for longer because of the risks to the U.S. economy,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “We are seeing some strength in the European currencies and a bit of weakness in the U.S. dollar.”

For Struggling Middle Class Families, The Gold Standard Is No Fairy Tale

The primary argument being made on the right, in the capital, for the gold standard is its potential to boost creation of abundant good jobs. Only secondarily is it presented as a counter to inflation and nowhere as a means further to privilege the overprivileged. Unlike what Postel implies, few of the serious gold standard proponents are recommending gold as a speculative commodity investment. Most important, virtually all proponents of the gold standard (whether the proponents be the historicist classical or aspirational Austrian) wholeheartedly are committed to the prosperity of workers.

Gold Bulls Raise Wagers Most in Month on Stimulus

Hedge funds’ combined holdings in gold futures rose the most this month as continued U.S. monetary stimulus spurred investors to sell short contracts and sent prices toward the first quarterly advance in a year.

The net-long position in bullion jumped 12 percent to 78,654 futures and options in the week ended Sept. 24, the most since Aug. 27, U.S. Commodity Futures Trading Commission data show. Long wagers gained 1.8 percent and short bets fell 17 percent, the biggest drop in four weeks. Combined net-long holdings across 18 U.S.-traded commodities climbed 1.7 percent, the first gain in September.
Enlarge image Newly Molded Gold

Gold rose 9.2 percent this quarter after a slump into a bear market in April spurred sales of coins, jewelry and bars. The Federal Reserve refrained from trimming bond buying this month, surprising investors. The pace of purchases could remain steady at $85 billion a month into January as policy makers wait for more signs of economic recovery, Fed Bank of Chicago President Charles Evans said Sept. 27. Bullion rose 70 percent from December 2008 to June 2011 as the central bank bought debt.

“The Fed has made it clear that the economy is weak, and the stimulus spigot will be open full-bore,” said John Stephenson, who helps oversee about C$2.7 billion ($2.6 billion) at First Asset Investment Management Inc. in Toronto. “That means they’re continuing to inject more into the money supply, and that is a bullish argument for gold.”

Gold easier at 1332.82 (-2.98). Silver 21.65 (-0.07). Dollar lower. Euro firm. Stocks called sharply lower. US 10yr 2.60% (-3 bps).

Senate Passes Budget Bill as House Weighs Options

The Senate on Friday overwhelmingly approved stopgap spending legislation to keep the federal government open without gutting President Obama’s health care law, setting up a weekend showdown with the House that will decide whether much of the government shuts down at midnight Monday.

The 54-to-44 vote for final passage followed a more critical moment when the Senate, in a bipartisan rebuke to Republican hard-liners, cut off debate on the legislation. The 79-to-19 vote included the top Republican leadership and easily exceeded the 60-vote threshold to break a filibuster.

The Senate then voted along party lines, 54 to 44, to strip out House Republican language that tied further funding of the government to defunding the health care law. That vote required only a simple 51-vote majority.

…Now Speaker John A. Boehner of Ohio faces a defining choice: accept the Senate bill, which funds the government through Nov. 15 without Republican policy prescriptions, or listen to his conservatives, who will accept a government shutdown unless serious damage is done to the health care law.

Blackstone: We’re in an ‘epic credit bubble’

One of the world’s largest investment firms believes the financial system is overly leveraged.

“We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta, The Blackstone Group’s global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. “The cost of a high yield bond on an absolute coupon basis is as low as it’s ever been.”

USAGOLD launches online store

We have launched a new online store specializing in historic, pre-1933 U.S. gold coins and rare and unusual European and Latin American gold coins. We invite your visit and look forward to your using the store to make purchases anytime day or night. We also invite you to browse USAGOLD’s Collectible Gold Coins Online to get an idea of what we have to offer. We think you will find the quality and pricing to your advantage. Please watch for our Special Offers which feature attractive one-off acquisitions at discounted prices.

The Daily Market Report

Gold Pops Despite Persistent Threat of Taper

Gold jumped in early New York trading, establishing a new high for the week at 1344.02,
despite new mixed signals on the Fed taper. Meanwhile, safe-haven interest may be picking up as the deadline for a budget deal is fast approaching.

Chicago Fed dove Evans, speaking in Oslo Norway, said that the taper may be pushed back into 2014. In the wake of the Fed’s ‘no taper’ decision a couple weeks ago, I think this is a broadly accepted expectation. It’s probably still wrong, but given the economic realities, there are many that now think taper is off the table until next year.

Yet, Evans saw fit to toss in that there is still a “decent chance” that the Fed could taper in October or December. At least the gold market was quick to dismiss that 9 (remote) possibility.

However, stocks are under pressure amid persistent rumblings of taper and the looming fiscal crises, which could lead to a government shutdown and a technical default of the U.S. government. It is perhaps the developing downside risks in equities that is counter-intuitively tempering the safe-haven interest in gold.

Looking back at past crises, as stocks rotate lower, gold can sell-off at least initially in sympathy as a result of broad-based deleveraging pressures. I believe it is the risk of this pattern repeating that has injected a level of caution into the safe-haven investors.

Trust your instincts on this though. Physical gold is still the safest of the safe-havens as it is one of the few asset classes that doesn’t create a corresponding liability. As such, if your buy physical gold and take delivery, there is no counter-party risk. Ideally you want to have your haven in place before the storm clouds are overhead. Don’t try and pick the bottom.

Deleveraging in gold is invariable driven by the paper market, but as paper selling drives the price down, the physical buyers emerge to snap up real metal at lower prices. We’ve seen this pattern repeat time and time again.

Our most prudent and thoughtful clients tend to build their core positions in gold in periods of relative market calm. If a crisis materializes and gold prices rise, they are well positioned to ride out the storm. If on the other hand the first phase of the crisis results in a deleveraging retreat in gold, positions in the yellow metal can be bolstered, improving one’s average price.

QE: New York Fed purchases $5.551 billion in Treasury coupons.

Consumer Sentiment in U.S. Falls to Lowest Level Since April

Confidence among consumers declined to a five-month low in September as Americans’ views on the economy dimmed.

The Thomson Reuters/University of Michigan final index of sentiment decreased to 77.5 this month from 82.1 in August. The median estimate in a Bloomberg survey called for a drop to 78, after a preliminary reading of 76.8.

A pedestrian carries a shopping bag while crossing at Easton Town Center in Columbus, Ohio. Photographer: Luke Sharrett/Bloomberg

Higher mortgage rates that threaten to slow momentum in the housing market may be making Americans less sanguine about the economic outlook. Stronger job and wage growth would help bolster spending for those lower-income households that aren’t benefiting from the recent upswing in stocks and home prices.

University of Michigan sentiment (final) revised up to 77.5 in Sep, well below expectations of 82.2, vs 76.8 preliminary print.

University of Michigan sentiment (final) revised up to 77.5 in Sep, well below expectations of 82.2, vs 76.8 preliminary print.