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Gold and Silver Prices
Gold prices gained after the Federal Reserve chose to keep interest rates at record lows on concerns of the global economy.
“Gold bulls can thank the Federal Reserve for the first weekly advance in a month. Futures reached a two-week high after Fed Chair Janet Yellen cited concern over slowing growth in China and turbulence in global markets for keeping interest rates unchanged. That’s good news for gold bulls, suffering from prices near a five-year low… ‘There’s a lot of concern about the economy,’ Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis, said in a telephone interview. ‘The Fed not raising rates was good for cheap money, but it’s a bad indicator that the economy is not on the mend. That’s why there’s a lot of money flowing into precious metals.’” (“Gold Set for First Weekly Gain in a Month After Fed Holds Rates,” Bloomberg, 9/18/15.)
Gold finished the week up $31.20, closing at $1,140.90. Silver prices closed the week at $15.28, up $0.56.
Time to Buy Gold; Best Prices in Six Years – Rickards
James Rickards, chief global strategist at the West Shore Funds and author of Currency Wars and The Death of Money: The Coming Collapse of the International Monetary System, wrote that advisers should consider adding to their gold holdings with gold prices at attractive six year lows.
“Using my system, which combines complex dynamic systems analysis with unique access to relevant information, we’re able to draw some useful inferences about the future path of gold prices. Our estimate is that gold has now found a bottom and is poised to move steadily upward from current levels.
“For those who do not have the recommended allocation to physical gold, this is an attractive entry point and a chance to top up your allocation at the best prices in six years.
“We’ve identified three factors that well explain the gold price dynamics. These three factors are real interest rates, dollar strength and central bank intervention. Looking at the current status and likely path of these factors is the best guide to the future price of gold.
“The importance of this analysis is that it doesn’t focus on where we are. It focuses on where we’re going. Central banks cannot tolerate high real interest rates, because they burden consumption and investment.
“The Federal Reserve cannot tolerate a strong dollar because it imports deflation (in the form of lower import prices) from around the world. Physical markets are skewed toward excess demand because China, Russia, Iran and other countries continue to demand gold to diversify reserves away from dollars while output is flat and official sales by the West have ceased.
“All three factors — real rates, the strong dollar and official sales — are pointing toward a reversal of recent trends and momentum toward conditions that favor higher gold prices. Gold can move in either direction, but it is much more likely to move up than down given current conditions.” (“Gold – The Once and Future Currency,” Daily Reckoning, 9/15/15.)
Extreme Monetary Policies “New Normal”; Bullish For Gold – Brecht
Kira Brecht, managing editor of TraderPlanet, explained the Fed’s reluctance to raise interest rates may reflect a “new normal” of radical monetary policies which are ultimately positive for gold.
“The U.S. Federal Reserve kicked the can down the road on the first rate hike since June 2006 again. Concerns about the economic slowdown in China were front and center in the Fed's rationale for holding off on an interest rate hike and the central bank said it would continue to monitor developments abroad, suggesting concern that international weakness could spill over onto the U.S. economy… Perhaps the most concerning forecast is the expectation for weaker long-run growth in the U.S. ahead…
“The gold market is strengthening on Friday on the heels of weakness in the dollar and in the wake of the Fed's decision to keep interest rates near zero. Looking ahead, even Fed officials are downgrading their outlook for economic growth in the U.S. and the next business cycle downturn will arrive in a few short years…
“Rates remain at emergency low levels and have been stuck there since December 2008. Any rate increases this year and next are likely to be minimal as the U.S. economy's current expansion phase becomes long in the tooth. Pressure from a slowing Chinese economy could have negative repercussions for the global economy as well. By default, extreme monetary accommodation may have become the new normal, which ultimately is gold bullish.” (“Is Extreme Monetary Accommodation The New Normal?” Kitco News, 9/18/15.)
Economy Headed Towards “Global Calamity” – Stockman
President Reagan’s budget director, David Stockman, warned investors that massive government debt and reckless central bank policies will lead to a global “calamity.”
“Former Reagan Administration budget director David Stockman … warns, “I think we are headed for a central calamity. The central banks of the world have been on a 20 year campaign to massively expand their balance sheets and intrude into financial markets in ways that were never before imagined. In the process, they falsified every asset value there... They have printed so much money and created such a massive global bubble that we are now in the process of that bubble fracturing. The central banks are now beginning to become confused and panicked about what to do. The Chinese have no idea what to do with their $28 trillion credit bubble and that house of cards in China...’
“’That’s why I say the financial system is booby-trapped with debt bombs waiting to explode. I use the 100 year Brazilian bonds as an example, but there are trillions of dollars of this stuff all over the place. You know the central bankers pretend that they don’t see any bubbles. These people are not only bubble blind, they are bubble deaf. They have no capacity to understand the explosive nature of the financial markets that they are toying with.’
“Stockman goes on to paint a grim picture and says, ‘What happens when the financial breakdown comes is there is a great margin call. Everybody says “I want my money back and I’ll take your collateral if I don’t get it back. If I do take your collateral, I will sell it for whatever price I can get and cut my losses.” So, this is truly a house of cards. The whole pyramid of debt and what we call hypothecation and rehypothecation of financial assets, that is the real bubble.’” (“David Stockman Video On The Global Financial System—It’s Booby-Trapped With Debt Bombs,” David Stockman’s Contra Corner, 9/16/15.)
Fed Inaction Fuels Currency Wars – CNBC
CNBC reported the Federal Reserve’s decision to keep interest rates at historic lows my fuel the currency war raging among nations.
“A lack of activity by the U.S. Federal Reserve on Thursday may not have been a surprise, but it's left no doubt in analysts' minds that other central banks will now look to ease policy further, a move that could send more shock waves across global currency markets.
“Valentin Marinov, managing director and head of G10 FX research at Credit Agricole, told CNBC Friday that he expects global ‘currency wars’ to intensify from here… ‘The Fed inaction could spur other central banks into action,’ he said. ‘It is currency wars…’
“A weaker dollar in the short term could now leave other global economies frustrated and dent export-focused companies that favor a weak domestic currency.” … There have been discussions in the last few years that countries are purposefully debasing their own currencies -- a concern that was termed ‘currency wars’ by Brazil's Finance Minister Guido Mantega in September 2010… Analysts at BNP Paribas also stated Friday that the Fed decision had increased their conviction that the ECB would increase its quantitative easing program… And Marinov highlighted that a weaker dollar could now mean China could devalue further as the country looks to deleverage its economy. ‘(This) could unnerve and indeed lead to more market turmoil,’ he said.” (“The Fed may have just stoked a 'currency war',” CNBC, 9/18/15.)