Billionaire George Soros declares: “Conditions for gold are pretty perfect”

Gold’s holding pattern is a gift to bargain hunters

Gold prices stood near the $1,350 range today on news that China’s central bank acted to slow inflation but fell short of raising interest rates outright. Gold’s holding pattern is a gift to bargain hunters because gold “should continue to remain well supported too, both by the growing debt crisis in the euro-zone peripherals, which could spill over to other countries at any time, and the expansion of liquidity on the back of renewed quantitative easing of U.S. monetary policy,” Commerzbank analysts said. Richcomm Global Services’ Pradeep Unni agreed, saying a weak dollar and a firmer euro “will continue to provide a bullish bias to the metal.”

The trend is “back up again”

Gold prices surged back Thursday as the euro rose against the dollar on optimism of a bailout for Ireland. “Having held $1,330, and with the dollar a bit weaker … we are just following the trend back up again,” the Bank of Nova Scotia’s Simon Weeks said. VTB Capital’s Andrey Kryuchenkov noted: “Should fear in the eurozone escalate, gold would draw fresh support from risk-averse buyers similar to what happened earlier this summer when investors scrambled for the safe-haven asset on fears of sovereign default.” Investors also are watching China for potential news of an interest-rate rise, which would only create a buying opportunity for bargain hunters.

Billionaire George Soros tips his hat to gold

With quantitative easing going full-steam ahead and U.S. interest rates low for the foreseeable future, billionaire investor George Soros said the precious metal still has plenty of kick to it. “The conditions for gold are pretty perfect,” he said Monday. Soros also said the present world order is on the brink of breaking down. “There is now a rapid decline of the United States and a rapid rise of China,” he said. “It is happening very quickly. … If they persist in their present course, it will lead to conflict,” he said, adding that China’s neighbors are already getting nervous about its rising global influence. Read more

Inflation surfaces at Walmart, not in feds’ data

Offering up its statistics Wednesday, the Labor Department said the core consumer price index, an inflation indicator that excludes food and energy prices, was unchanged in October. However, a new pricing survey of 86 products sold there – mostly everyday items like food and detergent – showed a “meaningful” 0.6 percent price increase in just the past two months, according to MKM Partners. At that rate, prices would be close to 4 percent higher a year from now, double the Federal Reserve’s mandate. “I suspect that when [Fed Chairman Ben Bernanke] thinks about reflation, he has a difficult time seeing any other asset besides real estate,” said Jim Iuorio of TJM Institutional Services. “Somehow the Fed thinks that if it’s not ‘wage-driven’ inflation then it is somehow unimportant. It’s not unimportant to people who see everything they own (homes) going down in value and everything they need (food and energy) going up in price.” Read more

The Fed sticks to its quantitative-easing guns

Ben Bernanke had to defend the Fed’s actions on Capitol Hill, where he briefed skeptical lawmakers on the QE plan’s merits on Wednesday, and some of his colleagues said the bank is likely to follow through on its entire $600 billion bond-buying program, citing weak economic data. “It looks like we’ll be purchasing at this pace through the end of the second quarter to add up to $600 billion,” St. Louis Federal Reserve Bank President James Bullard said. (more…)

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Critics Believe Second Round of Quantitative Easing By the Fed Will Further Devalue the Dollar and Create Inflation

Federal Reserve Chairman Ben Bernanke has been quoted as saying he would fly over the United States and drop dollars from a helicopter should it be necessary.

Sans helicopter, for the time being at any rate, the Federal Reserve has announced that it plans to breathe new life into the economy with additional quantitative easing, a series of Treasury purchases starting with $600,000,000 that may ultimately total $1 trillion or more according to some sources. With the U.S. economy expanding at just 2 percent annually in the third quarter of this year and the jobless rate apparently stalled at about 9.6 percent, the Fed was pressured to do something to stimulate the economy.

Bernanke explained to students at Jacksonville University that a second round of easing will enable the Fed to accomplish its two Congressional mandates, ensuring full employment and stable prices while preventing deflation and generating some “good” inflation.

Critics say the dollar will weaken and create inflation

Critics believe that the dollar will weaken as these purchases (accomplished by printing money) increase the Fed’s balance sheet. Inflation is fueled by a weaker dollar as the real price of goods and services becomes more expensive. Using past research and her own models, Goldman Sachs strategist Robin Brooks suggests the dollar will need to drop a great deal more than the Federal Reserve thinks in order to meet the central bank’s inflation target.

“Substantial additional monetary stimulus is needed for the Fed to meet its dual mandate on inflation and employment,” wrote Brooks after the Fed’s announcement. She has raised her estimate for the total size of this second round of quantitative easing from $1 trillion to $2 trillion. “If indeed the Fed sees the dollar as one of its key policy levers for preventing inflation from staying below its mandate for a prolonged period, the dollar needs to fall a lot further from here,” says Brooks.

The big question is when Bernanke discovers that the plan isn’t working, how much farther could the dollar fall? This controversial plan of additional quantitative easing takes the Fed into essentially uncharted waters and puts the dollar at risk of crashing. Frankly, these additional bond purchases could be more destructive than critics even think if inflation is ignited when the economy finally comes around. (more…)

Markets await more money printing and key midterm elections

GDP meets expectations

Gold broke $1,350 today just before data showed the U.S. gross domestic product grew by 2 percent in the third quarter on high consumer spending, meeting economic forecasts. In a big meeting Tuesday – also Election Day – the Federal Reserve will discuss the prospect of further quantitative easing, or QE, which will have a major impact on the dollar, inflation expectations, and gold prices. “The Fed meeting next week has been dominating the markets,” said Standard Bank analyst Walter de Wet. “We think the gold market has priced in around a $500 billion QE exercise by the Fed,” he said. “If the Fed comes out with a higher figure, we think gold will move higher.”

The trillion-dollar question: How much money will the Fed print next?

All eyes are on the Fed and its next anticipated round of QE. Most experts agree that some form of QE will be launched at the conclusion of a two-day meeting of its policy-making committee next Wednesday. It’s now just a question of how many billions worth of assets it will purchase and how much the financial markets have already priced in that QE.

“Shock and awe”?: Goldman Sachs thinks the Fed ultimately might buy $2 trillion of assets – a figure close to its “shock and awe” purchase of $1.7 trillion in longer-term Treasury and mortgage-related bonds at the height of the financial crisis. “We expect an announcement of $500 billion or perhaps slightly more over a period of about six months,” said Goldman economist Jan Hatzius. “The key question, however, is not the size of the first step, but how far Fed officials will ultimately need to move to achieve their dual mandate of low inflation and maximum sustainable employment.” The Fed also might announce a monthly purchase rate of perhaps $100 billion that will remain in place until the outlook for jobs and inflation improve “significantly,” he wrote. Goldman thinks as much as $4 trillion of additional asset purchases might be needed to bring inflation and unemployment into line with the Fed’s targets.

Likewise, Bank of America-Merrill Lynch Global Research has forecast $1 trillion in QE, and a Reuters poll showed Wall Street analysts expect the Fed to buy between $80 billion to $100 billion in assets per month.
Or “a measured approach”?: However, on Tuesday, The Wall Street Journal downplayed expectations of a major round of QE: “The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. … Officials want to avoid the ‘shock and awe’ style used during the crisis in favor of an approach that allows them to adjust their policy, and possibly add to their purchases, over time as the recovery unfolds.”

Gold stands to gain: The launch of any significant QE should have an uplifting effect on gold prices. Gold could rise to $1,400 an ounce and the dollar could lose another 2 percent to 3 percent if the Fed buys $500 billion over the next six months, HSBC analysts said Monday. The Fed could eventually buy up to $2 trillion in bonds – way more than the government will issue this year, according to HSBC.

Unbottling the inflation genie

In leading the Fed into uncharted monetary territory, Chairman Ben Bernanke is risking unleashing 1970s-style inflation – against which gold is your best protection. “By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Miller Tabak & Co. chief economic strategist Dan Greenhaus. “The risk is a late-1970s type of scenario where the inflation genie gets out of the bottle.” (more…)