By Wallace Witkowski and Myra P. Saefong
March 30, 2011 (MarketWatch) — Gold futures quit a four-session losing streak Wednesday as demand for the precious metal as a hedge against euro-zone debt worries and fighting in Libya brought buyers in at recently lowered prices.

Gold for June delivery ended up $7.40, or 0.5%, at $1424.90 an ounce on the Comex division of the New York Mercantile Exchange. The precious metal touched a high of $1,431.70 an ounce early in the day, then dove to a slight loss and an intraday low of $1,413.10 an ounce before rebounding.

Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago, said many of the common themes pushing up gold still apply, such as uncertainty about the Middle East and the impact of crippled nuclear plants in Japan. “Today’s move lower was rejected: There are more reasons to be a buyer than a seller,” Klopfenstein said. “Fresh money likes to come in on any signs of weakness.”

… Standard & Poor’s Ratings Services lowered its rating Tuesday on Portugal to BBB-minus from BBB, one notch above junk status. The ratings agency also cut Greece’s credit rating to BB-minus from BB-plus.

[source]

by The Gold Report
Wednesday, 30 Mar 2011 (Mineweb) — Rick Rule explores some of the implications for resource investors when two megatrends from opposite ends of the socioeconomic spectrum collide.

… “The bottom line is that your own financial and psychological preparedness for dealing with volatility will determine whether you come out of the next year or two substantially better off-or substantially worse,” Rick says. “It’s your responsibility to determine your response and hence your own financial future.”

… And you must have cash, he adds. Despite the fact that the U.S. dollar is losing value (particularly with the help of quantitative easing [QE] initiatives) and real interest rates are at minus 4% or 5%, he tells investors to hold cash as ammunition in a market crash. “Although you get penalized for maintaining liquidity-as investors should recall from the 2008 liquidity crunch-when the market collapses, cash is the only thing that gives you the fiscal and psychological strength to react.”

He further recommends maintaining some liquidity in physical gold and silver and their proxies. “It’s not in anticipation of profiting from a run in gold and silver prices — although that isn’t a bad aim either — but because they increasingly constitute good cash in a world where many forms of cash aren’t so good.”

… the U.S. is coming face-to-face with its inability to service pension obligations that have been promised but not funded for the last generation. “This is truly an ugly set of circumstances that requires substantial savings to deal with,” he summarizes, “and the savings don’t exist.”

And quantitative easing, because it devalues the currency practically by definition, undermines what meager savings do exist in the U.S. and other Western economies. Rick sees a “damned if you do, damned if you don’t” situation. “I don’t think we can continue quantitative easing and I don’t think we can afford to discontinue it either. I really sort of expect that we’ll end up having QE90,” he continues, “and I don’t like the potential of that. Not just in the context of the U.S. dollar, but in terms of the Western world standard of living.”

[source]

by Simon Rabinovitch
Wednesday March 30, 2011 (Reuters) — Dollar dominance is sowing the seeds of financial turmoil, and the solution is to promote new reserve currencies, a Chinese government economist said in a paper published on the eve of a G20 meeting about how to reform the global monetary system.

Although not an official policy statement, the paper by Xu Hongcai, a department deputy director at the China Center for International Economic Exchanges, offered a window onto the domestic pressures bearing on Beijing to move away from a dollar-centric global economy.

… “Nations around the world have no way of restricting dollar issuance by the Federal Reserve. The current international monetary system lacks both stability and fairness,” Xu wrote.

… Chinese central bank governor Zhou Xiaochuan said two years ago that the SDR would be better than the dollar as a supra-national reserve currency, disconnected from the interests of any single country. … But China itself appears to have cooled on the SDR, instead describing it as a largely symbolic issue.

[source]

RS View: The unspoken elephant in the room is a golden one. To bring a gold-centric alternative to the fore (from its waiting-in-the-wings status), CBs need merely to adjust the reserve management decisions at the margin — opting to redeem any retained surplus forex flows for physical gold rather than U.S. bills/notes/bonds or other dollar-denominated debt securities. And finally, to bring such a gold-centric reserve system closer to perfection (i.e., to eliminate the obstructions to full valuation), CBs need only to enhance efforts of moral suasion, education, and rational adjustments to policy & best practices to subsequently restrict the flood of paper gold issuance being perpetrated by the myopic commercial banking and financial sector (and bought by a gullible/vulnerable public.)

Wednesday, March 30, 2011 (Bloomberg) — … The monetary policies of the U.S. Federal Reserve have caused excessive global liquidity and inflation and are the root cause of surging oil and commodity prices, Xu Hongcai, a departmental deputy director at the China Center for International Economic Exchanges, wrote in a paper outlining his views on reform of the global monetary system.

… The current system means the U.S. is the only economy that can pursue an independent monetary policy, which “has led to disorderly capital flows and abnormally volatile exchange rates and affected global financial stability,” Xu wrote. His institute is co-hosting a meeting of finance ministers, central bankers and academics from the G-20 in the Chinese city of Nanjing tomorrow.

Xu’s paper puts the focus on the dollar ahead of meetings where officials including French Finance Minister Christine Lagarde and Chinese central bank Governor Zhou Xiaochuan will discuss topics including “shortcomings in the international monetary system” and dealing with volatile capital flows.

The world has fallen into a “dollar trap” where many countries have developed a growth model that is too reliant on exports and lacks sufficient domestic demand because they seek to accumulate U.S. dollar reserves, Xu wrote.

An increase in such reserves raises exchange-rate risks while a reduction in holdings will weaken the dollar, causing losses on countries’ foreign-exchange reserves, he said.

[source]

by Colin Barr
March 30, 2011 (Fortune) — A top Chinese economist warned that the world has fallen into a “dollar trap,” as U.S. trading partners lack an alternative to the greenback and can’t prevent the Federal Reserve from printing more money.

The arrangement means big holders of dollars – such as China, which holds some $3 trillion of foreign exchange reserves, mostly in dollars – must sit idly by and watch as the value of their holdings erode. They can’t lightly diversify out of dollars at the risk of accelerating the erosion.

The setup “lacks both stability and fairness,” wrote Xu Hongcai, an economist at the China Center for International Economic Exchanges.

He made the remarks in a paper published ahead of Thursday’s meeting of G-20 finance ministers in Nanjing. They will discuss what might replace the current dollar-centric system – a subject that has vexed economists and policymakers for years and has grown more pressing with the rise of China.

[source]

by Alix Steel
March 30, 2011 (TheStreet) — Gold prices were rising Wednesday after a reading on the number of jobs companies added in March failed to meet expectations. … The gold price has traded in a wider range today to a high of $1,431.70 and to a low of $1,415.50.

The ADP employment report, although falling short of expectations, wasn’t interpreted as a significant miss. The private sector added 201,000 jobs in March, in line with what analysts are expecting from Friday’s jobs number. But the snag came in that February’s number was revised lower from 217,000 to 208,000.

… Also supporting gold’s rally is the end of the first quarter on Thursday, which can trigger strong buying or selling from portfolio managers as they want to show they own gold or book profits from it. “I think you are going to find some rebalancing,” says Mihir Dange of Arbitrage. “[But] the majority of the rebalancing you’ll find at the end of [the second quarter] and at the end of the year.”

“Put a feeler on both,” advises Scott Redler, chief strategic officer for T3Live.com. According to Standard & Poor’s, since 1975 the gold price has risen 0.9% in the first quarter but 4.3% in the second. Gold prices are relatively flat for the year.

[source]

By Jan Harvey
Wed Mar 30, 2011 (Reuters) — Gold prices rose 1 percent on Wednesday amid broad support from unrest in the Middle East and North Africa, with investors cheered by the metal’s early recovery from four straight sessions of losses. Gains were capped by expectations monetary policy in key regions may tighten, however, analysts said.

Spot gold was bid at $1,427.70 an ounce at 1255 GMT against $1,415.95 late in New York on Tuesday, having earlier touched a high of $1,430.00. U.S. gold futures for April delivery rose $4.40 an ounce to $1,420.60.

“(Gold) held well technically (over) the last couple of days and there has been reasonable physical support around as well,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia. “Overall it is still rangebound, but dips are there to be bought.”

… Investment in products such as gold-backed exchange-traded funds remained soft, meanwhile, with holdings of the largest, New York’s SPDR Gold Trust , slipping around two tonnes on Tuesday to their lowest in three weeks. The fund is heading for its largest quarterly outflow of bullion since its launch in the first three months of 2011.

[source]

by Sutanuka Ghosal, Pk Krishna-Kumar & Madhvi Sally
March 30, 2011 (Economic Times) — Gold buying in India, the world’s largest consumer of the metal, is set to rise 15% as buyers shrug off record high prices ahead of the wedding season that starts next month. The wedding season, which along with festivals whets the country’s appetite for gold, begins from the second week of April. Purchases start a fortnight before that and account for about half of all purchases.

Jewellers say buyers have been investing more in the yellow metal to cash in on the uptrend in prices. … Reports say India imported over 900 tonne of gold in 2010 as consumers expected prices to climb further.

… “The consumer knows that prices are bound to remain firm and hence there is no impact on the shopping. We expect sales to pick up in April,” said Akhil Jain, owner of Chandigarh-based Nikka Mal Babu Ram Jewellery Arcade.

[source]

By Jordan Roy Byrne
Mar 29, 2011 (MarketOracle) — In this missive we reply to the supposed reasons against investing in Gold.

Point: “Gold is a crowded trade and a bubble.”

First of all, ignore anyone who calls Gold a trade. It’s a bull market not a trade. A trade makes it sound like it is a fad and aberration. Yes, there will be wild swings both ways but the global allocation to Gold and gold shares is 1%. Its estimated that the allocation to Gold and gold shares in pension funds is 0.3%. Does that sound like a bubble? Not even close. Good God, can you imagine if that figure went to 5%?

Point: “You can’t eat Gold.”

I didn’t know the US Dollar had any nutritional value.

[source]

By Claudia Assis and Virginia Harrison
March 29, 2011 (MarketWatch) — Gold futures on Tuesday slipped to their lowest point in nearly two weeks, extending their losing streak to four sessions as investors locked in some of their recent profits.

Gold for June delivery, the most active contract, fell $3.80, or 0.3%, to $1,417.50 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s lowest settlement since March 18. It had traded as low as $1,412.10 an ounce earlier, but prices came off lows as a key gauge of consumer confidence fell sharply in March. A report from the nonprofit Conference Board pointed to rising prices of food and energy as the main source of worries for U.S. consumers.

… “Investors are clearly still taking profits after the price of gold marked a new record high last week,” Commerzbank analysts said in a note. “The fall in price yesterday was accompanied by outflows from gold [exchange-traded funds],” they said.

… Japan struggled to contain radiation leaks at its crippled Fukushima Daiichi power plant, with plutonium found in soil near the plant. Prime Minister Naoto Kan said the government was on “maximum alert” and called the situation at the plant “unpredictable.”

… Fears of currency debasement and loose monetary policy are top reasons for gold’s decades-long bull market.

[source]

by Neil Charnock
Mar 29, 2011 (MarketOracle) — Capital waves control the direction of markets; they are flows of money, the liquidity that dictates direction. There is nothing like a good gold rally because it is driven by fear. As I will explain, this coming rally is shaping up with considerable force, the capital wave to hit this market sector will be a monumental event.

… Gold is looking ready to break out and run strongly yet again as debt markets gear up for another round of trouble. A banking crisis could breakout at any time which is why I am keeping at least one foot in this market at all times. One needs a core position in case we wake up one morning and gold has jumped $40 over night at the launch point of a mega run. Massive amounts of debt have to be rolled over in the next three months; Portugal and Spain have come back into the limelight for all the wrong reasons lately.

… The central banks are still buying back gold because this essential reserve asset adds stability to the monetary system. The authorities continue to search for a solution to workable regulation that might stop a repeat of the GFC. They are up against a chronic structural imbalance due to the largest debt bubble in history.

[source]

by Brett Arends
Tuesday, March 29, 2011 (MarketWatch) — Who are the three gullible hedge fund managers in New York and San Francisco who just dropped $15 million in an alleged Ponzi scheme out in Utah? The Securities and Exchange Commission won’t say, but it’s going to be embarrassing if John “Scott” Clark, the man behind the alleged swindle, ever goes to trial. We’ll find out then.

… The alleged Ponzi scheme was a doozy. The SEC says that from 2006 through last year, Clark raised $47 million from investors for his firm, Impact Cash, an online payday lender making loans to the poor at Chili Palmer rates.

He promised his backers annual returns of up to 80% a year.

You heard me. Eighty percent a year.

One hundred and twenty investors took the bait.

… It pretty much tells you all you need to know about a lot of hedge fund managers. It’s a term that covers a multitude of sins. Five years after Wall Street got suckered by subprime, they really haven’t learned.

Even your grandma knows that anyone promising you 80% a year, or even 55%, is offering you a suckers’ bet.

Melton referred to them as “low-level hedge funds,” but he noted they have enough money to hire top counsel in Salt Lake City.

Would you want them managing one penny of your money?

[source]

by Jan Harvey
March 29, 2011 (Reuters) — Gold steadied near $1420 an ounce on Tuesday as violence in the Middle East boosted the metal’s safe-haven appeal, but investors remain cautious towards the metal amid expectations monetary policy is set to tighten.

… St Louis Federal Reserve Bank president James Bullard said on Tuesday the US economy was strong enough to curtail the Fed’s $600 billion bond-buying program, while ECB chief Jean-Claude Trichet said on Monday the inflation rate in the euro zone was “durably” above the bank’s target. Growing expectations US and euro zone monetary policy may tighten have weighed on gold prices after unrest across the Middle East and North Africa pushed gold to a record $1447,40 an ounce last week.

Violence is continuing to rage in Libya after months of unrest in North Africa. Muammar Gaddafi’s better armed and organised troops reversed the westward charge of Libyan rebels as world powers met in London to plot the country’s future without the “brother leader”.

US Ambassador to the United Nations Susan Rice said on Tuesday that the Obama administration has not ruled out arming Libya’s rebels as an option for trying to end Muammar Gaddafi’s 41-year rule.

Among other commodities, oil prices turned positive on Tuesday as Gaddafi’s troops halted a rebel advance, raising doubts among investors over how quickly the conflict in OPEC member Libya could be resolved.

[source]

by Alix Steel
March 29, 2011 (TheStreet ) — Gold prices were modestly lower Tuesday as they fell in tandem with oil prices and as rumors circulated that China may raise interest rates. Gold for April delivery was down $1.50 to $1,418.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded in a tight range from $1,422.90 to $1,411

Silver prices were down 8 cents to $37 an ounce. Both metals were stemming steeper losses from Monday’s session.

Gold and silver make juicy investments when inflation is high as paper currencies lose value and hard assets are worth more. That inflation thesis is seeing some headwinds Tuesday as China Securities Journal reported that China’s central bank could raise rates to tame inflation, which is up 4.9% in February and could rise to more than 5% in March. Main consumer product companies are raising prices from 5% to 15% in April, according to the article.

… In the U.S., although the Federal Reserve won’t be raising rates anytime soon, recent hawkish comments from Fed members have indicated that quantitative easing won’t be re-upped in June when the current program expires. Some more aggressive Fed presidents, like James Bullard, are calling for a $100 billion cut from the $600 bond buying program.

The Fed, and gold prices, will take direction from Friday’s jobs number. Expectations are for the unemployment rate to stay at 8.9% and for the private sector to add between 190,000 and 200,000 jobs.

[source]

by David Levenstein
Tuesday, 29 Mar 2011 (Mineweb) — … When this bull market in gold began in 2000, the price was $250 an ounce. At the time, practically every main stream analyst saw no value in gold and advised clients to stay well away from this metal. It was referred to as a barbaric relic that no one wanted and besides who on earth would want to invest in something that did not pay a dividend?

… we should not forget that since 2001 while the gold price has increased by almost six times, the same can’t be said regarding equities and bonds. And, while the price of gold has increased, we have seen global currencies fall, property fall, equities fall and rise, and bond prices fall.

… The analysts, who over the last ten years or so have remained negative on gold, have not only missed an amazing opportunity for their clients but, they have also failed to understand the fundamentals driving the gold price higher.

… Without money life can be extremely difficult and miserable. Can you imagine what it must be like to wake up one day and find that all the money you have saved after working most of your life has just become worthless?
This is exactly what happened in Zimbabwe where Mugabe and his bankers, totally destroyed not only the country’s monetary system but the wealth of many individuals who had spent their entire life saving for their retirement. In Zimbabwe the state does not offer social security or pensions for the old aged. Now, those people cannot find work and have to rely on financial assistance from friends and family while Mugabe and his group of bandits continue live in the lap of luxury. However, those people who owned hard assets such as gold escaped this devastation.

While no logical thinking individual can compare Zimbabwe to the US or the Eurozone, the effect of currency debasement is the same. It ultimately, lowers the value of the currency, and causes higher inflation. It also lowers the standard of living of many citizens and eventually erodes their wealth. But, precious metals such as gold and silver protect against this.

[source]

By Joanne Hart
29 September, 2010 (TheBanker) –

… [T]he dollar and dollar-denominated liquid assets still account for the majority of central bank reserves. According to the International Monetary Fund (IMF), central banks have invested about 60% of their reserves in dollars for the past 25 years, with remarkable consistency.

While the breadth of the US market makes this understandable, it has prompted increased unease among economists, foreign exchange strategists and central bankers themselves. “China is dissatisfied with a system in which it feels forced to invest in dollars and dollar-denominated instruments,” says Mr Magnus.

Other emerging economies feel the same…. But change has to be handled with great delicacy if it is not to have unintended consequences…. Moving into other currencies or asset classes is even more of a challenge for giants such as the Chinese.

“It might be a good idea for the Chinese to move into gold as part of a diversification programme but the mere speculation that they might increase their allocation would push up the price to such an extent as to make the investment a lot more questionable,” says Mr Magnus.

Some central banks have deliberately gone for a high-profile approach, sending out signals to policy-makers and markets. The quantitative easing programmes undertaken by the Federal Reserve and the Bank of England are explicitly designed to ease volatility, although they are frowned on by many other central banks.

“Emerging economies do not approve of quantitative easing as they say it is debasing their assets. Some even threaten to initiate a buyers’ strike. The debate is quite polite but there will be more and more dissatisfaction, particularly if the US economy does not start to recover,” says Mr Juckes.

[source]

29 March 2011 (Reuters) — Gold eased in Europe on Tuesday as expectations that interest rates may rise in key countries undermined confidence in the metal, with investors remaining cautious after its failure to build on last week’s record high. Violence in the Middle East and euro zone debt fears were still lending support to prices, however.

Spot gold was bid at $1,414.15 an ounce at 1136 GMT, against $1,419.50 late in New York on Monday. U.S. gold futures for April delivery fell $5.10 an ounce to $1,414.80. Last week it pushed to a record high at $1,447.40 an ounce on the back of spreading violence in the Middle East and resurgent fears over euro zone sovereign debt, but the impact of those issues is now priced in.

“It does seem to be getting trickier to push convincingly beyond previous highs,” said Macquarie analyst Hayden Atkins…. “There seem to be too many things going on for a lot of people, and positioning in that type of environment is quite difficult.”

… “We expect that the strengthening U.S. economy combined with the end of quantitative easing by the U.S. Federal Reserve will lead to gradually rising U.S. real interest rates in 2011,” said Goldman Sachs in a report on Tuesday. “Should real rates return to their February levels of 1.3 percent, we would expect a slightly slower gold rally than currently embedded in our forecasts for the second half of 2011, which currently stand at $1,565 and $1,690 in six and 12 months, respectively.”

[source]

By Claudia Assis and Virginia Harrison
March 28, 2011 (MarketWatch) — Gold futures dipped below $1,420 an ounce Monday, as investors lacked a fresh reason on the geopolitical front to turn their attention to the metal.

Gold for April delivery settled $6.30 lower, or down 0.4%, at $1,419.90 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s lowest close in a little more than a week.

Gold for June delivery, with the most contracts still outstanding, also retreated $6.30 to close at $1,421.30 an ounce.

… A “lack of significant fresh developments from current geopolitical issues has resulted in some anxiety draining out of markets like gold,” analysts at MS Futures said in a note to clients Monday. Modest gains for the dollar have also given gold bears the upper hand, the analysts added.

… Geopolitical tensions are not going away any time soon, however, and continue “to suggest a rise in the price of gold, which should therefore resume its uptrend soon,” analysts at Commerzbank said in a note to clients. Investors’ anxieties center mainly on Japan’s nuclear crisis, the conflict in Libya, unrest in the Middle East and the debt crisis in euro-zone peripheral countries, they said.

[source]

by Peter Brimelow
March 28, 2011 (MarketWatch) — Gold had a week for the history books but ended with a whimper. However, gold bugs remain confident.

Although the CME April gold contract (currently the benchmark “nearby” contract) had a record-high close on Wednesday of $1,438, and the London PM fix achieved a record level on Thursday of $1,447, both Thursday and Friday saw steep declines in the New York afternoon (after European markets had closed). So, for the week, April gold closed quietly with a gain only $10.10 (0.7%).

Naturally, the faction I call the “Radical Gold Bugs” — who believe that gold is constantly subject to covert, malign influence by the U.S. authorities and their chosen instruments — were neither whimpering nor quiet.

… The specter of a determined official-sector effort to cap the gold price is alarming for the gold bulls — especially as a credible rumor of it is likely to attract opportunistic profit-motivated sellers and be self-fulfilling.

But this time the fear may be overblown…. the assessment posted Friday on the Jesse’s Café Americain website deserves attention: “I do not know what it is going to take to move gold over that neckline in the big inverse head and shoulders formation, or how long it might take. But I suspect strongly that when it does break out, we will see another fast move higher, because so many in the markets are not positioned for it. After at least one serious ‘gut check’ on the longs, gold will most likely move fairly quickly to $1,590.”

“Depending on what happens, I will not be surprised to see gold hitting $2,000 by year end.”

[source]

By Ben Bland
March 28 2011 (FT) — Vietnamese gold traders have sent billions of dollars worth of high-grade gold jewellery to be smelted in Switzerland over the past two years to circumvent government restrictions on bullion exports.

… Cameron Alexander, a senior analyst at GFMS precious metals consultancy, said: “In Vietnam, banks haven’t been able to export bullion freely, so they have made jewellery out of it so they can export it. There’s a loophole and people who need the dollars have taken advantage of it.”

… Many analysts say that government attempts to control Vietnam’s gold market have been counter-productive. “When there are restrictions, people will always smuggle it…”

… Benedict Bingham, the IMF’s senior representative in Vietnam: “It’s basically residents shifting from dong into dollars and gold and keeping it out of the banking system.”

[source]

Monday, March 28, 2011 (Atlanta Business Chronicle) — Federal Reserve Bank of Atlanta President and CEO Dennis P. Lockhart has a “net positive” outlook on the nation’s economy for the rest of 2011 and into 2012, he told the Rotary Club of Atlanta Monday afternoon.

Lockhart said the Atlanta Fed’s economic forecast calls for continued moderate growth, gradually declining unemployment, and the settling of price movements around an inflation rate that is consistent with the Federal Reserve’s price stability objective. He said that for the time being, the risk of deflation has receded.

[source]

RS View: It’s seemingly ‘A Tale of Two Cities’ — this one versus the preceding article. (And, yes, I do realize that is SecTreas Geithner gesturing above on behalf of Atl. FedPres Lockart’s commentary — merely providing a visual counterpoint to Trichet’s earlier gesture.)

by Leigh Thomas and Jean-Baptiste Vey
March 28, 2011 (Reuters) — The inflation rate in the euro zone is “durably” above the European Central Bank’s target, the bank’s president Jean-Claude Trichet said on Monday in comments which offered support to the euro.

Inflation in the 17-country euro zone accelerated to 2.4 percent in February…. Concerns about inflation led the ECB earlier this month to say it may raise interest rates in April — a scenario its policymakers have since flagged repeatedly despite the economic impact of Japan’s earthquake, tsunami and nuclear disasters.

One major issue for the bank — and the scale and pace at which it chooses to raise interest rates — is the extent to which expectations for price growth in the euro zone are becoming entrenched at high levels due to oil and food prices.

[source]

Note: Additions to the Gilded Opinion Library (GOL) are made on the basis of enduring value to gold owners. We invite you to visit the GOL (linked at the bottom). This page generates significant web traffic. As testimony to that longevity, as well as the page’s popularity, an article by Tocqueville Gold Fund’s John Hathaway posted at the GOL in 1999 recently received significant readership when posted at the Casey Research web site in Ed Steer’s column. That is a lifespan of almost 12 years and counting!

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The Floating Dollar as a Threat to Property Rights

Reprinted by permission from Imprimis, a publication of Hillsdale College

The following article is an interesting spin on how the floating fiat currency known as the dollar impacts our “right to the property that comes to us in the form of a salary or is held by us in the form of savings.” The concern of course is that since the United States went off the gold standard, the float in the dollar has been, for the most part, unidirectional…down.

A prudent saver might then consider protecting that ‘property’ by choosing to save in gold, rather than dollar.

The emphasis added to the article is mine.

Link

Elaine Kurtenbach and Sharon Silke Carty
TOKYO (The Associated Press) — The auto industry disruptions triggered by Japan’s earthquake and tsunami are about to get worse.

In the weeks ahead, car buyers will have difficulty finding the model they want in certain colors, thousands of auto plant workers will likely be told to stay home, and companies such as Toyota, Honda and others will lose billions of dollars in revenue. More than two weeks since the natural disaster, inventories of crucial car supplies — from computer chips to paint pigments — are dwindling fast as Japanese factories that make them struggle to restart.

Because parts and supplies are shipped by slow-moving boats, the real drop-off has yet to be felt by factories in the U.S., Europe and Asia. That will come by the middle of April.

… Much of Japan’s auto industry — the second largest supplier of cars in the world — remains idle. Few plants were seriously damaged by the quake, but with supplies of water and electricity fleeting, no one can say when factories will crank up. Some auto analysts say it could be as late as this summer.

… The uncertainly has suppliers, automakers and dealers scrambling. And it exposes the vulnerability of the world’s most complex supply chain, where 3,000 parts go into single car or truck. Each one of those parts is made up of hundreds of other pieces supplied by multiple companies. All it takes is one part to go missing or arrive late, and a vehicle can’t be built.

… Car buyers will soon see higher prices and fewer choices.

… After the earthquake hit, car companies began the long process of figuring out which parts are in danger of running out. That means figuring out where every piece in every part comes from. “Everyone is putting on the brakes a little bit and taking a look to see where they are affected,” says Paul Newton, an analyst with IHS Automotive.

Companies will shut down plants as soon as some parts start running out, which could start happening in the next four to six weeks, he says. “You will see it happen almost daily.”

[source]

Shino Yuasa
Monday March 28, 2011 (Associated Press) — Workers discovered new pools of radioactive water leaking from Japan’s crippled nuclear complex, officials said Monday, as emergency crews struggled to pump out hundreds of tons of contaminated water and bring the plant back under control.

… three of the complex’s six units are believed to have partially melted down, and emergency crews have struggled with everything from malfunctioning pumps to dangerous spikes in radiation that have forced temporary evacuations.

Confusion at the plant has intensified fears that the nuclear crisis will last weeks, months or years amid alarms over radiation making its way into produce, raw milk and even tap water as far away as Tokyo.

The troubles at the Fukushima complex have eclipsed Pennsylvania’s 1979 crisis at Three Mile Island, when a partial meltdown raised fears of widespread radiation release, but is still well short of the 1986 Chernobyl disaster….

TEPCO officials said Sunday that radiation in leaking water in Unit 2 was 10 million times above normal — a report that sent employees fleeing. But the day ended with officials saying that figure had been miscalculated and the level was actually 100,000 times above normal, still very high but far better than the earlier results.

[source]

by Sergei Balashov
March 28, 2011 (ProactiveInvestors) — Gold prices declined rapidly today as safe haven demand eroded amid new developments in the Libyan civil war. The rebels, boosted by the support of the NATO led coalition, seem to have gained a decisive advantage and are rapidly gaining ground in the west of the country. The opposition has now retaken the key oil towns of Brega and Ras Lanuf, weakening forces loyal to the country’s ruler Muammar Gaddafi.

In addition to that, gold and other dollar-denominated commodities were hit by a stronger US dollar, which is seen as an alternative investment to gold and has an inverse relationship with the yellow metal. Gold last traded at US$1,414/oz.

[source]

by Tatyana Shumsky
March 28, 2011 (Wall Street Journal) — Gold futures slumped on stronger-than-expected U.S. consumer-spending data.

The most actively traded contract, for April delivery, was recently down 0.9%, or $12.90, at $1,413.30 per troy ounce on the Comex division of the New York Mercantile Exchange. The thinly traded March contract was down 0.9%, or $12.90, at $1,413.20 per troy ounce. Tuesday is the last day of trade for the contract.

Gold prices headed for their third consecutive day of declines, after a report showed U.S. consumers had a greater willingness to spend in February. Consumer spending rose by 0.7% in February from the prior month, the eighth straight increase and the largest since October, in the latest indication that Americans are feeling more upbeat about the economic recovery.

[source]

ALSO…

US consumer spending up, inflation accelerates
Mar 28, 2011 (Reuters) — US consumer spending rose for an eighth straight month in February as households tapped savings to cover higher food and energy prices.

Spending rose 0.7 percent in February after a 0.3 percent increase in January, and inflation accelerated at its fastest pace since June 2009, the Commerce Department said on Monday.

Adjusted for inflation, spending was up a far smaller 0.3 percent last month after being flat the prior month.

“The data provide yet more evidence that higher prices are denting economic growth,” said Paul Dales, a senior US economist at Capital Economics in Toronto.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of US economic activity, to advance 0.6 percent.

US government debt prices extended losses after the data, while stock index futures were little changed.

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by Shivom Seth
Monday, 28 Mar 2011 (Mineweb) MUMBAI — Europe’s debt crisis has spurred demand for an alternative investment. And gold is turning out be a investment of choice for most Indians, especially those based in Ahmedabad.

Imports of the yellow metal scaled a six-year high in this Gujarat town, despite the high price. According to figures available, Ahmedabad imported 248.41 metric tonnes of gold till February 2011, as compared to 215.52 metric tonnes that it had imported in the previous financial year.

… Gold traders revealed that the highest demand for gold this year has come in from the rural areas, particularly from the farming community.

“Over the past one year, farmers have minted money by selling out large tracts of land to real estate developers. The money has then been diverted to buying gold,” said an official of Sonawala Jewellers, a retail outlet in Mumbai, who has had operations in Gujarat for over 3 decades.

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By Paul Carrel, Mark Felsenthal, Pedro da Costa, David Milliken and Alan Wheatley
FRANKFURT/WASHINGTON (Reuters) –

… Since the early days of the financial crisis in 2008, the European Central Bank, the U.S. Federal Reserve and the Bank of England have all been forced to adopt policies that just a few years ago they would have dismissed as preposterous. And the Bank of Japan responded to the Sendai earthquake and tsunami by doubling its own asset-purchase programme, to keep the banking system of the world’s third-largest economy on an even keel.

For a generation, the accepted orthodoxy has been to focus on taming inflation. Financial stability has taken something of a back seat. Now, whether mandated to do so or not, western central banks have bought up sovereign debt to sustain the financial system, printed money by the truckload to stimulate their economies, sacrificed some of their independence to coordinate monetary policy more closely with fiscal decisions, and contemplated new ways of preventing asset bubbles. Some — such as Bank of England Governor Mervyn King — have joined wider political protests at commercial banks that are still behaving as if they are “too big to fail”, and as if being bailed out is just a hazard of business.

In the measured world of central banking, it amounts to nothing short of a revolution. Otmar Issing, one of the euro’s founding fathers and a career-long monetarist hawk, told Reuters that in buying government bonds the ECB had “crossed the Rubicon”. The question now for the ECB — and for its counterparts in Britain, the United States and elsewhere — is what they’ll find on the other side.

Don Kohn, a former vice-chairman of the Federal Reserve, realized central banking was changing forever at a routine meeting of his peers in Basel, Switzerland, in March 2008. The shockwaves from the U.S. subprime mortgage meltdown had begun rocking banks around the world… “It was terrible,” Kohn said. “One of the people at the meeting used the phrase, ‘It’s time to think about the unthinkable’.”

… After slashing interest rates practically to zero, central banks desperate to prevent a new global depression had no choice but to expand the volume of credit, rather than its price, by reaching for the money-printing solution known as “Quantitative Easing” (QE)…. Until that point, the Fed was a lender of last resort for deposit-taking banks. By invoking obscure legislation from the Great Depression, it also became a backstop for practically any institution whose collapse could threaten the financial system. Kohn and others at the Bear Stearns meeting had just done the unthinkable…

Buying up bonds and bailing out failing firms does indeed blur the boundaries between monetary and fiscal policy. Critically, it also suggests that supposedly autonomous central banks are doing the bidding of politicians.

… “There will have to be fundamental change … If institutions are too big to fail, they are too big to exist,” Weber said, echoing comments by King at the Bank of England. The shift is already happening. “Bond investors are not facing a future change; they are living through a change,” said Gieve, the former Bank of England deputy governor.

… In truth, central banking, by its nature, has always been an intensely political enterprise. To pretend otherwise is naive. War, revolution, depression and calamity have always subjugated central banks to political necessity, and most are still state-owned. Like a country’s highest court, a central bank cannot — no matter how vaunted its independence — be unaware of the political and social mood.

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By Sarah N. Lynch and Rachelle Younglai
March 25 (Reuters) — The U.S. Treasury secretary is on the verge of dashing the hopes of some financial companies by refusing to exempt certain foreign exchange options from new regulations, sources familiar with the matter said on Friday.

Foreign exchange is a multi-trillion dollar market and derivatives, including options, are used by companies that run the gamut from financial institutions like Goldman Sachs to manufacturers like 3M to lock in prices as protection against swings in exchange rates.

The Dodd-Frank Wall Street reform law explicitly gives the Treasury secretary power to exempt the more commonly-used foreign exchange swaps and forwards from rules being written by the Commodity Futures Trading Commission. But some experts have said the law is unclear about whether Treasury Secretary Timothy Geithner has the power to also exempt options on those contracts….

The CFTC’s new rules would force some of these derivatives into clearinghouses, which stand between parties to guarantee trades, and could drive up costs for investors protecting themselves against currency fluctuations.

Geithner has not yet indicated publicly what he plans to do with foreign exchange swaps and foreign exchange forwards.

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