Physical Gold vs. Paper Gold: The Ultimate Disconnect

By Bud Conrad, Chief Economist

How can we explain gold dropping into the $1,300 level in less than a week?

Here are some of the factors:

  • George Soros cut his fund holdings in the biggest gold ETF by 55% in the fourth quarter of 2012.
  • He was not alone: the gold holdings of GLD have contracted all year, down about 12.2% at present.
  • On April 9, the FOMC minutes were leaked a day early and revealed that some members were discussing slowing the Fed $85 billion per month buying of Treasuries and MBS. If the money stimulus might not last as long as thought before, the "printing" may not cause as much dollar debasement.
  • On April 10, Goldman Sachs warned that gold could go lower and lowered its target price. It even recommended getting out of gold.
  • COT Reports showed a decrease in the bullishness of large speculators this year (much more on this technical point below).
  • The lackluster price movement since September 2011 fatigued some speculators and trend followers.
  • Cyprus was rumored to need to sell some 400 million euros' worth of its gold to cover its bank bailouts. While small at only about 350,000 ounces, there was a fear that other weak European countries with too much debt and sizable gold holdings could be forced into the same action. Cyprus officials have denied the sale, so the question is still in debate, even though the market has already moved. Doug Casey believes that if weak European countries were forced to sell, the gold would mostly be absorbed by China and other sovereign Asian buyers, rather than flood the physical markets.

My opinion, looking at the list of items above, is that they are not big enough by themselves to have created such a large disruption in the gold market. Continue reading "Physical Gold vs. Paper Gold: The Ultimate Disconnect"

Does Central-Bank Gold-Buying Signal the Top Is Near?

By Jeff Clark, Casey Research

Doug Casey told me in January, "The only thing that scares me is that central banks are buying a lot of gold; they're historically contrary indicators." When it comes to buying gold, central banks have such a poor timing record that they're frequently joked about as a contrary indicator. Continue reading "Does Central-Bank Gold-Buying Signal the Top Is Near?"

The Fed Resumes Printing

If you haven’t heard by now, the Fed is back at it! Bud Conrad of Casey Research has written a great article on how it is affecting current markets and what to expect in the near future. Be sure to take a look and comment below with your own thoughts. For more from Bud and Casey Research click here.

The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words: Continue reading "The Fed Resumes Printing"

Fed, central banks cut rates to aid world economy

By JEANNINE AVERSA

Associated Press Economic Writer (AP:WASHINGTON) The Federal Reserve and six other major central banks from around the world slashed interest rates Wednesday in an attempt to prevent a mushrooming financial crisis from becoming a global economic meltdown.

The Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent.

Also cutting rates were the central banks of China, Canada, Sweden, and Switzerland. The Bank of Japan said it strongly supported the actions.

"The recent intensification of the financial crisis has augmented the downside risks to growth," the Fed said in explaining the coordinated action.

The Fed action will reduce borrowing costs almost immediately for U.S. bank customers whose home equity and other floating-rate loans are tied to the prime interest rate. Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent after the Fed announcement.

White House spokesman Tony Fratto welcomed the cooperation among the Fed and other countries' central banks to battle the crisis. "It's important and helpful that central banks are working in a coordinated way to deal with stress in the financial system," Fratto said.

But analysts were cautious about the impact of the central banks' coordinated action.

"At first blush, while this is a big step, it is unlikely to prove sufficient to stem the rot. Additional rate cuts are likely and further measures to inject liquidity and re-capitalize banks are needed," said Marc Chandler, global head of currency strategy at the investment firm Brown Brothers Harriman.

The rate cuts came against a backdrop of increasing anxiety in global financial markets. Investors have been fleeing shares on worries that neither the Fed, nor other central banks, could move fast enough to stop the rising turmoil.

To read the rest of this story click here: http://club.ino.com/trading/fed-central-banks-cut-rates-to-aid-world-economy-cont/