Mainstream Economist Turned GoldBug? About Time

A plea for sanity

2012-APR-25

An article by Professor Lew Spellman has caught the attention of the sharp-eyed, and may indeed be important. Spellman, who in the past has been an economist at the Fed and served as an assistant to the Chairman of the President’s Council of Advisors, makes the point that gold is quietly becoming a core banking asset for collateral purposes, at a time when the alternative, sovereign obligations, is becoming dangerously unstable as a bedrock of value. This is an establishment economist suggesting that gold is being chosen by markets as an alternative to money issued by government diktat.

He even suggests that ownership of gold would allow banks to increase leverage of their balance sheets. The London Bullion Market has been lobbying for this for the last six months, and at government level the Chinese have long pressed for gold to have a monetary role on a supra-national basis. Powerful forces recognise the benefits, and if the Basel Committee which is considering the matter agrees to banks using gold as Tier 1 Capital, it would create substantial demand for physical bullion, for any such gold would have to be physically held on an allocated basis.

Anyone who understands gold’s historic role will grasp the importance of the argument behind extra bank leverage. Direct ownership of bullion by a bank is superior to holding the fiat money issued by a central bank. It should increase confidence in any bank and the system as a whole. Given relative values, bank purchases of bullion will drive the value of gold as Tier 1 Capital up relative to other qualifying assets, increasing its desirability for regulatory purposes further without a gold-owning bank doing anything.

The fly in the ointment is politics. Ever since the Nixon shock in 1971, the US Government has tried to convince the world that gold has no monetary role. It would require the US Treasury to accept that gold might be superior to the paper dollar after all. No doubt that U-turn can be performed, but the concern would be that gold being officially recognised as a form of money would disadvantage the dollar and hand substantial power to the Chinese, who have been accumulating gold from their own mines.

This raises the question about how much gold the Chinese actually own. They have been mining the stuff for over a thousand years, and if Marco Polo is to be believed, seven hundred years ago there were enormous quantities of gold throughout both the Chinese Empire and Japan. This is certainly under-recorded by the World Gold Council, and while it and subsequent production may be tucked away, it won’t have been destroyed. It is a fair bet that some of it is still in China, under the control of the government, the ultimate inheritors of the dynastic legacies.

Why does this matter? It matters because if gold is accepted as the ultimate collateral, the balance of monetary power shifts from the US to China. China is already angling to conduct Asian trade settlements without using the dollar, and is ready to start using gold for settling her trade balance with Iran. This is an important development, the predictable result of US attempts to dictate terms of trade.

China is ready to use gold for monetary purposes, as is much of Asia and the Middle East. Europe is falling apart and needs gold as collateral for its banking system. Central banks everywhere, from Mexico to the Ukraine, are adding to their gold reserves, and according to the IMF in March alone twelve of them added 58 tonnes to their reserves, presumably in anticipation of its monetary return. The official price of $42.22 is an old joke that no longer amuses. How about it, Mr President?

Author: Alasdair Macleod

Buy Gold With The Most Trusted Bullion Dealer - GoldMoney

Is Developed Country Sovereign Debt Really "Riskless"?

The myth of riskless debt

2012-APR-22

Much has been learned from the ongoing financial debacle that has been painfully rattling the world’s financial structure in recent years. Foremost among these valuable lessons is the realization that all financial assets have risks.

Even the bonds of many sovereign nations are being called into question, and rightly so. Though often deemed to be “riskless” because of a country’s ability to extract tax from its citizens, logic tells us that nothing in life is risk-free. This conclusion can also be reached by even a cursory reading of monetary history, or in a more meaningful and instructive way, just by closely observing financial events in recent years. Unquestionably, sovereign bonds have risks.

In fact, there are three of them. Each of these risks needs to be seriously considered and analysed before purchasing the bond of any sovereign nation.

1) Currency risk – There are two types of currency risk. The first is inflation, which has been eroding the purchasing power of currencies ever since governments abandoned the classical gold standard decades ago. This risk is particularly acute in today’s environment in which continuous central bank intervention manipulates artificially low interest rates, with the consequence that the interest income earned on a bond is not likely to completely offset the loss of purchasing power of the currency in which the bond is denominated. The other currency risk comes from fluctuating exchange rates. A declining exchange rate will reduce the value of bonds denominated in a foreign currency. For example, any euro-based investor who owned bonds denominated in British pounds saw their wealth eroded when the pound’s exchange rate collapsed against the euro a few years ago.

2) Interest rate risk – Although central banks have been actively intervening in the credit markets to keep interest rates low, it is inevitable that interest rates will again rise. Rising interest rates mean that bond prices will fall. Bond prices will fall so that the yields of the bonds’ coupons will always equal the prevailing interest rate.

3) Counterparty risk – Most devastating of all is the risk of default. A country will repay its bonds only if it has both the financial capacity and the willingness to repay. In this regard, investors are learning from recent events that many countries have exceeded the ability to repay its debts, even if they want to do so.

Despite these recent events, many bondholders still believe that they can achieve a favourable risk/return ratio by owning a government bond. While that assertion may have been true in the past, most governments today are over-leveraged and stretched to the limit. It is no longer reasonable to expect that a government bond can be bought and held to maturity. They have become a trading vehicle, to be bought and sold like commodities in an attempt to profit from price fluctuations. This task requires unique skills, so it is best to leave the ownership of sovereign bonds to professional traders and speculators.

As a consequence of countries living far beyond their financial capacity, many promises made by politicians are going to be broken. This will include the insincere promise to always honour a country’s debts. The plain truth is that many governments around the world are running out of money, and in that environment, sovereign bonds are not risk-free.

Author: James Turk

http://www.goldmoney.com/

Economic Implosion? And What If?

How to Handle an Economic Implosion

April 18, 2012

By Elliott Wave International

I came across some research on the subject of worry. Here's how it was presented:

Things People Worry About:

• things that never happen - 40%
• things which did happen that worrying can't undo - 30%
• needless health worries - 12%
• petty, miscellaneous worries - 10%
• real, legitimate worries - 8%

Of the legitimate worries, half are problems beyond our personal ability to solve. That leaves 4% in the realm of worries peoplecan do something about.

I thought about our gigantic national debt and weak economy. These seem to fit into both subcategories of "real" worries. Youcan't do much as an individual to solve the nation's debt and economic problems, yet you can prepare for a worsening economic downtrend.

Do we see evidence for an economic turn for the worse?

Well, consider that the evidence is so overwhelming that it took 456 pages of the second edition of Robert Prechter's book,Conquer the Crash, to cover it. And since that book published, Prechter has consistently devoted his monthly Elliott Wave Theorist to the facts and evidence behind his forecast.

Here's a chart from the book that was updated by Elliott Wave International in March 2012:

The downturn from 2008 is critically important, as it shows that after an almost unbroken 60-year climb, the contraction is underway. It surely has much further to go, because it is still a third higher than it was at the outset of the last debt deflation in 1929.
-- The Elliott Wave Financial Forecast, March 2012

The rating agencies are well aware of what the above chart means. You probably know that Standard & Poor's downgraded U.S. debt from the nation's long-standing triple-A to AA+. Now, another rating agency has taken their rating even lower:

Rating firm Egan-Jones cuts its credit rating on the U.S. government to "AA" from "AA+" with a negative watch, citing a lack of progress in cutting the mounting federal debt.
-- CNBC.com, April 5

Robert Prechter's bestseller, Conquer the Crash, provides practical information about what you can do to protect your finances in the coming economic implosion. And right now, Elliott Wave International is offering 8 lessons from Conquer the Crash in a free 42-page report that covers:

• What to do with your pension plan
• How to identify a safe haven
• What you should do if you run a business
• A Short List of Imperative "Dos" and Don'ts"
• And more

In every disaster, only a very few people prepare themselves beforehand. Discover the ways you can be financially prepared and safe.

Get Your FREE 8-Lesson "Conquer the Crash Collection" Now >>

This article was syndicated by Elliott Wave International and was originally published under the headline How to Handle an Economic Implosion. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Tens of Billions at Significant Risk

Public Pension Funds: Tens of Billions at Significant Risk Is now the time to gamble with retirement?  April 04, 2012 By Elliott Wave International To meet ambitious investment return targets, some public pension funds must now swing for the fences. But many are down two strikes already, due to their previous big bets with hedge funds. ....the [pension] funds with a third to more than half of their money in private equity, hedge funds and real estate had returns that were more than a percentage point lower than returns of the funds that largely avoided those assets. They also paid nearly four times as much in fees. New York Times, April 1 The same article describes how other pension funds have embraced this risky strategy, and how funds generally have their assets at risk. In 2007 pension funds allocated 10.7 percent to "high-growth" investments; by September 2011 they had increased that bet to 19 percent. All the while, hedge funds have underperformed, as this chart from our January 2012 Financial Forecast shows: The [HFRX Global Hedge Fund Index] hit a new low on December 14, producing a rash of articles about how hedge funds got tripped up in 2011. "Many hedge-fund managers who came into 2011 riding a wave of momentum ended the year scratching their heads and nursing losses, whipsawed by markets that seemed to punish them month after month." "Head scratching" is just right for this still-early stage of the bear. Through the first ten months of 2011, 123 Asian hedge funds shut their doors, the second highest number of closures since 2008, the year world markets collapsed. Financial Forecast, January 20 The California Public Employees' Retirement System (CalPERS) is the nation's largest public pension fund. It recently lowered its investment return target from 7.75 percent to 7.5 percent. The system's actuary had recommended lowering it to 7.25 percent.> The CalPERS board members were told by their staff that they had only a 50 percent chance of hitting or surpassing the 7.5 percent target, yet they adopted that assumption. Others say the odds are even worse than that. If CalPERS loses the bet, as it is likely to, the next generation will pay the shortfall... ....if CalPERS or any other public-pension system banks on higher-investment returns, it must take greater risks to meet the target...Cal-PERS chief investment officer told Pensions and Investments newspaper last year, his system has "a reasonably ambitious return target" and "needs to have a portfolio with a lot of growth exposure." San Jose Mercury News, March 24 Is now the time to take greater risks? You saw the 2011 performance of hedge funds, and that was a year when the DJIA was up. Imagine the scenario if the market takes a serious tumble. As an independent thinker, you have a way to prepare for your retirement: An unbiased, objective analysis of the facts and the future. That's exactly what you get when you download the free 50-pageIndependent Investor eBook. It's filled with analysis that will help you prepare for your financial future. You'll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International's 30-year history; you'll also get new analysis, forecasts and commentary to help you think independently in today's tumultuous market. Download Your Free 50-Page Independent Investor eBook Now This article was syndicated by Elliott Wave International and was originally published under the headline Public Pension Funds: Tens of Billions at Significant Risk . EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the  world.

Diagonal: Straight Shot to a Trading Opportunity

Diagonal: Straight Shot to a Trading Opportunity

April 05, 2012

By Elliott Wave International

Today we sit down with Elliott Wave International's Futures Junctures Editor and Senior Tutorial Instructor Jeffrey Kennedy to discuss his favorite wave pattern of all: the diagonal.

EWI: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the diagonal. First, tell us what the diagonal is.

Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike impulse waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1. (See illustrations below.)

EWI: So, what makes this pattern so darn special?

JK: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they're so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast -- in 1/3 to 1/2 the time it took the pattern to form.

Put simply: If you see a diagonal, you know the train of change is coming into the station.

EWI: Well, in your Daily Futures Junctures service, you do, in fact, see a diagonal underway in the recent price action of a major grain market. There, you present the following Elliott wave chart (some Elliott labels have been removed, while I took the liberty to draw a blue circle around the diagonal pattern for clarity):

JK: Yes. This is a classic diagonal unfolding in the final wave of the larger trend. As you can see, prices have put the finishing touches on wave (v) of c (circled). And, if my wave count is correct, this market's prices are about to board the "Exciting Southbound Turn" Railway.

EWI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal. And also, for alerting readers to the possible DRAMA in store for this major grain market thanks to this Elliott wave pattern.

---

Learn More about Diagonals and Other Elliott Wave Patterns Get a better understanding of Elliott wave analysis with our Elliott Wave Patterns educational feature. You'll have access to basic lessons on Elliott wave patterns, along with video clips from our online courses which will explain the pattern, the rules and the guidelines. Plus, you'll see real-life examples that show you how each pattern fits into the overall wave structure. Some patterns will even offer a brief quiz to test your knowledge and ensure that you understand the material. Access the free Elliott Wave Patterns feature now.

This article was syndicated by Elliott Wave International and was originally published under the headline Diagonal: Straight Shot to a Trading Opportunity. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The Central Bank Put Option

Jim Grant: ‘gold price is the reciprocal of faith in central banks’

2012-APR-02

Up, down, and back up again: that about sums up the action in the gold and silver markets last week, though neither bulls nor bears were strong enough to move the gold price out of its trading range between $1,650-$1,680. Likewise, the silver price continues to trade in a range from $31-$33.
The indecisiveness in the metals is mirroring broader market ambiguities. German unemployment is now at a record post-reunification low, yet it’s been reported this morning that total eurozone unemployment stands at a 25-year high of 10.8%. In Italy, unemployment rose from 9.1% to 9.3% January to February – its highest level since 2004. The division between the German “core” and the Med countries (plus Ireland) grows ever wider.
New Chinese manufacturing data had cheered investors earlier today (production up for the fourth straight month) but that was before the eurozone unemployment data was released. European exchanges are down slightly and crude oil prices have taken a hit – though both WTI and Brent remain above the lows they reached last Thursday.
As for America, Barry Ritholtz posts good comment on Wall Street’s love of easy money, noting the combination of “extraordinary skills and stupendous luck” that it will take to return monetary policy “to some semblance of normalcy”. The humorous and informative James Grant remains just as sceptical, noting in the CNBC video below that “gold has more upside” because of these difficulties. Click on this link to watch James Grant discuss gold, the Fed and the US economy with James Turk.

Tags: central banks, China, euro crisis, gold price

Author: The GoldMoney News Desk

Hurting metals still have a bright future.

Gold and silver prices holding above important support

2012-MAR-30

Gold and silver are holding above important support levels, despite selling pressure yesterday. The gold pricemoved back above $1,660 this morning, after flirting with $1,650. The silver price sunk below $32 briefly yesterday afternoon – hurt indirectly by talk from the US, Britain and France about releasing petroleum reserves, thus temporarily lowering oil prices – but has moved back above support at $32.James Turk discusses the significance of this price action in his latest King World News Interview.

Though the gold market has been struggling for direction in recent weeks, this price action in combination with increased chatter about “QE3” in America and Spain’s debt problems may help the bulls. Though there have been times in recent years – notably during the spring of 2010 – when gold performed well during periods of EURUSD weakness, a lot will depend on how the dollar performs. The Dollar Index has again fallen below 79.00 in trading this morning, and is struggling to maintain the kind of upward momentum seen at the end of last year, when euro fears were dominant. Further dollar weakness will encourage gold buying.

During your lunch break today you might want to read “Four Numbers Add Up to an American Debt Disaster” by Bloomberg’s Caroline Baum. A key point she raises: “The U.S. is more dependent on short-term funding than many of Europe’s highly indebted countries, including Greece, Spain and Portugal”. Not enough attention is paid to the US Treasury’s reliance on short-term financing – something that could easily backfire in the years ahead.

This dynamic is not limited to the government either, given the precarious state of so many overly indebted companies and households. In the words of Peter Schiff: “America is on the mother of all adjustable rate mortgages”.

Tags: buy gold, debt crisis, dollar, gold price, silver price

Author: The GoldMoney News Desk

How To Trade Binary Options

How to trade binary options...without losing your shirt.

Do you trade stocks and options? Or thought about it but it seems out of your reach?

You may or may not have stumbled across binary options trading over the last 4 years. If binary options are entirely new to you, don't sweat it. For one thing binary options trading has only recently come on the scene and were not listed on an exchange until 2008. However, institutional investors and the big banks have been trading binary options "over-the-counter" for decades. In addition binary options are quite easy to get the hang of. One of the big advantages they have over traditional options. If you haven't yet learned how to trade binary options you just may want to give them a look-over.

To understand what binary options are and how they are traded, it will help us to understand what the meaning behind "binary" is in this case. And just in case you're unfamiliar with the word "binary" itself here's the definition:

"Characterized by or consisting of two parts or components."

One or the other. When applied to learning how to trade binary options this simply means that there are only two possible outcomes; win, or lose. If you are correct in your trade you get paid out the agreed upon (known ahead of the trade) amount and if you are wrong you are also paid out a pre-agreed upon amount. Though often this may be $0.
For the reasons above binary options are often called "all-or-nothing" options. However, many brokers will pay out some small amount on losing trades so not quite "nothing" in some cases.

As mentioned above one of the best things about trading binary options is that risk/reward is perfectly transparent before you ever place a trade. No matter what happens in the market if you meet your contract specifications the broker will pay out the pre-agreed upon return rate. This trading structure makes binary options trading very simple to learn (though it may be somewhat more difficult to master). You won't have to worry about making emotional decisions regarding when to sell or when to buy either. Another great thing that some brokers offer is "early exercise" of your options if they are "in-the-money" (ITM). Allowing active traders to pocket profit at any time their option reaches the ITM level.

In summary, you would buy a binary call option if you think the underlying asset will go up in price by the time the expiration rolls around. And, of course, a binary put option if you think it will be going lower in that time. See, when you trade binary options you don't have to worry about the size of the move at all and if it is so much as 1 tick ITM at expiration your broker pays the same return as if it was 1,000 ticks ITM at expiration. As such this form of trading can be simpler for those who don't have access to large amounts of capital or the knowledge to analyze the complexity of the traditional stock market. All you have to do is to decide whether a trade will do better or worse for the time that you hold it. That's not necessarily easy to do, but it is certainly much simpler than the alternative method of trading stocks or options. This is one of the reasons why learning how to trade binary options can be better for the beginner and part of why it has been rapidly gaining in popularity since its introduction.

I got into binary options trading less than six months ago and it has been a lot of fun and even moderately profitable. I only make small trades or I'd be a lot more profitable but I follow my own advice...don't speculate with what you can't afford to lose. Even if you think you won't lose.

If you enjoy trading then you may just want to check out binary options trading. Learning how to trade binary options is relatively painless, and potentially quite profitable.

Bernanke speaks, gold price rises.

Bernanke lifts gold price again

2012-MAR-27

Precious metal bulls have got used to being “saved” by Federal Reserve Chairman Ben Bernanke in recent years. Frequent spurts higher in the gold price often coincide with Bernanke press conferences, in which the chairman vows to maintain easy money policy at the Federal Reserve. Yesterday was a classic case of this, with gold gaining around $20 in a matter of minutes just after 12GMT following Bernanke’s comments that more progress on unemployment will require "more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies."

As Trader Dan Norcini comments, pity the poor Fed Funds Futures traders. No sooner do we have glimmers that rates are going to rise as the US economy picks up pace and inflation rises, than do we have the Fed Chairman himself come out and quash these rumours. Dan correctly notes that Bernanke is terrified of rising rates. The US is in a debt trap from which there is no escape without considerable economic pain.

Little wonder then, that some analysts view our current epoch as “the most favourable era for gold prices in our lifetime”; BMO Financial Group’s Don Coxe adding that “governments are running deficits "beyond the forecasts of all but the hardiest goldbugs five years ago; central banks are printing money and creating liquidity beyond the forecasts of all but the most paranoid goldbugs a year ago."

Unsurprisingly, the dollar sold off yesterday, with the USDX now below 79.00. 80.00 is looking more and more like a “hard top” as far as this index is concerned, Gregor Macdonald and others noting that capping any rise in the dollar is an important aspect of current US government policy – though one that is seldom discussed in much detail by mainstream media.

A result of this official determination to weaken the dollar is of course, more people looking to buy precious metals.

Tags: Ben Bernanke, buy gold, dollar, Fed, gold price

Author: The GoldMoney News Desk

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