Silver and Gold will win the currency wars

By Greg Canavan
On Wednesday, Federal Reserve boss Ben Bernanke promised speculators he would keep interest rates low until 2014:

'To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.'

The Fed also promised to keep buying longer-term treasury securities with the proceeds from the maturing shorter-term securities in its portfolio. That, along with weaker economic growth forecasts, saw long-term bond yields fall. And when yields fall, prices rise – so bond market investors were happy.

While Bernanke didn't announce QE3, he said it remains an option. Interest rates aren't going anywhere for another couple of years. The stock market loved it. So the Fed's announcement contained something for everyone – the bond AND stock market investor. Sweet.

We'll explain why, despite the initial reaction, you shouldn't get too excited about stocks in a moment. But the big picture issue to contemplate here is that the Fed has just fired another salvo in the global currency war.

Over the past few months, the Fed has taken a back seat to the European Central Bank (ECB). The sovereign debt crisis engulfing the region has revealed the ECB to be a formidable opponent to the Fed when it comes to money printing.

Of course, the ECB says it's simply providing 'liquidity', but everyone knows that's just another euphemism (the list grows by the day) for printing money. The ECB's actions have resulted in the Euro weakening against the Dollar, exactly as planned.

A weaker Euro allows Eurozone nations to become more competitive in international markets. Despite Germany's apparent distaste for easy money and a weaker currency, its powerhouse export sector is perhaps the biggest beneficiary of the ECB's actions.

While the Euro is not yet weak enough versus the US Dollar to cause genuine concern, the ECB's newfound monetary vigor is raising eyebrows. Bernanke's promise of low interest rates for years to come and the threat of more QE was a less than subtle reminder that a weak US Dollar is a long term Fed objective.

It's also an objective of the ECB, the Bank of England, the Bank of Japan, and the People's Bank of China. The problem is, they can't all be successful. Well, maybe they can against a little currency like the Aussie Dollar.

The Aussie is a major beneficiary – or casualty, depending on your viewpoint – of this ongoing currency war. While all the major trading nations and blocs attempt to keep their currency weak to boost exports, capital flows to Australia as it seeks refuge from the hostilities.

The Aussie is again in the headlines as it surges higher against a range of (formally) powerful currencies. This currency strength should provide the RBA with cover to reduce interest rates at its next meeting in early February.

Up until now the RBA has refrained from getting involved in the currency wars. It sees a strong Dollar as a tool to contain inflation. But China's economy is coming off the boil, easing the inflationary threat to Australia.

Such a strong Dollar, at a time of rising unemployment and moderating inflation, might not be such a welcome tool. So expect the RBA to join the fight this year. While they won't say so explicitly, we're betting interest rates fall to record lows in an attempt to counter the easy money policies of the world's major economies.

Everyone loses in war. In this unfolding currency war, no fiat currency can win. Currency devaluation is a crude method of stealing demand for goods and services off someone else. It doesn't create new demand or wealth. It's a zero sum game. But it does  Lead  to increasing levels of distrust and economic animosity.

As a result,  Gold  and  Silver  (and maybe foreign exchange brokers as the world turns into a casino) will be the only victors. That's why both metals soared on the news of Bernanke's announcement.

And don't expect to be protected by the stock market either. If these currency wars eventually lead to high inflation, as is expected, the stock market might not be the wealth preserver (in times of inflation) it's made out to be.

The last time we experienced high inflation globally was in the 1970s. It was a terrible decade for investors. Inflation in goods and services might mean higher prices but the other side of that coin is high costs – both operating and capital costs.

It also means higher market interest rates. In a world with too much debt, the last thing we need is higher rates (or falling bond prices) in the US or Japan. But the way this currency war is unfolding, that's where we are headed.


Source:  soundmoneysoundinvestments 

Gold to hit $2150/oz by year end: TDS

LONDON (Commodity Online):  Gold  to hit north of $2,150 an ounce later this year, particularly after this week’s uber dovish Federal Open Market Committee statement and a news conference by the Fed chairman signaled easy money is here to stay for a long time, said TD Securities in a research note.

According to TDS, Wednesday’s rally of the FOMC meeting a preview for the rest of 2012.

“As the Fed augments its stimulus, and if the economy continues to recover, investors will be increasingly worried that the U.S. central bank is behind the inflation curve. Real interest rates should trend even lower, reducing opportunity costs of holding zero-yielding assets, and thus increasing demand for real assets such as commodities, particularly gold,” TDS added.

The continuation of the Fed’s so-called Operation Twist program will mean lower long-term real interest rates, as will a new round of quantitative easing later in the year. Continued record-low interest rates will also undercut the dollar over the longer term.


TDS has upped its 2012  Gold  forecast to $1,925 from $1,855 and its  Silver  forecast to $38.50 from $36.45. 

Why gold may be a better investment than a pension for retirement?

The word ‘pension’ never seems to be far from the headlines at the minute. Pensions were obviously the cause of the recent industrial action at the end of 2011, whilst pensions were also at the heart of George Osborne’s autumn statement last year as the news that the rise in the state pension age to 67 was to be brought forward to 2026 from 2034.

Indeed the days of your pension maintaining a particular type of lifestyle when you retire are well and truly over. It has come to be accepted that retirement brings frugality.

Most pensioners are struggling to make ends meet today simply because the inflation in the economy is so high that monthly pension payments cannot keep up with the higher prices of basic goods and services. This is something that the public sector strikers are passionate about. If you consider that if you start work at 16 and retire at 65 then you will have a career lasting 49 years. Inflation will change a huge amount over that time.

According to the AA Motoring Trust, a litre of petrol in 1983 was 34p per litre. Today a litre of petrol will set you back 1.32p. Inflation shows no sign of stopping but there is a way around it which could see you, not only effectively buy back those extra two years of your retirement but also see you live your retirement years in extra comfort.

Precious metals retain their value in spite of inflation. In fact the value of precious metals is often at its highest during a struggling economy. For example if you had 1 oz of  Gold  (value of $35) in 1970, you could have purchased a tailor-made suit. The same amount of gold today will still buy you a tailor-made suit. However, $35 today probably wouldn’t cover the cost of the buttons.

If you compare the performance of gold to the performance of pensions, you can see how you could effectively head into retirement early and buy back the two years that you will lose with the change of the retirement age.

For instance at the beginning of 2004 if you were a 62 year old and wanted to make another £16,000 before you retired and were putting away £4,000 per annum for your pension, it would take you until the end of 2007 to reach your target. However in that period if you were investing £4,000 per year in gold instead, you would have 62.28 ounces of gold worth £28,800 giving you a mean saving of £7,200 a year, meaning you could hit your target around early 2005, saving you nearly two years on your retirement age.

By comparison the same investment in the FTSE would give you £18,400 over the same period, whilst a savings account would give you £17,200.

Obviously over time the price of gold will change and other areas of investment may be more fruitful. However, given gold’s strength against inflation, it should be considered more seriously as an alternative to pensions to give you a secure future.



Source:  Myfinances.co.uk