Take Two Coins and Call Me in the Morning By Jon Nadler | Mar
4 2011 9:24AM
The final trading session of this most eventful week began
on a relatively upbeat note in precious metals, following
yesterday’s rather minor (1.5% from the recent high
in gold) setback, which, for now, we will refrain from calling
a “correction.” Crude oil rising past $103.00
on the back of continuing skirmishes in Libya, and a US
dollar apparently stuck near the 76.40-76.50 zone on the
trade-weighted index (and still at nearly a four-month low
against the euro) gave rise to scattered early buying, but
metals players were still cautious ahead of the 8:30 AM
release of the US Labor Department’s employment data
Spot gold dealings opened with a $3.60 gain on Friday morning,
and they were quoted at the $1,418.90 indication price.
Silver spot added 30 cents to open at the $34.53 level while
platinum rose $3 to start the session off at the $1,828.00
mark per ounce. Palladium dropped by an equivalent amount,
to open at $810 the troy ounce, while rhodium remained unchanged
once again, and was quoted at $2,380.00 per ounce. Apple
iPad junkies can now rejoice, as the Kcast Gold Live app
can be with them 24/7365 wherever they might find themselves,
and offer them the above-mentioned quotes, up to the minute.
Well, the February US joblessness rate came in at its lowest
level since April of 2009 and it revealed a gain of 192,000
positions in February. The figure did miss the analysts’
estimates that had called for a gain of 218,000 jobs, but
the overall US unemployment rate fell by one-tenth of a
percent from January’s 9% level. Thus, early caution
among commodity players dissipated somewhat on account of
the 26,000 jobs-created-discrepancy between the USLD report
and previous expectations, and the crowd set out to buy
more gold and silver with a tad more confidence.
We are looking at probably another weekend ahead of which
players might not want to go home without a safety lining
in metals. However, book-squaring activities and any possible
geopolitical developments could still make for a volatile
session. Libya, oil, and the US dollar remain the top items
on market participants’ minds.
Also on market participants’ minds this morning,
were continuing reverberations from comments made by Mr.
Trichet the other day. The ECB’s head sounded an even
more than normally hawkish tone on Thursday as he intimated
that interest rates in the euro zone could rise as early
as April. Albeit the IMF warned against such a move, the
ECB appears to have its mind made up that inflation -along
the lines of its current trend- is not a welcome guest in
the region’s economy. The word-pair “strong
vigilance” was used by Mr. Trichet in his news conference,
and analysts pointed out that this is historically the telltale
sign of an imminent rate move.
Mind you, similar “signs” are also coming,
not from the mind of M.Night Shyamalan, but from the US
Fed at this time. Bloomberg reports that the Fed’s
policy makers appear to be in favor of an “abrupt”
ending to the QE2 program, when the end of June rolls around.
The FOMC meets in eleven days, and that is about halfway
through the bond-buying period that was instituted back
in early November of last year. The Fed’s move came
on the heels of a poor jobs and economic indicators’
scene in August, and it was seen as causing spec funds to
run amok with certain commodity prices, drunken with the
prospect of the ultra-cheap money environment that the Fed
created for them for another six months or so, at least.
Now, however, the US economic picture has brightened considerably,
and it has become fairly clear (at least to some) that the
risks implicit in a prolonged easing stance are beginning
to outweigh its benefits, especially when it comes to QE2
being “morphed” into QE2.5 or QE3 after mid-year.
Even the full-run of QE 2 has come under questioning by
some Fed members, but that fact has not stopped hard money
newsletters from assuring their audiences that the Fed will
continue with its current policies for, basically, …ever.
Reuters reports that according to Charlie Morris, head
of absolute return at HSBC Global Asset Management, “the
financial and geopolitical backdrop has not deteriorated
enough for gold to show off its safe-haven credentials and
it remains firmly a risk trade, while the chance to get
into silver may have passed.” Mr. Morris recently
cut his fund’s level of exposure to gold. Mr. Morris
also opined that "we're at a crossroads and it's a
very complex time because on the one hand, you want to protect
yourself against inflation, but those trades are extremely
The HSBC fund manager has adopted a “defensive view
of the world” and believes that gold “is not
the best way to profit from that stance.” However,
HSBC Global Asset Management remains bullish overall on
gold, even if it does not envision gold as the cure-all
for what ails the world at the present time. And, while
gold might be a good enough value to become a buyer near
$1,340- $1,350 for Dennis Gartman, the famed newsletter
editor remains on the sidelines of the market, for the time
being, citing risks of further retreats in the yellow metal.
Someone else who shares that view is Mr. Bernanke. Whether
or not related to the state of Utah’s proposed legislation
to allow its denizens to use gold and silver coins as an
alternative “legal tender,” Mr. Bernanke commented
that he dismisses the notion of the gold standard returning
to the U.S., anytime soon. The Fed Chairman noted in his
testimony before the Senate Banking Committee that gold
"did deliver price stability
over long periods of time, but over shorter periods of time
it caused wide swings in prices related to changes in demand
or supply of gold. So I don't think it's a panacea."
Mr.Bernanke also remarked that the modern world could not
re-adopt gold as its currency standard for one simple reason:
there just is not enough gold in the world to effectively
support the U.S. money supply. Of course, that’s the
same reason for which Rep. Ron Paul has not only called
for the abolishment of the Fed, but also for the return
to the gold standard. While that debate goes on, what follow,
are excerpts from our previous (in collaboration with the
CPM Group) study “That was then, this is now”
on the topic of said standard, monetary policy, and the
prospects for gold’s return as currency:
“The issue of gold's role in a monetary system has
been resurrected in U.S. political discussions this past
year, after having been dormant for more than two decades.
Two developments have led to this. One has been the seemingly
relentless decline of the dollar's exchange rate in currency
markets. The other has been the candidacy of Ron Paul as
a Republican candidate for President of the United States.
While Rep. Ron Paul was seen as having little chance of
garnering the candidacy let alone the Presidency, he tapped
into a wellspring of conservative discontent over financial
management of the U.S. economy.
This was the first time that gold has played a role in
U.S. Presidential politics since the Republican platform
on which Ronald Reagan ran in 1980 carried a platform calling
for a return to a watered-down gold standard for the dollar.
That cynical proposal did not become a major issue during
the campaign, and silently disappeared after the election.
The position of many advocates of a gold standard is that
the Federal Reserve System ought to be abolished, that the
U.S. government should allow private banks to issue currency
as they see fit, and that the U.S. government should extract
itself from the control of money supply in the United States.
The problem is that the “good old days” never
really existed. In the 65 years between the U.S. Civil War
and World War One there were 16 recessions in the United
The concept and history of money and monetary policy in
the United States always has been a point of strong opinions.
When people have strong opinions about a topic, they often
feel that it is acceptable to distort history and reality
in order to justify their point. Thus, advocates of private
banks issuing private money sometimes misquote Thomas Jefferson.
Jefferson famously said: "I
believe that banking institutions are more dangerous to
our liberties than standing armies. If the American people
ever allow private banks to control the issue of their currency,
first by inflation and then by deflation, the banks and
the corporations that will grow up around them will deprive
the people of all property until their children wake up
homeless on the continent their fathers conquered."
In order to try to distort history and misrepresent one
of the most knowledgeable American forefathers, people omit
the word "private" from the preceding quotation,
attempting to convince would-be supporters that Mr. Jefferson
was opposed to the concept of a federally organized banking
system, as outlined in the U.S. Constitution and envisioned
by the founders of the nation. In fact, he was opposed to
private banks having unrestrained capacity to issue money
and build up debt, the very thing that caused much economic
destruction in the period before the Civil War.
Anyone suggesting a return to the old ways of organizing
and regulating a banking system and financial markets owes
it to themselves and to those to whom they speak to know
better the historical record of economic dislocations generated
during such systems' operations. The free banking period
in U.S. history was an era of massive swings in economic
volatility, far greater than those experienced since the
1940s, incorporating periods of massive depressions and
recessions; hyper-inflation and massive deflations; economic
destruction that destroyed humans, companies, and communities;
and lightly to totally unregulated financial markets that
make the villainy of recent banking scoundrels seem like