Gold Weakens as the Federal Reserve Ends Quantitative Easing

Gold Weakens as the Federal Reserve Ends Quantitative Easing

Commentary for Wednesday, Oct 29, 2014 ( – Gold was off $4.90 on the close at $1224.30 but soon after news from the FOMC pushed prices lower in the aftermarket – and as of this writing gold is trading around $1213.00.

The end of quantitative easing was pretty much expected to punish gold so a weak closing was already in the cards. But the result of turning off this now famous government money punch bowl was a bit surprising – the dollar surged. The Dollar Index traded around 85.40 most of the day and when the news was announced moved to something over 86.00. This was a “wow” because while some believed the dollar would surge I thought it would remain muted considering we are already at the upper end of recent strength and some believe the US economy is still working out problems.

At any rate the resultant stronger dollar also helped push gold lower in the aftermarket.

So what about all this quantitative easing anyway? The quantitative easing we are talking about is QE3 which pumped 1.66 trillion dollars into the US economy in the hopes of creating enough liquidity to forestall a financial collapse after Wall Street got shaky in 2008. It was preceded by QE2 which came at a cost of 0.6 trillion dollars – which was preceded by QE1 which was 1.5 trillion dollars. This by the way is enough money to buy the 12 largest US companies which include Apple, Microsoft, Exxon, Google, Berkshire, Wells Fargo, GE and Walmart.

Of course the end of this current round of QE does not exclude further rounds of quantitative easing if the Federal Reserve feels our economy is stalling once again.

There is also another facet of this government funding thing you might want to keep in mind. If a commentary suggests that quantitative easing is here for the foreseeable future most readers discount this notion as too gold positive.

In other words only diehard gold bullion players might suggest this tactic – perhaps in a desperate attempt to offer some reason why gold must eventually rise in value.

But actually there is something to the notion that the world is now committed to further dilution of the world’s paper money supply. Look at interest rates – they are near zero and have been for some time which takes away a major tool in the governmental fight for liquidity.

So perhaps the ending of quantitative easing might be a pipe dream – just something to think about while you’re watching Europe melt.

Silver closed up $0.03 at $17.21.

Platinum closed up $3.00 at $1268.00 and palladium was also higher by $7.00 at $800.00.

This from Allen Sykora (Kitco) – SocGen: Yes Vote In Switzerland Would ‘Significantly’ Increase Central-Bank Purchases – If a Swiss referendum passes, net central-bank gold purchases likely would increase substantially from recent years, says Societe Generale. Switzerland will vote on a referendum on Nov. 30 that would do several things, including a requirement that the central bank hold 20% of its official reserves in gold. The central bank has held 1,040 metric tons since 2008, SocGen says. “At the end of 2013, gold made up 7.4% of the Swiss National Bank’s official reserves, which was the lowest level of gold’s share of official reserves since the IMF (International Monetary Fund) began collecting data in 1948,” SocGen notes. Should the referendum pass, the price will determine how much gold the SNB has to buy. At $1,000 an ounce, and assuming other official reserves remained flat from end-of-2013 levels, the central bank would buy a little more than 2,800 metric tons. At $1,500 gold, the central bank would buy just over 1,500 tons, SocGen continues. Sales would likely occur over a multi-year period. Since 2010, global central banks have been net buyers of between 77 and 500 tons annually. “If the SNB were to begin a multi-year gold-buying program, net purchases could increase significantly from levels seen in the past few years,” SocGen says. “To provide some context, if the SNB were to buy 500 metric tons of gold per annum for three years, this would amount to 12% of total supply and 10% of total physical demand in 2013.”

For more than 30 years I have suggested gold bullion is a good place to park about 10% of your net worth regardless of gold’s relative price. This position comes from my inability to completely trust the government. I do trust Uncle Sam enough to be a good citizen, pay taxes, attend church and do military service.

But I feel more comfortable with something less ethereal than fiat paper money – so gold bullion, in my hand works. My cornerstone belief which supports this small paranoia is that no nation, even one as great as America can sustain a system which is based on too much debt.

The more consumers borrow the deeper the whole and the larger the potential damage – if the system goes off the tracks. Will it blow up – probably not but it might and so a fail-safe system is needed for some of my extra cash.

The idea that debt was a problem not a solution was instilled in me as a lad – my mother was an accountant and after World War II – well, you know the story. Debt in our house was avoided in all cases except the small 2 bedroom house we lived in under the flight path.

The following is a partial look at the commentary Chis Matthews recently wrote for FortuneThe Case for a Global Recession in 2015 – Economist David Levy argues instability in emerging markets will sink the U.S. economy before the end of next year.

Four years after the end of the Great Recession, it looks as if the U.S. economy might finally be poised for breakout growth.

Monthly job growth in 2014 is, on average, faster than at any point since the financial crisis. Overall economic growth appears to be picking up too, with real GDP growing by more than 4% in the second quarter of this year, and many economists predicting higher overall growth compared to last year.

But news outside the U.S. isn’t so bright. European economies are still battling depression-era levels of unemployment and the threat of deflation. And emerging economies, like China, are having trouble maintaining the kind of growth they have become accustomed to in recent years. The most recent readings out of China have the world’s second-largest economy growing at roughly 7.5% per year, down from the 10% growth it averaged for two decades before its economy began to slow in 2012. And this pattern holds for other emerging economies like Brazil and Russia.

Optimists hope that an accelerating U.S. economy will have what it takes to drag the rest of the world out of the doldrums, as it has done during so many past recoveries. But David Levy, economist and chairman of the Jerome Levy Forecasting Center, argues that the problems of the rest of the world will end up taking the U.S. down, rather than the other way around.

Levy is calling for a 65% chance that there will be a global recession by the end of 2015, based on the simple fact that emerging markets have continued to invest in an export infrastructure to sell goods to the West that it no longer has the wherewithal to buy.

Levy is an intellectual descendant of the economist Hyman Minsky, a heterodox thinker who spent many years working at the Jerome Levy Economic Institute and whose theories were largely ignored by economists up until the latest financial crisis. Once the crisis struck, however, Minsky’s ideas seemed to make a lot more sense. He argued that capitalist economies slowly and naturally become unstable over time, as banks and private businesses take on more and more debt, until the system finally snaps under the weight of these obligations. After surveying the wreckage caused by an over-leveraged banking system, which had gorged itself on debt backed by overvalued real estate, the economics world has begun to pay much closer to attention to Minsky and his views on financial instability.

Indeed, Minsky and his ideas have captured the attention of big-name figures like hedge fund titan Ray Dalio and economist and Financial Times columnist Martin Wolf, who began his latest book with a quote from Minsky arguing that economists ought to formulate theories in which depressions are a naturally occurring state for capitalist economies. These thinkers have been drawn to the Minskian notion that, over the long run, capitalist economies will inevitably suffer from the kind of trouble we’ve been in recently because capitalist systems encourage the growth of debt.

We hear a lot of people warning about the dangers of debt, specifically the government variety. But for Minksy and his followers, its private sector debt that is the problem. Here’s how economist Paul Krugman has described the Minskian concept of debt:

He argued that conventional views of financial crisis were too narrowly focused on the specific issue of bank runs. In Minsky’s vision, excessive leverage—too much reliance on borrowed money—creates a risk of crisis whoever the borrower. Banks, which in effect borrow money short-term from their depositors but invest in assets that can’t easily be converted to cash, may be especially vulnerable. But business and household debt also expose the economy to the possibility of a self-reinforcing downward spiral.”

Here is our usual Wednesday report on the movement of all physical Exchange Traded Funds

Gold Exchange Traded Funds: Total ounces as of 10-15-2014 was 53,303,728. That number this week (10-29-14) was 53,085,658 ounces so over the last week we dropped 218,070 ounces of gold.

It might also be interesting to note that in 2013 the record high for all gold ETF’s was 85,112,855 ounces. In 2014 the record low was 53,085,658 ounces.

All Silver Exchange Traded Funds: Total as of 10-15-14 was 634,737,852. That number this week (10-29-14) was 633,910,050 ounces so over the last week we dropped 827,802 ounces of silver. 

All Platinum Exchange Traded Funds: Total as of 10-15-14 was 2,723,381 ounces. That number this week (10-29-14) was 2,710,205 ounces so over the last week we dropped 13,176 ounces of platinum.

All Palladium Exchange Traded Funds: Total as of 10-15-14 was 2,954,221 ounces. That number this week (10-29-14) was 2,994,198 ounces so over the last week we gained 39,977 ounces of palladium. 

The walk-in cash trade was slow today and so were the phones. By the way we had a hiccup in our email server so mailing notifications were held up a day or two – the tech boys claim it’s all better now – how did we ever get along without computers? 

The Unscientific Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 3) (Monday – 2) (Tuesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be very busy and see a low number – or be very slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view – perhaps a week or two. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.  

Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.

When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).

About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.

Our four flat screens downstairs with live independent pricing ( are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.

In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits.

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Thanks for reading – your friends at Enjoy your evening and we appreciate your business.

Disclaimer – The content in this newsletter and on the website is provided for informational purposes only and our employees are not registered financial advisers. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.

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