Posts Tagged federal reserve
The big event in precious metals this week took place on Wednesday, as Gold and Silver experienced drastic sell-offs after testimony by Federal Reserve Chairman Ben Bernanke, before the House Financial Services Committee, indicated that the Fed is not likely to consider a third round of quantitative easing. The price of Gold dropped over $90, bringing the metal under $1,700 for the first time since late January. By Thursday, however, precious metals prices had rebounded, with Gold once again above $1,700. Standard Bank’s Walter de Wet said, “We had a sense that the Gold market was increasingly pricing in QE3, and obviously Bernanke has put a dampener on that.” but the drop in prices strongly pushed physical sales of the metal, with one dealer saying, “It’s been a long time since we (saw) such decent buying.” Julian Jessop of independent macroeconomic research consultancy Capital Economics called the movement by the metals overdone and said that he feels the appeal of Gold will make up for the unlikelihood of a QE3. Referring to that appeal, Jessop said, “It is the risk of a renewed escalation of the eurozone crisis that underpins our forecasts.” Analysts with bullion broker Sharps Pixley in London suggested that yesterday’s Gold pullback could be a window of opportunity for investors looking to get into Gold, saying in a note to clients, “The long-term Gold story remains unchanged.”
Another factor that contributed to the fall in Gold’s price on Wednesday was the news that the European Central Bank infused nearly a half-trillion euros into the banking system. Laurent Fransolet at Barclays Capital said, “The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money, and it is likely they will pass it on to the economy.” this release of funds from the ECB is designed to allow more time for European politicians to solve the eurozone’s financial crisis. on Friday, 25 of the 27 European Union countries signed a fiscal pact which states that all countries are to write a golden rule regarding balanced budgets and to put those into constitutions or laws. European Council President Herman Van Rompuy said that the agreement “helps prevent a repetition of the sovereign debt crisis.” However, that raises a question: Doesn’t the crisis have to be over before a repetition can occur?
There is concern that rising oil prices could put the brakes on a fragile global economic recovery. The United States has experienced sharp price hikes at the gasoline pump of late, and there are those who speculate we could see $5 per gallon gasoline during peak driving season this summer. It is worth mentioning that in the longer term, the Gold price has a positive correlation to the price of oil. The global economy stands on a precipice of uncertainty surrounding oil. A U.S. advisory body has found that trade sanctions against Iran already are having an effect before they have officially started. there is talk of supply shortages, which will only drive prices higher. The biggest customers of Iranian oil — China, Japan and India — are entangled with the U.S.-led sanctions. another key issue is that OPEC’s supply is fulfilled by Iran, which is the second-largest OPEC producer behind Saudi Arabia, so any additional supply is going to be limited.
The German Parliament voted in support of the second round of the Greek bailout rescue package this week. German Chancellor Angela Merkel stressed the importance of assisting Greece rather than pushing the country out of the eurozone, as some German lawmakers had suggested. Merkel said if the euro is not successful in the future, it could possibly jeopardize the European Union and the global economy. in an interview given on Tuesday, Pimco CEO Mohamed El-Erian stated his view that the Greek bailout package will probably fail, and said that the real issue now if Greece’s debt crisis can be contained or if it will spread to other countries in the eurozone. in a report prepared for the Group of 20 nations the International Monetary Fund (IMF) stated that economic hazards in Europe still threaten the recovery of the world economy, which it said faces “major downside risks.”
In Middle East news this week, there was even more violence in Afghanistan, as a suicide bomber killed nine people in an attack on a military airport. It is believed that the bombing is another revenge response by the Taliban for recent burnings of the Koran. The U.S. Embassy is warning that there are heightened risks for U.S. citizens in Afghanistan. The uprising in Syria continued to be met with brutal force from forces loyal to President Bashar al-Assad. French Foreign Minister Alain Juppe believes that Assad’s government had “broken all the limits of barbarism,” and expressed his frustration about the inability to obtain security guarantees to evacuate wounded civilians and Western journalists from the opposition stronghold of Homs. The French Foreign Minister warned Assad he would be brought to justice and suggested it was time that the International Criminal Court become involved.
Also in the Middle East, some nations are struggling to comply with United Nations sanctions against Iran. According to U.S. Secretary of State Hillary Clinton, some allies face unique situations in the effort to reduce Iranian oil imports. “I think that there’s a very clear-eyed view of Iran and Iranian objectives, and that’s why the president’s policy is so clear and adamant that the United States intends to prevent Iran from obtaining a nuclear weapon.” Iran has previously threatened to counter sanctions either by military force or by blocking the Strait of Hormuz, which could severely impact the transportation of oil from the most oil-rich region in the world. meanwhile, an election in Iran on Friday of this week highlighted growing tensions between that country and Western nations. Supreme Leader Ayatollah Ali Khamenei called on his country’s citizens to vote, as he said, “The arrogant powers are bullying us to maintain their prestige.” U.S. President Barack Obama is scheduled to meet with Israeli Prime Minister Benjamin Netanyahu in the coming days. Israel has been very outspoken about their willingness to use military force to prevent Iran from continuing its nuclear program, and Obama is worried that such an attack may be premature.
Here in the U.S., the durable goods report for January was released this week, showing a 4% drop in orders for long-lasting goods in the U.S., which is the biggest drop in three years. in a time when the fragile economic recovery seems to hinge on every little news item, this report’s effect may be a significant one. News that the Conference Board’s consumer confidence index increased more than forecast offset early worries over durable goods orders and led to an increase in stocks around the globe. However, not everyone viewed this development as rosy. HighTower’s VWG Wealth Management’s Managing Director Richard Weeks said, “I don’t have rose-colored glasses on, but I think the path of least resistance is up. Short-term, all signs say that risks have been reduced.”
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ALEX NEWMANNew AmericanJanuary 27, 2012
A combination of several factors, including a declining dollar and the Federal Reserve’s announcement that it would keep interest rates at virtually zero until late 2014, helped to send gold and silver prices soaring to multi-week highs. Analysts expect the upward trend to continue as paper currencies founder and gloomy news continues to dominate the economic headlines.
The spot price for gold was around $1,725 by 2 p.m. Eastern time after jumping more than $60 since the day before, up almost 30 percent from a year ago and more than 7.5 percent over the last 30 days. It smashed through $1,700 on Wednesday for the first in six weeks.
“At the moment everything points to even higher prices, given the strong risk appetite, the better mood among market players, the strong equity markets and the weak dollar,” Commerzbank analyst Daniel Briesemann told Reuters.
Analysts said the single most important factor behind gold’s strong rally was the Federal Reserve. On Wednesday, the privately owned central bank promised to keep short-term interest rates at rock bottom until late 2014, extending the date from its previous pledge to keep rates down until mid-2013.
Also bullish for gold — and bearish for the U.S. dollar, of course — was Fed boss Ben “helicopter” Bernanke’s veiled threat to unleash more so-called “Quantitative Easing,” known in simpler terms as creating new “money” out of thin air and pumping it into the economy by purchasing bonds. The dollar immediately took a hit against other major currencies.
“The framework makes very clear that we need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation,” Bernanke said during a quarterly news conference after the Fed’s report was released. Analysts and central bank critics, already concerned about massive monetary “easing” in recent years, lambasted the idea that more money would solve the economic problems plaguing America.
The U.S. Mint has decided to save money by not making money. oh, don’t worry, our beloved, if hard to come by lately, “dead president” paper bills will keep rolling off the mint’s printing presses, but production of commemorative presidential $1 coins for general circulation will end.
According to Treasury Secretary Timothy F. Geithner, halting production of the $1 presidential coins will save about $50 million annually. and besides, like Vice President Joe Biden said in a press release, “nobody wants to use them.”
The Presidential Coin Act of 2005 requires the Mint to issue $1 coins bearing the likeness of each deceased U.S. president at an annual rate of 70-80 million coins per president. Today, however, more than 1.4 billion or 40% of all the $1 coins ever issued have been returned, and are just gathering dust in Federal Reserve banks. according to VP Biden, the unused excess will meet the demand for $1 coins for more than a decade. considering the historic lack of popularity for dollar coins, probably a lot longer than that, Mr. Vice President.
Also see: Mint Stops Striking Golden Dollar Coins
The Mint will continue to produce — at no cost to taxpayers — a relatively small number of the $1 presidential coins for sale to collectors. Demand for $1 coins to be used in general circulation will be met through the Federal Reserve Banks’ existing inventory of more than 1.4 billion coins, which will be drawn down over time.
“At the Treasury Department, we’re continuing to work hard in support of President Obama and Vice President Biden’s efforts to cut waste and streamline government,” said Treasury Secretary Tim Geithner in a press statement. “Putting a stop to the minting of surplus $1 coins represents a significant opportunity to reduce costs and improve efficiency.”
Photo: Possibly First U.S. One Dollar Coin – Getty Images
In respect of the latest publication of the transcripts of the Federal Reserve, let us just say that we
WASHINGTON — the federal government has too much money on its hands.
That may be surprising, especially given that the government is flat broke, with a $15 trillion national debt.
But it’s also awash in shiny one-dollar coins, with more than a billion of them going unused by the public and piling up in bank vaults across the country.
To deal with the excess, the Obama administration announced Tuesday that it would all but halt production of its special presidential dollar coins for general circulation.
The decision came after the Federal Reserve told Congress earlier this year that it wanted to spend $650,000 to build a storage facility at its bank in Dallas to store all of the surplus coins in one place. And it planned to spend another $3 million to transport the surplus coins to the new warehouse.
Administration officials said the move would save the government $50 million annually for the next several years.
“we simply shouldn’t be wasting taxpayer money on money that taxpayers aren’t using,” said Treasury Secretary Timothy Geithner.
Members of Congress were trying to intervene, with Rep. Adam Smith, D-Tacoma, introducing a bill that would have forced the U.S. Mint to reduce production. Smith said he was pleased that the president and his administration “have seen the waste in this program” and reacted to it.
“we don’t use dollar coins,” Smith said. “It’s funny – you go to Europe, and you’ve got the euro and you’ve got the pound, but in America, people just don’t walk around carrying coins the way they do in Europe. It’s a cultural thing.”
The beginning of the surplus dates back to 2005, when President George W. Bush signed the Presidential $1 Coin Act, which required the U.S. Mint to issue new coins to honor deceased presidents each year, regardless of demand. the government tried to force circulation of the coins by requiring their use by federal agencies and the U.S. Postal Service.
Despite the efforts, nearly 1.4 billion excess dollar coins sat untouched in vaults, enough to meet expected demand for more than 10 years. And the Mint planned to produce another 1.6 billion dollar coins in the next five years.
The plan to stop production was made by Vice President Joe Biden as part of the administration’s “Campaign to cut Waste.” Biden said the Mint was only halfway through its production cycle, still making coins to honor presidents from the 1800s.
“And as it will shock you all, the call for Chester a. Arthur coins is not there,” Biden told members of the Cabinet.
At first, Smith said, Congress’ mandate was a moneymaker for the federal government.
“It costs like 30 cents to make a dollar coin, so you make 70 cents on the deal,” Smith said. “the problem is we were generating so much more than there was demand for. If you’ve spent 30 cents and don’t sell it, all you’ve done is spend 30 cents, first of all. second of all, you’ve got to store the darned things somewhere. We’re trying to save money here.”
In its annual report to Congress this year, the Federal Reserve said it had ample space to store more than $2 billion in dollar coins by 2016, when the government planned to stop producing the presidential coins.
But since it needed more space for its inventory, the Fed said it needed a new warehouse in Dallas, even though there would be “no perceptible benefit to the taxpayer.”
The Fed’s report prompted a spate of bills on Capitol Hill.
Smith proposed a bill that would require the Fed to roughly cut its production of coins in half. His bill would not have stipulated exactly how many coins would be produced each year, but the number would have been linked to the demand for the coins in the previous year.
The administration said it still would be required by law to produce “a relatively small number of the coins to be sold to collectors,” but not the 70 million to 80 million coins mandated to honor each president.
Officials said they expect the excess inventory to be drawn down over time.
While the government will stop producing most of the coins, it won’t stop the debate over whether U.S. citizens should stop using the one-dollar bill.
A report by the Government Accountability Office in March of this year found that replacing the one-dollar bill with the one-dollar coin would save the government about $5.5 billion over 30 years.
That’s mainly because the coins are so much more durable than bills. but polls have consistently found that Americans favor the dollar bill.
Rob Hotakainen: 202-383-0009 email@example.com