Obama may not have a sequestration Silver bullet, but Homeland Security has?

Last Updated : 27 February 2013 at 23:00 IST

I had been tired of writing about US fiscal cliff when the issue was at its peak in December. When going off the cliff was averted, we saw that the cliff would re-appear in one black Friday morning in March.

The day is just stone's throw away from here.

And every Congressman would better prepare to meet a pelting shower of stones or bullets if they do not reach a deal. And perhaps every stone-pelting/bullet-firing American may have to die 5 times before the Department of Homeland Security runs out of bullets that can maximise organ damages.

While this is some exaggeration, I simply wonder if there is any relation between a potential recession triggered by a cannot-be-ruled-out sequestration, and a Homeland security solicitation to purchase 21.6 million rounds of ammunition to add to the 1.6 billion bullets it has already obtained over the course of the last 10 months alone. 

I can explain...

Sequestration is fiscal cliff re-incarnated. This time it is mostly about automatic cuts to the tune of $1.2 trillion over the next 10 years. If the cuts are effected, 7,50,000 to 1 milllion Americans could lose jobs in multiple stages. And that could, by any account affect close to another few million Americans.

“We will lose employees from education, the military, law enforcement, courts, national parks, and more. The economy will almost certainly fall back into recession, long term growth will be stunted, and confidence will be shattered.” said John T. Harvey writing in Forbes. 

Now, isn't this Armageddon that he is writing about. What if it really happens?

Boehner, the Republican leader though has said of “hope springs eternal” on record has agreed it is too late to get a deal done as on the time of his admission. 

Now, if it really happens, chances are more that US would see craziness freaking out in a show of up-in-arms struggle. While 32% of Americans own a gun as of 2010 stats—a declining trend—the Homeland Security has reasons to worry.

In the same breath, Obama, a Nobel Peace Price laureate would not order killing his own fellow Americans; that would be outrageous.

While the DHS ammo accumulation could also be aimed at building firepower for “National Security Force” the vague explanations surrounding DHS' purchase can set the story mills running. 

As published here: http://www.commodityonline.com/news/obama-may-not-have-a-sequestration-silver-bullet-but-homeland-security-has-53117-3-53118.html

Gold, Silver to be in tenterhooks at least until March 2013

Last Updated : 29 December 2012 at 12:35 IST

Yesterday as one speculated about a prequel deal to fiscal cliffarriving at, going by the words of US President Obama that he is modestly optimistic on fiscal cliff solution, it seems that a patch work deal is all that is possible.

Media reports suggest that Democrat leader Harry Reid of Nevada and Republican leader Mitch McConnel of Kentucky would slog it out together to arrive at a compromise which they may present before their party peers in Congress by Sunday afternoon. If all goes well, then Senate would prepare to vote on the proposal on Monday.

Mitch McConnel said he was "hopeful and optimistic" about the outcome.

The question is how this anticipated patchwork deal would affect the commodity markets.

The point is that markets, sensing the evolving mood may already have priced in the patchwork outcome, if not fully, to an extent. The best indicator is gold.

Futures in gold began to dive from $1662.75 on the Comex in the evening session (Indian time) yesterday to close at $1656.45 in early morning hours as the meeting of leaders discussing fiscal cliff gained momentum. Silver was relatively steady.

It is evident that going off the fiscal cliff would see automated spending cuts and tax hikes jumping on board with a ruck sack worth $600 billion.

At about 3.5% of GDP, the tax hikes would be the largest increase since World War II.

It is also a scenario of highest tax rates getting imposed on individual incomes at a whopping rate of 39.6% since 2000. It is again the scenario of highest tax rates on capital gains at 23.8% since 1997 and the highest tax rate imposed on dividends at 43.4% since 1986.

No wonder, economists are predicting a recession in the first half of 2013, including those at the Federal Reserve and the Congressional Budget Office if US goes off the cliff. 

“Arguably, this would be the first recession created by a tax increase since 1969, or, before that, the Great Depression.”noted taxfoundation.org

It has also to be noted that the patchwork deal may agree only on the following items to the best of our knowledge.

Extending Bush-era tax cuts: The leaders may agree to extend the tax cuts of Bush-era on American households earning below the threshold of $250,000. [The $250,000 celing may actually go up to $450,000.]

Exemption from Alternative Minimum Tax: Some 28 million US people earning between $100,000 and $500,000 a year will have to pay the alternative minimum tax in 2013 for the period of 2012. (The tax was actually targeted at multimillionaires who in turn outmaneuvered the system and managed to stay away from the ambit of tax). The 28 million have pegged their hopes on Congress exempting “them from the tax that they were never intended to pay.”; New York Times had said.

Deferring of across-the-board spending cuts: Many believe that the spending cuts can make US much more vulnerable to security threats and deferring them is necessary.

Will these measures be enough to help markets trade with confidence?

The patchwork deal leaves the case of capital gains tax and dividend tax behind and that can spoil the New Year party. The individual taxes, however may get averted helping consumer spending to maintain satisfactory levels. Deferring of spending cuts, if arrived at would also remain a silver lining. 

However, one has to note that the patchwork deal would not possibly address restricting spending on Social Security and Medicare. The Republicans insist on this aspect. Besides, raising of debt ceiling would also not be addressed leaving the door open to further debates and volatility triggers.

This mixed picture could leave the markets too mixed. Chances are more that the futures would trade range-bound in 2013 until definitive moves on the above-said aspects—debt ceiling and restriction on spending—emerge in addition to the unaddressed issues of capital gains tax and dividend tax. And most of these may not emerge at least until March. 

High volatility would mark the market actions as gold and silver would remain in tenterhooks. Eurozone cues too would swing the markets either ways.

As published here: http://www.commodityonline.com/news/gold-silver-to-be-in-tenterhooks-at-least-until-march-2013-51994-3-51995.html

'2013 may see INR 33000 Gold, 65000 Silver in bounce back'

Last Updated : 28 December 2012 at 16:45 IST

Renisha Chainani, Manager-Research, Edelweiss thinks that once a fiscal cliff deal is possible, gold and silver prices could bounce back next year.

She expects gold prices to touch Rs.33000 levels though she did not say when as “the price activity would be governed by government actions on either side of the Atlantic.”. She expects MCX Silver to touch Rs.65000 levels. She thinks that possibilities exist for Comex silver to climb to $40.

Meanwhile, Manoj Kumar Jain of India Nivesh has retained his contrarian view on bullion:

“ I am bearish on gold for the next two months” said Manoj Kumar Jain, President, Commodity & Forex Business; India Nivesh Commodities recently.

However, at least by mid-January, he expects prices of copper to appreciate. Rs.428 could be a good stop loss, he said.

“And if the commodity closes above Rs.452-454 on a weekly basis, where there is a major resistance, next stop could be at Rs.480-490.” he added.

He too expects a comprehensive solution to the you-know-what-issue by mid-January.

Change of name

There is a new name for the fiscal cliff issue: you-know-what-issue. So much for the reams of paper and web pages written on this subject; the word fiscal cliff issue has almost become a cliché for journalists, rivalled only by perhaps, the word 'Eurozone crisis'.

Still the Himalayan issue remains a Himalayan issue! The elephant is still in the room. And one can count the days left for a descent to Armageddon in fingers: 4 days.

Cometh January 1 and you will see $600 billion in spending cuts and tax hikes kicking in and in turn ushering in a recession, experts say.

Going by the events as they unfold, Kunal Shah of Nirmal Bang is confident that some solution, thought it may sometimes be a patch-work solution would be arrived at in case of you-know-what-issue.

“ I am optimistic and confident that the chamber meeting announced for Sunday would come out with a solution.” he said. “Possibilities exist that the differences would still be there, but going by the way they have clinched deals before, especially the last-minute deal that followed the debt-ceiling debate, some or the other solution is possible.” he added.

Obama is about to meet House Speaker John A. Boehner(Ohio Republican), Senate Majority Leader Harry Reid (Nevada Democrat.), Senate Minority Leader Mitch McConnell (Kentucky Republican.) and House Minority Leader Nancy Pelosi San Francisco Democrat) in the presence of Joe Biden, Vice President of US. Meanwhile House Majority Leader Eric Cantor said the chamber is scheduled to meet on December 30 for its first Sunday session in more than two years.

The optimism is well reflected by the crude oil markets.

“Suddenly, the world is abuzz with the word growth. There are some hectic activities underway in revising GDP figures.” he said. “This is well reflected by the crude oil prices.” he said.

The prequel deal

Obama had called on the Congress to extend the tax cuts of Bush-era on American households earning below the threshold of $250,000 and suspend the spending cuts: many believe that the spending cuts can make US much more vulnerable to security threats.

A typical American household earns $50,000 a year. If the automated tax hikes (along with spending cuts) are initiated, 2% pay roll tax cuts would be terminated overnight. Some 125 million households earning $50,000 a year would see pay being cut at least by $1000. This would be prevented, if the sense of Congress wills it.

Alternative Minimum Tax issue should also be addressed as per Obama, “so that the tax filing season can proceed without the administrative nightmare of retroactive adjustment.” NYT said.

Some 28 million US people earning between $100,000 and $500,000 a year will have to pay the alternative minimum tax in 2013 for the period of 2012. (The tax was actually targeted at multimillionaires who in turn outmaneuvered the system and managed to stay away from the ambit of tax). The 28 million have pegged their hopes on Congress exempting “them from the tax that they were never intended to pay.”; New York Times pitied.

Now, all these factors are expected to be woven into the patch-work solution.

As published here: http://www.commodityonline.com/news/2013-may-see-inr-33000-gold-65000-silver-in-bounce-back-51985-3-51986.html

Opinion: 'Prequel deal' to Fiscal Cliff agreement may be clinched

Last Updated : 28 December 2012 at 10:40 IST

Time is running out for Congressional Republicans and Democrats as Obama is about to meet House Speaker John A. Boehner(Ohio Republican), Senate Majority Leader Harry Reid (Nevada Democrat.), Senate Minority Leader Mitch McConnell (Kentucky Republican.) and House Minority Leader Nancy Pelosi San Francisco Democrat) in the presence of Joe Biden, Vice President of US in a bid to clinch an 11th hour deal concerning the fiscal cliff.

Markets are cautious as they await Saturday morning (1.30 AM IST) discussion to seek clear direction. The picture as of now looks grim, yet not devoid of optimism.

On Thursday, Senate Minority Leader Mitch McConnell (Kentucky Republican) said to CNN that his party will not "write a blank check for anything Senate Democrats putforward just because we find ourselves at the edge of the cliff." Reid the Nevada democrat said somewhere else,”I don't know, time-wise, how it can happen now”

Meanwhile House Majority Leader Eric Cantor said the chamber is scheduled to meet on December 30 for its first Sunday session in more than two years.

Unless the fiscal cliff issue resolved before December 31, experts believe that the automated kicking-in of spending cuts and tax hikes to the tune of $600 bn starting January 1 would trigger a recession and a financial calamity.

However, if a fiscal cliff deal is not reached in its entirety before December 31, at least a prequel deal is expected:

Obama had called on the Congress to extend the tax cuts of Bush-era on American households earning below the threshold of $250,000 and suspend the spending cuts: many believe that the spending cuts can make US much more vulnerable to security threats.

A typical American household earns $50,000 a year. If the automated tax hikes (along with spending cuts) are initiated, 2% pay roll tax cuts would be terminated overnight. Some 125 million households earning $50,000 a year would see pay being cut at least by $1000. This would be prevented, if the sense of Congress wills it.

Alternative Minimum Tax issue should also be addressed as per Obama, “so that the tax filing season can proceed without the administrative nightmare of retroactive adjustment.” NYT said.

Some 28 million US people earning between $100,000 and $500,000 a year will have to pay the alternative minimum tax in 2013 for the period of 2012. (The tax was actually targeted at multimillionaires who in turn outmaneuvered the system and managed to stay away from the ambit of tax). The 28 million have pegged their hopes on Congress exempting “them from the tax that they were never intended to pay.”; New York Times pitied.

Since either sides do not want to go off the cliff, chances are more that a prequel deal would be agreed upon. It would save the face of the leaders from both sides and may bring about some common ground from where further negotiations could be launched. Most importantly, it would avert a financial calamity by a big extent and help the markets trade wiith confidence.

As published here: http://www.commodityonline.com/news/opinion-prequel-deal-to-fiscal-cliff-agreement-may-be-clinched-51975-3-51976.html

Going off the Fiscal Cliff: Will it take Capitalism down?

Last Updated : 27 December 2012 at 13:10 IST

The tax angle of fiscal cliff issue has largely been ignored in the din of fiscal cliff debate. The political crisis that may emanate from going off the cliff has not been widely discussed. And both are intricately intertwined with the test of the century for Capitalism as whole! See this in detail:

--A typical American household earns $50,000 a year. If the automated tax hikes (along with spending cuts) are initiated, 2% pay roll tax cuts would be terminated overnight. Some 125 million households earning $50,000 a year would see pay being cut at least by $1000.

--Unemployment benefits would be curtailed for some 2 million people who are receiving $290 a week.

--Improvement in tax credits enjoyed by “low-income working families, as well as a credit for low- and middle-income families with college costs” which was enacted in 2009 would meet its end, the New York Times has said. This means some 25 million US citizens are bound to lose an average of $1,000 a year in benefits in 2013 and around 8 million children would fall prey to poverty.

--Child tax credit for a single mother working for an entire day under minimum wages would see benefits plummet to $165 from $1,725: a national shame.

--Some 28 million US people earning between $100,000 and $500,000 a year will have to pay the alternative minimum tax in 2013 for the period of 2012. (The tax was actually targeted at multimillionaires who in turn outmaneuvered the system and maanaged to stay away from the ambit of tax). The 28 million have pegged their hopes on Congress exempting “them from the tax that they were never intended to pay.”; New York Times pitied.

Now, let's see what a worst-case scenario of going off the cliff would mean:

--It means millions of Americans would take to streets to demand what they have always enjoyed and taken for granted.

--The Wall Street would dive, so would commodities.

--As US debt ceiling will not be raised, two months into the crisis would see US doing the unimaginable, defaulting on debt. (Timothy Geithner would be able to raise only $200 bn and that would not last beyond February at best.)

--The theory states that bond markets generally thrive in this worst-case scenario. But when you have no option, but to default on your debt, chances are miniscule that US would find buyers for its bonds. So, what can follow this? Armageddon?

Let us not go overboard, at least for now and sincee it is not demanded. 

The US politicians know these facts better than anyone else. When an American takes to panic, he does that for real. That is why Obama has called on the Congress to extend the tax cuts of Bush-era on American households earning below the threshold of $250,000 and suspend the spending cuts: many believe that the spending cuts can make US much more vulnerable to security threats.

Alternative Minimum Tax issue should also be addressed as per Obama, “so that the tax filing season can proceed without the administrative nightmare of retroactive adjustment.” NYT said.

In a broad sense it is always the economy that keeps a government in its place; it is the economy that also keeps the opposition in its place. They swap their positions when the economy commands it.

But the twist of fate has been such that, out here, both the government and the opposition are going to be held accountable for what they do or what they do not! This may not be unprecedented, but rare.

The capitalist system which hinges on matured economies, especially its Mecca that is the United States of America is going through the test of century.

Either they make it or they mar it! 

As published here: http://www.commodityonline.com/news/going-off-the-fiscal-cliff-will-it-take-capitalism-down-51961-3-51962.html

US Fiscal Cliff: Why investors should stay away from Commodity markets on Dec 27

Last Updated : 24 December 2012 at 12:00 IST

The news from the fiscal cliff not being encouraging, one may think that the Mayan Calendar which predicted an end-of-the-world-scenario for December 21 has missed the date by ten days. But optimism still persists.

Chances are less that US would go off the cliff, according to Kunal Shah, Head of Commodity Research at Nirmal Bang Commodities.

“I am optimistic of a resolution to fiscal cliff.” he said as he was hopeful that a meeting slated for 27th December would bring about significant changes.

“And before 31st December a concrete resolution may be arrived at.” he added.

US Congress is now on holiday until December 27.

“And I expect 27 December to be a day of volatility and speculation.” he said. Traders are advised to stay away from the markets for the day.” he cautioned. He also advised traders not to short base metals as US and China data have been positive for the past days.

The Chinese manufacturing has expanded and US GDP has grown by 3.1%. Besides the Bank of Japan has opted for a $110 billion stimulus measure. “Besides, effort continues in Europe to get out of the crisis.”

He explained that the recent sell-off in gold was a result of money-managers world-wide thinking “the worst for financial markets being over.”

The fiscal cliff issue is looming large on the horizon taking sheen off commodity bull trading.

Crude oil prices are trading low on account of a resolution to the cliff issue not being in sight. Thursday had seen the collapse of Republican Speaker John Boehner's proposal to tax the extreme rich as his own peers decided not to support the same; not to speak of the opposition from Senate Democrats and President Obama.

Sen. Joe Lieberman said to AP ''it's the first time that I feel it's more likely we'll go over the cliff than not.''

Meanwhile, there are also views coming in that US may go off the cliff but would recover in a span of 2-3 months.

“Gold, silver may come under pressure for a while.” said Manoj Kumar Jain, President, India Nivesh.

If the US budget talks face an absolute collapse and no resolution regarding automated kick-in of spending cuts and tax hikes to the tune of $600 billion is not arrived, the US would slip into a recession derailing the current recovery.

The resulting pile-up would not miss the wider world as well, analysts say. 

As published here: http://www.commodityonline.com/news/us-fiscal-cliff-why-investors-should-stay-away-from-commodity-markets-on-dec-27-51939-3-51940.html

Is it the end of road for Gold? No

Last Updated : 21 December 2012 at 11:40 IST

Finally the edifice of gold erected on the foundations of excessive speculation and alleged negative manipulation is razing to ground, one may think at this moment. While there is truth in this argument, it is not that time is ripe for an elegy to be written for gold. Gold's downside risks are limited as long as Eurozone crisis prevails, and given the nature of things there, the crisis remains intractable.

Gold has primarily come down from its highs due to the following factors:

--The prevailing uncertainty pertaining to fiscal cliff
--US GDP that has grown at an annual rate of 3.1% in the third quarter
--December lull

The fiscal cliff issue took an interesting turn when Republican Speaker John Boehner decided not to bring to the House his so-called Plan B as he could not find enough of support amongst his party pals for favorable votes. The proposed bill envisaged tax hikes for the elite million dollar earners of fortune. White House had actually rejected this plan and instead stuck to its original plan of taxing households that earned $4,00,000 per year. Earlier the Obama ceiling was fixed at $2,50,000. The Plan B was rejected in earnest terms by President insofar as he threatened to invoke veto.

Now, with the Plan B off the table, chances are more that Boehner may opt for a tango with Obama, however, there could still be surprises.

Now, the US President is hoping to avert going off the cliff through a bipartisan solution: “The President will work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle-class and our economy,” the White House said in a statement.

When uncertainty touches stratospheric levels, it is in the blood of investors to rush to the safety of bonds. Positions in gold were liquidated and dollar denominated Treasuries were possibly demanded more.

US GDP has grown at an annual rate of 3.1% in the third quarter. Said Tanweer Akram, ING Investment Management said to The Telegraph:

“Jobless claims have shown a trend of slow declines as the labor market gradually heals. We see some signs of improvement in the labor market and that's likely to continue as housing gradually recovers and as firms slowly start to hire.” The Quantitative Easing measures floated by US Federal Reserve is tethered to job market recovery in US.

But he added:

“The pace of hiring is still disappointing with firms concerned about the impact of the fiscal cliff on demand. Our view is that the unemployment rate will remain well above 7 percent through the coming year and well above the Fed's numerical target of 6.5pc.”

“The current data portrays a U-turn for the US economy as a whole, but it is expected that the progress would be slow.” said Martin Patrick, an economist from India. “It seems the economy has escaped from big troubles.” he added.

And often, what is good for US economy is good for Dollar and bad for gold.

“December lull is also a case in point.” he added. Investors, when they reach the year-end in December, often liquidate their positions, he added. Holidays ensure that a chunk of them stay away from the markets as well.

The Eurozone crisis

Meanwhile S&P increased Greece's rating from "selective default" to "B-minus".

"The upgrade reflects our view of the strong determination of European Economic and Monetary Union (eurozone) member states to preserve Greek membership in the eurozone. The outlook on the long-term rating is stable, balancing our view of the government's commitment to a fiscal and structural adjustment against the economic and political challenges of doing so." the agency said in a statement.

“This is a significant upgrade, which the Greek government will consider a vote of confidence, but it seems to be more of a vote of confidence in the euro in general.” said Stephanie Flanders, BBC's Economics Editor.

But Greece is not Europe and Europe is not Greece. Until the uncertainties and risk perceptions prevail Gold still has a long way ahead of it.

As published here: http://www.commodityonline.com/news/is-it-the-end-of-road-for-gold-no-51908-3-51909.html

Fiscal Cliff failure, Depression and a Gold bull on steroids

Last Updated : 18 December 2012 at 13:20 IST
I do hope that President Obama and Republican Speaker John Boehner really know what they are doing. They are playing with fire and the whole world is feeling the heat; it is questionable if they are feeling the same. What a pity!

Unless the fiscal cliff talks arrive at a tangible solution before December 31, chances are more that US dollar would have a cardiac arrest, I mean a hyperinflation on a global scale and a rally so huge in gold and silver that every $5000/oz-gold-analyst would be put to shame as their estimates get dwarfed by the new rally. 

Let me go back to1914 when Germany just like many other countries went off the gold standard to finance the World War. Going off the gold standard gave Germany the necessary blank cheque to print unlimited currency. The process went on until 1922 when something triggered a hyperinflation for Germans.

“The ultimate trigger was the loss of trust in the government’s policy and debt. As foreign capital refused to buy Germany’s debt anymore, the exchange rate depreciated (i.e. currency debasement) and the rate of inflation accelerated considerably. While it was a certainty that inflation would hit, the timing was determined by the loss of confidence.”: an article in trader said.

The quantity of Germany’s monetary base expansion is presented in the chart below in dotted lines. The chart shows as well the rate of inflation. [Monetary base is the total amount of money—including currency notes and coins—in the system along with reserves held by central banks.]

The chart below shows the Adjusted Monetray Base of US. The steep rise is attributed to QE initiatives now-a-days tethered to a mirage: job creation.

The recently announced QE4 unlike Operation Twist can significantly add to US monetary base.

So, it can be safely assumed that if US fiscal cliff talks fail and markets, including debt markets, get spooked, there would be a sudden rush to safe haven assets like silver and gold and a complete and absolute abandonment of US Dollar sparking hyper-inflation and a depression on a global basis. The issue would thus snowball into a crisis of confidence on unprecedented scale.

This has not happened before in the history of the planet and if it happens, then it will be a depression to end all depressions! Mind you Obama and Boehner!

And to conclude: after reading this, may no gold bull be carrying out a sinful prayer of no resolution of fiscal cliff issue! 

As published in: http://www.commodityonline.com/news/fiscal-cliff-failure-depression-and-a-gold-bull-on-steroids-51853-3-51854.html 

Why Gold prices should not be predicted until after a Fiscal Cliff solution

Last Updated : 17 December 2012 at 12:00 IST

Many have taken to forecast the price of gold for next year. But the intellectual capital invested in this exercise can be pure waste of time and resources as long as the fiscal cliff talks reach a definitive turn: a make-or-break scenario which is reliable and can be settled down for once and for all.

First of all, I will tell you some fiction. This is not fiction per se, but a set of arguments that you may hear in the coming days. Historical representation of future can sometimes be termed fiction.

The fiction

Fiscal cliff or not, QE or not, gold is all set to climb new highs!

If the current slump in yellow metal is deterring you from going long on gold, then I would say you are missing the last bus headed for a gold rally destination. Because, gold may not be able to come down this low yet again as it would possibly be busy with a journey northward.

February may see a surge in gold prices as investors return with a refreshed mind either to take the bull by the horns or to take the bear by its claws. The year-end slump or December-effect is expected to get offset by the April-effect or new (financial) year surge.

At the end of the day, bulls are bulls!

The kicking in off QE4 can lend additional support to gold starting January. (December 31 and lo, Operation Twist is history!)

Also, the fiscal cliff talks--stalled by the unfortunate and deplorable Connecticut shooting incident in a school there--would be arrived at a consensus in January.

As news agencies report, it may sometimes not be possible for the President and his Republican counterpart for talks on fiscal cliff to arrive at a consensus this month. This was also predicted by the legendary investor Warren Buffet.

The problem is that, though the effect of going off the fiscal cliff would take time to take effect in a practical way, investors would be spooked by the general lack of consensus in US Congress and the possible recession.

This, in turn would see massive sell off in commodities and equities in January. Dollar may see a surge in investments in these months as there would be a short-term rush for US treasuries, the traditional safe haven.

At the end of the day sentiments are sentiments. But once the talks are re-started and US gains its feet back, by April, a surge in commodities, especially gold and silver can be expected.

The 'facts'

But things may not be this simple! Now I would outline the facts. These are not facts per se, but some fiction. Futuristic representation of facts may also be termed fiction:

If US goes off the fiscal cliff, that would hurt the world economy badly. And if the debt ceiling is not raised once again by the US Congress, it could be pretty much worse. As going of the cliff can trigger a recession, the Congress may find it to be an ample reason to resort to austerity. This would in-effect be a downward spiral not only for markets, but also for the world as whole. While going off the cliff could trigger a recession, its subsequent outcome and impacts are hidden in future.

The world economic system may possibly come to a grinding halt as Europe too would go down with America and the fickle recovery in Emerging Markets, including China would be derailed, further aggravating the crisis.

Are we seeing a global depression in the offing? Possibly...and the prospect is least exciting.

Killing a mocking bird

So, if somebody offers a price prediction for gold in the coming days for the said days, try to secure a shoot-at-sight order for him.

Predicting the price of gold for uncertain times is least reliable and chaotic times unheard of.

Latest Update

“The first real movement in the “fiscal cliff” talks began on Sunday, with Republican House Speaker John Boehner edging slightly closer to President Barack Obama’s key demands as they try to avert the steep tax hikes and spending cuts set to take effect unless Congress intervenes by 31 December”, Live Mint has reported. 

As published in: http://www.commodityonline.com/news/why-gold-prices-should-not-be-predicted-until-after-a-fiscal-cliff-solution-51834-3-51835.html

Why Gold is falling and why it will bounce back

Last Updated : 13 December 2012 at 11:35 IST

Gold has tumbled for two reasons post the alphanumeric extravaganza, QE4. The primary reason is profit booking and the secondary reason is pessimism; pessimism pertaining to US Fiscal Cliff.

“Investors are now focused on the fiscal cliff negotiations, which are looking protracted and threatening to weigh on all markets,” said Xiang Nan, an analyst at CITICS Futures Co., a unit of China’s biggest listed brokerage to Bloomberg.

“ We view a drop below $1,700 as a good buying opportunity. The Fed sent a strong signal about supporting the economy and keeping the easy monetary policy stance unchanged, which should support higher gold prices in the longer term.” Nan added.

If the current budget talks between Republicans and Democrats fail, US is sure to go off the cliff and none other than the Congressional Budget Office has predicted contraction in the economy (read recession) even as $600 billion in spending cuts and tax spikes would come into force on its own. The fragile economy that is the United States of America would come to a grinding halt overnight.

And with the worsening Eurozone crisis, things would go out of hand, analysts say. This scenario is deemed best for gold prices, one would think. But it may not be the case.

In fact, there is a haven that is touted safer than gold: US Dollar!

When I say this, I can hear a din of arguments pouring in, that would postulate Dollar having a value lesser than the paper in which it is printed.

But one should also not miss the fact that Dollar appreciated and gold tumbled in the immediate aftermath of the 2008 crisis.

Why this was so?

One of the reasons behind this appreciation in Dollar was the frantic flight to treasuries by investors. And treasuries are dollar denominated. This suddenly pushed up Dollar demand and the result was that investors liquidated their positions in gold and other asset classes and invested in bonds. Not the other way around!

Nobody can rule out a similar occurrence this time around already heralded by flight from gold investments. Well, that also may not be the ultimate case.

Please be sure that this is not the end of the road for gold: it is just the beginning! In 2008, the crisis was not fundamentally about solvency, but about liquidity. But this time around it is the other way around. The crisis is about whether a government would default on its debt. When you feel that you will not get the money back once you have lent it to a person, would you continue to lend? You won't! Debt-ceiling debate is still active an issue in US. 

And when QE measures continue unabated, it is just a question of time, a question of 'when' rather than 'will' for Dollar and its losing of value.

The crisis of confidence would lead capital to fly to safe havens. And gold is just what it is: a safe haven. 

As published in: http://www.commodityonline.com/news/why-gold-is-falling-and-why-it-will-bounce-back-51794-3-51795.html

Gold prices would go off the cliff and yet float on QE 4 wings

Last Updated : 04 December 2012 at 11:35 IST

The US fiscal cliff issue is something of a political drama. It is, strictly speaking, a showdown of egos between the democrats and the republicans.; the latter having lost the presidency want to hide the exasperation and the former, having retained the presidency want to binge on it.

This equation has got a great deal to do with gold prices. If US goes off the cliff, then gold prices would reach stratospheric levels, if it does not make it off the cliff, then the continuing Eurozone issue and the possible QE4 would lent the commodity some support.

Bart Melek, head of commodity strategy for TD Securities said to Kitco, “We fully expect the expiring Operation Twist program will be replaced with an unsterilized longer-term bond purchase program, which we think will be very conducive to higher gold prices.”

Yes, the Operation Twist program is coming to an end and given the grim labour market scenario may see US continuing with printing of money. The ISM's latest Employment Index registered 48.4 percent, a decrease of 3.7 percentage points, which is the index's lowest reading since September 2009.

Since Ben Bernanke has tethered QE initiatives to a rebound in the economy as reflected by the job markets, the QE 4 cannot be much far from here.

Unless the politicians go insane, the chances are more that the fiscal cliff issue would be resolved. If not, it would be a political suicide for republicans as much as an opportunity of victimization for team Obama.

The Obama team could always say that republicans did not let them do it—allowing tax cuts for middle-class households and taxing the super-rich. And mind you, the US is a middle-class country where just 1% votes of super-rich would not let you to see through the elections that are being awaited in continuum. If you let US off the fiscal cliff, 99% Americans would suffer; and they as a race, do not easily forget or forgive. History is a testimony to this fact.

So, the gold prices may actually come down as the fiscal cliff issues is resolved but would still maintain the levels given that FOMC meet scheduled next week could possibly proclaim a QE4.

And if insanity prevails and US falls off the cliff, gold would fire all booster rockets.

As published in: http://www.commodityonline.com/news/gold-prices-would-go-off-the-cliff-and-yet-float-on-qe-4-wings-51640-3-51641.html

Why Gold, Silver crashed Wednesday and what it says of US Fiscal Cliff

Last Updated : 29 November 2012 at 16:15 ISTYesterday, the yellow metal was bled white by shall we say, some ghost? It possibly was a ghost, as analysts are all the more puzzled: there was no major news that came out during or near that time frame to explain the sudden dip. February gold last traded down $26.00 at $1,718.80 an ounce even as spot gold was quoted down $25.20 at $1,717.25. Silver shed 1% and was seen at $33.725 an ounce. It recovered later on.

One thing which I would like to put forth is this:

News drives commodity markets to a great extent. But those who actually make money in the markets are not driven by news, but by virgin information. Information that they gather through enviable networking and incisive analysis. They are often High Net Worth Individuals who have invested tons of money in commodities. The quality of information that they receive is unmatched and unparalleled.

So, what caused the crash:

I seriously doubt the issue has got something to do with fiscal cliff. The ones who carried out sell orders must have got some reliable information regarding US fiscal cliff talks. [No other issue, perhaps other than Eurozone crisis can have this kind of depth and can influence the markets in so big a way, making information flowing out of it to be of high value.]

The talks could have a positive outcome: this is no insider information, but any sensible market-watcher could reach this conclusion. No member of US Congress would let a recession creep in by making the fiscal cliff talks a complete failure. The disgruntled Americans would never forgive them for that.

However there is some stark contrast. There always exist a possible risk that things could go wrong, anywhere, anytime.

But risk could be insured against. How about uncertainty? One cannot insure against uncertainty, unless one gets concrete and reliable information that could demystify the ambience. My point is, somehow or other, some of those who placed sell orders in gold could probably had some positive information that the cliff issue will be addressed in a sound manner.

This in turn caused some selling which also triggered algorithmic stop loss attempts aggravating the bloodbath. Movement in one commodity can substantiate my point. Silver: the commodity gained after it dropped initially (following the trend in gold) making a comeback and closing with minimal losses.

And silver is an industrial metal. Industries use a major chunk of silver mined. If the fiscal cliff issue could be avoided, then that may prove to be beneficial for silver as a recession could be averted and as the recovery would continue; but the same could prove to be bad for gold, which some of those sellers averted by selling. 

As published in: http://www.commodityonline.com/news/why-gold-silver-crashed-wednesday-and-what-it-says-of-us-fiscal-cliff-51573-3-51574.html

Japanese fiscal cliff issue and what it means for Bullion

Last Updated : 29 October 2012 at 11:25 ISTWhile reports arrive that Japan's Cabinet has approved of a $5.3 billion stimulus measure—arguably a drop in the ocean—the same reports also mention of a fiscal cliff issue that is typically Japanese and not American.

Japan is also expected to run out of money and a resulting shutdown of its economy if political bickering there prevents the Japanese government from enacting a bill that would raise the current debt ceiling.

About 40% of the current year fiscal spending rests on the hope of Japanese government getting the bill to be passed into a law even as opposition parties demand the government to reciprocate with a snap election if they were to cooperate. One of the Houses in the Japanese two-tier Parliament is 'owned' by the opposition. The government invariably requires their support.

Last year too, Japanese PM Naoto Kan had to step down with opposition pegging the passing of bond bill to his removal from ministerial chair.

The current PM, however is refusing to bow before the pressure induced by opposition.

Consequences to commodity markets

Japan is the third biggest economy in the planet and is undergoing a recession followed by the tsunami of 2011 and the resulting Fukushima nuclear reactor hazard.

Reports suggest that the country has already curtailed some spending.

Reports Wall Street Journal:

"The Japanese government has already taken the unprecedented step of suspending some spending, and if parliamentary gridlock over the bill isn't resolved in a month, it would have to suspend bond offerings, starting with either an auction of two-year Japanese government bonds on Nov. 27 or 10-year bonds on Dec. 4, analysts said. That would be the first cancellation ever for a two-year tender and the first for a 10-year sale in 25 years, ministry officials have said."

Now, if this turns out to be real, then Japan will see a drop in bond yields for the short-term as investors eager to secure their investment would rush to these bonds. But over the long term the fiscal cliff issue would undermine the confidence of global investment community and may provoke rating downgrades by the agencies, pushing up the bond yields to uncomfortable levels. (Fitch had downgraded Japanese debt rating in May to A plus, and said further downgrades were possible due to political gridlock.)

This could in turn provoke a bullion rally as uncertainty mounts and investors channelise what they had invested in bonds to gold, silver and the like.

"Foreign investors including hedge funds may sell off JGB futures due to a loss of fiscal governance and the ensuing risk of rating downgrades, and that eventually could make domestic players reluctant to buy cash bonds," said Jun Ishii, chief JGB strategist at Mitsubishi UFJ Morgan Stanley Securities;reported Wall Street Journal.

And the primary dealers in bonds have their concerns:

"Several brokers expressed their concerns about a downgrade," Hidenori Suezawa, chief bond strategist at SMBC Nikko Securities, told reporters after attending the meeting. "One ratings agency has already downgraded Japan. If we get another downgrade, this could invite foreign selling of Japanese debt," he said.--Business Recorder quoted Reuters.

If the US fiscal cliff is not a bad news enough to create some chaos, then this certainly is.

As published in: http://www.commodityonline.com/news/japanese-fiscal-cliff-issue-and-what-it-means-for-bullion-51071-3-51072.html