Tag Archives: stimulus

Gold Lingers At Five-Week High

After the release of U.S. economic data backing the maintenance of the stimulus by the Federal Reserve, gold remained near its highest level in five weeks, before the central bank policy makers meet later today to discuss recovery.

The precious metal rose 0.6 percent to $1,360.76 an ounce, traded at $1,354.12 at 2:46 p.m. in Singapore. Prices climbed to $1,361.93 yesterday, the highest since 20th September. Holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, remained steady at 872.02 metric tons yesterday.

Gold gained in October following the 16-day U.S. government as lawmakers warred over the U.S. budget and debt ceiling, and which may have impeded growth in the nation’s economy.

Gold trading has been low as investors seem to be waiting for the Fed’s official decision regarding quantitative easing and the stimulus reduction plan.

After a 12-year gain, gold dropped 19 percent in 2013 on expectations that the Fed would reduce its $85 billion in monthly body buying as the economy strengthened. The unexpected decision of Fed policy makers to continue providing the economic stimulus at the same levels in their September meeting, has lured investors back to the safe-haven commodity

Central Bankers Gone Wild?

The ripple effect of the 16-day U.S. government shutdown that made headlines around the world earlier this month has now started to make waves across the planet, showing the real weight of the dollar in the global economic pool.

Earlier this week the Bank of Canada spoke about the need of future interest-rate increase, avoiding the language it used in earlier decision concerning ‘gradual normalisation’, while the central banks of Norway, Sweden, and the Philippines decided yesterday to postpone raising their interest rates further into the future as well. The announcements bolster the Federal Reserves’ plan to delay the withdrawal of its stimulus plan until well into next year. But it is not just the big players who join the movement: from Hungary to Chile, emerging markets around the world have cut interest rates in the past two months.

With inflation and job growth in the industrial world stubbornly refusing to climb to higher levels and a weakening in developing nations, policy makers continue their path of monetary easing in an attempt to jolt global growth from its stagnant position. If recent economic history has taught us anything, however, it is that stimulus creates asset bubbles that play havoc on the markets when they finally burst. And the current bubble has already been inflated by drastic home-price increases across the globe and the MCSI World Index of developed-world stock markets dangerously inching towards its highest level since 2007.

Some economists warn that the current conditions of central bankers pumping liquidity into the markets and promising to keep interest rates down are not normal. Yet, such has been the environment for five years now, as monetary authorities have sought to protect global economy from deflation and have turned to quantitative easing as a means to expedite its recovery. But to what cost?

The financial rewards have so far been limited. The International Monetary Fund this month has clipped its projections for global economic growth from 3.1 to 2.9 percent for 2013, and from 3.8 to 3.6 percent for 2014. It also expects most central banks across wealthy nations to favour lower inflation rates which already fall below the 2 percent average.

Indian Sensex Record High

Indian (SENSEX) stocks climbed yesterday, sending the benchmark S&P BSE Sensex above its record closing high, with investors speculating an acceleration in the inflows of capital as company earnings exceed expectations.

State Bank of India helped 13 lenders reach a one-month high after the government announced that the bank is among 20 state-owned lenders to receive 140 billion rupees ($2.3 billion) to guard against bad debts. The greatest climb on the index was recorded by Tata Motors Ltd. (TTMT), owner of Jaguar Land Rover.

The Sensex rose 1 percent to 20,974.21 at 11:12 a.m. in Mumbai. The gauge increased as high as 21,039.42, surpassing the all-time closing high of 21,004.96 on Nov. 5, 2010. Foreign investors bought a net $15.2 billion of local shares so far this year as economists have postponed projections for when the U.S. Federal Reserve will begin reducing stimulus. All nine of the 30 Sensex companies that have reported results so far this season have shown profits that beat or matched estimates.

India’s equity strategists, who abandoned expectations for a record high in the Sensex on concern earnings growth will slow, found the rise surprising.

Gold rallies as investors lose faith in dollar

Gold rallied back up to a near three-week high level as investors consider the implications the Non-Farm Payrolls which indicated that employers added fewer jobs to the U.S. economy in September than expected.

The precious metal, however, is till set to record its first annual drop since 2000, as earlier this year investors turned away from this economic safe-haven on the expectation of the American economy would improve and the Fed would begin to cut its $85 billion monthly bond purchases.

Economists now expect that policy makers will delay cutting bond purchasing until March 2014. The Fed’s next two policy meetings are scheduled for 29-30 October and 17-18 Dec.

Awaiting the NFP report

All eyes are on the U.S. dollar today, as the currency traded at 0.3 percent from an eight-month low yesterday, falling against most major currencies after the 16-day government shutdown that hampered the U.S. economy. More specifically, investors anxiously await the Non-Farm Payrolls release of September finally scheduled for later today, at 1:30 p.m. GMT.

The NFP report will indicate whether employment levels have reached sufficient targets for the Federal Reserve to reduce the economic stimulus, as had been previously forecast, or whether the government’s decision to extend the debt ceiling will prolong quantitative easing.

The Canadian dollar also ended its 3-day gain, as Canada’s central bank is expected to downgrade the country’s economy should the NFP report turn out to be lower than expected on account of the stunted economic growth in the U.S., Canada’s major trading partner

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