Gold Standard News Daily - Real Money Blog
Posted M-F 6pm ET
Gold last traded at $1,196 an ounce. Silver at $16.03 an ounce.
Today's news reminds us not everything that impacts our investments are domestic economic statistics from Washington and financial reports from Wall Street.
Some of the factors have nothing to do with either of the above.
There is, for example, the issue of cyberwarfare, cybersecurity and hacking and how it can impact the business marketplace. Just look at the hacking of Sony Pictures. Consider how this story has grown. First the press reports focused on the premature web release of some new movies. Then they moved on to the embarrassing and compromising email traffic revealed by the hackers. These security compromises did damage to Sony Pictures' brand, value and even revenue in various ways. But then it was revealed that the FBI firmly believes the government of North Korea is behind the attack and that the hackers threatened terrorist attacks on movie theaters if Sony released the movie, The Interview.
So what may have, at first, seemed like a malicious prank actually turned into a state-sponsored act of terrorism.
This shows the potential of how far hackers can and will go. This could have just as easily been an attack on a financial institution resulting in the loss of personal wealth or private information. Or it could have been an attack on a healthcare firm, with personal medical data stolen for use in some nefarious manner. The possibilities are endless. And these potential consequences should give investors pause.
Physical gold and silver investments kept close at hand are not subject to hackers and can provide a form of safe haven in the event that future attacks impact the financial markets.
For their part, the North Koreans may have their cybersights set on far bigger targets in the future.
The hacking attack on Sony Pictures may have been a practice run for North Korea's elite cyber-army in a long-term goal of being able to cripple telecoms and energy grids in rival nations, defectors from the isolated state indicate.
North Korea has been working for years on the ability to disrupt or destroy computer systems that control vital public services such as telecoms and energy utilities.
"North Korea's ultimate goal in cyber strategy is to be able to attack national infrastructure of South Korea and the United States," says Kim Heung-kwang, a defector from the North who was a computer science professor there.
"The hacking of Sony Pictures is similar to previous attacks that were blamed on North Korea and is a result of training and efforts made with the goal of destroying infrastructure," said Kim, who came to the South in 2004.
In 2013, South Korea blamed the North for crippling cyber-attacks that froze the computer systems of its banks and broadcasters for days.
More than 30,000 computers at South Korean banks and broadcast companies were hit in March that year, followed by an attack on the South Korean government's web sites.
Highlighting the vulnerability to hacking, the network of Korea Hydro & Nuclear Power was recently compromised, resulting in the leak of its employees' personal information, the blueprints of some nuclear plant equipment, electricity flow charts and estimates of radiation exposure on local residents.
Cybersecurity and intelligence experts warn that the Sony episode is only the beginning.
Cyberattacks against US federal agencies and breaches into government systems have been skyrocketing.
There were almost 61,000 cyberattacks and security breaches across the entire federal government last year, according to a recent Obama administration report.
And the number of cyber incidents involving government agencies has jumped 35 percent between 2010 and 2013, from roughly 34,000 to about 46,000, according to another recent report by the Government Accountability Office.
Unclassified networks at the White House and State Department were recently hacked, leading the State Department to shut down its email system for days last month.
But it's not just spies looking to crack government computers. Hackers are also after personal information accessible through government computer systems, not unlike their counterparts who have nabbed millions of credit and debit card numbers from Target and Home Depot.
Last July, hackers hit the Energy Department and took personally identifiable information from more than 100,000 people "that could be used to damage the financial and personal interests of many individuals," according to a post-mortem report by the department's inspector general.
The data included names; dates and places of birth; social security and bank account numbers; and information about their education and disabilities, according to the report. The hack cost the government almost $4 million in credit monitoring fees and lost productivity.
To put it mildly, the federal government's information technology is not as secure as it should be.
Sometimes the threat comes from simple incompetence. Last year, the IRS mistakenly posted tens of thousands of social security numbers on government websites, according to the nonprofit Public.Resource.org.
The IRS uses automated systems to process returns. If breached, billions of dollars in returns could be taken and the systems erased, forcing the IRS to use archives to try to reconstruct its system. One attack could potentially cripple the IRS system.
Gold last traded at $1,194 an ounce. Silver at $15.93 an ounce.
Russia is undergoing what can only be described as economic turmoil and observers are hoping the crisis will be limited to Russia. That could be. After all, some of what we're seeing is trouble of Russia's own making in the form of economic sanctions imposed due to Russian expansionism in Ukraine.
But some of what we're seeing is also due to the collapse of the price of oil, which may very well be a symptom of overall global economic problems; something that is of serious concern to investors everywhere.
The Russian economy may come to “a sudden stop” and a bank run “could be in the cards,” according to an analyst at Moscow brokerage UralSib Capital.
“A full-blown currency and financial-crisis scenario seems to be unfolding in Russia in what was supposed to a quiet week as we head into the holiday season,” Slava Smolyaninov, deputy head of research, wrote in an e-mailed report today. “There is a risk that the economy will come to a sudden stop, along with the banks and the overall financial system. Hence, we may have underestimated the level of financial risk in the event of a full-fledged panic. A bank run could be in the cards.”
“The financial system and banks in particular are clearly in danger as a crisis of trust seems to be developing as well,” Smolyaninov wrote. “We believe the worst is yet to come.”
Russian consumers flocked to stores Wednesday, frantically buying a range of big-ticket items to pre-empt the price rises kicked off by the staggering fall in the value of the ruble in recent days.
As the Russian authorities announced a series of measures to ease the pressure on the ruble - which slid 15 percent in the previous two days and raised fears of a bank run - many Russians were buying cars and home appliances before prices for these imported goods shoot higher.
"This is a very dangerous situation. We are just a few days away from a full-blown run on the banks," Russia's leading business daily Vedomosti said in an editorial Wednesday. "If one does not calm down the currency market right now, the banking system will need robust emergency care."
Earlier this week, the ruble suffered catastrophic losses as traders continued to fret over the combined impact of low oil prices and Western sanctions over Russia's involvement in Ukraine's crisis.
Should the current attempts to shore up the ruble fail, then the Russian authorities could be imposing capital controls.
The turmoil may be limited to Russia this time, but in 1998 when oil fell and the ruble was in crisis mode economic trouble did in fact spread elsewhere. This is a factor investors will need to watch.
Of course, not all the news is about Russia.
The US Federal Reserve is always in the news and this week is no exception. Markets have reacted to a statement from the Fed that it would be "patient" in increasing interest rates. Fed Chair Janet Yellen said the Fed was unlikely to hike rates for "at least a couple of meetings", meaning April of next year at the earliest.
Gold climbed sharply on the news.
In the currency markets, the dollar index was down 0.2 percent after the Fed statement, but the bigger news was that the Swiss franc fell to two-year lows after the Swiss National Bank said it would introduce negative interest rates.
The move forces commercial banks to pay to deposit their francs with the Swiss National Bank — usually they get a small interest rate for doing so.
Gold last traded at $1,191 an ounce. Silver at $15.93 an ounce.
Today, the Fed made another confusing and unclear annoucment, causing volatility in the markets. In today's statement, the Fed said they will be "patient" before beginning to raise rates. The Fed went on to say this was "consistent" with their "considerable time" pledge made after the last few FOMC meetings.
“At this point we think it unlikely that it will be appropriate that we will see conditions for at least the next couple of meetings that will make it appropriate for us to decide to begin normalization,” Yellen said in the press conference after the Fed announced its decision.
Traders have no clue what exactly the Fed is trying to communicate, as reflected in the market's reaction. Moments after the Fed statement was released the U.S. dollar sold off, rallied, then dropped again. Treasury yields and crude oil were also volatile.
The only thing that is clear is that the Fed's actions will be heavily dependent on upcoming data; such as employment figures and inflation numbers.
In other news, Russia, the world's 8th largest economy, is in a full-blown state of turmoil right now. With sales of oil and natural gas making up approximately two-thirds of all Russian exports and half of government revenue, it should come as no surprise that falling oil prices have caused significant damage to the Russian economy.
Many economists fear the trouble in Russia may spread to other European nations. Some nations, fearing the possibility of collapse, have demanded their gold reserves be brought back home. Austria is the latest country to make this request, following Germany, the Netherlands and France.
The point of having gold on your own soil is to serve as a hedge against other national currencies. With so many countries wanting this sort of insurance, it clearly demonstrates their lack of confidence in the euro.
According to Australia & New Zealand Banking Group Ltd., gold prices will recover in 2015 as demand in China and India improves. This makes right now the perfect time for investors to add to their portfolio, taking advantage of lower prices before 2015.
Gold last traded at $1,194 an ounce. Silver at $15.75 an ounce.
There are a wide variety of news reports with implications for investors today, starting with continuing evidence of a brightening outlook for gold.
The price of gold is up around 7% since it hit multi-year lows in early November. Back then, many on Wall Street were happily eulogizing the death of the yellow metal. Rumors of gold's demise turned out to be greatly exaggerated. The price of gold has risen in four out of the past five weeks.
Despite this rise, gold is still not far above multi-year lows. As a result, more and more traders are seeing gold as a bargain and are buying. The U.S. Commodity Futures Trading Commission reports an rising trend in long gold positions and gold ETFs are seeing a net inflow of money for the first time since October.
The reasons are actually varied, as reflected by a series of reports today:
• The Russian economy is in the worst shape since 1998 and, given Vladimir Putin's record, that is reason for nervousness for many reasons. Russia's Central Bank raised rates by 650 basis points - to 17% - in an attempt to stop the ruble's crash against other major currencies. The ruble improved by as much as 9% against the dollar before collapsing entirely. Once again we see the failure of central banks to achieve desired policy goals against free market forces. Now Russians are faced with a collapsed ruble AND sky-high interest rates. Russia now finds itself in severe financial straits. If sustained, the new higher rates would squeeze an economy already being hurt by sanctions and by a collapse in oil prices. The ruble's collapse has evoked the turmoil of the 1998 Russian crisis, an event that reverberated through financial markets around the world.
• It seems many American investors have completely forgotten the lessons of the most recent financial crisis of 2007-2009. Six years after the collapse of Lehman Brothers, the lessons of the financial crisis may already be fading from collective memory.Just last week, Congress acted to loosen the regulation of the high-risk investments that ignited the 2008 crisis and housing regulators cut minimum down payments on home loans. The Institute of International Finance declared it "worrisome" that global indebtedness, as a share of world economic output, has reached record levels. All this comes as subprime auto loans for financially stretched buyers are surging. And the so-called too-big-to-fail banks that needed a taxpayer bailout in 2008 now loom even larger than before the crisis; America's five biggest banks account for 44 percent of bank assets, up from 38 percent in 2007.
• Maybe the Chinese know something we don't know. They are dumping their holdings of US Treasury securities, something that could potentially cause problems for the US economy and financial markets by forcing up interest rates. China's holdings of US Treasuries fell to a 20-month low in October, the latest month for which data is available.
• There has been a lot of cheerleading from the Obama administration about the "improving economy" but a closer examination of statistics indicates underlying trouble: 65% of all children in the US now live in a household that receives some form of federal aid, The Census Bureau reports that 1 in 5 of millennials (age 18-34) live in poverty and fod stamp beneficiaries have now exceeded 46 million for 37 straight months. None of these can be described as a sign of a healthy economy.
• The plunging price of oil might mean many things. Some call it a positive for the Western economies. Others call it a sign of deflation. But there may be another side effect for which investors must be prepared: The collapsing price of oil could stoke geopolitical tensions in key producing nations. For example, Iraq - which is battling Islamic State (IS) militants - will take a major hit from the plunging cost of crude. But Iraq is not alone, there could be fallout as well in nations such as Russia, Venezuela, Iran, Nigeria and even Norway.
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