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10.22.14 - Markets Distracted as Jihad Comes To Canada

Gold prices end lower on profit taking and a stronger U.S. dollar. U.S. stocks snap 4-day winning streak as investors consolidated sharp gains from previous sessions. Gold last traded at $1,245 an ounce. Silver at $17.24 an ounce.

The investment markets have been largely distracted by the unfolding drama in Ottawa, Canada where an unknown number of gunmen have carried out attacks in multiple locations in what appears to be a coordinated terrorist attack.

The potential economic and financial implications of this incident will no doubt unfold as details become available in the aftermath of the attack.

In strictly economic news, the US Consumer Price Index Inflation numbers came in today from the Labor Department and they show restrained inflation. This likely means the Federal Reserve can continue to keep interest rates near zero territory, a bullish factor for gold.

Renowned investment manager Richard Russell, editor in chief of the Dow Theory Letters, released a statement today that Fed monetary policy, as well as European Central Bank (ECB) policy, amount to an "avalanche of fiat money creation," which will undermine man-made currencies such as the dollar and the euro over the long-term. Today's news on the CPI from the Labor Department will do nothing to change this outlook.

Fed Chair Janet Yellen has expressed more concern about "income inequality" than about the US dollar and US economy lately. MarketWatch correctly pointed out in an opinion column today that it is Fed policy itself that has created that situation:

"...when the Fed buys financial assets with printed money and — by definition — drives up the price of those assets, it cannot then act mystified why the main owners of financial assets have grown wealthier. Doing so simply insults our intelligence."

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10.21.14 - Gold At Fresh One-Month High; China GDP Comes Up Short

Gold prices hit six-week high on concerns over a global economic slowdown. U.S. stocks jump higher in hopes of more ECB stimulus. Gold last traded at $1,251 an ounce. Silver at $17.54 an ounce.

The price of gold has hit a new 6-week high today thanks in part to disappointing news on China's economic front and continued weakness in the US dollar.

China's economy has clocked its worst quarter in more than five years, raising concerns over Beijing's ability to meet its own annual growth target.

GDP expanded by 7.3% in the third quarter versus the same period last year, the weakest performance since the global financial crisis.

With the Chinese economy showing slower growth, experts are now sounding the alarm over ballooning Chinese corporate debt. A few Chinese companies have defaulted on their debt in recent months, a previously unheard of phenomenon, and no government bailouts are in sight.

Worries have also escalated over the use of unconventional financing. Some firms, for example, have been using copper as collateral to secure loans. Experts are concerned that some companies are even using the same copper stockpiles to take out multiple loans, borrowing far more than they can repay. This amounts to a Ponzi scheme; a ticking time bomb in the Chinese economy that would result in aftershocks around the globe.

In Europe, the European Central Bank is reportedly planning to buy corporate bonds in an effort to battle against a slowing economy. Not surprisingly, the euro fell on this news, meaning gold is rising in both dollar and euro terms.

Gold was also bolstered by buying interest in the physical markets from Asia - the top-consuming region.

India, the second-biggest gold buyer, celebrates the festivals of Dhanteras on Tuesday and Diwali later in the week. Both are considered auspicious for buying gold, which could provide a boost to retail sales and imports.

News that India's central bank will not tighten gold import rules further could also lend some support.

Finally, we have yet another sign of a top in the US stock market: merger and acquisition deals are currently failing at their highest rate since 2008, the onset of the financial crisis.

The value of deals that fail to complete has reached its highest level in six years. A total of $573B worth of deals have been withdrawn, setting this year up to surpass the $640B in deals that went uncompleted in 2008.

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10.20.14 - Underlying Economic Problems Persist

Gold prices end higher, boosted by safe-have demand and bargain hunting. U.S. stocks higher, led by gains in energy and materials sectors. Gold last traded at $1,244 an ounce. Silver at $17.35 an ounce.

The price of gold has resumed its recent rally today largely due to renewed weakness in European stocks overnight.

That weakness may be due to a variety of persistent factors simmering below the surface around the world.

No region is immune.

In Europe itself, worries of slow economic growth persist with continued poor performance in the German economy and fresh concerns about the Greek economy teetering once again despite massive bailouts.

But traders in Europe and America may be even more worried about China soon.

China may ignite panic over the state of the global economy when it reports its third quarter gross domestic product (GDP) on Tuesday, which could confirm a marked slowdown in the world's main growth engine.

Meanwhile, here in the US, despite the declining unemployment rate, more and more evidence points to a weak, overall jobs market in the US. The unemployment rate is simply masking overall economic weakness.

US policy makers are missing a key question as they assess the health of the labor market: if those who are employed are either overqualified for their job or would like to work more hours.

A report earlier this year from the Federal Reserve Bank of New York found that 44 percent of working recent college graduates were underemployed, defined as holding a job that doesn't usually require a bachelor's degree. That was up from 34 percent in 2001 and approaching levels last seen during the 1990-91 recession, when concern about underemployment heightened, the central bank said. Meanwhile, the share of people unemployed for 27 weeks or more remains higher than at any point prior to the recession that began in December 2007.

In her latest policy speech, on Friday, Fed Chair Janet Yellen touched on a theme we've been hearing from the Obama administration for some time now: income inequality. Yellen said this problem is of great concern to her. Yellen avoided talking about current economic conditions or monetary policy in her speech, but the theme of income inequality is one the political Left claim is a threat to American prosperity. Yellen indicated that the problem has grown progressively worse over the past few decades.

Of course, she offered no solutions to this problem.

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10.17.14 - Gold Set for Another Positive Week

Gold ends lower, but closed week higher on global growth concerns. U.S. stocks finish higher, snapping six-day losing streak. Gold last traded at $1,239 an ounce. Silver at $17.33 an ounce.

Gold is poised for a second straight week of gains as persistent fears over the health of the world economy have taken a toll on global equities and the US dollar, prompting safe haven seekers to flock to precious metals.

Weak economic data from China and Europe have, in particular, spooked world markets.

Dollar weakness has also supported gold prices as the sluggish economic data prompted speculation that the U.S. Federal Reserve could postpone any increase in interest rates.

The US Dow Jones Industrial Average is now in its longest losing streak in 14 months. Tokyo's Nikkei is now at a new four-and-a-half-month low — posting its worst week in 6 months.

The financial world--at least in the US--is back in its Fed watching mode, a strategy that has proven fruitless in recent weeks and months.

Many on Wall Street are looking for another handout from the Fed, analyzing every word that Fed Chair Janet Yellen utters in hopes the Fed will step in and revisit its quantitative easing program if markets fall too far, too fast.

St. Louis Fed President James Bullard gave Wall Street some of what they wanted, when he said the Fed should consider continuing to buy bonds beyond the scheduled end of quantitative easing later this month, due to market turmoil.

Bullard's comments come two days after those of San Francisco Fed President John Williams (who, like Bullard, is a non-voting member of the Fed Open Market Committee). Williams told Reuters "If we get a sustained, disinflationary forecast… then I think moving back to additional asset purchases in a situation like that should be something we seriously consider."

Yellen speaks on economic opportunity at the Boston Fed's 58th Economic Conference today.

Boston Fed President Eric Rosengren seemed to dampen hopes for immediate Fed stimulus when he said the Fed needs to fully process the causes of financial markets turmoil before making a judgement on quantitative easing. The Fed next meets October 28.

It's amazing that Wall Street is so dependent on unprecedented, loose monetary policies to pump up stocks when those policies have undermined the value of the dollar and led to the current turmoil.

Clearly, Wall Street has run out of answers.

That's why so many investors around the world are once again turning to gold. Gold is an asset in its own right. It has stood solid as a store of value and trusted medium of exchange for 5,000 years. And it's never dependent on anyone's promises.

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