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10.30.14 - QE to End, Greenspan Says Buy Gold

Gold prices end lower on a stronger U.S. dollar and FOMC statements. Stocks jumped on upbeat economic reports, Dow adds over 200 points. Gold last traded at $1,198 an ounce. Silver at $16.42 an ounce.

As expected, the Federal Reserve yesterday announced it would be ending its open market bond purchases known as Quantitative Easing (QE).

Under that program, the Fed has been purchasing trillions of dollars of bonds for the last six years. The Fed said yesterday that the economy no longer needed the boost in liquidity provided by the purchases.

The bond-buying campaign has helped to fuel one of the largest stock market bubbles in American history.

The impact on the rest of the economy is much harder to assess. Some economists dismiss the purchases as inconsequential. And some say the Fed has exacerbated economic inequalities by helping to lift financial markets while the rest of the economy languishes.

One critic of the impact of QE is former Fed Chairman Alan Greenspan. Greenspan said, “I don’t think it’s possible for the Fed to end its easy-money policies in a trouble-free manner."

Greenspan also said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.

In other news, the government released its 3rd Quarter Gross Domestic Product report today which showed the economy grew at the rapid pace of 3.5%.

But as is so often the case with statistics, a detailed analysis of the number reveals a different picture. There was a sharp slowdown in personal consumption, which is a major component of the US economy.

So, why did the US economy grow so rapidly in the 3rd quarter?

Government spending made up the largest component of GDP since the 2nd quarter of 2009. And the lion's share of that government spending was $30 billion of defense spending associated with the campaign against ISIS.

This is hardly indicative of a robust economy, though it doesn't stop the administration from claiming that its policies have boosted economic activity.

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The End of QE: All Eyes on the Fed

Gold prices slip after Fed announcement. U.S. stocks end lower after Fed announced end to QE. Gold last traded at $1,224 an ounce. Silver at $17.26 an ounce.

The Federal Reserve is widely expected to announce today the end of its open market bond-buying program, known as quantitative easing, or Q.E.

While the Fed and Wall Street are downplaying the impact of this end, there is great disagreement about it in other circles and some analysts are skeptical that the Fed can even abandon its bond-buying activity permanently.

Fed officials say the purchases served to strengthen job growth and the economic recovery no longer needs quite so much of the central bank's support. We would suggest that the details of the employment statistics released by the Labor Department show anything BUT a strong job market and a variety of other economic reports, including those in real estate, reveal an uneven economic recovery at best.

While the Fed and Wall Street maintain that the end of Q.E. will be a seamless transition, former Fed Chairman Alan Greenspan disagrees.

He says the Federal Reserve won’t be able to exit from its loose monetary policy without turmoil in financial markets. Greenspan says the Fed’s Q.E. program has failed in one of its goals to spur demand. He also says there is a very high level of uncertainty holding back the U.S. economy.

One long-time analyst says that the end of Q.E. is just a mirage. According to Marc Faber, editor and publisher of the Gloom, Boom & Doom report, "The Fed will never end QE for good".

In Faber's view, within a few years, the asset purchases will be substantially higher than they were before.

Faber has long maintained that at some stage the economy will weaken again and at that point the Fed will argue, "Well, we haven't done enough, we have to do more."

In addition to Chinese and Indian demand, there is another growing source of gold demand to report: the Russian government.

Russia has boosted its gold reserves to the highest level since defaulting on local debt in 1998, driving its bullion holdings to the largest in at least two decades.

The country expanded its stockpile, the world’s fifth-biggest, by 37.2 metric tons in September to 1,149.8 tons, according to data on the International Monetary Fund’s website. The increase, valued at about $1.5 billion, was the biggest since November 1998. Russian reserves overtook those of Switzerland and China this year.

Finally, it was reported yesterday that fears over hackers was one of Americans' most serious crime concerns. Today, a new victim of hackers was reported: the White House.

Hackers have broken into an unclassified computer network used by President Obama's top advisers.

The Obama administration is saying little about the intrusion, only that hackers slipped into the network and their tools are "not being used to enable a destructive cyberattack," according to one official.

In the hacking world, attackers often use spying tools to steal files or monitor computer sessions.

The White House would not confirm the nature of the attack or even when it happened.

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10.28.14 - Real Estate Continues Slowdown as America Loses Confidence in Obama, Federal Reserve

Gold prices end slightly higher on a weaker-than-expected U.S. economic report. U.S. stocks rally, Dow closes above 17,000 as investors focus on FOMC meeting. Gold last traded at $1,229 an ounce. Silver at $17.23 an ounce.

There is a rule of thumb among economists that no economic recovery can maintain steam absent a healthy real estate market.

Recent data show that the US real estate market is on a slowing trend and, to make matters worse, the American people are losing confidence in the Obama administration and his Federal Reserve.

The annual growth in home sales prices across the nation slowed for the eighth consecutive month in August, according to a report released by S&P/Case-Shiller this morning.

The slowdown holds true for 19 of the 20 cities Case-Shiller tracks, with Cleveland the only city where annual price gains did not slow down.

Investors, while not selling their homes, are not buying nearly as many. That has taken much of the air out of home prices. In addition, the number of homes for sale is rising. Homes are sitting on the market far longer than they did just six months ago. It is no longer a seller's market.

Real estate prices soared between 2011 and 2013 due to the Federal Reserve's artificial intervention; it bought billions of dollars worth of mortgage-backed bonds in its Quantitative Easing program and pushed the average rate on the 30-year fixed rate mortgage to a record low. That created artificial demand, providing investors with cheap cash to buy foreclosures. As that demand goes away, housing will pay a price again. We are just now starting to see it.

The slowdown in housing coincides with disenchantment with the Obama administration, largely due to its fiscal and economic policies.

53 percent of Americans think Obama is doing a bad job with the economy. The reason? Quality of life is poor. Starting at the very bottom, poverty levels point to stagnation. In January 2009 the poverty rate stood at 14.3 percent. It rose to around 15 percent and then fell back down in 2013 to 14.5 percent (but the actual number of those in poverty remained the same from 2012). Meanwhile, the share of federal income tax paid by the middle class has, according to the IRS, risen.

Even the much praised unemployment rates can be misleading. While the number seeking work might be falling, that doesn’t necessarily mean they’ve found jobs. In January 2009, the labor force participation rate was 65.7 percent; today it is 62.7 percent--the lowest since 1978. In other words, a lot of Americans have simply withdrawn from the labor market.

On Wall Street, confidence in the "almighty" Federal Reserve is finally eroding and deservedly so. The problems that are emerging - a topped out stock market, a teetering real estate market, a mixed economy - are creations of the Fed's own machinations.

As long as those machinations were feeding the stock market bubble, no one on Wall Street complained. Now that the machinations have inevitably played out their effectiveness, Wall Street is griping.

As the Federal Reserve prepares to exit its monthly money-printing program, it faces a thorny dilemma with a market not buying what the central bank is selling.

In some respects, this is the Fed's worst scenario, in which its dithering over rate policy and mixed public signals cause it to lose credibility; a situation that could create substantial market dislocations considering soaring prices of risky assets over the past five and a half years.

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10.27.14. - Chinese Gold Demand Surges as Bullish Sentiment Continues

Gold prices end slightly lower as traders await important economic data due out later this week. U.S. stocks mostly unchanged on Monday as the energy and materials sectors suffer big losses. Gold last traded at $1,229 an ounce. Silver at $17.16 an ounce.

Gold is continuing its transformation from the gloom of bearishness in 2013 to outright bullishness at present.

Nowhere has gold's surge been more apparent than in China. Last week we reported India's demand for gold was surging. As we begin this week the same news is coming out of China.

China's gold imports from Hong Kong (the key trading center for gold into China) in September rose to the highest in five months as retailers and fabricators have boosted purchases.

China’s jewelry sales jumped 11.4 percent in September from a year earlier, according to the National Bureau of Statistics. Higher gold jewelry sales are pointing to robust consumer demand. Anticipation of strong gold sales during the festival season in October prompted some heavy restocking in September.

China imported 91.8 tons last month, including scrap, compared with 38 tons in August.

Rising demand for gold is no doubt playing a role in the resurgent bullish sentiment for the yellow metal--along with concerns about the stock market, weakening global economic growth and lingering geopolitical issues.

Large traders and futures market speculators sharply increased their overall gold bullish bets last week as gold positions rose for a fourth consecutive week to the best level since August, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC).

Today there were two new reports released in the US that reinforced the concerns mentioned above about economic growth.

U.S. services sector activity dipped to a six-month low in October.

Financial data firm Markit said its preliminary or "flash" services sector Purchasing Managers Index slipped to 57.3 last month, the lowest reading since April, from 58.9 in September.

The index, was dragged down by a decline in the new business sub-index, which touched its lowest level in three months.

Another report showed contracts to buy previously owned homes rebounded less than expected in September, an indication that the housing recovery remains anemic. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in September, rose 0.3 percent. The gain was below Wall Street's consensus forecast of a 0.5 percent rise.

Lingering questions about the health of the economy have been on the minds of some stock market analysts, adding to the growing sentiment that the market is vulnerable to a decline.

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