January Blog Archives 2014

Gold prices close higher, scores 3% monthly gain. U.S. stocks see worst monthly decline in over a year. Gold last traded at $1,239 an ounce. Silver at $19.13 an ounce.

The US stock market resumed its slip today on continued--and increasing--turmoil in emerging market nations. Turkey, South Africa and Russia, in particular, all of whom saw their currencies pummeled overnight.

This is a good example of why gold is truly the only form of real money. Man-made currencies are subject to the winds and shifting sands, but gold has stood solid as a trusted medium of exchange and store of value for 5,000 years. At the end of the day, a nation's currency is someone's liability, dependent on someone else's promises. Gold, on the other hand, is an asset in its own right.

Nobel prize-winning economist Nouriel Roubini says he sees continued macroeconomic, political and inflationary risk in emerging markets and expects those currencies to have further downside risk. He warns Turkey, South Africa, India, Brazil and Indonesia are particularly vulnerable.

In other words, the contagion spooking world stock markets is just beginning.

Such conditions have historically been positive for gold and one metals market expert sees gold rising in the short and long term. Jeffrey Christian, Managing Partner of New York based commodities and agricultural research organization CPM Group, sees gold reaching $1,320 per ounce in February or March and eventually getting back to the record $1900s in the longer-term. (At the time of this writing, gold was trading at $1243 per ounce.)

Economic news here in the US is still unlikely to rescue the stock market. Two economic statistics released today show at least some cause for concern.

U.S. consumer spending rose more than expected in December, but income was unchanged last month. In fact, income at the disposal of households, after adjusting for inflation, fell 0.2 percent.This indicates two things:

1. Consumers went deeper into debt to increase spending, not a healthy sign.

2. Consumer spending won't see sustained increases under such circumstances.

Meanwhile, U.S. consumer sentiment dipped slightly in January. The final reading on the Thomson Reuters/University of Michigan's overall index of consumer sentiment slipped to 81.2 in January, down from the 82.5 posted in December. These types of surveys show Americans are persistently worried about their financial prospects and the economy, a bad sign for the restoration of consumer confidence and the hope of an economic recovery.

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Gold prices fall nearly 2% on higher U.S. dollar, equities gain. U.S. jobless claims jump 19,000 to 348,000. Gold last traded at $1,242 an ounce. Silver at $19.13 an ounce.

The Ben Bernanke era comes to a close tomorrow at the Federal Reserve and the Fed commemorated the event by announcing it would continue to "taper" its bond buying program in February by reducing bond purchases from $75 billion in January to $65 billion.

The Fed justified this decision by citing improved economic conditions, particularly improvements in the unemployment rate.

This is curious because the economic data in recent months has been mixed at best and the employment picture has been masked by steep declines in the labor participation rate to previously unheard of levels .

Of course, this assumes the Fed's monetary "stimulus" can boost the economy in the first place, a dubious assumption to be sure.

Just this morning, there was yet more evidence of economic stagnation.

The number of people who sought U.S. unemployment benefits near the end of January rose to the highest level in six weeks. In the seven days ended Jan. 25, initial jobless claims jumped by 19,000 to a seasonally adjusted 348,000, the Labor Department said this morning . Economists had generally expected claims to edge up to 330,000.

Consumer confidence dropped last week to the lowest level in two months. The Bloomberg Consumer Comfort Index declined to minus 31.8 in the week ended Jan. 26 from minus 31 reading the prior period. The buying-climate gauge slumped to a three-month low. Retreating stock prices are probably damping sentiment among upper-income groups, while higher gasoline costs at the pump hurt the nation’s lowest earners.

Barring a large rally in the stock market today and tomorrow, the S&P 500 will be down for the month of January, an early warning sign that usually means further weakness ahead.

This will be the first January loss since 2009, and the largest monthly decrease in eight months.

The January barometer has been right in 62 of the last 85 years, or 73 percent of the time. Since 1929, the index followed January's direction 80 percent of the time when it finished positive, and 60 percent of the time, when it finished negative.

More recently, in the past 35 years, the S&P 500 followed January's direction 25 times, or 71 percent of the time (83 percent of the time for the Dow, and 74 percent of the time for the NASDAQ).

Volatility as measured by the VIX, is up 26 percent this month. Since the VIX was launched in 1986, there have only been three instances when the so called fear gauge gained over 15 percent in January.

In two of those times, the S&P ended the year down more than 5 percent. The other year, 1987, the market crashed in October, but managed to close positive.

While January is only one of 12 months of the year, history shows it tended to predict the year's direction quite accurately. Meanwhile, another expert is forecasting higher gold prices in the medium and longer term. Lawrence Roulston of the Resource Opportunities newsletter had this to say about the value of gold to investors:

"Gold is headed higher in the medium term and the long term. There will still be a lot of volatility at play during the short term, but gold will continue its uptrend of the last 13 years. Gold is always going to have an intrinsic value. Think about the big selloff in paper gold last year. People were lining up to buy physical gold as investors were dumping exchange-traded funds and paper gold on the market. But central banks are still net buyers of gold. China is emerging as the biggest buyer at both the consumer and the central bank level. Gold has been the mainstay of financial systems for more than 5,000 years!"

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Gold prices close higher after Fed's decision. U.S. stocks close lower, Fed stays on course by tapering another $10 billion. Gold last traded at $1,262 an ounce. Silver at $19.55 an ounce.

Conditions in global financial markets today can best be described with one word: turmoil.

In a day in which many believed the markets would mainly be reflecting on President Obama's State of the Union speech last night, the markets are instead reacting to global events, particularly actions by central bankers in far-off Turkey and South Africa.

Turkey and South Africa both had their central banks boost interest rates and the markets were initially positive in their reaction. That proved to be short-lived as both countries' currencies and financial markets soon started to get hammered down. This touched off a chain reaction across stock markets elsewhere and is continuing here in the US.

The concern is that the gravy train of monetary stimulus could be coming to a screeching halt and the artificial factors that have pumped up stocks will be suddenly removed.

This development comes as no surprise to some observers, like noted Wall Street trader Bill Fleckenstein who told CNBC Tuesday that there was a huge amount of downside risk in the US stock market:

"The [price-to-earnings ratio] is 16, 17 times earnings. Why would you pay 16 times for an S&P company? I don't care about where rates are, because rates are artificially suppressed. Why isn't that worth 11 or 12 times? Just by that analysis, you'd be down by a quarter or 30 percent. So there's a huge amount of downside."

"Printing money does not make the economy work, but it sometimes makes stocks go wild," Fleckenstein said. "The reason the stock market did well last year is because the Fed printed $1 trillion."

"If they taper, they're going to get a lot of weakness. People are being very macho right now, they think that if the Fed tapers it's going to be OK—and it might be for a little while. But the market's going to end up lower if they keep tapering, and they're going to have to come back the other way. Then at some point, people will see that the Fed is trapped, because what they do doesn't work, and they can't stop," Fleckenstein said.

There is also more worry in the global banking industry. Earlier this week, we reported that UK banking giant was restricting cash withdrawals. Now comes word from Russia that one of that country's top 200 banks, a bank called "My Bank," has introduced a complete ban on cash withdrawals until next week.

These kinds of episodes contribute to uncertainty in the financial markets and cause a lack of confidence among investors. Everyone needs to keep a sharp eye out for more of these reports from around the world so as not to be caught off-guard.

The best way not to be caught off guard is to own gold. Former Congressman and presidential candidate Ron Paul articulated that very well on CNBC recently:

Paul sees 2013's gold price decline as merely a blip in the screen in the overall scheme of things.

"I don't see gold so much in short-term because I see it in over a 100-year period. Long-term, it will always go up so long as we have a Fed printing money. But, on the short-term, the traders have a lot to say about this. A correction like we just had last year – one year out of 13 – that's not a big correction. That doesn't destroy a so-called bull market."

Paul believes gold is at the bottom of its cycle. With continued stimulus, growing national debts, and market fear, Paul says investors will flock to gold.

"I think they're going to move to gold," says Paul. "Gold is going to be the safe haven which it's been for 6,000 years."

One new development on the world currency scene has been Bitcoin. There is a great deal of conflicting information about the alternative currency, but hedge fund manager Paul Singer points out some interesting facts:

"There is no more reason to believe that bitcoin will stand the test of time than that governments will protect the value of government-created money. If you want an alternative currency, check out gold. It has stood the test of thousands of years as a store of value and medium of exchange. Better yet, it is not just a computer entry in the ether somewhere, and it is currently available at a good price."

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Gold prices end lower ahead of Fed meeting. U.S. stocks higher on improving U.S. consumer confidence. Gold last traded at $1,250 an ounce. Silver at $19.50 an ounce.

There was more bad news for US economic recovery today, as well as a reminder that Europe is not out of the woods either.

Orders for long-lasting U.S. manufactured goods unexpectedly fell in December as did a gauge of planned business spending on capital goods, which could cast a shadow on America's economic outlook.

The Commerce Department said on Tuesday, durable goods orders dropped a whopping 4.3 percent; pulled down by weak demand for transportation equipment, primary metals, computers and electronic products as well as capital goods. In other words, there was weakness across a broad front in the production and sale of durable goods.

That decline was the largest since July. Economists polled by Reuters had expected orders to rise 1.8 percent in December.

Not everyone is buying into the supposition that the US is in an economic recovery.

Stephen Roach, former chairman of Morgan Stanley Asia, now a senior fellow at Yale University, believes the recovery is a "false dawn." Roach recognizes that the decline in the unemployment rate is merely a reflection of grim labor market conditions which have discouraged workers from staying in the workforce.

If the labor force participation rate was 66 percent, as it was in early 2008, rather than 62.8 percent, as it was in December 2013, the unemployment rate would be just over 11 percent, not 6.7 percent, he says.

"Notwithstanding the Fed's claims that its unconventional policies have been the elixir of economic renewal in the U.S., the healing process still has years to go," he concludes.

The US is not the only world economy in a precarious position. Europe continues to look fragile. Ireland, Greece, Spain, Italy, Cyprus and Portugal have all experienced severe economic problems in recent years. Some of these countries have been the beneficiaries of bailouts from their European Union colleagues.

But those bailouts may be a thing of the past. Germany's central bank, the Bundesbank, has a new idea on how countries can work their way out of fiscal and economic woes, but it's not one that is likely to please investors. The Bundesbank believes, in the future, such countries should draw on the private wealth of their citizens through a one-off capital levy before asking other countries for help.

In other words, wealth confiscation. On top of already existing taxes. Such solutions may be increasingly attractive to politicians and bureaucrats, but they are toxic to investors and consumers.

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Gold prices close slightly lower for its first loss in three sessions. U.S. stocks close lower in choppy session. Gold last traded at $1,263 an ounce. Silver at $19.79 an ounce.

There is clearly anxiety in world financial markets, as evidenced by multiple news reports, and that anxiety is translating into elevated demand for gold coins.

Stock markets around the world were battered overnight Monday amid growing volatility in emerging markets.

Stock markets in the Asia-Pacific region closed sharply lower, with benchmark indices in Tokyo, Hong Kong and Mumbai shedding more than 2% as investors looked to move out of riskier assets. South Korea's stock market was also down 1.6%.

European stock markets also followed suit, with broad declines across the continent.

Emerging markets have been hammered in recent days due to the possibility the Federal Reserve, Bank of England and Bank of Japan will all pull back on futile attempts at propping up their respective economies. Signs of weakness in China's huge manufacturing sector and a looming default in its shadow banking system have only added to the anxiety.

Loose monetary policies may not have produced the desired result in the economy, but they have fed artificial spikes in stock markets. Traders are fearful that the game is about to wind down.

The US Federal Reserve will reveal its latest policy decision Wednesday. At its previous meeting, the Fed announced plans to begin scaling back its massive stimulus program by $10 billion per month to $75 billion in monthly bond purchases, citing signs of economic growth.

Even though the economy only added 74,000 jobs in December, many market observers expect the Fed will continue to cut back on its Quantitative Easing bond buying program.

Another major contributor to anxiety emerged from the United Kingdom, where banking giant HSBC has instituted a policy restricting depositors' access to their own money.

A previously unannounced change in banking policy is blocking some customers from making large withdrawals without “evidence” as to why they need the money.

The policy affects customers attempting withdrawals for amounts as little as £5,000 ($8,253).

The significance of such a policy cannot be overstated. It's the kind of thing that spreads panic. Of course, HSBC says it’s all done in the name of customer protection.

"We have an obligation to protect our customers, and to minimize the opportunity for financial crime,” HSBC said in a statement.

The change in approach comes after the BBC aired reports from multiple HSBC customers who said they were denied in their recent attempts to make cash withdrawals. HSBC gave no prior notice to its customers before implementing the policy.

It remains to be seen if other banks in the UK will implement similar policies, or if HSBC's operations outside the UK will be impacted.

Not surprisingly, troubles in the financial markets and economy are spurring demand for gold.

Mints from the U.S. to Australia report climbing demand for gold coins.

Austria’s Muenze Oesterreich AG mint hired extra employees and added a third eight-hour shift to the day in a bid to keep up with demand. Purchases of bullion coins at Australia’s Perth Mint rose 20 percent this year through Jan. 20 from a year earlier. Sales by the U.S. Mint are set for the best month since April.

The U.K.’s Royal Mint, which traces its history back more than 1,000 years, ran out of 2014 Sovereign gold coins due to “exceptional demand,” it said in a statement on Jan. 8. Coins weren’t available to customers until six days later when inventories were replenished. Sales by the Perth Mint, which also has workers producing coins in three shifts a day, will also likely set a new record.

Demand for gold for jewelry is also climbing, particularly in the Asia-Pacific region where the Singapore Jewellers Association says it expects demand for gold to pick up this year, pushing prices over $1400 per ounce.

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Gold prices close higher with a drop in the equity market, gaining 1% for the week. U.S. stocks tumble on global worries. Gold last traded at $1,264 an ounce. Silver at $19.77 an ounce.

It is becoming more apparent with each passing trading day that substantial changes are occurring in the financial markets.

UBS's director of floor operations at the New York Stock Exchange, Art Cashin, told CNBC this morning that "Everybody is on alert."

Cashin's biggest concern is now China. Yet another worry to add to America's acute fiscal and monetary problems, a stagnant economy and even the threat of terrorism at the winter Olympic games.

Chinese credit markets are troubling, as evidenced by news earlier this week about a possible default involving China's largest bank on January 31st--just 7 days away.

At the root of the problem is a possible serious slowdown in the Chinese economy--the major engine for growth globally.

The stock market contagion is spreading around the globe. Bourses around the world suffered falls overnight. And the US stock market is sharply lower again so far today.

More and more, people are turning to the safety of gold, which is now poised for its 5th straight weekly gain. Also contributing to gold's gains was news out of India of the possible easing of import restrictions. This could propel that country back to the top of gold consumption once again, after falling behind China in 2013.

There are even more signs of economic malaise and trouble here in the US.

Edmund Phelps, who was awarded the Nobel Prize for Economics in 2006, told CNBC this morning that the U.S. government has run out of ideas on how to fix the economy.

This of course flies in the face of rosy statements from the Obama administration and Federal Reserve officials about the economic recovery. Not only does Phelps not see us in a recovery, he doesn't think the government can create one.

Finally, as everyone knows, the US government jumped into the middle of one of the largest sectors of the US economy with the passage of Obamacare; the healthcare sector. We are now seeing more effects from that and, as might be expected, the effects are negative.

The rocky rollout of Obamacare and the uncertainty surrounding its future has a major credit ratings firm nervous about health insurers.

Moody’s Investor Service downgraded its outlook for the U.S. health care insurance sector to negative, from stable, on Thursday.

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Gold prices rallied on Thursday on weak U.S. dollar and short-covering. U.S. stocks fall on weak economic data, China worries. Gold last traded at $1,262 an ounce. Silver at $20.26 an ounce.

Disappointing economic news is impacting the stock market today, with all three major US indices down sharply so far. Gold, on the other hand, is sharply higher, due both to the slide in stocks and weakness in the US dollar.

A report on US factory production showed a slide to the lowest level since October. Meanwhile, the employment numbers were disappointing again. The number of Americans filing for first-time jobless claims rose last week to 326,000, indicating continued softness in the labor market.

With these types of reports becoming the norm, it's hard to believe statements made by the mainstream financial press and government officials referring to the "economic recovery."

In fact, according to a Fox News poll, Seventy-four percent of Americans believe the nation is still in a recession. Meanwhile, the Bloomberg Consumer Comfort Index, a measure of consumer confidence stuck to a one-month low last week.

In 2013, one of the factors that contributed to low consumer and investor confidence was political conflict in Washington DC over fiscal matters. According to US Treasury Secretary Jacob J. Lew, we may be headed in that direction again. Lew warned Congress on Wednesday the government would most likely exhaust its ability to borrow in late February, setting up yet another fiscal showdown with Republicans, and this time earlier than congressional leaders had anticipated.

Mr. Lew said a surge of February spending, mainly tax refunds for 2013, would leave the Treasury with little room to maneuver after the official debt limit is reached on Feb. 7.

The letter amounts to an early alarm bell, coming just weeks after Congress passed its first bipartisan budget and comprehensive spending bill in years. Those bills were supposed to serve as a cease-fire in the budget wars that have rattled the country and the economy since Republicans took control of the House in 2011.

But they left untouched the debt limit, setting up another possible stalemate later next month. Such a stalemate could shake the financial markets.

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Gold prices end lower as investors digest a bearish call from Morgan Stanley. U.S. stocks mostly higher. Dow falls for second straight day. Gold last traded at $1,238 an ounce. Silver at $19.84 an ounce.

There is speculation in the marketplace the Federal Reserve will move to reduce the level of its Quantitative Easing program throughout 2014.

This speculation is most likely unfounded. Especially given incoming Federal Reserve chair Janet Yellen's philosophy as an "inflationist" who believes in using monetary policy to stimulate the economy. The various economic reports have been too mixed and the economic recovery too fragile to draw any preconceived notions as to what Yellen may do as Fed chair.

Some are citing the "surprising drop in the unemployment rate" in December as evidence the Fed will pull back on its bond buying. But the details of that drop in unemployment were nothing short of ghastly. The real reason for the drop? Many Americans have dropped out of the labor market completely and thus are not counted in the unemployment numbers.

The reality is long-term unemployment is historically high and economic insecurity is still pervasive in America. Record numbers of families are struggling in poverty and too many workers have given up looking for work. A record 20% of American households are on food stamps.

In fact, one Wall Street advisor is calling economic statistics from the government fraudulent.

David John Marotta calculates the actual unemployment rate of those not working at a sky-high 37.2 percent (not the 6.7 percent advertised by the Fed) and the Misery Index at over 14 (not 8 as claimed by the government).

Marotta says the government isn't being honest in how it calculates the numbers for those out of the workforce or for inflation, the two figures used to get the Misery Index ranking.

“The unemployment rate only describes people who are currently working or looking for work,” he said. That leaves out a ton more.

“Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent".

He added, “officially-reported unemployment numbers decrease when enough time passes to discourage the unemployed from looking for work. A decrease is not necessarily beneficial; an increase is clearly detrimental.”

This appears to be what occurred last week when unemployment dropped to 6.7%.

“Today, the Misery Index would be 7.54 using official numbers,” Marotta wrote. But if calculations tabulating the full national unemployment including discouraged workers, which is 10.2 percent, and the historical method of calculating inflation, which is now 4.5 percent, the current misery index is closer to 14.7. Worse than during the Ford administration. Obviously, these revelations won't do much to encourage trust in the federal government.

Another issue tarnishing the federal government's image involves former Treasury Secretary Timothy Geithner.

In 2011, according to a sworn affidavit, then-Treasury Secretary Geithner told Standard & Poor's parent company, McGraw Hill Financial's Chairman Harold McGraw III that S&P's downgrade of US debt would be met with a response. Subsequently, the federal government filed a lawsuit against S&P. It will be very interesting to see how this plays out in court.

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Gold prices settle lower on a stronger dollar and lack of momentum. U.S. stocks higher on upbeat earnings. Gold last traded at $1,241 an ounce. Silver at $19.87 an ounce.

The International Monetary Fund (IMF) has issued warnings on the global economy in its latest report.

The IMF called the global economic recovery "fragile" and warned that emerging markets in particular were vulnerable to capital flight, which could derail that recovery.

One economy, considered "emerging" just a couple of decades ago, is now challenging the US economy for world supremacy. China’s economic growth figures released Monday indicate the country is growing almost four times as fast as the United States in dollar terms, rapidly closing the gap between the two economies.

This has long-term, negative implications for the US dollar; since the dollar is currently the world's reserve currency of choice. But what is bad for the dollar, tends to be stellar for gold. Especially with China's official and private sector appetite for gold.

China is said to be increasing its official gold reserves and surpassed India in 2013 as the number one consumer of gold. So as China's economy gains supremacy, the Chinese appetite for gold should continue to expand.

As gold seems to be shining so far in 2014, the same cannot be said of other markets, particularly the US stock market. Jeff Reeves of MarketWatch identified three risks that could "crash" the stock market going forward:

1. Continued weakness in the job market. Employment reports have been volatile as of late and investors should watch carefully for possible negative trends.

2. Weak Earnings. More and more analysts are seeing trouble ahead in earnings reports, something the stock market cannot just shrug off.

3. A credit crunch. Banks appear to be less willing to lend money and interest rates are trending higher. This combination could damage the underlying economy.

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Gold prices closed higher on a decline in consumer sentiment. Gold prices settle at their highest level in more than five weeks. Gold last traded at $1,251 an ounce. Silver at $20.30 an ounce.

The signs of future strength in the gold market continue to flow in.

More and more analysts, from varying backgrounds and viewpoints, are advising people to look to gold.

• Dennis Gartman, editor and publisher of The Gartman Letter, says it’s "time to be quietly bullish.”

• Steven Kaplan, chief executive officer of TrueContrarian.com, is predicting higher prices. He says “financial markets always do whatever rewards the fewest people, a powerful rally in 2014 is therefore extremely likely and almost everyone will be surprised when gold reaches a new, all-time high in late 2014 or early 2015."

• DoubleLine CEO Jeff Gundlach sees a gold rebound this year.

• David Morgan, publisher of The Morgan Report, points out only 6% of analysts are bullish on gold right now. That “nearly guarantees a bottom,” he said, adding that he sees higher prices this year, not lower. “Gold will make back all of the losses of 2013 and achieve $1,700 per ounce.”

• Peter Schiff, chief executive officer of Euro Pacific Capital, said he’s advising clients to buy gold. The 30% selloff in gold in 2013 and the consensus expectations for an additional 15% decline in 2014 are unjustified, said Schiff. With such negative sentiment on gold from the mainstream, “it’s a good time for a contrarian move.” The central premise that drove the selloff in 2013 — that the economy has sustainably recovered and that the Federal Reserve will end quantitative easing in 2014 — is flawed, said Schiff.

• Michael Dudas, precious metals and mining analyst at Sterne Agee, believes, "there's a lot more positive than negative to support gold in 2014." Dudas sees gold rising to $1,450.

• Rich Ilczyszyn of iiTrader agrees that gold is much more primed to rise than to fall. "We are getting too complaisant with the daily ranges—watch for a breakout."

Mixed signals from the economy continue to be supportive of a cautious strategy in which gold should play a key role.

Retail-sales growth, an important economic linchpin, slowed down in December the federal government reported this week. That means in slowed for all of 2013. Yet another sign of a sputtering economy.

U.S. consumer sentiment slipped in its first January measure, a survey released this morning showed. The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment came in at 80.4, down from 82.5 in December. It was below the median forecast of 83.5 among economists polled by Reuters.

The survey's barometer of current economic conditions fell to 95.2 from 98.6 and below a forecast of 98.5.

The survey's gauge of consumer expectations slipped to 70.9 from 72.1 and below a forecast of 74.2.

Americans are simply not optimistic about the economy and their concerns are growing.

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Gold prices closed higher on a decline in U.S. equities and weakness in the dollar. U.S. stocks lower on weak earnings, jobless claims fall to six-week low. Gold last traded at $1,240 an ounce. Silver at $20.05 an ounce.

More than ever, America is indebted to China. Literally.

China's holdings of US Treasuries increased $12.2 billion to a record $1.317 trillion in November, according to the US Treasury Department.

While, in the short-term, this indicates the world still has confidence in US debt securities. Over the long-term, it could spell trouble.

What if China's appetite for US Treasuries wanes? That could happen for reasons completely unrelated to economic and financial considerations. China sees itself as the rising power in the world. It has already articulated its intention of surpassing the US dollar with its currency in the future. The Chinese have already passed the US as the world's leading trading nation. In an effort to promote their own currency, the renminbi, they could start to cut back on purchases of US Treasuries.

Or what if political tensions prompts China to use its holdings of Treasuries as a foil against the US? If they dumped their Treasury holdings, even for a short time, US interest rates would climb; blindsiding the US stock market and bond market. It's not an impossible scenario, as demonstrated by recent tensions in the Pacific region over Chinese claims to disputed island chains.

It's a situation that bears watching and cannot be discounted in the future.

As it relates to the gold market, China is seeing even greater demand for the yellow metal headed into the Chinese New Year on January 31st. 2014 is the year of the horse. Horse-related golden products have posted massive sales across the nation. Chinese consumers have been eager to get their hands on gold. Many gold retailers in Beijing and Hong Kong have been catering to a steady stream of customers looking to buy gold objects of all types.

Stateside, the Gallup organization has released the results of a survey that reflect the uncertainty in the US economy. According to Gallup, 42% of Americans say they are financially worse off than they were a year ago. Only 35% say they are better off. Keep in mind these figures come in the midst of a constant bombardment of news reports from the so-called "mainstream" financial press that we are in an economic recovery.

Now, it appears Americans may have another worry from the economy: inflation.

Prices for consumer goods and services climbed in December at the fastest pace in five months, spurred by higher costs in energy and housing.

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Gold prices slightly lower on an upbeat manufacturing report. U.S. stocks extend gains on strong data reports. Gold last traded at $1,238 an ounce. Silver at $20.13 an ounce.

It has long been suspected that big international banking conglomerates periodically engage in market manipulation in the physical commodities markets. While it is doubtful such machinations can overcome market forces over the long-term, they can have a deleterious effect in the shorter-term.

Now it appears efforts by big banks to shape the physical commodities markets may finally be coming to an end.

The Federal Reserve has taken a first formal step toward limiting the role of Wall Street banks in physical commodities markets, asking for public input on whether such activity endangers financial markets and whether additional capital requirements are necessary.

We don't hold much regard for the Federal Reserve but perhaps they can get this one right.

Americans in general don't hold much regard for the federal government at all. In fact, the non-partisan Gallup organization says its surveying indicates Americans see government as the number one problem in the country.

As such it's no surprise that while the federal government will spend $200 million on public-private manufacturing “innovation institutes” through five agencies, including the Energy and Defense departments, it has taken the Obama administration 12 months just to choose the first project. Meanwhile, the economy is languishing NOW.

Finally, investors looking to acquire silver coins may want to act fast. Increasing demand for US silver coins is poised to send premiums to the highest levels in five months.

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Gold prices end lower on prospects of further tapering. U.S. stocks rally on a better-than-expected U.S. retail sales report. Gold last traded at $1,245 an ounce. Silver at $20.28 an ounce.

The economic momentum seems to be shifting to the positive for gold and to the negative for the stock market.

Perhaps this trend is best articulated by Well Capital Management chief strategist Jim Paulsen who points out that the current bull market in stocks is 57 months old and has been fueled by easy money from the Fed. That leaves the market vulnerable at this time. Soon all the things that have fueled this run up in stocks, will start to become headwinds, Paulsen says. Pointing to potential (and probable) rises in inflation, interest rates, wages and commodities.

Certainly this makes gold even more attractive than usual, since historically gold has tended to move independently of the stock market.

We are already seeing the early warning signs of higher inflation ahead. Prices for a number of goods and services have suddenly begun to rise. Some are obvious, others are not. But most of them appear to be escaping the government’s number-crunchers, when it comes to showing up in its various price indexes. By the time high inflation shows up in the Consumer Price Index (CPI), inflation will already have embedded itself into the machinations of the US economy. The time to prepare for higher inflation is ahead of the time when the CPI starts flashing signals of high inflation.

Meanwhile, other signs point to strains in the underlying economy that will pressure the dollar and the stock market.

For instance, retailers experienced a poor holiday season and signs point to weakness in the retail sector going forward.

A new report from the National Association of Counties says that national economic statistics mask the reality on the ground across America: half of US counties have never recovered from the recession. The report looked at four economic indicators: GDP, total number of jobs, unemployment rates and home prices. It found that the economic recovery spoken of by the federal government and the mainstream financial press is uneven at best and extremely fragile.

The climate for a strong economy in the US is evaporating. The Heritage Foundation just published its worldwide 2014 Index of Economic Freedom. For the first time ever, due to a combination of over-regulation, high taxes and mounting debt; the US has dropped out of the top 10. As the US economy languishes, other economies are moving ahead of us. The negative implications for the US dollar are obvious.

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Gold prices gain for a third straight session on last week's weak jobs report. U.S. stocks fall the most this year. Gold last traded at $1,251 an ounce. Silver at $20.39 an ounce.

The financial world is still feeling the effects of the very disappointing employment report released by the US Labor Department on Friday.

The report was confusing as is typical for US government economic reports. The unemployment rate actually FELL to 6.7%, but that was only because so many more Americans have given up hope of finding a job, so our government no longer counts them in the unemployment numbers.

A number of economists look past the main unemployment rate to a different figure the Bureau of Labor Statistics calls "U-6," which it defines as "total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers."

In other words, the unemployed, the underemployed and the discouraged — a rate that still remains high. The U-6 rate was unchanged in December at 13.1 percent.

This is an accurate measure of the economic uncertainty that has beset America for years now and which shows no signs of abating.

Meanwhile, America is being surpassed economically by global rivals. China became the world's largest trading nation in 2013, overtaking the US in what Beijing described as "a landmark milestone" for the country. The shift in the trading pecking order reflected China's rising global dominance, despite a slowdown in economic growth last year.

All of this is contributing to weakness in the dollar and thus is supportive of gold.

Speaking of gold, the market for rare gold coins continues to set records, showing investors are still seeking performance in alternative markets.

The first gold coin ever made in the United States--the Brasher Doubloon, considered by some as the most important and valuable coin in the world--sold for a record $4.58 million at a Florida auction.

The coin was struck in 1787 by silversmith, Ephraim Brasher, a neighbor of George Washington, who was also contracted to assay foreign coins received by the newly founded U.S. Mint in 1792. Eventually, he branched out into private coinage.

The New York Style Brasher Doubloon is considered Brasher’s masterpiece. The Brasher Doubloons were the only colonial gold coinage produced with intent for circulation. Many elements of the Brasher Doubloon can still be see on U.S. coins minted today, including an eagle, thirteen stars and an olive branch.

Over the years the Brasher Doubloon was even the subject of a film noir movie, The Brasher Doubloon. Raymond Chandler based one of his Philip Marlowe mysteries, The High Window, on a fictional theft of a Brasher Doubloon.

In 1967, Brasher Doubloon generated headlines when one was stolen in an armed robbery at the home of millionaire Willis duPont. The coin was recovered in an FBI sting operation.

The coin purchased at the recent 2014 Florida United Numismatists (FUN) convention has not been offered for sale since Chicago collector Walter Perschke paid $430,000 for in 1979. It is 89% gold, 6% silver and 3% copper.

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Gold prices end higher on a weaker-than-expected jobs report. U.S. stocks higher, U.S. dollar falls. Gold last traded at $1,246 an ounce. Silver at $20.22 an ounce.

Gold prices notch a weekly gain on disappointing jobs data. The U.S. added only 74,000 jobs in December, marking the smallest gain in three years. According to the government, the economy only added 74,000 jobs, which was a huge surprise to the economists expecting 193,000 jobs.

It was also reported that the labor force participation rate plunged to a 35 year low, dropping to 62.8% from 63.0% in December. This explains why, despite the weak jobs report, the unemployment rate still fell to 6.7% from 7.0% in November.

Even without the latest jobs report, the recovery still remains poor. The Federal Reserve has set a target of 6.5% as the unemployment rate that would trigger an action for higher interest rates. But, according to history, a really strong economy should have a jobless rate much closer to 5%. Back in pre-2007, the jobless rate was sub-5%.

In additional to the gold rally, stocks ended mostly higher while the U.S. dollar fell after reacting to the jobs report. With a weak jobs report and slowing economic growth, experts are speculating gold will shine in 2014. According to data from the Commodity and Futures Trading Commission, large hedge fund and other money managers are increasing their net position and bets on higher prices.

In other gold news, BlackRock Inc.'s Evy Hambro says the gold supply may fall "quite rapidly" as producers curb output. With last year's price drop of 28% many gold companies are not making any significant profit and are closing mines to put more focus on profitable ones. This will cause the supply of gold to fall quite rapidly, making gold more difficult to purchase.

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Gold prices end higher as investors analyzed recent economic data. U.S. stocks mostly fall after jobless claims report. Gold last traded at $1,229 an ounce. Silver at $19.68 an ounce.

The minutes of the last 'Ben Bernanke era' Federal Reserve Open Market Committee (FOMC) meeting were released yesterday and revealed no surprises.

The discussion reflected the Fed's decision to keep buying bonds, albeit at a slightly slower pace (down from $85 billion per month to $75 billion per month).

There was general optimism in the meeting about the economic recovery, which leads one to wonder what planet these people have been living on.

Just this morning we were treated to the latest evidence that the government's attempt at boosting economic activity through big government, tax and spend policies, combined with loose monetary policy, isn't working very well.

US retailers are now issuing warnings on profits after what can only be described as a disappointing holiday season.

Meanwhile, demand for gold is rising.

The U.K.’s Royal Mint, which traces its history back more than 1,000 years, ran out of 2014 Sovereign gold coins due to what it called “exceptional demand.”

The U.S. Mint sold 56,000 ounces of American Eagle gold coins in December, the most since June, contributing to a 14 percent gain in annual sales. Australia’s Perth Mint sold 41 percent more gold in 2013 and Turkey’s imports climbed 64 percent last month to the highest since July.

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Gold prices close slightly lower after private-sector job gains. U.S. stocks end lower after Fed minutes. Gold last traded at $1,225 an ounce. Silver at $19.54 an ounce.

As we reported yesterday, Janet Yellen was confirmed by the US Senate as the next Fed Chair. The vote, however, was the closest confirmation vote for a Fed chair ever. We speculated yesterday the vote was a reflection of uncertainty in the economy and a lack of confidence in Fed monetary policy.

Former Congressman Ron Paul echoed those sentiments and also pointed out that Yellen's philosophy can classify her as an "inflationist" who will continue the loose monetary policies that have failed to stimulate economic activity.

The latest news on Federal Reserve policy will be released later this afternoon when the minutes of its last Open Market Committee meeting are available. Frankly, with a new Fed chairman coming in, the utility of those minutes in evaluating possible future Fed policies may not be as great as some would wish it to be.

Now, the economy has a new challenge to contend with. The current record cold wave sweeping much of the continental United States will cost the US economy $5 billion as many Americans have not been able to get to work. And those who are unemployed have not been able to go out and search for work or interview for jobs.

That chill on the economy won't be helped by the latest figures on poverty. The poverty rate has just set a new 50-year record. 47 million Americans receive food stamps, about 13 million more than when President Obama took office.

The poverty rate has stood at 15 percent for three consecutive years, the first time since the mid-1960s. About 50 million Americans live below the poverty line, which the federal government defined in 2012 as an annual income of $23,492 for a family of four.

It is difficult to view Federal Reserve monetary policy as successful given these poverty figures.

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Gold prices close lower on strength in U.S. dollar. Traders await minutes from December Fed meeting and monthly U.S. employment data due later this week. Gold last traded at $1,229 an ounce. Silver at $19.79 an ounce.

The Ben Bernanke era will officially come to an end on January 31 and with it has come confirmation of continued economic uncertainty in America.

Ben Bernanke himself uttered this phrase in a speech on Friday: "The recovery clearly remains incomplete."

In other words, despite years of loose monetary policy, negative real interest rates and an unprecedented bond-buying program that has cost the Fed over a trillion dollars per year, the Fed chairman admits the economy is not healthy.

If all of that monetary stimulus did not result in a healthy, vibrant economy; what impact WILL it have? Certainly it must have an effect somewhere, somehow ... right? That too is uncertain; the information is incomplete. But intuitively we know it cannot have helped the long-term health of the US dollar.

Meanwhile, yesterday, the US Senate confirmed President Obama's choice to replace Bernanke: Janet Yellen. Yellen is qualified for the position, but her philosophy suggests the same failed policies Bernanke executed will continue on her watch.

Not everyone in Washington is thrilled with such a prospect. The Senate voted 56-26 to confirm Yellen. As Fed Chairman confirmation votes go, that is the lowest level of support ever. It also means 18 US Senators didn't even vote, which is sobering in its own right.

No wonder the prospects for gold seem to be getting brighter all the time with hedge funds raising their bullish gold bets to a six-week high.

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Gold prices end flat despite a sudden, big spike down in prices. U.S. stocks, dollar lower on weak service-sector data. Gold last traded at $1,238 an ounce. Silver at $20.10 an ounce.

Now that America embarks upon the first uninterrupted trading week of 2014, the economic and financial landscape is taking shape.

One very important "housekeeping" item centers on Washington, DC, where the US Senate is poised to confirm Janet Yellen, President Obama's choice to succeed outgoing Fed Chairman Ben Bernanke. The Senate is set to vote late this afternoon on Yellen's confirmation. Yellen, who has served as an underling to Bernanke since 2010, has a philosophy very much in line with the Fed as an instrument to try to stimulate economic activity to boost employment.

In other words, Yellen's appointment is as close as one can get to a definite signal the Fed will continue its loose monetary policies which are so damaging to the US dollar over the long-term.

The pace of growth in the U.S. services sector slowed for a second straight month in December with business activity expanding at a lower rate and new orders contracting, according to an industry report released on Monday.

The Institute for Supply Management said its services index fell to 53 last month from 53.9 in November. The reading was below the expectations of 54.5, according to a Reuters survey of economists, and the lowest reading for the index since June 2013.

The stock market has gotten off to a rocky start so far in 2014 and today is no exception, with US stocks retreating across the board.

Late last week, signals came out indicating more trouble ahead for stocks.

In the latest filing by Berkshire Hathaway, billionaire investor Warren Buffett's holding corporation, Buffett dramatically reduced his exposure in stocks. He specifically singled out disappointment in blue chip companies; such as Johnson & Johnson, Procter & Gamble and Kraft Foods. Berkshire Hathaway reduced its holdings in consumer products stocks by 21% and also sold off its entire stake in chipmaker Intel, a tech blue chip.

Meanwhile, billionaire hedge fund manager John Paulson is also dumping stocks from his hedge fund and billionaire investor George Soros has unloaded all of his bank stocks.

When hugely successful billionaire investors start running for the exits, others should take notice!

Believe it or not, the exit of these billionaire investors from blue chip stocks was not the most bearish signal last week. United-ICAP chief market technician Walter Zimmerman gets that crown. As reported in the Wall Street Journal, Zimmerman released a signal saying 2014 would be the year of "major reversals," with the Dow commencing a two-year plunge that could send it down a whopping 70% to below Dow 5000.

Zimmerman called the present market the "bubble to end all bubbles." He sees the S&P 500 falling to 450 and the NASDAQ to 1000, each about 75% below current levels.

For the record, Zimmerman forecasts gold will climb to $1631 an ounce, or roughly 30% higher than present levels.

Speaking of bubbles, perhaps the most stark sign of a bubble in real estate is happening in New York right now. The average price for an apartment in New York City is $1.5 million, a new record. Moreover, there is a shortage of apartments and condos at those prices. In the wake of the real estate collapse of 2008, if the music stops in the stock market, the real estate market would seem very vulnerable.

One sector going gangbusters so far in the New Year is Big Government. Through an accounting gimmick only the federal government could get away with, the federal government added over $125 billion to its debt in just one day on December 31st. That equates to $1,088 per US household. The total acknowledged federal national debt is now over $17.3 trillion.

In the first 3 business days of 2014, the federal government also listed 141 new federal regulations on its web site regulations.gov!

With all this news, can there be any surprise the outlook for gold is turning bullish?

According to Bloomberg News, gold analysts are the most bullish in a year. Fifteen analysts surveyed by Bloomberg News expect gold to rise, two are bearish and four neutral, the highest proportion of bulls since December 2012.

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Gold prices end higher and score a weekly gain of 2%. U.S. stocks lower after Bernanke speech. Gold last traded at $1,238 an ounce. Silver at $20.21 an ounce.

The US stock market opened sharply lower yesterday, the first trading day of 2014.

The Dow Jones Industrial Average was down 135 points, or 0.8%. The S&P 500 was down 16 points, or 0.9%. The Nasdaq was down 33 points, or 0.8%.

This was the first negative start to a year in six years--2008 was the last time the stock market opened with a decline.

For every stock rising on the New York Stock Exchange, two declined.

Stock markets in the Asia-Pacific region followed Wall Street's example, with bourses from Shanghai to Sydney all declining. Adding to the decline in that region was political instability in Thailand, which has caused a greater than 5% fall in that nation's stock market so far this week. Despite the strong year in stocks in the US, it was a bad year in China: the Shanghai Composite Index was down 9% for the year, perhaps a sign of things to come.

Meanwhile, gold was sharply higher overnight, prompting this significant observation from the analysts at HSBC: "Positive bullion prices in reaction to the decline in equities may set the tone for 2014 and reinforce the negative correlation between the two."

Also overnight, the International Monetary Fund (IMF) issued a disturbing report that everyone should take notice of.

The IMF published a report by Harvard professors Carmen Reinhart and Kenneth Rogoff that warned much of the Western world will require defaults, a savings tax and higher inflation to clear the way as debt levels reach a 200-year high. In other words, the Western debt burden is now so big that nations perceived as "wealthy" will need to resort to the same measures as those used in developing nations that have had debt crises--namely "debt haircuts, higher inflation and financial repression in the form of a tax on savers."

The report states that "The magnitude of the overall debt problem facing advanced economies today is difficult to overstate. The current central government debt in advanced economies is approaching a two-century high-water mark."

The policies mentioned in the IMF report are essentially a confiscation of private wealth partially through taxation and partially by pushing up inflation.

Should this forecast come to pass, investors will need to take action to preserve their wealth against high inflation and to safeguard their wealth against government confiscation.

We may already be seeing the forerunner of such policies with Obamacare, which has been launched in the new year with the predictable pratfalls. Snafus involving insurance coverage are being reported from coast to coast. Many people who thought they signed up for coverage found out that web site bugs prevented their applications from actually being processed, leaving them without coverage.

And there is a disturbing report out of Houston that a major Obamacare financial management contractor has mishandled Medicare payments so badly it has caused a 150-employee hospital to miss payroll for an entire month.

For all of this, America is being treated to three new tax increases as a result of Obamacare in 2014: the Individual Mandate Tax, the Health Insurer Tax and the Reinsurance Fee. All of these will result in higher health insurance premiums for Americans in 2014.

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Gold prices jumped over $20 on bargain hunting. U.S. stocks start year sharply lower. Gold last traded at $1,224 an ounce. Silver at $20.01 an ounce.

If the first trading day of 2014 is any indication, 2014 will be the polar opposite of 2013.

Gold is up very sharply today, with spot gold up over $20, or nearly 1.75%.

Meanwhile, stocks are sharply lower across the board. The Dow is down more than 120 points, or over 0.75%, the NASDAQ is down over 41 points, or about 1% and the S&P 500 is down more than 17 points, or 0.95%.

If stocks finish the day in the red, it will be the first opening trading day in which they have done so since 2008.

Among the items spooking investors are:

• News out of China suggesting declining momentum in that country's key factory manufacturing sector, leading to fears the world's second largest economy could be slowing down.

• A report in the US indicating manufacturing activity in the US was slower in December than November, suggesting a slowdown on this side of the Pacific as well.

• The latest employment report in the US showed initial jobless claims fell for the second consecutive week, but they still came in higher than economists predicted.

• Various firms downgraded their ratings for some high profile stocks, including Apple, Sprint and Abercrombie & Fitch.

Trouble in the stock market is combining with robust physical demand for gold at bargain prices, pushing the yellow metal higher. This could be the start of a trend as gold is now available at prices about 30% below where they were a year ago. Moreover, continued rising demand for gold in China is expected, especially with the debut of gold Exchange Traded Funds (ETFs) in China during the new year.

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