Putin Says Russian Central Bank Sells 12,000 OUNCES of Gold
Published on Kamis, 07 November 2013
07.11 //
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In response to a WSJ headline today, “Gold fades From Investment Picture,” the Russian President announced that dollars were needed in New York. The Russian Central Bank made delivery on 120 Comex contracts by moving the gold to New York and receiving funds for deposit in New York so as not to violate U.S. rules on currency amounts. The Russian delegation to the U.N. opening party needed funds for escorts and booze. Putin assured global financial markets that delivering 12,000 ounces of gold from Russian vaults was a mere dip into petty cash. Seriously, CNBC was all atwitter that central banks were initiating gold sales … all 120 COMEX CONTRACTS. Too bad that the U.N. meetings weren’t in Mumbai for the Russians could have received a $270 premium over the world market price. It’s a major non-story unless tapering is linked with the sale. Maybe Putin really has inside info on Fed intentions.
The Financial Times ran an interesting story today titled, “Troubled Loans at Europe’s banks Double In Value.” During the last four years non-performing loans have risen from 514 BILLION EUROS to almost 1.2 TRILLION EUROS. The report that is cited was done by PwC accountants and predicts increases in the amount due to the “uncertain economic climate.” The report is not overly concerned because global investors seem to be attracted to buying bundles of the troubled assets, as QE programs send investors scurrying for yield. This is exactly what Fed Governor Jeremy Stein warned about in his speech on February 7. The Fed’s aggressive QE program was raising the SPECTRE of financial instability by forcing the market to misprice risk.
The über-low interest rates on high quality debt is forcing lenders to reach for yield by acquiring über high risk “assets.” It will be interesting to see which investors pursue the asset-backed securities of non-performing loans placed on the market by European banks. There may be some Illinois public pension funds will be reaching for the yield. Nothing like a desperate pension fund in need of “juiced returns” to relieve a financial institution of its burdens. Thank you sir, may I have another? If astute investors are the buyers of the distressed debt, low prices will result and European financial institutions will be forced to raise capital or reduce their balance sheets, resulting in further headwinds for economic growth.
***Rick Santelli interviewed Nobel Price Winner Professor Eugene Fama. It was interesting to say the least and CNBC OUGHT
to have let it go on for another 10 minutes. My problem with the
professor’s comments was that he admits that his analysis of how
interest rates would react to the FED‘s quantitative
easing were incorrect. Professor Fama thought that short-term rates
would go up and long-term rates would fall as the FED merely exchanged short-term debt for long-term. His conclusion as he states–and I am paraphrasing–is that the FED just does not have much effect on short-term rates.
It seems to me that the FED most greatly affects short-term interest rates rather than long. Otherwise we would have FED FUND VIGILANTES RATHER THAN BOND VIGILANTES. The recent Nobel Prize winner maintains that the over all effect of the FED‘s QE program is de minimis so the equity markets and emerging debt and finance markets recent reaction to TAPERING is IRRATIONAL. OK, then the FED
should listen to the recent Nobel Prize winner and end tapering
completely at tomorrow’s meeting. The problem is that the professor has
miscalculated the FED‘s impact on short-term rates by his own admission. ME DOTH THINK THESE MODEL BUILDERS HAVE BEEN USING TOO MUCH TESTOR’S GLUE!
After the FED‘s announcement on interest rates
we will hear from the Reserve Bank Of New Zealand about its overnight
interest rate. At 3 p.m. CST, RBNZ GOVERNOR Wheeler will announce that the Kiwi’s will hold the OCR
steady at 2.5%. The important part of the release will be Wheeler’s
views on the global economy, especially Chinese economic growth. The
Australians have been trying to weaken the Aussie dollar this week by
talking down the currency in the wake of slowing global growth. The
Aussie dollar has risen 2% this month against the KIWI. Let’s listen to hear if Governor Wheeler attempts to put downward pressure on the KIWI by using “forward guidance” of future global growth. Look at the technicals of the KIWI crosses for potential trading opportunities.
And
what about the dollar? Same thing: muddled. The euro’s strength has
been uncanny but Germany is delusional if it thinks Greece, Spain et al
can become good little Germanies. The euro is putting “deflationary
death spiral” pressure on the periphery countries. That can’t last.
The WSJ’s Weak VodkaLast week, in a piece titled Gold Fades From Investment Picture, the WSJ raspberried gold as follows:
The
investor gold rush that propelled the precious metal to a dozen years
of annual price gains is on the verge of ending with a whimper.
Russia’s central bank in September sold
gold for the first time in a year, according to the latest data from the
International Monetary Fund. Since the start of 2010, Russia has
accounted for 30% of all gold purchases made by central banks that
report to the IMF.
Like other emerging-market nations,
Russia bought gold to diversify its foreign-exchange reserves. The
retrenchment of Russia and others is the latest factor to weigh on gold
prices, which are down 19% year to date. The last time gold prices
posted an annual loss was 2000…
Hmm. There are plenty of reasons to be skeptical of gold’s prospects. But does activity out of Russia really count as one?First consider the amount Russia actually sold — a mere 12,000 ounces. This was reported in the WSJ piece, but somewhat buried farther down, even though Russia was the opener. Hmm… funny when you think about it, as 12,000 ounces amounts to less than $16 million at gold’s spot price.
Sixteen million bucks may be a lot to you or me… but to Vladimir Putin, not so much. And when one considers the GDP of Russia is approximately 2 trillion dollars, putting weight on such a sale looks downright silly. As one sarcastic commenter suggested, a Russian sale of 12,000 ounces is more likely to reflect the Kremlin running low on vodka and caviar than any meaningful policy shift. It’s petty cash, folks.
In kicking gold when it’s down, the Wall Street Journal, as the mainstream financial media so often does, is acting as a delayed reverb echo chamber, reinforcing views already held by money managers like this one:
“Gold really doesn’t have much to offer,”
said Joseph Murphy, a senior analyst who helps manage about $2 billion
at Hermes Commodities, a unit of Hermes Fund Managers Ltd. in London.
Hermes has trimmed its gold holdings this year. “People are seeing
better opportunities, whether that be in bonds or equities.”
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