Why Russia is Investing in Gold More Than Anyone

Renowned bond investor Bill Gross, the manager of PIMCO‘s Total Return Fund, the world’s largest bond fund, just shared his top investment picks with Barron’s. Leading the savvy investor’s short and selective list was gold.

Why is a bond bull keen on investing in gold?

It’s because Gross sees gold as a stellar inflationary hedge as global central banks attempt to reflate their economies.

Gross explained that while it looks like loose monetary policies and the deluge of dollars will continue for a while, at some point both will have to stop and “when all this money printing by central banks ends, it won’t be pretty.”

Gross sees trouble brewing in the artificially-priced U.S. Treasury market.

“The Fed is buying 80% of the Treasury market today. It is remarkable to think that when the Treasury issues debt in the trillion-dollar-plus category, the Fed ends up buying most of it. The Treasury sells it to banks and primary dealers, who sell it back to the Fed at a higher bid,” Gross explained.

“This is very different from the free-market capitalism we’ve come to know. And it will continue until inflation exceeds the upper end of the central bank’s target of 2.5% or, by some miracle, we get real economic growth,” Gross continued.

The artificially priced bonds leave investors to question if investing in them is worth the slender reward, given the paltry yields from a bevy of bonds except high-risk junk bonds.

Why are Global Banks Buying Gold?

Should the two big holders of bonds – central banks and sovereign excess reserve countries -
become concerned about inflation, the dollar’s buying power or the easy monetary policies in the United States, they could decide to put their money elsewhere.

The likely place is gold, Gross said.

And many appear to be doing just that.

Russia‘s central bank continues to buy gold in efforts to diversify its foreign reserves away from paper assets it judges dicey.

To date, the Bank of Russia has amassed a gold store worth $530 billion, making it the world’s fourth-largest holder of the yellow metal.

“We are buying the metal and will continue to pursue this course,” First Deputy Chairman Alexi Ulyukayev told reporters at the World Economic Forum in Davos in late January.

Germany has just started to repatriate its gold with plans to store most of its 4,000 tons in Frankfurt. The move suggests the stalwart Eurozone country wants to have the precious metal not just safely on home turf, but at hand when and if needed.

While Gross doesn’t expect gold prices to move much from current levels unless real interest rates rise or inflation fears heat up, investing in gold will still provide a “decent hedge” – something you can’t get from bonds.

Investing in Gold with ETFs

For those interested in investing in gold, Gross likes the exchange-traded fund SPDR Gold Trust (NYSE: GLD).

Fellow Barron’s Roundtable contributor Fred Hickey of The High Tech Strategist likes the iShares Gold Trust (NYSE: IAU), citing its lower fee.

Other fund managers are also investing in gold, with interest seriously stoked by the absence of low-risk investments offering decent yields, thus forcing investors to look elsewhere.

Philip Klapwijk, global head of metals analytics at London consulting firm GFMS, recently told The Wall Street Journal he “strongly” expects gold prices to log heftier gains this year than last. Klapwijk says rock-bottom, near-zero interest rates make gold a “competitive alternative to holding money in a bank account.”

David Donora, head of commodities at money manager Threadneedle Investments, which has $1 billion in its commodities funds, has no plans to reduce the fund’s current 11% gold exposure.

“We’re feeling pretty bullish on gold and consider those long-term fundamental drivers that have been supporting the market very much intact,” Donora told The Wall Street Journal.

Just after noon Monday, gold was trading at $1,676.20 an ounce in New York.

Source

All Money Printing Schemes End Badly

By: GE Christenson

William H. Gross (manages the largest bond fund in the world – PIMCO) has much to say about Quantitative Easing and money printing. His latest article, Money For Nothin’ Writing Checks For Free, discusses Quantitative Easing (printing money) and the inevitable consequences. He notes that central banks have printed over six trillion dollars in the last few years. This begs the question, “Why not print even more?” Mr. Gross and many others have suggested that central banks should be hesitant with money printing schemes since they tend to end badly. He also quotes Sir Isaac Newton regarding the temporary success (and subsequent crash) of the English government’s money printing in the early 1700s South Seas bubble, “I can calculate the movement of the stars but not the madness of men.”

Congress can NOT reduce spending! (Would the deficit be eliminated if members of congress lost their salary and benefits every year the government overspent revenues?)We can solve an excess debt crisis by creating more debt! (Will vodka also cure alcoholism?)Printing money (QE4Ever) will create economic prosperity! (It creates wealth for banks, but not for the economy.)More government, at much more cost, will improve the economy!47,000,000 Americans on food stamps (SNAP) indicates a recovering economy!Paper money will always have value and will always be accepted in payment for real goods! (History indicates otherwise.)Loaning money to an insolvent government at about 3% per year for 30 years is a good investment when the government has assured us that it will devalue the dollars used to repay the loan!YOU can control your finances, wealth, and retirement.Gold is real money.Physical assets are safer than paper assets or digital “money” on a computer server. Avoid the train wreck.Gold will retain its value, dollars will not.If you own physical assets, you have less need to trust the safety of the stock market or the bond market.Physical assets are much less vulnerable to the actions of central banks, the “Plunge Protection Team,” High Frequency Trading, and other market manipulations.

“A man sees what he wants to see and disregards the rest.” Simon & Garfunkel

If the government needs money for excessive expenditures, it sees loans and a central bank that “prints money” and disregards the inevitable inflation.

If a bank sees huge unrealized losses on mortgages, derivatives, and mortgage-backed securities, it sees bailouts from the Federal Reserve along with lobbyists purchasing favorable legislation and disregards the economic cost to the nation.

If an aware individual sees unbacked paper money being printed in quantity, he buys physical assets such as gold and silver and disregards the continual media noise and nonsense.

Avoid the madness of men, and seek the safety and sanity of gold and silver. We have been warned.

GE Christenson
aka Deviant Investor

Source

Profit From Power Elite’s Key Sector Price Inflation With Gold

“The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold.

Zero-bound interest rates, QE maneuvering, and ‘essentially costless’ check writing destroy business models and stunt investment decisions which offer increasingly lower ROIs and ROEs.”

Bill Gross, Founder & Co-CIO, PIMCO, 1/3/2013

For several years, Notable Independent Commentators, including Deepcaster, have warned that the Elite Central Banks’ Orgy of Fiat Currency Printing, a la QE etc, would result in Price Inflation.

So it is no surprise to us that The Bond King, Bill Gross of PIMCO, with about $2 Trillion under Management, would finally warn, in his January, 2013 letter to Investors, of Impending Price Inflation in Key Commodities.

Of course, General Price Inflation is already here, if one looks at the Real Numbers (e.g., U.S. CPI at 9.8% per shadowstats.com) as opposed to the Bogus Official Ones.

Going forward, this Mega Bank-generated Price Inflation provides considerable Profit Opportunities, but only in certain kinds of Commodities, and especially in one Sector Bill Gross does not specifically mention. (See Notes 1, 2, 3 and 4)

In sum, Policies actually being Implemented by the Power-Banker Elite virtually ensure a continuation of Fiat-Currency Depreciating Policies, and thus Price Inflation in Certain Commodities Sectors, as well as Increasing Risk of Systemic Destabilizing à la 2008-2009.

Yet consider also that the “Regulators” continue to accede to the Mega Banks wishes.

Basel Committee’s revised LCR prompts relief and concerns

The Basel Committee on Banking Supervision’s decision to give global banks an additional four years to meet liquidity requirements was aimed at ensuring that the change wouldn’t discourage lending to the real economy. Some banks have already benefited from the revised liquidity coverage ratio, with their share prices increasing. GFMA welcomed the Basel panel’s decision to allow mortgage-backed securities and equities to be included in banks’ liquidity buffers.

Basel panel’s allowance of MBS in buffers faces scrutiny

The Basel Committee on Banking Supervision’s decision to let banks include equities and residential mortgage-backed securities in Basel III liquidity buffers is gaining plaudits and criticism. Bankers welcome the revision, but experts say it is unlikely to significantly lift a slack securitization market. The change also presents challenges for regulators

Significantly, Many Mortgage Backed Securities are still Toxic if Mark-to-Market Standards are applied, which they are no longer required to be.

So, de facto, the Banks may “count” Toxic Securities as part of their Liquidating Buffer.

Worse yet, the Regulators have, once again, administered a mere slap on the wrist to Major Banks which engaged in unacceptable practices. For example

Banks settle mortgage-related legal disputes

Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and other major banks agreed to pay a total of $20 billion to settle two legal disputes related to the mortgage crisis. BofA agreed to pay Fannie Mae $11.6 billion. In a separate dispute, 10 lenders agreed to pay more than $8.5 billion over foreclosure practices.”

sifma SmartBrief, 1/8/2013

Hardly a deterrent going forward.

In effect, this policy allows Risk to continue to Threaten Systemic Stability and its wealth of Individual Investors.

Making matters worse for Systemic Stability and Investors alike, is the Mega-Bankers’ Cartel (see Note 5) ongoing Manipulation, not just of Precious Metals but of a Wide Variety of Markets.

While Deepcaster, GATA and others have been complaining about such Manipulation for years, the Situation has become so threatening to Systemic Stability that even the Most Reputable and successful Investment Managers such as PIMCO’s CEO, Mohammed El-Erian, are complaining about the Risks inherent in such intervention as well.

“The investment recommendations made by many financial commentators are now dominated by cross-asset class relative valuation rather than the fundamentals of the investment itself….

“This is an understandable approach as unusual central bank activism has artificially elevated certain asset prices. Yet the dominance of this increasingly popular advice comes with potential risks that need to be well understood and well managed.

Several asset classes now have highly manipulated prices due to experimental central bank activities, both actual and signalled. The more this happens, the more investors come under pressure to migrate to higher risk investments in search of returns….

“Just a few weeks ago the Federal Reserve announced it is targeting a further $1 trillion in asset purchases in 2013, representing a third of its existing balance sheet. Other central banks — particularly the Bank of England, the Bank of Japan, and the European Central Bank — are also expected to expand their balance sheets again in the months ahead….

“There is a limit to how far central banks can divorce prices from fundamentals….at some point, and it is hard to tell when exactly, the private sector will increasingly refuse to engage in situations deemed excessively artificial and overly rigged….

“Have no doubt: Central banks are both referees and players in today’s markets. With 2013 starting with so many liquidity-induced deviations, investors would be well advised to take greater care when pursuing opportunities that rely mainly on the ‘central bank put.’” (emphasis added)

“Beware the ‘Central Bank Put’”, Mohamed El-Erian, ft.com, 01/07/13

Chief Executive and co-Chief Investment Officer of PIMCO

El-Erian is Spot-On correct about the Risks Associated with Investment in “Highly Manipulated Asset Classes, which is why Deepcaster’s portfolio Recommendations aim both to Minimize Risk from and to Profit from, these and others.

But it also makes certain Real Assets even more attractive going forward.

Thus the Big Smart Money is responding accordingly, moving Money into Gold and certain other commodities (See Notes 1, 2, 3 and 4).

For example, notwithstanding ongoing Cartel (Note 5) Precious Metals Price Suppression and in response to Japanese Prime Minister Abe’s pledge to spur Inflation, Japanese Pension Funds ($3.36 Trillion in Assets!) plan to double their Gold Holdings in the next two years according to Bloomberg Business Week.

A word to the wise: Go for the Gold.

Best regards,

www.deepcaster.com
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