Economic News

With much debate the US House of Representatives averted a government shutdown on Thursday by nearly passing a $1.1 trillion spending bill despite strenuous democratic objections to controversial financial provision.  In the past President Barack Obama and House Speaker John Boehner have been enemies in budget battles, but this time they are on the same side, pushing for the passage of this bill.  Supporters of the bill say the purpose of it is largely to provide billions of dollars of additional funds to fight Islamic State militants in Iraq and Syria and the Ebola break out in West Africa.

However, the 1603-page bill does roll back portions of the Dodd-Frank law due to go into effect next year by killing planned restrictions on derivatives by large banks, allowing those banks to continue trading swaps and futures in units that have a direct benefit from federal deposit insurance and Federal Reserve loans. 

Both Obama and J.P. Morgan Chase and Company chief executive Jamie Dimon were calling Democrats to support this bill, which angered many Democrats.  “It is very strange, very strange that the two of them would be working for the support of this bill,” said Representative Maxine Waters, the top Democrat on the House Financial Services Committee. 

Being passed by 219-206 votes, 67 Republicans rejected the bill but that was offset by 57 Democrats who voted in favor.  The passing of the bill increases government spending and dangerously supports bigger banks in their risky derivative trade.  

Economists are saying that this could be the next set up for banks to continue over extending their risk trades- this trading contributed significantly to the 2009 meltdown 
financial meltdown leading is into the “Great Recession” from which we still have not recovered.

Since June oil has dropped 47%, while the Dollar index during the same time frame has gone up about 12.8%.  Oil trades internationally at $57 a barrel.  Oil trades in dollars historically, so why are the prices moving opposite directions?

There are two schools of thoughts that have been around for some time now and that have been debated which state that “this will never happen…”, yet with the dollar and oil moving opposite directions it confirms both of these thoughts.

With gold slightly under the $1200 level several analysts are predicting this to be the potential bottom for the yellow metal.  Corrections in gold are not an unusual, back in the 1970s gold suffered a 50% drop, from $200 down to $100 before then bouncing back to record highs that peaked to $850 in 1980.  Bullion hasn’t suffered a 50% correction and the mining community believes gold moving down much from here would be out of the norm. The average mining costs for the majority of mines to mine an ounce of gold are around $1180.  Many people feel that gold can’t trade at this level for long as the mining costs will continue to escalate due to greater difficulty extracting ore, labor unrest, and regulatory challenges in the mining industry.

Avi Gilburt of MarketWatch is cautiously bullish on gold.  “They do not often get it right about the metals on MarketWatch, but have seen too many Bearish articles calling for the death of the metals, so I felt compelled to speak up,” he commented.  “While many are now saying it is time to sell metals, I will have to disagree. The time to sell your metals was several years ago. Now is the time to start looking to buy them back.”  If the market goes lower, “it will likely be a buying opportunity and not a selling opportunity,” he advised.

He warns sellers, “may miss one of the most bullish market moves which can be seen in the next 10 to 15 years.”

There seems to be a growing trend happening in Europe, one which has previously happened, namely gold bullion confiscation from private owners as a part of a strategy to offset government debt. Deutsche Bank, one of the largest and most respected banks in Europe, recently wrote in their Daily Metals Outlook that the confiscation of gold bullion makes logical sense as the next step that countries in the European Union should take to manage their debt challenges. Deutsche Bank recently wrote this. [Read more…] about Gold Bullion Confiscation In Europe?

There is a referendum vote on November 30 in Switzerland if passed would require the Swiss National Bank to hold 20% of its reserves in gold.  The head of the Swiss National Bank is against this proposal.  The adoption of “Save Our Swiss Gold” initiative would be a fatal error of judgment SNB President Thomas Jordan told a Swiss paper.  “Two little gold in the economic crisis was never the problem, the strong Franc was the problem,”

Swiss having a long history in their culture for the appreciation of a gold in there financial reserves, a respected currency, and a strong independent banking system. These have recently failed due to the popularity of Fiat based currencies.  The current monetary environment of quantitative easing makes the practices of huge gold holdings to back their currency unadvisable for the SNB.

“It would have a major impact if it passes,” said Joni Teves of UBS.  “If they do launch of buying program, it would effectively a constant bid in the market.”  “Passage could push gold above $1350 or 18% higher than now” added Bank of America analyst Michael Leaving.