247Bull.com Editor: Investors have had a sudden wakeup call. Their view that the Fed will soon end its bond-buying program because the unemployment rate is on its way to 6.5%, has, rather predictably, turned out to be extremely premature. Let’s not forget the QE4 is only four weeks old. The money printing will continue, but as today’s chart of the week shows, right now the new money that is getting past the banks, is going into financial assets, not the real economy. Inflation in the US for the 12 months ending in November was 1.4%, which is below the Fed’s longer-term target of 2%. Again, this makes it all the more likely that QE will continue.
Gold and silver jumped to 4-session highs above $1674 and $31.65 per ounce respectively Wednesday lunchtime in London, gaining as new data showed the US economy unexpectedly shrinking in late 2012.
US stock-market indices held flat near 5-year highs, while the EuroStoxx 50 was unchanged near 18-month highs despite news that Spain’s GDP shrank by 0.7% in the last 3 months of 2012.
Greek newspaper Kathimerini meantime said 30 activists from the communist PAME union briefly stormed the Athens’ office of employment minister Yiannis Vroutsis.
The Euro currency this morning rose to its best level in 14 months at $1.3560.
The gold price in Euros today hits its lowest level since May 2012 at €1228 per ounce.
“Bernanke will not be giving a press conference” after today’s US Federal Reserve announcement, notes Wednesday’s commodity report from Standard Bank. “So there will be plenty of reading between-the-lines of the official statement.
“[But] we feel it is important to note that the Fed’s balance sheet is only one piece in a puzzle of growing liquidity and negative real interest rates.
“Strategically we remain bullish on gold over the long term. The cost of holding gold relative to cash remains negligible.”
Gold account fees at Swiss banking giants Credit Suisse and UBS are being raised however in a bid to shrink their balance-sheets, says a report in today’s Financial Times.
“Like their global peers, UBS and Credit Suisse are under regulatory pressure to reduce capital-intensive activities ahead of the introduction of Basel III global banking rules,” says the FT.
So the two banks are hiking costs for unallocated accounts – where the customer pays full price to buy gold, but is then owed the metal, bearing credit risk if the bank fails rather than becoming an outright owner as with allocated gold.
Unallocated gold enables the bank to lease out the metal, earning an income from the client’s gold. But analysis of London Bullion Market Association data shows that the net return on 12-month gold leasing has fallen from averaging 1.63% in the decade to Jan. 2003 to averaging less than 0.40% in the 10 years since.
Moreover, “When [gold] is on balance sheet it does create costs” in the form of capital requirements by regulators, an anonymous source tells the FT.
Gold demand in Asia meantime eased off Wednesday, according to Reuters, as Chinese wholesalers prepared for next month’s Lunar New Year celebrations, and Indian wholesalers cut prices in a bid to clear stockpiles.
“Those who have built up a large inventory before [this month's new import-duty] tax hike are selling at a discount right now,” the newswire quotes a bank trader in Mumbai, citing discounts to local prices of 0.5% – some $6 per ounce.
The Chinese New Year falls in 2013 on 10th February.
Adrian Ash | BullionVault