January Made Me Shiver
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Submitted by Gary S. Wagner on Friday, January 31, 2014 - 16:27.
January Made Me Shiver
Almost every part of the United States suffered through a much colder than usual January. Gold suffered in a different way, swinging wildly within a range, unsure of how to react to economic winds that seemed at times to blow in all four directions at once.
But, the benefit of the month has been to instruct us on the limits of a number of economic currents.
The biggest limit has come courtesy of the Fed's second tapering move as the central bank attempts to make a smooth reentry into normally-conducted business. Janet Yellen's big challenge is to figure out how to repackage and re-market all the securities now in the Fed's hands.
At some point, too, she and the rest of the Fed board will have to figure out: how much in the way of reserves is enough? Or can there ever be large enough reserves for the big banks and other kinds of financial institutions?
Higher interest rates will prompt the big institutions and not a few medium size ones to begin lending all that money sitting in the national pool.
In the midst of all those machinations, the American economy seems to be on a solid upward trajectory. This could be good for gold, once inflation kicks in to even a small degree. We have to be very alert as to what the inflection point is.
There is a lot of chatter in the "gold press" about the Chinese New Year. Item #1: the buying for the big Asian holiday is over. Item #2: the modern banking and finance industry people in Shanghai and Hong Kong do not take every single day of the 10-day period off. Many people do, especially senior analysts and traders, but as in the West, junior traders are on hand, volume will be slimmer, and some volatility will be introduced. It's scarcely the biggest event of the year.
Something to keep our eye on is the effect of tapering on emerging markets. The party is over for those countries that too long relied on the accidental largesse of the Federal Reserve System that has allowed borrowed money in the U.S. and other financial strongholds to underwrite helter-skelter growth in the "Fragile Five." (We discussed the Fragile Five in more detail yesterday.)
India has been the first to take a pot shot at the U.S. moves.
in Mumbai, Reserve Bank of India Governor Raghuram Rajan said the United States "should worry about the effects of its policies on the rest of the world."
"We would like to live in a world where countries take into account the effect of their policies on other countries and do what is right, rather than what is just right given the circumstances of their own country," Rajan asserted at an event organized by The Times of India.In a country with a billion people cut off from access to proper economic opportunity, he scarcely should lecture the world's largest economy. The emerging economies countries forget that ultimately, the United States, Japan, most of Europe and a few other countries like South Korea, Australia and Canada, have their own fish to fry.
The needs of those countries' citizens necessarily take precedence over "emerging" economies in the eyes of most citizens. When India - which has been manipulating the international gold markets relentlessly - steps up and takes responsibility for its own actions, perhaps a welcome ear will be found.
As many interested people over a certain age remember, Argentina has been bailed out practically every decade since the 1940s. How many times is enough before that country starts acting like a small economy that should model itself on Switzerland or the like and stop trying to be a major player in South America?
We can't have emerging markets wag the dog.
As always, wishing you good trading,
Gary S. Wagner - Executive Producer