German Gold Grab Could Call into Question the "Full Faith and Credit" of the U.S.
The recently publicized move by the German central bank to bring its gold home is sending a major message about trust in the United States.
The bank holds 45% of its 3,396 tons of gold in the vaults of the Federal Reserve Bank in New York, and wants to reduce those holdings to 37%. It also plans to take back all of its 11% of holdings currently stored at the Banque de France in Paris.
The immediate reaction to the German central bank's decision to repatriate some of its gold was to assert that the Bundesbank no longer trusted overseas central banks to look after their gold.
The German Federal Court of Auditors (Bundesrechnungshof) has ordered the Bundesbank to audit its gold reserves "because stocks have never been checked for authenticity and weight."
Prior to that, the Bundesbank had simply relied upon written certification from the central banks where its offshore gold is stored that the correct amount of gold is actually in the vaults and is of the appropriate fineness.
What's more, samples of gold from the Fed and the Banque de France will be melted down and tested for fineness or quality.
Suppose Germany's gold isn't all it is supposed to be?
The "full faith and credit" of the United States would certainly be called into question.Read More...
Gold Prices in 2013 to Go Higher Thanks to These "Wars"
Gold prices in 2013 are already expected to top $2,200, and adding fuel to that price surge is an accelerating trend in the global economy.
We're talking about currency wars.
The term currency wars describes a race between many of the world's central banks to make their currencies worth less relative to other currencies, with the goal of increasing exports by making them cheaper.
Such a strategy becomes less effective as more countries join in the battle, but a growing currency war has another effect that investors can exploit: As central banks devalue their currencies, they create inflation and cause hard assets like gold to rise against them.
Fortunately for gold investors, most of the world's central banks, from the U.S. Federal Reserve to the Bank of Japan, are expected to further step up their currency devaluation in 2013.
"Implementation of the European Central Bank's Outright Monetary Transactions, andfurther Bank of Japan easing -- both of which we expect - [will] support gold, aswould a weaker outlook for the yen, which competes with gold as a flight-to-qualityasset," wrote UBS analyst Edel Tully in a recent research note.
Why Currency Wars Will Get Worse in 2013While the central banks' easy money policies have been aimed at stimulating their own sluggish economies, the effect has been to strengthen other world currencies, particularly those in emerging markets.
That has made their exports more expensive, hurting their economies. And they've had enough.
"Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging market economies," Brazilian Finance Minister Guido Mantega said at an International Monetary Fund Meeting last week. "Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers."
Mantega singled out the Fed in particular, calling its bond-buying QE3 (quantitative easing) program "selfish."
Emerging economies are also uneasy about the recent election of Shinzo Abe as Prime Minister of Japan. Abe and his Liberal Democratic Party are expected to push for as much as $120 billion of stimulus spending plus call on the Bank of Japan to print piles of yen.
"It's almost obscene what they're talking about doing," John Mauldin, chairman of Mauldin Economics, told The Daily Ticker.
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Stock Market Today Stalled on Fiscal Cliffhanger
The stock market today was down slightly as concerns over the fiscal cliff continued to weigh on markets.
Shortly after 1 p.m. on Wall Street, the Dow Jones Industrial Average was down 10 points, the Standard & Poor's 500 Index was down about 3 points and the Nasdaq slipped nearly 14.
Of note in the ongoing fiscal cliff saga was U.S. President Barack Obama and Vice President Joe Biden's 10 a.m. meeting with six state governors on how to avoid the looming double whammy of higher taxes and government spending cuts.
The White House guests included three Republican governors: Gov. Gary Herbert, R-UT; National Governors Association (NGA) Vice Chair Gov. Mary Fallin, R-OH; and Wisconsin's Republican Gov. Scott Brown, who is best known for his battles with public employee unions during the election season.
Representing Democrats were Gov. Jack Markell of Delaware, chairman of the NGA; Arkansas's Gov. Mike Beebe and Gov. Mark Dayton of Minnesota.
Following the meeting, President Obama will engage in his first television interview since the election at 12:30 p.m. with Bloomberg News.
Market participants continue to sit on the sidelines as the GOP and Obama administration butt heads over how to avert falling off the cliff.
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