Recent sell-off sets up next gold rally
The following is a guest post by Lawrence Carrel, author of ETFs for the Long Run and ÂDividend Stocks for Dummies. The opinions expressed are his own.  Full disclosure: The author has had 7 percent of his personal retirement account in a gold ETF for the past four years.
When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.
ÂI can tell investors donÂt sell off your gold, says Martin Murenbeeld, the chief economist at DundeeWealth. ÂWeÂre at a crossroads here.Â
During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.
Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving averageÂs support level of $1,527. Â While most gold watchers expect the metal to experience turbulence during the next few months, the world hasnÂt changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.
ÂHave the countries around the world solved the debt crisis? asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. ÂHave the bailouts ended? Have their currencies stopped tanking? With the world already worried about GreeceÂs fiscal problems, gold summerÂs rally was sparked by fears that the U.S. might default on its debt.
After Standard & PoorÂs downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.
Still many analysts think the gold market isnÂt in a bubble and that the run-up is far from over. Analysts say a bubble is when an asset goes up exponentially 15 to 20 times.
Gold is up seven times during the last decade.  Since its low on Sept.26, 2011, gold has jumped 9 percent. Most analysts expect the price to retest SeptemberÂs low during the next few months. If it bounces again that would be the buy signal.
Ed Carlson, Chief Market Technician at Seattle Technical Advisors.com says gold could fall as far at $1,460. But even Carlson predicts a new sustained advance will begin after Thanksgiving.
The fundamental factors for being bullish are also compelling. Low interest rates are very good for gold. In August, the Federal Reserve promised to keep rates low for the next two years. Additionally, most analysts expect the European Central Bank (ECB) to stem the European debt crisis with a flood of new money.
ÂThe relationship between gold and world liquidity is very direct, says Murenbeeld. ÂIf countries print money gold goes up. Murenbeeld says there is a high probability that the ECB and the European System of Financial Supervisors (ESFS) will insert a significant amount of money into the system, anywhere from 1 trillion euros to 2 trillion euros.
ÂThis liquidity will stabilize the banking sector so that it can withstand a default from Greece and speculation of default from other countries. All that plays into the hands of gold. Murenbeeld recommends investors use a dollar cost averaging strategy here.  ÂWhen they do the bailout that will dilute the currency,  says Barisheff.
ÂThe governments will be forced to print more money because politically thatÂs the least painful thing to do. And as they do the price of gold goes up.Â
However, Barisheff warns that itÂs easy for governments to lose control of their currency, which can send a country into hyperinflation. He says gold will stop rising when governments institute sustainable economic policies, but if inflation isnÂt controlled, gold could rise as high as $10,000 in five years. ÂAnd there is no appetite to do anything sustainable.Â
EURO GOVT-French yield spread widens on ratings warning
* Risks seen skewed towards flight to quality before EU
summitBy Emelia Sithole-MatariseLONDON, Oct 18 (Reuters) - The French risk premium over
benchmark German bonds hit a 16-year high on Tuesday after
Moody’s warned on France’s rating outlook and as German bond
prices jumped on ebbing hopes of a quick solution to the euro
zone debt crisis.The cost of insuring French debt against default also rose
to near record highs after Moody’s warned on Monday it may place
France’s triple-A rating on negative outlook in the next three
months if the country’s share of the cost of bailing out banks
and euro zone states stretch its budget too far.Finance Minister Francois Baroin said France’s rating was
solid as Paris was taking steps to cut the deficit, though he
warned a gross domestic product growth target of 1.75 percent by
2012 was probably too high.Bunds extended Monday’s gains as equities fell after the
Moody’s comments and data showing slowing Chinese economic
growth but trading was expected to be volatile before a weekend
European Union summit.The 10-year French/Bund yield spread
was last 11 basis points wider at 107 bps, its
widest since 1995.”Ultimately France is at the heart of the nexus as regards
the ongoing debt risk transfer that’s occurring in the euro
zone, whether it be from periphery to core or from the private
financial sector to the public sector,” Rabobank strategist
Richard McGuire said.”France is caught in the crosshairs of both of those
channels of debt risk transfer, which sees it most vulnerable to
losing its triple-A rating and most vulnerable to the upwards
pressure on long-end core yields.”The cost of insuring against a French default rose by 80,000
euros to 192,000 euros for an exposure of 10 million euros,
according to five-year credit default swaps data from Markit —
almost twice the costs of insuring triple-A-rated Dutch bonds.The French/Dutch 10-year yield spread also
near its widest in 16 years at 61 bps.VULNERABLERabobank strategists said they continued to play the risk of
a potential French ratings cut via a long position in Dutch
10-year bonds versus French debt.”This position has breached our revised target of -50 bps
(mid-price), aided by Moody’s cautionary comments on France’s
AAA rating,” they said in a note.”We are opting to move our target to -60 bps and lock in 20
bps of profit by bringing our stop in to -40 bps. We are
mindful, however, of the sizeable imminent event risk in the
form of this weekend’s EU summit and will reassess this position
in the coming days accordingly.”The Bund future was last 72 ticks up at 135.34,
having risen to a one-week high of 175.75 earlier, with
technical indicators pointing to more gains.”The nervousness is very high and negative comments will
have a larger impact than positive comments. The balance of risk
is we’re definitely going to see more positive performance in
Bunds,” Nordea analyst Niels From said.The contract tested support at 132.94 on Monday, the 38
percent retracement of the June-to-September bull trade, forming
a potentially bullish engulfing pattern.If the contract closed on Tuesday above the 134.80 opening
price, this would open the door for further gains, UBS technical
analyst Richard Adcock said in a note.Cash 10-year Bunds yielded 2.03 percent , 6.3
bps less on the day and retreating from seven-week highs above
2.20 percent hit last week on market optimism the European
summit would unveil sweeping new crisis-fighting measures.”There’s more hedge fund intra-day type of buying and in
Bund futures. Moody’s warning with regards to France’s triple-A
rating also gave support to German Bunds … but the market is
very choppy and driven by the headlines,” a trader said.Other lower-rated euro zone sovereigns underperformed the
German benchmark. The Italian/German spread stood at 384 bps, 13
bps wider than on Monday.
Analysis: Renewable “gold rush” powers Germany’s north shore
The natural resources attracting investors and industry are of a simple variety: wind, sunshine, agricultural products and farm waste such as liquid manure.The rush to tap green resources in Mecklenburg-Vorpommern state is reminiscent of the frenzies that came with gold or oil discoveries in past centuries. The buzz can be felt in towns and sparkling new factories across the Baltic shore state.”Renewable energy has become extremely valuable for our state,” said its premier, Erwin Selling, in an interview with Reuters. “It’s just a great opportunity — producing renewable energy and creating manufacturing jobs.”From an industrial point of view we’d been one of Germany’s weaker areas. But the country is abandoning nuclear power. That will work only if there’s a corresponding — and substantial — increase in renewables. It’ll be one of Germany’s most important sectors in the future. We want to be up there leading the way.”The federal government did an about-face on nuclear power after the accident at the Fukushima Daiichi nuclear complex in Japan, set off by the March 11 earthquake and tsunami. Germany shut eight nuclear plants and will close the other nine by 2022.Germany is a world leader in renewable energy and wants an even larger share of the $211 billion global market. A fifth of its electricity comes from renewables, up from 6 percent in 2000, and it aims to boost this to 35 percent in 2020.There are some clouds on the horizon. State-mandated incentives, which fueled a private investment boom, have been cut, squeezing margins in sectors such as solar energy.There have also been delays in expanding and upgrading the national grid of high-voltage transmission lines from sparsely populated coastal regions such as Mecklenburg-Vorpommern to areas where the power is needed in the west and south.The federal government is working to remove infrastructure bottlenecks, but if the grid is not expanded soon it could cause problems later when more off-shore wind power goes on line.ECLIPSING SHIPYARDSRenewables — especially wind energy — are injecting new optimism into Mecklenburg-Vorpommern, reflected in a word that often comes up in conversations with business and political leaders: “Reindustrialisierung” (re-industrialization).In a state with a sea-faring heritage, there are now more jobs in renewable energy than in shipyards: 6,000 jobs at 704 firms, expected to nearly quadruple to 22,000 by 2020.Companies are building, designing, maintaining and operating wind turbines and photovoltaic and biomass plants — for which farmers are growing crops and harvesting animal waste. There are more than 1,200 wind turbines on land, and a new push into off-shore wind energy in the Baltic will further fuel that growth.Many new jobs are at firms such as Nordex, which employs 1,000 in Rostock making lightweight wind turbine rotor blades up to 65 meters long. It has invested 100 million euros expanding its plant and exports some 95 percent of its output.These are sorely needed, highly skilled jobs in a sparsely populated state whose industrial base was devastated by the economic upheaval accompanying Germany’s reunification in 1990. There were 32,800 jobs in the once bustling shipyards around the port city of Rostock when the Berlin Wall fell in 1989.But most were wiped out when the east German shipbuilding industry collapsed in the face of surging labor costs and fierce western competition. There are only 3,300 shipyard jobs left, and the industry’s demise epitomized the east’s decline.Mecklenburg-Vorpommern became one of Germany’s poorest regions. The jobless rate soared to 20 percent in 2004 — double the national average — and the population fell by 250,000 to 1.6 million as mostly young, well educated people moved to the more prosperous west in search of jobs. More than 8,000 left the state in 2008, but only 3,500 moved away in 2010.The prospect that some areas could turn into ghost towns was an explosive issue, but the gloom is lifting as unemployment has been nearly halved. The state with the worst jobless rate of Germany’s 16 states in 2007 is now ahead of Berlin and Bremen.”There’s a new sense of optimism thanks to sectors such as renewable energy, and the migration westwards was slowed if not completely stopped,” said Edeltraud Guenther, a professor for environmental management at Dresden’s Technical University.POWER EXPORTING STATEJuergen Trittin, a leader of the Greens in Berlin, said a renewables law drafted by his party in 2000 had proved unexpectedly successful in creating jobs across the east.”All of the east is benefiting from that,” he said. “The jobs growth is going to continue with the push into off-shore.”Germany’s first commercial off-shore wind park, ‘Baltic 1’ — a 48 million euro project with 21 turbines made by Siemens and operated by EnBW — began pumping enough power for 53,000 households into the grid in May from 16 km north of the coast.By 2013, utility EnBW aims to complete 80 more off-shore wind turbines in the ‘Baltic 2’ development, 32 km offshore.Germany expects to have some 25 megawatts of off-shore wind energy capacity by 2030, produced by 4,000 wind turbines.Mecklenburg-Vorpommern already gets half of its electricity from regenerative sources — nearly 4 gigawatt hours. That is a five-fold increase since 2000.It aims to cover its entire electricity needs by 2015 to 2017 and then export surpluses to other states. By 2020 it expects to have 12 gigawatt hours of renewable energy — enough for 3 million households. Mecklenburg-Vorpommern will then produce enough power for itself and two neighboring states.”The natural conditions for renewable energy here are good,” said Sellering. “The first goal is to cover our own electricity requirements. Then we want to be an energy-exporting state.”
Being poor is no fun: study
Poor people have shorter life spans and more health problems than the wealthy. Surprising? For growth-obsessed economists, yes actually. A new study from The Organization for Economic Cooperation and Development represents a worthy attempt to move economics away from its traditional tendency to equate growth with well being. Its rankings suggest factors other than the rate of gross domestic product expansion are important in determining quality of life.
But as often happen when economists look for a human angle in their research, they end up stating the glaringly obvious. Take this statement:
Some groups of the population, particularly less educated and low-income people, tend to fare systematically worse in all dimensions of well-being considered in this report. For instance they live shorter lives and report greater health problems; their children obtain worse school results; they participate less in political activities; they can rely on lower social networks in case of needs; they are more exposed to crime and pollution; they tend to be less satisfied with their life as a whole than more educated and higher-income people.
You don’t say? And what about this gem:
Having a job is an essential element of well-being. Good jobs provide earnings, but also shape personal identity and opportunities for social relationships.
OECD economists must be elated then: updating the dense “How’s Life” report each year should keep them employed for the foreseeable future.
Berlusconi to address parliament for confidence vote
By Philip PullellaROME, Oct 13 (Reuters) - Italian Prime Minister Silvio
Berlusconi, fighting for his political life and seeking to quell
an internal rebellion in his centre-right coalition, will ask
parliament on Thursday for a confidence vote that will allow him
to continue governing.Berlusconi, who is under pressure by Italy’s president as
well as the central bank governor to prove that he can deal with
the country’s myriad social and economic problems, is due to
address the lower house at about 0900 GMT.The confidence vote is expected to be held sometime on
Friday and Berlusconi will most likely win.But most analysts say he will also emerge so bruised that it
will be only a matter of months before a new crisis hits and
that the country will likely hold early elections next year, a
year before they are next scheduled.”It’s either counter-attack or die,” said Il Foglio, a
political broadsheet which reflects Berlusconi’s thinking.In his address, Berlusconi is expected to stress that there
is no alternative to his government, that a crisis now would be
irresponsible at a time when the economy is under huge pressure
from the markets, and that he intends to govern until 2013.Opposition parties have already announced that they will
boycott the speech but then return for the debate and vote
against Berlusconi on Friday.Berlusconi decided to address parliament after the coalition
— wracked by internal dissent — suffered a major embarrassment
when it failed to pass a routine budget provision on Tuesday.A number of centre-right deputies were absent for the vote,
a fact which infuriated Berlusconi and fed suspicions that some
dissenters stayed away to send a message to the prime minister
about the deep malaise within the coalition.INTERNAL CHALLENGESBerlusconi is facing internal challenges from a number of
ministers who are unhappy with the way he is running the
coalition and the damage his personal and judicial woes have
done to Italy’s reputation.The prime minister, whose current government was elected in
2008, said that the loss of Tuesday’s vote was just an
“accident” and that there was no reason to resign as the
opposition has demanded.President Giorgio Napolitano entered the fray on Wednesday
when he issued a statement expressing deep concern about the
viability of government and demanding a “credible response” to
Italy’s problems.Italy is also under pressure from Mario Draghi, the outgoing
Bank of Italy governor who will become the president of the
European Central Bank next month.In a speech on Wednesday night, Draghi said Italy had
already wasted too much time without reforming its economy and
unless it acted urgently, rising bond yields could nullify the
benefits from recent budget cuts.Yields on Italian government bonds are dangerously high
considering its massive public debt, because of investors’ lack
of confidence that Berlusconi’s government can take decisive
action and worries over Italy’s chronically sluggish growth.Ratings agency Fitch last week cut Italy’s credit rating by
one notch with a negative outlook, following a downgrade by
Moody’s and Standard and Poor’s, underlining market concern over
the stability of its public finances and its weak growth.A 60-billion-euro austerity package to balance the budget by
2013 was passed last month only after weeks of hesitation and
delay, while the timetable for a decree to pass economic reforms
and approve the sale of state assets has slipped to Oct. 20.
