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9.19.14 - Scotland Votes To Stay Part Of Great Britain

Gold prices end lower on a stronger U.S. dollar and positive jobs data. U.S. stocks end higher, Dow hits record high on positive economic news. Gold last traded at $1,216 an ounce. Silver at $17.78 an ounce.

Yesterday Scotland voted on whether or not to declare their independence from Great Britain. By a substantial margin, Scottish voters elected to stay part of Great Britain. Markets were heartened by this move, which essentially maintains the status quo. It should be pointed out, however, that this episode may spark secessionist movements in other parts of Europe, something that will definitely not cheer the markets going forward.

Gold has been declining recently due to dollar strength touched off by expectations of higher interest rates soon. In fact, gold is now at a low for the year.

As all investors should know, the key to successful investing is ultimately to buy low and sell high.

Right now, an opportunity exists to buy gold at a significant low and sell stocks at an all-time high.

There are some factors at work that need to be explained with regard to the dollar, interest rates and gold.

First of all, though the dollar has experienced some strength recently, it is very difficult to foresee a scenario in which the dollar has sustained strength. After all, the US national debt is over $17 trillion still and the current annual budget deficit is well over $500 billion. This is an unsustainable path. Sooner or later the US will have to service that debt with dollars cheapened by inflation. Over the long-term, this is like an anvil attached to the value of the dollar.

Second, many investors--and financial journalists--are too young to remember the late 70s and early 80s when gold experienced a huge bull market. Interest rates were rising and the prime rate hit the sky-high level of 21% at the same time the price of gold soared to a then-record level of over $800 per ounce. So, the narrative currently being floated around the financial world that rising interest rates are a death blow for gold does not stand up to historic, factual analysis.

Finally, one thing that HAS been true more often than not, is that rising interest rates are very bad news for the stock market. Many analysts, such as Marc Faber, are saying that rising interest rates will be the pin that bursts the current stock market bubble, touching off what could be the first major correction since 2011 or possibly even the first bear market in 6 years (which is overdue by historic norms). Given that gold has had a negative correlation with stocks over the long-term, a bear market in stocks touched off by rising interest rates could very well prompt investors to flock to the safety and security of gold.

Given these facts, it would appear gold at such low levels represents a terrific opportunity for investors.

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9.18.14 - Fed Offers Little Clarity After This Week's Policy Meeting

Gold prices end lower after Fed comments and a stronger U.S. dollar. U.S. stocks higher, S&P 500 and Dow close as record levels on upbeat jobs data. Gold last traded at $1,226 an ounce. Silver at $18.45 an ounce.

The Federal Reserve held its latest policy meeting this week and yesterday afternoon Fed Chair Janet Yellen met with reporters. As usual, the Fed was as clear as mud in its public remarks.

The Fed renewed its pledge to keep interest rates near zero for a "considerable time", but also indicated it could raise borrowing costs faster than expected when it does start moving on raising interest rates.

Instead of focusing on monetary policy, Fed Chair Janet Yellen decided to focus on the condition of lower-income families in America, perhaps signaling that she believes the Fed needs to do more to stimulate economic activity to help the poor.

The problem, of course, is that the measures Yellen believes need to be taken are really just more of the same. Not only has the Fed's loose monetary policy failed to truly jump-start a stagnant economy, it has undermined the value of the dollar and robbed wealth from each and every American.

Today there was another sign that the economy is struggling, particular in the key real estate sector. U.S. housing starts and permits fell in August. Groundbreaking declined 14.4 percent to a seasonally adjusted annual 956,000-unit pace, the Commerce Department said. Groundbreaking for single-family homes, the largest part of the market, fell 2.4 percent in August to a 643,000-unit pace. Starts for the volatile multifamily homes segment tumbled 31.7 percent to a 313,000-unit rate in August. Last month, permits fell 5.6 percent to a 998,000-unit pace. Permits for single-family homes fell 0.8 percent to a 626,000-unit pace in August. Permits for multifamily housing declined 12.7 percent to a 372,000-unit pace.

There is a new warning of a stock market crash this week, this time from Former Reagan administration director of the Office of Management and Budget, David Stockman.

“I’m worried… that we’ve got the greatest bubble created by a central bank in human history,” he told Yahoo Finance.

“We have been shoving zero-cost money into the financial markets for 6-years running,” he said. “That’s the kerosene that drives speculative trading – the carry trades. That’s what the gamblers use to fund their position as they move from one momentum play and trade to another.”

And that, he says, is not sustainable. While Stockman believes tech stocks are especially overvalued, he warns that it’s not just tech valuations that are inflated. “Everything’s massively overvalued, and it’s predicated on zero-cost overnight money that continues these carry trades; It can’t continue.”

And he believes there will be a day of reckoning.

“When the trades begin to unwind because the carry cost has to normalize, you’re going to have a dramatic re-pricing dislocation in these financial markets.”

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9.16.14 - Investors Focused On Fed Policy Meeting

Gold prices end higher on safe haven demand. U.S. stocks end higher as Fed fears fade. Gold last traded at $1,236 an ounce. Silver at $18.66 an ounce.

All eyes on Wall Street are now cast on the Federal Reserve as it begins its two-day policy meeting and will culminate in Fed Chair Janet Yellen's briefing to the media Wednesday afternoon.

Investors are focused on what Fed policy will be going forward. Will the Fed raise interest rates? How much and how soon?

It's not even certain that Yellen will deliver an accurate representation of what was discussed in the meeting in her press conference.

One long-time stock market bull is warning today that the market could be in for a rough ride in the near-term. Jeremy Siegel believes the Fed is actually "a little behind the curve" on interest rates, with signs rates are already rising.

He's among the market watchers who believe the Fed will drop the phrase "considerable time" in its policy statement Wednesday when referring to how long the central bank will keep interest rates low. That has the potential to spook the market.

While the Fed tends to dominate the attention of Wall Street at times like this, there are other factors and issues investors need to be cognizant of as well.

America's chief executive officers are far from optimistic about the economic outlook near-term. Corporate executives are scaling back plans for sales, capital spending and job creation this quarter, according to a Business Roundtable (BRT) survey, consistent with other indicators that have tempered growth expectations.

The group's Economic Outlook Index—a snapshot of CEO expectations for the next six months of sales, capital spending and employment—fell to 86.4 from 95.4 in the second quarter of 2014. The majority of the BRT's members see plans for capital investment, hiring and revenues falling from the second quarter, with job plans declining the most.

This does not bode well for the US economic outlook, again illustrating that the underlying fundamentals of the US economy are not strong enough to justify a high-flying stock market.

Much of Europe's attention is focused on Scotland, which will hold a referendum Thursday on whether or not it will remain part of the United Kingdom. This is having financial fallout. As we reported yesterday, gold demand in Scotland is way up. There are also fears of a bank run, particularly via ATMs and British banks are stockpiling currency in Scottish ATMs in anticipation, something that might exacerbate already nervous depositors.

The news is brighter for the gold market.

China may join other emerging countries in boosting gold reserves as the precious metal makes up a smaller share of its foreign-exchange holdings compared with developed economies, reports the World Gold Council.

Meanwhile, Carter Worth, chief market technician at Sterne Agee, is telling clients that the dollar is about the turn down-potentially leading the gold price to stage a serious rebound: "We think the massive rally in the dollar is overdone, and you actually can catch a pop in gold."

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9.11.14 - Swiss America Remembers 9/11

Gold prices end lower on a stronger U.S. dollar supported by expectations the Fed will begin raising interest rates. U.S. stocks end lower on weaker-than-expected jobless claims and concerns about interest rate hikes. Gold last traded at $1,239 an ounce. Silver at $18.53 an ounce.

As Americans pause today to remember those who lost their lives on September 11, 2001, the markets are casting a wary eye toward the Middle East in the wake of a speech by President Obama last night announcing he will be expanding military operations against ISIS.

The news comes amid heightened nerves over terrorism in the U.S. on this 13-year anniversary of 9/11. Recent surveys indicate Americans feel less safe and secure than at any time since 9/11/2001.

Another factor on the minds of traders is a worrying inflation report out of China that showed that wholesale deflation intensified there in August, clouding the outlook for an economy struggling to stage a convincing recovery. Inflation figures remain well below official Chinese government targets, which would be good news in most countries, but not in China, which is the engine of growth both on the demand and supply side for much of the world.

A slowdown in China has the potential to ripple across oceans and borders and this is a big concern for the financial markets.

The stock market in the US is especially vulnerable to a pullback at this point and professional investors appear to be preparing for an outright stock market crash. George Soros, Carl Icahn and a growing number of hedge fund managers all seem to be preparing for a major downturn.

The speculation that the Fed could remove the language about keeping rates low for a "considerable time" has been contributing to a rise in bond yield, as Treasurys sell off. Stock traders have been eying those moves though Fed watchers are divided on whether the language will be changed when the Fed releases its post meeting statement September 17.

Stock traders know it is Fed pumping, not underlying economic fundamentals, that are driving stock market gains. They fear what will transpire when that Fed pumping slows down or comes to an end.

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