Fed Officials Saw Declining Benefits From QE, Minutes Show
By Joshua Zumbrun and Craig Torres Jan 8, 2014
Federal Reserve officials saw diminishing economic benefits from the central bank’s bond buying program and voiced concern about risks to financial stability, according to minutes of their last meeting, when they took the first step to cut the pace of purchases.
“A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue,” the record of the Federal Open Market Committee’s Dec. 17-18 meeting showed. Participants also were “concerned about the marginal cost of additional asset purchases arising from risks to financial stability” citing the potential for “excessive risk-taking in the financial sector.”
Policy makers will gather Jan. 28-29 to consider the next step in their strategy of gradually reducing the pace of bond buying as the economy strengthens. The minutes didn’t describe a set schedule for reductions, although “a few” officials mentioned the need for a “more deterministic path.”
“We are currently experiencing an extremely high demand for British gold coins from countries like Italy, Greece and of course the U.K.,” Jewellers Trade Services’ Marburger said in a separate e-mail. “We’ll have to wait for the Federal Reserve minutes tonight and then we might know where the price will go for the next couple of weeks,” he said by phone.
U.K. Royal Mint Runs Out of Sovereign Gold Coins on Demand
By Nicholas Larkin
The U.K.’s Royal Mint, which traces its history back more than 1,000 years, ran out of 2014 Sovereign gold coins as prices near a six-month low led to “exceptional demand.”
The mint, based in Llantrisant, Wales, expects to have stocks of the coins again by the end of January, it said in a statement e-mailed today. It has full availability of gold and silver Britannia bullion coins, it said. Gold dropped to a six-month low of $1,182.27 an ounce in London on Dec. 31, capping the largest annual decline since 1981.
Bullion slumped for the first time since 2000 last year as some investors lost faith in the metal as a store of value and on speculation an improving economy will spur the Federal Reserve to slow stimulus. Prices that are now 36 percent below the record set in September 2011 boosted sales from mints in the U.S. to Australia and increased imports into Turkey.
“Due to the low price level, we’re currently experiencing high demand,” Daniel Marburger, a director at Jewellers Trade Services Ltd. in London, which buys and sells coins and bars, said today by phone. “We also have a lot of companies restocking” coins at the start of the year, he said.
Gold for immediate delivery rose as much as 5.6 percent from the six-month low set on Dec. 31 and traded at $1,222.37 an ounce by 4:45 p.m. in London. Prices, which reached a record $1,921.15 in 2011, slumped 28 percent last year. The metal priced in pounds slid 29 percent last year and was at 742.52 pounds an ounce today, data compiled by Bloomberg show.
The U.S. Mint sold 56,000 ounces of American Eagle gold coins in December, the most since June and contributing to a 14 percent gain in annual sales, data on its website show. Australia’s Perth Mint sold 41 percent more gold in 2013 and Turkey’s imports climbed 64 percent last month to the highest since July, data on the Istanbul Gold Exchange’s website show.
“Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets, and this presently shows no sign of abating,” the U.K. mint said in the statement. “The Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.”
Coin stock availability has gone up and down in the past according to market demand, the mint said in a separate e-mail. Gold climbed to a three-week high of $1,248.51 on Jan. 6 as physical demand increased, particularly in China.
Investors sold 869.1 metric tons from gold-backed exchange-traded products in 2013, more than they purchased in the previous three years combined and wiping $73.4 billion from the value of the funds, data compiled by Bloomberg show. Holdings fell to 1,754.3 tons yesterday, the lowest since October 2009.
The Fed, which decided at its Dec. 17-18 meeting to cut monthly bond purchases to $75 billion from $85 billion, will release minutes of that meeting today. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.
Canada’s Dollar Weakens to 3-Year Low Amid Rate-Cut Speculation
By Ari Altstedter
The currency fell versus most major peers after Poloz said that while he has room to cut rates to prevent deflation, keeping them steady until economic data dictate otherwise is the best course. He spoke in an interview broadcast yesterday by the Canadian Broadcasting Corporation. The consumer price index has been below the bank’s 2 percent target for 19 months. A year ago, Canada’s dollar was at about parity with its U.S. peer.
“One of the strongest consensus views for the year ahead is Canadian-dollar underperformance, and the market seems to have a particular appetite for bad news at the moment,” said Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada, by telephone from London. “The market is now priced for at least some risk of a rate cut in the early part of the year.”
Risk-transfer Deals Pose Roadblocks to Federal Reserve’s New Minimum Liquidity Proposal
By Divyya Kapur
As banks structure deals to circumvent the Federal Reserve System’s new liquidity coverage ratio proposal (‘LCR’), regulators scramble to protect the financial industry from another fiscal meltdown.
Reacting to the deals entered into by Citigroup, Credit Suisse, UBS, and other banks, the Federal Reserve has said that it will strongly scrutinize deals that have a bearing on the bank’s balance sheet. Its rigid attitude may be attributed to its endeavor to plug the risk-transfer loophole and prevent a repetition of the 2008 financial crisis. In 2008, the banks diverted risk to unregulated areas of the market, and when these transactions failed, the banks were forced to incur huge losses that accrued from implied obligations from the transferred risks. The Federal Reserve has indicated it will permit risk-averting transactions if the entity to which the risk is transferred is not affiliated with the transferring bank and can independently absorb the risk. Furthermore, if an entity bears a limited percentage of the risk, the bank shall be expected to bear the remaining percentage.
The Federal Reserve: Bankers for the New World Order
By Jack Kenny
The Senate had still not acted on President Obama’s nomination of Janet Yellen to succeed Ben Bernanke as chairman of the Federal Reserve Board when rumors began appearing in print over whom the president would nominate to succeed Yellen as the Fed’s vice chairman. A New York Times headline on December 12 heralded the likely coming of Stanley Fischer, a “Central Banker in the Bernanke Mold.” Or perhaps Bernanke has all along been in the Fischer mold, since, as the Times story relates, Fischer taught Bernanke and other prominent bankers and economists when he was a professor of economics at the Massachusetts Institute of Technology. Bernanke has cited Fischer as one of his most important mentors.
Fischer, should he be chosen and confirmed, could easily accommodate himself to the programs and policies of the current board. He is already on board with the “quantitative easing” program that has the Fed buying $85 billion of bonds a month to stimulate the economy, a practice that Fischer, an adventurous sort, has called both “dangerous” and “necessary.” He was vice chairman at Citigroup between 2002 and 2005, a period in which the company’s expansion, as the Times put it, “eventually ended in a federal bailout.” Born in Rhodesia (now Zambia) in 1943, Fischer, 70, holds both U.S. and Israeli citizenship and has experience of global reach, having worked for both the World Bank and the International Monetary Fund before becoming governor of the Bank of Israel. Fischer, like Yellen, is a member of the Council on Foreign Relations, the American branch of an international society dedicated to the eventual creation of a one-world government.