Gold: Is the bad news over?

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Is gold undervalued or overvalued? The question is all the more relevant now that the precious metal is trading at $1,200 an ounce, having shed $700, or 38%, over the past two years, including nearly 14% during June alone.One study stirring much controversy among gold enthusiasts suggests it has more to fall.The study titled “The Golden Dilemma” — was published earlier this year by the National Bureau of Economic Research, a nonpartisan think tank in Cambridge, Mass. Its major finding is that regardless of how you define gold’s “fair value,” gold sometimes trades well above it and at other times well below. An ancillary finding: Whenever bullion deviates significantly from fair value, it eventually returns to trade at that level.    

Campbell Harvey, a finance professor at Duke University and one of the study’s co-authors, concedes that there isn’t one agreed-upon definition of gold’s value. But he says that he and his co-author closely analyzed all the criteria of which they were aware.

The list they studied included defining gold’s value as a hedge against inflation, currency fluctuations, or low real interest rates, or as an insurance policy against hyperinflation or collapse of the financial system. They found that each definition was unable to explain more than a small portion of gold’s price swings over the shorter term. While this finding is frustrating to traders who want to forecast gold’s shorter-term moves, gold is hardly different in this regard than the other major asset classes.

Consider the price/earnings ratio, a popular valuation metric for equities. According to research conducted by Cliff Asness, co-founder of AQR Capital Management, which oversees $80 billion, the P/E ratio historically has been unable to explain more than 5% of the variation in next-year stock-market returns.                     

The situation improves when we focus on the very long term, however, according to Harvey. When measured over many decades, gold is a decent inflation hedge, maintaining its purchasing power. His study therefore provides confirmation of the conclusion reached by a seminal book that enjoys almost biblical status among gold enthusiasts: “The Golden Constant,” which was written in the 1970s by the late Roy Jastram, a professor of business at the University of California, Berkeley.

Gold bugs need to be careful drawing the proper investment implications of Jastram’s conclusion, however, according to Claude Erb, a former commodities portfolio manager at TCW Group and the other co-author of the National Bureau of Economic Research study.“For Jastram, the short run was the next few years, and the long run was perhaps a century,” Erb said in an interview. “And over the short term of a few years, both Jastram as well as our recent study found that gold’s track record as an inflation hedge is quite poor.”

Consider: Investors who bought gold at its January 1980 peak of $875 an ounce are today still below water in inflation-adjusted terms. They even were showing a loss two years ago when gold was trading for more than $1,900. The investment implication is to pay careful attention to gold’s longer-term cycles before buying gold — or be willing to hold it for many decades.    

So how should you decide where gold is in its long-term cycle? As a rule of thumb, the researchers urge investors to calculate a ratio of gold’s price to the level of the consumer-price index. This ratio’s historical average has been about 3.4 to 1, so it is a good bet that gold is overvalued whenever the ratio is well above that level.

When gold hit its high over $1,900 an ounce in September 2011, for example, the ratio was more than 8 to 1. In January 1980, the ratio stood at more than 11 to 1. Unfortunately for the gold bugs, the current gold/CPI ratio — 5.3 to 1 — is still above average, even in the wake of gold’s plunge over the past three months. To be in line with that average, gold would have to trade for $780 an ounce. “Note carefully,” Erb says, “our research doesn't provide a basis for predicting when gold will once again trade at fair value, however — only that it will eventually do so.”

Michael Bordo, an economics professor at Rutgers University and director of its Center for Monetary and Financial History, also is not surprised by gold’s pullback. Referring to the statistical tendency for high or low readings to eventually move back toward the longer-term average, he said in an email: “My research has shown that there is a lot of mean reversion in the nominal price of gold, reflecting the relatively steady very long run behavior of the real price of gold.”

Erb acknowledges that his study’s conclusions are controversial. But that is at least partly because the “gold bugs believe bullion has some exalted status that exempts it from the price fluctuations that cause every other major asset class to sometimes trade well above or below fair value,” he says.

Also controversial is the suggestion that a gold/CPI ratio can be helpful for determining if gold is undervalued or overvalued, since many believe the CPI understates inflation. But gold will fluctuate wildly relative to whatever inflation index you choose, Harvey says, and it will inevitably regress to the mean following any period of extreme undervalue or overvalue.

If you believe, like the study’s authors, that gold is still overvalued, you might consider an exchange-traded note that gains in price to the extent gold declines: PowerShares DB Gold Short DGZ -2.25%  , which carries an expense ratio of 0.75%, or $75 for every $10,000 invested.

If you instead believe that gold is undervalued, or just due for a rally following its recent plunge, you might consider the SPDR Gold Trust GLD +2.73%  , an exchange-traded fund with fees of 0.4%. Another gold-oriented ETF is the iShares Gold Trust IAU +2.92%  , with fees of 0.25%.

Still, there are more conservative — and cheaper — ways to hedge against inflation than by investing in gold. Investing in the U.S. Treasury’s inflation-protected bonds, or TIPS, is one example; an ETF that does that is Schwab U.S. TIPS SCHP +0.24%  , with fees of 0.07%.       

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News Source: www.marketwatch.com      

Fed bond-buying could be more aggressive than new timeline: Dudley...

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The Federal Reserve's asset purchases would be more aggressive than the timeline Chairman Ben Bernanke outlined last week if U.S. economic growth and the labor market turn out weaker than expected, the influential head of the New York Fed said on Thursday.

Pushing back hard against market concerns over the withdrawal of quantitative easing, William Dudley stressed in a speech that the newly adopted timeline for reducing the pace of bond buying depends not on calendar dates but on the economic outlook, which remains quite unclear.

Turning to the question of when the Fed will ultimately raise interest rates, Dudley, a close ally of Bernanke, went so far as to say that recent market expectations for an earlier rate rise are "quite out of sync" with the statements and expectations of the policy-making Federal Open Market Committee."Economic circumstances could diverge significantly from the FOMC's expectations," Dudley told reporters at a briefing at the New York Fed's headquarters in downtown New York.

"If labor market conditions and the economy's growth momentum were to be less favorable than in the FOMC's outlook — and this is what has happened in recent years — I would expect that the asset purchases would continue at a higher pace for longer," he said.

Following a Fed policy meeting last week, Bernanke surprised markets by saying the central bank expected to reduce the $85-billion monthly pace of bond buying later this year and to end the QE3 program altogether by mid-2014, if the economy improves as expected.Global markets have since fallen sharply, with yields on the 10-year U.S. Treasury spiking to near a two-year high.
Dudley, who has a permanent vote on monetary policy, repeated and backed the timeline Bernanke articulated last Wednesday.

But he appeared to want to bolster efforts by some of his Fed colleagues this week to calm investors' worries that less Fed accommodation will hurt the slow U.S. and global economic recovery.
The labor market, which the Fed is targeting with QE3, "still cannot be regarded as healthy," Dudley said, adding "there remains a great deal of slack in the economy."

He expects Gross Domestic Product growth of about 2.1 percent this year, about the same as it has been since the recession ended in 2009. But Dudley expects that to pick up next year.

LEANING AGAINST HIGHER RATES

Frustrated with fitful U.S. recovery from the Great Recession, the central bank has kept the federal funds rate near zero since late 2008 and has promised to keep it there at least until the unemployment rate falls to 6.5 percent from 7.6 percent now, as long as inflation stays below 2.5 percent.
Even under the timeline for reducing QE3, "a rise in short-term rates is very likely to be a long way off," Dudley said.

"Not only will it likely take considerable time to reach the FOMC's 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates," he said.
According to futures contracts at the Chicago Board of Trade, traders had pushed forward expectations for the first interest-rate hike to late 2014 despite published forecasts that show most Fed policymakers don't expect to tighten until 2015.The Fed's two main stimulus efforts - QE3 and low rates - are tied in different ways to sustainable economic growth.

Dudley and others at the central bank have long complained that U.S. government spending cuts and higher taxes could undercut the U.S. recovery, which has stumbled in each of the last few years.
Economic growth was revised lower on Wednesday to a below-average 1.8 percent in the first quarter, another worrying sign for the world's largest economy.

"I continue to see the economy as being in a tug-of-war between fiscal drag and underlying fundamental improvement, with a great deal of uncertainty over which force will prevail in the near-term," Dudley said.

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News Source: www.reuters.com      

Reduced Monetary Stimulus Pressures Energy Prices...

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Crude oil hit a high of 95.10 but eased down to trade at 94.71 in the Asian session. Crude oil futures were slightly lower Monday as investors grew wary about credit being tightened in China, the world’s second-largest oil consumer. Light, sweet crude for August delivery recently traded down 12 cents, or 0.13%, at 93.57 a barrel on the New York Mercantile Exchange. Investor fears about the growth of the Chinese economy grew after the People’s Bank of China, the country’s central bank, indicated that it was clamping down on easy-money policies. China is dominating the markets as investors focus on the reason and the effect of policy changes by the PBOC.


U.S. crude futures steadied above $93 a barrel, after falling for the past three sessions and posting their worst week since April amid worries over Chinese demand and U.S. economic stimulus being pared back. Market attention continues to remain focused on the US Fed, but China is weighing heavily and slowly taking center stage.

There was very little fundamental data on Monday, so markets moved on sentiment shifts and news flow, which was light also. The U.S Federal Trade Commission has followed the European Union in opening a formal probe into how crude oil and refined fuel prices are set, Bloomberg News reported on yesterday. Tanzania’s oil importers are seeking over 300,000 tons of oil products for delivery from late July to August, similar volumes to previous requirements, industry sources said this morning. Canada’s largest pipeline company was investigating on Sunday the cause of a 750-barrel spill of synthetic crude that forced it to shut three oil pipelines in northern Alberta. This was it for headlines yesterday and this morning.

U.S. natural gas futures ended lower for a third straight session on Monday, with milder forecasts for later this week and next week outweighing the heat currently blanketing the Northeast and Midwest. Natural gas is trading at 3.756. Natural gas remains in the headlines with more and more attention focusing on the use and demand for the cheap energy supply. Israel’s government on Sunday approved limiting natural gas exports to about 40 percent of the country’s newly-discovered offshore reserves.

A consortium led by Japanese trading house Itochu Corp is likely to agree as early as Saturday to build an LNG plant in Russia with Gazprom, the Nikkei newspaper reported, to meet Japan’s growing energy needs. Traders can expect prices to trade lower for the day on account of expectations of milder weather and increasing worries over the power demand in the US.

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News Source: www.bloomberg.com      

US GDP; good for economy, bad for investors...

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U.S. economy is anticipating yet another hectic week, with the Federal Reserve stimulus coming to an end depending on the performance of the economy. Next week, the third reading for U.S. GDP will be released among other anticipated figures to put some light on when will the Fed cut bond purchases.

Third and final reading for third quarter GDP is estimated at 2.4%, and to remain unchanged from the prior reading, which will probably give investors a clearer signal over the health of the U.S. economy.


Any economic data reports, and in particular the GDP update this week will be leapt upon for signs that the US economy is improving ,the trigger for Ben Bernanke , chairman of the US Federal Reserve, to start scaling back the central bank`s easy money policy. 

Analysts believe the Federal Reserve might start to scale back the record $85 billion in monthly purchases in September and reducing at as much as $20 billion. Note that Bernanke said last week that the Fed will start reducing stimulus before the end of 2013, and its end will be somewhere around mid-2014.

As for the Income report for May, it is expected to show some improvement in income and spending levels, as Personal Income levels are expected to grow 0.2% in May, after it stalled the previous month, whereas personal spending is also estimated to rise 0.3%, compared to the prior drop by 0.2%, the sharpest amount in almost a year, mostly because of decreasing car sales and demand for energy.
Other data this week includes May’s durable goods, the housing sector, and the weekly update for jobless claims. 

Stock Markets (Heading)
U.S. stocks fell for the week, with the Standard & Poor’s 500 Index dropping more than 5 percent from a record high, as equity markets extended declines on Friday day after Federal Reserve Chairman Ben S. Bernanke said the central bank may phase out stimulus.

Stock Markets await another volatile week as traders will closely watch important data in the U.S. and overseas markets. Stock markets will also hurt by another surge in bond yields U.S. government bond yields also remain at elevated levels. The 10-year Treasury yield was at 2.5% Friday, the highest since August 2011.

Investors have been bailing out of bonds and sending yields higher over the past month amid speculation that the Fed will soon taper its monthly bond purchases, known as quantitative easing. Elsewhere, China will also keep investors on edge. The Chinese central bank could start becoming more aggressive in its efforts to inject liquidity into the banking system, experts say, after inter-bank lending rates have soared.

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News Source: www.reuters.com      

Fed tapering plans knock out Wall Street, set dollar for best weekly gain in a year...

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This week all eyes were on the Federal Open Market Committee (FOMC), which was the major local and global market player and mover throughout this week as it ended its two-day monetary policy meeting yet the Federal Reserve said it may start paring stimulus measures later this year.

In fact Bernanke said the Federal Open Market Committee may reduce the pace of bond purchases modestly later in 2013, and may end the purchases around mid-2014, putting in mind that this reduction in stimulus will occur only if the economy shows signs of “substantial progress.”

Accordingly as stimulus prospects weigh Wall Street closed multiple times in red territories with the Dow Jones losing more than 200 points and the Standard & Poor Index shed more than 30 points while that the EU shares closed in red several times.

If truth be told the Fed maintained its monthly $85 billion of bond purchases, with the U.S. economy and particularly its labor market are recovering. The Fed said that the purchases will continue until “the outlook for the labor market has improved substantially in a context of price stability” and that it will continue to reinvest maturing securities.

Furthermore Fed Chairman Ben S. Bernanke said at the regular press conference that follows the end of the two-day meeting for the Fed’s monetary policy makers, that the Fed sees a moderate pace of growth in the U.S. economy, while unemployment levels are still elevated.

Interest rate increase would not occur anytime soon. Bernanke added. However, Bernanke said the reduction represents unanimity between the Committee members.

Also on interest rates, Bernanke said the 6.5% unemployment is a threshold and not a trigger for an interest rate rise, and that if it hits that threshold, the Fed then will evaluate the option of increasing rates, and the Fed will also look at inflation rates, which are still well below the Fed’s target.

Bernanke also said inflation levels remain below the Central Bank’s objective of 2 percent and has remained subdued for some time now, and likely to move back towards the target of 2 percent, and added that the central bank will closely monitor inflation levels.

On the other hand this week a report showed that more employees in the U.S. had filed applications for jobless benefits in the past week, indicating lingering weakness in reducing unemployment amid second-quarter slow growth.

In fact Initial jobless claims rose 18,000 in the week-ended June 15 to 354,000, from a revised 336,000in the previous week. Analysts had expected for a slight gain to 340,000. Labor Department data showed Thursday.Yet general business conditions in the Philadelphia region improved significantly in Jun at the fastest rate in two years, according to a survey of manufacturers by the Philadelphia Federal Reserve.

If truth be told the general index soared to 12.5 in June, the highest since April 2011 after a drop to 5.2 in May, overtaking estimates that called for a slight improvement to minus 2.0. A reading of zero is the dividing point between expansion and contraction in the region.

Also Manufacturing activity in the New York region rebounded in June, highly above analysts` estimates, but remained weak in details, as new orders and shipments decreased having the Empire State manufacturing index improving in June to 7.84 from negative 1.43 in May.

All eyes were on the Federal Open Market Committee (FOMC) this week, which was the major local and global market player and mover as it ended its two-day monetary policy meeting. 

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News Source: www.reuters.com               

Gold, Silver Hammered to 2.5- Year Lows Major New Chart Damage Suggests More Downside To Come...

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Gold and silver futures prices are sharply lower and have careened to better-than-2.5-year lows in early U.S. trading Thursday. The market place sees traders and investors in a keen “risk-off” mentality following Wednesday’s U.S. Federal Reserve events. Fresh, serious technical damage has been inflicted in the gold and silver markets to suggest they will see still more downside price pressure to come. Comex August gold last traded down $70.10 at $1,303.90 an ounce. The August contract traded down to a low of $1,285.00 in overnight trading. Spot gold was last quoted down $46.40 at $1,305.25. July Comex silver last traded down $1.458 at $20.165 an ounce. July silver hit a low of $19.64 in overnight trading.

Asian and European stock markets slumped overnight. U.S. stock indexes are also solidly lower Thursday morning. Most raw commodity markets are getting hit hard Thursday. Importantly, world bond markets are also seeing serious selling pressure Thursday. The U.S. dollar index has rallied sharply after early Wednesday hitting a four-month low.

While the FOMC statement released Wednesday afternoon said U.S. monetary policy will not see an imminent change and there was no mention about tapering of the Fed’s monthly bond-buying program, Fed Chairman Ben Bernanke at his press conference after the statement was released hinted the Fed in the coming months will back off the accelerator on its monthly bond buying. After further digesting the Fed news the market place now reckons the Fed will indeed start scaling back its monthly bond purchases (tapering) by the end of this year. Some Fed watchers are now saying that by this time next year the Fed’s monthly bond buying could be completely gone. For the past few years the commodity markets have been supported by the devaluation of the U.S. dollar. Now that the Fed appears ready to “take the punch bowl away from the party,” many markets are spooked.

More raw commodity-market-bearish news came from China Thursday, as the HSBC flash PMI dropped to 48.3 in June from 49.2 in May. Any reading below 50.0 suggests contraction. Reports said the China manufacturing data Thursday was the weakest in months.

Other bad news for gold came from overnight reports that said Indian imports of gold will decline by 30% due to recent Indian government taxing measures meant to reduce the country’s trade imbalance.
There is civil unrest in Turkey and Brazil this week that traders and investors are still monitoring. If the situations there see an escalation and violence in the streets, the gold market could still see some safe-haven demand surface. But on this day the gold market has decided to act like its other commodity counterparts, which are risk assets.

The U.S. dollar index is sharply higher Thursday morning and has made a big rebound from Wednesday morning’s four-month low. Wednesday’s Fed news is greenback bullish. Crude oil prices are solidly lower Thursday, pressured by the stronger dollar and on profit taking after prices hit a four-month high Wednesday. These two key “outside markets” are in a bearish posture for the raw commodity markets Thursday, including the precious metals.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the U.S. flash manufacturing PMI, existing home sales, leading economic indicators and the Philadelphia Fed business outlook survey.

The London A.M. gold fixing is $1,303.25 versus the previous P.M. fixing of $1,372.75.
Technically, the gold market took another major bearish hit Thursday by dropping to a 2.5-year low, and importantly dropping below what was a very important chart support level at the April low of $1,323.00. Now, the door has been opened wide for more technical selling pressure in gold in the near term. The next major, longer-term downside price targets are $1,227, and then at $1,100 and then at $1,027 for nearby Comex futures.

August gold futures prices are in an eight-month-old downtrend on the daily bar chart. The gold bulls’ next upside near-term price objective is to produce a close above solid technical resistance at the May low of $1,338.00. Bears' next near-term downside breakout price objective is closing prices below solid technical support at $1,250.00. First resistance is seen at the April low of $1,323.00 and then at $1,338.00. First support is seen at Thursday’s low of $1,285.00 and then at $1,275.00.


Silver bears have the strong overall near-term technical advantage and gained more power Thursday as prices dropped to a 2.5-year low and fell below what was major psychological support at $20.00. Like gold, fresh major chart damage has been inflicted Thursday to suggest still more strong downside price pressure in the near term. Prices are in an overall eight-month-old downtrend on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $21.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at $19.00. First resistance is seen at the April low of $20.25 and then at $21.00. Next support is seen at the overnight low of $19.64 and then at $19.50.

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News Source: www.cnbc.com                         

If Bernanke really shakes the tree, half the world may fall out ...

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We no longer have a free market. The world’s financial asset prices have become a plaything of central banks and the sovereign wealth funds of a few emerging powers. Julian Callow from Barclays says they are buying $1.8 trillion worth of AAA or safe-haven bonds each year from an available pool of $2 trillion. Nothing like this has been seen before in modern times, if ever.

The Fed, the ECB, the Bank of England, the Bank of Japan, et al, own $10 trillion in bonds. China, the petro-powers, et al, own another $10 trillion. Between them they have locked up $20 trillion, equal to roughly 25pc of global GDP. They are the market. That is why Fed taper talk has become so neuralgic, and why we all watch Chinese regulators for every clue on policy.

We will find out tomorrow whether Ben Bernanke is ready to blink after the market ructions of the last three weeks, sobered by the cascading upsets across the Brics and mini-Brics; or whether he will stay the course with Fed tapering sooner rather than later.

Investors seem to think he will indeed blink, or at least blink enough to put off the day of reckoning for another three month investment cycle, which is what hedge funds care about, and that if he doesn’t blink it will be because the economy is picking up speed. They cling to the Bernanke Put, when the new reality may instead be the Bernanke Call.

Perhaps Bernanke will oblige one more time, knowing that the US economy has yet to absorb the full shock of fiscal tightening, the biggest squeeze for half a century. Besides, core PCE inflation is down to 1.1pc. Jim Leaviss from M&G says the Fed would normally be cutting rates by 1.5pc under the Taylor Rule in these circumstances, not tightening.

Yet what causes me to hesitate is the drip of reports and comments from key figures in – or near – the Fed seeming to suggest a loss of nerve, or who fear that QE has turned counterproductive.
First we had a paper co-written by Frederic Mishkin – Bernanke’s close friend and a former board member – warning that is becoming ever harder for the Fed to extricate itself safely from QE, and the door my shut altogether from 2014.

“Crunch Time: Fiscal Crises and the Role of Monetary Policy” said the Fed’s own capital base could be wiped out “several times” once borrowing costs spike. It said trouble could compound at an alarming pace, with yields spiking up to double-digit rates by the late 2020s. By then Fed will be forced to finance spending to avert the greater evil of default.

Then we had the minutes of the Federal Advisor Council arguing that it is “not clear” whether QE is really boosting the economy, while the toxic side-effects are all too clear. It warned of “unsustainable bubbles” in asset prices. It said zero rates are pushing pension funds underwater on their liabilities, and even claimed that QE may be causing firms to defer investment.

Since then the Bank for International Settlements has issued a full frontal attack on the credibility of QE, saying it “doesn’t work” and is doing more harm than good. Even the Boston Fed’s ultra-dove Eric Rosengren has talked of early tapering, a clear sign that the Fed’s centre of gravity has shifted.
So don’t be surprised if Bernanke talks tough tomorrow, and don’t underestimate the implications if he does. The point was put nicely by Jan Loeys from JP Morgan in a note last week:

In Fed hiking cycles over the past half century, 10-year US Treasury yields on average bottomed some 6 months before the first rate hike. In the current cycle, where rate cuts have been complemented by large-scale asset purchases, the end of the easy money period is harder to define. It is surely well before the first rate hike.

The end of the current easy money regime is set to have a bigger impact than previous ones as the current one will have lasted much longer and was much more extreme.We have learned from past regime changes that the longer they last, the more the market will have got used to them, and could even be said to become leveraged and addicted to the old regime.

In addition, after major regime changes, we find that the leverage to the old one was each time much larger and in different places than most of us had assumed. A regime change is like shaking a tree and having no idea who or what will fall out. Brazil, South Africa, and Turkey, are already falling out. Any other candidates?

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Asad Rasheed
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Email:info@cfb.ae

For more information please visit our website century financial brokers.

 Here are some useful links that you can follow:

Here is a CFB blog that gives useful daily Gold Analysis on dailybasis.

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Here is another blog that provides regular news and information and is very useful for Forex Signals.

News Source: www.reuters.com                         

Fed Exit Strategy Will Be ''Treacherous''...

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As the Federal Reserve's Open Market Committee begins a two-day meeting, economist Nouriel Roubini and political scientist Ian Bremmer warned that the Fed's monetary easing exit strategy would be "treacherous" and would lead to financial instability.

"We know how the movie ended, and we may be poised for a sequel. The weak real economy and job market, together with high debt ratios, suggest the need to exit monetary stimulus slowly. But a slow exit risks creating a credit and asset bubble as large as the previous one, if not larger," they wrote in a report published in Institutional Investor magazine.

Roubini, better known as "Dr. Doom" for his pessimistic economic forecasts, and Bremmer, president of global political risk research and consulting Eurasia Group warned that the real underlying risks to the global economy were being ignored.

In the report, they warned that market complacency among politicians, investors and central banks was leading us into a "New Abnormal" era - a "period in which every market assumption must be questioned and the wise investor is prepared to be surprised."

"Unfortunately, the sense of crisis has lifted on all fronts, encouraging some to see in the changed landscape a sustainable 'new normal', a period of painfully slow but predictable economic progress," they said.

"Some believe that U.S. lawmakers can now afford to postpone tough choices, the Europeans will muddle through, China can smoothly rebalance its economy, and fires in the Middle East can simply burn themselves out. These are dangerous illusions," the authors said.

"The convulsions of the past five years arose from structural faults – financial, economic and political – that have not been fully resolved," despite the exuberance in financial markets.
There were more reasons why political and market turbulence had "plenty of room to run," the authors said, telling investors to expect more political and policy gridlock, market volatility and even another crisis as governments' monetary policies reached a crossroad.

Global markets had focused on the wrong risk triggers for the last five years, Bremmer told CNBC late on Monday."For the last five years our focus has been on the financial crisis - on the fiscal cliff, will the euro zone break down, will Japan crumble under its debt? And the reality is that those were not serious structural risks, those were much more stable places," Bremmer told CNBC's "Closing Bell."

"We have to start paying more attention to the real risks because they're growing every day, both the macro pieces that are truly in play and we've not seen anything like this in generations with global powers having very different perspectives on the market place and politics," he added.
The authors added that there were more, new worries posed by emerging markets as growth slowed there and governments were slow to implement reforms.

Bremmer warned that the relationship between China and the U.S. would be key.
"Whether we're talking about cyber, whether we're talking about market access, trade secrets of trade craft, the relationship between China and the U.S. is very difficult to manage and it's not been given priority by either the Chinese or U.S.," he said.

"A pragmatic, mutually profitable geopolitical partnership forged by the U.S. and China is our best hope if the New Abnormal is to end with a smooth landing," Bremmer and Roubini concluded.

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Gold drops as traders await For FOMC...

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Gold futures fell Monday, with analysts anticipating choppy price action as traders position themselves ahead of a Federal Reserve policy meeting later this week that will be closely watched for clues to the central bank’s next monetary-policy step.

Gold for August delivery GCQ3 -0.28% fell $5.90, or 0.4%, to $1,381.70 an ounce on the New York Mercantile Exchange. Particular focus will be on the FOMC [Federal Open Market Committee] meeting, considering the recent rise in government bond yields. We think risks for gold remain to the downside as central banks are unlikely to announce more easing,” said Valérie Plagnol, strategist at Credit Suisse.

Higher bond yields can make gold less attractive because the metal carries no yield. Higher bond yields can also make for a stronger dollar, which is negative for commodities priced in the currency because it makes those goods more expensive for customers holding other currencies.

Fed Chairman Ben Bernanke in May said that policy makers could move as early as the “next few meetings” to begin paring back the monthly bond purchases at the heart of the Fed’s quantitative-easing strategy. U.S. Treasury yields have risen substantially in the weeks since those comments, sowing turmoil across asset classes as investors grappled with the prospect of a cut in the central-bank-provided liquidity credited with helping lift gold, equities and other assets in recent years.

Most analysts, however, don’t expect the Fed to announce any tapering of its bond-buying program when the policy-setting FOMC concludes its two-day meeting on Wednesday. Bernanke will hold a news conference after the conclusion of the meeting. Read: Bernanke will try to herd wild markets at meeting.    

 Some strategists contend worries over tapering are overblown. And a story last week in The Wall Street Journal indicated Bernanke wants to reassure investors that an eventual tapering of the Fed’s bond-buying program won’t be accompanied by any immediate hike in interest rates, which are expected to remain near zero.

Gold prices have suffered from concerns the Fed will scale back stimulus efforts. Gold over the past few years has benefited from fears the Fed’s aggressive stimulus efforts would debase the dollar and boost inflation.

Meanwhile, overall investor flows remain bearish, wrote analysts at Barclays. They noted that outflows from exchange-traded gold products have slowed, but that tactical investors have scaled back gold exposure during the week ended June 11. But data show gross short positions are less than one lot off the record high seen only two weeks ago, they noted, which means scope for another short-covering rally remains elevated.

“The Fed quitting its stimulus programs might be feasible if the economy were truly on a massive recovery and inflation were rising,” said Keith Springer, president of Springer Financial Advisors, in a note Friday. “However, tame inflation and lower global growth estimates from the International Monetary Fund indicate the world’s central banks won’t pull back anytime soon.”

But T. Rowe Price said it believes the Fed is on track to begin reducing the pace of asset purchases during the summer quarter.

“The labor-market outlook has improved since the program’s inception in September, downside risks in the economic outlook have diminished, and a revival in consumer-credit-card footings is among reasons to have greater confidence in forecasts of a gradually improving growth profile,” T. Rowe Price chief economist Alan Levenson said in a report late last week.

Contact Us:

Asad Rasheed
Direct:04-3841906
Email:asad@cfb.ae
Email:info@cfb.ae

For more information please visit our website century financial brokers.

 Here are some useful links that you can follow:

Here is a CFB blog that gives useful daily Gold Analysis on dailybasis.

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Here is another blog that provides regular news and information and is very useful for Forex Signals.

News Source: www.marketwatch.com