QE3 ANNOUNCED BY FED TO PRINT $480 BILLION!!!

Fed to Print $480 BILLION AGAIN!!!

Yesterday, Fed chief Ben Bernanke proved that what many have suspected all along is indeed true: The U.S. Federal Reserve will not patently stop printing money!

Mr. Ben Bernanke announced that the Fed is going to do the same old thing, it’s going to hold interest rates near zero as far as the eye can see... And it’s going to print a whopping $40 Billion (Rs.2,21,680 Cr $/Rs.55.42) new dollars per month in an attempt to stimulate the economy — a whopping $480 billion (Rs.26,60,160 Cr $/Rs.55.42) per year! In short, it’s doing the same things it has done since 2008, but expecting better results, In any way you look at this, that’s The Very Definition Of INSANITY!! The Fed has Already held interest rates near zero percent for four long years, now. Plus, it has already created $1.8 trillion out of thin air through QE I and QE II... And it has already bought hundreds of billions of dollars more worth of long-term Treasuries as part of Operation Twist 1 and 2. 

So what’s the result?

NO IMPACT WHATSOEVER ON THE REAL ECONOMY!

Sure — all that free, easy money will temporarily excite the stock markets around the world but despite everything the Fed has done ... the

** Unemployment has stayed over 8 % for 42 straight months ...

** The average family home is Still falling in value ...

** Profits of many major corporations in US are Still sinking ...

** The U.S. economic growth is Still grinding to a near standstill ...

** And now, as America approaches the precipice of its great fiscal cliff, the stock market looks for the entire world as if it’s a massive bubble about to burst!

** Worse is that, the middle class — the very backbone of the U.S. economy — is getting eaten alive:

HOUSEHOLD INCOME IS PLUNGING: The U.S. Census Bureau just reported that real median household income has now fallen for the fourth straight year. Income has fallen so low, in fact, that when you adjust for inflation, the median family has the same income today as it did in 1967 , now that was the 45 long years ago!

THE INCOME GAP IS WIDENING ALARMINGLY: The Census Bureau is also reporting that the movement of income away from the middle class has just hit a record high. That’s terrible as typically this kind of increasing disparity in income occurs just before economic calamities — and today, it’s more extreme even than before the 1929 stock-market crash and the Great Depression!

U.S. POVERTY IS AT ALL-TIME RECORD HIGH LEVELS: Finally, as if to add insult to injury, the Census Bureau also reports that a staggering 46.2 million Americans now live in poverty! And not only isn’t the Fed Helping ... its failed efforts to revive the economy is creating a second crisis: Thanks to the Fed’s past money-printing gambits, the Producer Price Index just jumped 1.7% in August — hands-down the biggest surge in producer price inflation going back to June of 2009!

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Make no mistake:

The U.S. economy is broken.

Nothing the Fed can do will fix it.

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To the contrary: The Fed’s easy money policies Created this crisis by inflating the housing bubble. Now, they’re only making matters worse — doing absolutely Nothing for the job market, while driving inflation higher! And as America’s great Fiscal Cliff approaches — the catastrophe that JPMorgan says will push America “head-first into the fiscal meat grinder” — the storm clouds are darker than ever.

The Gold has raised 111.58 % from QE1 to QE3 : Gold jumped after this QE3 by FED the third round of monetary stimulus called Quantitative Easing. QE has been a massive boon for gold, when FED flooded markets with nearly Zero money or free money, gold’s allure as a store of wealth & an inflation hedge is burnished. Loose monetary policy weakens the dollar boosting the GOLD. Fed’s nearly ZERO interest rate policy and bond purchasing under QE1 kicked off on 16^th December 20008 and Gold was $837.50 an ounce, & today Gold is at $1772 an ounce this means Gold raised to 111.58 % on back of QE1 & QE2 which followed in Nov 2010. So QE & Gold has always been supporting each other..SO ALWAYS BUY GOLD

Impact of QE3 on India: As for India, off course in near term the pattern of QE has always been strong for emerging market like India and for their currencies and even stronger for commodities. The QE programme is good for India for a day or two as it will help the rupee a little bit and at a same time QE surges commodity prices, which is bad for India as it imports most of the commodities to meet its growing needs of the economy, Brent crude is at $115 and any raise in its prices will make inflation to climb again making life difficult for RBI, remember QE2 which was announced on Nov 04 2010 in which Indian Market made a high of 6338 on NOV 05 2010 and had a one way decline post that & so QE2 turned out to be disastrous for India as it stoked inflation. India is not a obvious QE play now, as Indian markets has its own set of problems like high inflation, policy paralysis and of course the scams and political unrest. The diesel price hike of Rs.5/liter is the positive step and so the FDI policy in aviation but these have a short term sentiments..

In short, US FED with the announcement of QE3 gives the clear message to the market that rates will remain this low till 2015 with a hope that this low rates will revive economic growth, but on India one should remain cautiously Bullish, one must look at classic defensive's like pharma, consumer stocks with a risk of breakdown between the investment cycle & the consumer cycle weighs heavily on them.  

CLICK HERE FOR PREVIOUS POSTS ON QE 

IS THE EVOLUTION OF MONEY HURTING US !!!

It all started with “BARTER TRADE SYSTEM”: Long time ago the first trade was conducted via Barter. All goods were directly exchanged for all other goods. But this method had its own problems. If you want to swap your chicken for a loaf of bread, but the baker happened to want firewood, you had a task to find someone with firewood who wanted to have chicken.

        Then came the medium of gold exchange, under which everyone agreed to accept gold in return for whatever they were selling. This transition allowed the swapping of chickens for gold and then gold for anything else. The thing with gold was that it was indestructible and could be stored for the future. As gold also become the “Store Of Value” – if you had lots of chickens you could swap all of chickens for gold, spend only part of the gold on bread and keep a few gold for a rainy day.

                Gold as a mode of money, created its own set of problems – Governments in financial troubles, would call back their gold coins, then melt it down and reform the same metal into more coins with lower gold content in it or mixing any other metal in it. For government, it generated a nice new stock of gold for conversion into coins. This is what called “Debasement of Currency”.

                       But debasement of currency became a huge problem and led to the development of certificates of gold deposits. Debasement & the larger monetary transaction required that the coins to be counted weighed and checked for its purity & authenticity. In addition to which there was constant problem of security, so this led to the development of the Gold Depository Banks whereby a group of merchants come together and formed Merchant Banks that would hold their gold securely at a central location. The quality of coin was checked, the depositor was issued with paper certificate of deposit. The certificate of deposit represented his holding of gold within the banks & the holder of this certificate was entitled to present the certificate back to the bank, who would on demand, exchange it for the same amount of gold coin originally deposited.

                       These banks soon realized that the owners of the gold rarely come back to collect it. As a result gold was lying idle with them most of the time. So, these bankers come up with a money making scheme of their own. These banker’s started issuing their own certificates of gold deposit and would lend those certificates to merchants. These merchants would use these new certificates to buy goods, which they would then sell on at a profit provided everything went well, the merchant could borrow the certificate, buy & sell the goods to make profit and repay the bank before anyone realized that the gold had left the vault which of course it never had.

                 Now, what this did was there were always more certificates of deposits in circulation than the gold in the vaults of banks. This in turn led to crisis situation during which individuals with these certificates landed up at the bank asking for their gold back. The trouble was that the bank did not have enough gold to make good against all the certificates it had issued. As this news spread, more people landed up leading to bank running, this soon led to a situation whereby a central bank was created which would fight financial instability. In return for the backing of the central bank, the commercial banks gave up their rights to issue their own gold depository certificates. From now on there would only be one type of depository certificates and these would be printed by the government, and be distributed through the central bank to the commercial banks. In addition, gold reserves of the commercial banks would be collected together at the central bank.

                This created the concept of Currency Notes issued by the government. But what this also did was that it gave the government a monopoly on printing money. And unlike the kings of the earlier age, who had to call their gold coin back to debase them, now government could simply print more and more paper money as & when they deemed fit. And this right as we know has more or less been responsible for the current financial crisis.

IMPACT OF THE EVOLUTION OF MONEY: Let’s say US government prints $1 trillion and keeps it in its vaults, so then what would be the impact of this printing of money will be on the Inflation? The answer would be ZERO impact? Correct, simply because all the printed money is in the vault and does not enter into the economic systems…It is when the money enters the economic system which leads to a situation wherein more money chase the same or even fewer goods leading to price rise. At same time it is important how fast does money changes hands, meaning how fast people receive and then go out and spend this money. The faster they spend this money, more velocity money has and that in turn leads to a faster increase in prices & thus an increase in inflation. 

SAFEGUARD FROM THE FINANCIAL CRISIS : When markets are erratic & at times unpredictable, then the wise thing to do is to step up exposure to an asset that would infuse a semblance of stability and strength to the portfolio. And the cleanest, simplest & most efficient way to do is to invest in GOLD ETF. Not to mention the fact that the rampant way in which countries are debasing their currencies, one cannot help feel that at the end of the day, bullion will be more valuable than billions.

                             

BUY GOLD ETF's: There are new alternatives to invest in GOLD ETF’s - CLICK HERE , ETF’s – known as Exchange traded Funds which are listed on NSE. ETF just like any other mutual funds collects money and invest into the market. GOLD ETF’s collects funds and invests in GOLD. They buy gold physically – so the units are backed by 0.995 finesse gold. When you invest in GOLD ETF you are allotted a unit same as in mutual fund, here 1 unit of GOLD ETF can be 1 gm or 1/2 gm of gold depending on the funds – So Gold ETF are affordable. GOLD ETF’s trades like normal equity share on exchanges whose prices are in tandem with domestic gold price. If you dint have Demat account you still can invest in GOLD FUNDS like SBI GOLD FUND, Quantum Gold Saving Fund. You can also invest in these ETF in a Systematic Investment way (SIP) with as low as Rs. 500. JUST call your broker to buy GOLD ETF’s (List of listed ETF are mentioned below) or just visit your nearest bank and ask for GOLD FUND (if you don’t have trading account)

Listed GOLD ETFS

AXIS GOLD SHARE

GOLD BeES 

HDFC GOLD ETF

KOTAK GOLD ETF

RELIANCE GOLD ETF

RELIGARE GOLD ETF

SBI GOLD ETF

READ MY POST ON ALWAYS BUY GOLD 

INVEST IN GOLD THIS DHANTERAS - In a simple way !!

It’s time again for the Festival of lights – DIWALI – and we as Indians love to celebrate it. Whether it's shopping for new clothes, jewellery, sweets or decoration of homes the festival brings with it excitement and loads of enthusiasm. The first day of DIWALI is celebrated as DHANTERAS  - also known as Dhanwantri Triodasi. Dhanteras brings with it the festive mood of DIWALI. Though considered a festival of wealth, it signifies new beginnings & promises for a better future ahead.

The word DHANTERAS is a combination of DHAN means wealth & TERAS means the thirteenth night of the month in which it is celebrated. It is believed that the best day for making purchases of GOLD or any other precious metals should be done on DHANTERAS – as by doing so the goddess of money, LAKSHMI will bless the family throughout the year with prosperity.

On Dhanteras, buying precious metals like gold & silver are considered as good luck and hence major people pick Dhanteras as the day to buy gold, this day there is a splurge on gold jewellery & coins, you can see all the jewellery showrooms filled with buyers - some buy small gold coins or silver coins & some will buy according to their pockets. Apart from its festive significance, an investment in gold is also considered to bring with it a great potential to store value.

But physical gold purchases bring with them purity concerns & safety issues. Also, you stand to lose 10 % - 15 % of the value each time you send your physical gold for remarking, irrespective of whether the gold is certified or not. And there are deductions in the form of making changes. Besides, the exorbitant rates make it difficult to invest a lump sum amount. You have to budget for other expenses too during the festive season.

That’s why this DHANTERAS, there are new alternatives to invest in GOLD ETF’s

ETF’s – Exchange Traded Funds which are listed on NSE. ETF just like mutual funds collect money and invests in the market. GOLD ETF’s collects funds and invests in GOLD. They buy gold physically – so the units are backed by 0.995 finesse gold. When you invest in GOLD ETF you are allotted a unit same as in mutual fund, here 1 unit of GOLD ETF can be 1 gm or 1/2 gm of gold depending on the funds – So Gold ETF are affordable. GOLD ETF’s trade like normal equity shares on exchanges whose prices are in tandem with the domestic gold prices. If you dint have a Demat account you still can invest in GOLD FUNDS like SBI GOLD FUND, Quantum Gold Saving Fund. You can also invest in these ETFs in a Systematic Investment way (SIP) with as low as Rs. 500. JUST call your broker to buy GOLD ETF’s (List of listed ETFs are mentioned below) or just visit your nearest bank and ask for GOLD FUND (if you don’t have a trading account)

LISTED GOLD ETF

AXIS GOLD SHARE

GOLD BeES 

HDFC GOLD ETF

KOTAK GOLD ETF

RELIANCE GOLD ETF

RELIGARE GOLD ETF

SBI GOLD ETF

Dhanteras sets the festive mood for DIWALI and signifies new beginnings for a better future ahead. This SAMVAT 2068, start the festival of lights with a difference – invest in gold – invest in GOLD ETF.

WISHING ALL MY READER FRIENDS A VERY HAPPY DIWALI & A PROSPEROUS NEW YEAR ......... 

TILL THEN HAPPY INVESTING

BHAVIKK SHAH  

READ MY POST ON ALWAYS BUY GOLD 

US PRINTING NOTES AGAIN: DEBASEMENT OF CURRENCY

"MONEY MONEY MONEY!!!!"

On November 3, 2010. Federal Reserve chairman Ben S Bernanke decided to have a second round of Quantitative Easing (QE2). He decided to pump in $600 billion into the US economy by buying an additional Treasury Bond through June in order to reduce unemployment & avoid deflation by printing money. And printing more & more money would be more “Debasement of your Currency”. This will lead to surging commodity prices & asset bubbles not only in the US but also in Emerging Markets. The US Fed reserve calls it liquidity into the financial system by merely printing more & more dollars, which are not backed by real assets such as Gold. Technically, there is no limit to this printing, i.e. No supply restriction on paper currencies. This is what economists called “Debasement of Currency”.

Gold has a unique characteristic of a store of value which is not with paper currencies, which tend to lose value over a period of time due to inflation (loss of purchasing power) caused by an oversupply of printed money.

We will compare the Currency in Circulation issued and the underlying Gold held by concerned Central Banks in developed countries. Divide the Gold reserves (in tonnes) held by Central Banks with the currency in circulation (in billion $) of the respective countries will give us a ratio, a Gold to currency ratio.

In 1973, Gold held by the US central bank was 8,584 tonnes & the currency in circulation was $61 billion. Dividing the gold held by the currency in circulation, we get a ratio of 140.2 for that year. i.e. 140.2 tonnes of gold was held per $1 billion of currency in circulation. In the year 2007, the US central bank held 8,133 tonnes of Gold & the money in circulation was a whopping $759 billion. The ratio comes to 10.7 .i.e. only 10.7 tonnes of gold held per billion dollars in circulation.

If the US were to get back to the 1973 ratio of gold held per billion $ in circulation, it would have to increase its Gold Reserve to whopping 1,07,153 tonnes from the current 8,133 tonnes, an increase of more than 13 times in potential demand. With the financial crisis not over yet, Central Banks like FED would continue to inject more & more money into the financial system. Thus the debasement of currency will continue, making real assets like GOLD & SILVER more & more attractive as a hedge against reducing purchasing power & loss of faith & confidence in paper currencies.

We should thank GOD that the US does not have a printing press for Gold. The YELLOW metal may be the only Savior of our wealth over the longer term. That sure makes a case to buy GOLD. As far as our INDIA is a concern, India’s M3 supply in INM3MS=ECI as of July 16,2010 was Rs.57,821.41 billion from Rs.56,770.76 billion (June 18,2009) & Rs.4984.46 billion on July 3,2009. GOLD RESERVE AS ON SEPTEMBER 10, 2010 – 557.7 tonnes.

SO..GOLD IS ALWAYS A BUY EVEN AT THIS PRICE. BUY IN GRAMS IT SURELY WILL MAKE YOUR WEALTH SLOWLY BUT SURELY.....

Read my previous post on GOLD - CLICK HERE -  MORE ON GOLD

ONE SHOULD ALWAYS BUY GOLD

               Before the great depression, most of the world used gold as a currency. Of course, that did mean every time someone purchased something they paid for it in gold. Governments maintained a certain amount of gold in their vaults & paper currency was issued against the value of that gold. (In INDIA, the minimum reserve worth Rs.200 cr should be maintained at any point of time, out of these reserves Gold reserves should be worth Rs.115 cr @ Rs. 94/10 grams & a Forex reserve of Rs 85 cr at the current market price. If actual reserves are more than the minimum reserve RBI may prints new currency notes & issues them to deficit banks in form of loans against gold, foreign exchange, promissory notes & treasury notes) So every time you pay paper money you effectively using gold. This system was the “Gold Standard”. Citizens also had the freedom to exchange these currency notes for gold, as and when they deemed fit.

               The government ensured that no more notes are printed. The reason was simple if they had to print more money they needed more gold in their vaults because every paper currency note out there was essentially gold. And if citizens got the slightest hint that the government is printing currency, they would all land up at the bank to exchange their paper currency for gold. So even if the government was tempted to print money they would think twice before doing it.

               Now, during the time of the great depression, growth was a problem, unemployment was at its peak. Firms were shutting down. One way to create growth was the government printing notes & giving them to people in various ways to spend. Once the citizen got some money in their hands, they would go out and spend it. This ensures that they buy goods & services. And one man’s spending is another man’s income and so the cycle would continue and this would create some growth. And that’s what the government did; they moved out of Gold Standard and went into FIAT Currency i.e. a currency that does not have anything backing it but basically the fiat of government. This gave them the freeway to print any amount of money they want to.

               In fact, in the year 1933, the US government confiscated all the gold that its citizens had through Executive Order 6102 signed by the then President Mr. Franklin D Roosevelt, forbidding the hoarding of gold coins, gold bullion & gold certificates by US citizens. They were of course compensated for their gold at the rate of $20.67 per troy ounce (1 troy ounce=31.1grams). So because of this, the government across the world had the freedom to print currency whenever the economy was in trouble. And as per the basics of economics, an increase in supply leads to a decrease in purchasing power. That’s why economists who follow the Austrian school of economics, say that all paper currencies over a period of time go back to their intrinsic value i.e. zero.

               So that is why whenever there is a hint of a major financial crisis, people figure out that almost any solution that the governments might come up with will ultimately end up printing more & more money (which the US is doing to solve its financial problem and Europe cant due to its structure). This means decreasing purchasing power. The smart money in this situation always moves to gold. As it is now, people end up treating gold as nothing but what it was always used as i.e. CURRENCY. One should always have at least 25 % of its portfolio in Gold in order to hedge inflation.

Always buy gold in parts of SIP Systematic Investment Plans, or go into Gold ETFs...

Some of the GOLD ETFs are -

GOLD BeES (I prefer this as it is the first-ever launched, more experienced and of huge gold deposits)

Kotak Gold ETF

Reliance Gold ETF

Religare Gold ETF

SBI Gold ETF

UTI Gold ETF 

READ MY POST ON US PRINTING MORE NOTES

GOLD PRICES PERFORMANCE

Gold Price Performance

Silver Price Performance

India`s gold futures climb to new record

A weaker rupee makes the imported yellow metal expensive. The Indian rupee fell to its lowest in more than two weeks on Tuesday

Gold futures in India were trading above the psychological mark of Rs15,000 on strong global cues and support from a weak rupee. Internationally, gold prices continued their recent bull run as investors scramble for safe haven assets amid a worsening global economic outlook.

A weaker rupee makes the imported yellow metal expensive. The Indian rupee fell to its lowest in more than two weeks on Tuesday on expectations that FIIs would dump more local shares, while a stronger dollar overseas also dampened sentiment.

April-delivery gold gained as much as 2.9% to Rs15,131 per 10 grams on the Multi Commodity Exchange of India Ltd. (MCX), the highest since the bourse began trading the metal in November 2003. The contract had gained more than 3% last week.

Record high gold prices are serving as a major deterrent for gold buyers in India, notwithstanding the ongoing wedding season. Customers are postponing gold purchases due to record high prices and weak economic climate.

India is the world’s biggest consumer of gold.

India's import of gold this year may more than halve to 250 tons from 720 tons in 2008. India's gold purchases have declined for three consecutive months with imports in January slumping to about 2 tons from 24 tons in the year-earlier month, according to the Bombay Bullion Association.

Gold prices are up 30% in the past three months.

Funds are pouring huge amounts of money into gold and buying the metal at every support level. Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, climbed to a record 985.86 metric tons as of Feb. 13, gaining 14% last week alone.

Meanwhile, gold for immediate delivery advanced 1.8% to US$959.05 an ounce, the highest level since July 22. It was trading at US$958.74 at 2:05 p.m. Singapore time.

Gold for April delivery in New York advanced to US$961.10 an ounce, the highest level for the most active contract since July.

GOLD RESERVES AS ON DEC 2007

Gold reserves (or gold holdings) are held by central banks as a store of value. In 2001, it was estimated that all the gold ever mined totaled 145,000 tonnes.

1. One tonne of gold equated to a value of US$25.75 million as of October 2008 ($730/troy ounces)

2. The total value of all gold ever mined would be $3.39 trillion at October 2008 prices.

At the end of 2004, central banks and official organizations held 19% of all above-ground gold as a reserve asset.

3. About one percent of all above-ground gold (370 metric tonnes) was mined in the first five years of the California Gold Rush (worth approximately $11 billion at July 2008 prices).

4. IMF gold reserves refers to 3,217 tonnes of gold held by the International Monetary Fund. It is currently priced at $42 a troy ounce ($1,370/kg) for accounting purposes, a price that was fixed in 1971 just before the Nixon administration officially delinked the U.S.dollar from gold and instead allowed market forces to set the dollar's worth. An attempt to revalue the gold reserve to today's value has met resistance for different reasons. For example,Canada is against the idea of revaluing the reserve, as it would flood the market with gold and therefore depress its price.

5. It is also not clear whether the gold reserve is the property of the IMF or of member countries. As of September 2008, gold exchange-traded funds held 1,039 tonnes of gold in total for private and institutional investors.

6. The United States' holding of gold is worth approximately $241 billion (July 2008). Although the United States has the largest reserves of individual countries, in total the Eurozone gold holdings are greater (11,065 tonnes as of December 2007).