Silver surges as fund money pours in

President Obama will speak in North Carolina later today and is expected to tender a compromise by which the Bush-era tax cuts will be temporarily extended for all income brackets but only if benefits for unemployment are also given an extension. The President is also likely to call for fresh investment in education and innovation, as a catalyst for further jobs creation.

On Saturday, Mr. Obama expressed his confidence that a recently concluded free-trade deal with South Korea will support “at least 70,000 American jobs.” Whatever it takes, just get jobs going – that seems to be the message coming from certain important buildings in DC. For example, the Fed Chairman (in his “60 Minutes” discussion) did not exclude the possibility that the U.S. central bank might have to either resort to bond purchases beyond the recently announced $600 billion or to using “other measures” available to it in an effort to get jobs creation on a reliable growth track.

That said, Mr. Bernanke vehemently defended his team’s recent policies by alluding to the dire scenario that would have resulted, had no stimulus measures been undertaken. He also threw a bucket of cold water in the direction of the Sarah Palin-flavored allegations that money is being “created out of thin air” and that the consequences of all of this accommodation imply inevitable hyperinflation.

“We’ve been very, very clear that we will not allow inflation to rise above 2 percent. We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. That time is not now.”

Mr. Bernanke also tried to convey to the “helicopter Ben” crowd that the Fed’s purchases of Treasury securities shouldn’t be equated with “naked” printing of endless supplies of dollars. “The amount of currency in circulation is not changing,” he said. “The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying Treasury securities.”

The same aversion to inflation getting out of hand (or just beyond targeted levels) is also evident in China’s central bank communications of late. The new language adopted by Beijing authorities last week has now given speculators less to…speculate about, at least on certain fronts. See today’s Hang Seng Index, which fell on just such apprehensions, dragged down by developers and banks.

Chinese interest rate hikes are now not a matter of “if” but of “when” and “how much” and price controls on certain key commodities have already made an appearance. MarketWatch’s Craig Stephen warns that, this time, China means (anti-inflation) “business.” With that, come certain risks that the [sped] “trade” ought to ponder:

“For economies and assets that have benefited from China’s growth and liquidity, Beijing’s next move will need to be watched closely to see if some form of “soft landing” can be managed for what is now the world’s second-largest economy. CLSA notes, for example, that China’s inflation issue presents a tactical risk to the Aussie commodity trade. The Australian mining sector and dollar have been big beneficiaries of China’s growth.

They are not alone as a whole host of commodities from steel, iron ore to basic food stuffs have risen on Chinese demand. It also appears that even gold should be included in this list. Last week China disclosed for the first time its gold imports grew five-fold this year to more than 209 tonnes in the first 10 months of this year. Perhaps the trade for next year is to find assets that China has not yet been buying and will not be selling.”

Until tomorrow,

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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