Competition among some major exchange groups is beginning around the London gold market, one of the world’s largest gold exchanges. The overall market is worth around $5 trillion and is expected to be hotly contested over the next 5 years as groups like CME Group Inc., Intercontinental Exchange Inc., and the London Metal Exchange fight for dominance.
Peter Schiff’s recent podcast addresses the mistaken comparisons of Trump’s proposed economic stimulus plans to Reagan’s. Investors are looking for Trump to deliver the same results of economic stimulus, deregulation and smaller government are misreading the differences between the early 80s, post-Carter economy, and today’s realities. “There really isn’t any precedent between now and the Reagan era,” Peter states.
Across the world this week, many different political strains were generating economic challenges. Venezuela is producing a cautionary tale about hyperinflation, while Italy began expressing its own populist movement. Meanwhile, the Fed has begun nervously testing the waters of the future Trump administration.
Venezuela Issuing 20,000 Bolivar Notes to Combat Worthless Currency
Venezuela’s Runaway Inflation is continuing to force policy makers to come up alternatives. One of the alternatives is the issuing of six new bills, which includes a new 20,000 bolivar. The super note will be worth 200 times more than the cash-heavy country’s current highest denomination.
Venezuela’s inflation is expected to triple in 2017. Currently, 4,400 bolivars will get you one US dollar. There seems to be no end in sight for the free-fall currency, which is creating shortages in food and medicine.
On Wednesday, the Mortgage Bankers Association released data showing a sharp drop of 0.7% in mortgage applications from a week prior. The MBA’s report blamed higher interest rates on fixed-rate mortgages as the cause for the downturn. Currently, these rates are at a two-year high.
Monday saw a drop in gold prices as investors look to the Federal Reserve to raise interest rates next week. The misguided selloff comes despite almost certain future inflation levels, and many traders are likely to backtrack their bets in the coming months.
Higher interest rates will add to inflationary pressures. Leveraged businesses will find servicing their existing debt more expensive and will inevitably pass the cost on to consumers in the form of higher prices. Consumer price increases are detrimental to economic growth and job creation, which will put pressure on the Fed to keep rates low.
Since it was first proposed last April, trading gold as a commodity within Islamic finance is now a reality. The pro-gold law was first adopted on November 19 by the Accounting and Auditing Organization for Islamic Financial Institutions, which sets Sharia Law standards for finance groups.
Historically, Islamic investments have been guided by Sharia Law, which prohibits financial practices like earning and paying interest on loans. It also outlines requirements for the exchange of commodities like gold and silver. Islamic law sees gold as a substance sold by its weight and measures; a commodity that must be immediately exchanged in equal amounts. These types of substances are called Ribawi, and traditionally include silver, dates, wheat, salt, and barley. Therefore, the idea of using precious metals as an investment vehicle or as wealth retention is new.
Trump has pegged the next US Treasurer, Steven Mnuchin, who’s already begun making bold statements about tax cuts and revamping Fannie Mae and Freddie Mac. Italy may hold the keys to a European market crisis and Bernanke tells the Fed to keep their economic predictions to themselves. This much and more in this week’s Fed Up Friday.
Mnuchin – Reaching Sustained Growth Makes Tax Reform “Priority No. 1”
Steven Mnuchin will be the Treasury Secretary, and in his first televised interview following the announcement, he dug in on many of the statements Trump has said in the past; the main issue being tax reform. In addition to cutting corporate taxes by 20%, Trump also looks to give middle-class Americans an income tax cut. But plans to cut to government revenue are hardly a panacea if it’s missing one important ingredient. Peter Schiff explains:
“People are talking about these tax cuts and saying maybe the consumer is going to have some extra money. It’s not going to offset these higher costs that are weighing down the economy … The only way you can have middle-class tax cuts lead to economic growth is if you also reduce the cost of government.”
Donald Trump’s US Treasury nominee Steven Mnuchin sent mortgage markets into a frenzy when he said privatization of Fannie Mae and Freddie Mac should begin and that the incoming administration would “get it done reasonably fast.” Comments about the two mortgage finance titans shot their stocks up over 30% according to Bloomberg.
Both financial institutions have worked as clearing houses for mortgages, buying them from private lenders, packing them into securities, and stamping them with a US government’s guarantee. Privatization means increasing risk to some, but Mnuchin was quick to dispel any worries. “We will make sure that when they are restructured, they are absolutely safe and don’t get taken over again. But we’ve got to get them out of government control,” he stated.
A man from the French region of Normandy recently inherited a house from a deceased relative, only to discover his newly acquired home was actually a secret gold depository. Throughout the house, the man found a total of 220 lbs (3208.33 Troy oz.) of gold coins and bars totaling $3.7 million.
The man’s identity has yet to be released, but reports indicate he was in the process of preparing furniture for sale when he stumbled upon part of the horde.
Local auctioneer, Nicolas Fierfort, who had visited the home in order to appraise the furniture confirmed “5,000 gold pieces, two bars of 12 kilos and 37 ingots of 1 kilo” were found in total.
The southern African Republic of Zimbabwe knows all about currency crisis. In 2009, the country was forced to stop printing its own currency because inflation levels had grown to astronomical proportions. At its highest levels during 2008 and 2009, Zimbabwe’s inflation rate was estimated to have reached 79.6 billion percent. Eventually, the struggling republic was forced to abandon its own currency and cease the runaway hyperinflation. In turn, it adopted others like the South African rand, the euro, and the pound just to keep the economy functioning, according to Bloomberg.
