InvestMacro Forex News

By MoneyMorning.com.au

Money Morning chief Kris Sayce made a prediction at the beginning of the year that the stock market would be over 5000 points by the end of 2013.

He was early. The stock market is already over 5,000 points. But one catch for Kris is his beloved small caps have mostly been left behind. Not all of them, but it’s the large caps, especially the banks, that have and continue to drive the market rally.

So in the never ending task of looking for value on the cheap, right now it’s probably still more fruitful to be looking into the small caps than anywhere else. Kris has been saying this for a while, too.

It’s the task of today’s Money Weekend to lift the lid on one part of this exciting sector…

A Small-Cap Stock Picker’s Dream

Actually, if you need the point about small caps underperforming large caps driven home, Peter Wells did it on Thursday in The Australian Financial Review.

Remember, the Dow Jones Industrial Average in the USA is hitting a high and dominating the news, but the ASX / 200 is still 25% off its record peak it made in November 2007.

But if you dig a little deeper, it’s interesting to note that the top ASX/20 stocks are only about 10% below their all-time peak.

But the small caps stocks are well off the pace. According to the AFR:

‘The S & P / ASX Small Ordinaries is down 43.5 per cent from its 2007 peak. That’s almost 20 percentage points of underperformance relative to the S&P/ASX 200, and about 30 percentage points relative to the blue chip S&P/ASX 20.’

Now it’s easy to speculate why. Money has shifted into the stock market, but only into the big, stable earners. Maybe investors are still wary of taking on too much risk. Dividends certainly look more attractive against a falling cash rate.

For example, take a look at the performance of the iShares S&P/ASX High Dividend ETF [ASX: IHD] in the last few months:

Dividends Sexy at the Moment

Dividend investors don’t usually venture too far down to the small end of the stock market. A lot of small caps are miners, which usually have a small payout ratio, if they even have positive cash flow. The second reason is a lot of (non-resource) small cap stocks may not even be making money yet.

But even the profitable small caps are usually volatile and harder to value. Investors generally feel more comfortable in the big stocks with relatively stable earnings, which don’t jump around as much.

And don’t forget the big fund managers and superannuation guys HAVE to hunt mostly at the top end of town. They have too much money that they need to put to work. They need big, liquid stocks that they can move in and out of easily. That drives the values of those stocks higher based on capital flows. Broker research targets those stocks, too.

They’re some of the reasons small caps are a stock pickers dream, really. There’s simply less interest and less competition. But where to look right now?

A Major New Development and Small-Cap Opportunity

Well, if you asked Dan Denning of The Denning Report, right now he’d say the natural gas industry. Specifically, Aussie shale gas stocks. This is one story he’s been following from the beginning.

In fact, right now the shale gas industry is a perfect example of small caps stocks in general. It’s on the edge, unproven, speculative – with the potential to make investors a lot of money.

But it might just as easily be stillborn too, killed by public backlash, legislation or simple economics. The gas resources might be too small, too remote or too expensive to produce. Nobody is certain of anything.

But for now, the shale story is moving – and fast.

Consider the action in the market. You might know Beach Energy (ASX: BPT) made the news last week when it was reported that global energy giant Chevron agreed to a $339 million deal. Chevron has taken a stake in projects where Beach has been drilling and exploring for unconventional gas.

When a big energy company moves in, that’s usually a very bullish sign. Why? Energy majors generally prefer for other companies to shoulder most of the exploration risk. Their most pressing demand is to replace their reserves as their current assets deplete. This means waiting until projects are more certain in their viability.

So Chevron moving into (unproven) Australian unconventional gas may have just ‘de-risked’ some of the idea. And this week BHP indicated it wants in on some of the action.

This from The Australian on Thursday:

‘BHP Billiton is set to join the $1.5 billion rush by international oil companies to gain a foothold in the nation’s burgeoning shale gas industry, flagging it would start taking land positions in Australia in the wake of its $US20bn of US shale acquisitions in 2011.’

BHP made a move into shale in the US. It got caned and cost shareholders a fortune when the company had to write down its assets. But the company must still see potential in shale.

The catalyst might be as simple as demand for natural gas outstripping supply. Shale gas can fill that gap.

There are a lot risks to this idea. But if you’re after big gains in speculative energy shares, you want to get in before the big players really make a move. You can see Dan’s recent report here if you’re interested.

As he says, turning shale into a viable commercial proposition in Australia has been years in the making. But things suddenly seem like they are happening very quickly indeed.

Callum Newman
Editor, Money Weekend

PS. Don’t forget if you want to keep track of the latest things we’re reading and brief commentary on events that happen through the day, check out our Google+ page here or Kris Sayce’s here.

From the Port Phillip Publishing Library

Special Report: Australia’s Energy Stock BLOWOUT

Daily Reckoning: The Australian Shale Rush Begins

Money Morning: Why the Stock Market Boom is on Pause

Pursuit of Happiness: Here’s Why I’m Positive about the Future and Technology

Australian Small-Cap Investigator: Why Invest in Small-Cap Stocks? And Why Now?

By MoneyMorning.com.au

Energy: How Mother Nature Will Help Power the World

The future of energy centres around two key questions: what can we use that is plentiful and easy to come by? And how can we use this to power our world?

Of course there is the massive power from the sun. One way to look at the power potential of the sun is in just one hour there’s enough energy hitting the earth to power the whole planet for a year. The debilitating factor is our inability to capture and store this energy.

So with the sun’s power in mind, do you remember your early days of school and how plants work?

Let’s quickly recap anyway. Plant science 101. Leaves capture light from the sun. They convert this into fuel for the plant. A by-product is oxygen and also water. This process is photosynthesis.

Now let us explain why this is so important for powering the world.

Inspired by Mother Nature scientists from the Massachusetts Institute of Technology (MIT), notably Professor Daniel Nocera, created an artificial leaf. Obviously this artificial leaf uses the light from the sun, and splits this energy into oxygen and hydrogen. This discovery was a couple of years back and was quite inefficient at the time. But none-the-less, it was ground-breaking. As Prof. Nocera explains,

‘So when the sun goes down you can then take the hydrogen and oxygen, recombine them in a fuel cell and then you get electricity out. So at night you have electricity…and so all of a sudden your house has become a power station.’

With all signs pointing to success, the project came to a bit of a cross-road last year. The spinoff company from the discovery, Sun Catalytix, wasn’t sure of the economic benefit over existing hydrogen splitting technology. There was even talk about not developing the project for further testing.

Well guess what? Technology advances quickly! Prof. Nocera and his team are further down the track towards making the artificial leaf a commercial reality.

If they can get this technology into the mass market homes become power stations and ‘gas’ stations. What we mean by gas station is, plug in an electric car as your house provides the fuel source. You no longer rely on dirty power to sustain the household. Homes become ‘trees’ with multiple artificial leaves generating and storing fuel in an environmentally efficient way.

Not only that, but if economically produced and scaled, cheap power becomes available for all. Consider that many developing African countries don’t have access to readily available, cheap power. This means raising the quality of life for the impoverished.

What Prof. Nocera and some colleagues have done literally in the last month is complete a detailed report. And not just any old detailed report. This report maps out all the potential problems of the artificial leaf. This is the biggest step forward the team have made to brining the technology to commercial reality.

But why is it a good thing to understand all the problems? By understanding what is not good about it, they can fix these to make it better. It’s a fine example of reverse engineering.

Furthermore with this report in hand, they are now starting to sort out the problems. These improvements are making their discovery economically possible. Already they’ve discovered efficiency increases 3.4 times greater than they had 18 months ago. Imagine what they’ll have done in the next 18 months.

Gold: What if Gold is Just Like a Share

We don’t know if you can imagine this or not, but there is quite a debate going round the office here about the direction of the gold price and gold stocks. Why? Because everyone here is a sound money advocate.

We believe central banks should stop meddling with the financial system by constantly printing money and therefore devaluing your wealth through inflation.

But there’s another reason why gold has been the talk-of-the-town in recent weeks. It’s because of this chart:

Click here to enlarge

The chart shows you that over the past year, while the Dow Jones Industrial Average has gained a respectable 10%, gold and gold mining stocks have fallen. In the case of the Junior Gold Miners ETF (green line) it has fallen 41% in twelve months.

It has our colleagues wondering where it can go next, and the mainstream is now seriously running the line that the gold bull market is over. As John Authors concludes in the Financial Times:

‘Ultimately it’s very similar to the stock market. If the economy really finds traction then stocks can make true strong new highs and gold can go into a clear reverse. That remains a big “if”.’

As we wrote in last week’s Money Weekend, we’re taking a slightly different view on gold from the rest of our colleagues. We think that as stock markets have recovered to some degree, investors have forgotten about the immediate fear of total financial collapse.

That means they’re treating gold as they would any other share investment – if they think it will go up they’ll buy; if they think it will go down they’ll sell.

Maybe it’s more complicated than that. But we like to keep things simple. Don’t get us wrong, we still like gold, and we haven’t sold a bar of it…ever. And we don’t intend to.

But for now, as we wrote in yesterday’s Money Morning, there are perhaps better places to invest your free cash flow than gold.

Technology: The Future of Kids’ Education Starts NAO

Look at it like this. If you moved to Russia you’d probably make sure you could understand Russian. China, you’d get a grasp of Mandarin. Italy, Italian. You see the trend.

However, the most universal of languages on earth is the least taught, and understood. We’re talking about computer code.

But there’s a movement to change this, and specifically to help children to understand and be fluent in coding. This is a key step, because without it children may face a future of job insecurity and difficulty.

The point is that kids should engage with coding like it’s a second language. Technology is already a part of their upbringing, so it’s important to find new and innovative ways to fuse together kids and coding.

Most people won’t believe this but there are already a growing number of humanoid robots helping educate our kids. These mechanical marvels are providing the path for kids to learn the art of coding and robotics.

You see, the little robot’s name is NAO and aside from being high on the scale of cuteness, they’re taking the education experience to a whole new level.

Already in over 200 schools worldwide, students are getting a more engaging, intuitive and fun learning experience. And you can put it down to NAO. Given the growing importance of computer technology in the workplace, wouldn’t you want your kids to get this kind of engagement at school? We know we would.

How amazing would it be if every school had access to this kind of learning experience? We think it’s crucial to help engage kids with the digital age we live in. And it all starts with the way they’re educated.

And by the way, if you think NAO will only be in schools. It won’t. NAO parent Aldebaran-Robotics has been working on a general-public release of the little guy. So before you know it you might come home to a 58cm robotic friend of your own.

Health: The HIV Game Changer

Some breakthroughs are unbelievable. For years the scientific world has stated one day we will cure HIV. And deep within the pessimistic section of the brain, you might have thought, ‘Yeah right, it will never happen.’

Well we’re here to tell you that it has happened. And this is game changing.

Let us explain. A newborn girl in the US carried the HIV infection because her mother has the disease. Upon birth the doctors knew that the best chance the little girl had for a ‘normal’ life would be preventative treatment. They fully expected to manage the infection, as with many HIV babies before her.

Doctors continued treatment of the girl for 29 days with existing FDA approved antiviral drugs. At this milestone HIV was undetectable in her body and follow up treatment continued until the infant was 18 months old. Then, mother and child vanished…10 months later they resurfaced. Sadly the mother said they had not kept up with any form of treatment for the girl’s HIV.

Of course the doctors expected the worst. Regardless, they performed standard tests to see if in fact the virus had returned. They predicted hidden HIV cells would have reproduced and returned the virus to the child.

Oh how they were wrong! Incredibly, after re-testing the child for HIV several times, the virus was still undetectable. And the child today (with no ongoing treatment) continues to be functionally free of HIV.

What this means is drug companies already have the arsenal to blow away HIV. And now doctors have a roadmap to apply the method. The key to success – well at least it’s thought to be for now – is the early stage of treatment in newborns.

The funny side of it is doctors are pretty confident they came about this discovery by accident. But they have rid this little girl of HIV, so accident or not, it’s a first.

Just think about a world of doctors getting to HIV infected babies early enough. What a huge step forward in choking the disease.

Eradication of any disease is extremely difficult. And when we look back through the pages of history we can only find two examples. Smallpox and Rinderpest (a cattle plague). Polio is hoped to be the third. With this successful outcome and huge step forward, HIV could be the fourth.

Mining: An Unconstitutional Tax

Our old buddy Dr Alex Cowie is off to the Hong Kong Mines & Money conference in just over a week. He’s there to present on gold stocks.

Given the gold chart we’ve shown you above, it could account for some interesting discussions about whether now is a good time to buy both the metal and the stocks.

Doc Cowie was last in Hong Kong for this conference in 2011. During that event he had the pleasure of watching a presentation by Fortescue Metals [ASX: FMG] chairman, Andrew Forrest.

As far as we know, Mr Forrest isn’t making a trip to Hong Kong this time. Perhaps because he’s too busy challenging the constitutionality of the Federal government’s Mining Resource Rent Tax (MRRT).

That’s the tax that has been so successful that it has only raised a fraction of the amount expected by the government. As we noted on our Google+ page a few weeks ago, that’s our kind of tax. A tax that doesn’t add a bean to the government’s coffers is a tax worth voting for.

Even so, Mr Forrest isn’t one to let a dud slowly die. Fortescue doesn’t expect to pay any MRRT this year, but the company is still challenging the tax in the High Court.

According to The Australian:

‘The plaintiffs have also argued in written submissions that the MRRT limits the ability of the states to be competitive against other states and raise royalties.’

We doubt that Fortescue will win its case. Judges are paid by the State and will always side with the State as it looks to increase its influence and control over individuals.

That said, we’ll wish Fortescue luck with its case. As for Doc Cowie, he’s promised to keep Money Morning readers updated on all the happenings at the Mines & Money conference.

Kris Sayce and Sam Volkering

Join Money Morning on Google+
From the Archives…

Gold’s Dark Hour Before Dawn
1-03-2013 – Dr. Alex Cowie

The Primary Colours of Investing
28-02-2013 – Kris Sayce

Revealed: Inside a Share Trader’s Den
27-02-2013 – Murray Dawes

Where to Find Value in this Rising Stock Market
26-02-2013 – Kris Sayce

China Bull Versus China Bear – There Can Only Be One Winner
25-02-2013 – Dr. Alex Cowie

Article by Investment U

In focus this week; a Buffett screen for stocks, the new miracle stock picking system and this week’s Slap in the Face Award.

Rueters’ John Kozey recently ran a stock screen that was designed to mimic the criteria Warren Buffet is known to use when selecting stocks. The 30 stocks the screen kicked out are on your screen now:

Mosaic (NYSE: MOS)

Newmont Mining (NYSE:NEM)

PPG Industries (NYSE: PPG)

Air Products & Chemicals (NYSE: APD)

Nucor (NYSE: NUE)

Eastman Chemical (NYSE: EMN)

Johnson Controls (NYSE: JCI)

General Mills (NYSE: GIS)

Archer Daniels Midland (NYSE: ADM)

Sysco (NYSE: SYY)

Hershey (NYSE: HSY)

Campbell Soup (NYSE: CPB)

Coca-Cola Enterprises (NYSE: CCE)

Baker Hughes (NYSE: BHI)

Transocean (NYSE: RIG)

Illinois Tool Works (NYSE: ITW)

CSX (NYSE: CSX)

Norfolk Southern (NYSE: NSC)

Cummins (NYSE: CMI)

Paccar (NYSE: PCAR)

Ingersoll Rand (NYSE: IR)

Tyco International (NYSE: TYC)

Parker Hannifin (NYSE: PH)

Stanley Black & Decker (NYSE: SWK)

Dover (NYSE: DOV)

Rockwell Automation (NYSE: ROK)

Republic Services (NYSE: RSG)

Fluor (NYSE: FLR)

None of these will be found in the “stock-of-the-month club.” No penny stocks, you won’t find them flying around chat rooms, just stable, well-run companies that meet two of Buffett’s primary requirements; modest debt and growing, not growing quickly, but growing earnings and dividends.

It seems too simple, but if the third richest man in the world likes these criteria, who am I to argue?

But what was most interesting about this Buffett screen was that it included a metric that almost anyone can use. In fact, both of the components are easily found on Yahoo!’s key statistic page on their stock quote page:

EV, enterprise value, market cap plus debt, minus cash and cash equivalents, and EBITDA, earnings before interest, taxes, depreciation and amortization

A lot of words but it’s a simple way of looking at what is considered to be one of the first checks in the takeover value of a company. And, isn’t that what Buffett really does, buy so much of a company he ends up owning most or all of it.

Both EV and EBITDA are calculated for you by Yahoo! and the ratio can be a quick way to cut away the waste and get into the finest cuts the market has to offer.

By the way, the three stocks Kozey chose to focus on in his article were Archer Daniels Midlands, Sysco, and Illinois Tool Works. But, of the 30 stocks picked by Kozey’s screen, the only one Buffett currently owns is ADM.

Food, again!

Remember: Screens are helpful to narrow the field, but far from the final word.

The Newest Miracle Stock Picking System

Next up, the newest miracle stock picking system

This system was described in a Wall Street Journal article as the holy grail of stock picking. It beat the market by 4% annually between 1963 and 2011, and had a lot less downside than even value stocks during the same period.

That’s saying a lot! They are called quality stocks, as compared to value or growth.

This system focuses on the top-line  (revenues minus basic expenses), rather than the traditional focus on the bottom-line, or earnings.

The author of the system, Robert Novy-Marx of the University of Rochester, says his system looks for bargain basement “quality” stocks.  Novy-Marx says “you get much more informative signals about companies using this method.”

One very interesting aspect of companies that fall into the quality stock arena is their willingness to invest in their future profitability. Unlike other methods quality doesn’t penalize for R&D spending.

Quality looks for tomorrow’s winners with a focus on a price to book of 1.7 or lower, a ratio of revenues, minus cost of goods, divided by total assets and is limited to large companies.

Systems come and go but what I like about this one is the fact that it focuses on cheap stocks. Buy low….and, you know the rest of that one.

The pros have really taken notice of this new idea. Mutual fund companies are launching quality based funds and ETF’s and closed ends can’t be far behind.

Take a closer look at the quality method. But, don’t kid yourself, no one system will ever be able to address all the issues involved in picking stocks. But, if this can force our members to stop overpaying for equities and focus on stocks on the low end of their price swings, it will be worth the time.

Quality stocks, it sounds almost too simple!

SITFA: Student Loan Edition

Finally, the sitfa

Sometimes I have trouble picking the winner of the sitfa, but this week a whole big part of the herd was an easy winner.

If you have a few years of market experience under your belt, you are gonna love this one.

SLM, one of the largest of all student loan lenders, recently sold $1.1 billion worth of these loans.

In case you didn’t already know, the default rate for these bonds is sky high compared to most other debt. 31% of people paying back student loans are at least 90 days late. 31%.

Bad enough, right? But hold on!

The student loans that were most in demand during the recent SLM sale were the riskiest of all the loans offered. There were 15 bids for each of the highest risk bonds. 15 bids for every garbage bond offered.

Get ready, here comes the killer. These loans are not backed by anything! Since the collapse SLM has tightened their lending standards and defaults are down a little, but come on.

Does the herd really have no understanding of money, at all?

Watch yourselves out there. The rush for yield is leading directly to the cliff!

I guess so…Unbelievable!

Good Investing,

Steve

Article by Investment U

By The Sizemore Letter

I’ve been a big believer in midstream master limited partnerships (MLPs) for a long time.  The U.S. domestic energy revolution has created massive new demand for pipeline infrastructure, and a lack of attractive income options elsewhere makes them doubly attractive to individual investors.

As an asset class, MLPs are off to a great start in 2013.  The JP Morgan Alerian MLP Index ETN (NYSE:$AMJ), which is a good proxy for MLPs as a whole, is already up 12% this year, not including distributions.  Not bad, given that the S&P 500 is only up 8%.

Kinder Morgan Energy Partners (NYSE:$KMP) is one of the oldest and most popular MLPs and along with Enterprise Products Partners (NYSE:$EPD) is what I would consider the bluest blue chip of the group.

But KMP is a terrible choice for most investors given that you can buy its sister security at a discount while also dealing with far less headache at tax time.

Kinder Morgan Management (NYSE:$KMR) is a hybrid security that pays its distribution in stock rather than cash. It’s also “IRA friendly” and doesn’t generate a cumbersome K-1.  It’s everything great about KMP but without the headache.

For this added convenience, you might expect to pay a premium. But at current prices, KMR trades for nearly a 5% discount to KMP.  Given your choice here, you’d be a fool to buy KMP.

There is one other option as well: Kinder Morgan Inc (NYSE:$KMI).  Kinder Morgan Inc. is the general partner that manages KMP and KMR.  It’s taxable as a corporation and pays a lower dividend at 4%.  But if you believe in the growth of the industry, it’s likely to be the most profitable of the lot. Due to the way that LP distributions are paid, the general partner can be thought of as a leveraged play on the underlying MLP.

Frankly, in an MLP bull market you can’t lose with any of these options.  But for an investment in Kinder, I would recommend something along the lines of 2/3 in KMR and 1/3 in KMI.

Disclosures: Sizemore Capital is long KMR and KMI.  This post first appeared on TraderPlanet.

SUBSCRIBE to Sizemore Insights via e-mail today.

The post The Right Way to Buy Kinder Morgan appeared first on Sizemore Insights.

By www.CentralBankNews.info     Mexico’s central bank cut its benchmark interest rate by a larger-than-expected 50 basis points to 4.0 percent to boost spending and growth, but stressed it was not embarking on a new cycle of easing and the rate cut would not jeopardize the path towards lower inflation.
    Banco de Mexico said its first rate cut since July 2009 was made possible by the country’s progress in anchoring inflationary expectations, reducing the persistence and volatility of inflation, the lack of second-round effects from price shocks and a significant decline in the inflation risk premium.
    But Mexico’s economy is now feeling the effects of an expected decline in U.S. growth where budget cuts are affecting prospects and there is uncertainty about Europe’s economic recovery.
    “The global economy continues to show signs of weakness,” the Bank of Mexico said, adding that rising unemployment will allow the economy to grow without stoking inflation.
   The rate cut comes after the central bank changed course in January and signaled that rate cuts may be in the offing after last year’s frequent warnings of rate hikes to control inflation.
   Mexico’s inflation rate rose to 3.55 percent in February from 3.25 percent in January but this is still well below 2012’s average rate of 4.11 percent.
    The central bank targets annual inflation of 3.0 percent, plus/minus one percentage point.

     www.CentralBankNews.info

By Aaron – insideinvestingdaily.com

Last week, I showed you why education is crushing not only young people, but also their baby boomer parents. If you haven’t already read the shocking truth behind America’s education costs, you can find my essay here.

Young Americans now carry over $1 trillion in total student loan debt. And their parents — maybe you included — are forced to borrow against their futures to help pay for their kids’ college educations.

Last week I told you about two revolutionary online resources that offer alternatives to crushing college debt: www.coursera.org and www.openculture.com. These sites allow you to take university-level coursework — for free.

This week I want to put forward another controversial idea: that an associate degree is far more valuable on a dollar-for-dollar basis than a bachelor’s degree from a university.

An associate degree is an undergraduate degree that’s usually awarded by a community college or technical college after a course of study usually lasting two years. A bachelor’s degree, on the other hand, typically takes four years to complete and is awarded by a
university.

It is amazing how poorly the distinction is understood. Most folks still believe associate degrees don’t provide a meaningful gateway to a sustainable career path. But the evidence points to the contrary.

According to new research from The Hechinger Institute, 30% of associate degree holders earn more than those workers with bachelor’s degrees.

For instance, in Tennessee the average associate degree holder makes $38,948 a year — $1,300 more than the average bachelor’s degree holder. And in Virginia, associate degree holders make $2,500 more a year, on average.

This actually makes perfect sense. Associate degrees tend to focus on real world skills, such as lab tech jobs, therapists, paralegals and machinists.

And the costs are WAY lower. A degree from a private university costs on average $172,000. According to the College Board, the average cost of a two-year associate’s degree is $6,262.

In other words, the average bachelor’s degree costs 27 times what the average associate degree costs.

These are important considerations. Grandparents are now the targets of 529 college savings plan ads. Mom and dad are tapped out. So the college savings cartels are turning to grandmom and grandpop.

My advice is to get your kids to take free college courses on coursera.org and openculture.com. When they have identified a clear interest, encourage them to consider an associate degree, if one is available.

Ignore the snobs who think a costly bachelor’s is somehow “better” than an affordable associate degree. And remember that one of the first steps to building unconventional wealth is having the guts to ignore the mainstream view.

Best regards,

Aaron

insideinvestingdaily.com

London Gold Market Report
from Ben Traynor
BullionVault
Friday 8 March 2013, 07:00 EST

U.S. DOLLAR gold bullion prices hovered near $1580 an ounce Friday morning, broadly in line with where it started the week, as stocks edged higher and the US Dollar weakened ahead of the publication of the latest US nonfarm payrolls and unemployment rate data.

Gold in Sterling meantime dipped below £1050 an ounce by lunchtime in London, while in Euros it fell towards €1200 an ounce as both currencies gained against the Dollar.

“The gold price is currently under pressure from two sides,” says today’s commodities note from Commerzbank, citing heavy outflows from gold exchange traded funds since the start of the year as well as less bullish positioning by speculative traders on the New York Comex.

Silver meantime dipped below $28.80 this morning but stayed within a tight range while other commodities were also broadly flat and major government bond prices dipped.

In Washington, President Obama has been dining with key lawmakers from both major parties this week, and plans to do the same next week, as part ongoing negotiations over the US budget.

On Thursday, Obama had lunch with, among others, Paul Ryan, chair of the House Budget Committee and architect of the so-called ‘Ryan Plan’ which would see changes to Medicare and Medicaid programs as well as the 2010 health care legislation known as ‘Obamacare’.

Last Friday Obama signed into law the so-called sequester that was originally passed as part of the August 2011 debt ceiling deal.

“There is increasing talk of another ‘grand bargain’ being in the cards,” says Ed Meir, metals analyst at brokerage INTL FCStone.

“Should an accord be reached, we could see yet another round of selling in gold, as the ‘deficit prop’ that has been instrumental in the bullish argument for the precious metal will look somewhat more wobbly.”

On the currency markets, both the Euro and the Pound ticked higher this morning, ticking back above $1.31 and $1.50 respectively, after both the Bank of England and the European Central Bank left interest rates on hold yesterday. In London, the BoE also voted not to extend its quantitative easing program by a further £25 billion to £400 billion.

The British public meantime expects inflation to average 3.6% over the next 12 months, according to the latest quarterly Inflation Attitudes survey published by the BoE this morning. The previous survey three months ago reported expectations for inflation of 3.5%.

Since the BoE began its quantitative easing program in March 2009, inflation has been above the 2% target in 41 out of 47 months.

The ECB meantime left its main policy rate at 0.75%, the record low to which it was cut last July.

“In the medium term, we continue seeing the beginning of a gradual recovery [in the Eurozone economy],” ECB president Mario Draghi told a press conference yesterday.

“The ECB seems ready to accept an excruciatingly slow recovery and very low inflation [and] will continue to sit on its hands,” says Nick Kounis, head of macro research at ABN Amro in Amsterdam.

“We don’t believe that the Eurozone economy will recover and we also believe that inflation will fall dangerously below the 2% target,” adds today’s currency note from Standard Bank.

“If that’s correct, the ECB really needs to be easing policy, not just through rate cuts but also in other ways to try to get credit flowing to firms and consumers again.”

The world’s number two gold buying nation China saw its trade balance post an unexpected surplus last month, as exports grew more strongly than expected year-on-year and imports fell more sharply, according to official data published Friday.

Chinese gold imports from Hong Kong meantime fell to 51.3 tonnes in January, less than half the volume of the previous month, according to Hong Kong customs data published Friday. Just under 24 tonnes of gold flowed the other way, leaving Chinese net imports from Hong Kong, a major conduit for bullion going into China, at 27.3 tonnes, a 3.7% drop from a year earlier.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

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Senior Analyst Jeffrey Kennedy shows you how these volatility indicators support pattern recognition

By Elliott Wave International

As a technical trader, are you able to view financial market fluctuations clearly and reliably?

At Elliott Wave International, we hold that the Elliott Wave Principle is the most effective tool for analysis. Yet the Wave Principle works well with other technical tools. If you are ready to trade with Elliott, our educational subscription editor Jeffrey Kennedy can teach you how to integrate ancillary technical indicators — such as Bollinger bands — to build high-confidence setups in the markets you trade.

Bollinger bands identify periods of increased and decreased market volatility. Learn about the significance of these fluctuations in this video about Bank of America Corp. (BAC) taken from Jeffrey’s Elliott Wave Junctures service:

Here are Jeffrey’s notes from the lesson:

Bollinger bands form a two-period standard deviation channel based on a 20-period simple moving average. This channel will contain 95% of all price action with the moving average acting as a center line, which often provides support and resistance. The width of the Bollinger bands increases and decreases with market volatility.

Narrow Bollinger bands coincide with low market volatility, which often leads to big price moves. Option traders like this because option prices are low at this time. Conversely, wide bands imply that market volatility is high, which translates into expensive options.

The recent narrowing of the Bollinger bands in BAC signals decreasing volatility. Since periods of low volatility precede periods of high volatility, look for a big move in the days to come.

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