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PIMCO's Bill Gross - Trillion Dollar Platinum Coin Is Not The Solution

Commodities / Gold and Silver 2013 Jan 11, 2013 - 06:25 AM GMT

By: GoldCore

Commodities

Today’s AM fix was USD 1,669.50, EUR 1,258.29 and GBP 1,036.25 per ounce.
Yesterday’s AM fix was USD 1,663.00, EUR 1,269.37 and GBP 1,036.65 per ounce.

Silver is trading at $30.68/oz, €23.24/oz and £19.12/oz. Platinum is trading at $1,629.00/oz, palladium at $694.00/oz and rhodium at $1,150/oz.


Cross Currency Table – (Bloomberg)

Gold climbed $15.50 or 0.94% in New York yesterday and closed at $1,672.90/oz. Silver surged to a high of $30.926 and finished with a gain of 1.45%. The yellow metal was on track for a 1% weekly rise, after falling for five of the past six weeks.

Gold edged off in euros on Friday, following the European Central Bank’s decision to keep its rates unchanged.

Japan's gold market (TOCOM ) made news as benchmark Tokyo gold futures hit a record high of 4,820 yen a gram ($1,699.62 an ounce) after the yen dropped to a 2-1/2-year low vs. the dollar on expectations of more QE by the BoJ.

Japanese Prime Minister Shinzo Abe made has pushed increased jobs growth as part of the Bank of Japan’s directive as his government approved $117 billion of spending to revitalize the economy in the biggest stimulus since the financial crisis.

Abe is leaning hard on the BOJ to adopt a 2% inflation target at its January 21-22 rate review, which is double its current goal, and consider easing monetary policy again, most likely by increasing government debt and asset purchases, sources told Reuters.

Spain's first debt auction of the year was positive, as appetite for high-yielding assets improved.

PIMCO founder and co chief investment officer Bill Gross gives no credence to the trillion dollar platinum coin scheme.

Concerns over the debt ceiling have prompted Washington politicians and political and economic activists to argue that the U.S. treasury should simply use its authority to mint a platinum coin worth $1 trillion.

Platinum in USD, 2 Years – (Bloomberg)

Proponents argue the coin could be deposited at the Federal Reserve Bank of New York to cover the Federal government’s debts until and unless Congress raises the debt limit.

Gross acknowledges that they can do this and says it is not a novel idea as it has been advanced in the last several years.

However, whether Bernanke and Treasury in combination would jeopardise their standing with Congress by this type of "end run" ... no we "don't give it much credence."

We feel that such an action would not only jeopardise the U.S. Fed and Treasury standing with Congress but with creditor nations internationally - particularly the Russians and Chinese.

It appears to be a bit of a stunt by and may be a convenient distraction away from the substantive issue of how the U.S. manages to address its massive budget deficits, national debt and unfunded liabilities of between $50 trillion and $100 trillion. It may also be designed to create the false impression that there are easy solutions to the intractable US debt crisis - thereby lulling investors and savers into a false sense of security ... again.

Gross said that subject to the debt ceiling, the Fed is buying everything that Treasury can issue. He warns that we have this "conglomeration of monetary and fiscal policy" as not just the US is doing this but Japan and the Eurozone is doing this also.

Gross has recently criticised the Fed's 'government financing scheme.' He has in recent months been warning of the medium term risk of inflation due to money creation and recently warned of 'inflationary dragons.'

Gross in his monthly Investment Outlook note to clients of the world's biggest bond fund, argues that the quantitative easing and near zero interest rate strategies employed by central banks in the US, UK, Europe and Japan, China and Switzerland have the potential to permanently distort financial markets and create significant long-term inflation risks.

Gold in USD, 2 Years – (Bloomberg)

Incredibly, the world's most important central banks have issued more than $6 trillion dollars' worth of "essentially free" money into the global economy since the financial crisis in a misguided recovery effort that could erode stocks, bonds and currencies for generations to come.

"While they are not likely to breathe fire in 2013, the inflationary dragons lurk ... a case of quantitative easing," Gross wrote. The tactics, he says, "destroy financial business models and stunt investment decisions which offer increasingly lower (equity and investment returns). Purchases of 'paper' shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice."

Thus, PIMCO remain favorably disposed towards gold as an allocation in a portfolio.

On December 30, PIMCO tweeted @PIMCO:Gross: 2013 Fearless Forecasts: 1) Stocks & bonds return less than 5%. 2) Unemployment stays at 7.5% or higher 3) Gold goes up……

For the latest news and commentary on financial markets and gold please follow us on Twitter.

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This update can be found on the GoldCore blog here.

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Mark O'Byrne
Exective Director

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