Gold News

We've Turned The Corner

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News: Gold breaks record on safe-haven demand. Celente predicts gold $2000/oz. by 2012.
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Don't Be Fooled by Inflation

by Peter Schiff

Strike up the band, boys, happy days are here again! Recently released short-term economic data, including unemployment claims, non-farm payrolls, home sales, and business spending, which had been so unambiguously horrific in February and March, are now just garden-variety awful. With the Wicked Witch of Depression now apparently crushed under the house of Obamanomics, the Munchkins of Wall Street have sounded the all clear, pushing the Dow Jones up 25% from its lows. But the premature conclusion of their Lollipop Guild economists, that the crash of 2008/2009 is now a fading memory, is just as delusional as their failure to see it coming in the first place.

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From MarketWatch, May 4, 1009

The cost of recent massive government bailouts will likely by paid for through inflation, Berkshire Hathaway Chairman Warren Buffett said Saturday.

Ultimately, the bailouts will be paid for by a drop in the purchasing power of the U.S. dollar, he said. "That's the easiest way to pay for these things, so that will probably be what happens," Buffett added.

The Federal Reserve has slashed interest rates to almost zero and embarked on an unprecedented effort to pump even more cheap money into the economy by buying mortgage-backed securities and even Treasury bonds, in a process known as quantitative easing. That, combined with massive government borrowing to pay for a huge economic stimulus in coming years, could undermine the U.S. dollar and trigger a wave of inflation.

In his latest shareholder letter, Buffett warned of a bubble in Treasury bonds that may end up rivaling the dot-com and real estate booms in the U.S.

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Who Has The Gold?

Who Has The Gold

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4/29/2009

The U.S. economy contracted at a seasonally adjusted 6.1% annual rate in the first quarter despite rising consumer spending, as businesses slashed inventories and expenditures, the Commerce Department said Wednesday. Economists had expected a 4.6% contraction in GDP.

Citigroup has told US regulators it could fill the capital shortfall identified in the government’s “stress test” by selling large businesses, asking more investors to convert their preferred shares into common stock and reducing its balance sheet. And then of course Citi is also protesting that the government's stress test is too harsh, that the losses in the giant credit card business will be smaller than the government thinks, etc.

As news of the preliminary stress test results continues to leak out, sources say at least 6 of the nineteen largest U.S. banks will need additional capital. Some may get extra money from the government, but most of the capital will likely come from the conversion of preferred shares to common equity.

Bank of America holds its annual meeting today, and shareholders will vote on whether CEO Ken Lewis should be re-elected as the company's chairman of the board.

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4/28/2009

The fundamental case for investment in precious metals has also become overpowering. Higher inflation is coming. It’s impossible to predict exactly when it will arrive, but the trillions of dollars worth of new money injected into the global financial system make it inevitable. Global bank bailout and stimulus packages have resulted in a huge increase in the global money supply that, historically, has never had any effect except inflation. Inflation will eat away at the dollar and other paper currencies, raising the value of tangible assets such as gold.

As investors rotate their assets out of stocks and into alternative asset classes the best returns are therefore likely in precious metals.

This being said - gold looks cheap right now. When will inflation kick in and push gold higher? That is the million dollar question, however, now is the time to move a portion of a portfolio into gold and ride the wave up.

5 factors that will drive gold higher:

The U.S. dollar is going to weaken. Gold traditionally rallies as the dollar falls.
Inflation fears. Less than a year ago, Bernanke was openly fretting about the possibility of higher inflation - and saying the Fed’s bias was toward tightening rates. Yet he has cut rates dramatically to lessen the credit crunch resulting from a meltdown in mortgage-based securities. Needless to say, the Fed’s action was inflationary. And gold is an excellent inflation hedge.
Emergence of China and India. A flourishing middle class in both emerging giants is increasing the demand for gold. People everywhere want gold.
Supply constraints. Around the world, discovery rates are falling. Mines are being depleted and mining companies are producing lower grade base metals.
Geopolitical instability. There are plenty of hotspots around the world today. But gold is viewed as a safe haven during times of political or economic calamity.

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4/28/2009

Word is that the Federal Reserve has told Citigroup and Bank of America that they'll both need to raise billions more in order to be adequately capitalized. Neither is a huge surprise. Both have received exceptional levels of assistance already, and analysts have already said that both will need more cash.

Bondholders appear to be ready to reject GM's offer. The bondholders said the offer was unfair, especially given the deal offered to the UAW for payments to its retiree health care trust fund. GM estimated the offer to the bondholders was worth about $3 billion, or roughly 11 cents on the dollar, while the UAW would receive a 39% stake in the new GM for cancelling $10 billion of the $20 billion GM owes the trust fund.

The World Health Organization raised its alert level to phase 4 as suspected cases of swine flu rose worldwide, and said containment of the outbreak is not feasible.

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4/25/2009

FT.com
Financial Times

News of Chinese buying ‘re-ignites gold’s relevance’

Gold prices rose modestly on Friday after China said it had become the world’s fifth largest holder of bullion after secretly increasing its reserves by 75 percent to 1,054 tonnes since 2003.

“The move does send a positive signal to the market, re-igniting gold’s relevance as a monetary asset,” said Suki Cooper of Barclays Capital.

“It has also led to speculation about further increases in China’s gold reserves, buoying positive sentiment towards bullion.”

Steve Ellis, senior manager of the RAB Capital Gold fund said: “Historically, China was a large gold holder with about 10 percent of its FX reserves in gold about 30 years ago. It would struggle to buy that amount in the open market but a deal with the IMF in an off-market transaction would be incredibly bullish for the market.”

China doubles gold holdings and raises questions on reserve policy

“When the largest holder of foreign exchange reserves discloses an increase in gold holdings, other countries may decide to think more carefully about underweighted gold positions,” said John Reade, a precious metals strategist at UBS.

China has been diversifying away from the dollar since 2005, when it broke the renminbi’s peg to the US currency and officially marked it to a basket of currencies, but it still holds more than two-thirds in US dollar denominated assets by most estimates.

“China’s announcement signals a broader shift in central banks’ attitude towards gold,” said Philip Klapwijk, chairman of GFMS, the precious metal consultancy.

Paul Atherley, Beijing-based managing director of Leyshon Resources, said that even after the latest purchases China had a very small percentage of its reserves in gold, far below the US or other developed countries.

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