Because the economy is tanking, the [...]]]> You have to respect the power of the Federal Reserve when just a statement can turn the entire stock market around in a day. Yesterday, the Fed admitted the economy was not good and in a statement said, “. . .downside risks to the economic outlook have increased.”

Because the economy is tanking, the Fed promised to keep a key interest rate at near 0% for “. . . at least through mid-2013.” The Fed is essentially handing out free money at negative interest rates for 2 years. The Fed also seemed to signal that a third round of quantitative easing (QE3 or money printing) was being considered.

The Fed statement went on to say, “The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.” With interest rates near 0%, the only “tool” left with any torquing power for the economy is money printing. The buck will be burned.

The stock market loved the announcement, but anyone holding dollars was left with a sinking feeling. Bloomberg reported Tuesday, “The dollar tumbled the most in at least 40 years against the Swiss franc after the Federal Reserve pledged to keep its key interest rate at a record low . . . The greenback declined versus the majority of its most- traded peers as the Fed said growth was “considerably slower” than it expected and it’s prepared to use a range of policy tools to boost the economy.”

The gold market has been hitting one new all-time high after another because of past, present and future money printing. I think big money is panicking into the gold market for safety. Sure, the Treasury market is the biggest and most liquid on earth, but how safe is it when the U.S can print trillions of dollars at will to pay its bills?

It is not the small investor that’s causing $50 a day spikes in the gold price. Hedge funds, sovereign wealth funds and central banks are the ones doing the buying and shooting the gold market higher. Recently, South Korea bought 35 tons of gold, and Mexico bought 93 tons of the yellow metal.

Why don’t these countries just hold Treasuries in reserve? In the past few years, India, China and Russia have all been adding to their gold reserves. EU nations have stopped selling their gold, and with the sovereign debt crisis in Euroland, who could blame them. Italy and Spain are teetering on collapse. Don’t be surprised if the European Central Bank prints money and bails them out too.

On this side of the pond, America just got hit with its first downgrade in history because of record debt and zero political will to solve the problem. It is really a downgrade of the dollar. The mountain of debt and insolvency Europe and the U.S. face is monumental and historic. Is there any wonder why gold is rising in all fiat currencies? It is hard to imagine how anyone could think gold (and silver for that matter) is in a bubble.

One of the people I quoted is Jim Sinclair (JSMineset.com). He is one of the world’s best experts in all things gold. He has a track record of correct calls going back to the 1970’s. Sinclair has been bullish on gold since the current bull market started in 2001. He says, “The ultimate protection for yourself is to own gold and be your own central bank.” I find that logic hard to dismiss with a systemic solvency crisis facing the world today.

Another trusted expert is fund manager Eric Sprott of Sprott Asset Management. Sprott has one of the top performing funds during the last 10 years. He, too, has been riding the current gold and silver bull market since the beginning. He says both metals will go way up in price in the future.

Sprott says, “Gold was the investment of the last decade and silver is going to be the investment of this decade.” Sprott has invested hundreds of millions of dollars into physical silver. He contends supply demand fundamentals are very favorable, and silver is still relatively cheap. Sprott isn’t worried about silver lagging the soaring gold price. In a recent interview with GoldMoney.com, Sprott said, “You just see things developing in the market that could make it (silver) explode at any time.” Sprott does not give an exact time frame but says, “All I know is you can safely own it. Go to sleep at night . . . and you’ll be a big winner. . .”

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Bullion for immediate delivery dropped as much as 0.8 percent to $1,779.20 and traded at $1,789.07 at 11:19 a.m. in Singapore. Earlier, the metal rallied [...]]]> Gold declined from its record above $1,800 an ounce after CME Group Inc. boosted margins on futures contracts, prompting some investors to sell the metal after a four-day rally.

Bullion for immediate delivery dropped as much as 0.8 percent to $1,779.20 and traded at $1,789.07 at 11:19 a.m. in Singapore. Earlier, the metal rallied as much as 1.2 percent to $1,814.95 on concern that global economic growth is stalling as governments in the U.S. and Europe remain constrained by debt.

CME, the world’s largest futures market, raised margins on gold contracts 22 percent with effect from the close of business today, according to a statement on its website. The initial- margin requirement, or the minimum amount of cash that speculators must keep on deposit, will rise to $7,425 per contract from $6,075, CME said. The margin for hedging will also increase 22 percent, rising to $5,500 from $4,500, it said.

“We did see a little bit of selloff just after the announcement but at the end of the day there’s overwhelming upward pressure on gold because of the uncertainties in other markets,” said Darren Heathcote, head of trading at Investec Bank (Australia) Ltd.

The December-delivery contract rose as much as 1.9 percent to a record $1,817.60 on the Comex in New York before trading at $1,791.70. Gold in euros, pounds, Australian and Canadian dollars also surged to all-time highs.

‘Bullish Bets’

“Bullish sentiments could be tempered in the short term as margin requirements to trade gold have been raised,” Phillip Futures analysts including Ong Yi Ling wrote in a note. “As the costs of trading increases, some investors could be prompted to pare bullish bets.”

Gold also declined on signs equities may rebound, easing concern the global rout will continue and damping demand for haven assets including bullion, Treasuries and the dollar. Standard & Poor’s 500 futures jumped as much as 1.7 percent today, following the index’s 4.4 percent slump yesterday. Treasury 10-year yields climbed for the first day in four, while the dollar weakened against a six-currency basket.

Gold futures have surged 8.2 since Standard & Poor’s cut the U.S. credit rating by one level from the top AAA grade on Aug. 5. That S&P announcement, combined with Europe’s sovereign-debt crisis, spurred a rout in global equities and stoked concern that the U.S. may lapse into another recession.

Gold holdings in exchange-traded products climbed to a record 2,216.756 metric tons on Aug. 8, data compiled by Bloomberg show. Assets have expanded 5.4 percent this year and were at 2,209.526 tons yesterday.

‘Complete Breakdown’

“It’s just a complete breakdown of investor confidence,” said Gavin Wendt, director at Mine Life Pty. “It’s not just even the U.S. situation but it’s also the European situation that’s really worrying markets at the present time. It just seems to be the domino effect.”

CME joins the Shanghai Gold Exchange in hiking margins. China’s largest physical gold market will boost the trade-margin requirement to 11 percent from 10 percent for gold contracts from settlement today, the bourse said on Aug. 8.

Immediate-delivery gold of 99.95 percent purity on the Shanghai Gold Exchange, the benchmark cash contract, surged to a record 368 yuan ($57.32) a gram today, while bullion of 99.99 percent purity touched 373 yuan a gram, its highest ever. Gold on the Shanghai Futures Exchange also reached an all-time high.

Spot platinum climbed for a third day, gaining as much as 1.1 percent to $1,788.50 an ounce, trading below gold on concern a global slowdown will trim demand for the metal used in catalysts. Cash palladium advanced as much as 1.2 percent to $736.75 an ounce, while silver fell as much as 0.9 percent to $38.9375 an ounce.

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Gold continued attracting buyers [...]]]> Gold prices continued rising Tuesday, hitting a fresh intra-day high of $1,782.50 an ounce and ending above $1,740 for the first time amid concerns about the U.S. economic outlook. Gold futures for December delivery climbed $29.80 from Monday to close at $1,743.00 an ounce on the New York Mercantile Exchange.

Gold continued attracting buyers as a safe asset with investors growing nervous about the future course of the U.S. economy as the Federal Reserve downgraded its economic assessment in a statement issued after the day’s policy-setting Federal Open Market Committee meeting, market analysts said.

The metal’s price has more than doubled since the recession began in late 2007, and its climb accelerated this summer. Gold is more than a currency substitute or an investment for scared traders desperate to latch on to an asset that isn’t losing value. It’s also a material used in industrial products and by consumers.

With every fresh high the metal notches, the more consumers will have to pay for engagement rings, gold crowns for their teeth and perhaps even electronics. Tiffany & Co., the high-end jewelry seller with the iconic blue boxes, has raised prices on some products twice this year, in January and again in June, said company spokesman Mark Aaron.

“Our strategy is simply to pass through higher costs to the customer,” Aaron said. “Diamond costs have increased a lot. So have platinum, silver and gold.”

Sellers of cheaper jewelry have also been affected. Blue Nile Inc., a website that sells engagement rings and other jewelry, said last week that the big leap in the price of gold and diamonds had hurt its revenue growth this spring. It raised prices to make up for the big jump in materials costs. The company also said it was trying to offer shoppers cheaper alternatives to gold and diamonds, such as colored gemstones, sterling silver and pearls.

Gold may keep climbing. The Federal Reserve said Tuesday that it would keep interest rates at a record low for at least two years. The lower rates could further erode the dollar’s value as a safe haven and enhance gold’s appeal. Still, central bank efforts to boost the economy by pushing down interest rates are already reflected in gold’s price, said HSBC commodities analyst James Steel.

While gold on Monday topped $1,700 an ounce for the first time, it remains below a 1980 peak, when adjusted for inflation. At that time an ounce of gold sold for $850 or about $2,400 in today’s dollars.

“The United States can pay any debt [...]]]> For the first time in history US treasury bonds are no longer triple-A rated. The bonds of Germany, France, Canada and the UK now have a higher rating. But don’t worry, Former Federal Reserve Chairman, Alan Greenspan, ruled out the chance on Sunday of a US default.

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default” said Greenspan on NBC’s Meet the Press.

I’m sorry. On the contrary, this is arguably the biggest upset in global finance ever as the US treasury bond is the largest and most liquid market in global finance. Its triple-A status is a linchpin of the global financial system and has just been pulled out.

The announcement came after US financial market closed on Friday following a more than 10 per cent weekly loss in the S&P 500, the worst week since the global financial crisis of 2008.

Insiders knew

Clearly the insiders of Wall Street knew exactly what was coming after the close on Friday, so they sold the market down. However, with everybody else kept in the dark the real selling will start on Monday.

How bad will the panic be? Well, it is hard to get over the significance of the US losing its top credit rating. US treasuries are the most widely held financial instrument in the world and the S&P downgrade will force those institutions wedded to triple-A to seek an immediate divorce.

US banks that have stuffed themselves full of US treasuries in return for easy money from the QE program will surely have to write-off huge sums against the reduced value of their treasury bond holdings.

The US bond market will fall and interest rates rise to the point at which bond investors are sufficiently rewarded for the increased risk of holding US debt. Where will the money go?

There will be a flight to other AAA-rated bonds but realistically how secure is a UK government bond by comparison, for example? The UK has the worst global debt profile after Spain. And surely if the US can lose triple-A it is an open season for downgrades.

The other obvious beneficiary is precious metals. If both bond and equity markets are in trouble, and real estate crashed ages ago, then that does not leave many alternatives.

Precious metals

Gold and silver reserves are by nature limited and as the demand for them takes off there is considerable scope for above-inflation price rises. Indeed, a breakdown in the bond markets of the world is the best possible scenario for precious metal prices.

It was getting increasingly obvious last week that there had to be something really big coming up to justify the sell-off of stocks in the normally quiet holiday month of August. Now we know what it was but this will come as a big shock to many investors and the reaction is going to be very nasty.

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Gold rallied to fresh highs this afternoon shortly after the publishing of US jobs data which reported 400,000 Americans made [...]]]> U.S. stocks cratered Thursday, sending the Dow Jones Industrial Average -4.31% to its worst-point drop since December 2008, as fears about the global economy sparked a broad sell off that accelerated into the close.

Gold rallied to fresh highs this afternoon shortly after the publishing of US jobs data which reported 400,000 Americans made first time claims for jobless benefits last week. The figures were roughly in line with market expectations with US unemployment holding steady at the 9.2% level. It is clear that the markets are quite skittish at the moment and the labour market is being watched closely for confirmation that growth may have stalled in the US economy. Presently there is some growth but it remains pretty anemic – not robust at all. It is clear that world markets are walking perilously close to a double dip recession and data is being scrutinised given there is less in the Fed’s armoury in terms of monetary options this time around.

Gold has gained 19% so far this year and the 11 year bull run has been its longest since 1920. For the balance of 2011 the gold market is expected to remain bid up and we fully expect the market to have made gains of close to 32% at $1850 before the end of the year. That said, the speculative element currently in the gold price in the form ofCOMEX gold futures has grown by about a third in recent weeks which gives me some concern how well the current gold price can be sustained. In short, we favour the upside but are concerned the bullion market could turn parabolic which would not be favourable in the longer term.

I remain constructive towards the gold price and in particular towards gold equities. Gold demand remains robust and we believe the current environment is positive for a safe haven asset such as gold, with European sovereign debt concerns spreading to larger economies such as Italy and Spain, and the US continuing to struggle with her growing debt.

Looking ahead, I believe it will continue to be well supported in a world of negative real interest rates, given inflation in both developed and developing markets, central bank buying (from developing economies in particular) US dollar depreciation and continuing sovereign debt issues.

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The United States managed to avert an unprecedented debt default on Tuesday after lawmakers [...]]]> Gold hit a record for a second straight day yesterday, driven by deepening fears over the spread of the European debt crisis and its impact on regional growth, while data showed a number of central banks bought gold in June.

The United States managed to avert an unprecedented debt default on Tuesday after lawmakers agreed to raise the country’s borrowing limit. But, the focus turned to credit ratings agencies, which have warned the country could lose its top-notch rating as its finances remain fragile.

The nervousness over the US economy was compounded by the latest developments in Europe, where Italian bond yields rose to their highest in over a decade above 6 percent, a level widely viewed as unsustainable, adding to the lure of gold as a safe-haven investment.

Meanwhile, the International Monetary Fund’s monthly report on central bank reserves showed Thailand, Russia and Kazakhstan, among others, added to their holdings of gold two months ago, prolonging the trend in the official sector to put more of their reserves into bullion rather than hard currencies. Spot gold was last quoted at $1,665.65 an ounce, up 0.4 percent on the day at 1125 GMT, having hit a record $1,672.65 earlier. US gold futures were last up 1.5 percent at $1,669.50 an ounce.

If you look at the European bond markets, you will see yields on Italian and Spanish bonds are back above 6 percent, so this crisis, unfortunately, seems to be spreading to Italy and Spain, which is also potentially more serious than Greece, because they’re much larger,” said Jesper Dannesboe, senior commodities strategist at Societe Generale.

Gold is reacting to this and that is the main driver right now,” he said. Further unnerving the financial markets was the Swiss National Bank’s decision to cut rates to fight the strength of the currency , which set the price of gold in Swiss francs on course for its biggest one-day gain since May.

The IMF data showed Thailand boosted its gold reserves for the third time in the last year, by 18.66 tons in June to 127.524 tons. Korea said earlier this week it bought gold for the first time in over 10 years in June and July.

Gold is set for a 17 percent gain in 2011, which would mark an eleventh successive year of price rises. This increase has been driven largely by the US Federal Reserve’s ultra-low monetary policy and concern that slow growth and the burden to the economy from the country’s debt could derail the recovery process of the last two years. Gold is on course for its strongest quarterly performance since the second quarter of last year.

Holdings of gold in exchange-traded products rose for an eighth day, to their highest level this year, after an inflow of more than half a million ounces into the world’s largest bullion-backed ETF, the SPDR Gold Trust , which is now showing a net inflow for the year for the first time.

The lack of a decent gold pullback has left many investors feeling frustrated and patience for a better buying opportunity is now wearing quite thin, which is why gold has attracted very decent buying this week,” said UBS strategist Edel Tully in a note, adding the size of the speculative position in US gold futures posed a downside risk to gold. — Reuters

The Commerce Department said the real gross domestic product rose 1.3 percent in the second quarter, down from 1.9 percent in the first quarter of the year.