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The World Economic Forum is set to meet this week in Davos, Switzerland to discuss the state of the global economy. A mantra of exuberance has already been noted, suggesting that a mere doubling of global credit by another 100 trillion over the next decade would fuel a global super cycle. This course of action, if taken, carries with it obvious implications. Continued fueling of credit bubbles will perpetuate and perhaps magnify the boom/bust cycles we've grown accustomed to over the past decade. It does, however, mark a noted return of market euphoria, which, coupled with a reduced risk of a sovereign debt default in Europe due to Chinese support in the credit markets, has eroded the risk premium in the gold price, and is perhaps linked to gold's recent pullback. However, in analyzing the technical picture, gold's pullback is quickly nearing vital support areas. The 200-day moving average for gold sits at $1285, with the last assault on the 200-day moving average taking place in mid-July 2010. Interestingly enough, that same pullback coincided with options expiration for the August gold contracts. Today, Wednesday January 26th, also is options expiration date for February contracts. This is significant because option expiration dates have often been associated with reversals in the gold price, as witnessed last July. Add to this the possibility of an enhanced inflation trade for the gold market, and this pullback looks to be an excellent buying opportunity.

USAGOLD Comment: This issue of our newsletter explores what might be the most important development in the gold market in the past decade.

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The election results haven't changed anything fundamentally for gold, except perhaps tying up fiscal policy through bipartisan gridlock, leaving the blunt instrument of monetary policy as the primary focal point for the next couple years. The Fed announced a new $600 billion program of quantitative easing with a stimulative objective of boosting inflation through an increase in money supply and a devalued dollar. Members of the G20 are subsequently faced with the threat of inflation as greater inflows of hot money begin chasing higher yields than are available within the U.S. The dollar-depressive QE2 program not only erodes the U.S. credibility as an innocent party in the international currency manipulation debate, it also erodes the dollar's standing as a worthy reserve asset.

As bonds, stocks and commodities markets are all currently rising together on the expectations of endless money via the Fed's open promise of QE2, the key question is "Which of these is the more sustainable market?" The bond market could be in for a tumble if the Fed delivers less than the market is expecting, but in the meanwhile, investors with surplus cash are chasing yield along any available avenue. With bond yields near zero, however, that avenue offers no headroom to run and will therefore likely be the first point of abandonment by investors regardless of the magnitude of intervention by the Fed. As a result of that seemingly foregone conclusion, and in light of the weakened economy providing an unfavorable backdrop for stock investments, large and small investors alike are increasingly channeling their funds toward hard assets -- commodities. Gold stands to benefit not only from this, but additionally from the global currency war pulling down the value of many international currencies. Among those currencies, the U.S. dollar in particular is vulnerable to the uncertain undercurrents and inevitable need for a federal resolution of the mortgage crisis and the foreclosure quagmire growing within the real estate markets.

USAGOLD Comment: Look at the data and graphs in this October issue of USAGOLD News, Commentary and Analysis. Learn why gold is NOT-EVEN-CLOSE to a bubble in the lead-off article by Jonathan Kosares.

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This past summer, on the whole, was a sideways event (as seasonally typical) for gold, whereas things were churning into considerably glummer affairs for stocks and housing. As the approaching U.S. Labor Day holiday flags the end of summer, here's how things currently stand...

You'll buy gold and like it
By Jeff Clark, SeekingAlpha; August 26, 2010

I get this question a lot: "Should I buy gold now, or wait for a pullback?"

It's a valid question. For nearly two years, gold hasn't had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold's largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we've seen this summer is 8.2%. Technically the summer's not over, but I'll admit I'm surprised we haven't had a better buying opportunity.

So, is now the time to buy? It depends on your honest answer to another question: "Do you own enough gold?" By "enough" I mean an amount that lends meaningful protection on your assets. By "meaningful" I mean that no matter what happens next -- another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending -- you won't worry about your investments.

Whether you should buy now is almost irrelevant if you don't already own a meaningful amount of gold. If you earn $50,000 a year, how is one gold Eagle coin going to protect you if the dollar plummets and sends inflation soaring? If your investable assets total $100,000, is your nest egg sufficiently protected owning two gold Maple Leafs? This is all akin to buying a $50,000 insurance policy for a $500,000 home.

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will....

USAGOLD Comment: Because, in the long run, says our next article...

Gold will shine no matter what the economy does
By Don Miller, MoneyMorning; August 31, 2010

In the long run, the likeliest possible outcome of the planet's economic troubles is inflation, given the recent actions of spendthrift governments like that of the United States. And gold offers investors a tangible asset that has inherent value, compared to a fiat currency that's only as good as the word of the government that issued it.

Even though investors have made the SPDR GLD ETF into the world's largest holder of bullion, Peter Krauth, a well-known commodities expert who is also the editor of the Global Resource Alert thinks there's no substitute for physical gold. "There's nothing like holding a gold coin or gold bar in your hands. This is the oldest and most direct form of gold ownership," Krauth, recently said in an interview for Money Morning.

And Peter D. Schiff, President and chief global strategist at Euro Pacific Capital Inc., seconds that notion. "I continue to recommend that investors hold 5% to 10% of their wealth in physical precious metals," he wrote in a recent Money Morning article. "Aside from the likelihood that gold and silver will rise in price, precious metals offer timeless benefits, such as financial privacy, elimination of counter-party risk (if you store them yourself), as well as protection from government confiscation, onerous securities regulation, and punitive tax rates."

Summer's almost over -- get ready
By Brett Arends, MarketWatch; August 24, 2010

Labor Day's around the corner. Summer recess is almost over. ... After this, it's game time. September. The fall. The fourth quarter. The economy. Gulp.

What can you do? Should you be long, or short? All-in, or on the sidelines? How can you protect yourself, but not miss out? The omens aren't looking good. For some insight I spoke to one of the smarter guys around. Charles de Vaulx, the star money manager at International Value Advisers. He's been knocking the cover off the ball since launching his latest fund in the midst of the crash two years ago.

... De Vaulx doesn't think we'll see a double-dip recession. But he thinks we're going to have slow, grim growth for five or seven years. ... Okay, you've heard the doom and gloom. So where should you put your money?

-- Cash, plenty of it.

-- Gold. Yep. "It should do well either way," says De Vaulx -- meaning deflation or inflation. The only condition where gold gets killed, he says, is "disinflation," in other words when inflation falls. That's what happened in the '80s and '90s. Not a worry here.

USAGOLD Comment: If, however, it's a worry you're looking for, then look no further than the stock market, or the housing market. For a bit more on that dismal matter...

Stock market closes out its worst August since 2001
By Stephen Bernard and Bernard Condon, AP; August 31, 2010

The S&P 500, the measure used most by stock market professionals, finished August with a loss of 4.7 percent. It was the S&P 500's worst showing for the month since August 2001, when it lost 6.4 percent as the dot-com bubble collapsed. Year-to-date, the S&P 500 is down 5.9 percent. ... Other market indicators also had dismal performances in August, having surged ahead in July on a series of strong earnings reports. The Dow lost 4.3 percent in August, while the Nasdaq lost 6.2 percent.

Joseph Battipaglia, market strategist at Stifel Nicolaus & Co., said the drop in August matters less than what caused it: signs that economic growth is slowing, or worse. "The evidence suggests we're going into a recession," he said.

Existing home sales dive 27.2 percent to 15-year low
By Reuters; August 24, 2010

Sales of previously owned U.S. homes took a record drop in July to their lowest pace in 15 years, suggesting further loss of momentum in the economic recovery. ... Existing home sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest since May 1995. June's sales pace was revised down to a 5.26 million-unit pace from a previously reported 5.37 million.

"This is a worrisome report and while it reflects the volatility caused by the end of the (government home-buyer) tax credits, it also indicates a deterioration in the underlying trend for housing demand," said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch in New York. "For the overall economy, the dangerous link to housing is home prices and this report signifies that home prices should fall considerably faster, which could tip the economy back into a recession."

Have faith in gold and not in government rhetoric
By David Levenstein, Mineweb; August 23, 2010

A little over a week ago, U.S. Treasury Secretary Timothy Geithner wrote an article for the New York Times entitled Welcome To The Recovery in which he touted the great strides that the U.S. economy was making. ... "The economic rescue package that President Obama put in place was essential to turning the economy around. The combined effect of government actions taken over the past two years -- the stimulus package, the stress tests and recapitalization of the banks, the restructuring of the American car industry and the many steps taken by the Federal Reserve -- were extremely effective in stopping the freefall and restarting the economy," Geithner stated in his article.

... However, no matter the rhetoric the facts speak for themselves and ... statistic after statistic shows that the economic fundamentals continue to get progressively worse in the United States. A new analysis of the U.S. economy shows that since 2007, the private sector has lost 10.5 million jobs while the public sector has added 720,000 jobs. ... The U.S. debt has grown rapidly with the economic downturn and government spending for the Wall Street bailout, the wars in Afghanistan and Iraq and the economic stimulus. The total U.S. debt includes obligations to the Social Security retirement program and other government trust funds. The amount of debt held by investors, which include China and other countries as well as individuals and pension funds, will rise to an estimated $14 trillion this year and to an estimated $19.6 trillion by 2015.

... At the moment given the fact that gold represents less than 1% of all global financial assets, as more people wake up and diversify into the yellow metal, prices will head much higher. In the long run, gold has always maintained its value unlike the value of fiat currencies that historically end in total failure.

USAGOLD Comment: Failure??? More on that from The Wall Street Journal...

Getting ready for a dollar collapse?
By Alen Mattich, Wall Street Journal; August 23, 2010

Could the Federal Reserve's decision to restart its quantitative easing program trigger a dollar collapse?

That's what John Hussman, a fund manager, argues in his latest weekly note to investors. And the case he makes is strong... as long as one ignores the fact that other central banks don't want and are unlikely to accept a big dollar devaluation.

... China's dollar peg is likely to prove a drag on a massive dollar devaluation. At the same time, countries like the U.K. are likely to respond to any sudden appreciation of their own currencies with their own programs of quantitative easing. As might the European Central Bank. Or there could be more direct currency intervention-the sort the Japanese and the Swiss have tended to resort to.

The upshot is likely to be not just a U.S.-driven inflationary push, but a global one, where all countries aim to devalue their way to economic health at the same time.

The result will benefit borrowers at the expense of savers worldwide. But, then again, maybe given the state of global imbalances -- too much debt in the U.S. and other Anglo-Saxon economies; too many assets held by Chinese, Japanese and oil-producing countries -- maybe a massive bout of global inflation is the only way forward.

USAGOLD Comment: As member of the minority saver class, the safest way to avoid falling victim to the majority-driven devaluation of national currencies is to convert your flimsy papery savings into something tangible -- and not just any ol' tangible thing but rather something that has timeless, universal liquidity that's good as gold. As reported by Geoff Candy at Mineweb, Jason Toussaint, MD for investments at the World Gold Council, says, "What we're seeing now is more of a move in understanding of gold's role as a strategic asset class for the long term. And let's not forget, against the backdrop of 2008, when most global equity markets return negative 50% or more -- having an investor lose half of their wealth and then buy gold, is kind of too late. So, investors say we're either really good at predicting future crises which are occurring more frequently, or should we have some gold in our portfolio up to a certain percentage, which they deem appropriate for the long run -- in case there are future shocks that there will be this kind of portfolio baseline asset that will protect at least a portion of our wealth."

It's Official: China is unloading its Treasury bonds
By OilPrice.com; August 26, 2010

It looks like the smart money these days is found in China. While American investors have been scrambling over each other to buy more Treasury bonds at historically low yields, China has begun quietly unloading some of its own enormous holdings. In June, the Middle Kingdom sold $21.2 billion of paper, reducing its net long to $839.7 billion. This is little more than 10% of the total $8.18 trillion in federal debt that Uncle Sam has outstanding.

... Officials at the People's Bank of China say that it is all part of a broader diversification effort away from the greenback. PIMCO's Bill Gross has apparently been taking Mandarin lessons on the sly because he has also been paring back his own massive holdings in longer dated Treasuries...

USAGOLD Comment: It is worth reemphasizing that diversification need not be a foreign concept. As reported by Alix Steel at TheStreet.com, "Intrinsically, the dollar is worth nothing. It's a dream painted on a piece of paper," says Rick Rule founder of Global Resource Investments. Rule predicts higher gold prices in the future because the U.S. dollar will eventually depreciate in value. "There's no particular reason why you, despite the fact that you live in the U.S., need to be a prisoner of the dollar..."

Pros love gold
By Simon Avery, Globe and Mail; August 24, 2010

Respected hedge funds appear to have acquired a substantial appetite for gold. Filings show that big funds have increased their buying of bullion in recent months. Among them, Eton Park Capital Management ... George Soros ... John Paulson....

"I can't remember in 20 years so many respected investors focused on a single strategy," Bradley Alford of Alpha Capital Management, told Mr. Dutram. "Some of these people are icons of the industry with at least 15-year track records. It's a losing proposition to bet against guys like that. They aren't billionaires because they make bad bets."

USAGOLD Comment: Meaning, they ARE billionaires (and able to stay that way) because they tend to make WISE decisions...

Gold rallying to $1,500 as Soros' "ultimate asset bubble" inflates
By Bloomberg; August 31, 2010

Gold may rise as high as $1,500 next year, 21% more than the $1,235 traded at 9am in London yesterday, according to the median in a Bloomberg survey of 29 analysts, traders and investors. Dan Brebner, an analyst at Deutsche Bank in London who is the most accurate forecaster so far this year, says the metal may reach $1,550. ... The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18% more than the record $1,266.50 reached June 21.

Bullion gained 13% since January, beating an 8.4% return on Treasuries, an 8% decline in the MSCI World Index of shares and the 10% slump in the S&P GSCI Total Return Index of 24 raw materials.

... One of the biggest buyers has been Soros Fund Management, which oversees about $25bn. George Soros, who made $1bn breaking the Bank of England's defense of the pound in 1992, described gold as "the ultimate asset bubble" at the World Economic Forum's January meeting in Davos, Switzerland. Buying at the start of a bubble is "rational," he said.

USAGOLD Comment: For more perspective on the bubble notion, consider these opening remarks...

Gold's billionaire evangelist
By Jason Kelly, Bloomberg BusinessWeek; August 26, 2010

"I'm not a goldbug, but there are times when I feel like an evangelist for it," says Thomas Kaplan, an Oxford-educated historian and chairman of Manhattan-based Tigris Financial Group. "To my amazement, it's a hard sell. The conventional wisdom is that gold is for primitives. That derision shows me that, contrary to the notion we're in a bubble, we haven't yet begun the real bull market."

... His conviction about gold puts him in the company of such celebrated figures as George Soros and John Paulson, both of whom have been betting heavily on the yellow metal ... At the moment, the wager looks inspired: The price of gold has risen for nine straight years, hitting an all-time high of $1,256.30 an ounce on June 21. While the price has fallen about 2 percent since then, Kaplan says the big rally is still to come. It's not riots in the streets he envisions, but a more fundamental case of demand outstripping supply as gold becomes a currency in its own right.

... Meanwhile, as gold prices swing wildly and talk of a double-dip recession ripples across the markets, Kaplan retains his karmic calm. "People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they're going to say, 'We really should own some of that.' The question will then change to 'Where do we get the gold?' "

USAGOLD Comment: 'Where?' indeed. A good start would be to make a toll free phone call to the helpful staff at USAGOLD-Centennial Precious Metals...

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