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USAGOLD NewsGroup Alert The Perfect Economic Hedge: Gold evolves as necessary to mitigate the consequences of deepening public debt
Check out . . . 'The Dismal Rate of Reform' 
Comex gold futures stay strong after Fed Gold futures remained sharply higher after the Federal Reserve left interest rates unchanged, following a higher settlement in which participants were positioning themselves bullishly ahead of the announcement ... a continuation of the accommodative monetary policy that has helped gold prices at the expense of the U.S. dollar. Shortly after the Federal Reserve announced it would leave the fed funds rate unchanged at a range of 0.0% To 0.25%, April gold was up $20.40, or 1.8%, at $1,125.80 in electronic after-hours activity... Amid perceived threats to sovereign debt in different countries, "gold is in my view assuming its role as the ultimate currency," said Bill O'Neill, a principal with LOGIC Advisors. "The preference is to not hold any currencies."
Race to the bottom with G4 currency rhetoric With economic policy stimuli already at full tilt, no government wants an overvalued exchange rate to slay recovery, and the rival "soft currency" needs are producing some elaborate rhetorical jousting. [...] But nudging markets can be a dangerous game, not least because there's a risk of panicking foreign creditors at a time of ballooning national debts... The verbal record suggests that, at the very least, none of the main protagonists want rising currency rates -- a factor that may influence the timing of their policy exit strategies. U.S. officials say publicly they are not relying on a low dollar to meet President Barack Obama's ambitious pledge to double exports over the next five years but few economists believe this is consistent with an appreciating greenback... Euro zone governments were publicly fearful of the euro's steep climb against the dollar over the past 12 months but have been handed a silver lining to the Greek debt saga in the form of a near 10 percent euro retreat as the crisis intensified... The UK Treasury, wary of the pound's impact on an intensive gilt sale program and its vulnerability with an election coming, is more circumspect. Finance minister Alastair Darling prefers to play down its fall as a product of "febrile" markets. Japan, still battling consumer price deflation that has boosted its real interest rates and the yen, is the one of the four that looks like it could go beyond just talk. Last week it raised its borrowing limits for currency market intervention for the first time in six years.
Swiss franc weakens against euro as SNB says it will stem gains The Swiss franc weakened from its strongest level in a year against the euro after the central bank said it will slow the currency's appreciation to protect Switzerland's economic recovery. "The Swiss National Bank is maintaining its expansionary monetary policy," the central bank said in a statement today. "It will act decisively to prevent an excessive appreciation of the Swiss franc against the euro."
As with stocks, there can be no long-term substitute to examining a government's fundamentals to determine its currency's worth. Based on the fundamentals, far too many investors remain far too confident about the greenback's underlying viability... Any doubts about the future of the U.S. dollar should be laid to rest by today's announcement that San Francisco Federal Reserve President Janet Yellen has been nominated to be Vice Chair of the Fed's Board of Governors, and thereby a voter on the interest rate-setting, seven-member Open Markets Committee. Ms. Yellen has earned a reputation for being one of the biggest inflation doves among the Fed's top players.
Last month, in discussing what she saw as the Fed's obligation to promote employment, she said, "If it were possible to take interest rates into negative territory, I would be voting for that." She may very well make Chairman Bernanke look like a tightwad by comparison.
China trims holdings of Treasury debt China retained its spot as the biggest foreign holder of U.S. Treasury debt in January although it trimmed its holdings for a third straight month... The Treasury Department said Monday that China's holdings dipped by $5.8-billion to $889-billion in January compared to December... Net foreign purchases [...] of private corporate bonds fell by $24.8-billion, the biggest drop on record... Economists say that unless foreign demand for U.S. Treasury debt remains strong the interest rates that the government has to pay for that debt could rise sharply, making the U.S. deficit picture look even worse. Rising rates for government debt would also put upward pressure on private debt, sending borrowing costs up for U.S. businesses and consumers adding another risk to the U.S. economy as it struggles to emerge from the worst recession since the 1930s. The federal budget deficit hit an all-time high of $1.4-trillion in 2009 and the Obama administration is projecting that this year's deficit will climb even higher to $1.56-trillion.
Pimco's El-Erian says public finance shock may deepen Deteriorating public finances may affect the global economy more than is currently realized. "The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood," El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in an article on the Financial Times Web site. The potential damage from increased government borrowings is "at present being viewed primarily -- and excessively -- through the narrow prism of Greece."... The increasing debt burdens of countries, including the U.S., mean many nations classified as advanced economies now may have weaker prospects than emerging economies, El-Erian wrote in Financial Times' article.
Gold's rally to record highs in euro and sterling terms and the resilience of spot prices in the face of a rising dollar is sign-posting the metal's broadening insurance appeal, as sovereign debt fears shift to the fore [...] largely on fears over fiscal issues in Portugal, Italy, Ireland, Greece and Spain. But sovereign debt issues don't stop there. [...] The U.S. fiscal deficit is projected to reach $1.56 trillion this year, Japanese debt is nearing 200 percent of GDP, while Fitch Ratings said earlier this week that Britain's sovereign credit profile has deteriorated. "People have real fears about what is going to happen in Greece and Spain and the effect it is going to have on the euro, and they are saying the only thing that is safe and secure is gold," said ANZ Bank's head of metals sales Peter Hillyard... Governments are unlikely to address falling currency values at present, analysts say, as a weak currency can protect exports and boost recovery. Moves to raise cash via bond issuance to steer economies away from crisis are also unsettling investors. "Long-term investors are beginning to realise that gold is the only thing that is going to protect you from governments who decide that the way out of this problem is to borrow more," said Bullman Investment Management Managing Director Nick Bullman.
$1,000 gold now more floor than ceiling Senior economist Huw McKay told the Paydirt Australian Gold Conference in Perth today that the gold price had stepped up year on year by about US$100 an ounce above predictions, for at least the past five years. "What we did not know was going to happen was that we were going to have such an enormous collapse in risk appetite that pushed gold beyond the US$1,000 magical barrier," McKay said. "That has changed gold trends forever and what was once an invisible ceiling, is now more a level where we talk about the US$1,000/oz price as more of a floor price going forward."
McKay said the turn towards gold had come out of all other asset classes as "investors try to get into something that holds value".
Wealth Preservation vs. Inflation and Currency Depreciation While technical trading in the gold futures market seems to be dictating the shape of pricing in the short-term, longer-term investors have their sights on the fate of overprinted currencies and inflation...
Gold pursuing complex head and shoulders pattern Gold has traded sideways since December and appears to be building a bullish base. Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders). In order to complete the pattern, gold would sell off once more towards $1075 before finding a right shoulder low.
Rob McEwen sticks with $2,000/oz gold by year-end Goldcorp founder Rob McEwen is standing by his forecast that the price of gold will reach $2,000/oz by the end of 2010, he said on Monday. While it may still seem a stretch from current levels of around $1,135/oz, it should be noted that McEwen has been making the prediction since at least March 2006. At that time, prices for the yellow metal had not topped $600/oz since January 1980. "I have been saying for over five years: by the end of this year, we will be at $2,000 and, when the game is over for gold, it will be over $5,000 an ounce," he said.
'It's Going to Be Inflation Everywhere'
Arun Motianey, director of fixed income strategy at Roubini's RBG Capital, said ... the times ahead in fact will be more challenging if the economy isn't able to create inflation and suffers deflation instead. "It's going to be inflation everywhere and it's going to happen really through the weakness of the US dollar," he said. "Then inflation in those other parts of the world that are expecting appreciating currencies, they're going to inflate as well because that's the way you ultimately correct this."
...Bigger investors look to gold as an alternative currency
Speaking on the Mineweb Gold Weekly podcast, Brooks said, "Investors are starting to focus much more on the sovereign risk issue. Greece has obviously brought it to investors' attention but obviously there is a lot of concern about what's happening in terms of debt and fiscal balances in developed economies such as the UK, the US and a number of the so-called peripheral European economies and in this environment there is a general concern about the risk of currency debasement and also the concern that governments may be tempted to try and create inflation in order to reduce the real debt levels." This thinking has resulted in a shift away from viewing gold purely as a hedge against the US dollar... What we are seeing more and more of now, Brooks says, is a rising gold price even when the dollar strengthens. "As an example in February we saw the gold price hit an all-time-high in both euro and in sterling and a lot of that went uncovered by many publications. But I think that is quite significant because of course the gold hit an all-time-high in US dollars last year, we are well over almost $1000, but it is quite a significant event when it moves to an all-time-high in two of the other world major currencies -- the sterling and the euro and that highlights to me again that investors are all looking at gold as a place to put cash during a period when there are growing concerns about government intentions and government policies." "Investors do want to diversify away from the dollar -- I'm not arguing that they're about to aggressively sell dollars necessarily, but on a medium term basis a lot of the central banks and sovereign wealth funds would like to reduce their overall exposure to the dollar. And of course, when you look at the euro it's an imperfect currency -- the yen, you're dealing with a very large government debt level in Japan. So when you look around the world, there aren't a lot of options and I think that increasingly the central bank sovereign wealth funds along with private investors, are looking at gold as a place to keep capital in these uncertain times."
As confidence returns, gold will rise -- John Embry Sprott Asset Management's Chief Investment Strategist believes gold could gain another 30% this year this year as a greater proportion of the public realizes the degree of difficulty that sovereign debt is in. The Gold Report: John, in Investors Digest of Canada you recently said you're expecting gold to gain another 30% this year. John Embry: I would say at least 30%. I said that I thought it would be the best year to date. We've had nine years consecutive higher year-end prices and the best year in that span for a year's return was 31%. I think this will be the year that we exceed it in this, the 10th year of the bull market. [...] I think we're getting very close to the point when a greater proportion of the public realizes the degree of difficulty that sovereign debt is in. And at that point, when you can't depend on your government paper as a safe haven, I think that fact puts gold in a much better light in more people's eyes. [...] Governments spent dramatically more money and the results are a budget deficit I never thought I'd see in my life. [...] We'll eventually have to clean out the debt, but I think we go hyper before that.
JE: I think stocks will do fine. They may have a violent correction first because a lot of people don't know what the heck we're talking about here. And when they see inflation mounting and economic conditions being less than ideal, they'll sell their stocks. But the fact is that if you go back and look at any hyperinflationary environment anywhere, stocks did infinitely better than paper instruments. So precious metals first, stocks second. JE: The only comment I'd make is I really think things are sufficiently serious here in a financial or monetary debasement sense that everybody -- and I have never been a table pounder -- but I think every single person with a serious portfolio has got to have a reasonably significant exposure to precious metals. This isn't something that's just insurance for those who've got cold feet. This is something I think is a mainstream thing that people must have. TGR: When you say a significant portion, what percentages are you thinking? JE: I used to say 5% to 10% when it was just an insurance thing and the market was pretty sanguine. I say at least 20% now. I see the other assets as being less attractive. I wouldn't buy a bond if you gifted me with the money to do it.
Gold: What's more important, price per ounce or ounces owned? In a recent conversation with a fellow gold analyst, he was emphatic that the price one pays for physical gold should be ignored. "What's far more important," he insisted, "is how many ounces I own in relation to the total value of my assets." ...The gold I bought last month was certainly higher priced than what I paid in 2008. But I'm trying to position my assets for protection from eventual dollar debasement and rising inflation. So perhaps focusing more on acquiring sufficient ounces to withstand a storm rather than stubbornly buying none, waiting for "cheaper" prices, however you define that, is a better mindset. Not owning enough gold is equivalent to holding a million-dollar mortgage and having a $10,000 life insurance policy. It won't help much when you really need it. Of course we should pay attention to price. But the trick is not letting that distract you from buying what you need. You're not buying gold bullion as a speculation (although we expect to make a bundle on our holdings), but as a sound form of cash in an environment where government has no respect for a balance sheet and sees inflation as the only way out of its black hole of debt. During periods of inflation, the government does fine; it's the citizens that suffer from the lost purchasing power of their savings. It's clear our currency is being debased. What's your plan of defense? For those diligently accumulating gold, how do you know when you have enough? Check your anxiety quotient. If Ben continues printing money or Obama promises more goodies than he has the money to pay for, and you remain calm, then you likely have adequate gold. These are the investors who can afford to be stubborn about price as they build their holdings. In my opinion, this is where we all want to be. What form of gold should you buy? It depends on why you're buying it. If you understand gold's role in history, owning a physical form will come naturally to you... ...I remember when my wife and I decided it was time to get life insurance. We just had our kids, and it was time to play grown-up. Given what 5,000 years of history has taught us about the value of gold, and given what's happening at this moment in history to our currency, are you playing grown-up with your investments?
Marc Faber: Buy some gold every month "forever" According to Marc Faber, the editor and publisher of The Gloom, Boom & Doom Report, everybody should buy some gold every month "forever" or look to emerging markets stocks rather than U.S. shares. "Gold is not the liability of someone else...its quantity cannot increase at the same rate as you can print money, which will eventually...weaken the US dollar," Faber told CNBC on Thursday in a live interview. "I'm not saying that the dollar will go straight away down because other currencies apparently like the euro are even worse than the U.S. dollar at the present time," he added. "But eventually if you print money, the purchasing power of money will lose [value]..."
In a bottomless sea of debt, the Safe Harbor of choice is gold. Why settle for any ol' port in a storm? In our concluding article HSBC suggests gold will deliver first-class treatment over the next 5 years, reaching $5,000 per ounce. I think you'll agree, that's significantly better than treading water.
 Here's a hint: The Associated Press reports this as "a major problem for the federal government" whose orchestrated federal bailout has "already siphoned $111 billion from the government to stay afloat" and is "expected to hit $188 billion by fall 2011." And by the same thread hangs the fate of many banks...
Gold hits record highs in sterling, euro terms Gold priced in both euros and sterling hit record highs in Europe on Tuesday as the precious metal benefited from volatility in the currency markets... Euro-priced gold touched a peak of 832.83 euros an ounce [subequently extending gains to 837 by early Wednesday]... Gold priced in sterling also rose to a new record high of 754.46 pounds an ounce [reaching 760 Wednesday]... [And continuing from an additional Reuters article co-authored with Michael Taylor...] ...the British currency was driven lower by fears that the next UK general election could result in a hung parliament. This could mean an incoming government would struggle to take the action necessary to reduce debt, analysts said. "Markets fear the UK government will be forced to create more sterling in order to buy their own government bonds and that quantitative easing and debt monetisation may continue for longer than expected," bullion dealer GoldCore said in a note. "The Bank of England continuing to punish savers with near zero percent interest rates at 0.5 percent while inflation appears to be looming is also contributing to concerns about a new sterling currency crisis." This could lead to further gains in gold, it added.
How long can the U.S. dollar defy gravity? The only time the U.S. dollar ever took a serious shellacking in the marketplace, the wounds were almost entirely self-inflicted. Facing mounting inflation and the escalating cost of the Vietnam War, President Richard Nixon, on Aug. 15, 1971, took the United States off the gold standard, which had been in place since 1944 and required that the Federal Reserve back all dollars in circulation with gold. The move amounted to a made-in-America double-digit devaluation, shocking the country's foreign creditors. Deep inside the New York Federal Reserve Bank's fortress in lower Manhattan, Scott Pardee, then 34, was fielding frantic calls from central bankers around the world. They were demanding the United States cover the foreign exchange risk on their reserves. "The whole roof came in on us," recalled Pardee, a former New York Fed staffer who is now an economics professor at Vermont's Middlebury College. "That is the kind of situation the U.S. doesn't want to be in." Nearly 40 years later, the dollar still dominates world trade. At the height of the financial crisis in 2008, investors fled to the dollar as a temporary safe haven. But the dollar has been falling steadily since 2002, and as the world economy recovered last year, dollar selling resumed, reviving doubts about how long it could remain the world's unrivalled reserve currency... As the United States racks up staggering deficits and the centre of economic activity shifts to fast-growing countries such as China and Brazil, these sources fear the United States faces the risk of another devaluation of the dollar. This time in slow motion -- but perhaps not as slow as some might think. If the world loses confidence in U.S. policies, "there'd be hell to pay for the dollar," Pardee said. "Sooner or later, the U.S. is going to have to pay attention to the dollar."
Kevin MacLean sees more gains for gold Maclean, manager of the Sentry Select Precous Metals Growth Fund, says: My view is that monetary policy will remain easy in 2010 and into 2011... What about gold bullion? I think the downside on gold is quite limited because this is a market that only produces about two-thirds of the demand for the products, and the rest of that supply has to come from scrap... mine production is approximately 2,500 tonnes [a year] and not growing. Demand for gold historically has run perhaps 3,800 to 4,000 tonnes a year. We are well below the amount of gold being produced that is needed to meet normal demand levels... The other factor is that central banks are now scrambling to reverse their mistake over the last 10 years and buy back their gold because they see now that prospects for a strong U.S. dollar exchange rate are dim indeed. So as a reserve asset, [the greenback] is losing its shine and they want to replace it with something that really does shine, which is gold. How high can gold go? What do you say to investors who are curious but nervous about the gold sector?
Soros signals gold bubble as Goldman predicts record George Soros is helping drive up gold prices by doubling his bet in a market even he considers a "bubble" as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts...
In a Jan. 28 Bloomberg Television interview, the 79-year-old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of "irrational exuberance" in financial markets three years before the technology bubble burst in 2000. The Standard & Poor's 500 Index rose 89 percent in the period. Buying at the start of a bubble is "rational," Soros said... Gold is "just an asset that, like everything else in life, has its time and place. And now is that time," Paul Tudor Jones said in an October letter to clients... "Gold makes sense as an investment," said Jeffrey Christian, the managing director of CPM Group. "Just because the price of gold is going up for the 10th year doesn't mean it's a bubble." 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year... Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year. "I absolutely believe it's heading into a bubble, but that's why you buy it," said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management's Absolute Return Fund in London. "A bubble is good," he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold...
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Looking for an ally to paper over the administration's gaping fiscal holes, it is not surprising that president Obama made this selection. Yellen has consistently downplayed the dangers of inflation and has made statements that indicate she views the Fed as an extension of the Labor Department, rather than a guardian of our currency.
"Countries will thus be forced to make difficult decisions relating to higher taxation and lower spending," El-Erian said. "If these do not materialize on a timely basis, the universe of likely outcomes will expand to include inflating out of excessive debt and, in the extreme, default and confiscation."
"World equity markets and financing has so much uncertainty to it that the allure of gold has never been stronger. Demands for gold has shifted to the investor, with very strong fundamental trends coming together to fuel investor appetite for things they can see, touch, hold and put in a warehouse. Gold certainty meets those criteria."
The global economy is entering a next "supercycle" phase that will generate inflation necessary for recovery, a strategist and protege of noted economist Nouriel Roubini told CNBC.
"When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment," Soros said at the World Economic Forum's annual meeting in Davos, Switzerland, in January. "The ultimate asset bubble is gold," he said.
