European NewsGroup March 31st: Gold has corrected, but further bank rescues loom.

Gold's recent correction may have taken some of you by surprise. Those of you that have been watching this market for any period of time know this to be business as usual for the yellow metal. While the correction took over $100 off of the price of gold in just three days, the total percentage decline amounted less than 14%. Gold saw similar corrections in 2003 ($382 to $319 - 15%), in 2005 ($536 to $489 - 9.6%), in 2006 ($725 to $567 - 8%), and in 2007 ($841-$778 - 8%). The market recovered from all of the previous corrections, ultimately resuming the uptrend. As the underlying fundamentals have not changed, and given the magnitude of retracement already seen, we are encouraged that the latest pullback will be no different. It is likely that we'll look back on this correction, as we've looked back on previous corrections, as a fantastic opportunity buy gold or add to existing positions.

Gold on Track For Sustained Comeback
Vidya Ram - Forbes online - 27-Mar-08

"But gold looks to be on track for a sustained recovery, said Norman, adding that the next significant barrier for it to breach would be $970. He expected this to take place within the next couple of weeks, and estimated that gold would continue to rise to up to $1,250, before the end of the year."

USAGOLD Comment: This is a good read, discussing the renewed bullish tone the gold market has taken just one week after its correction. We concur; the correction and subsequent recovery/consolidation is constructive to the overall uptrend. Fund selling sparked the correction as they locked in profits ahead of the end of Q1. We anticipate that the funds will be back in, looking to reestablish positions as the second quarter commences on 01-Apr. We were further encouraged by solid jewelry interest on the dip, lending credence to the scenario that suggests the corrective lows are in.

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When the going gets tough, banks yelp for nanny
Jeff Randall - The Telegraph - 27-Mar-08

"Remarkable, isn't it, just how quickly champions of laissez-faire solutions can become advocates for state intervention. All it takes is for their gravy-train to break down."

"Markets work because they create winners and losers, not jobs-for-life security. Financial Darwinism doesn't just underpin the survival of the fittest, it ensures the extinction of pea-brained dinosaurs"

"Those who got us into this mess are demanding that we get them out of it. They put a gun to our heads, insisting that, without immediate action, everyone will feel their pain (funny, I don't recall feeling the joy of their jackpot bonuses). Catharsis for a few will lead to nemesis for many."

USAGOLD Comment: Amid swirling rumors that the Bank of England, the Fed and perhaps others will take the drastic step to actually buy mortgage backed securities from banks, this opinion piece is both humorous and sobering. Despite initial denials by the BoE and the Fed, speculation about such moves gained some traction as the week progressed. Comments by BoE governor King suggested that the purchase or the swap of asset-backed securities for cash or liquid assets was indeed on the table. The central banks would first need cash to buy or swap for these assets and the printing press is a good source for such capital. If these questionable assets do indeed end up on the balance sheets of the central banks, they could devalue further, necessitating writedowns. A central bank has the option to simply print more money to offset any such writedowns. Worries about impending global currency devaluations have gained considerable credence. Gold offers the best protection against that eventuality.

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Germans Fear Meltdown of Financial System
Spiegel Staff - Der Spiegel - 26-Mar-08

"Germany and other industrialized nations are desperately trying to brace themselves against the threat of a collapse of the global financial system. The crisis has now taken its toll on the German economy, where the weak dollar is putting jobs in jeopardy and the credit crunch is paralyzing many businesses."

"Everyone involved knows how explosive the agreement is. It essentially means that while the profits of banks are privatized, society bears the cost of their losses. In a world in which the rich are getting richer and the poor poorer, that is political dynamite."

"...central bankers are running out of options. They are anxious to avert the nightmare scenario of a financial crisis like the one that rocked Germany in 1931, when the failure of a major Berlin bank prompted a massive run on other banks by a nervous public, which plunged those banks into insolvency. For decades, a repetition of that disaster had seemed unthinkable. But ever since former Fed Chairman Alan Greenspan dubbed the current financial crisis the worst since the end of World War II, old certainties have no longer applied."

USAGOLD Comment: This article highlights the risks to the global banking system in the wake of the Bear Stearns bailout. That the central banks appear willing to do whatever it takes, no matter the cost, to prevent a major bank from going under is the most compelling case yet for US$2,000+ gold. This new paradigm, where the risks associated with poor decision making on the part of banks, are foisted on the shoulders of taxpayers is maddening. Gold offers an excellent hedge against systemic risks as well as the currency debasement that is likely to ensue if further bank rescues are indeed in the offing.

-- Regards, Pete Grant

European NewsGroup March 11th: Soaring euro and bond spreads highlight EU risks

Hawkish ECB risks central bank fight on rates
Ambrose Evans-Pritchard - The Telegraph - 06-Mar-08

"The European Central Bank has dashed hopes for an interest rate cut in coming months, defying mounting calls from across the political and economic spectrum for monetary stimulus to head off a sharp slowdown."

"Jean-Claude Trichet, the ECB's president, brushed off warnings that the soaring euro would lead to a wave of job losses in European industry, insisting that the top priority of the bank is to prevent food and energy inflation spilling over into wage demands."

USAGOLD Comment: The ECB held steady on rates last week, despite some on the continent holding out hope that the central bank would take into consideration the plight of Eurozone exporters. It was not to be and the euro soared to new all-time highs. The staunch stand on price risks was reiterated this week by Bundesbank president, and ECB council member, Axel Weber who said; that inflation leaves no room for maneuver to 'ease our monetary policy.' Mr. Weber went so far as to suggest that a rate hike could not be ruled out. Not surprisingly, the euro pushed to yet another new record against the dollar, just shy of 1.5500. Industrial and political pressure to lower the euro to a more reasonable level will continue to mount, potentially deepening divides within the EU. However, this will be no easy task as the US Fed continues to forward its own agenda of stimulating growth through aggressive rate cuts, with little regard (other than lip-service) to the impact on global prices. The soaring euro will increasingly weigh on the Eurozone economy, with certain countries baring a larger burden than others. Threats to growth, political uncertainty, and rampant inflation all warrant consideration of gold as a hedge for our friends across the pond. Of course the weak dollar also makes gold comparatively cheap for holders of euros, Swiss francs and sterling.

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Euro bond spreads hit record as panic grips markets
Ambrose Evans-Pritchard - The Telegraph - 06-Mar-08

"Investors sold Italian and Greek debt yesterday in signs of near panic liquidation, driving bond spreads to the highest level since creation of the single currency."

"Funds dumped bonds from the more vulnerable emerging markets and picked off the weakest members of the euro-zone.

'There are forced sellers out there having to liquidate assets,' said Dominic Konstan at Credit Suisse. 'There are also people out there who always felt EMU wouldn't work and this is bringing them out of the woodwork.'"

USAGOLD Comment: Italy and Greece are two particularly vulnerable members of the EU. However, Spain, Portugal, Ireland and Austria are likely to suffer as well from a funding freeze from lenders. The "near panic" selling of riskier debt and the resulting surge in spreads, particularly against the German bund, is certainly cause for concern. With Italy already on the verge of recession, this is probably the biggest challenge to the single currency yet. Another great article by Ambrose Evans-Pritchard; that furthers the case of political uncertainty and widening rifts within the EU, increasing the appeal of gold as a hedge.

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Gold's glitter lures buyers, even near $1000
Atul Prakash - Reuters - 06-Mar-08

"'Don't be surprised to see gold trade up to $1,100 (an ounce) or even $1,200 before year-end 2008,' said Jeffrey Nichols, managing director of American Precious Metals Advisors."

"'And, with the right confluence of economic and geopolitical developments, we could see gold spike to $1,500 or even $2,000 in the next few years,' he said."

USAGOLD Comment: And of course, what would a newsgroup be without a delightfully bullish piece on gold? This one is particularly good as it forecasts what we might be able to expect as gold crosses the psychological $1000 barrier. Needless to say, investment demand is expected to continue. We've seen this here at Centennial Precious Metals as well, as near four digit gold has failed to deter many buyers at all, making our days as busy as ever.

-- Regards, Pete Grant