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Gold rises most in three months on Greek debt worries
By Pham-Duy Nguyen and Nicholas Larkin, Bloomberg; February 16, 2010

Gold rose [Tuesday] the most in three months on speculation that concern over Greece's sovereign debt will spur demand for the metal as an alternative to holding currency. European finance ministers pressured Greece to rein in budget deficits and refused to say how they would rescue the nation if it can't contain its debt...

"There's a lack of faith in fiat currencies that's driving the market," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. "There's too many sovereign-debt problems and too many countries printing money. Gold is the only hard asset I'd want to own right now."

"Commodity prices are firming as the dollar weakens," Dennis Gartman, a Suffolk, Virginia-based economist and hedge-fund manager, said in his Gartman Letter Tuesday. "The world has become disdainful of currencies generally, and is wrapping its collective arms around gold as the most readily available, reservable and believable currency."

USAGOLD Comment: Whereas the price of gold has been busy consolidating nearly $100 below its all-time Dollar-denominated record, we would do well to observe that it is nevertheless quietly breaking new ground at other spots around the world. At the same time this article appeared, Reuters offered the following comments:

Lingering concerns over the outlook for peripheral euro zone economies, most notably Greece, helped send gold priced in euros to a record high at €817.59 an ounce. "Alongside long-term inflation fears, looming risks in the euro zone are obviously driving investors into gold, with Greece remaining the dominating theme," Commerzbank said in a note. "Greece's public-debt crisis, remaining a sword of Damocles, will drive investors to view gold as a safe haven again."

And in fact, recent technical analysis has suggested that the euro-denominated price of gold is poised to go parabolic. Now moving closer to home...

Forget Greece, the U.S. almost had a failed Treasury bond auction
By Graham Summers, MarketOracle; February 12, 2010

While most of the investment world focuses on the various "senior officials" (none of whom seem to have actual names or positions) commenting on whether Greece will or will not be bailed out/receive an emergency loan/offered moral support, etc, a far more significant debt story is emerging in the US.

On Wednesday the US offered $16 billion worth of 30-year Treasuries (US debt that will mature in 30 years)... [W]e know that the US Federal Reserve accounted for 11% of the total purchases. Folks, you're not dealing with a healthy debt auction when the Fed accounts for 10% of purchases.

However, far, FAR more worrisome is the pathetic Indirect Buyer takedown .... To see such a MASSIVE drop off in Indirect Buyers (40% down to 28%) is a MAJOR warning sign that Foreign Governments are no longer willing to buy long-term US debt.

This auction was a very small step away from a failed auction. To see Primary Dealers buying so much (remember they HAVE to buy it) and Indirect Buyers so little, only confirms what I've been saying for months, that the US is entering a Debt Spiral: a situation in which it must issue more and more debt (while rolling over trillions of old debt) at the very time that fewer and fewer investors are willing to lend to the US for any lengthy period of time (more than ten years).

Folks, forget Greece, the US has its own debt problems. And they're MAJOR. The fact that stocks RALLIED on this news tells you how disconnected stocks are from reality. The Debt Spiral has started and is now accelerating. It's only a matter of time before it becomes a full-fledged Crisis. And this one will make 2008 look like a cakewalk.

USAGOLD Comment: What's up with the usual buyers? Read on...

China ditches US Treasury bonds amid tensions
By ninemsn Money; February 16, 2010

China's holding of US Treasury bonds has tumbled, according to US Treasury data released Tuesday, after Beijing expressed concern over the swelling US deficit and amid new US-China tensions.

The drop in China's bond holdings by 34.2 billion dollars or 4.3 percent to 755.4 billion dollars in December also fueled the biggest drop in foreign purchase of short-term US bonds, said the Treasury's latest international capital data report and based on comparative figures.

China's US bond holding decline was also its biggest drop since August 2000 and allowed Japan to regain its position as top holder of American government debt after a 15-month hiatus...

The decline in the Chinese holding came amid deteriorating US-China relations in recent months with problems seen on multiple fronts, and after Beijing expressed concern about US economic woes. China has consistently raised concerns about the mushrooming US debt, for fear it could erode the value of the dollar and its Treasury holdings as the American economy struggles to emerge from a brutal recession.

USAGOLD Comment: Last decade's "theory" becomes this decade's reality. Even during the briefest of emergences from his economic hole, Punxsutawney Phil (the groundhog) can no longer fail to observe the signs of the dollar's impending Winter -- that is, a permanent winter for the dollar as a reserve asset. More happily, the corresponding "spring" is on its way for gold. Need more convincing that this is indeed the road we're on? The signposts have been evident for miles. Here's an article from one week ago...

China orders retreat from risky assets
By Ambrose Evans-Pritchard, Telegraph.co.uk; February 10, 2010

China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the US government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets.

A Communist Party directive leaked to the Chinese-language edition of the Asia Times said dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington's implicit backing.

BNP Paribas said the move has major implications for global risk assets. "The message from Beijing is that we don't like this environment," said Hans Redeker, the bank's currency chief. "When the world's biggest investor turns risk-averse, that is something you take notice of. We think this could become the new theme for the markets in the medium-term," he said.

The directive covers both the State Administration of Foreign Exchange (SAFE) and China's state-controlled commercial banks. Together they have an estimated $3 trillion of foreign holdings. The exact break-down of China's holdings are a state secret but it is understood that SAFE bought large amounts of corporate debt as well as municipal and state bonds during the boom years of 2006 and 2007. Any move to liquidate holding of California debt at this crucial juncture could have serious implications.

USAGOLD Comment: This, and now the retreat from U.S. bonds arrives as a natural continuation of a trend away from risky paper that has been revealing itself in stages for months now. As recently as August China's State-owned Assets Supervision and Administration Commission suggested that Chinese state-owned companies will be allowed to walk away from loss-making commodity OTC derivative trades -- issuing a warning, according to the Financial Times, that "some of the contracts were illegal and might be invalidated, a move that prompted some western banks to agree quietly to renegotiate contracts behind closed doors."

And prior to that, back in April 2009, China announced that it had nearly doubled the quantity of gold reserves being held by its central bank. Expect more of that sort of thing as the trend to shed unnecessary paper risk continues. Speaking of risk...

Pakistan snubs miners over gold contracts
By Farhan Bokhari, Financial Times; February 12, 2010

A large copper and gold mining project in south-western Pakistan will be developed by the provincial government rather than Canada's Barrick Gold and the Chilean miner Antofagasta, according to the local chief minister.

Nawab Muhammad Aslam Khan Raisani, chief minister of Baluchistan, told the Financial Times a new public sector company would take over extraction and processing at the remote Reko Diq site, which had promised to be one of the largest foreign direct investments in Pakistan.

The current provincial government, backed by the national authorities, set aside the concession, arguing it was against the interests of Pakistanis.

USAGOLD Comment: Current and prospective gold mine shareholders must be firmly cautioned about this very type of investment risk. We've been warning of it for years -- as the price of gold continues to climb, and as its role among reserve assets continues to escalate its value as a strategically important national asset, you will likely continue to see more and more of these types of nationalizations of gold mines either outright (as in this case) or through taxation. Mines are simply sitting ducks, prime politically to be plucked for the pot.

The safest gold investment to be had anywhere in the world is the more elusive and highly mobile variety -- that is, the physical gold that investors can hold in their own hands as they go about living their private and productive lives maneuvering more or less at will in and out of the economic woodwork of local or international society. Be thou barbarian or king, gold in hand is a clever thing! Still not convinced? The rumblings continue...

Zuma says nationalisation not South African govt policy
By Reuters; February 16, 2010

Nationalisation of South Africa's mines and other economic sectors is not government policy, President Jacob Zuma said on Tuesday.

The ruling ANC's militant Youth League has called for the nationalisation of mines, worrying some investors in Africa's biggest economy. South Africa is the world's biggest platinum producer and the world's number three gold producer. Although the influence of mining on gross domestic product has declined, particularly as gold reserves become exhausted, the sector remains one of the country's major employers.

"We reiterate that nationalisation is not government policy," Zuma said in parliament in a reply to debate on his state-of-the-nation address last week. He said the government could not stop ANC Youth League leader Julius Malema and other political formations from debating nationalisation.

The nationalisation debate is likely to muddy the waters further in South Africa's mining sector, where investors are grappling with the uncertainty of a recession, job cuts and impending high power tariff increases.

Analysts said investors were finding it difficult to understand why the government said nationalisation was not policy while acknowledging there was debate on the issue.

USAGOLD Comment: The article also stated that: Opposition parties flayed Zuma's February 11 state-of-the-nation address, saying he had let down the legacy of Nelson Mandela, showed poor leadership and ignored urgent priorities.

Investors, particularly those who opt for speculative shares in collective mining operations rather than the individual safety of physical gold ownership, should give long thought to the very real potential for an uptick in geopolitical risk -- particularly the socialization of nations' natural resources as an increasingly likely populist response as they attempt to cope with their various sovereign monetary and economic hardships. And in fact, just one day after this article appeared, Reuters put forth the following...

Gold rallies on investment demand, supply woes
By Reuters; February 17, 2010

Spot gold hit a one-month peak and euro-priced bullion rose to record highs in Europe on Wednesday, supported by strong investment interest and news that South Africa is to levy royalties on minerals exports. Spot gold rose as high as $1,126.85 an ounce, its highest since Jan. 20, while euro-priced gold rose to a record 820.84 euros an ounce...

Commodities in general and gold in particular are benefiting from fresh investment. Billionaire investor George Soros' hedge fund more than doubled its bet on the price of gold during the fourth quarter, an SEC filing showed on Tuesday...

"Investment demand from the United States and a lack of selling out of Asia are pushing gold up," said Standard Bank analyst Walter de Wet, adding that a fall in net long positions in New York gold futures suggested gold had room to rise.

On the supply side, South Africa said in its 2010 Budget Review on Wednesday that it will from March 1 this year levy mining royalties that were postponed due a recession last year. South Africa is the second largest gold producer.

USAGOLD Comment: Investors in gold mining shares are promised "leverage" by their brokers, but as events march forward what they will get is more levies to cut into their companies' profits and dividends. Don't say nobody tried to warn you. Moving on to expand on that Soros comment -- you may recall Peter Cooper's commentary featured in our February 3rd NewsGroup entitled "Why Soros is probably buying gold now". It was right on the button...

Soros increased bet on gold last year
By Devon Maylie, The Wall Street Journal; February 17, 2010

Investor George Soros doubled his bet on gold at the end of 2009 amid rising prices, a filing with the U.S. Securities and Exchange Commission shows.

The filing, made late Tuesday for the financial period ending Dec. 31, comes after Mr. Soros made comments during the World Economic Forum in Davos, Switzerland, in late January calling gold an asset bubble. He told media at the time that the low interest rate environment creates a condition for bubbles to develop and that gold is the ultimate bubble.

Soros Fund Management reported total holdings of $8.8 billion at the end of the year, up from $6.2 billion on Sept. 30.

As part of that he increased shares held of the SPDR Gold Trust to 6.2 million, valued at $663 million, as of the end of 2009. That was up from 2.5 million shares at the end of the third quarter.

...The Soros fund also held 11,000 call options that would allow it to buy further shares.

USAGOLD Comment: Sure, we could dwell on this all day, but let's move on...

The timeless allure of gold
By Dunstan Prial, FOXBusiness; February 12, 2010

The argument for buying gold during tough economic times is nearly as old as the precious metal itself. Indeed, when other currencies and commodities are losing their value, the siren call of gold is practically irresistible.

Entire countries have jumped on the gold band wagon of late, with India purchasing 200 tons in November, the single largest purchase of the commodity by a government central bank in three decades. Recent rumors that China is strongly mulling a big purchase similar to India's have kept the price of gold above the $1,000 an ounce range, according to analysts...

Here's commodities expert Kevin Kerr explaining gold's allure: "Gold is attractive for investors for the simple reason that it is a comfort commodity. Much like a bowl of warm soup on a cold winter day it makes us feel warm and secure inside. Let's face it, as the fiat currencies around the world get beat up each week, gold is one of the few places investors can put their money and not watch it whither."

But after a months-long runup since October 2008, when gold cost about $700 an ounce, the question is whether gold is a bubble that's about to burst.

"No way," says Kerr. "We're just getting started." ...investors will continue to turn to gold as the Federal Reserve -- and other global central banks -- struggle to pull back from the liquidity and stimulus programs that prevented the world's economy from falling off a cliff.

...With central banks holding interest rates near zero, and Europe on the brink of bailing out Greece, gold remains a good investment as a hedge against inflation. And with additional risks lurking on the horizon in the form of Spain, Portugal and Ireland, risk-aversion will remain at the forefront of investor thinking. So don't expect an end any time soon to the current gold rush.

USAGOLD Comment: Stand by for the bottom line...

Global central banks to be net gold buyers in 2010
By Kiryl Sukhotski & Dmitry Zhdannikov, MOSCOW Reuters; February 17, 2010

Global central banks will be net gold buyers in 2010 as they review their reserves policies, the head of the World Gold Council told Reuters on Wednesday.

"There may be a few countries (selling gold to cover budget deficits) but overall they will be net buyers," Aram Shishmanian, the CEO of the council, told Reuters Insider Television.

"And the reason they are net buyers is because they are reconsidering their reserves policies and will be buying gold to protect their national interests," he said.

USAGOLD Comment: The pace of this paradigm shift is quickening, and it becomes increasingly likely that investors who have not yet found the resolve to diversify their portfolio with physical gold will soon lack the resources to make up for missing this particular boat. Don't just think about it, pick up the phone and do what needs doing.

As an effective time-tested hedge against various inflations and currency depreciations, the front-running desires for the protective and proactive qualities of gold will likely turn any potential China-U.S. economic Cold War into a Gold War.

Actually, gold is a Great inflation hedge
By Joe Weisenthal, Business Insider; February 8, 2010

It's frequently argued that gold is a great hedge against calamity but not actually a great inflation hedge, which is how its frequently advertised.

Jason Ruspini begs to differ, pointing out that most critics of gold tend to use the elevated (and arbitrary) 1980 peak...

If you pick basically any other start date but the one corresponding to gold's 1980 peak, you see something different, even giving CPI a long head start over floating gold prices [which had been officially fixed at $35 until as late as 1971...]

USAGOLD Comment: Not only does gold do well outpacing headline inflation, it's becoming increasingly important as investors perceive the inevitability of global depreciation of the U.S. dollar...

Short View: Gold and the dollar
By John Authers, Financial Times; February 9, 2010

The world continues to move on every fresh rumour from the eastern Mediterranean. The latest word, that the European Union is stitching together a rescue package for Greece, galvanised markets on Tuesday. Most of those moves are predictable. Stocks respond well to a fall in uncertainty... But gold has been harder to explain or predict...

Rather than operating as the inverse of stock markets, as a safe haven would, gold has moved in line with them. The precious metal suffered a sell-off during the market carnage of October 2008, and then enjoyed a rally even more impressive than the stock market's, gaining 79.8 per cent from trough to peak.

Traditional explanations do not work. The trajectory of gold over this period roughly matches inflation expectations. It sold off during the deflation scare, and recovered as inflation forecasts returned to normal. But this ignores gold's long rally in the middle of the past decade when inflation expectations were very stable.

Rather, it is best to look at the gold price as an offshoot of speculation against the dollar. Investors have held gold as a store of value to guard against falls in the dollar.

Gold to hit $1,350 - $1,400 by late Spring says John Embry
By Geoff Candy, Mineweb; February 3, 2010

Gold should continue to consolidate over the next few weeks but, the next big move is likely to be up. This is the view of Sprott Asset Management's chief investment strategist John Embry, who says he is looking for the price of the yellow metal to hit around $1,350 to $1,400 by late spring.

"The idea that the US dollar is a safe haven today is flat out wrong," he added, "and that is going to be one of the major factors that are going to change the perceptions in the gold market going forward."

"I think a lot of the world's wealth is figuring out that we have little choice given the debt problems in the world and the resultant unlimited creation of money and so I think there is a solid investment bid in the market for gold."

USAGOLD Comment: One of the nagging structural defects (insurmountable Gov't fiscal difficulties) of the dollar already looms large and is growing both nearer and larger...

Next in line for a bailout: Social Security
By Allan Sloan, Fortune; February 4, 2010

Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system. A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.

Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout.

No one has officially announced that Social Security will be cash-negative this year... Social Security currently provides more than half the income for a majority of retirees. Given the declines in stock prices and home values that have whacked millions of people, the program seems likely to become more important in the future as a source of retirement income, rather than less important. ...this year's Social Security cash shortfall is a watershed event. Until this year, Social Security was a problem for the future. Now it's a problem for the present.

USAGOLD Comment: As the federal budget deficit grows out of hand, The Wall Street Journal puts your money and your risk into perspective...

The Deficit: How to protect yourself
By Brett Arends, The Wall Street Journal; February 4, 2010

What do these budget deficits mean for you and your finances? The federal government is expected to borrow $1.6 trillion this year, or about $15,000 for every household in the country. Over the next 10 years it's expected to borrow a total of $8.5 trillion. And the government was already deeply in debt to begin with.

Here's a look at the risks the deficits pose for personal wealth -- and what can be done to guard against them:

Be very wary of long-term bonds. Whether we pay for these deficits by issuing bonds or by printing money, we run the risk of inflation in due course. Longer term bonds are most at risk. Yet the prices right now are not compensating you for the risks...

The danger may be nearer than many realize. Our deficits are financed by savers in emerging markets, especially in China. But many emerging markets are now seeing rising inflation. If that continues they will have to raise interest rates at home. We will have to do the same here if we want to keep attracting their money.

Make sure you are globally diversified and not entirely dependent on the U.S. economy and the dollar. There is a danger of a dollar slump. Those most convinced it will happen should look at having some gold exposure, but it's volatile and that's not the only way to reduce your dependence on the greenback. ... Take a hard look at the risks in your portfolio. The issue with share prices right now isn't that they are egregiously expensive. They're not. It's that they aren't cheap -- and we live in risky times. Too few investors are getting compensated for the risks they are taking.

USAGOLD Comment: As if simple investment risk weren't enough, it all quickly escalates into deeper geopolitical significance...

China shows little patience for US currency pressure
By Mark Landler, New York Times; February 4, 2010

A senior Chinese official said on Thursday that China would not bow to pressure from the United States to revalue its currency, which President Obama says is kept at an artificially low level to give China an unfair advantage in selling its exports. The official, Ma Zhaoxu, a Foreign Ministry spokesman, said at a regular news conference here that "wrongful accusations and pressure will not help solve this issue."

The sharp exchange over China's currency is only the latest symptom of rising tensions in American relations with China. Internet censorship, hacking attacks directed at American companies, arms sales to Taiwan and the pending visit of the Dalai Lama to Washington have all cropped up in the last month as points of conflict. China is exhibiting a brash sense of confidence as its economy continues to boom while much of the world remains mired in a recession.

On economics, Chinese officials now regularly lecture their American counterparts on the need to maintain the value of the American dollar. China, which has more than $2.4 trillion in foreign exchange reserves, is the largest holder of American debt. On Wednesday, Xinhua, the official state news agency, said Chinese economists are concerned that the American government, suffering from a record budget deficit, could print more dollars and issue more bonds, eroding the value of the dollar...

"The currency issue has the potential to become a very hot political issue," said Kenneth G. Lieberthal, who worked on China policy in the Clinton White House. "We're in significant danger of hitting a very rough patch in trade relations, in the latter part of this year."

USAGOLD Comment: Getting more to the gold-specific point, read on...

China and U.S. heading for a cold war? What impact on gold?
By Lawrence Williams, Mineweb; February 7, 2010

China has always been unhappy with U.S. criticisms over its human rights record, but a number of recent diplomatic disagreements have escalated the feelings within China that it should be taking more action against the U.S. if only to show its displeasure.

The Sunday Times report noted that just under 55% of Chinese questioned in a recent poll by a state-run newspaper felt that a cold war would break out between China and the U.S. China has been beset by major criticisms from the U.S. on Taiwan, Tibet, internet freedom, global warming and trade -- and most recently the U.S decision to sell $6.4 billion worth of arms to Taiwan may have really brought matters to a head...

Should matters deteriorate further one suspects that it will also not have escaped Chinese politicians' thoughts that their country may currently hold the whip hand with the U.S. in the economic sector...... China's dollar trillions in its reserves suggest that if it wishes to, say, destabilise the dollar by switching an ever growing proportion of its reserves into other assets, including gold, it could do so relatively simply.

The first step in such a move, at least as far as gold is concerned, could be another announcement of a substantial increase in Chinese gold reserves. It is assumed by most analysts now that China is putting the country's gold production -- and China is the world no. 1 gold producer -- into its reserves, but does not announce this externally until and unless it is politically expedient to do so.

An announcement of say a 500 tonne increase in reserves would give a revival fillip to the gold price and could knock the dollar. If China were also to buy up the remaining IMF gold on sale, this would do likewise. China has kept out of purchasing IMF gold so far as it has not felt the need given its own gold production, but to cock a political snook at the U.S. Administration it may perhaps re-enter this market given a gold price rise is seen as a de facto devaluation of the U.S. dollar and a declining dollar would be yet another inflation trigger to add to that created by the pumping of huge amounts of paper money into the U.S. domestic economy. While inflation has yet to rear its head, most economists feel this is inevitable at some stage and an accelerated dollar fall would just bring the inevitable closer...

USAGOLD Comment: A mere two days after this article posted, The Financial Times carried the following small yet symbolic announcement...

Chinese fund fillip for oil and gold ETFs
By Chris Flood and Gregory Meyer, Financial Times; February 9, 2010

China's voracious appetite for raw materials and a desire to diversify its vast holdings of foreign exchange reserves has led it to make its first investments in commodity-related exchange-traded funds.

China's sovereign wealth fund is the fourth-largest investor in the US oil exchange-traded fund and on Tuesday it emerged that China Investment Corporation had also taken a small stake in the SPDR Gold Trust, the largest physically backed ETF. The stake of 1.45m shares is worth about $155.6m, or 0.4 percent of the SPDR's assets.

"The investment is relatively modest compared with CIC's $300bn size but it shows a continuation of the fund's strategy during the second half of 2009, which saw it reportedly divert around $10bn into commodity-related concerns," said Leon Westgate, analyst at Standard Bank.

John Hyland, chief investment officer at United States Commodity Funds, said that although CIC's investments were small, "the fact it chose to use transparent publicly listed funds, as opposed to the many other ways it could have gained exposure, is a plus for the ETF industry and the US capital markets as a whole".

Hussein Allidina, commodity strategist at Morgan Stanley, said the recent sell-off in commodity markets presented a buying opportunity.

USAGOLD Comment: Although $155 million is nothing to sneeze at, in light of China's massive foreign exchange holdings this is a trifling both in relative size and in the fact that these ETF shares aren't redeemable for gold except to a small handful of Authorized Participants. This investment position, therefore, is most likely intended to serve as an initial yet symbolically important "testing of the waters" in regard to both market mechanism and market reaction. It would be reasonable to expect other, more significant, public stirrings in the gold market to follow when it is deemed politically expedient to do so. Meanwhile, a popular investment guru suggests that individuals should be stirring to buy gold right now because it is economically expedient to do so...

VIDEO -- Jim Cramer: Gold is a Must-Buy
By Jim Cramer & Alix Steel, TheStreet TV; February 4, 2010

Jim Cramer suggests Thursday's dip in gold represents a good buying opportunity for investors because in the long term prices will rise. Jim concludes his video chat with Alix saying he likes the physical bullion and gold coins more than the mere representative ETF...

USAGOLD Comment: Solid gold advice, Jim!

This simple equation will essentially solve itself as you read on for all the vital What's, the Why's, and the How's...

Gold climbs for a third day as declining dollar boosts demand
By Nicholas Larkin and Jae Hur, Bloomberg; February 3, 2010

Gold gained for a third day in London as the dollar extended a decline, boosting demand for the metal as an alternative investment... "The euro seems to be on the upside, and that's beneficial for gold," said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. "Physical demand is exceptionally good."

"Price levels below $1,100 an ounce apparently attract buyers who consider this as a lucrative entry point," Eugen Weinberg, a senior analyst with Commerzbank AG, wrote in a note to clients.

The equity-market decline may worsen amid persistent U.S. joblessness and economic growth that trails economists' forecasts, said [PIMCO's CEO] Mohamed A. El-Erian, whose firm runs the world's biggest mutual fund. Investors have wrongly priced in an "orderly" withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth...

Newmont Mining Corp., the world's second-largest gold producer by sales, reaffirmed its forecast for the metal to rise to $1,350 by the end of 2010. "I feel pretty confident that as things move forward, we will see continued support for the gold price," CEO Richard T. O'Brien said today at the company's $2.9 billion Boddington operation, Australia's biggest gold mine. "No question it will be volatile, but we will see support."

USAGOLD Comment: "Volatility" is a popular theme these days. Barrick chimes in with Newmont on that point...

Gold's upward climb is not over, says Barrick
Reuters; January 28, 2010

While the gold price may be volatile, its upward climb is not over, the chairman of Barrick Gold Corp, the world's biggest gold producer, said yesterday.

"It may fluctuate, but to us and I think to our investors, the key criteria should be that it's got a secular tendency now to move up year in and year out, said Peter Munk from the World Economic Forum in Davos. "While it may trade off in the two-week or three-month period, I think the trend is here to stay."

USAGOLD Comment: Volatility can work in your favor -- use pullbacks in price to stock up for a resumption of the greater trend. Our next few articles will help you understand the monetary fundamentals underpinning the demand for gold.

The end of the gold love affair? Not for long
By Pratima Desai, Reuters; January 27, 2010

The stampede to gold is likely to resume later this year, when tighter monetary and fiscal policy to rein in potential inflation and government deficits respectively reinforce fears of financial, political and economic instability.

The large amounts of money pumped into the global economy by central banks and governments and low interest rates around the world to stabilize the financial system and boost growth after the credit crisis, mean price pressures in the pipeline. Inflation, often triggered by a shortage of resources during times of robust growth, erodes wealth, which can be protected by including gold in portfolios.

"If there is either a deflation or an inflation scare, gold as a commodity usually responds well," said Omar Kodmani, senior executive officer at Permal Investment Management Services. "In case of deflation, gold is a stable alternative alongside government bonds of highly rated countries."

Kodmani's comment on government bonds leads us to a source of uncertainty -- government deficits, which in many countries are ballooning to the extent that credit rating agencies are threatening downgrades.

"Gold is a crisis hedge ... we want to make sure we are positioned for gold trending toward $2,000 an ounce," said John Brynjolfsson, chief investment officer at Armored Wolf. "There is a vulnerability in the global market ... in the sovereign sectors ranging from Greece to the U.S. and Japan."

The risk of government default is one reason why some emerging market countries such as China plan to diversify their reserves into gold over coming years.

USAGOLD Comment: More on that final point follows in our next article...

China's gold output at 313.98 tonnes sets new record in 2009
India Economic Times; January 31, 2010

China's gold output soared 11.34 per cent to a record 313.98 tonnes in 2009, maintaining its No.1 rank as the world's biggest producer of the yellow metal. It is the third year in a row for China to rank the first in gold production in the world, the China Gold Association said...

China's annual gold output exceeded South Africa in 2007 for the first time to become the world's largest gold producer.

USAGOLD Comment: So, why has China put this obvious emphasis on developing its gold-mining sector? As covered in previous NewsGroups, it has been through state acquisition of domestic production that the Chinese government has recently added gold to its central bank's reserves -- a sign of a trending role-reversal whereby gold increasingly supplants the U.S. dollar/bonds amongst international reserve holdings. So what's putting U.S. paper out of favor? Well, to start with, there's too much and it's only getting worse...

Treasury Dept. projects $392B in first quarter borrowing...
By Christopher Rugaber, AP; February 1, 2010

The Treasury Department says it expects to borrow $392 billion in the current quarter to finance the largest annual budget deficit in history...

The projections come the same day that President Barack Obama proposed a $3.83 trillion budget that forecast a record $1.56 trillion deficit for this year, an increase from the $1.41 trillion deficit in the 2009 budget year.

Federal government borrowing has soared in the aftermath of the 2008 financial crisis and the steep recession that followed, as tax revenues from individuals and corporations have plummeted amid the weak economy. Spending has also jumped as a result of the Bush administration's $700 billion bank bailout program and the Obama administration's $787 billion stimulus package.

The deficit in 2011 would drop to $1.27 trillion under the administration's plan, the third straight trillion-dollar-plus imbalance. The budget gap would fall to $828 billion in 2012 but would remain at levels surpassing any previous deficits through 2020...

USAGOLD Comment: Does the world really have the appetite for another $392 billion in additional debt this quarter (and beyond), adding to the already heavy menu of rolling refinancing operations for the cummulative debt outstanding? Apparently not. And before you think the euro a likely candidate to take its place, think again...

Euro proving no reserve asset as central banks shift
By Paul Dobson and Lukanyo Mnyanda, Bloomberg; February 1, 2010

Investors are pulling cash out of Europe at a record pace as central banks slow euro purchases, jeopardizing its status as a substitute to the dollar as the world's reserve currency.

[USAGOLD Note: Frankly, that suits the euro officials perfectly, as they never wanted that status to begin with. Even prior to the financial crisis ECB president Trichet had publicly warned his international colleagues against rushing into euro reserves when that proclivity had begun showing signs of budding and consequently pushing up the euro's exchange rate. Europe, as you will recall, rather puts its reserve-emphasis upon GOLD, and its international peers (some more than others) were well-advised to do likewise.]

Last year, policy makers loaded up on euros, while analysts at Barclays Plc in London and Aletti Gestielle SGR SpA in Milan predicted central bankers would make good on threats to reduce the greenback's dominance. Now the euro is down 8.1 percent since Nov. 25 in its fastest slide in 10 months amid concern that cash-strapped countries like Greece won't pay their debts...

"The euro can fall further," said Neil Mackinnon, a former U.K. Treasury official who is a London-based economist at VTB Capital Plc, the investment-banking unit of Russia's second- biggest lender. "Sovereign-debt risk will continue to be a key theme," he said... European Central Bank President Jean-Claude Trichet's resistance to printing euros to revive growth fueled a nine-month, 21 percent rally versus the dollar that ended Nov. 25.

The Federal Reserve cut its interest benchmark to as low as zero and created new money to fund purchases of $300 billion in Treasuries and $1.25 trillion in mortgage-backed securities...... "This is a historic moment -- the start of debasement of the world's reserve currency," said Alan Ruskin, a Royal Bank of Scotland Group Plc currency strategist in Stamford, Connecticut, in March, four weeks after the dollar began plunging...... The purchases prompted speculation that U.S. attempts to spend itself out of the worst global recession in six decades would prompt policy makers worldwide to continue diversifying away from the greenback. ...The U.S.'s debt will be 60 percent of GDP this year, according to the Congressional Budget Office.

"Central banks are looking at ways of buying something other than euros," said Adnan Akant, who helps oversee $39 billion as head of foreign exchange in New York at Fischer Francis Trees & Watts. "The euro has been overvalued. Its best days were always as an anti-dollar trade, and now it's losing that status."

USAGOLD Comment: Despite their key structural differences, it nevertheless remains fair to say that, as both are regionally-managed fiat currencies, the euro and the dollar are more akin than not from a punter's standpoint. Therefore, when looking to hedge a portfolio with a true "anti-dollar" position, gold emerges as the best choice because at the same time that it is an "anti-dollar" it is also an "anti-euro", "anti-yen", "anti-yuan", "anti-rouble", "anti-AllGovtPaper" -- a truly universal outsider, standing safely upon the rim looking aloofly down as all others circle the drain. Gold serves as an "anti-dollar" insofar that its value stands ultimately and fundamentally APART from that of the dollar, (or the euro, the yen, etc.) although it does so not necessarily in any sort of lock-step "equal-but-opposite" fashion -- which is what gives the casual speculators such fits of bewilderment.

Will gold-underpinning investment demand continue?
By Loni Prinsloo, miningweekly.com; January 29, 2010

Rand Refinery head of global markets John Reid tells Mining Weekly that the company's sales of Krugerrands have increased from about 2,000 oz/week in mid-2008 to a high of 15,000 oz/week, and currently stand at around 10,000 oz/week. Reid predicts that these high levels will be maintained for the foreseeable future.

In the longer term, prudence alone could keep investors in gold. Reid says that people are concerned about the loss of integrity in financial markets. ...physical gold provides liquidity and is seen universally as the ultimate form of insurance against financial woe.

South African Gold Coin Exchange chairperson Alan Demby: "We have always recommended that people include a number of different assets in their portfolios and attribute about 10% of their holdings into gold. [...] Today, people realise the importance of including gold in their investment portfolios. At the end of the day, [investing] about 10% stock in gold will only give you marginal returns on your investment, but it is the ultimate insurance policy against financial risks and that is priceless."

"There has been a trend over the past couple of years away from investment in mining companies towards investment in physical gold. Currently, the amount of gold in gold-backed ETFs is about $50-million to $60-million, making it seem that even the investment gurus prefer to own physical gold these days," Demby adds.

USAGOLD Comment: When it comes to selecting the most reliable form of savings for lasting wealth, it all really does boil down to the relatively simple choice between a tangible asset versus a mere piece of representative paper.

Gold price and the ongoing inflation threat
By Daryl Montgomery, SeekingAlpha; February 2, 2010

Despite a barrage of press coverage during the last several weeks, the threat of inflation hasn't diminished, nor are the world's governments likely to return to fiscal and monetary responsibility for many years into the future. Gold will continue its long-term rally until that happens.

The Credit Crisis has forced the U.S. and a number of other industrialized countries to risk either a long prolonged recessionary period or massive inflation. Modern democracies will always chose inflation because the voters will turn on any government that allows a recession to continue for a long time ([actual] unemployment rates will be what voters make their judgment on, not manipulated GDP numbers).

While the Obama administration spent the last three weeks trumpeting deficit control, the 2011 proposed budget submitted by the administration on February 1st indicated deficit out-of-control instead. While there was supposedly an item here and an item there that would save $20 billion or so in the next many years, this is laughable. The budget deficit for fiscal 2010, which ends this September 30th, was revised downward on January 26th by $150 billion and then upward by $190 billion on February 1st. These people can't predict 10 days in advance, let alone 10 years and yet the mainstream press treated their multi-year predictions as something that should be taken seriously instead of as an item worthy of the comic pages...

The press has also released items lately that are obviously meant to drive the price of gold down. The most interesting of these concerned comments made by legendary investor George Soros at the recent Davos conclave. Speaking about the excess money creation and govenment spending taking place globally, Soros said that gold would be the ultimate bubble because of these. Soros did not indicate that the bubble he foresaw was going to peak anytime soon, although the press slanted its coverage to indicate otherwise...

Gold rose 25% in 2009... When investors see gold going up several hundred percent in one year, [only then] they should worry about gold being in a bubble that is about to burst. Before then, they shouldn't. Expect to continually hear that gold is in a bubble for the next several years, especially every time it hits a new high...

Gold has maintained its value for over 5000 years; paper currencies are usually lucky if they last 100 years.

USAGOLD Comment: More elaboration on the Soros-bubble-speak...

Why Soros is probably buying gold now
By Peter Cooper, SeekingAlpha; January 29, 2010

Given the moves by rival hedge fund managers like John Paulson into the yellow metal, it would be surprising if that living trading legend George Soros is not buying gold at the moment. Indeed, you should always buy when this man hints he might be selling. His comments at the World Economic Forum in Davos this week seem classic trader double-speak. What does Soros mean when he says gold is the 'ultimate bubble' asset class?

He merely pointed out what even the most ardent gold bug would concede, namely, that if you study the history of financial crises, then the credit-induced asset price inflation [which] causes them moves from one asset class to another until it reaches gold as the 'ultimate bubble' or the last of the bubbles.

Soros did not say that we are nearing that position with gold around $1,080, having last month touched $1,226 an ounce. What he did create was a buying opportunity, presumably for funds controlled by himself. ...Only after the bond bubble has blown up will gold become a candidate for the next bubble, and given the relative sizes of the bond market and the gold market that could be one humdinger of an 'ultimate bubble'.

Soros is playing his own book in Davos. Gold investors should not be alarmed but take some delight in what he is saying.

USAGOLD Comment: Our final article helps you to proceed with just that very thing...

How to invest in gold
By TheStreet Staff, TheStreet.com; February 1, 2010

If you think that we'll experience more inflation ahead and that the dollar is likely to continue to lose value, you might be contemplating how to put a portion of your portfolio into hard assets, such as gold. But how does an ordinary person invest in gold?

One of the easiest ways to invest in gold is through an exchange-traded fund, or ETF for short. You can think of an ETF as a mutual fund that you can trade like a stock. I'll explain more about ETFs and some of their advantages over mutual funds in a future episode... Another relatively easy, but indirect way to invest in gold is through a mutual fund or ETF that owns precious metal-related companies...

Now, ETFs and mutual funds aren't the only ways to invest in gold. Some people like to own gold directly and invest in gold coins. If you do buy coins, it's really important that you do your homework first and buy them from a reputable dealer. You'll also want to store them safely by keeping them in a safe deposit box, for example.

If you have concerns that the government could once again confiscate gold owned by individuals like FDR did back in 1933, you might be most comfortable investing in pre-1933 U.S. gold coins. These coins are considered to be collectibles and, by law, are exempt from confiscation...

USAGOLD Comment: Our brokers await your TOLL FREE call to assist you with friendly, professional consultation and competitive pricing on gold coins and bullion.

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