By Moming Zhou & Polya Lesova, MarketWatch

NEW YORK (MarketWatch) — Gold futures climbed to a fresh record above $1,200 an ounce Tuesday, as the dollar weakened and as the world’s largest gold miner eliminated all of its gold hedges, showing confidence in a rising gold price.

The dollar continued its slide as worries over Dubai’s debt woes eased, pushing up dollar denominated commodities prices. Barrick Gold Corp. said it has eliminated its gold hedges ahead of schedule and now has full leverage to the gold price.

Gold for December delivery rose as high as $1,202.70 an ounce. The front-month contract ended up $18, or 1.5%, at $1,199.10 an ounce on the Comex division of the New York Mercantile Exchange.

Gold ended November trading with one of the biggest gains in 10 years, up 13%. Futures only saw two losing sessions last month.

“The familiar formula of a weaker dollar, high volume, and higher equities still brings new buyers every day,” said George Gero, a precious-metals trader for RBC Capital Markets, adding that Barrick’s elimination of hedges helped present a bullish view.

Investors continued to add their positions in gold exchange-traded funds. Holdings in SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld (GLD 117.46, +1.82, +1.57%) , the biggest gold ETF, rose to 1,129.99 metric tons as of Monday, up more than 2 metric tons from a day ago.

Holdings in all gold ETFs hit a new high of 1,768.5 metric tons, according to data collected by Barclays.

The prices of gold and other commodities have showed a strong inverse relationship with the dollar. In Tuesday trading, the dollar index /quotes/comstock/11j!i:dxy0 (DXY 74.31, -0.57, -0.76%) , which tracks the performance of the greenback against a basket of other major currencies, fell 0.8% to 74.291 in recent trading.

Barrick /quotes/comstock/13*!abx/quotes/nls/abx (ABX 46.41, +3.72, +8.71%) /quotes/comstock/11t!abx (CA:ABX 48.19, +3.31, +7.38%) ’s announcement of hedge elimination came as gold repeatedly hit new highs in recent trading.

“Our positive view on the gold price led us to accelerate the elimination of these contracts ahead of the schedule we had established,” said Aaron Regent, Barrick’s president and chief executive officer, in a statement.

Barrick said in September that it planed to eliminate all of its gold hedges within 12 months.

“With their elimination we no longer have any gold price related mark-to-market exposure and will now fully benefit from increases in the gold price,” he said.

Gold hedges were contracts where Barrick had sold forward gold ounces and would receive a fixed price upon delivering into these contracts.

As a result, the company did not benefit from any increase in the gold price, but the mark-to-market liability, or costs of these contracts, would increase with a rise in the gold price.

While gold is traditionally seen as a safe-haven investment, it has lately been trading as a risk asset, moving in tandem with stocks and other commodities.

In other metals, December silver rose 68.5 cents, or 3.7%, to $19.18 an ounce, December palladium gained $18, or 5%, to $381.55 an ounce, and January platinum added $26.40, or 1.8%, to $1,486.60 an ounce.

December copper rose 5.5 cents, or 1.7%, to $3.2035 a pound.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Striking Gold

By Dan Greenshields

SEATTLE (MarketWatch) — Holiday shopping have you in a quandary? Having trouble deciding on that perfect gift? Think gold.

It could make the shopping season a bit easier. Whether you choose gold jewelry or the gift of gold in the form of stock, gold is a truly precious metal and there are some things you need to know before you head off to the investment mine.

Daily media accounts show that gold is hitting new all-time highs on a weekly basis, even when adjusting for inflation. Ever-cautious investors continue to ask: Have gold prices hit their peak? Will a shift in economic policy by the Federal Reserve strengthen the dollar and cause gold’s value to fall?

If the “gold” option resonates with you, there are some facts you should know. Investors generally keep a portion of their portfolios in gold for four “elemental” reasons:

1. Gold’s unique properties make it valuable in many ways — from powering cell phones and computers to being a perfect crown on a tooth. It is a unique asset, and because its financial performance is not strongly correlated to stocks, bonds or real estate, it can provide investors with another method of diversification.
2. Besides its natural beauty, gold is nearly the perfect element for manufacturing fine jewelry because of its ability to be shaped and never lose its luster. Some form of gold jewelry is always in fashion. It can easily be made into a ring, bracelets, or necklace — practically anything.
3. Gold is rare and virtually indestructible. These two features have made it a treasured commodity dating back to early Mediterranean cultures in 3000 B.C. when gold served as both jewelry and currency. Gold has outlived most governments and fiscal policies.
4. Gold can’t be easily substituted. Because it’s rare and highly valued, central banks and some governments use it to back their currencies. Only 161,000 tons of gold have ever been extracted from the earth, barely enough to fill two Olympic-size swimming pools, according to National Geographic.

Owning gold: How much is too much?

Still, the rule of thumb for investing in gold is generally 5% to 15% of a portfolio, depending on an investor’s time horizon and goals. Since 1973, gold has provided a Real Annual Return of 1.8%. More recently, it has been on a market tear, returning 19.7% in compounded annualized returns since November, 2004.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Dec 1, 2009

NEW YORK – A LOSS of investor confidence due to the Dubai debt crisis could prove ‘disastrous’ for the global economic recovery, even though potential losses are modest, Moody’s ratings agency said on Monday.

The Dubai government announced Wednesday it was seeking a six-month moratorium on debt payments by flagship conglomerate Dubai World. The company has US$3.5 billion (S$4.84 billion) in debts arriving at maturity in a debt pile of US$59 billion.

‘These are not insignificant amounts but I guess they are incredibly modest compared to the vast magnitude of losses faced by investors over the past two years of the global financial crisis,’ said Matt Robinson, speaking in an audio broadcast on Moody’s Economy.com website.

In spite of the limited monetary value, the scope of the reaction by financial markets, which plummeted after the Dubai government announcement of the debt crunch, was the result of ‘fear of the government defaulting on it,’ he said, triggering ‘a reassessment of investors’ risk tolerance.’ He added: ‘If Dubai, one of the seven emirates of the United Arab Emirates, were to default on the debt, ‘it would be the biggest sovereign default since the Argentinian default in 2001.’

Mr Robinson noted that markets were worried about a fire sale of Dubai World’s foreign asset, especially those in Britain, ‘which could destabilise the embryonic recovery in the global commercial real estate markets.’

In addition, Dubai’s debt moratorium ‘raises the specter of multiple sovereign defaults in the region’ in a domino effect that could dampen global investors’ appetite for risk. ‘The impact on investors’ confidence could prove disastrous’ and would most likely push global interest rates higher, undermining efforts to stimulate economies amid the global downturn, he said. — AFP

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Business Day, Australia

theage.com.au

December 1, 2009 – 7:39AM

US gold futures ended higher Monday as the US dollar fell further, more than offsetting follow-through weakness and investors’ need to raise cash on the back of Dubai’s debt woes.

COMEX February gold settled up $US6.80 at $US1182.30 an ounce on the NYMEX, while spot gold was at $US1176.25 an ounce, compared with $US1176.70 late in the previous session in New York.
The US dollar added losses against the euro as economic optimism supports the equities and commodities markets.

Gold investors initially sold to cover losses after worries about Dubai’s debt default pressured equities last week.

‘‘Dubai, typically a major gold buyer, could unload bullion holdings to opt for cash, and that adds selling pressure to the market,’’ said Miguel Perez-Santalla at Heraeus.

But comments by a senior Chinese official that Dubai’s debt crisis could be China’s opportunity to snap up gold and oil assets stabilized the market.

Investor sentiment is still firm after last week’s news that Sri Lanka acquired gold from the IMF, and a report that India is open to buying more IMF gold.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Reuters
Monday, November 30, 2009; 8:39 AM

BEIJING (Reuters) – Dubai’s debt crisis could be China’s opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.

No Chinese banks have yet reported exposure to debt from Dubai World, a flagship firm that last week said it was seeking to delay debt payments by six months. Some Chinese real estate and construction firms have limited exposure to projects in the emirate, state television reported this weekend.

China’s $2.27 trillion in foreign exchange reserves are mostly parked in U.S. treasuries, despite calls from some in China to invest the reserves in oil and other natural resources that the fast-growing Chinese economy will need in future.

While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council’s state assets commission, told the Economic Information Daily.

“That could give China a buying opportunity to put some forex reserves into gold or oil reserves,” Ji was quoted as saying by the paper, which is widely read by Chinese officials.

Another paper, the China Youth Daily, quoted Ji as saying that a team of experts from Beijing and Shanghai had set up a task force last year to look at the issue of gold reserves.

“We suggested that China’s gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years,” the paper quoted him as saying.

That is in line with many officials’ view that China should decrease the proportion of its $2 trillion foreign exchange reserves held in dollar-linked investments and raise its gold holdings to diversify its portfolio.

For a graphic on the world’s top gold reserve holders: http://graphics.thomsonreuters.com/119/GLD_TP121109.gif

China last acknowledged a change in its national gold holdings in April, when Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), told Xinhua news agency that the country’s reserves had risen to 1,054 tons from 600 tons since 2003.

But it did so by buying domestically produced gold to help soak up unsold output. It has not yet shown any interest in buying from international gold markets.

“If the gold price comes down for a while, we might take the opportunity to buy a bit,” the Economic Information Daily, run by Xinhua news agency, quoted economist Li Yining as saying.

Li added that China must gradually diversify the asset and currency composition of its foreign exchange reserves. He recommended buying more land, mines and equity stakes in companies.

Wu Nianlu, a professor at the central bank’s graduate school, expressed concern about the safety of China’s non-bond holdings.

“Strictly speaking, almost half of our country’s foreign exchange reserve is not stable in value and is of high risk,” Wu was quoted as saying by the same paper.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

by Patrick Hosking and David Robertson

November 27, 2009

Fears of a dangerous new phase in the economic crisis swept around the globe yesterday as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill.

Shares plunged, weak currencies were battered and more than £14 billion was wiped from the value of British banks on fears that they would be left nursing new losses.

Nervous traders transferred the focus of their anxieties from the risk of companies failing to the risk of nation states defaulting. Investors owed money by Mexico, Russia and Greece saw the price of insuring themselves against default rocket.

Although the scale of Dubai’s debts is comparatively modest at $80 billion (£48 billion), the uncertainty spooked the markets, with no one sure who its creditors are. Several banks rushed out statements to reassure investors that their exposure was small.

The FTSE 100 plunged by 171 points to 5,194 — its biggest one-day fall in eight months in one of the most jittery days in the financial markets since the depths of the banking crisis.

The Treasury, the Bank of England and the Financial Services Authority were monitoring events closely and are demanding figures from UK banks on their loan exposures to Dubai.

According to a senior government official, Dubai’s crisis is regarded as modest and manageable for Britain, but there were growing fears that Abu Dhabi, the oil-rich neighbouring emirate that has in the past given rescue loans, would leave Dubai to its fate.

Dubai World, the state-owned corporation that began the panic on Wednesday by demanding a standstill on its interest payments, worsened the mood when it postponed a teleconference for its bond holders, saying the phone lines were overwhelmed.

Gerard Lyons, chief economist with Standard Chartered, said: “The market reaction shows how vulnerable some economies are to the aftermath of the debt binge. This highlights how fragile confidence is.”

The Eid al-Adha religious holiday in the Middle East, and the closure of financial markets in the United States for Thanksgiving, exacerbated the sense of uncertainty in markets that were open for business.

A computer crash at the London Stock Exchange, which by coincidence is 21 per cent owned by the Dubai Government, left dealers unable to trade for three and a half hours.

Shares in HSBC slumped by 5 per cent, wiping £6.2 billion from its value. According to the United Arab Emirates Banks Association, HSBC has £11 billion of loans outstanding to the UAE, of which Dubai is one of seven emirates. HSBC declined to comment.

More than £2.6 billion was slashed from the value of Barclays, while Lloyds and Royal Bank of Scotland, both partly owned by the taxpayer, saw their values fall by £1.7 billion and £1.5 billion respectively.

One analyst said that the fears were overdone because Abu Dhabi would eventually come to the rescue to save the UAE from embarrassment. Dubai World has liabilities of £36 billion, about three quarters of Dubai’s total state debt. Its subsidiary Nakheel built The Palm Islands development, but the property bubble in the emirate burst a year ago, leaving buildings unfinished, debts unpaid and paper fortunes erased.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Buyers Take a Pass on Some Failed Banks

By Matthias Rieker

People’s United Financial Inc. wanted to buy failed banks on the cheap. Instead, it struck a deal to buy a healthy equipment-leasing company.

Last Monday’s change of plans by the Bridgeport, Conn., bank-holding company underscores a problem with the growing pile of terminally ill U.S. banks being wrestled with by the Federal Deposit Insurance Corp.

Associated Press

A Chittenden branch in Burlington, Vt. Its owner, People’s United, bought an equipment firm when it failed to find a lender it wanted.

Some are in such bad shape that potential buyers won’t touch them at any price, even if the government agrees to eat losses on the failed bank’s bad loans. In addition to their depleted capital, many seized banks operate in areas with sluggish growth prospects, are puny and are loaded with expensive deposits gathered through brokers that are likely to leave when the acquiring bank reins in interest rates, some bankers complain.

Philip Sherringham, chief executive of People’s United, said it is getting harder to find the dream deal that bank officials hoped to hatch from a wrecked bank. The supply of ideal targets—sensible deposit-gatherers that fatally “overextended” their loan portfolio—is slim and the competition fierce, he said.

The company’s roots go back to 1842. Its biggest deal was the 2008 purchase of Chittenden Corp., including six banks owned by the Burlington, Vt., company. The financial crisis has given People’s United an appetite for dying banks that nevertheless might have some valuable pieces.

But of the 124 banks to fail so far this year, many of those put up for sale by regulators as part of the seizure process “are of very poor quality,” said Norm Skalicky, chief executive of Stearns Financial Services Inc. “It’s not as if you can walk in and you are in business.”

The St. Cloud, Minn., bank has bought five failed banks since the financial crisis erupted, including two in Florida and one in Atlanta, where soured real-estate loans are piling up and deposits are expensive.

Fifth Third Bancorp CEO Kevin Kabat complained at an investor conference recently that the “relative quality…of available FDIC transactions have really not been very attractive from our perspective.”

The Cincinnati bank bought failed Freedom Bank of Brandenton, Fla., in October 2008 and is looking mostly for FDIC-arranged deals in geographic areas where Fifth Third already has branches.

Sluggish interest in doomed banks could push the FDIC’s losses higher at a time when the agency’s fund to shield depositors is in negative territory for just the second time in its history.

Kevin L. Petrasic, a lawyer at Paul, Hastings, Janofsky & Walker LLP, said FDIC officials might be forced to bundle some small banks together in order to lure potential buyers.

An FDIC spokesman said the agency isn’t having trouble lining up buyers. About 95% of banks seized by regulators have been sold. While some attract few bids, the FDIC has “had tremendous success in finding buyers,” the spokesman said. Two of the nine banks that failed this month were sold without loss-sharing agreements.

People’s United, the largest bank based in New England, has been hunting all over the U.S. for attractive acquisition targets. The bank has relatively few problems compared to the overall banking industry and $2.6 billion in capital to spend.

Last month, regulators notified People’s United that its bid for FBOP Corp., the battered Illinois owner of nine banks, wasn’t chosen by the government, according to people familiar with the matter.

U.S. Bancorp bought the banks and reopened the branches as part of the Minneapolis-based regional bank.

Financial Federal Corp., the leasing company that People’s United agreed to buy in a stock-and-cash deal valued at $738 million, is a move to expand some loan businesses rather than gain more overall heft.

Still, People’s United hasn’t entirely soured on the bad banks being shopped around by the FDIC. “In difficult times, bad banks will fail and good banks will fail,” Mr. Sherringham said in an interview.

In many cases, though, “there are fewer bidders” and “the folks that are bidding realize that,” lowering their offers, said Mr. Petrasic, the banking lawyer.

As a result, said Kip A. Weissman, a partner at Luse Gorman Pomerenk & Schick PC, there are “probably going to be more liquidations and high-loss deals.”

The St. Cloud, Minn., bank has bought five failed banks since the financial crisis erupted, including two in Florida and one in Atlanta, where soured real-estate loans are piling up and deposits are expensive.

Fifth Third Bancorp CEO Kevin Kabat complained at an investor conference recently that the “relative quality…of available FDIC transactions have really not been very attractive from our perspective.”

The Cincinnati bank bought failed Freedom Bank of Brandenton, Fla., in October 2008 and is looking mostly for FDIC-arranged deals in geographic areas where Fifth Third already has branches.

Sluggish interest in doomed banks could push the FDIC’s losses higher at a time when the agency’s fund to shield depositors is in negative territory for just the second time in its history.

Kevin L. Petrasic, a lawyer at Paul, Hastings, Janofsky & Walker LLP, said FDIC officials might be forced to bundle some small banks together in order to lure potential buyers.

An FDIC spokesman said the agency isn’t having trouble lining up buyers. About 95% of banks seized by regulators have been sold. While some attract few bids, the FDIC has “had tremendous success in finding buyers,” the spokesman said. Two of the nine banks that failed this month were sold without loss-sharing agreements.

People’s United, the largest bank based in New England, has been hunting all over the U.S. for attractive acquisition targets. The bank has relatively few problems compared to the overall banking industry and $2.6 billion in capital to spend.

Journal Community

• discuss

“ As far as the Fed goes, they should just let the banks in the mud fail. Bailouts will just lead to more government control and more expense than the loss and the Fed will become a deadly virus to industry. ”

—Phil Mongelluzzo

Last month, regulators notified People’s United that its bid for FBOP Corp., the battered Illinois owner of nine banks, wasn’t chosen by the government, according to people familiar with the matter.

U.S. Bancorp bought the banks and reopened the branches as part of the Minneapolis-based regional bank.

Financial Federal Corp., the leasing company that People’s United agreed to buy in a stock-and-cash deal valued at $738 million, is a move to expand some loan businesses rather than gain more overall heft.

Still, People’s United hasn’t entirely soured on the bad banks being shopped around by the FDIC. “In difficult times, bad banks will fail and good banks will fail,” Mr. Sherringham said in an interview.

In many cases, though, “there are fewer bidders” and “the folks that are bidding realize that,” lowering their offers, said Mr. Petrasic, the banking lawyer.

As a result, said Kip A. Weissman, a partner at Luse Gorman Pomerenk & Schick PC, there are “probably going to be more liquidations and high-loss deals.”

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

New gold bugs making gold investments mainstream

Tudor, Paulson, Greenlight, Hayman bring precious metal in from the fringe

By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold has long been favored by a fringe of the investment world, but this year some of the world’s leading hedge-fund managers have loaded up on the precious metal amid concern government efforts to avoid another Great Depression that could undermine major currencies and fuel rampant inflation.

“I have never been a gold bug,” Paul Tudor Jones, chairman of hedge-fund giant Tudor Investment Corp., wrote in an Oct. 15 letter to investors. “It is just an asset that, like everything else in life, has its time and place. And now is that time.”

Tudor has been building positions in gold and other precious metals in recent months and they now represent the firm’s largest commodities exposure, he noted.

John Paulson’s Paulson & Co., one of the world’s largest hedge fund firms that made billions betting against subprime mortgages, is launching a new gold fund Jan. 1 and became the largest holder of the SPDR Gold Trust exchange-traded fund this year.

Greenlight Capital, run by David Einhorn, reversed a long-time aversion to gold, while Kyle Bass’s Hayman Advisors LP held more than 15% of its portfolio in gold and other precious metals earlier this year. Eton Park Capital, headed by former Goldman Sachs trader Eric Mindich, has also got in on the act.

“I can’t remember in 20 years so many respected investors focused on a single strategy,” said Bradley Alford of Alpha Capital Management, which invests in hedge funds. “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.”

It’s not only hedge funds. Managers of mutual funds and insurance company portfolios are often limited in how much gold they can buy, but these investors have been purchasing the metal for their personal accounts, according to Ed Yardeni, president of Yardeni Research.

“A surprising number of level-headed folks, who I have known over the years, are confessing to me that they’ve become gold bugs,” he said. “They’re starting to give more respect to what was for a long time considered the lunatic fringe.”

On Monday, the most active New York gold contract notched a new high of $1,174 an ounce.

SPDR Gold gained 1.6%, bringing its November advance to 12%.

The original gold bugs have been fans of the metal for decades. They yearn for the past, when the so-called Gold Standard was the central cog of the world’s currency system. A similar system known as the Bretton Woods Agreement tied the U.S. dollar, and all currencies pegged to the dollar, to the price of gold. When the system broke down in 1971, there was no longer a limit on the amount of money that could be printed by governments.

Gold bugs hung on grimly as prices dropped in the ’80s and ’90s amid quelled inflation and roaring stock markets. But gold prices began climbing at the start of this decade, when the Federal Reserve slashed interest rates to revive the U.S. economy in the wake of the dot-com bust.

That helped fuel a housing and credit market boom that came crashing down last year, triggering a global financial crisis and the worst recession since the Great Depression.

The Federal Reserve, headed by Ben Bernanke, responded by slashing interest rates to almost zero and spending more than $1 trillion buying long-term U.S. Treasury bonds and mortgage-backed securities and other debts from collapsed housing giants Fannie Mae and Freddie Mac.

That’s stabilized the economy, but some leading hedge fund managers worry about the long-term consequences of this so-called quantitative easing and are using gold to protect themselves.

‘Grandpa Ben’

“The Fed is making loans collateralized by toxic waste and has now begun a policy called ‘quantitative easing’ — a fancy term for ‘printing money,’” Greenlight’s Einhorn wrote in a January letter to investors.

David Einhorn of Greenlight Capital, Inc.

Printing so much new money will cut the value of the U.S. dollar, which could fuel rapid inflation. In such an environment, the solidity of gold could shine.

“If the chairman of the Fed is determined to debase the currency, he will succeed,” Einhorn added. “Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”

Einhorn initially invested in the Market Vectors Gold Miners ETF, which tracks shares of gold-mining companies. He’d also bought call options on gold, as well as buying the metal directly, according to Greenlight’s January investor letter, a copy of which was obtained by MarketWatch.

Since Einhorn launched Greenlight in 1996, he’s shunned gold and other broad economy-based trades in favor of tracking down under-valued and over-priced stocks.

“We never thought we would ever buy gold or gold stocks,” Einhorn wrote in January, recounting the lesson he learnt from his grandfather’s obsession with the precious metal.

“David’s grandfather Benjamin was a gold bug,” Einhorn recalled. “From the time David was 10, Grandpa Ben took every opportunity to tell David about the problems with fiat currencies and the coming inflation and advised that the only sensible thing to do was to buy gold and gold stocks.”

Einhorn’s grandfather followed his own advice for the last 30 years of his life and lost money.

“Being a patient investor is one thing. Being ‘wrong’ for three decades is quite another,” Einhorn noted.

‘Grandma Cookie’

However, Greenlight Capital lost more than 15% last year — its first ever annual loss — as the global financial crisis rocked the hedge fund industry. Einhorn had rightly warned of the demise of Lehman Brothers  before it happened, but he underestimated the broader impact of such an event.

“The lesson that I have learned is that it isn’t reasonable to be agnostic about the big picture,” he said during an Oct. 19 speech at the Value Investing Congress in New York.

At the same conference four years earlier, Einhorn advocated his Grandma Cookie’s approach of investing in stocks like Nike, IBM, McDonald’s and Walgreens, over his Grandpa’s holdings of bullion and gold stocks.

“I explained how Grandma Cookie had been right for the last 30 years and would probably be right for the next thirty,” Einhorn said. “However, the recent crisis has changed my view.”

Gold should do “fine” until policymakers and politicians show more monetary and fiscal restraint. The metal will likely do “very well” if there’s a sovereign debt default or currency crisis, he added.

Einhorn said last month that he moved all his positions into physical gold because it’s a cheaper, more-certain and more-liquid way of investing in the metal.

Physical delivery

Hayman Advisors, a Dallas, Tex.-based hedge fund firm run by Kyle Bass, became another proponent of holding physical gold this year.

Most precious-metal investing has historically been done via paper futures contracts on COMEX, part of the New York Mercantile Exchange, owned by CME Group.

However, Hayman expects more demand for physical delivery of precious metals. That could cause problems because there are only enough inventories in COMEX warehouses to supply 15% to 30% of open interest on futures and options contracts, the firm explained in a presentation to investors earlier this year.

“It is prudent to focus efforts on obtaining physical delivery of metals backing paper contracts ‘while supplies last,’” Hayman wrote in its presentation, a copy of which was obtained by MarketWatch.

Faster Monopoly

Bass, Einhorn and others are holding gold because they’re concerned that a damaging bout of inflation will be triggered by the efforts of several central banks to stabilize economies by pumping lots of new money into the global financial system.

“In God-like fashion (with a little ecclesiastical white-out), the central banker decides to add two more banks of money to the game that are distributed to the participants,” Bass wrote. “Under this scenario, did the real value of anything change? Does the bartering for property increase or decrease prices? Did each unit of money become worth more or less?”

Reserve multiplier

Quantitative easing by the Fed has pumped roughly $1.2 trillion into the U.S. financial system this year. But M1 money supply, the most liquid measure of money outside of tangible currency, has only increased a seasonally adjusted $73.2 billion, Hayman said, citing Fed data.

This hides the potential for a massive increase in money supply that could be unleashed from bank reserves, the firm added.

The foundation of money supply is the monetary base of an economy, which consists of tangible currency and reserves that banks are required to hold against customer deposits.

The reserve requirement is usually about 10%. This means banks can lend out 90 cents for every dollar they get in deposits. That money often ends up in another bank account, and 81 cents of this is re-lent, and so on, Hayman explained.

Banks usually lend as much as possible, but since the collapse of Lehman last year they’ve been hoarding excess cash. As the Fed’s quantitative easing picked up steam this year, the extra money has piled up in bank reserves, rather than flowing out into the economy.

Excess reserves in the U.S. banking system stood at an unprecedented $855 billion recently, up from $2 billion a year earlier, according to Hayman.

If banks decide they’re comfortable enough to lend out these extra reserves, “it would not increase the money supply by $855 billion; rather it would increase the money supply by some multiple of that,” as the money is deposited again and re-lent over and over, Hayman wrote.

This so-called banking reserve multiplier has historically been at least seven times, which suggests that the money supply could balloon by about $6 trillion, Hayman estimated.

“Do you trust the Federal Reserve et al. to select the precise timing of when to withdraw the money from the system, such that a recovery is sustained and inflation does not take hold?” Hayman wrote. “We believe the market, in its forward-looking nature, does not.”

20% under-valued

But what if gold prices already reflect concern about future inflation?

The precious metal is storable and portable and has been universally accepted as a medium of exchange for over 5,000 years, outlasting governments, fiat money systems and the rise of other metals and minerals, according to Paul Tudor Jones of Tudor Investment Corp.

“These somewhat esoteric descriptions of gold’s value do not help in evaluating if gold is cheap or expensive,” Jones added in letter to investors last month.

Compared to the long-term average of M2 money supply in the G-20 countries, gold is cheap. It should also increase in value as it becomes scarcer relative to a growing supply of printed currencies, Jones explained.

If gold prices are adjusted for inflation, the price is still a long way below records hit 25 years ago. Depending on which inflation measure is used, the peak is between $1,600 and $2,400 per ounce, he wrote.

Tudor’s proprietary model, which takes into account inflation, M2 growth and real rates, suggests gold is 20% under-valued over the next 24 months, Jones concluded.

Supply and demand

Jones also reckons old-fashioned supply and demand could drive gold prices higher too.

Despite a three-fold jump in spending on metal exploration in the past decade, new gold mine production has stagnated at 80 million troy ounces, he noted.

“They just aren’t making that much of it anymore,” Jones wrote. “Any incremental demand for gold must be met through sales from current owners.”

Some of that extra demand may come from investors in ETFs. These securities have flourished in recent years by giving investors who previously struggled to invest in gold an easier way of getting into the precious metal, Jones said.

By the end of 2009, ETFs will hold 3% of available supplies, making them the sixth-largest holder of gold in the world. That may only be the start, according to Tudor.

“With only $50 billion in total assets of listed, physically-backed ETFs as of October 14th, there is huge scope for increased flow,” Jones wrote. “The private-wealth universe of trillions of dollars is under-exposed to gold and now can readily get exposure.”

G-13

Tudor also expects central banks, which have been net sellers of gold for many years, to become net buyers during the second half of 2009, a “remarkable” turnaround for a market that’s used to absorbing big sales from this official sector.

The large, developed countries of the G-7 already have roughly 35% of their reserves in gold, but the remaining members of the G-20 only have 3.5% of reserves in the precious metal, Tudor estimated.

These 13 countries, which include China and India, have seen a $2.2 trillion surge in reserves in the past five years, making up well over half of the increase in global reserves during that period, Tudor said.

Almost that entire surge has been in paper currency or debt backed by paper currencies, the hedge fund firm noted.

If non-G-7 countries in the G-20 lifted gold holdings to 10% of their reserves, they would need to buy 370 million troy ounces, or 20% of current above-ground supplies. If they lifted holdings to 35% of reserves, they could need to buy 1.3 billion troy ounces, or 35% of above-ground supplies, Tudor estimated.

“There is huge potential for more buy-side interest to emerge from central banks,” Jones wrote in his Oct. 15 letter to investors.

Indeed, India’s central bank bought 200 tons of gold bullion from the International Monetary Fund in the final two weeks of October.

“The scope for increased investment demand over the coming years is much stronger than the potential from new supply,” Jones wrote. “As a result, incremental new demand must buy gold from current holders… We doubt the transfer of gold from current holders to its new owners will occur at, or near, current prices.”

Gold M&A

Paulson & Co., which made billions of dollars betting against mortgage-related securities before the housing bust, is starting a new fund Jan. 1 that will invest in gold stocks and gold-related derivatives. John Paulson, who heads the firm, will invest a chunk of his own money in the vehicle, according to a person familiar with the matter.

Paulson told investors recently that the rally in gold has only just begun, according to The Wall Street Journal, which noted that Paulson is putting $250 million of his own money in the new fund.

Paulson has already been building gold positions in the firm’s current funds. The firm, which oversees more than $25 billion, recently held 31.5 million shares in the SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld (GLD 114.56, +0.27, +0.24%) , the largest ETF backed by bullion. The stake was worth $3.1 billion on Sept. 30, according to a recent regulatory filing.

Paulson has his roots in merger arbitrage — a strategy in which traders bet on the outcomes of mergers and acquisitions. So he may also be betting on more deals in the gold-mining industry.

Paulson’s firm held a $1.75 billion stake in AngloGold Ashanti at the end of September, a position it initially bought from diversified miner Anglo American in March.

The firm also owned shares of Kinross Gold Corp. worth $668 million and stock in Gold Fields Ltd. /quotesworth $317 million as of Sept. 30, regulatory filings show.

Rather than allowing such gold positions to become a larger and larger part of Paulson’s main hedge funds, the firm decided to create a new vehicle to focus on the strategy, the person familiar with the matter said on condition of anonymity.

Paulson took a similar approach as the firm’s subprime trades grew earlier this decade. The Paulson Credit Opportunities fund was launched to focus on the strategy. It generated returns of almost 600% in 2007 as the housing market began to crash and mortgage-related securities collapsed.

Eric Mindich’s Eton Park hedge fund firm has also taken stakes this year in gold-mining companies including AngloGold Ashanti, Gold Fields and Harmony Gold /quotes/comstock/13*!hmy/quotes/nls/hmy (HMY 10.59, -0.16, -1.49%) . Eton Park also held shares and call options on the SPDR Gold Trust at the end of June, according to regulatory filings.

Gold share classes

Paulson has also offered a share class denominated in gold, tapping into investor concern about holding paper currencies.

Other hedge fund firms, including Christian Baha’s Superfund and Osmium Capital Management Ltd., run by former ABN Amro trader Chris Kuchanny, also launched new share classes denominated in gold this year. See full story.

The idea is that investors get the same returns generated by the underlying hedge fund, but those returns are denominated in troy ounces of gold, rather than in U.S. dollars, euros or pounds. If such currencies lose value, the hedge fund gains may be preserved.

Excluding Japan, the world’s major currencies have experienced money supply growth of 15% to 55% in the past three years, Bass estimated in an Oct. 2 letter to investors.

The Hayman managing partner compared the efforts to a game of Monopoly in which the banker decides money is too tight, the “velocity” of the game is slowing down, or a few players are about to go broke.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Fri Nov 20, 2009 3:35pm EST 

  NEW YORK, Nov 20 (Reuters) - U.S. gold futures ended higher
for a sixth straight session  on Friday despite a dollar rise,
and a late session rally in the face of a stronger dollar could
boost sentiment early next week, traders said.

 For the latest detailed report, click on [GOL/].

 GOLD

  * COMEX December gold GCZ9 settles up $4.90 at $1,146.80
an ounce on the NYMEX.

 * Range spanned from $1,132.50 to $1,148.50. It hit a
record $1,153.40 set on Wednesday.

 * After Friday's settlement, December hit a high
$1,150.50.

 * Gold initially pressured as the dollar rose for a second
straight session as investors cut risk exposure. [USD/]

 * Technical buying and short covering started late session
rally - Frank McGhee at Integrated Brokerage Services.

 * Strong buying may boost prices early next week - McGhee.

 * Gold ended higher than a week earlier for a third
straight session.

 * Gold's ability to stem losses despite weaker equities and
oil prices drop signal strong buying interest - traders.

 * December $1,200 call strike options set to expire
worthless on Monday, despite strong open interest - option
traders.

 * Gold-to-oil ratio at 14.93, up from the previous
session's 14.74.

 * COMEX estimated final volume at 192,162 lots.

 * Spot gold XAU= at $1,149.45 an ounce at 3:25 p.m. EST
(2025 GMT), compared with $1,143.50 late in the previous
session in New York.

 * London's afternoon gold fix XAUFIX= at $1,140 an
ounce.

 SILVER

 * December silver SIZ9 ends down 1.5 cent at $18.440 an
ounce, tracking gold's weakness.

 * Ranged from $18.035 to $18.595.

 * COMEX estimated final volume at 51,595 lots.

 * Spot silver XAG= was at $18.46 against $18.51 in the
previous session in New York.

 * London silver fix XAGFIX= at $18.18.

 PLATINUM

 * January platinum PLF0 finishes down $2 at $1,441.90 an
ounce on broad-based commodities weakness amid a strong
dollar.

 * Spot platinum XPT= $1,442.50 an ounce.

 PALLADIUM

 * December palladium PAZ9 closes down $5.55, or 1.5
percent, at $364.35 an ounce on platinum's weakness.

 * Spot palladium XPD= $361 an ounce.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA
gold

By Millie Munshi and Nicholas Larkin

Nov. 16 (Bloomberg) — Gold prices jumped to a record for the fourth time in six sessions as investors purchased the precious metal as an alternative to a slumping dollar.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.6 percent today, extending this year’s losses to 7.8 percent. Before today, gold jumped 26 percent in 2009 as the lowest interest rates ever, coupled with increased government spending, sent the dollar to a 15-month low on Nov. 11.

“People want to own gold now because gold is the ultimate currency,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “It’s clear that with such low interest rates, the dollar is being allowed to weaken, and there’s no incentive to hold it. There’s an increasing awareness among investors that they should hold some insurance against the lower currency.”

Gold futures for December delivery rose $13.30, or 1.2 percent, to $1,130 an ounce at 9:52 a.m. on the New York Mercantile Exchange’s Comex division. Earlier, the metal touched a record $1,133.50. Futures added 1.9 percent last week.

“Gold is in a secular bull market and all the fundamentals show that prices will keep moving higher,” Joe Foster, who helps manage $8 billion at Van Eck Associates in New York, said in an interview last week. “We’re in an environment where financial stress, including the weaker dollar, is driving the price. Gold had been a forgotten asset for years and years, and now people are all starting to diversify into gold.”

Demand for Gold

The Federal Reserve has cut borrowing costs and the U.S. government boosted spending to a record to combat a recession in the world’s biggest economy, fueling speculation that the dollar will be debased. The Reserve Bank of India bought 200 metric tons of gold from the International Monetary Fund last month, and Sri Lanka’s central bank said this month the country will continue buying the metal.

Gold will reach $1,300 in the next six months, Foster said. Shares of gold-mining companies may outperform bullion, he said. The Philadelphia Stock Exchange Gold & Silver Index is up 49 percent this year.

Touradji Capital Management LP bought 2.23 million shares of Barrick Gold Corp., the world’s biggest producer, while selling shares in SPDR Gold Trust during the third quarter. Barrick has jumped 31 percent in New York since June 30 while gold rose 22 percent. The SPDR is the largest exchange-traded fund backed by bullion.

SPDR Holdings

Investors at “all levels, from retail investors to central banks, are really diversifying their portfolios,” said Toby Hassall, an analyst with CWA Global Markets Pty Ltd. in Sydney.

Holdings in the SPDR fell 0.61 metric tons to 1,113.83 tons on Nov. 13, its Web site showed. The holdings reached a record 1,134 tons on June 1.

Gold bullion for immediate delivery gained 0.9 percent to $1,128.93 an ounce in London, after earlier reaching a record $1,133.20.

Silver futures for December delivery added 2.8 percent to $17.87 an ounce on Comex.

Platinum for January delivery rose 2.8 percent to $1,428.10 an ounce on the Comex, after earlier touching $1,434.50, the highest price since Sept. 4, 2008. Palladium for December delivery advanced 2.7 percent to $366.50 an ounce.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold