Capital Gold Group Report: Record $14 Trillion-Plus Debt Weighs on Congress

YAHOO! News
By Tom Raum
Associated Press – Sat Jan 15, 6:15 pm ET

WASHINGTON – The United States just passed a dubious milestone: Government debt surged to an all-time high, topping $14 trillion — $45,300 for each and everyone in the country.

That means Congress soon will have to lift the legal debt limit to give the nearly maxed-out government an even higher credit limit or dramatically cut spending to stay within the current cap. Either way, a fight is ahead on Capitol Hill, inflamed by the passions of tea party activists and deficit hawks.

Already, both sides are blaming each other for an approaching economic train wreck as Washington wrestles over how to keep the government in business and avoid default on global financial obligations.

Bills increasing the debt limit are among the most unpopular to come before Congress, serving as pawns for decades in high-stakes bargaining games. Every time until now, the ending has been the same: We go to the brink before raising the ceiling.

All bets may be off, however, in this charged political environment, despite some signs the partisan rhetoric is softening after the Arizona shootings.

Treasury Secretary Timothy Geithner says failure to increase borrowing authority would be “a catastrophe,” perhaps rivaling the financial meltdown of 2008-2009.

Congressional Republicans, flexing muscle after November’s victories, say the election results show that people are weary of big government and deficit spending, and that it’s time to draw the line against more borrowing.

Defeating a new debt limit increase has become a priority for the tea party movement and other small-government conservatives.

So far, the new GOP majority has proved accommodating. Republicans are moving to make good on their promise to cut $100 billion from domestic spending this year. They adopted a rules change by House Speaker John Boehner that should make it easier to block a debt-limit increase.

The national debt is the accumulation of years of deficit spending going back to the days of George Washington. The debt usually advances in times of war and retreats in peace.

Remarkably, nearly half of today’s national debt was run up in just the past six years. It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day Obama was inaugurated and to $14.02 trillion now. The period has seen two major wars and the deepest economic downturn since the 1930s.

With a $1.7 trillion deficit in budget year 2010 alone, and the government on track to spend $1.3 trillion more this year than it takes in, annual budget deficits are adding roughly $4 billion a day to the national debt. Put another way, the government is borrowing 41 cents for every dollar it spends.

In a letter to Congress, Geithner said the current statutory debt ceiling of $14.3 trillion, set just last year, may be reached by the end of March — and hit no later than May 16. He warned that holding it hostage to skirmishes over spending could lead the country to default on its obligations, “an event that has no precedent in American history.”

Debt-level brinkmanship doesn’t wear a party label.

Here’s what then-Sen. Barack Obama said on the Senate floor in 2006: “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government’s reckless fiscal policies.”

It was a blast by the freshman lawmaker against a Bush request to raise the debt limit to $8.96 trillion.

Bush won on a 52-48 party-line vote. Not a single Senate Democrat voted to raise the limit, opposition that’s now complicating White House efforts to rally bipartisan support for a higher ceiling.

Democrats have use doomsday rhetoric about a looming government shutdown and comparing the U.S. plight to financial crises in Greece and Portugal. It’s all a bit of a stretch.

“We can’t do as the Gingrich crowd did a few years ago, close the government,” said Senate Majority Leader Harry Reid, D-Nev., referring to government shutdowns in 1995 when Georgia Republican Newt Gingrich was House speaker.

But those shutdowns had nothing to do with the debt limit. They were caused by failure of Congress to appropriate funds to keep federal agencies running.

And there are many temporary ways around the debt limit.

Hitting it does not automatically mean a default on existing debt. It only stops the government from new borrowing, forcing it to rely on other ways to finance its activities.

In a 1995 debt-limit crisis, Treasury Secretary Robert Rubin borrowed $60 billion from federal pension funds to keep the government going. It wasn’t popular, but it helped get the job done. A decade earlier, James Baker, President Ronald Reagan’s treasury secretary, delayed payments to the Civil Service and Social Security trust funds and used other bookkeeping tricks to keep money in the federal till.

Baker and Rubin “found money in pockets no one knew existed before,” said former congressional budget analyst Stanley Collender.

Collender, author of “Guide to the Federal Budget,” cites a slew of other things the government can do to delay a crisis. They include leasing out government-owned properties, “the federal equivalent of renting out a room in your home,” or slowing down payments to government contractors.

Now partner-director of Qorvis Communications, a Washington consulting firm, Collender said such stopgap measures buy the White House time to resist GOP pressure for concessions.

“My guess is they can go months after the debt ceiling is not raised and still be able to come up with the cash they need. But at some point, it will catch up,” and raising the debt limit will become an imperative, he suggested.

Republican leaders seem to acknowledge as much, but first want to force big concessions. “Do I want to see this nation default? No. But I want to make sure we get substantial spending cuts and controls in exchange for raising the debt ceiling,” said the chairman of the House Budget Committee, Rep. Paul Ryan, R-Wis.

Clearly, the tea party types in Congress will be given an up-and-down vote on raising the debt limit before any final deal is struck, even if the measure ultimately passes.

“At some point you run out of accounting gimmicks and resources. Eventually the government is going to have to start shutting down certain operations,” said Mark Zandi, chief economist for Moody’s Analytics.

“If we get into a heated, protracted debate over the debt ceiling, global investors are going to grow nervous, and start driving up interest rates. It will all become negatively self-re-enforcing,” said Zandi. “No good will come of it.”

The overall national debt rose above $14 trillion for the first time the last week in December. The part subject to the debt limit stood at $13.95 trillion on Friday and was expected to break above $14 trillion within days.

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Capital Gold Group Report: Wall St Down as Portugal Weighs Ahead of Earnings

REUTERS
By Chuck Mikolajczak
Monday January 10, 2011, 11:42 am

NEW YORK (Reuters) – U.S. stocks fell for a third straight session on Monday as a previously buoyant market limped into earnings season.

The latest worries about the euro zone sovereign debt crisis also weighed on investors, diverting attention from a flurry of merger activity.

The European Central Bank threw Portugal a temporary lifeline on Monday by buying up its bonds, traders said, as market and peer pressure mounted for Lisbon to seek an international bailout soon.

“It’s certainly a valid concern,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “But they all just go away, you ever notice that? They just throw some money at it, and everything is fine, but eventually it won’t be.”

Topping the list of deals announced on Monday, Duke Energy Corp agreed to buy Progress Energy Inc for $13.7 billion in stock. DuPont plans to buy Danisco, a Danish food ingredient firm, for $5.8 billion.

Shares of Progress slid 2 percent to $43.81, and Duke fell 2.1 percent to $17.42. DuPont, a Dow component, fell 3.4 percent to $48.06.

Markets had advanced recently ahead of the upcoming earnings season. Last week the Dow and S&P notched a sixth straight week of gains, while the Nasdaq rose 1.9 percent.

But the benchmark S&P 500 was on track for its third straight session of declines, its first three-day losing streak since late November.

Alcoa Inc is scheduled to report its quarterly results after the market closes, unofficially launching the fourth-quarter earnings season. The stock, a Dow component, edged 0.7 percent lower to $16.53.

The Dow Jones industrial average fell 73.11 points, or 0.63 percent, at 11,601.65. The Standard & Poor’s 500 Index lost 6.50 points, or 0.51 percent, at 1,265.00. The Nasdaq Composite Index shed 16.30 points, or 0.60 percent, at 2,686.87.

Education stocks slipped after Strayer Education Inc said new enrollments at its university fell 20 percent in the winter term, signaling another tough quarter ahead from U.S. for-profit colleges.

Strayer shares plunged 22.2 percent to $119.21. Corinthian Colleges Inc tumbled 12.3 percent to $4.63, and Apollo Group Inc lost 5.8 percent to $35.78.

General Electric Co was a bright spot, up 1.4 percent to $18.68, after UBS raised shares of the largest U.S. conglomerate to “buy” from “neutral” and added the stock to its U.S. “key calls” list.

(Editing by Padraic Cassidy)

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Capital Gold Group Report: Fear `Mindless’ U.S. Deficit Spending, Pimco’s Gross Says

Bloomberg
By Cordell Eddings – // <![CDATA[
// Jan 5, 2011 8:13 AM PT

Pacific Investment Management Co.’s Bill Gross said investors should favor emerging market corporate and sovereign debt as “mindless” U.S. deficit spending may result in higher inflation, a weaker dollar and the eventual loss of America’s AAA credit rating.

Buying debt in emerging market countries with higher real interest rates, wider credit spreads and strong balance sheets will offer more return as well as protection from dollar depreciation as U.S policy makers run up record deficits at the expense of economic growth, Gross, the manager of the world’s biggest bond fund, wrote in his monthly investment outlook.

“The problem is that politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion dollar annual deficit,” Gross wrote in a note on Pimco’s website today. “As long as the stock market pulsates upward and job growth continues, there is an abiding conviction that all is well and that ‘old normal’ norms have returned. Not likely. There will be pain aplenty.”

The U.S. deficit was $150.4 billion in November, exceeding the median estimate of economists surveyed by Bloomberg News, compared with $120.3 billion in November 2009, according to a Treasury Department budget statement released last month.

The extension of tax cuts that President Barack Obama signed into law will expand the federal budget deficit to $1.34 trillion for fiscal 2011, Credit Suisse Group AG strategists estimated on Dec. 7. Obama announced a day earlier an agreement with congressional Republicans to extend tax cuts enacted under his predecessor, George W. Bush.

‘Fear the Consequences’

Moody’s Investors Service Inc. said on Dec. 13 that Obama’s agreement to extend tax cuts raises the chance of a negative outlook for the U.S.’s Aaa credit rating unless offsetting measures are enacted.

“All investors should fear the consequences of mindless U.S. deficit spending.” wrote Gross, a founder and co-chief investment officer at Pimco. Like a female mantis who eats the head of her mate while reproducing, policy makers are “munching on the theoretical heads of future generations, while paying no mind to the wretches that will eventually be called upon to pay the bills,” he wrote.

Stimulus measures that have been designed to maintain current consumption instead of working to make America a more competitive nation in the long run will be a drag on real income growth as reflationary policies set in, Gross wrote.

Yields Decline

In December, an 18-member debt commission convened by the Obama administration failed to produce the votes needed to approve a $3.8 trillion budget-cutting plan projected to balance the government’s books by 2035.

Yields on U.S. government debt fell in 2010 as the 9.8 percent unemployment rate, record low inflation and Europe’s sovereign-debt crisis stoked demand for safety. Bonds returned 5.9 percent in 2010 after losing 3.7 percent in 2009, according to Bank of America Merrill Lynch Indexes even as the government completed $2.2 trillion of note and bond auctions in 2010, surpassing the $2.1 trillion record set in the prior year. IntercontinentalExchange Inc.’s Dollar Index gained 1.5 percent.

Bond investors will suffer once general prices start to rise, Gross wrote.

‘Lose Their heads’

“The American answer to a bulging waistline is always ‘mañana’” Gross wrote. “Eventually, as reflationary policies take hold, long-term bondholders lose their heads (and a portion of their principal as well), as yields rise to reflect higher future inflation.”

Consumer prices excluding food and energy rose 0.8 percent in November from a year earlier after an advance of 0.6 percent in the prior month, the smallest gain in year-over-year data going back to 1958, the Labor Department reported Dec. 15.

Traders are adding to bets that inflation will pick up. The difference between yields on 10-year U.S. notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities known as the break-even rate, has advanced to 2.38 percentage points, up from the 2010 low of 1.47 in August. The five-year average is 2.08 percentage points.

Pimco raised its forecast for U.S. growth last month with the Obama tax plan allowing policy makers to pump a “massive amount” of stimulus into the economy. The accord also calls for extending unemployment insurance for the long-term jobless and cutting the payroll tax by $120 billion for one year.

Growth Forecast

The economy is likely to grow 3 percent to 3.5 percent in the fourth quarter from the same period of 2010, Pimco Chief Executive Officer Mohamed El-Erian said Dec. 9. That compares with Newport Beach, California-based Pimco’s previous estimate for 2 percent to 2.5 percent growth, and the 2.2 percent gain forecast by the International Monetary Fund.

The firm has championed the idea of the new normal, in which investors will receive lower-than-historically average returns as global growth slows and the influence of the U.S. is diminished.

The $250 billion Total Return Fund managed by Gross posted an 8.74 percent gain in the past year, beating 75 percent of its peers, according to data compiled by Bloomberg. The one-month performance is a loss of 0.04 percent, beating 56 percent of competitors. Pimco is a unit of Munich-based insurer Allianz SE.

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Capital Gold Group Report: 18 Scary US Debt Facts

CBS: MoneyWatch.com
By Jill Schlesinger | Nov 18, 2010

With all of the political talk swirling around the deficit and the national debt, it’s time to dredge up lots of scary facts to make you pay attention. I know the words can sound wonky, but this really matters, so stay with me!

Before we get going, a quick primer on the number TRILLION.

• $1 trillion = $1,000 billion or $1,000,000,000,000 (that’s 12 zeros).
• At his current annual salary of $42 million, basketball superstar LeBron James would need to work 23,809 years to earn $1 trillion.
• How hard is it to spend a trillion dollars? If you spent one dollar every second, you would have spent a million dollars in twelve days. At that same rate, it would take you 32 years to spend a billion dollars. But it would take you more than 31,000 years to spend a trillion dollars.

And now, some scary facts about the debt and the deficit — some basics:

• Deficit = Money government Takes In – Money government Spends
• Current US deficit = $1.3 Trillion
• National debt = Total amount borrowed to fund the annual deficit
• Current national debt = $13.7 trillion (or $44,667 per every man, woman and child in the US or $117,025 for every household)

OK, let’s get started!

1. The U.S. national debt on January 1st, 1791 was just $75 million dollars. Today, the U.S. national debt rises by that amount about once an hour.
2. Our nation began its existence in debt after borrowing money to finance the Revolutionary War. President Andrew Jackson nearly eliminated the debt, calling it a “national curse.” Jackson railed against borrowing, spending and even banks, for that matter, and he tried to eliminate all federal debt. By January 1, 1835, under Jackson, the debt was just $33,733.
3. When World War II ended, the debt equaled 122 percent of GDP (GDP is a measure of the entire economy). In the 1950s and 1960s the economy grew at an average rate of 4.3 percent a year and the debt gradually declined to 38 percent of GDP in 1970. This year, the Office of Budget and Management expects that the debt will equal 95 percent.
4. Since 1938, the national debt has increased at an average annual rate of 8.5 percent. The only exceptions to the constant annual increase over the last 62 years were Clinton and Johnson – note that this is the rate of growth – the national debt still existed under both presidents. During the Clinton Presidency, debt growth was almost zero. Johnson averaged 3 percent growth of debt for the six years he served (1963-69).
5. When Ronald Reagan took office, the U.S. national debt was just under $1 trillion. When he left office it was $2.6 trillion. During the eight Regan years, the US moved from being the world’s largest international creditor to the largest debtor nation.
6. The U.S. national debt has more than doubled since the year 2000
   • Under President Bush: at the end of calendar year 2000, the debt stood at $5.629 trillion. Eight years later, the federal debt stood at $9.986 trillion.
   • Under President Obama: The debt started at $9.986 trillion and escalated to $13.7 trillion, a 38 percent increase over two years.
7. Obama’s most recently proposed budget anticipates $5.08 trillion in deficits over the next five years
8. The U.S. national debt rises at an average of approximately $3.8 billion per day.
9. The US government now borrows $5 billion every business day.
10. A trillion $10 bills, if they were taped end to end, would wrap around the globe more than 380 times. That amount of money would still not be enough to pay off the U.S. national debt.
11. In 2010, the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.
12. Total US government debt as a percentage of GDP is 94 percent in 2010. Greece, the poor step-step sister of the European Union reported debt as percentage of GDP of 115 percent last year.
13. The U.S. government has such a voracious appetite for debt that the rest of the world simply doesn’t have enough money to lend us. So now the Federal Reserve is buying most U.S. debt, and the only reason it can do that is because it can create money to lend out of thin air — at the mint’s printing presses!
14. According to the 2008 Financial Report of the United States Government, an official US government report, the total liabilities of the United States government, including future Social Security and Medicare payments that the U.S. government is already committed to pay out, now exceed $65 TRILLION.
15. The debt ceiling is the maximum amount of debt that Congress allows for the government. The current debt ceiling is $14.2 trillion, which is expected to be breached by May, 2011, unless lawmakers vote to increase it. The U.S. government’s debt ceiling has been raised six times since the beginning of 2006.
16. With the exception of fiscal years 1998-2001, from 1969 to today, Congress has spent more money than it collected in revenue, (ran a deficit). Treasury has to borrow money to meet Congress’s appropriations.
17. In 2009, Federal spending accounted for 24.7 percent of GDP, higher than it’s been in any year since 1949. You have to go back to 1946 to find a higher percentage — 24.8 — and that was a year in which the nation was winding down high rates of spending for World War II. (From 1943 to 1945, the height of the war, federal spending ranged from 41 percent to 43 percent of GDP.)
18. The U.S. government has to borrow 41 cents of every dollar that it currently spends.

You can track the national debt on a daily basis here.

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Capital Gold Group Report: IMF Has Fully Sold 403.3 Tons of Gold

Why China failed to buy IMF gold reserves

Published on: December 22 2010 12:40 GMT

NEW YORK (Commodity Online): 2010 bullion headlines have been dominated by one major news items, often: the gold reserves sale by the International Monetary Fund (IMF). And 2010 is going to end with the news now that IMF has fully sold the 403.3 tons of gold.

Now that the gold sale by IMF is all over, it is interesting to look at who all got the gold reserves that were on sale by the global organization.

On Tuesday, IMF said that is has concluded the sale of 403.3 tons of gold, which was around 13 percent of its gold reserves to central banks and bullion market participants ever since the IMF executive board approved the gold sale in September 2009.

While more than half of the IMF gold sale was bought by the central banks of India, Sri Lanka Mauritius and Bangladesh, the most surprising aspect was the exclusion of China from the IMF gold sale party.

China, the largest producer of gold, had announced early this year that it would considerably step up gold reserves in the next decade to the tune of 10,000 tons. Currently, the Chinese gold reserves stand less than 1200 tons.

Even though there were rumors that the People’s Bank of China—the Chinese central bank—would bid for IMF gold reserves, nothing happened in 2010. “It is a big surprise as to why China did not buy the IMF gold reserves on sale. There has been no official communication to this effect. I feel high prices of gold forced China to skip participating in IMF gold sale,” David Lew, a bullion expert based in Beijing told Commodity Online.

He said China could have easily acquired as much gold reserves from IMF like India.

There were rumours earlier that China would bid for the IMF gold in the second phase of sale. But, according to analysts, China did not buy the gold as it was not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.

Some analysts had earlier said China would purchase the IMF gold in an effort to diversify its dollar asset-dominated foreign exchange reserves. According to estimates, over 70 percent of China’s $2.4 trillion foreign exchange reserves are in dollar assets.

According to George Milling-Stanley, head of government affairs for the World Gold Council (WGC), people who believed China would be the buyer of the IMF gold hadn’t really thought it through.

“China has been buying local gold mine production and the production of local refineries – whether that is by-product gold or recycled gold – for a number of years,” said Stanley. “They have been gradually building gold reserves, not by cashing in dollar assets which might upset the dollar market but they have been quietly doing it by buying local gold production,” he said.

It was rumored that China and Russia were interested in purchasing the IMF gold, but it appeared that this would be at a discount. Statements from a Chinese commercial banker last year indicated that the China government was more interested in buying gold in yuan from domestic producers (majority are state-run) rather than buying gold in the open market with dollar reserves.

Now that China did not figure out on the IMF gold sale radar, which are the countries that got away with the IMF gold in 2010?

During October and November 2009, IMF sold a total of 212 tons in this manner to the Reserve Bank of India, the Bank of Mauritius, and the Central Bank of Sri Lanka. On September 7, 2010, the Fund sold 10 metric tons to the Bangladesh Bank.
IMF said on Nov. 29 it told 19.5 tonnes of gold in October, but it has not yet provided details of sales in November or December.

According to the modalities for the gold sales adopted by the Executive Board, the Fund initially stood ready to sell gold off-market directly to central banks and other official sector holders at market prices.

The strictly limited sales of Fund gold approved by the Executive Board is to help put the financing of the IMF on a sound long-term footing, and also help to boost the Fund’s capacity to provide concessional loans to low income countries.

An endowment funded with the profits from gold sales is a central component of the new income model that the Board endorsed in April 2008. The new income model would provide more diverse income sources that are better aligned with the variety of functions performed by the Fund.

Resources linked to the gold sales will also be used indirectly to increase the Fund’s capacity to provide concessional loans to low income countries.

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Capital Gold Group Report: Fed buys $2.07 billion in Treasurys; bonds stay down

By Deborah Levine

NEW YORK (MarketWatch) — The Federal Reserve Bank of New York bought $2.07 billion in Treasury debt on Wednesday, the last buyback operation for the holiday-shortened week. The purchases are part of the Fed’s second round of quantitative easing combined with a previous program to reinvest cash from its maturing mortgage-related holdings back into Treasurys. Dealers offered to sell the Fed $13.055 billion in debt maturing from 2021 to 2027. The Fed previously said it expected to buy $1.5 billion to $2.5 billion during the operation. After the announcement, the broader bond market stayed under pressure. Yields on 10-year notes, which move inversely to prices, rose 2 basis points to 3.33%.

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Capital Gold Group Report: MF Global Looks For Gold To Be In $1,250-$1,550 Range During 2011

21 December 2010, 9:29 a.m.
By Allen Sykora
Kitco News

(Kitco News) – MF Global looks for gold prices to be in a range of $1,250 to $1,550 an ounce in 2011, with a year-end objective of $1,450.

MF Global sees silver in a range of $25 to $35, with a year-end objective of $30, according to a precious-metals outlook issued Tuesday by analyst Tom Pawlicki. “Palladium should outperform platinum again, and finish near $1,000/oz as global auto demand firms,” he said.

Generally, Pawlicki looks for gold prices to advance in the first half of the year on many of the same factors that have been underpinning them. For starters, central banks have been marginal net buyers for several quarters now, with China and Russia among those likely to still be adding gold, MF Global says.

A second round of U.S. quantitative easing, dubbed QE2, continues until the end of the second quarter, which should help keep prices elevated, MF Global said.

“Fed Chairman (Ben) Bernanke has discussed the possibility of a QE3 program being implemented, so metals prices may remain buoyed until receiving more clarity on that issue,” Pawlicki wrote. “In Europe, excessive spending has led to the sovereign-debt problems that have caused the euro to fall and investment to migrate to safe havens.

Metals should continue to receive support from the uncertainty that remains regarding the health of the single currency and the possibility of default by one of its members.”
MF Global also cites Chinese investment into gold amid concerns over inflation in the country.

MF Global said there are no “eureka-moment” factors capable of de-railing the metals markets at the moment, but cautions that some might be developing, including excess bullishness the same way that excess bearishness existed when the market put in a bottom a decade ago.

“In the same way that the bottom in prices was formed in 2001 when players became too short, we need to be aware now that the opposite conditions are in place,” MF Global said. “In 2001, prices were rounding out a five-year selloff because central banks were selling, miners were hedging, and investors were fleeing. At the moment, central banks have just turned net buyers, miners unwound almost all of their hedges, and investors are flocking to the metals markets for lack of a better alternative.”

Meanwhile, quantitative easing could end up a “double-edged sword” for gold, MF Global said. Hopes for QE3 among some may be supportive. However, there also may be limited political support for such a measure. “The Tea Party may have an influence here, with Ron Paul heading the Banking Committee,” MF Global said. And while hawkish and frequently dissenting Fed member Thomas Hoenig won’t be a voting member in 2011, Richard Fisher and Charles Plosser will be, and they have been vocal opponents of QE as well, MF Global pointed out.

Still other factors that could eventually limit the upside for precious metals would be upward movement in interest rates and potential interaction with other markets, such as any strength in the dollar.

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Capital Gold Group Report: Gold Prices Up as Investors Seek Safety against Escalating Tensions between North and South Korea

Alix Steel
12/20/10 – 09:42 AM EST

NEW YORK (TheStreet) — Gold prices were climbing higher Monday as the metal shined as a safe-haven asset.

Gold for February delivery was adding $6.30 to $1,385.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,388.90 and as low as $1,377.

The U.S. dollar index was up 0.02% to $80.38 while the euro slid 0.30% to $1.31 vs. the dollar. The spot gold price was rising more than $9, according to Kitco’s gold index.

Gold prices were shrugging off a stronger U.S. dollar as investors bought gold as protection against escalating tensions between North and South Korea.

South Korea went ahead with military exercises off the coast of Yeonpyeong, despite the fact that North Korea threatened retaliation, echoing its attack on the island in November which killed four people. South Korea had asked civilians to seek shelter as a precaution.

Investors were buying gold as protection against any potential conflict as a safe place to preserve their wealth. Gold was also benefiting from uncertainty in Europe. Although European Union leaders agreed to a permanent crisis-lending facility starting in 2013, there was no immediate aggressive action announced out of the EU summit last week.

Worries are escalating the Spain might be on the chopping block. The government might be in OK shape but the soaring debt of its banks and citizens might overwhelm the government and the debt market. The aggressive downgrade of Ireland by Moody’s Friday didn’t help matters as the ratings agency warned that Spain’s credit rating was also on review.

Moody’s spread even more Christmas cheer on Monday downgrading five Irish banks — Allied Irish Banks(AIB), Bank of Ireland, EBS Building Society, Irish Life & Permanent and Irish Nationwide Building Society — because of their reliance on government funding.

“Further pockets of profit-taking … are likely in the run-up to year-end but as has been seen this morning the mix of economic and geo-political woes will continue to underpin the complex,” says James Moore, research analyst at fastmarkets.com.

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Capital Gold Group Report: Tax Measure Gives Deal to Wealthy Roth IRA Converters

BLOOMBERG NEWS
By Alexis Leondis – // <![CDATA[
// Dec 17, 2010 7:56 AM PT

The extension of current income-tax rates gives wealthy taxpayers the equivalent of an interest-free loan if they convert a regular Individual Retirement Account to a Roth by Dec. 31.

Investors in traditional IRAs pay taxes up front on conversions to Roth IRAs to get tax-free withdrawals later. Earners in the highest tax brackets who expected rates to rise next year were faced with reporting all the additional income from conversions on their 2010 returns. With the tax legislation, wealthy savers can now defer and use those tax dollars to earn something, according to Christine Fahlund, a senior financial planner at Baltimore-based T. Rowe Price Group Inc.

“It’s the deal of the century,” said Ed Slott, a certified public accountant in Rockville Centre, New York, and founder of website irahelp.com. “It’s like Congress is giving you an interest-free loan to build a tax-free savings account.”

This year taxpayers can choose to report the taxable income from the conversion in 2010, or split it equally between 2011 and 2012. Federal income-tax rates were set to rise in 2011 to as high as 39.6 percent, up from 35 percent, when tax cuts instituted by President George W. Bush were to expire.

The Senate passed an $858 billion tax-cut plan Dec. 15 that would keep existing income tax rates for all earners through 2012. The House voted 277-148 for final passage even though many House Democrats wanted to limit the tax cut extension to the first $250,000 of family income. President Barack Obama is scheduled to sign the measure into law this afternoon.

Tax Brackets

That means a taxpayer in the top income bracket with an IRA worth $1.2 million would likely pay 35 percent or $420,000 in federal taxes when converting the entire account to a Roth IRA this year, according to Fahlund. They would have paid $475,200 if income tax rates had increased in 2011 to 39.6 percent, or $55,200 more in taxes.

Conversions work best for savers who know they’re going to be in as high or higher tax brackets in the future, and can pay the taxes with money from outside the IRA, said James Lange, a Pittsburgh-based certified public accountant and author of “The Roth Revolution: Pay Taxes Once and Never Again.”

Deferring the income from conversions made this year makes sense for most taxpayers who will be in the same or lower tax brackets in 2011 and 2012, said Slott, the accountant.

New York Payers

For New York taxpayers, there’s a potential additional benefit of deferring, said Mitch Drossman, national director of wealth planning strategies for New York-based U.S. Trust, which manages almost $300 billion in client assets. New York state income-tax rates rose to as high as 8.97 percent from 6.85 percent in 2009 and are scheduled to fall back to 6.85 percent in 2012. That means savers can defer the income to a time when they may have lower tax rates, Drossman said.

The Internal Revenue Service lifted income restrictions this year on converting to Roth IRAs from traditional IRAs, meaning taxpayers making more than $100,000 a year in adjusted income can make the change. There’s no cap on the amount that can be converted to a Roth IRA from a traditional IRA.

It’s too early to know whether taxpayers are electing to report the income on 2010 conversions on their 2010 returns or wait until 2011 and 2012. They have until April 15, 2011 plus any extensions to decide, said Fahlund of T. Rowe. The firm saw more than a fourfold increase in the number of investors converting in 2010 through November compared with a year earlier, she said.

Conversions Increase

Vanguard Group Inc. based in Valley Forge, Pennsylvania, has seen a fivefold increase in the number of Roth IRA conversions this year to about 150,000 as of the end of November compared with 2009, said Maria Bruno, who specializes in retirement and retirement income for the largest U.S. mutual- fund manager. USAA in San Antonio has seen a fourfold increase in members converting some or all of their traditional IRA assets to a Roth IRA through October, said Kevin O’Fee, assistant vice president of USAA Retirement Strategies.

The taxes owed on switching to a Roth IRA from a regular IRA depend on whether the assets being transferred are pre- or post-tax dollars. If tax-free dollars are included, converters will pay income-tax rates on a percentage of the conversion amount, said Slott, the accountant.

Savers who expect to be in a lower tax bracket in 2010 than in 2011 or 2012 shouldn’t defer the income from the conversion, said David M. First, a tax partner at accounting and advisory firm Marcum LLP in New York. And those who are going to be affected by the alternative minimum tax in 2010 and not in 2011 and 2012 may also want to report the income in 2010, First said.

Partial Transfers

Since the default option set by the IRS for those who switch is splitting the income between 2011 and 2012, wealthy taxpayers opting to defer don’t have to do anything, according to John Bledsoe, founder of John Bledsoe Associates, an estate and tax planning firm in Dallas, Texas, whose clients have an average net worth of at least $10 million.

“For most people, advising them not to convert now is like telling them to not wear a seat belt while driving,” Bledsoe said. “There’s no logic for not doing it.”

When converting to a Roth IRA, savers should try to avoid converting so much in one year that it bumps them into a higher tax bracket, said Fahlund of T. Rowe. One option is to do partial conversions so the income is smaller, she said.

Investors who later change their minds about a Roth IRA have until October 2011 to undo the switch. Savers may also want to set up more than one Roth IRA to invest separately in stocks and bonds so they can undo a particular portion of the conversion if an asset class performs poorly, said Drossman of U.S. Trust.

Charitable Giving

For savers age 70 and a half and over, the tax bill includes a provision that allows them to give up to $100,000 from a traditional IRA directly to charity without incurring taxes.

In 2010, donors had to include the distribution as income and received a charitable income-tax deduction for their gifts. The bill would restore the exclusion from income retroactive to the beginning of 2010 and extend it to 2011 as well, said Kim Wright-Violich, president of San Francisco-based Schwab Charitable.

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Capital Gold Group Report: Rick Santelli, CNBC: Clarity from Fed? No. Inflation? Yes.

Rick Santelli, On-Air Editor, CNBC Business News Network
Published: Tuesday, 14 Dec 2010 | 4:40 PM ET

Today, the Federal Reserve’s statement was virtually identical to the statement of the last meeting on November 3. Yet since the last meeting treasury rates have exploded to the upside despite the Fed’s purchases known as “quantitative easing.”

The Fed’s direct action in the Treasury market has been nothing short of historic. The logic of the Fed’s various purchase programs was “sold” to the marketplace as a means to keep mortgage and treasury rates low…..or at least well-behaved and to create some “controlled” inflation.

Yet, since the last meeting 10-year rates are up close to 100 basis points! I am not sure what amazes me more — the fact that the Fed didn’t even MENTION the rate rise in today’s statement, or that many believe the various purchase plans have been “successful.”

How can a program that was designed to drive rates lower be deemed a success if rates are now sharply higher? Why is there so little clarity from an entity that is now among the largest holders of Treasury securities?

My conclusion is that the goal of Chairman Bernanke and the Federal Open Market Committee was to monetize the growing U.S. debt and generate future inflation. On the last score….generating inflation….I think time will prove the Fed highly successful.

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