Capital Gold Group Report: U.S. Stocks Fluctuate as Moody’s Says It May Downgrade Spain

By Kelly Bit and Rita Nazareth

June 30 (Bloomberg) — U.S. stocks swung between gains and losses, with the Standard & Poor’s 500 Index set for its first quarterly decline in more than a year after Moody’s Investors Service Inc. said it may downgrade Spain’s Aaa credit rating.

Kraft Foods Inc. and Verizon Communications Inc. lost more than 1 percent to lead losses in the Dow Jones Industrial Average. Ford Motor Co. rallied after saying it will pay into a union health-care fund.

The S&P 500 rose 0.1 percent to 1,042.23 at 3:09 p.m. in New York. It has declined 11 percent since March 31, breaking a four-quarter winning streak that drove the benchmark index for U.S. stocks up 47 percent. The Dow gained 0.91 points, or less than 0.1 percent, to 9,871.21. About six stocks advanced for every five that declined on U.S. exchanges.

“Investors still don’t have a major conviction right now,” said John Carey, Boston-based money-manager at Pioneer Investment Management, which oversees more than $200 billion. “Spain has been under scrutiny for quite some time. People have been concerned about a possible credit downgrade for awhile. It’s just a confirmation of what people suspected was the case. However, we still don’t know the full extent of the sovereign debt exposure and how this whole issue is going to be solved.”

Equities had rallied earlier following a report that business activity grew for a ninth month and signs that European lenders are stronger than investors speculated. The European Central Bank said it will lend the region’s banks less money than economists had forecast. The Institute for Supply Management-Chicago Inc.’s business barometer showed manufacturing is overcoming turmoil in financial markets.

Weakness in China

The S&P 500 plunged 3.1 percent yesterday to its lowest level since Oct. 30, on concern over weakening growth in China and a slump in American consumer confidence. The decline pushed the gauge to its cheapest valuation relative to expected company earnings since March 2009, when an 80 percent rally followed.

The ADP data came as investors awaited a Labor Department report July 2 that will show the U.S. lost jobs for the first time this year, reflecting a drop in federal census workers as the population count began to wind down, economists said.

European Bank Loans

U.S. futures rallied in trading before the open of exchanges after the European Central Bank said banks sought 131.9 billion euros ($161.8 billion) in three-month loans as a yearlong facility expires. The figure amounts to about half the level the market was expecting to be borrowed from the central bank, said Jacques Porta, a fund manager at Ofi Patrimoine.

“This amounts to the stress test the U.S. banking industry had last year and we didn’t,” said Paris-based Porta, who oversees about $425 million in stocks. “European banks are one of the weakest links in global equities. Investors were afraid the ECB would confirm this, so it’s good news.”

The S&P 500 is valued at 15.1 times projected profits, according to Bloomberg data, after falling 11 percent this quarter. Shares of raw-material producers, financial and energy companies led the decline, dropping at least 12 percent. Alcoa Inc., Microsoft Corp., and General Electric Co. led the Dow’s losses in the second quarter, declining at least 19 percent.

S&P’s Decline

The index has tumbled 14 percent from this year’s high on April 23 on concern a sovereign-debt crisis in Europe and China’s moves to slow the world’s largest emerging economy will dent global growth.

Stocks are the cheapest relative to bonds in three decades, a sign it’s time to buy, Michael Darda, the chief economist for MKM Partners LLC, said in a phone interview.

“From a risk-reward standpoint these are good entry prices,” said Robert Doll, who helps oversee $3.36 trillion as vice chairman and chief equity strategist at New York-based BlackRock Inc. “I think the risk of a double-dip recession is low.”

The S&P 500 tested levels watched by analysts who study charts and patterns. S&P 500 futures rebounded at 1,035 in May and at 1,038 earlier this month. The S&P 500 fell as low as 1,035.18 in the final hour of trading yesterday, the lowest price since Nov. 3, 2009, according to data compiled by Bloomberg. The S&P 500’s decline in the past two weeks started after the index failed to stay above a level identified by chart analysts as bullish: its average price in the past 200 days.

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Capital Gold Group Report: Central Banks Trim Euro, Dollar Holdings

By Bradley Davis

JUNE 30, 2010, 5:24 P.M. ET

Central banks pared their euro holdings in the first quarter of the year and likely cut them even further in the second quarter as the euro-zone sovereign-debt crisis worsened.

The euro’s share of global central-bank holdings slipped slightly from the last quarter of 2009, according to data published Wednesday by the International Monetary Fund, indicating the fiscal woes of European nations started to have a small impact on these large investors.

Bloomberg News

“The European debt crisis is going to have [a] major impact” on the second quarter’s data, said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

As the euro-zone has grappled with the debt crisis, the value of the common currency has dropped 15% versus the dollar since the start of 2010. The sharpest drop, though—to the $1.1876 registered in early June—wasn’t seen until the second quarter.

The dollar, whose share of global reserve holdings also slipped, should gain at the euro’s expense, Mr. Thin said.

Total world-wide foreign-exchange holdings measured $8.295 trillion in the first quarter, up from a revised $8.165 trillion in the fourth quarter, according to preliminary numbers from the IMF. In the first quarter of 2009, total foreign-exchange holdings stood at $7.164 trillion. According to the IMF, 139 countries contributed to the data. The data detailing holdings of individual currencies don’t include China’s $2.4 trillion in reserves.

Central banks form the backbone of the currencies markets. Their slow and steady shifts out of the dollars they generally receive from trade or commodities exports, and into other currencies, play a big role in determining exchange rates.

Because they invest for the long term, they seek stable, robust currencies and typically tweak holdings at a glacial pace

As the euro zone continues to struggle with budget deficits and the U.S. faces fiscal problems of its own, central banks likely will be searching for other currencies liquid enough in which to park reserve holdings, said Alan Ruskin, global head of currency strategy for RBS Securities in Stamford, Conn.

This likely explains the increase in the data’s “other” category, which includes the Canadian and Australian dollars and the Norwegian krone. This category of currencies closely aligned with global growth registered the strongest gains in reserve allocations, jumping to 3.65% in the first quarter of 2010 from 3.12% in the fourth quarter of 2009.

“People are looking for the next set of liquid markets where the fundamentals are more supportive and where you’re not dealing with the same degree of sovereign concern,” Mr. Ruskin said.

The first-quarter data don’t show a rush to diversify out of the euro. The euro’s share of reserves declined slightly, with a 27.19% share in the first quarter, from 27.3% in the fourth quarter. Its first-quarter share remains higher than the 26.4% from the fourth quarter of 2008, when the world financial crisis roiled currency markets.

The U.S. dollar accounted for 61.54% of global allocated reserve holdings, a small decrease from its 62.14% share in the fourth quarter.

The data break out only 55.6% of total global reserve holdings into specific currencies, Mr. Thin said, with the remaining 44.4% “unallocated,” a category that includes China, the largest holder of reserves, thought to account for about 30% of total global holdings.

Global allocated reserves stood at $4.61 trillion in the first quarter, up from $4.56 trillion in the fourth quarter. The amount of allocated reserves in dollars stood at $2.838 trillion, an increase from $2.836 trillion in the fourth quarter, the IMF data showed.

Reserves held in the British pound increased to 4.34% in the first quarter from 4.28% in the fourth quarter; the amount held in Japanese yen increased to 3.14% from 3.01%. The Swiss franc claimed 0.12% of global reserves from 0.1%.

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Capital Gold Group Report: Central Banks Join Gold Rush

By Annalyn Censky, staff reporter
June 18, 2010: 8:36 AM ET

NEW YORK (CNNMoney.com) — Foreign governments have been getting in on the recent gold rush, driven by continued fears about Europe’s debt crisis and the pace of the global economic recovery.

Those concerns have been propelling the precious metal to record highs over the past 18 months. In fact, gold posted a new intra-day high Friday, when it reached $1,260.90 an ounce. A day earlier, it reached a fresh record high closing price of $1,248.70 an ounce. //

Last year, foreign central banks were net buyers of gold for the first time since 1997. India, China and Russia have been the biggest buyers. And more recently, the Philippines and Kazakhstan jumped into the fray with big purchases of the precious metal during the first quarter, according to data released by the World Gold Council Thursday.

What’s behind the buying binge?

Each country has its own unique reasons, but there are a few broad trends that unite them all, said Natalie Dempster, director of government affairs for the World Gold Council.

Like many individual investors, foreign governments prefer to spread their wealth around to decrease their risk.

The U.S. dollar is typically the main reserve asset because it’s considered to be more stable than other holdings, while the euro comes in as the second most popular reserve currency. But gold is not far behind. The precious metal plays an important role as a hedge against inflation, which could devalue paper currencies.

Unlike paper currencies, gold has a tangible value and that value is not dependent on any one country’s economic policies.

When the financial crisis drove down the dollar’s value in 2009, and Europe’s debt woes pushed the euro to fresh four-year lows earlier this month, investors and foreign central banks flocked to safe-haven assets like gold.

Add rising deficits in both Europe and the United States to the mix, and currencies have become increasingly questionable assets, said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital.

That’s why it’s no surprise that foreign central banks overall have turned from sellers into buyers of gold in the last year, he said.

Who’s buying gold?

Russia and Kazakhstan: As far as public records show, Russia appears to be the largest buyer of gold among central banks so far this year. In the first quarter of 2010, Russia’s central bank increased its gold reserves by 26.6 metric tonnes, or about $1.2 billion at today’s price, according to World Gold Council data. That’s in addition to the 117.63 tonnes that Russia added in 2009.

Russia has been adding to its gold reserves steadily for more than three years, partly through buying its own domestic mine production. It considers gold both a symbol of prestige as well as a way to bolster the country’s credit worthiness, Nichols said.

Kazakhstan, the third largest buyer so far in 2010, has a similar strategy, although at a much lesser level. The former Soviet-controlled country bought 3.1 tonnes, or $137 million, of the precious metal in the first quarter.

Philippines: After Russia, the Philippines falls a distant second as a buyer, after purchasing 9.6 tonnes, or about $424 million, of gold earlier this year.

The Philippines also buys its domestic production as a way of supporting local industry and as an inflation hedge, but its reserves usually fluctuate more than Russia’s because the country often sells it at a later date on the open market.

India: While India has yet to publicly announce any major gold buys this year, the country bought a massive 200 tonnes, or what amounts to about $8.8 billion at current prices, from the International Monetary Fund in November.

The move, which multiplied India’s reserves by 55%, was seen as a way for the country to diversify its reserves and reinforce the perception among Indian consumers that the metal is a reliable and safe asset, the World Gold Council said.

China: China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world’s largest producer of the metal, China often buys gold from its own mines and doesn’t report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.

Analysts suspect the country is continuing to buy gold and could in fact, be the world’s largest buyer consistently. It simply doesn’t reveal it’s pro-gold stance proudly, however, because China is also the world’s largest holder of U.S. Treasurys.

Announcing an aggressive gold buying spree is not in China’s best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country’s portfolio of U.S. government bonds, Schlossberg said.

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Capital Gold Group Report: IMF Gold Holdings Declined 15.25 Tons in May as Russia’s Assets Advanced

Bloomberg.com

By Nicholas Larkin – Jun 30, 2010

The International Monetary Fund’s gold holdings fell 15.25 metric tons in May, according to figures from the Washington-based lender’s website.

Russia’s gold assets increased 22.46 tons in May to 703.1 tons, the data show.

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Capital Gold Group Report: U.S. Stocks Plunge; S&P 500 Tumbles to Eight-Month Low

By Kelly Bit – Jun 29, 2010

U.S. stocks plummeted, sending the Standard & Poor’s 500 Index to its lowest level since Oct. 30, on concern over weakening growth in China and a slump in American consumer confidence.

Boeing Co., Caterpillar Inc. and Alcoa Inc. fell more than 5.5 percent after the Conference Board cut its estimate for Chinese economic growth. JPMorgan Chase & Co. slipped 3.8 percent after Moody’s Investors Service said the bank may face lost revenue from a cap on debit fees. Zimmer Holdings Inc. gained 0.1 percent for the only rise in the S&P 500.

The S&P 500 sank 3.1 percent to 1,041.24 as of 4 p.m. in New York, after falling as low as 1,035.18. The last time only one S&P 500 company rose was in September 2008. The Dow Jones Industrial Average dropped 268.22 points, or 2.7 percent, to 9,870.30.

“China set the tone in the morning and then it accelerated, with investors probably exiting the market ahead of the U.S. unemployment data on Friday,” said Peter Jankovskis, who helps manage about $2.2 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “The market volatility is growing, which reflects the overhang from the situation in Europe and the slowdown in China.”

Among 24 industry groups in the S&P 500, none had a loss smaller than 0.9 percent, according to data compiled by Bloomberg.

Global Growth Prospects

The S&P 500 has tumbled 14 percent from this year’s high on April 23 on concern a sovereign-debt crisis in Europe and China’s moves to slow the world’s largest emerging economy will dent global growth. The Conference Board today revised its April leading economic index for China to a 0.3 percent rise, from a gain of 1.7 percent reported June 15.

Benchmark indexes extended early losses after the Conference Board’s gauge of confidence among consumers slumped to 52.9 this month from a revised 62.7 in May as Americans became pessimistic about the outlook for the labor market and the economy. The median forecast called for a decline to 62.5, and the gauge was lower than all projections in a Bloomberg News survey of 71 economists.

Banks were the biggest drag on the Stoxx Europe 600 Index as the rate lenders say they charge each other for three-month loans in euros in London rose to 0.688 percent, the highest in eight months, as institutions hoarded cash before a 12-month European Central Bank loan expires later this week.

Boeing, Caterpillar

Boeing led declines in the Dow Jones Industrial Average, slumping 6.3 percent to $63.04. Cliffs Natural Resources Inc., a mining company, dropped 11 percent to $48.49.

Caterpillar declined 5.5 percent to $60.85. The world’s largest maker of construction equipment said yesterday it is buying out a partner in a Chinese joint venture as part of plans to expand excavator production in the country.

Alcoa slid 6.3 percent to $10.34 on concern demand from China may weaken. Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly traded copper producer, dropped 5.6 percent to $61.07.

China’s exports face “strong headwinds” in the second half of the year from policy tightening measures and the European debt crisis, reducing prospects of a rebound in the stock market, Citigroup Inc. said in a report obtained yesterday.

“China growth is ebbing,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. “If that’s the engine the world is looking at to pull us out of the doldrums then there’s been a disappointing number and disappointment there.”

Shanghai Composite

The Shanghai Composite Index retreated 4.3 percent to 2,427.05 today, the biggest drop since May 17 and the lowest close in 14 months.

JPMorgan, the bank headed by Jamie Dimon, slid 3.8 percent to $37.05. The second-biggest U.S. bank by assets, along with Bank of America Corp. and Wells Fargo & Co., may lose $1.38 billion in annual revenue from the proposed cap on credit-card swipe fees being considered by the U.S. Congress, Moody’s said in a report. Bank of America fell 4.4 percent to $14.57. Wells Fargo slumped 4.1 percent to $25.93.

Zimmer rose 0.1 percent to $54.60 for the only gain in the S&P 500. Since 1996, there have been three times that only one S&P 500 stock advanced, according to data compiled by Bloomberg. The last was on Sept. 29, 2008.

The benchmark index for U.S. stock options jumped the most in three weeks. The VIX, as the Chicago Board Options Exchange Volatility Index is known, increased 18 percent to 34.13. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from this year’s closing high of 45.79 on May 20 and above its 20 average over its two-decade history.

Technical Levels

The S&P 500 was testing levels watched by analysts who study charts and patterns.

“The S&P can break below 1,040 and go on to test the 1,000 zone,” said Dan Wantrobski, Philadelphia-based director of technical research at Janney Montgomery Scott LLC. “That would be a 38.2 percent retracement of the cyclical bull run off the March 2009 bottom to the recent April 2010 highs.”

Technical analysts who use the Fibonacci ratios described by Leonardo of Pisa in “Liber Abaci” in 1202 believe the price of an asset may reverse an earlier gain or decline after reaching certain levels. Among those thresholds are the midpoint between an asset’s high and low points as well as levels marking the recovery of 61.8 percent, 38.2 percent and 23.6 percent of reversals of the previous trend.

Micron Declines

Micron Technology Inc. sank 13 percent to $8.67. The company “reported modestly better-than-expected fiscal third- quarter results,” wrote UBS AG analysts in a report. “Despite this, we believe stable to declining price trends over the past month could be a precursor to further declines.”

Chipmakers and semiconductor-related shares in the S&P 500 slid 3.1 percent as a group. SanDisk Corp. fell 7 percent to $42.64. Teradyne Inc. slumped 7.7 percent to $9.95. Advanced Micro Devices Inc. retreated 7.1 percent to $7.48.

Casino companies slid after KeyBanc Capital Markets Inc. said the stocks’ valuation is “rich” given sluggish growth in the U.S. and the potential for government intervention in Macau.

Wynn Resorts Ltd. dropped 7.7 percent to $78.55. Las Vegas Sands Corp. sank 9.9 percent to $22.84. MGM Resorts International slipped 8.6 percent to $10.05.

Stocks retreated even after home prices in 20 U.S. cities rose in April from a year earlier as sales got a boost from a tax credit aimed at reviving the industry that triggered the worst recession since the 1930s. The S&P/Case-Shiller index of property values climbed 3.8 percent from April 2009, the biggest year-over-year gain since September 2006. The increase exceeded the median forecast of economists surveyed by Bloomberg News.

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Capital Gold Group Report: RBS tells clients to prepare for ‘monster’ money-printing by the Federal Reserve

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

By Ambrose Evans-Pritchard, International Business Editor
Published: 5:11PM BST 27 Jun 2010

Entitled “Deflation: Making Sure It Doesn’t Happen Here“, it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.

The speech is best known for its irreverent one-liner: “The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost.”

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).

Investors basking in Wall Street’s V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.

The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on “monster” quantitative easing (QE)”.

“We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,” he said in a note to investors.

Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option “which I personally prefer”.

A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank’s “rule of thumb” measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe’s EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.

Societe Generale’s uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the “stinking fiscal mess” across the developed world. “The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant,” he said.

Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.

The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.

It is sobering that zero rates, QE a l’outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU’s €750bn rescue “shield” have failed to stabilize Europe’s debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?

Clearly we are nearing the end of the “Phoney War”, that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing “boiling point” in half the world economy.

Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous – and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

Some say that the Fed’s QE policies have failed. I profoundly disagree. The US property market – and therefore the banks – would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.

The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.

Bernanke warned in that speech eight years ago that “sustained deflation can be highly destructive to a modern economy” because it leads to slow death from a rising real burden of debt.

At the time, the broad money supply war growing at 6pc and the Dallas Fed’s `trimmed mean’ index of core inflation was 2.2pc.

We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the ‘trimmed mean’ index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.

There is no doubt that the Fed has the tools to stop this. “Sufficient injections of money will ultimately always reverse a deflation,” said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

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Capital Gold Group Report: Gold Prices Close to New Highs

by Alix Steel, 06/25/10 – 02:39 PM EDT

NEW YORK (The Street) — Gold prices were popping Friday on technical trading and signs that the U.S. economy is slowing, which prompted another flight to safety into gold.

Gold for August delivery settled $10.30 higher to $1,256.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price today has traded as high as $1,259.50 and as low as $1,241.60. The U.S. dollar index was slipping 0.51% to $85.32 while the euro was adding 0.39% to $1.23 against the dollar. The spot gold price Friday was popping more than $10, according to Kitco’s gold index.

Gold prices made a run to conquer their previous record of $1,264 an ounce, on strong technical trading and safe haven buying, although prices stopped short of the $1,260 level.

Part of gold’s move Friday was short covering and book squaring, which ramped up as the second-quarter came to a close. Also, headed into summer weekends, investors are opting for cash and gold as a safe place to put their money to protect themselves against negative headline news.

Another part of gold’s rally was relief that the markets finally have the specifics on the financial regulation bill. A final bill is expected to be approved by Congress next week and by President Obama before July 4th. The big news for gold bugs was the fact that investment banks do not have to leave the gold business and will still be able to use 3% of their funds to trade the market. They’ll also be able to use credit default swaps in “safe” assets like gold to hedge risk.

The final factor moving gold prices was risk aversion. The U.S.’ first-quarter GDP number was revised down for a third time to 2.7%, indicating that the U.S. economy was growing much slower than expected.

“Bullion was higher on short-covering and technicals,” says Jon Nadler, senior analyst at Kitco.com. “But participants were likely eyeing the GDP data with an expectation that risk appetite would suffer in its wake and that safe-haven plays were shaping up as the play of the day.”

The popular gol ETF, SPDR Gold Shares, added another 3.04 tons on Thursday as investors continued to buy the precious metal as the Dow Jones Industrial Average sunk triple digits.

Gold is the ultimate safe haven asset and investors turn to the commodity as a form of money that retains some value as paper currencies struggle. The U.S. dollar was also receiving a safe haven bid from investors. The yield on the 10-year Treasury note was at 3.11%, slightly higher from their recent lows, but still indicating that investors are more than willing to lend money to the U.S. at a low price.

Silver prices settled much higher at 37 cents to $19.11.

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Capital Gold Group Report: Gold ends tantalizingly close to record

By Claudia Assis

SAN FRANCISCO (MarketWatch) — Gold futures on Friday ended a couple of dollars short of their record high, buoyed by strong investor interest in commodities in general, a weaker dollar, and ahead of the Group of 20 meeting over the weekend. Gold for August delivery added $10.30, or 0.8%, to $1,256.20. Bullion posted a record intraday high, however, at $1,259.50 in electronic trading, according to FactSet Research, before gains faded. Silver rose 2%.

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Capital Gold Group Report: Soros says German budget tightening threatens EU

AP – Wed Jun 23rd, 2010 3:43 PM EDT

BERLIN – Billionaire investor George Soros said Germany’s insistence on fiscal tightening could initiate a deflationary spiral and may ultimately endanger the European Union as a whole.

Forcing Europe’s governments to slash its budgets could push the continent “into a period of prolonged stagnation or worse,” Soros said in Berlin . “That will, in turn, generate discontent and social unrest.”

Coming at a time when the Chinese authorities have also put on the brakes, slashing the deficits “could push the global economy into a slowdown or possibly a double dip,” Soros warned.

“Unfortunately, Germany doesn’t realize what it’s doing,” he said.

Should the European countries go forward with a coordinated effort of budget tightening, the result could be deflation, which would draw weaker countries deeper into recession and set of a spiral that would ultimately lead to even deeper budget cuts , he said.

Germany, Europe’s biggest economy , pledged earlier this month in the wake of the European sovereign debt crisis to save euro80 billion ($100 billion) by 2014.

Chancellor Angela Merkel has urged other European countries to follow suit — a recommendation that is likely to be discussed at this weekend’s G-20 summit.

President Barack Obama last week cautioned leaders not to threaten the global recovery by trimming spending prematurely.

Soros sharply criticized Germany’s obsession with debt reduction and said Merkel’s government is now treating the Maastricht treaty as “the gospel which has to be obeyed without any modification.”

The treaty imposes the 16 countries sharing the euro currency a maximum limit for their budget deficit and the overall debt burden.

“Now these countries are expected to return to the Maastricht criteria even if such a move sets in motion a deflationary spiral ,” he said in a speech at Berlin’s Humboldt University.

He warned that it is hard to predict how anger and frustration will express themselves in the affected countries.

“In a worst case scenario that could undermine democracy and paralyze or even destroy the European Union ,” he said. The wide range of possible negative consequences will weigh heavily on the financial markets , he predicted.

Soros, a 79-year old hedge fund manager and philanthropist, urged governments to pursue a more expansive fiscal policy and to recapitalize Europe’s banks to prevent a repeat of the crisis.

He also suggested that the European Central Bank should offset the budget tightening by loosening its monetary policy by, for instance, propping up its program to directly buy government bonds “from countries that cannot borrow from the market at reasonable rates.”

Soros gained world-wide attention in the early 1990s by speculating against the British pound, which eventually forced the Bank of England to exit the European Exchange Rate Mechanism and made him an estimated $ 1 billion richer.

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

Capital Gold Group Report: Saudi Arabia’s Gold Reserve Doubles

Numismaster.com
By Patrick A. Heller
June 22, 2010

The World Gold Council in its June 2010 update of World Official Gold Holdings increased the gold reserves held by the Saudi Arabian central bank to 322.9 tons (10.38 million ounces).  This is more than double the previously reported 143 tons of reserves.

In a footnote to this report, the WGC states “Gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA’s gold accounts.”  It is possible that the total amount of gold held by the Saudi Arabian government has not really changed, but has merely been reclassified from other accounts.  However, initial attempts to gain further information on this point were not immediately successful.

With the new reported gold reserves, Saudi Arabia’s central bank now ranks 16th, ahead of the United Kingdom, Spain, Austria, Belgium, Singapore, and Sweden. Only 13 other national central banks, the International Monetary Fund, and the European Central Bank have higher reported reserves.

This development has almost certainly contributed to the price of gold reaching an all-time high on June 18, as it demonstrates continuing strong demand from central banks to add to their gold reserves (Russia and the Philippines have been especially prominent in adding to their reserves so far in 2010). Coupled with the almost complete cessation of reported central bank gold sales, this shift in demand and supply will almost certainly help push up gold prices over the next year or so.

This report has even more ominous implications.  In April 2009, China admitted that it had acquired 454 tons (14.6 million ounces) of gold reserves from 2003 to 2009 without making any changes to their stated gold reserves as acquisitions were made.  It is quite possible that the Chinese central bank has continued to acquire gold since that report, but the stated reserves have not changed in the past 14 months.

The question becomes how many central banks are adding to their gold reserves without revealing their acquisitions.  There is a strong incentive to make purchases quietly, so as to avoid spooking the market and seeing the price jump “too soon.”

This is exactly the opposite of what has apparently happened for years, where some central banks (especially the U.S.) are suspected of surreptitiously leasing and selling their gold reserves to the market to help hold down gold prices.  Almost a decade ago, analyst Frank Veneroso used four different methods to calculate how much of the claimed central gold reserves were no longer held by them.  His conclusion then was that 25-50 percent of all reported official gold reserves were gone. In the years since, this percentage has only increased.

This problem was compounded by a reporting rule imposed by the International Monetary Fund, where central banks were required to report leased gold as still being in their vaults whether or not it was there. In addition, the central bank that might actually be holding the first central bank’s gold was also required to report it as reserves, even if this second central bank didn’t actually own it.

The increase in the price of gold so far in 2010 definitely is influenced by continuing strong demand. However, it seems a safe bet that central banks are having greater difficulty trying to sneak their gold reserves onto the market – perhaps because the vaults are near empty.

Gold mine output has been declining, despite the ever higher spot prices, which seems counterintuitive. It is not. Costs of new mine development have soared.  The average time to take a mine from discovery has stretched out from about three years to maybe 10 years. Rising costs and longer time frames make lenders less willing to finance risky projects that would only pay off if prices stay at or above current levels.
There was a huge spurt in gold recycling in the first quarter of 2009, but volumes have fallen dramatically since then, even at current record-high prices (ignoring inflation).

In sum, gold demand, both official and private, is strong and growing. Gold supplies from central banks, mines and recycling are stable to declining. The expected result should be much higher prices in the future.
I would not be surprised to see gold and silver prices suppressed until after the COMEX silver options expiration on Thursday, June 24. You may have a bargain buying opportunity for the next couple of days. What are you going to do?

On June 19, the Chinese government stated that it was going to allow the value of its yuan float. Don’t for one minute believe that it will be allowed to trade freely. Pretty much everyone expects the yuan to appreciate slightly, then be managed to be stable, as has happened for almost the past two years. Chinese officials probably realize that they need the currency to appreciate against other currencies in order to help combat local inflation. However, letting the yuan appreciate more rapidly could be interpreted as the Chinese accepting orders from the U.S. government. Chinese officials would rather absorb greater domestic problems than seem to be obeying U.S. President Obama. The bottom line is that the value of the U.S. dollar is almost certain to fall against the yuan, which also means that the price of gold in U.S. dollars will continue to rise.

Demand for gold sovereigns in Europe (especially in Greece and the United Kingdom) remains so strong that American supplies are being shipped over to Europe. American wholesalers, partly to protect themselves from market fluctuations and somewhat to try to increase profit margins, have not raised their relative bid prices to the same degree as their selling prices. My previous anticipation that sovereign owners might be able to eventually swap their coins at a high enough premium to get lower premium coins (increasing their total gold position without having to pay out any funds) has not developed. There has been increased interest in liquidating sovereigns of late, so I am doubtful that the opportunity of a profit-making supply squeeze will develop this year.

The U.S. Mint has released 2010-dated fractional gold American Eagles much earlier than it came out with the 2009-dated issues.  At the moment, dealers have ample supplies at fairly reasonable premiums. I expect both the ready availability and reasonable premiums to be temporary situations. However, if premiums do rise well before the end of 2010, I anticipate that the Mint will release enough additional supplies to make them more affordable. It could easily happen that fractional gold Eagles could be an erratic market for the balance of the year.

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