Capital Gold Group Report: Gold Rises as Biggest Monthly Drop This Year May Spur Buying

By Pham-Duy Nguyen

July 30 (Bloomberg) — Gold rose for a third day on speculation that the biggest monthly drop since December will encourage investors to stock up on the precious metal as a haven.

The 5 percent price drop in July is the first monthly decline since March, and gold has fallen 6.5 percent from its June 21 record of $1,266.50 an ounce. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have declined 1.5 percent this week, heading for the biggest weekly drop since April 2009.

“Gold is beginning to catch some traction,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The correction may have run its course and for longer-term holders, this may be a buying opportunity.”

Gold futures for December delivery rose $12.70, or 1.1 percent, to settle at $1,183.90 as of 1:47 p.m. on the Comex in New York, the biggest gain since July 13. The most-active contract ended the week down 0.3 percent.

The euro headed for the first monthly gain against the dollar since November. Gold also reached records last month in euros, British pounds and Swiss francs as investors sought a haven during Europe’s sovereign-debt crisis.

“We view the latest decline in the gold price as temporary,” analysts at Deutsche Bank AG said today in a report. “This weakness has been driven more by liquidation in net length among the investor community than a structural change in fundamentals.”

Concern for Deflation

Gold may be one of the best assets to own in a deflationary environment, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Federal Reserve Bank of St. Louis President James Bullard said yesterday that the U.S. economy may be headed into a deflationary period similar to the one that gripped Japan.

“It’s looking like deflation is more of a risk now than inflation,” Kaplan said. “In a deflationary period, gold will go down the least.”

The Fed has kept the benchmark interest rate between zero and 0.25 percent since December 2008 to spur growth, which fueled speculation that the economy will face rampant inflation as it emerges from the recession.

“Gold won’t fall out of bed under any scenario in the future,” Klopfenstein of Lind-Waldock said. “There are a lot of macro headwinds. Low rates will spark inflation down the line, once we get past deflation.”

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Capital Gold Group Report: Chief Economist Rosenberg: Dow Could Fall to 5,000

By: Julie Crawshaw

Friday, 09 Jul 2010 09:59 AM

Gluskin Sheff Chief Economist and Strategist David Rosenberg says the Dow could go to 5,000.

Rosenberg’s reasons: Even if an economic double dip is avoided, the market is not priced for slower growth, and the intense volatility in the major averages over the past three months is consistent with the onset of a bear phase.

“Bob Farrell believes a test of the March 2009 lows is likely,” Rosenberg points out.

“I don’t think anyone is in a position to debate five decades of experience, not to mention his track record. Louise Yamada, a legend in her own right, not to mention the likes of Bob Prechter and Richard Russell, are on this same page.”

“Notice how none of them work at a Wall Street bank.”

Assuming inflation averages 2 percent annually and that 2016 marks the end of a secular bear episode that began in 2000, then the historical pattern would suggest a test of 5,000 on the Dow as the ultimate trough, Rosenberg notes.

“At that point, gold will likely be 5,000 too,” Rosenberg says.

Rosenberg says this forecast does not preclude cyclical rallies along the way, but these will be bear-market rallies, such as happened between March, 2009 and April, 2010.

“Investors should not be tempted into any other strategy than to rent these rallies and not own them,” Rosenberg cautions.

CPA Tim W. Wood maintains the upward market swing since is a bear market rally.

“All the while, the politicians think that their printing spree, bailout plans and stimulus packages have put a bottom in the economy,” Wood writes at howestreet.com.

“According to my analysis, we have entered a global debt crisis.”

© Moneynews. All rights reserved.

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Capital Gold Group Report: GDP Slows in Second Quarter to 2.4% Rate – New Data Shows Deeper Recession

By Greg Robb

July 30, 2010, 10:44 a.m. EDT

WASHINGTON (MarketWatch) — The U.S. economy lost momentum in the second quarter of the year, according to figures released Friday, which may raise concerns of an extended soft patch if not an outright contraction.

Real gross domestic product — the inflation-adjusted, seasonally adjusted value of all goods and services produced in the United States — rose at a 2.4% annualized rate in the second quarter, well below the average 4.4% increase over the last six months.

The 2.4% increase in GDP was close to the 2.5% expansion expected by economists surveyed by MarketWatch. However, the rate of expansion in the first quarter was revised up to a 3.7% rise compared with the prior estimate of a 2.7% increase. Read full government release.

Economists believe that the growth was fairly strong in April and May but hit a rough patch in June. So the economy is going into the second half of the year with little momentum.

“The post-recession rebound is history,” said Bart van Ark, chief economist at the Conference Board.

“We don’t foresee a double dip,” he continued, “but we do expect growth to slow even more markedly” — to what he pegged as a 1.6% annualized rate for the second half of the year. 

Investors initially reacted negatively to the report, with losses deepening in futures on the Dow Jones Industrial Average after the data were released.

Bond investors, confident the coast remains clear as far as inflation goes, bought U.S. Treasurys as two-year note yields sank to record lows.

Annual revisions released at the same time as the first estimate for second-quarter GDP show that the Great Recession was deeper than previously thought.

During the recession, real GDP decreased at a 2.8% average rate, down from the prior estimate of a 2.5% rate.

At the same time, the recovery, already one of the slowest, has been a bit slower. From the third quarter of 2009 to the first quarter, the economy grew at a 3.4% annual average rate, just below previous estimate of a 3.5% increase.

Although the increase in GDP in the quarter was not as strong as the first quarter, many of the details of the report were positive. Much of the deceleration was due to the trade sector. Consumer spending was only slightly weaker than the first quarter.

Now that the revisions have been released, the National Bureau of Economic Research may move to make a formal call on the end of the recession. Most economists think the recession ended in June 2009.

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Capital Gold Group Report: The Debt Tsunami – Chief Budget Office Latest Warning on Deficit Scarier Than Ever

The CBO’s latest warning on the long-term deficit is scarier than ever.

Editorial, Sunday, June 28, 2009

THE CONGRESSIONAL Budget Office has a tough job: to provide America’s lawmakers with a reality check on their tax and spending plans. Not surprisingly, the CBO’s projections are not always received cheerfully. Both President Obama and leading congressional Democrats were less than thrilled when the CBO estimated that the costs of universal health coverage would be much higher than advertised. To be sure, projecting the cost of legislation involves making assumptions and constructing models that may or may not prove accurate 10 years down the road. Nonetheless, the CBO, with its tradition of scholarly independence, is the best available arbiter, and Congress must heed its numbers — like them or not.

Now comes the CBO with yet more news of the sort that neither Capitol Hill nor the White House is likely to welcome: its freshly released report on the federal government’s long-term financial situation. To put it bluntly, the fiscal policy of the United States is unsustainable. Debt is growing faster than gross domestic product. Under the CBO’s most realistic scenario, the publicly held debt of the U.S. government will reach 82 percent of GDP by 2019 — roughly double what it was in 2008. By 2026, spiraling interest payments would push the debt above its all-time peak (set just after World War II) of 113 percent of GDP. It would reach 200 percent of GDP in 2038.

This huge mass of debt, which would stifle economic growth and reduce the American standard of living, can be avoided only through spending cuts, tax increases or some combination of the two. And the longer government waits to get its financial house in order, the more it will cost to do so, the CBO says.

The CBO’s new long-term forecast is considerably more pessimistic than the one it issued 18 months ago, mostly because of the recession, which has driven the budget deficit above 12 percent of GDP. But the report makes clear that the recent economic downturn did not cause the government’s predicament and that the situation will not necessarily improve once the economy does. The principal cause of long-term fiscal distress is the aging of the U.S. population, coupled with rising health-care costs — which, together, will drive spending on Medicare, Medicaid and Social Security to new heights. Unchecked, federal spending on Medicare and Medicaid combined will grow from almost 5 percent of GDP today to almost 10 percent by 2035 — and to more than 17 percent of GDP by 2080.

Like his predecessors, Mr. Obama is aware of this issue. Like them, he has promised a plan to deal with it. And like them, he has not come up with anything credible yet. It’s time for that to change.

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Capital Gold Group Report: Physical Demand for Gold “Very Visible” as Market Dip Attracts Buyers

Gold, Little Changed, May Rise as Price Slump Attracts Buyers

by Nicholas Larkin and Pham-Duy Nguyen

July 28 (Bloomberg) — Gold, little changed in New York, may gain as the lowest prices in almost three months spur demand.

Futures yesterday fell the most in more than three weeks, dropping as low as $1,160.80 an ounce, as a rally in global equities eroded demand for bullion as an alternative investment. Physical demand for gold from buyers in India, China and the wider Asian region was “very visible” as prices declined this week, UBS AG said today.

“From a risk-reward perspective, this level presents a buying opportunity,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. . . .

Yesterday and July 26 were the UBS sales desk’s strongest two days since January for selling to India by volume, analyst Edel Tully said today in an e-mailed report.

“The current decline in the gold price is probably only short-lived,” Eugen Weinberg, the head of commodity research with Commerzbank AG, wrote in a report yesterday. “There are some religious holidays from the end of August” in India, the world’s largest gold consumer, which may propel demand, he said.

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Capital Gold Group Report: University of Texas’ Money Manager Shifts $500 Million into Gold

Houston Chronicle
by R.G. Ratcliffe and Jeannie Kever
Web Posted on http://www.MySanAntonio.com/Education: 07/15/2010 12:18 CDT

AUSTIN — Fearing unstable international financial markets and the possibility of high inflation, Texas’ higher education investment managers have bought more than $500 million in gold.

The purchases represent only 3 percent of the University of Texas Investment Management Co.’s $22.3 billion in investment funds, but it indicates how deeply the fund managers are concerned about the global financial future.

With the state’s endowment funds designed to generate a 5.1 percent distribution each year to the University of Texas and Texas A&M University, it’s rare for the investment managers to put large sums of money into a commodity whose value usually grows only through inflation.

“If there’s no inflation, that dollar today in gold a year from now should be worth a dollar, UTIMCO CEO Bruce Zimmerman told the University of Texas board of regents Wednesday. “If there is inflation, then a dollar of gold should be worth a dollar plus inflation,” he said.

“Recently we’ve added 3 percent … of our portfolio, into gold as a protection against inflation, but even more as a lack of confidence in financial markets due to extraordinary government fiscal and monetary stimulus,” Zimmerman said.

“I wish I could tell you the future looked rosy. Unfortunately, that’s not our view. At best, we believe the future is uncertain.”

Two of Texas’ other large state investment funds, the Teacher Retirement System of Texas and the Permanent School Fund for the public schools, haven’t bought gold recently, according to spokesmen.

Other UTIMCO executives suggested the endowments have begun to recover from the staggering losses of 2008 and early 2009.

UTIMCO manages investments for all UT system schools and for the Permanent University Fund, which provides money to both UT and A&M. Its assets dropped by almost $3 billion, to $20.5 billion, in 2009.

It’s now back up to $22.3 billion.

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Capital Gold Group Report: 103 Failed Banks to Date in 2010; Problem Bank list hits 775

According to the FDIC website, 103 banks have failed thus far in 2010.  In addition to the 140 that failed in 2009, the total is 236 – and counting.   In May, CNN reported that the problem bank list had reached 775.

Problem bank list hits 775

By David Ellis, staff writer, May 20, 2010: 12:51 PM ET

NEW YORK (CNNMoney.com) — The government’s list of troubled banks climbed to its highest level since 1992 in the first quarter, although the pace of growth moderated, according to a government report published Thursday.

The numbers, published as part of a broader survey on the nation’s banking system by the Federal Deposit Insurance Corporation, revealed that the number of banks at risk of failing climbed to 775 during the first quarter.

That figure stood at 702 in the fourth quarter of 2009. A year ago, the number of banks on the FDIC’s watch list was 305. Loan losses, particularly in areas like commercial real estate, have hit many lenders hard.

Still, the fact that the number of problem banks rose by just 10% from the end of the year may suggesting that some of the festering troubles in the industry are starting to subside.

That figure stood at 702 in the fourth quarter of 2009. A year ago, the number of banks on the FDIC’s watch list was 305. Loan losses, particularly in areas like commercial real estate, have hit many lenders hard.

Still, the fact that the number of problem banks rose by just 10% from the end of the year may suggesting that some of the festering troubles in the industry are starting to subside.

“You can clearly see the rise in problem institutions moderated in the first quarter,” said FDIC Chairman Sheila Bair.

Banks that end up on the problem list are considered the most likely to fail. But few of the lenders on the list actually reach the point of failure. On average, just 13% of banks on the FDIC’s problem list have been seized and shuttered by regulators.

The names of the banks on the list are never made available to the general public by regulators out of fear that depositors at those institutions may prompt a so-called “run on the bank.

Problems peaking? The FDIC also reported a much-needed increase in its deposit insurance fund, which covers customer deposits when a bank fails.

The fund grew by $145 million during the quarter — the first increase in two years. It still continues to operate in the red however, reporting a deficit of $20.7 billion. That number also takes into account money the agency set aside in anticipation of future bank failures.

So far this year, 72 banks have failed. Bair said Thursday she expected that number to continue to climb, with smaller institutions among the most likely victims.

She noted however, that the agency was expecting the number of failures to peak at some point this year given that there are signs of improvement in some loan categories. She added that many troubled firms have been helped after locating new sources of capital.

Overall, the report painted a more healthy picture of the banking industry than a year ago.

Big Banks Rake It in Again

Banks and other institutions insured by the FDIC collectively earned approximately $18 billion during the quarter. That’s the highest profit since the first quarter of 2008 and was a more than three-fold increase from a year ago.

Much of that jump was attributed to big banks like Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), who returned to profitability in the latest quarter.

Another notable aspect of the latest quarterly report was a decline in the number of institutions insured by the FDIC to below 8,000. That’s the first time that’s happened in the agency’s 76-year history. Two decades ago, the FDIC insured more than 16,000 institutions nationwide.

The latest reading on the health of the industry provided little boost to bank stocks Thursday, however.

The KBW Banking index fell more than 3% respectively in midday trading on broader fears about the European debt crisis and uncertainty regarding Wall Street reform efforts in Washington.

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Capital Gold Group Report: Scrap dollar as sole reserve currency: U.N. Report

By Louis Charbonneau

UNITED NATIONS | Tue Jun 29, 2010 4:56pm EDT

UNITED NATIONS (Reuters) – A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

But several European officials attending a high-level meeting of the U.N. Economic and Social Council countered by saying that the market, not politicians, would determine what currencies countries would keep on hand for reserves.

“The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the U.S. dollar’s loss of value in recent years.

“Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s,” it said.

The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

“A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,” the U.N. report said.

The report said a new reserve system “must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity — such as SDRs — to create a more stable global financial system.”

“Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development,” it said.

MARKETS DECIDE

Jomo Kwame Sundaram, a Malaysian economist and the U.N. assistant secretary general for economic development, told a news conference that “there’s going to be resistance” to the idea.

“In the whole post-war period, we’ve essentially had a dollar-based system,” he said, adding that the gradual emission of SDRs could help countries phase out the dollar.

Nobel Prize-winning economist Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, has advocated the creation of a new reserve currency system, possibly based on SDRs.

Russia and China have also supported the idea.

But Paavo Vayrynen, Finland’s Foreign Trade and Development Minister, told reporters that he doubted it was possible “to make any political or administrative decisions how to formulate the currency system in the world.”

“It is based on the markets,” he said. “I believe that the economic players in the market are going to have the decisive influence on that issue.”

European Union development commissioner Andris Piebalgs said it would be a bad idea to dictate what the reserve currency should be.

“It is markets that decide,” he said. “Any intervention would just create additional challenges and make things even less predictable.”

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Capital Gold Group Report: Bernanke’s economy comment batters market

By Rodrigo Campos

On Wednesday July 21, 2010, 5:35 pm EDT

NEW YORK (Reuters) – Federal Reserve Chairman Ben Bernanke’s dour assessment of the U.S. recovery hit stocks on Wednesday, as his comment that the economy faced “unusually uncertain” prospects rattled investors.

Stocks tumbled after Bernanke acknowledged the labor market’s continued weakness while offering few specific options to stimulate lending and investment.

“The market sold off because unfortunately there is no remedy provided in Bernanke’s commentary to the rising threat of deflation, the excess capacity in the economy and the malfunctioning of the credit system,” said Joe Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania.

“We are now giving up on the notion of a standard recovery in the U.S. economy.”

The Dow Jones industrial average (DJI:^DJI – News) lost 109.51 points, or 1.07 percent, to 10,120.45. The Standard & Poor’s 500 (^SPX – News) fell 13.91 points, or 1.28 percent, to 1,069.57. The Nasdaq Composite (Nasdaq:^IXIC – News) dropped 35.16 points, or 1.58 percent, to 2,187.33.

Bernanke spoke to the Senate Banking Committee in the first of two days of his semiannual testimony to Congress.

His downbeat remarks sapped most of the buying interest even after a spate of strong earnings reports prior to the market’s open. Morgan Stanley (NYSE:MS – News) was one of the day’s few big winners after it reported stronger-than-expected profit, lifted by new business. Its stock shot up 6.3 percent to $26.80.

Apple Inc (NasdaqGS:AAPL – News) rose 0.9 percent to $254.24 after it posted robust quarterly results, but the company’s conservative margin forecast limited gains.

Another financial stock showing strength was Wells Fargo & Co (NYSE:WFC – News), which rose 0.6 percent to $26.06 after rising loan demand helped lift its earnings more than analysts had expected.

After the closing bell, cellphone chip supplier Qualcomm Inc (NasdaqGS:QCOM – News) rose 4 percent to $37.59 on news its quarterly earnings and revenue beat Wall Street’s estimates on strong smartphone demand.

Online marketplace eBay Inc (NasdaqGS:EBAY – News) added 4.1 percent to $20.99 in extended-hours trading as it beat Wall Street’s quarterly profit estimates, helped by a record performance at its PayPal service.

The benchmark S&P 500 found support during the regular session at its 14-day moving average and held above 1,060, a critical level according to some technical analysts.

Investors have been reluctant to make big commitments in equities due to growing worry about the economic outlook, sparked by disappointing economic data.

“Considering everything the (Fed has) done already, it will be alarming when the time comes that they feel they need to do more,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

Weighing on the Nasdaq were shares of Internet company Yahoo (NasdaqGS:YHOO – News), down 8.5 percent to $13.91 a day after it posted revenue that missed Wall Street’s estimates.

About 8.68 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year’s estimated daily average of 9.65 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 2 to 1, while for every stock that rose on the Nasdaq, about three fell.

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Capital Gold Group Report: Dow May Crash to 7,500 If 10,600 Not Breached

By: Daryl Guppy
CNBC Contributor
Published: Thursday, 15 Jul 2010 | 1:29 AM ET

Seeing there’s been quite a bit of interest in my recent comments on CNBC about the historical parallels between the Great Depression and the recent financial crisis, I thought it may be appropriate to elaborate further on the chart technicals behind the observation.

The causes may have been different, but the collapse of the U.S. markets in early 2008 followed the same behavioral patterns as the collapse in 1929. The recovery pattern seen in 2010, is also very similar to that developed in 1930.

Dow Monthly 1929-1930

The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern , seen most clearly in its monthly chart. It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.

The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930. The 2008 dow pattern targets were also exceeded with a market fall of around 52%.

In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market.  The Dow rebound in 2009 also developed from an inverted head and shoulder pattern. This was a powerful rise of around 69%.

The historical development of the recovery in the DOW in 1930 ended with a new head and shoulder pattern. This was followed by a rapid market decline that created the first part of a long term double dip pattern. This retreat also exceeded the pattern projection targets with a fall of 28%.

Fast forward to today, we’re seeing the Dow is developing a new head and shoulder pattern which indicates a beginning of a bear market. The rally peaks in the Dow appear in January and May and June. The downside projection taken from the neckline of the pattern sets a target at 8,400, or a 25% decline.

A very bearish analysis using the pattern of retreat behavior in 1930 suggests the Dow could retreat to around 7,500 in 2010.

The head and shoulder pattern in the Dow and its downside targets, are invalidated with a sustainable rise above 10,600.  A move above this level does not signal a resumption of the uptrend, but it does reduce the probability of a double dip.

It must be noted that while the behavioral patterns in 1930 and 2010 are similar, they don’t necessary point to the same result. But it does sound a warning that markets could continue to stand on the edge of a precipice.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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