Capital Gold Group Report: Sell Signal on 36% Profit Gain Has Analysts in Denial; Less than 29% of Stocks Worldwide are Buys

By Rita Nazareth and Lynn Thomasson

Aug. 30 (Bloomberg) — Meyer Shields says earnings at Warren Buffett’s Berkshire Hathaway Inc. will increase the most since 2006 this year. He’s also telling investors to sell the shares because the economic recovery is weakening.

The Stifel Nicolaus & Co. analyst has plenty of company. For the first time since at least 1997, fewer than 29 percent of ratings for stocks covered by brokerages worldwide are “buys,” according to 159,919 recommendations compiled by Bloomberg. Analysts are turning more pessimistic even as they push up estimates for profit growth among Standard & Poor’s 500 Index companies to 36 percent, the highest since 1988.

“People are sitting on a fence,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion. “When I go and talk to our equity analysts, they look at the companies and say, ‘Boy these companies look pretty good, earnings are OK, they have plenty of cash. What if there’s a double dip?’”

Conflicting announcements two minutes apart by Intel Corp. and Federal Reserve Chairman Ben S. Bernanke last week underscore the challenges facing analysts and investors even as stocks trade at a lower price relative to estimated earnings than almost any time on record. Intel cut its third-quarter revenue forecast, citing weaker-than-expected consumer demand. Bernanke said the central bank “will do all that it can” to safeguard the recovery.

Stand Still

More than 54 percent of ratings for companies in the U.S., U.K., Japan and Brazil are “holds,” the highest level since Bloomberg began tracking the data in 1997. While the proportion of “sell” ratings in the U.S. has fallen to 5.1 percent, half the level of 2003, the total combined with “holds” reached a record 71 percent last month, the data show.

“A ‘neutral’ usually means historically a ‘sell,’” said Kevin Rendino, a money manager at New York-based BlackRock Inc., which oversees about $3.2 trillion. “Ratings chase stock prices. When everyone becomes risk averse, they don’t want to stick their necks out.”

While pessimism is increasing, analysts say profits for companies in the MSCI World Index of 24 developed nations will gain 28 percent in the next year. The MSCI index trades at 11.5 times forecast earnings, data compiled by Bloomberg show. Except for the six months starting October 2008, the index has never traded below 12.5 times reported earnings.

Topping Estimates

Trading on Aug. 27 illustrated the mixed messages facing investors this year.

Stock-index futures jumped at 8:30 a.m. when the Commerce Department revised its second-quarter economic growth estimate to a 1.6 percent annual pace, below the initial assessment of 2.4 percent reported last month, yet beating the 1.4 percent median forecast from a Bloomberg survey of 81 economists. The market opened higher, with the S&P 500 advancing 0.2 percent.

The gains were erased just before 10 a.m. when Intel said consumers were curtailing computer purchases. Two minutes later, Bernanke sparked a 1.7 percent rally in the S&P 500 by predicting an improving economy in 2011.

“This market has been whipsawing us back and forth,” said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $641 billion. “People are interpreting each and every data point either for validation or for repudiation of the view they hold.”

Economic Surprise

Gains on Aug. 27 trimmed the S&P 500’s weekly decline to 0.7 percent, closing at 1,064.59. The gauge fell 1.5 percent to 1,048.92 at 4 p.m. in New York.

The benchmark gauge for U.S. equities is down 4.5 percent in 2010 after Europe’s debt crisis wiped out an increase of as much as 9.2 percent. Citigroup’s Economic Surprise Index showing how much U.S. economic data is differing from forecasts fell to minus 64 on Aug. 25, the lowest since January 2009.

Analysts from Stifel’s Shields to Oppenheimer & Co.’s Rick Schafer and Anthony Gallo at Wells Fargo Securities LLC are advising clients against buying shares of Berkshire, Intel and C.H. Robinson Worldwide Inc. even after boosting profit forecasts.

Shields says his biggest concern is that joblessness will weaken consumer spending, which accounts for 70 percent of the American economy. The unemployment rate held at 9.5 percent for a second month in July and has fallen less than a percentage point from the 26-year high of 10.1 percent last year, according to the Labor Department in Washington.

‘Much Worse’

“It’s negativity on the economy and therefore the ‘sell’ rating on Berkshire,” Shields said in an interview from Baltimore. “Employment is much worse than what people have anticipated. That uncertainty is contributing to weaker-than- desired employment and if I had to pick one single factor that underlies our negativity, that’s what it is.”

Shields forecast on Aug. 9 that Omaha, Nebraska-based Berkshire will earn $6,381 a share for all of 2010, an increase from his previous estimate of $5,866. The company’s Class A shares, which carry greater voting rights, have rallied 19 percent to $118,100 this year. The Class B stock of the firm, whose holdings in railroads, insurers and newspapers make it a proxy for the U.S. economy, rose 20 percent to $78.78 in 2010.

E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, says rising “hold” and “sell” recommendations are bullish because it means investors can find bargains and wait for analysts to change their minds. He favors shares of technology makers and industrial companies.

‘A Little Nervous’

“Everybody is a little nervous to go out on the edge,” said Stone, whose firm oversees $103 billion. “That’s a positive. It gives the opportunity to either buy stuff that should be somewhere else. Maybe it’s a good company that’s being dragged down by the overall market.”

Profits for companies in the S&P 500 are forecast to reach $83.34 a share in 2010 and climb 22 percent in the next 12 months to a record $92.15 a share. Even slowing economic growth wouldn’t mean a stock-market crash, according to Laszlo Birinyi of Birinyi Associates Inc., which cut its year-end estimate for the S&P 500 to 1,225 from 1,325 on Aug. 25.

“While joblessness continues and the economy sputters, we would not necessarily ignore, but would instead downplay the vocal economists who believe another recession is upcoming,” the firm wrote. “There is a significant difference between the stock market and the economy. While both might be housed in the same building, they live on different floors.”

Bad Debt

Higher earnings don’t always make shares attractive to investors. At American Express Co., improving profits reflect the reversal of previous bad-debt reserves rather than a revival in consumer spending, said Jason Arnold, an analyst at RBC Capital Markets. He raised his 2010 earnings estimate for the New York-based company to $2.89 a share from $2.54 a share on Aug. 1.

“The estimate increase doesn’t reflect our outlook for a dramatic improvement in fundamentals,” Arnold said in an interview from San Francisco. Earnings are growing “not because they are seeing a tremendous pick-up in core performance, but because they are releasing credit reserves and are cutting expenses. It’s been more of a sugar high,” he said.

The likelihood that Intel’s profit margins will narrow should keep investors from buying the stock, according to Schafer at Oppenheimer. The Denver-based analyst boosted his 2010 profit projection by 12 percent and raised his 2011 forecast by 13 percent on July 14, while telling clients to hold the shares.

‘Peak Earnings’

“I’m no macroeconomist, but you’re certainly seeing data that suggests that things are slowing down,” Schafer said in an interview Aug. 26, the day before Intel lowered its sales forecast. “We’re underweight semis as a sector. We have seen peak earnings and most likely peak gross margins for this particular cycle.”

Schafer cut his 2010 and 2011 earnings estimates by 12 percent and 30 percent following Intel’s Aug. 27 announcement. The outlook from the Santa Clara, California-based company, whose chips run more than 80 percent of the world’s PCs, adds to evidence that the U.S. economic recovery is losing steam.

Wells Fargo analyst Anthony Gallo raised his 2010 profit forecast for C.H. Robinson last month and kept the “market perform” rating he has had since February. The Baltimore-based analyst said the transportation services company had earnings growth even as margins contract. He sees the shares as “fairly valued” given the economic uncertainties.

‘Hard to Envision’

“A catalyst on the horizon? It’s hard to envision one right now,” Gallo said in an interview. “We’ve seen a moderation in the rate of growth. We expect that to continue into the end of the year.” While expense cuts could help the Eden Prairie, Minnesota-based company, “it’s hard to see how that would be enough to continue to push estimates higher.”

The possibility revenue will disappoint investors is reason to sell shares of Dallas-based Texas Instruments Inc., said Daniel A. Berenbaum, who covers the stock for Auriga USA LLC, a New York-based research and trading company owned by Spanish investment firm Auriga Securities S.V. Sales at the second- largest U.S. chipmaker will surge 34 percent this year, rise 3 percent in 2011 and slump 1 percent in 2012, based on analysts’ estimates tracked by Bloomberg.

“The higher it goes now, the lower it could potentially go in the future,” said Berenbaum, who boosted his sales and earnings estimates for the technology maker last month. “I’m not inclined to raise my ‘sell’ rating.”

Lockstep

Wall Street firms are becoming more reluctant to award “buy” ratings because U.S. stocks are moving in lockstep with the S&P 500, limiting the opportunity for analysts to identify relative value, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC.

The correlation between the U.S. equity benchmark and its individual members was 0.81 in the 50 trading days through July 7 and has since remained close to that level, Birinyi data show. That’s almost twice the historical average of 0.45 from the past 30 years. A higher number means moves in individual stocks are increasingly related to the direction of the index as a whole and not on their own earnings prospects or valuation, the Westport, Connecticut-based research firm said.

“There’s a high amount of uncertainty,” said Newark, New Jersey-based Praveen, whose firm oversees $690 billion. “Analysts are trying not to stick out their necks. They are probably not really sure about how the economy is going to play out over the next couple of months. They are using that as an excuse to play it safe.”

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Capital Gold Group Report: Gold Prices Settle Near Record High

By Alix Steel, 08/31/10

NEW YORK (TheStreet ) — Gold prices shrugged off earlier losses and rallied Tuesday as investors bought gold as a safe- haven asset ahead of Friday’s jobs number.

Gold for December delivery settled up $11.10 to $1,250.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Tuesday has traded as high as $1,251 and as low as $1,233.50. The U.S. dollar index was lower by 0.14% at $83.02 while the euro was up 0.25% at $1.27 vs. the dollar. The spot gold price Tuesday was rallying $12, according to Kitco’s gold index.

Gold prices had been selling off in early-morning trading Tuesday, but investors changed their tune to buy gold at “discount” prices as a safe-haven asset. Volume also picked up as momentum built, at 91,000 for the December futures contract on the Comex.

Despite prices settling near its record high at $1,250 an ounce, there still could be a correction. High gold prices could curb physical demand from India in September, traditionally a strong gold jewelry buying period, which could squash gold’s rally.

Gold could also be subject to short-term profit taking. Prices have rallied 4% in August while the Dow Jones Industrial Average lost 4.3%, which makes the precious metal a prime target for investors looking to book profits.

In general, investors appeared hesitant to take new long positions before the long Labor Day weekend in the U.S. as the general mood in world markets turned fairly pessimistic. Japan’s Nikkei index fell almost 326 points as global economic fears persisted and the yen continued its ascent. Investors were just as skeptical looking toward this week’s flurry of U.S. economic data.

“I think we’re in a case of bad news is good news for gold for the moment,” Jeffrey Friedman, senior market strategist at Lind-Waldock. “I’m a buyer of dips … the trend is still up … the range is probably $1,225 to $1,242 [an ounce].”

For the long term, many analysts are still bullish on gold despite its 10-year rally. A new data report by Bloomberg showed that analysts expect the December contract for gold to rise, on average, to $1,500 in 2011.

But gold prices will have to get through Friday’s U.S. jobs number to break out either to the upside or downside. The unemployment report is overshadowing all markets right now, including gold. A disappointing number might force investors to sell gold for cash but might also trigger another wave of safe-haven buying.

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Capital Gold Group Report: “Only a question of time” before Gold Returns to Record Highs

By Allen Sykora

(8-31-10, Kitco News)– “It is probably only a question of time” before gold returns to the record highs from June, says a research note from Commerzbank.

For starters, the festival season has begun in the key consuming nation of India, during which time gold is traditionally given as gifts.

“Secondly, the debt crisis in Europe has returned to the focus of market players again,” Commerzbank says. The bond and other markets are pricing in a “higher default probability for Greek government bonds and an even greater probability of the rescue action for Greece failing,” Commerzbank says. “Given this news, gold should remain in strong demand as a ‘safe haven,’ even if the gold holdings of the SPDR Gold Trust have stagnated lately.”

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Capital Gold Group Report: El-Erian Says ‘Alarming’ Data Show Economy Slowing

By Wes Goodman

Aug. 27 (Bloomberg) — U.S. economic data are “alarming,” signaling the recovery is losing momentum, Mohamed A. El-Erian, Pacific Investment Management Co.’s chief executive officer, wrote in an opinion piece in the Washington Post.

Unemployment is high, consumer credit is shrinking and small companies are having trouble obtaining bank lines of credit, wrote El-Erian, who is also co-chief investment officer at Pimco, which runs the world’s largest bond fund. Increased government spending and additional debt purchases from the Federal Reserve are unlikely to spur a rebound, he wrote.

“Throughout the summer, data signals have become more alarming,” wrote El-Erian, who is based in Newport Beach, California. “Current policy approaches here and abroad are unlikely to deliver a durable and robust U.S. recovery.”

A U.S. report today will show gross domestic product grew at an annual pace of 1.4 percent in the second quarter, versus the 2.4 percent pace the government estimated last month, according to a Bloomberg News survey before the Commerce Department issues the figure. Fed Chairman Ben S. Bernanke is scheduled to speak today, raising speculation he will say the central bank is considering increasing its debt purchases to help keep borrowing costs low.

Home Values

Housing is waning and home values are set to fall further as foreclosures increase, El-Erian wrote in the article.

There is a need for tax reform, housing-finance reform, infrastructure investment, support for education, job retraining, removal of barriers to interstate competition and stronger social safety nets, he wrote.

Sovereign bonds are rallying globally as economists trim their growth forecasts and stocks tumble.

“The equity markets are again under pressure while yields on Treasury bonds have collapsed, reflecting that market’s growing concerns about the weak economic outlook,” El-Erian wrote.

Treasuries have returned 1.9 percent this month, and an index of sovereign bonds around the world gained 1.8 percent, according to Bank of America Merrill Lynch data. MSCI’s World Index of shares handed investors a 4.2 percent loss, after accounting for reinvested dividends.

Weekly Gain

U.S. 10-year notes headed for a fifth weekly gain, the longest run since February, pushing the yield down about half a percentage point during the period.

The notes fell today, pushing their yields up three basis points to 2.51 percent as of 10 a.m. in London, according to BGCantor Market Data. The 2.625 percent security due August 2020 fell8/32, or $2.50 per $1,000 face amount, to 101.

U.S. stocks fell yesterday, sending the Dow Jones Industrial Average to its first close below 10,000 in seven weeks, on concern manufacturing is slowing. The Standard & Poor’s 500 Index fell 0.8 percent and has now tumbled 14 percent from its 2010 high on April 23.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, cut his estimate for growth this quarter to a 2 percent annual pace. As recently as two weeks ago, he projected 4.6 percent.

Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, estimates a 2.3 percent rate of expansion, down from a June forecast of 4.1 percent.

Fed Purchases

The Fed plans to purchase about $18 billion of U.S. debt by the middle of September using the money from principal payments on its holdings of agency debt and agency mortgage-backed securities. Bernanke is scheduled to speak at a conference in Jackson Hole, Wyoming.

The central bank said following its Aug. 10 meeting that it would reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

The record $239 billion Pimco Total Return Fund managed by Bill Gross returned 12.3 percent in the past year, beating 66 percent of its peers, according to data compiled by Bloomberg.

Pimco, which managed more than $1.1 trillion of assets as of June 30, according to its website, is a unit of Munich-based insurer Allianz SE.

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Capital Gold Group Report: Bancor: The Name Of The Global Currency That A Shocking IMF Report Is Proposing

from “The Economic Collapse” website

Sometimes there are things that are so shocking that you just do not want to report them unless they can be completely and totally documented.  Over the past few years, there have been many rumors about a coming global currency, but at times it has been difficult to pin down evidence that plans for such a currency are actually in the works.  Not anymore.

A paper entitled “Reserve Accumulation and International Monetary Stability” (http://www.imf.org/external/np/pp/eng/2010/041310.pdf) by the Strategy, Policy and Review Department of the IMF recommends that the world adopt a global currency called the “Bancor”, and that a global central bank be established to administer that currency.  The report is dated April 13, 2010 and a full copy can be read here.  Unfortunately this is not hype and it is not a rumor.  This is a very serious proposal in an official document from one of the mega-powerful institutions that is actually running the world economy.  Anyone who follows the IMF knows that what the IMF wants, the IMF usually gets.  So could a global currency known as the “Bancor” be on the horizon?  That is now a legitimate question.

So where in the world did the name “Bancor” come from?  Well, it turns out that “Bancor” is the name of a hypothetical world currency unit once suggested by John Maynard Keynes.  Keynes was a world famous British economist who headed the World Banking Commission that created the IMF during the Breton Woods negotiations.

The Wikipedia entry for “Bancor” puts it this way….

The Bancor was a World Currency Unit of clearing that was proposed by John Maynard Keynes, as leader of the British delegation and chairman of the World Bank commission, in the negotiations that established the Bretton Woods system, but has not been implemented.

The IMF report referenced above proposed naming the coming world currency unit the “Bancor” in honor of Keynes.

So what about Special Drawing Rights (SDRs)?  Over the past couple of years, SDRs have been touted as the coming global currency.  Well, the report does envision making SDRs “the principal reserve asset” as we move towards a global currency unit….

“As a complement to a multi-polar system, or even—more ambitiously—its logical end point, a greater role could be considered for the SDR.”

However, the report also acknowledges that SDRs do have some serious limitations.  Since the value of SDRs are closely tied to national currencies, anything affecting those currencies will affect SDRs as well.

Right now, SDRs are made up of a basket of currencies.  The following is a breakdown of the components of an SDR….

*U.S. Dollar (44 percent)

*Euro (34 percent)

*Yen (11 percent)

*Pound (11 percent)

The IMF report recognizes that moving to SDRs is only a partial move away from the U.S. dollar as the world reserve currency and urges the adoption of a currency unit that would be truly international.  The truth is that SDRs are clumsy and cumbersome.  For now, SDRs must still be reconverted back into a national currency before they can be used, and that really limits their usefulness according to the report….

“A limitation of the SDR as discussed previously is that it is not a currency. Both the SDR and SDR-denominated instruments need to be converted eventually to a national currency for most payments or interventions in foreign exchange markets, which adds to cumbersome use in transactions. And though an SDR-based system would move away from a dominant national currency, the SDR’s value remains heavily linked to the conditions and performance of the major component countries.”

So what is the answer?

Well, the IMF report believes that the adoption of a true global currency administered by a global central bank is the answer.

The authors of the report believe that it would be ideal if the “Bancor” would immediately be used as currency by many nations throughout the world, but they also acknowledge that a more “realistic” approach would be for the “Bancor” to circulate alongside national currencies at first….

“One option is for Bancor to be adopted by fiat as a common currency (like the euro was), an approach that would result immediately in widespread use and eliminate exchange rate volatility among adopters (comparable, for instance, to Cooper 1984, 2006 and the Economist, 1988). A somewhat less ambitious (and more realistic) option would be for bancor to circulate alongside national currencies, though it would need to be adopted by fiat by at least some (not necessarily systemic) countries in order for an exchange market to develop.”

So who would print and administer the “Bancor”?

Well, a global central bank of course.  It would be something like the Federal Reserve, only completely outside the control of any particular national government….

“A global currency, bancor, issued by a global central bank (see Supplement 1, section V) would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing.”

In fact, at one point the IMF report specifically compares the proposed global central bank to the Federal Reserve….

“The global central bank could serve as a lender of last resort, providing needed systemic liquidity in the event of adverse shocks and more automatically than at present. Such liquidity was provided in the most recent crisis mainly by the U.S. Federal Reserve, which however may not always provide such liquidity.”

So is that what we really need?

A world currency administered by an international central bank modeled after the Federal Reserve?

Not at all.

As I have written about previously, the Federal Reserve has devalued the U.S. dollar by over 95 percent since it was created and the U.S. government has accumulated the largest debt in the history of the world under this system.

So now we want to impose such a system on the entire globe?

The truth is that a global currency (whether it be called the “Bancor” or given a different name entirely) would be a major blow to national sovereignty and would represent a major move towards global government.

Considering how disastrous the Federal Reserve system and other central banking systems around the world have been, why would anyone suggest that we go to a global central banking system modeled after the Federal Reserve?

Let us hope that the “Bancor” never sees the light of day.

However, the truth is that there are some very powerful interests that are absolutely determined to create a global currency and a global central bank for the global economy that we now live in.

It would be a major mistake to think that it can’t happen.

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Capital Gold Group News: Gold Rushing On

The World Gold Council’s latest quarterly recap of the gold market confirms much of the big-picture story we already knew: demand is strong (up 36 percent from a year earlier), supply (up 18 percent) is not keeping pace, and global economic worries are driving investors toward gold as a safe haven.

Drilling down a little further turns up a number of interesting points:

• Investment demand in the second quarter of 2010 (red bar in the chart) more than doubled compared to the same period in 2009, and accounted for more than half of total global demand. Investors bought the most gold since the first quarter of 2009, at the depths of the Great Recession.
• Demand from exchange-traded funds rose more than 400 percent to about 291 metric tons (9.4 million troy ounces), and retail investors bought about 30 percent more bars, coins and gold in other forms.
• Industrial demand is approaching pre-recession levels. The WGC credits the growing popularity of new consumer devices like iPads, Kindle electronic readers and netbook computers with driving this trend.
• Jewelry demand is down only slightly year-over-year, even though the gold price has risen from the $900+ per ounce range to $1,200 per ounce. In Hong Kong, for example, jewelry demand rose more than 30 percent in physical terms and nearly 80 percent in U.S. dollar terms.

The WGC says it foresees strong gold demand through the end of 2010, with India and China leading the way, along with concerns about economic recovery and the massive sovereign debt loads in Western Europe and elsewhere.

So far August has been an unusually good month for gold – as of midday today, the price is up 6 percent this month, where historically the August price tends to rise only 2.5 percent above July.

We recently wrote about gold seasonality – September, just a few days away now, is on average the best month for both gold and gold equities.

We also have written about gold in the context of the global economic uncertainty and also about China’s important role in future gold demand.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

by Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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Capital Gold Group Report: George Soros slashes exposure to US equities

George Soros has slashed the amount of money he is willing to gamble on the fortunes of the US stock market in the second quarter as market volatility increased.

By James Quinn

George Soros’ fund has approximately $25bn under management PhotoReuters

The legendary investor’s Soros Fund Management – which has approximately $25bn (£16bn) under management – reduced its equity investments by 42pc to $5.1bn by the end of June, down from $8.8bn at the end of March.

The asset allocation decisions were made during a period in which the Standard & Poor’s 500 index – the broadest US equity index – fell 12pc.

The fact that Mr Soros – best known as the man reputed to have made $1bn by “breaking the Bank of England” during the 1992 fiscal crisis – has decided to make such a concerted shift out of equities will send a clear message to other investors.

Gone are Soros’s investments in Petrobras, Brazil’s oil giant, with investments in bellwether stocks such as Wal-Mart, JP Morgan Chase and Pfizer drastically reduced, cut by 99pc, 97pc and 95pc respectively.

Of those equities that do remain, the fund’s holding in a gold exchange traded fund constitutes his largest investment, some 13pc of the equity portfolio, worth $638m.

Although neither Mr Soros of his fund typically do not explain their quarterly investment decisions, it is likely some of the money has been shifted into government bonds, as well as investing in commodities and other safe havens.

The quarterly report – filed with the US Securities and Exchange Commission – details investments only in US-traded shares and related derivatives, and the fund does not have to detail overseas shares or cash or commodities held.

A spokesman for Mr Soros did not comment.

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Capital Gold Group Report: Ron Paul Calls for Audit of US Gold Reserves

Ron Paul Calls for Audit of US Gold Reserves : Kitco News Exclusive
By Daniela Cambone
Of Kitco News

“If there was no question about the gold being there, you think they would be anxious to prove gold is there,” said U.S. Rep. Ron Paul of the Federal Reserve

Texas (Kitco News) — U.S. Rep.  Ron Paul , R-Tex., plans to introduce a new bill next year that will allow for an audit of US gold reserves, he told Kitco News in an exclusive interview.

Paul dropped the news in the interview, indicating that the bill still does not have an official name yet but will be unveiled at the start of the new U.S. Congress.

“If there was no question about the gold being there, you think they would be anxious to prove gold is there,” he said of the Federal Reserve.

This is not the first time the congressman has made his pitch. “In the early 1980s when I was on the gold commission, I asked them to recommend to the Congress that they audit the gold reserves – we had 17 members of the commission and 15 voted not to the audit,” said Paul. “I think there was only one decent audit done 50 years ago,” he said.

Though Paul did not say whether there is any truth to claims that there is no gold in Fort Knox or the New York Federal Reserve, he said, “I think it is a possibility.”

“If we ever get around to deciding we should use gold in relationship to our currency we ought to know how much is there,” said Paul.  “Our Federal Reserve admits to nothing and they should prove all the gold is there. There is a reason to be suspicious and even if you are not suspicious why wouldn’t you have an audit?” he said.

The gold audit follows his crusade last year looking to audit the Federal Reserve, which he says is the chief culprit behind the economic crisis.

“I don’t think the Federal Reserve should exist – it would be best for congress to exert their responsibilities and that is find out what they are doing”’ said Paul.  “It is an ominous amount of power they have to create money out of thin air and being the reserve currency of the world and be able to finance runaway spending whether it is for welfare or warfare; it seems so strange that we have been so complacent not to even look at the books.  If we knew exactly what they were doing, who they were taking care of, there would be a growing momentum to reassess the whole system,” he told Kitco News.

Before the creation of the Federal Reserve however, the US saw 16 recessions from 1850 to 1910; they averaged 22 months long. During this time, the U.S. was in recession 60 out of 91 months. Many would argue that the severity of these recessions led to the creation of the Federal Reserve System.

“I think they would be exaggerating what happened before 1913,” Paul responds. “We had some panics …they were usually short and there were no long depressions,” he said.  “The Fed creates the bubbles and they are much worse since 1913, if you think of the size of the government and the valuation of the dollar, we are down to about a 2 cent dollar from the 1913 dollar.”

Paul said everyone accuses him of wanting the gold standard but he said he doesn’t accept that.  “I accept the idea of a gold coin standard and I think we can do much better than what we had,” he said. “There was a lot that they did pre-Fed that was not exactly right but we never had a disastrous loss of purchasing power long-term, we didn’t have a great depression, we didn’t have the 1970s with stagflation and we wouldn’t have what we have right now.”

Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar said Paul.

Paul’s solution is to not replace the Fed with anything.  “It would make the dollar strong… who wants money to be devalued? I want a strong dollar and if it were equivalent to gold it would remain strong.”

Paul also said he wants to legalize the freedom for people to choose.  “My proposal for now is to legalize the constitution to use gold and silver as legal tender in a parallel standard and have it compete with paper money. If people get tired of using the paper standard they can deal in gold or silver,” he said.

On the topic of gold price manipulation, Paul said, “I think it is probably true.”

“I am not the one to lay out proof of this, others have done a lot of investigation.  One of the reasons I don’t dwell on that is they are not going to listen to us” he said. “But I think it is very important somebody talks about it and emphasizes it just as a warning to be careful; you don’t have to only anticipate what the markets are doing, but you have to anticipate what the government is doing.”

The best example of manipulating the ratio of gold to paper would have been from the late 1950s to 1971, said Paul. “We printed money like currency, we printed too many dollars against the gold, so they said, ‘we will take your gold.’ …if they are capable of that they are capable of doing this as well, because they don’t want their cover blown, ” said Paul.  If the markets are saying not to trust paper money, they have to do everything they can to “destroy gold,” said Paul.

Recounting a visit with Paul Volcker, former Chairman of the Fed Reserve, Rep. Paul said the Chairman walked straight into the room, went immediately to his staffer and asked what the price of gold was. “They know gold is important. I think they are quite willing to manipulate it. That is the only way they can maintain this false illusion about gold.”

“If they are involved isn’t it pretty amazing what has happened in past year? What will happen if they throw in the towel?” said Paul.

The current economic situation is very healthy for gold,  said Paul. “You see people rushing just to put their money in any place …they don’t even care about making money.”

New Regulations

When asked what regulations the Congressman is currently worried about, he said, “All of them.” However, Paul specifically points to the 1099 provision, a portion of the health-care act, passed earlier in the year.  “For every transaction of over $600, gold dealers have to fill out a form, it is a lot of paperwork,” said the congressman. Entities must file a Form 1099 with the Internal Revenue Service whenever they make transactions paying out $600 a year to another party.

US economy

It is going to continue to go downhill said Paul on the US economy. “I don’t believe in a double dip, I believe we have single-dip and it has been continuous.”

“The only reason it doesn’t look so bad is if you spend $2 trillion dollars and you have a $5 hundred billion increase in some GDP figures, you didn’t get much for your trillion dollars but it might improve your statistics,  so it was a fake recovery.”

As for another presidency run, Paul says it is too early to tell.

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Capital Gold Group Report: Demand for gold surges 36% in the second quarter

By Claudia Assis, Aug. 25, 2010, 1:01 a.m. EDT

SAN FRANCISCO (MarketWatch) — Gold demand reached 1,050.3 metric tons in the second quarter, 36% higher than the same quarter in 2009, mostly thanks to soaring investment demand, a report from the World Gold Council showed early Wednesday.

Economic uncertainties around the world are expected to provide continued support for gold, said the council, an industry group backed by leading gold mining companies.

These concerns led investors to gobble up gold in the second quarter, the World Gold Council said. Demand for gold-backed exchange-traded funds rose 414% compared to the second quarter of 2009. Retail investment demand rose 29% in the same period.

Investors are making the switch from buying gold only in times of crisis to having gold as part of a diversified portfolio, said Jason Toussaint, a managing director for the World Gold Council.

“Gold is the ultimate diversifier,” he said. “Correlation to U.S. equities is zero” in addition to its proven ability to not only hold value in times of crisis but increase.

Gold prices hit a record high June 18, when the most-active contract settled at $1,258.30 an ounce in the New York Mercantile Exchange. Prices settled at $1,233.40 an ounce on Tuesday, a 2% decline.

But the high prices for most of the second quarter hurt jewelry demand, which declined 5% compared to the same quarter a year earlier.

Second-quarter gold supplies reached 1,131 metric tons, 18% higher on-year, the World Gold Council said.

Recycled gold coming onto the market rose 35% to 496 metric tons as the rising price of the metal “encouraged consumers to sell their existing holdings,” the group said.

Industrial usage of gold rose 14%, mainly thanks to a 24% increase in demand for gold in the electronics sector. Gold is used in a variety of consumer electronics, including smartphones.

India and China, traditionally big gold consumers, are expected to continue to provide the “main thrust” of demand, but European retail investors “appear to be making an increasingly important contribution to investment demand,” the World Gold Council said.

That’s because ongoing worries about sovereign debt levels in Europe and a wobbly euro have helped drive demand, the group said.

Meanwhile, support for gold prices from China is expected to rise in light of the recent government proposal to develop the Chinese domestic gold market.

“This further reinforces the WGC’s view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply,” the group said.

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Capital Gold Group Report: Gold Prices Rally on Investor Panic; Gold Demand Up 36% in 2nd Quarter

by Alix Steel, 8/25/10

NEW YORK (The Street) — Gold prices were rallying Wednesday as investors fled into the safe-haven asset as global stock markets slid and the Dow Jones Industrial Average fell below 10,000.

Gold for December delivery was adding $5.60 to $1,239 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,243 and as low as $1,230.90 on low volume. The U.S. dollar index was rising 0.05% to $83.20 while the euro was rising 0.26% to $1.26 vs. the dollar. The spot gold price Wednesday was up $7, according to Kitco’s gold index.

From Asia to Europe to the U.S. stocks were down, economic data was negative and growth worries persisted driving investors into gold. In Asia, the yen hit a 15-year high vs. the dollar which didn’t bode well for the future of exports, which will now be more expensive to buy in other currencies. In Europe, Standard & Poor’s downgraded Ireland’s credit rating to AA- with a negative outlook. In the U.S., existing-home sales plummeted more than 27% to the lowest level in 10 years as the government’s new homebuyer tax credit expired, and durable goods orders slipped in July.

Gold rallied 0.5% Tuesday as spooked investors sold stocks for gold. The trend is set to continue Wednesday as new-home sales in July fell 12% furthering fears of a double dip in the housing sector. Volume is also thin which will keep prices volatile and gold will look to the Federal Reserve’s two-day meeting with world bankers in Wyoming, which begins Friday, for any signs of additional monetary easing.

“Every time the Fed has said something it’s had a negative effect on general markets,” says George Gero, vice president of global futures at RBC Capital Markets, which would spark a flight to safety into gold. For a short-term trade range, Gero is looking at “$1,175 as a bottom support, $1,250 for basically a real resistance level … but the inside markets looks to me like its $1,200-$1,225.”

Also adding fuel to the gold bull fire was the second quarter Gold Demand Trend report from the World Gold Council which said gold demand grew 36%. Overall demand was helped by a 118% surge in identifiable investment demand which offset a 5% decline in jewelry demand.

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