Capital Gold Group Report: Barrick says gold could “easily” exceed $1,500/oz

By Jan Harvey

Mon, Sep 27 06:41 AM EDT

BERLIN (Reuters) – Barrick Gold, the world’s number one miner of the precious metal, said on Monday gold prices could “easily” outperform recent record highs to rise above $1,500 an ounce in the next year.

“From what we’re hearing, there are still significant new buyers coming into the market,” Jamie Sokalsky, the company’s chief financial officer, told Reuters on the sidelines of the London Bullion Market Association here.

“My view is that we could see much stronger prices still from here,” he said, adding: “I can see gold easily taking out new highs and going above $1,500 an ounce in the next year.”

Spot gold rose to a record high of $1,300 an ounce on Monday. Delegates at the LBMA meet were bullish on prices earlier on Monday, delivering an average forecast of $1,406 an ounce for this time next year.

Sokalsky said compared with where gold was in the early 1980s, at around $2,300 an ounce on an inflation-adjusted basis, prices still had substantial upside.

“Given all the factors that are there to support gold — macroeconomic factors, supply and demand factors, geopolitical tensions, a still-simmering sovereign debt crisis — I think the ledger has so many more reasons to buy gold that to sell,” he said.

He said the company’s recent closure of its hedges — forward sales of gold made to lock in prices of future production — meant it now had greater leverage to the rising gold price.

DEMAND SOARS

Demand for gold has soared in recent years as the financial crisis boosted the precious metal’s appeal as a haven from risk, while concerns quantitative easing may debase paper currencies have fueled buying of bullion as an alternative asset.

Supply has struggled to keep pace, with central bank selling, once a significant source of bullion to the market, falling off sharply and scrap supply erratic despite rising prices.

Sokalsky reiterated Barrick’s output forecast of 7.6-8 million ounces for 2010, but said the company’s $500 million Cortez Hills mine, which went into production in the first quarter of this year, was likely to outstrip its current production target.

“The first two quarters have been great quarters for the mine, so we expect to exceed that guidance of 1.1 million ounces…probably in the neighborhood of 5-10 percent,” he said.

Barrick’s cash costs for the year were likely to be at the upper end of its existing $425-455 an ounce guidance as rising gold prices increased royalty obligations, he added.

Nonetheless he said margins remain healthy. “We are seeing significant margin expansion,” he said. “In the second quarter our margin against cash costs was over $700 per ounce.”

He said when two projects currently under construction — Pueblo Viejo in the Dominican Republic and Pascua-Lama on the Chile-Argentina border — are in full production, they will contribute 1.5 million ounces a year for the first five years at cash costs below $200 per ounce.

“These are very good long-life projects that, once in operation, will look to lower our overall cost base,” he said.

(Reporting by Jan Harvey; Editing by Sue Thomas)

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Capital Gold Group Report: Gold Rebounds, Rises to Record on Investment, Jewelry Demand

By Pham-Duy Nguyen and Claudia Carpenter

Sept. 28 (Bloomberg) — Gold rose to a record, rebounding from the biggest drop in two months, as investors and jewelers took advantage of cheaper bullion to increase their holdings. Silver extend gains to the highest price since 1980.

Prices jumped to an all-time high of $1,309.20 an ounce on the Comex in New York, touching a record for the eighth time in two weeks. Futures are up 19 percent this year, heading for the 10th straight annual gain.

“People are buying every dip in gold,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “The trend isn’t going to change until interest rates rise.”

Gold futures for December delivery rose $8.80, or 0.7 percent, to $1,307.40 an ounce at 11:46 a.m. on the Comex. A close at that price would be the fifth straight gain. Earlier, the price shed $22.40, or 1.7 percent, the biggest intraday decline since July 27.

“Physical demand is still there,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “We saw some Far-Eastern buyers, and some Indian interest.”

Prices of futures have climbed every week except one since the start of August, and “a correction was needed,” Nabavi said. “I don’t think the market is at all bearish.”

Gold rebounded after the dollar fell, erasing earlier gains, traders said. The greenback is “one step nearer” to a crisis as debt levels rise, according to Yu Yongding, a former adviser to China’s central bank.

‘New Highs’

“The sell-off in the dollar has taken gold off its lows,” said Adam Klopfenstein, a senior market strategist at Lind- Waldock in Chicago. “From here, it’s going to be a momentum trade, and you’re going to see new buying take gold to new highs.”

The Federal Reserve is expected to keep the benchmark interest rate between zero and 0.25 percent for an extended period to help the U.S. economy grow. The rate has been at that record-low level since December 2008.

Gold miners will return to hedging, according to 77 percent of participants in a survey at the London Bullion Market Association conference in Berlin today. Some companies such as AngloGold Ashanti Ltd. have reduced or eliminated hedges, betting that prices will continue to climb.

Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, said he may begin holding mining stocks after Barrick Gold Corp., the world’s biggest producer, reduced the cost of extracting the metal to $358 an ounce.

‘Owning Miners’

“As gold prices have risen, Barrick’s pretax profit margin has expanded,” Gartman said. “In the future, we may explore the idea of owning miners.”

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,300.52 metric tons as of yesterday, according to figures on the company’s website. Major holders include billionaire John Paulson’s New York-based Paulson & Co.

Gold is “a great asset for people who are rich and who want to stay rich,” Graham Birch, a former manager of BlackRock Inc.’s BGF World Gold Fund, said yesterday at the LBMA conference in Berlin. “It’s not so good an asset for people who are poor and who want to get rich.”

Silver futures for December delivery jumped 18.4 cents, or 0.9 percent, to $21.655 an ounce on the Comex. Earlier, the metal touched $21.685, the highest for a most-active contract since October 1980.

Platinum futures for January delivery rallied $5.50, or 0.3 percent, to $1,640.50 an ounce on the New York Mercantile Exchange, and palladium futures for delivery in December rose $6.85, or 1.2 percent, to $559.05 an ounce.

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Capital Gold Group Report: U.S. Economy “Close to a Destructive Tipping Point,” Glenn Hubbard Says

Yahoo Finance
Posted Sep 28, 2010 07:30am EDT by Aaron Task in Newsmakers, Recession

“America is very close to a destructive tipping point,” co-authors Glenn Hubbard and Peter Navarro warn in their new book Seeds of Destruction. “We must change how we conduct our politics and economics…or we will inevitably go the way of all once-great nations and suffer an irreversible decline.”

Hubbard, dean of Columbia Business School, joined Dan Gross and I to discuss the “major structural imbalances” facing America, chief among them being the government’s profligate spending.

Hubbard, you may recall, was chairman of the President’s Council of Economic Advisers during George W. Bush’s first term. As you might expect, he is a strong advocate of smaller government and lower taxes. But Hubbard and Navarro, a business professor at UC Irvine, are also harshly critical of Bush’s “gross mismanagement” of the fiscal stimulus bequeathed to his administration by President Clinton. Specifically, Hubbard chastises his former boss for the creation of a new unfunded federal mandate, Medicare Part D.

But if Bush was a big spender, President Obama is “taking it to a whole other level,” Hubbard says, citing the familiar critiques of ObamaCare and Financial Reform and “excess government spending” in general.

In short, Hubbard believes Obama inherited a mess but has made it worse with nearly every one of his major policy initiatives and general governing philosophy.

“We as a nation cannot resolve what have become deep and systemic structural imbalances in our economy simply by throwing more money and more and more regulations and more and more taxes at the problem,” Hubbard and Navarro write.

Stay tuned for additional segments from this interview where Hubbard discusses proposed solutions to many of our most intractable problems, including housing, the trade deficit with China and energy policy.

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Capital Gold Group Report: U.S. Dollar Is ‘One Step Nearer’ to Crisis, Yu Says

By Shamim Adam and David Yong

Sept. 28 (Bloomberg) — The U.S. dollar is “one step nearer” to a crisis as debt levels in the world’s largest economy increase, said Yu Yongding, a former adviser to China’s central bank.

Any appreciation of the dollar is “really temporary” and a devaluation of the currency is inevitable as U.S. debt rises, Yu said in a speech in Singapore today.

“Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.”

Yu also said China is worried about the safety of its foreign-exchange reserves including those invested in U.S. Treasuries as the U.S. currency weakens, reiterating his earlier views on the dollar assets. The U.S. will record a $1.3 trillion budget deficit for the fiscal year ending Sept. 30, the Congressional Budget Office said Aug. 19.

The estimated budget deficit for this fiscal year would be equivalent to 9.1 percent of gross domestic product, the CBO said. That would make it the second-largest shortfall in 65 years, exceeded only by the 9.9 percent in 2009.

The CBO also projected the U.S. would have a cumulative deficit of $6.27 trillion in the next decade, higher than its March estimate of $5.99 trillion.

Reduced U.S. Holdings

China, the biggest foreign investor in U.S. government bonds, cut its holdings by about 10 percent to $846.7 billion in the 12 months ended July, according to the Treasury Department.

U.S. Treasuries fail to provide safety or liquidity in managing China’s $2.45 trillion foreign-exchange reserves, Yu said in an e-mail in August. To help cool demand for the securities, China needs to curb the growth of its foreign reserves by intervening less in the currency market, he said.

China should reduce its holdings of U.S.-dollar assets to diversify risks of “sharp depreciation,” Yu said in July. The nation should convert some holdings in U.S. dollars into assets denominated in other currencies, commodities and direct investments overseas, he wrote in a commentary in the China Securities Journal.

The increased convertibility of the yuan will ease pressure on the currency to appreciate, Yu said today at an event organized by Singapore Management University.

The yuan has strengthened almost 2 percent against the dollar since June 19, when China’s central bank said it will pursue a more flexible exchange rate. China maintained a peg of 6.83 yuan per dollar from July 2008 to June 2010.

Yuan Level

China will independently determine the level of the yuan and the U.S. doesn’t need to vote on the issue this week, Vice Commerce Minister Chen Jian said in Taipei yesterday.

The U.S. House of Representatives is due to vote tomorrow on legislation pressing China to raise the currency’s value amid assertions the yuan is undervalued and gives the Asian nation a trade advantage. The legislation would let companies petition for higher duties on Chinese imports.

“The basic trend is for an appreciation” of the yuan, Yu said in an interview after his speech today. “No one can predict the specific pace of the appreciation. This is difficult to say as it depends on circumstances. We should not be speculators.”

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Capital Gold Group Report: Credit Unions Bailed Out

U.S. Backs $30 Billion in Bonds to Stabilize Key Institutions; Subprime Legacy

By Mark Maremont and Victoria McGrane

Two years after the peak of the financial crisis, the federal government swooped in to stabilize a crucial part of the credit-union sector battered by losses on subprime mortgages.

Regulators announced Friday a rescue and revamping of the nation’s wholesale credit union system, underpinned by a federal guarantee valued at $30 billion or more. Wholesale credit unions don’t deal with the general public but provide essential back-office services to thousands of other credit unions across the U.S. The majority of retail credit unions are sound, but they will have to shoulder the losses through special assessments over the next decade.

Bloomberg NewsDebbie Matz, chairman of the National Credit Union Administration, during a Senate Banking subcommittee hearing in October, 2009.

Friday’s moves include the seizure of three wholesale credit unions, plus an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.

Officials said the plan won’t cost taxpayers any money. Still, it marks the latest intervention by the U.S. government into a financial system weakened by the real-estate bust. Bad bets on mortgage-backed securities have now killed five of the nation’s 27 wholesale credit unions since March 2009. The federal government, which now controls about 70% of the total assets at such credit unions, said the surviving institutions will be reined in so that they take fewer risks with their investments.

“Previously, we stabilized the system, and now we’re resolving the problem and reforming the system,” said Debbie Matz, chairman of the National Credit Union Administration, the U.S. agency overseeing credit unions.

Members United Corporate Federal Credit Union in Warrenville, Ill., Southwest Corporate Federal Credit Union of Plano, Texas, and Constitution Corporate Federal Credit Union, Wallingford, Conn., which had a total of $19.67 billion in assets as of July, were taken into conservatorship by federal regulators.

Wholesale credit unions, also known as corporate credit unions, invest money for retail credit unions and provide them with check clearing and other services. Since the start of 2008, 66 retail unions have failed, compared with more than 290 banks or savings institutions. Credit unions are member-owned cooperatives that act much like banks.

Under federal rules, wholesale credit unions were supposed to invest only in safe, liquid assets. But some chased higher returns by loading up on securities backed by subprime mortgages or other risky loans. Their portfolios were decimated by the mortgage meltdown.

Last year, regulators seized the two largest wholesale credit unions, U.S. Central Federal Credit Union, based in Lenexa, Kansas, and Western Corporate Federal Credit Union, San Dimas, Calif., after finding their losses were much larger than previously reported.

Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses. But the remaining $7 billion to $9.2 billion eventually will be passed along to the nation’s 7,445 federally insured credit unions in the form of future assessments.

The changes won’t immediately affect customers of retail credit unions throughout the U.S. But it is possible that assessments on the industry could result in higher interest rates on loans and lower payouts on deposits, if credit unions can’t otherwise cover their obligations.

Bert Ely, a financial-industry consultant in Alexandria, Va., said regulators share some of the blame for the resulting mess, because wholesale credit unions were allowed to pursue a strategy that was “viable only because of what clearly has turned out to be excessive risk-taking.”

Ms. Matz, the nation’s top credit-union regulator, said the investment losses reflect “unprecedented economic times” and “bad decisions” by regulators, credit-union managers and board members “by heavily over-concentrating in mortgage-backed securities.”

New regulations issued by the NCUA on Friday will make oversight of wholesale credit unions much tougher, she said, and are meant to fix any regulatory shortcomings.

As part of the plan, regulators will eventually wind down the operations of the five failed credit unions.

Together they had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA’s deputy executive director.

Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion.

In an effort to minimize and spread out losses that must be absorbed by the credit-union industry, regulators said they will move all the battered securities into a good bank-bad bank structure. NCUA officials will manage the $50 billion portfolio, or “bad bank,” of the failed wholesale institutions.

Federal regulators will allow the remaining “good bank” operations at the credit unions to continue for about two years while retail credit unions wind down their relationships with the failed institutions.

Friday’s moves could deepen tensions between regulators and retail credit unions that withstood the financial crisis and resent having to bear financial costs caused by the mistakes of wholesale institutions.

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Capital Gold Group Report: Peter Schiff – “The price of gold isn’t changing. It’s the value of the dollar that’s changing.”

Must see interview on the Tom Sullivan show on Fox News with Peter Schiff, President of EuroPacific Capital on the coming currency collapse caused by intentional debasement of the dollar by the government.

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Capital Gold Group Report: Gold Jumps to Record as Fed Policy Statement Drives Dollar Down

By Pham-Duy Nguyen and Anna Stablum

Sept. 22 (Bloomberg) — Gold futures climbed to a record $1,298 an ounce after the Federal Reserve said it was willing to ease monetary policy further to boost the U.S. economy, triggering a slump in the dollar.

The metal surged to an all-time high for the fifth straight session. The greenback declined to a six-month low against a basket of six major currencies. The Fed signaled yesterday it may expand its near-record $2.3 trillion balance sheet as soon as November. Silver extended a rally to the highest price since March 2008.

“People are finally starting to understand that quantitative easing will devalue the currency,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “That’s why they’re shifting into gold and silver.”

Gold futures for December delivery rose $17.90, or 1.4 percent, to $1,292.20 at 11:02 a.m. on the Comex in New York. Before today, the metal gained 16 percent this year.

The Fed has kept its benchmark interest rate at zero percent to 0.25 percent and purchased mortgage-backed securities and Treasuries to help bolster the economy. Yesterday, policy makers said in a statement they are “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

Gold’s ‘Green Light’

“The Fed has given the greenest of green lights to the gold market,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “Parabolic strength may lie just ahead.”

Gold for immediate delivery rose to a record $1,296.30.

The metal is heading for its 10th straight annual gain amid tame inflation. Fed policy makers said yesterday that inflation is “somewhat below” levels consistent with its target for stable prices, a signal that low interest rates may remain for an extended period.

“Commodity prices are higher and rising as the world becomes aware of how anti-deflationary the Fed’s policies now are and how detrimental to the U.S. dollar they shall be,” Gartman said.

Before today, the Reuters/Jefferies CRB Index of 19 raw materials climbed 5.4 percent this month.

“The Fed has encouraged investors to front-run some of their ideas and get involved in some of these assets before they make a move toward extended quantitative easing,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock, a broker in Chicago.

Gold has outperformed global equities, Treasuries and most industrial metals, spurring record investments in exchange- traded products backed by the metal.

ETP Holdings

Global holdings of gold by ETPs gained 1.01 metric tons to a record 2,089.5 tons yesterday, according to Bloomberg data from 10 providers. They have increased 16 percent this year.

Silver futures for December delivery jumped 42.4 cents, or 2.1 percent, to $21.065 an ounce. Earlier, the metal reached $21.20, the highest level since March 17, 2008.

Platinum futures for October delivery rose $24.40, or 1.5 percent, to $1,636.80 an ounce on the New York Mercantile Exchange.

Palladium futures for December delivery gained $13.70, or 2.6 percent, to $543.75 an ounce, halting a four-session slide.

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Capital Gold Group Report: Gold Soars to New High, Closing in on $1,300, as U.S. Dollar Slumps

22 September 2010, 8:21 a.m.
By Jim Wyckoff
Of Kitco News

Comex gold futures prices are trading solidly higher Wednesday morning and hit another fresh all-time record high overnight, as the market is now within easy striking distance of $1,300.00 an ounce. Gold is seeing strong buying support from the slumping U.S. dollar index, which has careened to a fresh eight-month low in the wake of Tuesday’s FOMC meeting statement that intimated the Federal Reserve is set to stimulate the U.S. economy via more quantitative easing. That is dollar-bearish and gold-bullish. December Comex gold last traded up $19.40 an ounce at $1,293.70. Spot gold was last quoted up $6.30 at $1,293.50.

While the statement following Tuesday’s Federal Open Market Committee meeting of the Federal Reserve did not specifically detail quantitative easing measures, most analysts said the statement strongly suggested such due to the very accommodative stance of the Fed, amid a still-anemic U.S. economy.

The U.S. dollar index, which is a basket of six major currencies weighted against the greenback, was already in a weak technical posture, and the index has become even more technically bearish Wednesday. As long as the U.S. dollar index is in a solid price downtrend on the charts, look for the path of least resistance for gold to be sideways to higher.

Fresh U.S. economic data due out Wednesday includes the MBA mortgage applications survey and the weekly DOE energy stocks report.

The London A.M. gold fixing was $1,291.75 versus the previous London P.M. fixing of $1,275.00.

From an important technical perspective, December Comex gold futures bulls still have the strong overall near-term and longer-term technical advantage, and have gained more upside power this week. There are still no early technical clues that a market top is close at hand. The lack of high volatility at the higher price levels suggests prices can continue to move higher in the near term. Prices are in a seven-week-old uptrend on the daily bar chart.

Bulls’ next near-term upside technical objective is to produce a close above psychological resistance at $1,300.00. That level is now within easy striking distance for the bulls. Bears’ next near-term downside price objective is closing prices below solid technical support at $1,250.00. First resistance is seen at Wednesday’s all-time high of $1,296.50 in December gold, and then at $1,300.00. Support is seen at the overnight low of $1,288.00 and then at $1,280.00. Today’s near-term Fibonacci support/resistance level: $1,274.00.

Comex silver futures are solidly higher Wednesday, following gold and amid the lower U.S. dollar index. Prices hit a fresh 30-month high overnight. December silver last traded up 44.5 cents at $21.085 an ounce. Silver bulls have the solid near-term technical advantage. There are still no early technical clues to suggest a market top is close at hand. The next downside price objective for the bears is closing prices below solid technical support at this week’s low of $20.515. Bulls’ next upside price objective is producing a close above solid technical resistance at $22.50 an ounce. First resistance is seen at the overnight high of $21.175 and then at $21.25. Next support is seen at the overnight low of $20.93 and then at $20.75. Today’s near-term Fibonacci support/resistance level: $20.61.

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Capital Gold Group Report: Gold Skyrockets to Historical Record Intraday High of $1,292 on Fed News

Sept. 21 (Bloomberg) — Gold rose to a record, Treasury two-year yields slid to an all-time low while the dollar weakened and U.S. stocks erased losses as the Federal Reserve said it’s willing to ease monetary policy further if needed to boost the economy.

Gold futures surged as much as 0.8 percent to $1,290.40 an ounce as of 3:14 p.m. in New York as the dollar depreciated against 15 of 16 major counterparts. The Standard & Poor’s 500 Index fluctuated near the 1,143 level after slipping as much as 0.6 percent earlier. The 10-year Treasury yield lost 12 basis points to 2.59 percent and the 2-year yield slid to a record low of 0.4155 percent.

The rally Treasuries came as the Fed’s statement bolstered speculation that Chairman Ben S. Bernanke will purchase additional U.S. debt in an effort to lower long-term interest rates, a process known as quantitative easing. European bonds climbed earlier after auctions by Spain and Ireland eased concern the region’s most-indebted nations will struggle to fund budget deficits.

“The market was looking for signs the monetary authority stands behind the financial system and is ready to inject liquidity into it,” said Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, New Jersey, which oversees about $90 billion in client assets. “The fact that the Fed continued to speak of more active measures like quantitative easing — that’s what the market was hoping to hear.”

The Fed’s meeting took place a day after the National Bureau of Economic Research announced that the longest and deepest U.S. recession since the Great Depression ended in June 2009, lasting 18 months. U.S. growth slowed to a 1.6 percent pace in the second quarter from 3.7 percent in the first quarter, according to revised data released Aug. 27.

‘Continue to Monitor’

“The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” the Federal Open Market Committee said today in a statement in Washington. The Fed reiterated that it would keep the benchmark lending rate in a range of zero to 0.25 percent “for an extended period.”

The S&P 500 extended its rally this month to more than 9 percent today, poised for its best September since 1954. The index has risen on 75 percent of the days since March 2009 when the Fed announced its interest-rate decisions, according to Rob Leiphart of Birinyi Associates Inc.

Caterpillar Inc., Hewlett-Packard Co. and Home Depot Inc. rallied at least 1.5 percent for the top gains in the Dow Jones Industrial Average.

Homebuilders Rally

Toll Brothers Inc. and KB Home paced gains in 9 of 12 stocks in a gauge of homebuilders after housing starts increased more than estimated. Builders broke ground on 598,000 homes at an annual rate in August, the most since April, following a 541,000 pace in July, the Commerce Department said. Economists forecast August starts at a 550,000 pace, based on the median estimate in a Bloomberg News survey. Building permits, a proxy of future activity, rose from a record low.

Lumber futures rose the maximum permitted by the Chicago Mercantile Exchange as the gain in housing starts revived prospects for construction materials. Lumber for November delivery rose the CME’s $10 daily limit, or 4.5 percent, to settle at $232 per 1,000 board foot.

Dollar Weakens

The dollar weakened the most against the Swedish krona, the euro and the Danish krone. The euro strengthened 1.5 percent to $1.3253, the highest since Aug. 9. The Dollar Index, which gauges the U.S. currency against six major trading partners, slipped 1.2 percent to the lowest level in almost two months.

The rally in European bonds came as Ireland sold 1.5 billion euros of bonds repayable in 2014 and 2018, with investors bidding for more than five times the amount of bonds available. Ireland’s 10-year government bond yield decreased 20 basis points to 6.29 percent.

The extra yield demanded to hold 10-year Irish bonds over German debt narrowed to 3.83 percentage points after topping 4 points for the first time yesterday.

Spain sold 12-month bills at an average yield of 1.908 percent, compared with 1.836 percent at an auction on Aug. 17, and 18-month bills at an average yield of 2.146 percent, compared with 2.078 percent at the prior sale. The yield on its 10-year bond dropped 3 basis points to 4.2 percent.

Europe Bond Spreads

The spread on 10-year Portuguese bonds narrowed by 8 basis points to 3.85 percentage points over bunds, after central bank Governor Patrick Honohan said the government needs to cut the budget deficit at a faster pace to shore up investor confidence.

Four months after an EU bailout, Germany’s biggest bond dealers say the worst is over for the region’s most-indebted nations. Yields on government bonds of Greece, Spain, Ireland and Portugal will fall to within 2.2 percentage points of benchmark German bunds on average in the next two years, according to a Bloomberg News survey of 15 banks that trade directly with Germany’s debt agency.

Bond dealers are confident that deficit-reduction measures will be enough to damp speculation the 16-nation currency union is in jeopardy of falling apart. The euro appreciated 0.5 percent to $1.3130 as it strengthened against 15 of 16 major currencies.

The Stoxx Europe 600 Index lost 0.5 percent, while the MSCI Asia Pacific Index advanced 0.2 percent. The Fed’s statement came after markets in both regions closed for the day.

Deutsche Bank tumbled 4.5 percent in Frankfurt after predicting a loss for the third quarter. Natixis slipped 4.7 percent as Goldman Sachs Group Inc. recommended selling shares in the French investment bank.

Rubber futures rose as high as 305.9 yen a kilogram ($3,574 a metric ton), the most since April 30, on the Tokyo Commodity Exchange.

Cotton advanced to a 15-year high on demand from China and worsening crop conditions in the U.S. Cotton futures climbed 2.4 percent to $1.0079 a pound on ICE Futures U.S. in New York after touching $1.0237, the highest level for a most active contract since June 1995.

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Capital Gold Group Report: Gold Resumes Uptrend Following FOMC Statement

21 September 2010, 4:05 p.m. EST
By Allen Sykora
Of Kitco News

(Kitco News) — Gold resumed its uptrend after Federal Reserve policy-makers said Tuesday that they are willing to undertake further action to prop up the economy, with the metal moving to record highs.

Still, some cautioned that gold could be due for a corrective pullback in a market that already has so much bullish enthusiasm.

Gold finished the Comex pit session weaker, which was blamed largely on profit-taking ahead of the release of a post-meeting statement from the Federal Open Market Committee. As most expected, the Fed did not undertake quantitative easing, in which it would buy debt instruments such as Treasury bonds to help push down long-term yields. However, the Fed language was construed to mean this is a distinct possibility down the road, supporting gold prices.

“The FOMC will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and return inflation, over time, to levels consistent with its mandate,” the statement said.

This demonstrated a bias toward easing, said a report from Nomura Global Economics. “Unless the incoming data improves significantly, we believe a resumption of (quantitative easing) at the November FOMC meeting is now quite likely,” Nomura said.

Around 3:30 p.m. EDT (1930 GMT), spot gold was up $6.90 to $1,285.40 an ounce, compared to $1,272 about 10 minutes ahead of the Fed statement. December gold on the Comex division of the New York Mercantile Exchange was $6.90 higher at $1,287.70, compared to $1,273.30 ahead of time. In after-hours trading following the Fed statement, the December futures went on to a high of $1,290.40; that is a fresh record for a most-active Comex contract.

“They all but confirmed (quantitative easing),” said Zachary Oxman, managing director of TrendMax Futures. “That’s extremely weak for the dollar and very strong for gold, as you saw a big spike up through $1,290. I think we see $1,300 before the week is out and I am still thinking of $1,400 to $1,500 by year-end.”

The Fed statement left the U.S. dollar under pressure, adding support to gold, said Bob Haberkorn, senior market strategist with Lind-Waldock. The metal often moves inversely to the dollar, bought as a hedge against greenback weakness and because a lower dollar makes commodities cheaper in other currencies and thus helps demand.

“I anticipate gold could get through this $1,300 pretty quickly,” Haberkorn said.

Some market participants had already been pricing in potential for quantitative easing in recent sessions, said Michael Gross, broker and futures analyst with OptionSellers.com.

“So when we actually got the announcement that they weren’t doing it now but could in the future, it’s pretty much what everybody expected them to say,” Gross said. “So I don’t think it’s a big bullish surprise for gold by any means. It looks like we got a little lift from it because the dollar is falling more sharply than a lot of people expected it would.”

Now, technical considerations might be limiting gold’s upside in the short term in a market that is “tremendously overbought,” Gross said. “We think there is such a long position in gold right now that it may have a hard time trading substantially higher before it’s had a little correction first,” he said. Still, he also looks for gold to eventually hit $1,300, especially if the dollar weakens further on additional quantitative easing.

The most recent data from the Commodity Futures Trading Commission showed that managed-money accounts were net long by 227,384 lots for futures and options combined as of Sept. 14, approaching the high of 238,943 from last October. When large speculators become excessively long, traders sometimes view this as a hint that a short-term reversal might be in order as some traders sell to book profits and the market runs out of potential buying ammunition.

Ahead of the Fed meeting, most analysts said they did not expect quantitative easing as soon as Tuesday, with policy-makers instead likely to wait to see whether there is more significant deterioration in the economy. Thus, many had expected that the lack of a quantitative-easing announcement might have led to some profit-taking that would have pressured gold, rather than the price rise that occurred.

There was profit-taking, but this seemed to have already run its course in the run-up to the FOMC statement, said Michael Zarembski, senior commodities analyst with optionsXpress. Had gold been higher at the time, he said, the metal may well have turned lower. But with gold already on the defensive, that meant lower prices were seen as a bargain-hunting opportunity, he said.

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