By David Bradshaw , Editor, Real Money Perspectives
Jan 31, 2007 ~ updated 5x daily ~
News of interest ~ Special reports
* Prepare for asset �repricing� By Bill Bonner, DR
* IMF gold trading rule changes set to boost gold price -AME
* Davos: US sitting on credit 'volcano' -Telegraph
* 24 Reasons Why Gold Must Erupt -Editor
* Can the Fed Prevent Deflation? Does it want to? -BNB
* Don't Forget the "Gold" in "Goldilocks." -Europac
* The FED: Fraud of the Century? -SPECIAL REPORT
* Experts Agree: $1,000 Gold Ahead! -Special Offer
***** Today's :60 "Golden Minute" *****
Gold prices jumped over $650/oz. Wednesday on on fund buying, dollar weakness and higher oil prices.
Investor sentiment remains bullish on gold so far in 2007 as the metals continue to outperform stocks for the sixth consecutive year.
Gold closed the month Wednesday up $7.80 to $651.90/oz., for a monthly gain of 2.8%, while silver added $.17 to $13.45/oz. for a monthly gain of 4.6%.
"Gold is clearly headed toward $1,000/oz. and is still a great bargain near $650/oz. As this gold bull bucks up and down it seeks to shake off uncommitted, short-term investors and speculators, offering long-term investors yet another opportunity to buy the dips in this ongoing secular bull market," says Craig R. Smith.
* The Federal Open Market Committee held interest rates unchanged at 5.25%, and said "some inflation risks remain ... the high level of resource utilization has the potential to sustain inflation pressures" and that the future "depends on the evolution of the outlook for inflation and growth." Fed Statement.
"The Fed will wait to cut interest rates until the end of 2007, not earlier this year as was expected just a few months ago," economists say.
* Economic growth picked up to 3.5% in the fourth quarter, the government said Wednesday, a surprisingly strong showing for the last three months of the year.
* The dollar extended its losses against the euro and yen Wednesday after the Fed held its benchmark rate unchanged at 5.25% and said that core inflation has improved modestly.
* Crude oil prices moved above $58 a barrel to its strongest level in three weeks, as the first decline in distillate inventory in seven weeks outweighed pressure from a third weekly climb in crude-oil supplies. Oil dropped as much as 2% Wednesday after the inventory report, then turned higher.
* U.S. stocks rallied on Wednesday, with the Dow surging over 100 points to a new high, after the Fed left interest rates unchanged and said that core inflation is moderating even as the economy picked up some steam, easing concerns over further rate hikes. The Dow closed the month up 1.3%, while the Nasdaq added 2%.
"Gold is looking technically stronger than it has done for the past 16 months. It would have escaped the notice of many that it broke out last week from a little-known technical pattern," reports Clive Maund to Market Oracle.
The International Monetary Fund is revising the laws that govern the trading of gold by the world's central banks which will "radically change the ability of central bankers to suppress the gold price ... clearly the first step towards a new era for the yellow metal... The idea of stocking up on gold while prices are still low has intrinsic appeal," reports AME.
"The folding, spindling and mutilating of America's monetary system became legitimized in 1913, when the Federal Reserve was formed. Imagine you could create any amount of money without ever having to produce anything. Is there anyone or anything you couldn't buy? Probably not. Sound impossible? It should be, but it isn't. Just ask your local Federal Reserve banker - they do it every day," says Craig R. Smith.
Gold prices rose over 1% last week, while silver prices rose over 3%. Thursday gold rallied above $650/oz. on investor expectations of a weakening dollar. So far in January gold has risen 6.6% since bottoming at $605/oz. on January 5th.
"A holistic picture of the market hints of a major rally in gold," Pradeep Unni, analyst at Dubai-based Vision Commodities Services, said to Reuters. "This time the positive support comes from the crude oil prices, which have been consistently firming after cementing the bottom at $50."
Recent Market News...
Last week new home sales plunged 17.3 percent in 2006, the biggest drop in 16 years, although warm weather in the Northeast gave a better than expected lift to December sales. Sales of existing homes also had a sharp 0.8% drop in December as housing market "may" have hit bottom, say Realtors.
"China is seeking to boost returns on its $1 trillion of reserves by diversifying its investment and buying higher yielding assets. Premier Wen Jiabao said last week the nation is building an emergency supply of crude oil and plans to expand that to metals," reports Bloomberg.
"A major move is expected this quarter for precious metals. Over the last two weeks there has been a nearly $45 move in gold, a $1.25 move in silver and a nearly $50 move in platinum. All of this has been taking place in the face of a stable dollar, falling oil prices and relatively quiet geopolitical stage," says Neal Ryan of Blanchard Economic Research to Dow Jones.
"Investors will drive gold prices through $670/oz in the first half of 2007 as they pile into the yellow metal. We're fully expecting investor buying to come back in force, mainly in response to actual and potential dollar weakness," says GFMS, the metals consultancy.
"The price action in the US dollar over the past week suggests that there may no longer be any buyers left in the market" reports FXStreet.com.
"A fall off in the US dollar is likely to take place this year as the economy slows, and the overhanging deficit pushes down the value of the currency," said John Meyer a mining analyst at Numis in London, adding that geopolitical tensions could also positively impact prices.
"Our current financial condition is worse than is widely understood", reported U.S. Comptroller David Walker to Congress Tuesday. "Our current fiscal path is both imprudent and unsustainable. Improvements in information and processes are needed and can help. Meeting our long-term fiscal challenge will require (1) significant entitlement reform; (2) reprioritizing and constraining other spending programs; and (3) more revenues--hopefully through a reformed tax system. This will take bipartisan cooperation and compromise." Full Report pdf
Fed Chairman Ben Bernanke said last week the U.S. government may face a "fiscal crisis" in the coming decades should it fail to deal with the rising costs of Social Security, Medicare and Medicaid programs. "If early and meaningful action is not taken, the U.S. economy could be seriously weakened, with future generations bearing much of the cost," Bernanke said.
"The Bank Credit Analyst (BCA) has identified four pillars cementing the case for a long-term bull market in gold bullion; global liquidity, rising investor demand, central bank buying and Chinese/Indian gold demand," reports Mineweb.
"The majority of the world's top metal experts think gold will blast through to 25-year highs this year, surpassing the brief peak reached in the speculative surge last spring," according a survey of 29 leaders in the London Bullion Market Association.
"What we are witnessing are two worldviews on gold. U.S. traders are in 'la-la land' and are bearish on gold and bullish on paper. The rest of the world is bullish on gold and bearish on the U.S. dollar," said Ned Schmidt, editor of the Value View Gold Report.
CNBC Market Call asked Craig Smith, co-author of "Black Gold Stranglehold" his views on the latest oil price drop recently. Mr. Smith said oil may fall to $45 a barrel, but we're still vulnerable to supply disruptions by Iran, Nigeria and Venezuela which could push prices back up.
"In the next few months, we could get a severe correction in all asset markets," Marc Faber told Bloomberg TV, but "The price of gold will continue to go up and probably very substantially."
In 2006 Faber told Bloomberg, "A vicious drop in the Dow coupled with a vicious rise in gold, possibly pushing gold to an astounding $2,000, $3,000 or even $6,000 an an ounce." (Read Who Sees Four-Digit Gold?).
"A band of masked robbers who stole roughly $4 million in some of the world's rarest coins at knifepoint at a busy luxury hotel in Orlando Florida last Wednesday. The stickup was the latest strike during the Florida United Numismatists' annual coin show and convention, included a rare set of 1843 U.S. coins with a history that traces back to President John Tyler." Full story.
"Consumers, tapped out of their home-equity loans and wary that the cooling housing market may lead to an economic slowdown or worse, are expected to be more tightfisted with their wallets during the next 12 months, according to a retail-sales forecast released by the National Retail Federation during its annual convention in New York City," reports Orlandosentinal.com.
"Contrarians rejoice. Groupthink is back on Wall Street. Ten out of 10 stock market gurus interviewed by USA TODAY say stocks will post gains in 2007."
"Economists anticipate the fall of the U.S. dollar in world currency markets that began in 2006 will accelerate in 2007," reports WND. "The dollar could lose as much as 30 percent of its value in 2007," econometrician John Williams, who publishes the website Shadow Government Statistics, told WND. "In 2007, we are likely to see the economic downturn of 2006 develop into a structural recession and yet we have international trade and federal budged deficits careening out of control."
Stories of the month...
* Deficits Matter -- David Walker, Testimony 1/23/07 (pdf)
* Bulls predict a golden year -Times
* Investors 'to pile into gold' -GFMS
* Gold adds polish to portfolio -AZRep
* Bullish outlook for gold bullion rests on four pillars -BCA
ABOUT THE EDITOR
David M. Bradshaw is Editor of Real Money Perspectives, a syndicated daily financial/market news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY: The Complete Guide to the Next Gold Rush and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" a one-hour CD sample from his 24-hour series, "THE BIG PICTURE: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE at MIF... Personal note: Youngest daughter Braida Zoe (age 3) swims, loves to read, hike, trampoline and collect things. Shown with mom, Micki, and dad (me).
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.