Gold: down day, up month!
Feb 28, 2007 ~ *latest news*
By David Bradshaw ~ email
Editor, Real Money Perspectives ~ FREE weekly email

Stories of interest ~ Special reports
* New-home sales plunge 16.6% in January -MW
* Bad Data Spur Market Doubts Among U.S. Investors -BL
* Has the crash of '07 begun? -Editor
* Marc Faber: Stock Markets `Overbought and Vulnerable' -BL TV
* U.S. stocks dive on China jitters -MW
* Greenspan fears recession in 2007 -CNN
* Central banks cutting dollar holdings -BL
* China goes for gold in new year -ChinaEN
* Gold market 'inextricably changed' -MiningMx
* Why the dollar is in trouble -CRS
* You Don't Have to Fret Doom to Like Gold Now -SM
* In Gold Coins We Trust -Editor
* Year of the Golden Piggy Bank -CRS
* GOLD: Priced for Imperfection -Sp Offer
* Experts Agree: $1,000 Gold Ahead -Sp Offer
***** Today's :60 "Golden Minute" *****

* Gold bounced off lows Wednesday on bargain hunting, but trading was volatile after the global stock market sell-off Tuesday. Gold closed in NY down $15.60 (-2.2%) to $668.00/oz, silver fell $.36 (-2.5%) to $14.13/oz, but for the month gold ended up +2.6% and silver was up +4.8%.

* "With the pullback in so many markets, it is fair to say that the gold and silver pullback is not about gold and silver," said Julian Phillips, an analyst at GoldForecaster.com. "These falls [have more] to do with short-term traders perceptions and technical selling."

"If anything, the sell-off in Chinese stocks will increase demand for gold," said James Turk, founder of GoldMoney.com. "As investors in China get burned with stocks, they will shy away from speculative stuff, and opt for the security that gold offers," reported Mr. Turk to Bloomberg,

* Crude-oil prices closed higher for a sixth session in a row (up 5% in February), up 33 cents to close at a two-month high of $61.79 a barrel. It recovered from an earlier drop to $60.30 to end the month with a gain of $2.94. Traders are eyeing weather reports that La Nina may mean a very active hurricane season this summer in the Atlantic.

* U.S. stocks cautiously rose on Wednesday, despite weak manufacturing and housing data after the biggest one-day point drop in over 5 years in the previous session. For the month, the Dow finished down 2.8 percent - the biggest monthly decline since April 2005. The S&P 500 lost 2.2 percent in February and the Nasdaq declined 1.9 percent during the month.

"Stocks tumbled across the board Tuesday, after declining markets in China and Europe and a steep drop in durable goods orders triggered a massive sell-off on Wall Street. The Dow tumbled 415 points, its biggest one-day point loss since the day the stock market reopened after the Sept. 11th attacks. On that day, the Dow lost 684.81 points," reports CNN.

* The dollar traded slightly higher against other major currencies Wednesday, recovering from sharp losses in the prior session as traders shrugged off a batch of disappointing U.S. economic data.

New orders for U.S.-made durable goods plunged 7.8% in January as nearly every category of manufactured goods declined, the Commerce Department reported Tuesday.

"Gold is headed toward $1,000/oz. and is still a great bargain under $700/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 participate in this ongoing secular bull market," says Craig R. Smith.

"Gold has no agenda, no allegiance and functions as honest money in a world of lies, corruption, overstatement and spin. $700 to $705 might well be a place certain interests will try and block gold, but their only hope is for momentary success. $761 is yanking at gold from the front with great power. $887.50, a break above $1000 and $1650 are putting their grip on the royal metal as well," writes Jim Sinclair of JSmineset.com.

Iran has expanded its uranium enrichment program instead of complying with a U.N. ultimatum to freeze it, the U.N. nuclear watchdog agency said last Thursday in a finding that clears the way for harsher sanctions against Tehran, reports AP.

Another American aircraft carrier group, the U.S.S. John C. Stennis, and its accompanying strike group of ships joined the U.S.S. Dwight D. Eisenhower in the Sea of Oman south of Iran last week, a move widely interpreted as a warning to Tehran. (more)

"Investors are displaying signs of stress and fatigue and they're locking in profits as they become more concerned about the market being at high levels," says Peter Cardillo, chief market economist at Avalon Partners.

"Last Wednesday's rally in gold might be an indication that the Fed and Bernanke are losing credibility and that the Fed is all talk and no action," said Peter Schiff, president of Euro Pacific Capital to MW. "The Fed is afraid of raising interest rates, but it can't let the market know that. Gold's saying we don't believe you. The Fed wants to maintain the illusion that they're going to raise rates, because the economy can't stand it," Schiff said.

"You don't have to be a bear these days to take a shine to the yellow metal. I think there's room for gold in everyone's portfolio... but I thought I'd do some homework to make sure that my next foray into precious metals proves more rewarding then the last one," writes Igor Greenwald at Smartmoney.com. [Ed. Note: Learn before you earn!]

Recently investors cheered soothing words from Fed Chairman Ben Bernanke on inflation, easing concerns that the Fed might hike interest rates later this year.

Meanwhile, January data showed the fewest monthly housing starts in nearly a decade, while building permits are down 28% from opening month of 2006.

Global gold demand climbed nearly 6 percent in the fourth quarter of 2006, bolstered by growing investment interest and improved jewelry consumption, the World Gold Council said.

"What is the price of gold warning us of?" CNBC asked Peter Schiff of Europac on Thursday. Mr. Schiff said rising gold is a sign of a loss of international confidence in the U.S dollar and also warning of a major decline in stock prices, sighting that the "Dow/Gold ratio" has fallen from 44-to-1 back in 1999 to 19-to-1 today.

The Dow theorist Richard Russell says the Dow/Gold ratio will eventually fall to 1-to-1. "The reversal of this huge rise in the ratio will be a major decline, a decline to the point where the Dow again might buy only 1 ounce of gold or even less. This will require either a huge rise in gold or a massive decline in the Dow - or probably both."

The nation's trade deficit widened in December by 5.3% in December, reaching $61.2 billion to a new annual record of $763.6 billion for 2006 a government report said Tuesday. That works out to $24,213 a second!

"Gold is targeting the psychological $700 level as geopolitical worries and firmer oil prices attracted investors back to the market," reports Reuters.

"We are about witness the largest upleg of the gold bull, which will make the gains of the dotcom boom seem like minor blips on the radar. The bullish indicators are all lighting up and we are forecasting some fireworks on the horizon," reports Jason Hamlin at goldstockbull.com.

"Chinese consumers are thronging jewelery stores to buy gold and accessories to usher in the lunar new year, which starts on Feb. 18. More than three tons of gold bars were sold out within a week. But Chinese consumers are going beyond gold jewelery - they are becoming keen and serious investors in gold." (See Year of the Golden Piggy Bank)

"Rising demand, hedge fund activity, a falling dollar and rising gold prices are key factors driving oil price volatility, and likely will keep oil prices high into the future," author Craig Smith told CNBC Morning Call last week. ((( Watch )))

"The debt-laden private equity market is headed for a shakeout and will exacerbate the pain from the next sharp downturn in world financial markets," commodities expert Jim Rogers said Monday.

The Dow, measured in ounces of gold, is now down 64% since its peak in 2000. This chart from the December Elliott Wave Theorist shows, from an inflation-adjusted standpoint, what is actually going on in the stock market is a crash of historic proportions - a "Silent Crash" as Prechter calls it.

"This demonstrates a persistent inflationary trend. Even though the Dow has been making new nominal highs, the value of real, hard goods - gold and commodities - have been rising faster. Can this continue, or will the law of gravity reassert itself?" asks Michael Nystrom at Bullnotbull.com.

Golden trends...

"Gold successfully breached tough resistance levels on Feb 9th to climb to 7-month highs, with fund interest picking up amid firmer oil prices and worries about rising tensions between Iran and the United States," reports Thebulliondesk.com.

"Gold is cheap in comparison with other financial assets. The gold price is likely to average $674/oz this year, but could range between $730 and $852 in the most optimistic scenario, global gold guru Martin Murenbeeld said.

Last week's metals sell off was mostly on behalf of funds, triggered by a report of heavy losses at Red Kite, a major hedge fund specializing in metals which "is trying to stall investors who want to pull money out."

"Gold has once again succumbed to a bear attack, a feat that coincidentally continues to happen on the day U.S. employment figures are released," said Peter Grandich, editor of the Grandich Letter. "I believe it will be a bear trap and we shall see a reversal next week that leads us to a rally to $700," he said.

Investor sentiment remains bullish on gold so far in 2007 as precious metals continue to outperform the major stock indexes for the sixth consecutive year.

"There appears to be enough thrust behind this move to take us to and beyond $700 over the next few weeks, months," said Peter Spina, chief investment strategist at GoldSeek.com. "The market is readjusting itself based off strong fundamental factors and with rising energy prices and a weakening dollar, this just accelerates the process," reports MW.

"The gold market has been and will remain restrained like a magnificent bull with numerous gigantic reins, hardly rampaging, but surely towing the gaggle of central bankers uphill. Since the currency system is unfixable, and debt must accelerate, the gold bull will breathe endless life, since the alternative is a rampaging recession aggravated by debt default and asset deflation," says Jim Willie editor of the HAT TRICK LETTER.

"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.

"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."

"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.

"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 recently 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?).

"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."

FULL STORY: 2006 review... 2007 forecast

Recent stories of interest...
* The Fresh Prince, the queen and the loony judge -WND
* "Amazing Grace" movie review -Movieguide.org
* US 'Iran attack plans' revealed -BBC
* China May Get More Daring With Its $1.07 T -WSJ
* Gold futures rally over $690 on oil gains, dollar fall -MW
* Gold $1,000 is on the way -MW
* U.S. Current-Account Deficit Deserves Some Noise -Bl
* Iran nears industrial nuke-fuel production -FT
* Bank of Am. courts undocumented Hispanics -WSJ
* Does This Look Like Goldilocks? -Comstock
* Poll: New presidential coins 'waste of money' -WND
* Dollar at new six-week euro low after Bernanke
* Americans and the dollar coin -BNN
* Chinese investors snapping up gold -CNA
* Inflation Whispers to the World �Buy Gold� -DR
* Too late to halt Iran�s nuclear bomb -FT
* Gold takes aim at $700... -DT
* IRAQ: Nothing short of defeat -WND
* Man-Made Global Warming a 'Myth' -Drudge
* Stocks overdue for a pullback -USAT
* IAEA fears "chain reaction" to Iran conflict -Rts
* Gold cheap compared to other assets -AA
* Most agree: Housing crunch isn't over yet -USAT
* Overheated (Stock) Bulls May Freeze -Dorfman
* '08 ELECTION: Still complaining after all these years -CRS
* Zimbabwe declares inflation illegal -NYT
* Michael Savage Mulls Presidential Run -NM
* Will gold hit an all-time high in 2007? -MoneyWeek
* Gold climbs toward $700 -MW
* Personal Savings At 74-Year Low -AP
* Prepare for asset �repricing� By Bill Bonner, DR
* Davos: US sitting on credit 'volcano' -Telegraph
* 24 Reasons Why Gold Must Erupt -Editor
* Don't Forget the "Gold" in "Goldilocks." -Europac
* 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 daily financial/market news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY and has been an economic commentator since 1987, as producer/co-host of "World Economic Perspectives" radio show. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" from his 24-hour series, "THE BIG PICTURE." MORE at MIF... Personal note: Youngest daughter Braida Zoe (age 3) swims, loves animals, music, dancing, reading, hiking, trampolining and collecting 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.

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