June 2010

Wednesday gold prices ended June above $1,240/oz., rising 12% in the 2nd quarter, as the Dow slid 10%. Gold last traded up $1.60 to $1,242.40/oz., silver rose $.11 to $18.62/oz.

* Despite month and quarter-end speculative profit-taking this week, precious metals had a stellar 2nd quarter, with gold prices rising 12% and silver prices up 9%. Year-to-date gold prices are up 13% with silver close behind at 12%. The case for owning real money for safety and growth is gaining momentum daily as governments around the world vow to reduce debt while fighting a "third depression".

* "There is a perfect storm for gold. The metal has become the ultimate currency, as few want to commit to the euro, pound or yen. And while the U.S. dollar may be the best of a weak lot, it also holds little appeal," Bill O’Neill, former head of commodity research at Merrill Lynch and now a partner at Logic Advisors, told CNBC. Central banks are shifting some of their currency reserves to gold, which also will boost the metal, O’Neill says.

* Why Obamanomics Has Failed: Uncertainty about future taxes and regulations is enemy No. 1 of economic growth."The administration's stimulus program has failed. Growth is slow and unemployment remains high. The contrast with President Reagan's antirecession and pro-growth measures in 1981 is striking. Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending. Recovery began about a year later. After 18 months, the economy grew more than 9% and it continued to expand above trend rates. Two overarching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions," said ALLAN H. MELTZER, author of "A History of the Federal Reserve" reports WSJ.

* "The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency. A new global reserve system could be created, one that no longer relies on the U.S. dollar as the single major reserve currency," said the U.N. World Economic and Social Survey 2010," reports Reuters.

* Time to shut down the Fed: "The 20th Century was a horrible litany of absurd experiments and atrocities committed by intellectuals, or by elite groupings that claimed a higher knowledge. Simple folk usually have enough common sense to avoid the worst errors. Sometimes they need to take very stern action to stop intellectuals leading us to ruin. Debt draws forward prosperity, which leads to powerful overhang effects that are not properly incorporated into Fed models. That is the key reason why Ben Bernanke’s Fed was caught flat-footed when the crisis hit, and kept misjudging it until the events started to spin out of control," reports Telegraph.

* "Gold's new record is significant because it shows that investors are beginning to understand that just because governments around the world claim that things are improving, this is nothing more than meaningless rhetoric. we can expect gold to move higher while governments continue to debase the value of their currencies by printing more fiat money. Recently, we have seen gold make new historic highs in US dollars as well as euro, sterling, Japanese Yen, Swiss Franc, Russian Rubble, Indian Rupee, Mexican peso and Chinese Yuan," reports Mineweb.

* "Throughout history gold's value has stood tall when the schemes of greedy profiteers and politicians crumble, as they are now. Gold remains what it has been since biblical times: a reliable store of value that government cannot devalue by printing more or by manipulating paper investments," writes Swiss America Chairman Craig R. Smith

* RBS tells clients to prepare for 'monster' money-printing by Fed: "As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve entitled 'Deflation: Making Sure It Doesn’t Happen Here'. America is one twist shy of a debt-deflation trap. There is no doubt that the Fed has the tools to stop this. 'Sufficient injections of money will ultimately always reverse a deflation,' said Bernanke," reports Telegraph.

* U.S. stocks broadsided by global-economy worries; Dow closes -268 points to 9870: "U.S. consumer confidence fell sharply in June, adding to worries about a global economic slowdown, also stemming from economic data in China as well as concerns about the financial health of European banks. While the recession may have technically ended last summer, consumers remain skittish about job and income prospects," reports Marketwatch.

* "The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and "stabilize" their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending. The weekend G-20 meeting suggested the world economy has moved into a new phase since the financial crisis was in full flow. Then, these industrialized and developing nations focused heavily on promoting stimulus spending. Now, countries at least rhetorically are preoccupied by deficits and debts as a key to sustaining growth," reports WSJ.

* Governing the global economy at this precarious time: "Is the globe looking at a second recession that might require another burst of government stimulus? Or is the economy safe enough so that world leaders can begin to rein in their budget deficits to calm financial markets? 'The theme that will dominate both the Toronto G20 and probably the G8 is governing the global economy at this precarious time,' says John Kirton, director of the G8 Research Group in Toronto," reports CSMonitor.

* "Gold prices were popping Friday on technical trading and signs that the U.S. economy is slowing, which prompted another flight to safety into gold. Part of gold's move Friday was short covering and book squaring, which ramped up as the second-quarter closes. Also, headed into summer weekends, investors are opting for cash and gold as a safe place to put their money to protect against negative headline news," reports TheStreet.

* "As millionaires’ assets rebounded in 2009, they put more money in tangibles such as art, jets, gold and gems, according to a report released this week by Capgemini SA and Merrill Lynch & Co. 'We are seeing a trend toward putting money into tangible assets like art and gold. Six 'passion' investments listed in the 'World Wealth Report' typically account for about a third of a millionaire’s total holdings: luxury collectibles such as yachts, jets and high-end cars; art; jewelry, gems and watches; other collectibles such as wine and coins," reports Bloomberg.

* U.S. Fin Regs "Here to Help You": "Key House and Senate lawmakers agreed on far-reaching new financial rules early Friday after weeks of division. The compromise set up a potential vote in both houses of Congress next week that could send the landmark legislation to President Obama by July 4. A new consumer protection bureau housed in the Federal Reserve would have independent funding and near-total autonomy to write and enforce rules. The government would have broad new powers to seize and wind down large, failing financial firms and to oversee the $600-trillion derivatives market. In addition, a council of regulators, headed by the Treasury secretary, would monitor the financial landscape for potential systemic risks," reports WashPost.

* "When investors begin to purchase gold as a means of protecting their wealth, it is time for citizens to take notice. A surge in gold investments is a leading indicator of trouble ahead for the economy. Historically this kind of dramatic surge is a signal that stock markets are on shaky ground. And when the markets are shaky, national economies are standing on quick sand," reports Examiner.

* "With so much bubble talk out there surrounding gold, it becomes necessary to point out the astonishing regularity with which every momentum shift in gold's nine-year secular bull market trend has drawn fresh reiterations of bubble declarations. Their track record, frankly, is unimpressive. In my estimation, we remain so substantially removed from any ultimate top in the gold price as to render bubble declarations repeatedly, predictably, and grossly premature. I continue track the fundamental drivers that I believe portend a continuation of this long-term trend beyond my personal target of $2,000 per ounce," reports Fool.

* "Merrill Lynch metals analysts maintain gold will hit a $1,500/oz. target by the end of next year as investor demand pushes gold prices higher. Analysts Michael Widmer, Francisco Blanch, and Alex Tonks are predicting average gold price forecasts of $1,200/oz this year, $1,350/oz in 2011, and $1,400/oz in 2012. We also believe that silver has further upside and see prices averaging $18/oz, $20.25/oz and $21/oz in 2010, 2011 and 2012 respectively, they forecast," reports Mineweb.

* Golden Times: "Considering the big picture, there's no doubt gold is the best investment. The mega trend changed when the new century began. A clear shift away from paper assets (like stocks) and into tangibles (like gold) took place and a new era began. It wasn't obvious to the average investor because mega trends take lots of time for investor's mentality to gradually change. Even though gold's current rise is already in its tenth bullish year, the trends are still solidly in gold's favor. These mega trends say… stay the course… stay with gold and gold related investments. A [price] bubble is still well into the future," write The Aden Sisters at Kitco.

* "Gold prices climbed to another record high in June after China announced it would let its currency rise in value. A stronger yuan is good news for gold prices as the move will improve China's purchasing power. The yuan was rising 0.45% against the dollar and the currency could appreciate by 3% this year, a slow and steady climb. Some analysts argue that the yuan is undervalued by as much as 40%," reports TheStreet.

* Gold reclaims its currency status as the global system unravels: "The ECB's latest monthly bulletin says ... 'large and complex banking groups' were on the brink of collapse? This is the deep angst that lies behind last week's surge in gold to an all-time high of $1,258/oz. If there is any theme to the bullion rush, it is fear that the global currency system is unraveling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency," reports Telegraph.

* Gold more than just a safe haven: "Low interest rates always create asset bubbles. And with stocks and housing bubbles already created and burst, this time around, that asset bubble will be in gold and real assets. The Fed wants a bubble and politicians need a bubble. And they’ve proven their willingness to keep interest rates low enough and the money spigot wide open to fuel one of the biggest bubbles in history. All that’s glittering is gold and quickly becoming the only asset class worth buying. Buy gold, buy it consistently, and get ready as the inflation vs. deflation battle continues and gold wins either way," reports CommOnline.

* "People are tired of their zero percent T-bills, afraid of the stock market, and afraid of the double-dip recession," said James Cordier, a portfolio manager at OptionSellers.com in Tampa, Fla. "People are pouring into gold even at this high level," reports Marketwatch.

* "Gold, up 15% this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed other commodities as global equities slipped, and this month reached all-time highs in euros, sterling and Swiss francs. Holdings in exchange-traded funds backed by gold reached records, while coin sales from mints accelerated, tightening supplies. Russia’s central bank bought 26.6 metric tons of gold in the past quarter, taking holdings to 668.6 tons, and the Philippines increased holdings by 9.5 tons in March to 164.7 tons. This creates speculation that Asian and Middle Eastern central banks want to own more gold," reports Bloomberg.

* "Gold is looking for any and every opportunity to go higher, and we all know the reasons why -- the safe-haven factor, sovereign debt risks and so on," said Peter Hillyard, head of metals sales at ANZ Investment Bank. "The mood is with gold right now, the momentum is with gold and the market will either do nothing or go up," he said. Weaker U.S. economic data and a rise unemployment benefits last week also drove anxious investors to return to gold as a safety play," reports Reuters.

* Unfortunately, gold could get to $3,000 in the next two years: "In the next 18 months to two years gold could well rise to around $2,500 to $3,000 an ounce but, such a move is not a cause for celebration," said Ian McAvity, author of the newsletter, Deliberations on World Markets, speaking to Mineweb.com. According to McAvity, one of the most critical factors for the gold price currently is the return on risk-free capital which is currently negative in real terms.

* "The number of people filing new claims for jobless benefits jumped last week after three straight declines, another sign that the pace of layoffs has not slowed. Initial claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000. Meanwhile, consumer prices fell for the second straight month. The 0.2 decline in the CPI was pulled down falling energy prices, the Labor Department said Thursday," reports AP.

* Fannie Mae, Freddie Mac booted from NYSE: "Government-sponsored mortgage purchasers Fannie Mae and Freddie Mac plan to delist their shares from the New York Stock Exchange. The move isn't a surprise. The crash in the housing market has pounded Fannie and Freddie with heavy loan losses since 2007. Fannie shares have been below the $1 average price level for 30 trading days. The government took over the pair in September 2008 under a law passed by Congress. So far, taxpayers have poured $145 billion to keep them afloat," reports WashPost.

* "Investor risk appetite decreased due to Moody's downgrade of Greek government debt to junk, a downbeat read of U.S. homebuilder sentiment and ongoing concern about the euro zone debt crisis, which pushed gold up Tuesday," reports Reuters.

* "The Dow climbed over 200 points Tuesday afternoon as Wall Street's euro-fueled rally picks up steam and the markets' appetite for risk continued to increase. The bullishness represents a strong rebound from Monday's late-day reversal, which was triggered by sovereign debt worries resurfacing after Moody's slashed Greece's credit rating," reports FoxBus.

* Million dollar face value gold coin goes on sale: "One of the world's most valuable solid gold coins - a million dollar Maple Leaf - is being sold by auction in Austria in two weeks time and is expected to sell at a big premium to its face value. At the current gold price the coin is worth approximately US$3.95 million by its weight alone on the weekend gold closing price, but it could well fetch more than this," reports Mineweb.

* "Families of 9/11 victims described Barack Obama as ‘cruel’ yesterday for comparing the terrorist outrage to the BP oil spill. The president said there were ‘echoes’ between the Gulf of Mexico disaster and the Al Qaeda suicide attacks which killed 2,995 people. He said that just as the events of September 11, 2001, had profoundly shaped ‘our view of our vulnerabilities and our foreign policy’, so the oil disaster would shape thinking on the environment and energy for years to come," reports DailyMail.

* Silver, oil, stock and commodity prices rose early Monday on a huge mineral find in Afghanistan, until Greece bonds were reduced to junk status. Gold prices ended Friday at a new all-time record high weekly close, after testing $1,250/oz. level. Gold gained .5% last week, while silver shot up 5%. For the year, gold has a glittering 20% gain ytd, silver has climbed 7.5%.

* "The U.S. has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials," reports CNBC.

* Why the Dash to Gold?: "Inflation, deflation, government borrowing or the plunging euro — you name it — the specter of these concerns has set off a dash to gold, driving the precious metal to new highs and illustrating how fears of economic turmoil have moved from the fringe to the mainstream. The deeper concern is that even in the U.S., government borrowing is unsustainable and the day of reckoning is at hand. Sales of American Eagle one-ounce gold coins tripled in May from the month before," reports NYTimes.

* "U.S. stocks closed higher Friday despite a disappointing drop in consumer spending, as investors were encouraged by an increase in consumer sentiment and a lack of negative news out of the euro zone. For the week, the Dow gained 2.81%, but remains down 2.08% for the year," reports Marketwatch.

* "Fed Chairman Ben Bernanke says he's a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. 'I don’t fully understand movements in the gold price,' Mr. Bernanke admitted," reports WSJ.

* Mr. Bernanke warned that "the federal budget appears to be on an unsustainable path, but also recognized that an exceptional increase in the deficit had been necessary to ease the pain of recession," reports NYTimes.

* Fedspeak: recovery, low inflation ahead : "The U.S. economy is strong enough to withstand any fiscal tightening that lies ahead, Fed Chairman Ben Bernanke said Wednesday. "Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the recovery in economic activity," Bernanke said in remarks prepared for the House Budget Committee," reports Marketwatch.

* "The collapse of the financial system as we know it is real, and the crisis is far from over," said Billionaire investor George Soros at a conference in Vienna on Friday. "Indeed, we have just entered Act II of the drama," reports Bloomberg.

* Shift Out of Euro Into Safer Assets "Gold's surge to a record sparked speculation that central banks may be stepping up purchases of the precious metal. Investors in metals and currency markets have been on alert for any sign that the world's central banks, and China in particular, are shifting reserves out of the euro and into gold. Russia increased its gold reserves by $1.8 billion in May. "This is a beginning, I am afraid. Gold is reflecting so many things that could possibly go wrong," said Andy Smith, a senior metals strategist at Bache Commodities Group in London to WSJ.

* "Gold reflects governments' deceitful actions in destroying paper money. At certain points gold is a commodity. Right now it's money." said Egon von Gruyerz, founder of GoldSwitzerland.com. Von Gruyerz sees the dollar collapsing, as well as many other currencies. "You can only measure the value of currencies now against gold because gold has an absolute value," he told CNBC.

* Gold price hits new record above $1,250/oz.: "Quantitative easing is undermining the value of Western currencies and assets. The European Union has decided that the solution to the debt crisis is even more debt and confidence in the recovery package has now evaporated. When people abandon bonds and Western currencies they will look for real assets, which can't be created at the touch of a button. The gold market really does have the bit between its teeth at the moment," said Jeremy Charlesworth, manager of the Moonraker Commodities fund to Telegraph

* "The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress. The report said the ratio of debt to the gross domestic product would rise to 102% by 2015 from 93% this year. The rising debt is contributing to voter unrest ahead of the November congressional elections in which Republicans hope to regain control of Congress," reports Reuters.

* "In times of financial turmoil and currency devaluation gold becomes the ultimate safe haven. A double digits rise in gold prices, like investors saw on Monday, represents a flood of fear in the markets. Fitch ratings agency said that the U.K. is up against a "formidable" task to cut its budget deficit, and the news spooked investors and pushed gold past its old high of $1,249/oz.," reports TheStreet.

* "It is mainly the fear of another slide into recession which is seeing demand for gold as a safe haven," said Commerzbank analyst Daniel Briesemann. "Gold is currently rising in dollars and in euros," he added. "There is a lack of confidence, given the uncoordinated measures against the sovereign debt crisis, which is obviously (affecting) both currencies," reports Reuters.

* "Recent media warnings about gold prices always seem to arrive right on cue: immediately following new nominal price highs. These gold bears said to forget gold at $500, $750, $1,000 and now $1,200/oz. They have called gold the new "bubble" at each new level and they have been proven wrong each time," according to a new Swiss America Special Report.

* Gold: The World's True Reserve Currency: "Having a currency the entire planet views as a safe haven has remarkable benefits. The 'king dollar' status allows the U.S. to consume much more than it produces without having its currency collapse. The pressing question has become how long other countries will continue to squander savings by parking it in U.S. dollars, if we continue to debase both the value of our debt and the currency in which it is based. On an ever-increasing basis, investors are seeking a more stable form of money in which to park their global savings. That form is gold," reports Forbes.

* Wall Street in a 'slow crash': "U.S. stocks took another beating on Monday, with the Dow losing more than 100 points to end below the lows hit during last month's "flash crash", as worries about the euro and global growth kept markets volatile," reports Marketwatch.

* Euro 'will be dead in five years': "The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion. The travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor's acknowledgement that the currency is facing an 'existential crisis', have radically shifted opinion," reports Telegraph.

* "The gold price's recent price behavior suggests that it is reasserting its historical role as a monetary asset and is increasingly being viewed as a viable currency alternative. A retrospective look at the gold price in real terms suggests that the price is still 40% below the peak it reached at the beginning of 1980. So the gold price could continue to rise by another 67% before it surpasses its historical peak in real terms," reports BusRep.

* Last week gold prices inched ahead .5% as short-term speculators took profits and bargain hunting investors bought safe havens. Meanwhile, silver slipped over 5% amid global economic growth worries.

* "The Dow fell below 10,000 Friday after a sharp selloff that left all three major indexes in correction territory amid worries about a disappointing U.S. jobs report and possible default by Hungary. The euro fell below $1.20 against the dollar to its lowest level in more than four-years amid debt worries in the euro zone," reports CNBC.

* "Profit-takers weighed on gold prices last week as the metal was one of the few assets to yield a positive return. The tug-of-war between profit-takers and bargain-hunters promises to continue," reports TheStreet.

* "I firmly believe we're witnessing a great primary bull market in gold. This bull market is opposing a long-term bear market in fiat or non-intrinsic currencies. Since there is no discipline putting a limit on fiat-currency production, I believe in our lifetimes we will see the end of fiat currencies as acceptable substitutes for real money. When that happens, there will be no ceiling for gold. In their guts and in their hearts, every seasoned investor knows this, which is why the bull market in gold will continue," writes Richard Russell editor of Dow Theory Letters.

* "You probably think gold is in a bubble. After all, it hit new highs in dollars, pounds and euros this week – and has pretty much quintupled since its lows of 2001. But look at the actual price of gold and it is hard to see real evidence of a bubble. Gold may have hit new highs in nominal terms, but it hasn’t come close to hitting its old highs in real terms. Today, gold has reverted to its historical role as the global currency of the last resort. You buy it because you think there is a chance that governments, caught in a debt trap from which there is no honourable escape, will eventually think they have no choice but to print their way out of it," reports FT.

* In May gold prices rose 3%, silver slipped 1% and the Dow fell 7%. Given the rising level of stock market volatility, gold and silver have again shown to be trustworthy safe havens amid the ongoing financial storm.

* "With so much uncertainty out there gold has become a de-facto currency. Gold is currently benefiting from the belief that central banks cannot raise rates. Politically it would be very unpalatable to raise rates raising fears over inflation," said Monica Fan, senior currency product engineer at State Street Global Advisors," reports CNBC.

* $1,200 gold: buy, sell or hold?: The chart below illustrates that $1,200/oz. gold is just over halfway to a new "inflation-adjusted" price peak of $2,358/oz. reached thirty years ago. (using official inflation stats, what cost $850 in 1980, today costs $2,350).

* Smiling CEO predicts Dow 5k by year end on CNBC Squawk on the Street: "This is depressing. I think he needs a therapist," said James Hardesty, president, market strategist and chief economist at Hardesty Capital Management on CNBC in response to a chilling prediction by David Hefty, CEO of Cornerstone Wealth Management that the Dow will rise to 11-12k by June then plunge over 50% by year end. As $17 trillion in hedge fund bets backfire, margin calls cascade, fragile confidence craters, pulling the entire market down.

* "The sheer scale of fiscal deficits facing numerous countries is likely to prompt further diversification from fiat currencies and should ultimately propel gold to fresh highs," says James Moore, analyst at thebulliondesk.com. Many analysts are expecting a wide range for gold prices from $1,175 to $1,275 as the profit-takers battle with the momentum buyers and bargain hunters," reports TheStreet.

* Gold rally not going away until bailout money disappears: Gold has risen 40% since the beginning of 2009. Yet plenty of investors have looked at the rally with just one question: when is it all going to end? While there's plenty of reason to believe that gold's dramatic run can't go on forever, for now, it seems a bad time to bet that the rally will soon come to a screeching halt," reports Fortune.

* Money managers go for gold: "Gold is one of the more mysterious assets in the financial markets. It's also been one of the best investments of the last several years, outlasting the equity bull market and performing well when so many assets have succumbed to big declines. That's why it's become a key component among the strategies of the world's largest money managers. The outlook for gold is very, very strong," reports Mineweb.

* $36,000/oz. gold not ridiculous: "Gold should be viewed not as a commodity, but as a cash supplement. There's been such proliferation of currency that as a consequence, gold is very undervalued. $36, 000 an ounce gold is not as ridiculous as it might sound. If all the reported Fort Knox gold was re-valued at $36,000 per ounce, it would pay off all the debt in the US," said Ben Davies, CEO of Hinde Capital to CNBC.

* Easy Money, Hard Truths: "Easy money has negative consequences in addition to the risk of inflation and devaluing the dollar. It can also feed asset bubbles. In recent years, we have gone from one bubble and bailout to the next. Each bailout has rewarded those who acted imprudently. This has encouraged additional risky behavior, feeding the creation of new, larger bubbles. Government statistics are about the last place one should look to find inflation, as they are designed to not show much. The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other risky assets," writes David Einhorn, president of Greenlight Capital in NyTimes.

* "Global conditions today could unleash another gold boom like the one in the 1970s. Then, as now, the world lost confidence in the U.S. dollar as a store of value. Back then, central banks started hoarding gold instead. Today they are net purchasers of gold for the first time since 1988," said Dylan Grice, strategist at SG Securities in London. And although gold has risen a long way, so has the U.S. money supply. How far would gold rise? To around $6,300 an ounce, Mr. Grice says," reports WSJ.

* "Speculators (and investors) are buying gold faster than the world's biggest producers can mine it as analysts forecast a 27% rally that may extend the longest run of annual gains since at least 1920. 'People are afraid of the debasement of all the currencies. What’s surprising is that gold is still as low as it is,' said Peter Schiff, president and chief global strategist for Euro Pacific Capital, predicting $5,000 to $10,000 an ounce in the next five to 10 years," reports Bloomberg.