$800 Gold Arrives!
Wall St. stocks surge after Fed .25% rate cut
Investors still face haunting wall of worry; Consumer confidence -5%, $95 oil, $800 gold, slowing economy, jobs, subprime housing, "overvalued" dollar, Iran angst
By David Bradshaw ~ email ~ links ~ wisdom
Editor, Real Money Perspectives ~ Weekly email
Oct 31, 2007 ~ *latest news* ~ podcast

* Gold prices rose 1% Wednesday ahead of the Fed decision as the dollar fell and oil touched $95. Gold closed in NY up $7.30 to $791.70/oz., silver rose $.11 to $14.37/oz. After the Fed .25% rate cut gold futures topped $800/oz.

* Gold prices rose 6% in October, for a whooping 30% gain since 1/5/07 on physical demand and fund buying driven by favorable fundamentals that highlight the metal's role as a true store of value worldwide.

* Oil prices hit a new record high of $95 on Wednesday while the dollar struck a new low after the Federal Reserve cut interest rates by a quarter point to 4.5%.

* "U.S. stocks resumed their rally Wednesday after the Fed's interest-rate decision, offering Wall Street just what it had been clamoring for, a quarter-point cut to 4.5%," reports MW.

* "The Fed is driving the dollar down to save the housing market, but this is just a quick-fix. By cutting rates now the Fed has bowed to Wall Street pressure despite today's report of stronger-than-expected growth in the last quarter," says author and CEO Craig R. Smith.

* "Once gold clears $805, that means $882-$889 and then on to $1050. It does not matter if it is next week or next month. It is coming as the price of gold makes its way to $1650," says Jim Sinclair of JSMineset.com.

* The Commerce Department reported the U.S. economy GDP grew at a 3.9% annual pace in the third quarter, shaking off the housing slump.

Dollar-Gold-Oil Trends

"Gold is again demonstrating to the world how a healthy secular bull market functions: two steps forward, one step back. Smart investors will buy gold on the dips as it reaches toward $1,000/oz.," says Swiss America CEO Craig Smith.

"The market is in a bull run. The consensus here is that gold could reach $800 in a short term and that's motivating the market higher. Also the risk for a U.S. rate cut is feeding the trend," Frederic Panizzutti, analyst at MKS Finance, said to Reuters.

"Gold has surged 20% and oil 30% since mid-August. September Fed rate cuts spurred central banks to pump billions of dollars into financial markets to ease a liquidity crisis, reports Investec.

"The Federal Reserve Board acted "like a bartender" in lowering interest rates and its actions are contributing to a stock market bubble in the U.S.," said Marc Faber, publisher of The Gloom, Boom & Doom Report to Bloomberg.

A series of disappointing US economic data last week fueled near-universal expectation that the Fed will cut interest rates this week, which is a negative factor for the dollar and good for gold.

"According to a Merrill Lynch note to clients, we’re in the beginnings of a global readjustment that will end the dollar’s dominance as the “gold standard” currency for the world’s economies. The dollar is likely entering a long, slow decline - followed by a crash," reports FT.

"The Bush administration announced sweeping new sanctions against Iran last week -- the harshest since the takeover of the U.S. Embassy in 1979 -- charging anew that Tehran supports terrorism in the Middle East, exports missiles and is engaging in a nuclear build up," reports AP.

Sales of existing homes plunged by a record 8% in September as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years.

"The Fed has to cut on Oct 31st because a banking crisis is the nuclear apocalypse of economics. The result of this policy will be that the euro at $1.50, gold goes almost immediately to $1,000, and oil will probably spike short term above $100 (due to dollar weakness)," reports Thomas Kelly at SeekingAlpha.com.

* "Woe betide Wall Street if the Fed fails to slash rates dramatically over the Winter, starting on October 31. Woe betide the dollar if it does," reports Telegraph.

"A small gold market niche today offers gold buyers a whooping 33% discount from the May 2006 market highs; the classic $20 gold piece designed by Augustus St. Gaudens," reports Swiss America.

Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan "because the Federal Reserve has eroded the value of the U.S. currency," reports Bloomberg.

"European finance ministers last weekend failed in their bid to slap down the U.S. for allowing the dollar to plunge to record lows against the euro," reports the Telegraph.

"Strong Dollar, Strong Currency" is more than a mantra... since economic history indicates that no country has ever achieved greatness nor maintained it by debasing its currency," reports Forbes.

"Currency traders were given a green light to continue selling the US dollar, as the International Monetary Fund said the greenback 'remains overvalued.' U.S. deficits will remain close to 1.5 per cent of world output until 2012, raising the likelihood of a disorderly plunge in the dollar," reports FT.

"Japan and China led a record withdrawal of foreign funds from the US in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields."

"Washington was happy to see the dollar slide. 'They don't care so long as the fall is not disorderly. They see it as a way of correcting the deficit,' said David Woo, an analyst at Barclays Capital" to London Telegraph.

"Social Security payments will show their smallest rise in four years — an increase of 2.3 percent. Yet consumer inflation rose at the fastest pace in four years — at an annual rate of 3.6 percent," reports Moneynews.

"A true inflation rate is probably about 7 percent, several times higher than the fake figure now dished up to us by our government. At that level, the Fed funds rate of 4.75 percent would be a shocking negative 2.25 percent. As such, it would reflect the true dimensions of the economic problems now facing us," reports Moneynews.com.

"When you hear the term 'gold bug,' chances are you think of a survivalist doom-and-gloomer incessantly warning of financial disaster. Think again because recently the term might as well be a synonym for 'pretty smart investor,'" reports Kiplingers.

Next Stop: $850 Gold

* "Once gold rises above $850, the fourth step [of the gold bull market] will be complete and that'll be the next big milestone. Gold will be at a [nominal] record high and it will then enter a new super strong bull market phase. Within gold's big picture, the mega bull market is still young," according to The Aden Sisters.

"Having surged past $760 an ounce, some dealers have said the market was well positioned in coming sessions to close in on the $800 mark last seen in 1980 when bullion hit a record $850," reports Reuters.

"Investors have bought 2.7 million ounces of gold through exchange traded funds, or ETFs, in the past five weeks, half the increase for all of 2007, according to estimates by South Africa's Macquarie First South," reports Bloomberg.

"Investment bank Morgan Stanley said its 2008 gold price forecast is $800 per ounce and expects the metal to benefit from strong global growth and spreading inflation problems," reports Reuters.

"I've said gold was going to $1,000. If the Fed cuts rates, then I'm going to have to admit I was wrong. Then gold isn't going to $1,000. It's going to $2,000," writes Donald Luskin, Chief investment officer for Trend Macrolytics in Smart Money.

"Gold is headed to between $1,000 and $2,000 an ounce in the next five years. There's an 80% correlation between gold prices and oil prices. Gold usually trades at about ten times the price of oil, so with oil at $80 a barrel, we expect gold should be priced at about $800/oz.," said Frank Holmes, Global Investors CEO to MW (video).

"The dollar losing its reigning status would affect the global economy mildly and swiftly, as the loss of purchasing power by the dollar merely facilitate transfer of wealth of dollar holders to other fiat currency holders, and the owner of hard assets. If the party has to end for the dollar, it just means that the party is starting somewhere else," reports John Lee, CPA to Resource Investor.

Mr. Lee concludes, "A gold bull and prosperity can happily co-exist without a doom and gloom outcome. With an increasing global middle class and ever-expanding fiat money aggregate, I don’t see the rising gold and economic trends reversing anytime soon."

2008 Gold Outlook

Gold is entering a new investment driven phase as gold market drivers "tend to oscillate between bouts of eastern physical/fabrication demand and western investment demand," according to Citigroup's research.

Gold is starting into the most exciting part of its long-term bull market, the so-called second (and monetary) phase. Herein we normally see the biggest percentage gains, matched by biggest corrections. My tentative targets (by end of 2008) : 14% (inflation), $1,600 (gold) and $45 (silver)," says Harry Schultz to MW.

"If deciding to buy gold feels at all hard today, it might suggest the top of this market remains a long way off yet. As long as Bloomberg columnists argue that buying gold is like 'believing in the tooth fairy,' you might also take comfort in the fact that mainstream consensus is still opposed to gold," reports DR.

"Know who you're buying [gold and silver] from. I checked online and found all sorts of companies selling precious metals for investing. But never buy off the Internet or anywhere else sight-unseen," reports KOMOTV.

"The overwhelming consensus is that a weak dollar is good for America. Ironically there is more worry in Europe over the strong euro than there is in America over the weak dollar. Before we get any significant dollar bounce this complacency will need to be replaced by outright fear, and that the dollar needs to fall more sharply as investors actually act on those fears by dumping dollars," reports Peter Schiff of Europac.

$750 gold is now one third of the way up toward reaching a true new high.

Gold prices have risen to a 28-year nominal high, but prices must top $2,100 an ounce to exceed the previous 1980 high of $850, after adjusting for nearly three decades of inflation.

Using the official CPI inflation adjuster $750 gold today equates to $297 gold back in 1980. Rather than being near a market top, gold remains the buy of a generation.

"Gold is an asset that people want to own as protection for risks they can't really analyze and get their arms around", said Schweitzer at JPMorgan. "That risk has gone up," reports NY Times.

"A rare $10 gold coin was purchased by a private collector for $5 million. The 1804-dated Eagle coin, made for President Andrew Jackson to give as a diplomatic gift during trade missions to Asia, is one of only four surviving examples of the special coin," reports AP.

"This 'stealth' gold bull market is the best of all worlds. We continue to move up in stages and go through some healthy corrections and long periods of sideways base-building. The fact that gold recently started to get some significant mainstream press is an indication of a need to consolidate," writes Peter Grandich of The Grandich Letter.

"Central banks have been forced to choose between global recession or sacrificing control of gold, and have chosen the perceived lesser of two evils," said Citigroup in a fresh report, " reports the London Telegraph.

A 'Reflationary Rescue', in a new cycle of global credit creation and competitive currency devaluations could take gold to $1,000 an ounce, or higher," according to Citigroup's John Hill and Graham Wark.

Over forty economists, analysts and gold strategies are now projecting four-digit gold in the near future for 25 good reasons. (Read 4-digit gold)

"The dollar crunch puts gold center stage. It certainly looks as if gold has at last 'decoupled' from the stock markets, regaining its role as the ultimate store of value. Whether the mining equities have decoupled is another matter," reports Ambrose Evans-Pritchard in London Telegraph.

*"Many argue that the gold price has not run away in real terms as much as people perceive. The World Gold Council reckons that, once inflation is taken into account, the gold price has increased only modestly," reports the London Telegraph.

"We believe this gold rally is still in its infancy with a ‘toe in the water’ ahead of the upcoming 4Q," according to Raymond James analyst Paul O’Brien. He attributes the gain for gold to the interest rate cut by the Federal Reserve and continued weakness for the greenback reports FP.

"After reaching their highest level since 1980, gold prices may be due for a correction, but that could help feed what many expect to be a long-term boom -- to $800 and then inflation-adjusted highs past $2,000 in the years to come," reports MW.

"Despite gains, gold is not a mainstream investment yet, because it's seen as volatile and difficult to understand, financial advisers and analysts say," reports Reuters.

"The sub-prime conflagration and a collapse of the dollar could send gold prices to more than $3,400 an ounce within the next three years," Christopher Wood, chief strategist at the broker CLSA told London Times.

"While the world's analysts debate the complexities of gold... Gold is simply continuing its role as the "anti-dollar. As the U.S. dollar scrapes new lows, so gold goes to new highs," reports DailyWealth.

MORE 2007 NEWS...


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Stories of interest ~ Special reports
* Spain threatens to fire on "21st-century pirate" ships -LT
* Time to Buy Gold? -Kiplingers
* Gold: Ounces of Protection -Sp. Offer
* Japan and China lead flight from the dollar -LT
* Inflation heats up on food, energy -MW
* ETFs driving gold prices to new peaks -BL
* Oil closes above $86 in uncharted territory -MW
* Japanese send gold through the 'clouds' -LT
* Dollar era is over says Merrill Lynch -FT
* Morgan Stanley 2008 gold forecast $800/oz -Reuters
* The Fed's Motive for Inflating -DR -Feat. Comm.
* Why Gold Prices Will Keep Going Up -SM
* A Valuable Lesson for Gold Bulls -DW
* Amero: plan for the dollar's end -WND
* Seeing a golden future, Frank Holmes -MW video
* What to look for before investing in gold -KOMO
* Gulf funds drift away from dollar -GN
* Golden years for Harry Schultz -MW
* New party line in U.S.: Weak dollar good -BL
* Investors to Flee Pound, Dollar, Warns Mega Bank -LT
* Private wealth: a thing of the past -Editor
* Catching a ride on the gold express -NYT
* Why $800 gold in '08? -Editor
* Dollar crunch puts gold center stage -LT
* Dollar plummets to parity with loonie -WND
* Central Banks May Sell Gold to Support Dollar -DR
* Gold still lacks broad investor appeal -Reuters
* Gold hits 28-year high on dollar weakness -FT
* Fed bows to Wall St., sacrifices $, $100 oil -CRS
* CLSA predicts record gold run to $3,400 -LT
* Watch CNBC: $1,000 gold
* Gold rush phase II begins -Editor
* The #1 reason gold is rising -Gold101
* GOLD 101 TV RELEASED -BB
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.
Fed rate cut to prompt dollar crash
Experts forecast rising commodity prices; $800 gold, $100 oil
By David Bradshaw
Editor, Real Money Perspectives
Oct. 31, 2007

Oil and gold prices hit new record highs on Wednesday while the dollar struck a new low after the Federal Reserve cut interest rates by a quarter point.

But will another rate cut turn out to be good or bad for the economy over the long-term remains the $64,000 question.

Gold prices have already surged 20% and oil is up 30% since mid-August, spurred by a half-percent interest rate cut in September intended to pump billions of dollars into financial markets to ease a liquidity crisis.

"The Fed is driving the dollar down to save the housing market, but this is just a quick-fix. By cutting rates now the Fed has bowed to Wall Street pressure despite today's report of stronger-than-expected growth in the last quarter," says author and CEO Craig R. Smith.

"The Federal Reserve Board acted 'like a bartender' in lowering interest rates and its actions are contributing to a stock market bubble in the U.S.," said Marc Faber, publisher of The Gloom, Boom & Doom Report to Bloomberg.

With the world's eyes focused on the meteoric fall of the U.S. dollar this year, it seems odd to many economists that the Fed would risk a dollar crash for the sake of cheering Wall Street and helping debt-burdened Americans make their mortgage payments as ARMs payments readjust upward.

Jim Rogers, chairman of Beeland Interests Inc., told Bloomberg he is shifting all his assets out of the dollar and buying Chinese yuan "because the Federal Reserve has eroded the value of the U.S. currency."

According to a recent Merrill Lynch note to clients, "We're in the beginnings of a global readjustment that will end the dollar's dominance as the 'gold standard' currency for the world's economies. The dollar is likely entering a long, slow decline - followed by a crash," reports Financial Times.

$800 gold still cheap?

"In relation to oil, gold prices are still cheap," says Mr. Smith. Gold prices have risen to a 28-year nominal high, but still must top $2,100 an ounce to exceed the previous 1980 high of $850, after adjusting for inflation," says Mr. Smith.

"Gold is now just over one third of the way up toward reaching a true new high," says Smith. "So it's still cheap compared to $93 oil, which is already near its inflation-adjusted price peak of $38 a barrel in 1980."

Gold is entering a new investment driven phase as gold market drivers "tend to oscillate between bouts of eastern physical/fabrication demand and western investment demand," according to Citigroup's research.

"Gold is headed to between $1,000 and $2,000 an ounce in the next five years. There's an 80% correlation between gold prices and oil prices. Gold usually trades at about ten times the price of oil, so with oil at $80 a barrel, we expect gold should be priced at about $800/oz.," said Frank Holmes, Global Investors CEO.

"Once gold clears $805, that means $882-$889 and then on to $1050. It does not matter if it is next week or next month. It is coming as the price of gold makes its way to $1650," says Jim Sinclair of JSMineset.com. (See Who sees four-digit gold?)

"Americans will soon begin feeling the impact of the rising cost of living that reflects a dollar that is slowly but surely becoming an 'I-O-U Nothing'," says Mr. Smith.

Mr. Smith has been warning investors since 2001 that all is not what it appears to be on Wall Street. Stocks are supposed to represent a store of value, like our currency, which should grow in value over time. But today investing in most stocks and currencies is nothing more than a crap shoot.

To help Americans understand why $800 gold is still a good value, Mr. Smith is offering a free copy of his "GOLD 101" 25-minute DVD which promises to teach viewers "everything they need to know about gold in about a half-hour."


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