'08 scorecard: Stocks slide 5-10%, gold climbs 10%
By David Bradshaw ~ links ~ wisdom
Editor, Real Money Perspectives ~ Daily email
Jan 31, 2008 ~ *latest news* ~ podcast
* Thursday gold zig-zagged higher on a weak dollar following yesterday's half point rate cut by the Fed. Gold closed in NY up $2.00 to $923.20/oz., silver rose $.17 to $16.87/oz.
In January gold prices rose 10% while silver prices gained 12.5%.
* "The FOMC statement points to another rate cut ... these factors make gold more attractive against further US dollar weakness," said Dresdner Bank analyst Peter Fertig to TF.
* "US dollar weakness should cause gold prices to rise further from here to potentially break $950 an ounce in the next few weeks," said Fairfax analyst John Meyer.
* "U.S. stocks build Thursday on the sharp rebound following MBIA Inc.'s reassurances that it does not believe its triple-A rating is in jeopardy, with investors optimistic about results from Google Inc. after the bell."
"The Dow added 207.5 points, or 1.7%, to 12,650.4, finishing with a monthly loss of 4.9%. The S&P 500 added 22.67 points, or 1.7%, to 1,378.48, closing January with a loss of 6.3%. The Nasdaq Composite gained 40.86 points, or 1.7%, to 2,389.86, a monthly decline of 9.9%," reports MW.
"U.S. stocks ended lower on Wednesday after CNBC reported that ratings agencies may downgrade bond insurers AMBAC Financial Group Inc. and MBIA Inc. as early as today. Major U.S. indexes wiped out gains of more than 1 percent spurred by a half percentage point interest rate cut by the U.S. Federal Reserve," reports Reuters.
"Anything can happen from here, including a rocket shot to $1,000 over the next few weeks, which I consider to be a very good probability. We already have lift-off. Get ready for the rocket shot," writes James Turk's Freemarket Gold&Money Report at MW
"The Gold Anti-Trust Action Committee (GATA.org) charges the U.S. government surreptitiously utilizes gold reserves to engage in international swaps and other market manipulations," reports WND. (listen to GATA founder Bill Murphy)
"A Reuters global poll of 50 traders and analysts forecast gold prices surging more than 20 percent this year and gold retaining most gains in 2009 as dollar weakness, market turmoil and inflation fears stoke investor interest.
"The Fed is cutting rates to stimulate the economy, but times of crisis usually means investors head into gold," said Peter Hambro, founder of the second-largest gold producer in Russia to London Telegraph. Mr. Hambro expects worldwide stagflation to drive gold past the $1,000 barrier this year.
The U.S. economy slowed sharply in the fourth quarter, growing at a 0.6% annual rate, the weakest growth since the economy was pulling out of recession in 2002, the Commerce Department reported Wednesday reports MW.
Oil prices fell below $92 a barrel Thursday on expectations OPEC will keep production levels stable when it meets this week, amid worries that Fed stimulus may not be enough to stop a U.S. recession.
Quick-fix economic stimulus?
"Democratic and Republican congressional leaders reached a tentative deal Thursday on tax rebates of $300 to $1,200 per family and business tax cuts to jolt the slumping economy," reports AP.
"Most single taxpayers would get $600 and most two-wage households would get at least $1,200. The deal includes an additional amount of $300 per child. A total of 116 million taxpayers will receive checks of some size," reports CNN.
"Government fixes will be temporary until the underlying structural problems are addressed and strategies are employed to work through those problems. It is time to allow kids to be kids, adults be adults and markets to be markets. If our markets are truly 'free markets,' then let them be free and they will fix themselves," writes Swiss America CEO Craig R. Smith.
"It’s hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don’t have and investors will become more alert to risk," reports NYTimes.
"The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday. The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010," reports CNN.
"The Federal Reserve cut its overnight lending rate by 75 basis points to 3.50% after the global financial markets sold off on fears the U.S. economy is entering a recession," the Fed announced Tuesday.
"While millions of investors face a potential panic on Wall Street, those wise enough to have put themselves onto a personal gold standard by owning gold remained cool, calm and collected, knowing gold is the perfect safe haven during financial storms such as this," reports Craig R. Smith.
Global stock markets slid between 3% and 7% on Monday on concerns about bond insurers and the health of U.S. financial institutions. "People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore," reports AP.
"A 20 percent drop in the Dow Jones Stoxx 600 Index from its June high signaled European stocks are now technically in a bear market, weakening the euro," reports Bloomberg.
"Forget rate cuts and stimulus packages. In Wall Street's eyes, the recession is already here and the credit crunch is far from over," reports CNBC.
Investors are selling stocks because they're skeptical that an economic stimulus plan President Bush announced last Friday would shore up the economy, which has been battered by housing and credit problems.
More than three in four Americans believe the U.S. economy is already in a recession, or will be sometime in 2008. Only 19 percent of 1,000 Americans surveyed believe the nation will avoid a recession, while 57 percent believe that there will be a downturn this year according to a Fortune Magazine poll," reports CNN.
"Congress could help steer the economy away from recession if it adopted a quick, efficient and temporary fiscal stimulus plan", said Fed chairman Ben Bernanke last Thursday. The Fed chief urged lawmakers to boost consumer spending within 12 months, tagging the mortgage meltdown's cost at $100 billion or more.
"I think the market clearly said it does not want the government involved. At one point it reminded me of "American Idol" as some in Congress proved their incompetence by their questions. One Congresswoman did not even know Chairman Bernanke's professional background!" Craig Smith told FOX NEWS.
Last week the Labor Department reported that consumer inflation rose .3% in December and 4.1% for all of 2007, the highest in 17 years. Yesterday the government reported that wholesale inflation rose 6.3% in 2007, the highest in 26 years on rising energy costs.
Gold's stunning start
Last week gold closed in NY up $.60 to $880.50/oz., silver rose $.19 to $16.09/oz. The precious metals ended the week down 1.5% after rising over 7% in the first two weeks of 2008.
"China became the world’s largest gold-producing country in 2007, replacing South Africa. In January 2008 China opened its first gold gold futures market in Shanghai, in response to its citizens’ zeal for gold," reports Forbes.
"Further credit events and increases in oil prices can create a 'spike' past the $1,000 level in the near term," reports London Telegraph.
Gold is once again illustrating how a healthy long-term bull market functions. Gold prices have dashed above $700, $850, and then $900 an ounce since September 2007! Gold prices may need a breather to flush out speculation before continuing its fundamental march upward.
"Gold prices will test a record $1,000 an ounce this year, boosted by growing investment interest, safe-haven demand and strong market fundamentals, a Citigroup metals analyst said.
"We believe gold has entered a new investment-driven phase. Catalysts are rotating from safe-haven demand, to currencies, to the re-flation trade, as new buyers enter the market," John Hill, director, metals research, at Citigroup in San Francisco," reports Reuters.
"The big lure to gold continues to be its tendency to hold value when the rest of the investment picture turns septic. As it's done of late, with U.S. inflation measures hitting multi-decade highs, U.S. stocks starting off the year with their biggest drop in 30 years and the global outlook looking both inflationary and at risk of a slowdown," reports MW.
"I’m convinced that in 2008 the world will witness a gold price explosion, propelling the shiny yellow metal into the next and perhaps most exciting stage of this bull market," said Swiss America CEO Craig R. Smith.
"If you have not yet taken action in acquiring a position in gold, you now have a golden opportunity to buy high quality U.S. gold coins at a historically low collectible (or extrinsic) premium, relative to gold's melt (or intrinsic) value," reports Dr. Fred Goldstein, Sr. Broker at Swiss America.
"Craig Smith and Swiss America have accurately forecast future trends of gold, oil and stocks over the last decade, and I expect his 2008 forecasts will be no different. Put your family on a personal gold standard this year so you're positioned to be protected and to prosper!" said Michael Savage, host of The Savage Nation.
"Keep in mind the price of gold would have to climb well above $2,100/oz. just to reach an inflation-adjusted new high. Therefore, gold has a long way to go. Suddenly the calls for $1,000/oz. gold now are almost a given," says Mr. Smith.
"We don't see any reason in this cycle why gold shouldn't reach its real all-time high, which is actually about $2,200 an ounce," said David Garofalo, CFO of Agnico-Eagle Mines, adding the time frame of three to five years." (Read 46 other experts forecasting $2,200 gold)
"The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence," reports London Telegraph.
"Now that the inflation arm of stagflation is appearing through the political camouflage, gold is in strong demand and people are jumping aboard the golden coach. Gold provides an insurance policy against catastrophy. Therefore, stay with a high asset allocation to gold and buy on dips," reports John Browne at Moneynews.com.
"Ross Norman, director of TheBullionDesk.com, said the world faces a new era of "peak gold" in which discoveries become rarer, leaving the market starved of the metal just as demand in China and emerging Asia begins to gather pace. Mr. Norman, the top forecaster for the London Bullion Market Association over the past four years, said gold would reach $1,200 an ounce this year," reports London Telegraph.
"In the Middle Ages gold fetched nearly $3,000 an ounce in real terms. The price fell to nearer $550 when Spain flooded the world with Aztec and Inca riches, and there it hovered for three centuries. But the modern era has been an aberration. Supply is exhausted. Perhaps we should now regard the Middle Ages as the proper benchmark price. One thing is certain: Gold will outperform paper as long as governments keep increasing the global money supply 15 per cent a year," reports London Telegraph.
"When measured in 'hard money' terms, the U.S Treasury’s 10-year Note lost 20% of its value compared to an ounce of gold since August 2007. Wouldn’t it make better sense to park excess cash in gold, rather than U.S Treasury IOUs, during periods of double-digit money supply growth and soaring commodities?" asks Gary Dorch, editor of Global Money Trends.
"It is very encouraging to see such a positive start to the gold market in 2008," said James Burton, chief executive of the World Gold Council: "It is evident that gold’s unique investment attributes as an effective safe haven and dollar hedge have resonated with investors during this time of financial uncertainty," reports FT.
"Gold will rise to a record in 2008, increasing for an unprecedented eighth consecutive year, as investors seek protection from accelerating inflation, metals analysts tell Bloomberg.
"With the US facing a possible recession, economists have voiced growing concern about the threat of stagflation - where weak economic growth is twinned with out-of-control inflation," reports London Telegraph.
"A significant proportion of the investment community thinks that the U.S. economy is either teetering on the brink of recession or is already entering one," said Stephen Stanley, an economist at RBS Greenwich Capital. Bill Gross, head of PIMCO, the world's largest bond fund, told the Financial Times that "if I had to be bold, I'd say we began a recession in December," reports WT.
"Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come," reports AP.
Market analysts warn that more U.S. businesses are likely to hang "going bankrupt" signs on their doors next year as the twinned blows of slower economic growth and pricey commodities force the weakest companies to seek refuge from creditors," reports MW.
"Just as the U.S. dollar has farther to fall, so do the commodities have farther to rise. On that point, JP Morgan forecasts that of all the commodities, they expect precious metals to be the strongest in 2008, followed by agricultural products, base metals and energy," reports Goldseek.
"Experts say they expect gold could surge to above $1,000 an ounce in the next 12 months on continued weakness in the dollar and robust investment demand," according to a broad cross-section of professionals interviewed by TheStreet.com. James Turk says the next leg of the bull run should mean a rally of 30% next year. (See Swiss America survey of 47 experts)
"For gold investors, there’s more good news to come: None of those catalysts that made 2007 such a grand year for gold are expected to be absent in 2008," reports MoneyMorning.
"The rise in gold prices to this point has been steady and sustainable. For much of its rise, gold has been in a stealth bull market. But the gold price advance is no longer stealth. The chart says it wants to go parabolic," reports DailyReckoning.
"Can anything be as mesmerizing as gold?" asks Barron's in "Golden Opportunity?" back on 12/26/05. "Commodities are an asset class for the first time in history", says Barrons Roundtable member Mark Farber, who "thinks the price will eventually exceed $3,000."
Crisis may make 1929 look a 'walk in the park' -Ambrose Evans-Pritchard, LT
"When a credit system implodes, it can feed on itself with lightning speed. Current rates in America (4.25 per cent), Britain (5.5 per cent), and the eurozone (4 per cent) have scope to fall a long way, but this may prove less of a panacea than often assumed. The risk is a Japanese denouement across the Anglo-Saxon world and half Europe," reports London Telegraph.