Gold rebounds from '08 low
Stocks fall into holiday, oil flat ahead of GustavTop 10 financial stories of the month ~ August
By David Bradshaw ~ live 10a-6p ET ~ email ~ links ~ wisdomEditor, Real Money Perspectives ~ weekly email ~ daily email
Aug 29, 2008 ~ features ~ offers ~ (podcast)
Swiss America will be closed on Monday, Sept 1st in observance of Labor Day
* 1) POLITICAL SURPRISE: "John McCain tapped little-known Alaska Gov. Sarah Palin to be his vice presidential running mate. Palin, 44, is a self-styled hockey mom and political reformer who has been governor of her state less than two years," reports AP. "Palin describes herself as "pro-business and pro-development." She doesn't want the oil companies to sit on their energy reserves or environmental groups to block development of the state's resources," reports WeeklyStandard. "Palin brings working class roots and appeal to female voters, becoming the first female vice presidential candidate for the GOP," reports ABC. "Palin is becoming a star in the conservative movement, a fiscal conservative in a state that is looking like a boondoggle for pork-barrel spending," reports FOX. VIDEO: Palin accepts nomination
2) GOLD prices eased into the 3-day Labor Day holiday Friday on steady oil prices and a firmer dollar. Spot gold closed in NY down $3.50 to $830.20/oz., silver fell $.09 to $13.57/oz. Gold ended August with a 5.3% gain from the Aug 15th low of $786/oz., confirming a seasonal price bottom.
* "People are searching for an investment that is a long-term store of value," said Ben Davies, manager at Hinde Gold Fund in London. "Gold supply is not readily available at these prices. Randgold, the world's largest gold refinery in South Africa, ran out of Krugerrand gold coins after a large order from Switzerland last week," reports Bloomberg.
* "The unprecedented demand for American Eagle gold one-ounce bullion coins necessitates our allocating these coins among the authorized purchasers on a weekly basis until we are able to meet demand," said the U.S. Mint this week," reports Reuters.
* "Has Gold Bottomed? -- All the signs seem to be pointing to the fact that we should be accumulating gold at this price. It is difficult to see any fundamental reason why the current US dollar rally has any sustainable legs. Gold, on the other hand, does have fundamental strength to justify a higher valuation," reports Eric Roseman.
* "Gold is above $820, signaling that the major bull market that started seven years ago remains intact. Even though there have been some wild swings, the major trend is still up and as long as that’s the case, we recommend holding your positions," reports the Aden Sisters.
* "The three conditions we were waiting for to recommend buying gold have been satisfied, and investors should look for an initial target of $850/oz. - our one-month forecast - with an extension towards our $900/oz. three-month forecast and potentially beyond," reports John Reade at UBS.
* "The gold bull market is now entering the next stage. Prices today are near Jan. 2008 levels, creating an excellent buying opportunity based on strong fundamentals. Aug. 15th gold completed its sixth major correction of the current long-term bull market:
1. 2003 - Gold at $382 dropped to $319 (-16%)
2. 2004 - Gold at $425 dropped to $375 (-13%)
3. 2005 - Gold at $536 dropped to $489 (-9%)
4. 2006 - Gold at $725 dropped to $560 (-22%)
5. 2007 - Gold at $841 dropped to $778 (-8%)
6. 2008 – Gold hit $1002 on Mar 17 then dropped to $786 on Aug 15 (-21.5%).
Year-over-year perspective: "One year ago gold traded at $665/oz.
and the Dow traded at 13,000. Today gold is trading up 24% near
$830/oz. while the Dow is trading down over 11% near 11,700. So, although
gold suffered a 21.5% drop from the $1,002 high, the shiny yellow
metal is still running circles around stock indexes year over year," said Swiss America CEO Craig R. Smith.
* "Inflation should power
the precious metals to new all-time highs in 2009 and well beyond.
Looking out two or three years, I’m confident we’ll see gold prices
above $5,000 an ounce. I’m confident we’ll see silver prices above
$100 an ounce," reports Frank Barbera to AUReport.
* "An unprecedented level of shorting
the gold futures market in recent weeks was heavily concentrated amongst just a
handful of players. The lack of supply and
huge demand will result in materially higher prices in
the coming weeks," said Mark O'Byrne,
executive director at Gold and Silver Investments Ltd.
to MW.
* Monday gold futures closed down $7.70 yet
spot gold prices closed down $.80. This illustrates
growing volatility and divergence between "paper" gold prices,
traded on the futures market, and cash gold prices.
* "My gut tells me that we're going to see markets back at their old highs. If Freddie and Fannie are taken over by the government, there could be a massive selloff in stocks and the dollar could go into freefall,"
said Dale Doelling, chief market technician at Trends In Commodities
to MW.
* "The floor in the U.S. dollar underscores the frailty of fiat currency
globally. We see gold as attractive, heading into a period
of seasonally strong demand," reports mineweb.
* "Stage two of the gold bull market is just beginning. Gold at $800 looks like a bargain in the new world currency disorder. What we are about to see is a race to the bottom by the world's major currencies as each tries to devalue against others to shore up exports," reports Telegraph.
* "Just as central banks manipulate currencies in concert, so gold
can be manipulated by massive selling of central bank reserves.
But markets can be manipulated by only so much and for only so
long without fixing the underlying problem," reports GlobalResearch.
* "The fundamentals for gold have not changed, and with negative real interest rates in the U.S., this is a good time to maintain exposure to gold investments. July and August generally mark a low for gold before prices climb into the fall buying season," reports Frank Holmes at USFunds.com.
* "Every year the July to September period
has marked the bottom for the year," reports metals analyst Warren Bevan (see chart).
* "Gold's average increase from August to the end of the year between 2003-2007 is 14.6%," reports MoneyWeek.
3) CRUDE OIL prices closed nearly unchanged at $115.40 on Friday as a stronger dollar balanced concerns that Tropical Storm Gustav will impact U.S. offshore oil and gas production. "Fears are mounting that Russia may restrict oil deliveries to Western Europe over coming days, in response to the threat of EU sanctions and Nato naval actions in the Black Sea. Any such move would be a dramatic escalation of the Georgia crisis and play havoc with the oil markets," reports Telegraph. "The weakening U.S. dollar, a fall in U.S. gasoline inventories and a possible output tightening by OPEC at its next meeting in September all helped push oil prices higher," reports AP. "Victor Shum, analyst with Purvin & Gertz in Singapore, said last week, "the market has been ignoring supply-side concerns lately, but it's looking like the world powers will go forward and place more sanctions on Iran," reports CNN. Signs of "demand destruction" and economic slowdown trumped concerns about a tropical storms in the Gulf of Mexico and Iran's nuclear program dispute with the West. "Many analysts caution: Don't mistake a healthy correction for the end of a multi-year bull trend," reports CNBC.
4) U.S. STOCKS declined Friday, with the indexes poised for monthly gains and weekly losses, with a July drop in personal income, a rise in oil prices and a worse quarter than forecast for Dell Inc. supporting a bearish view ahead of the long weekend, reports MW. "If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it is not the end of the world, it is the end of the current international financial system," said Yu Yongding, a former adviser to China's central bank to Bloomberg. "The markets have had a tough summer. The Dow and S&P are down over 6% since Memorial Day," reports CNBC "The bear trend will resume in September or October as people return from the summer vacation season." "Governments caused the credit crisis, but capitalism gets the blame. State error led banks to ignore the lessons of history and overdose on too-cheap money," reports Telegraph. Freddie Mac reported a quarterly loss of $821 million. "Major U.S. stock indexes, already trapped in bear territory, face a tough road to recovery," reports Reuters.
5) The US DOLLAR rose slightly against the euro on Friday as investors were cheered by upbeat consumer sentiment data, boosting the dollar index to 77.31, up from 76.92 Thursday. The index posted a weekly gain of 0.7% and a monthly gain of 5.6%. "China has resorted to stealth intervention in the currency
markets to amass US dollars. Given the sheer scale of China's
foreign reserves - now $1,800bn - any shift in its exchange
policy now ripples around the globe.
China's covert buying may help to explain at least part of the
explosive dollar rebound over recent weeks," reports
Telegraph. The buck rose 2% against the euro last week in its longest stretch of weekly gains since February 2006. "The dollar may not be much help in coming months, because its run may be coming to an end," reports Fortune. "Confidence in the dollar is what's kept the US going
despite the twin deficits. Lenders to the US government have suffered significant
losses, not been from non-payment but because repayments
have been in a constantly debased currency — the dollar,"
reports BSI.
"The bear market in the dollar began in January 2001 with the index trading at 120. When it dropped below 80 last August, it cracked a multidecade support floor on its way to setting an all-time low at 71 this past March," reports Barrons.
6) US HOUSING: "This 4-year median home price chart puts housing prices into
perspective. Prices in terms of gold have remained within their
historical range, so the increase in house prices was the
result of an inflated dollar. When the price of a house is
measured with sound money, a different picture emerges.
Sound money is the best way to determine value. House prices
may rise or fall, but a home’s value remains essentially
unchanged," reports James Turk. "Resales of U.S. single-family homes and condos rose 3.1% in July the National Association of Realtors reported Monday. Resales have sunk 13.2% in the past year. Despite the increase in sales, the inventory of unsold homes on the market rose 3.9% to 4.67 million, The median sales prices fell 7.1% in the past year to $212,400. "U.S. home builders sharply reduced the number of new homes starting construction in July and dropped the number of new single-family permits to the lowest level in 26 years, the Commerce Department estimated last week," reports MW. "Existing U.S. home sales fell to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent as the real estate recession deepened," reports Bloomberg. "One dollar can get you a large soda at McDonald's, a used VHS movie at 7-Eleven or a house in Detroit. The fact that a home on the city's east side was listed for $1 recently shows how depressed the real estate market has become in one of America's poorest big cities," reports Detnews. "U.S. home prices fell a record 16% from a year earlier in 20 major metropolitan areas, according to the S&P/Case-Shiller home-price index, with every region measured showing year-over-year drops for the second straight month," reports NYT.
7) BANKS: "The Federal Deposit Insurance Corp. (FDIC) may have to borrow 'about a half a trillion dollars' from the Treasury Department to handle an expected wave of bank failures coming down the road," according to the Wall Street Journal. "The number of troubled U.S. banks leaped to the highest level in about five years and bank profits plunged by 86 percent in the second quarter, as slumps in the housing and credit markets continued. FDIC data released Tuesday show 117 banks and thrifts were considered to be in trouble in the second quarter," reports AP. "For a lot of banks, the die has already been cast... Seventy-five years after The Federal Deposit Insurance Corp. was launched during the Great Depression, the bank regulator and insurer is facing its biggest challenge in decades. Many banks in Georgia and across the nation have been battered by the slumping economy and troubled loans to home builders, developers and homeowners," reports Statesman. "Most institutional investors expect another big financial firm to collapse in six months because of the credit crunch, a survey by Greenwich Associates shows, according to the Financial Times, reports CNBC. "More U.S. banks may fail after the collapse of mortgage lender IndyMac Bancorp, straining a financial system seeking stability after years of lending excesses. 'More than 300 banks could fail in the next three years,' said RBC Capital Markets analyst Gerard Cassidy," reports CNBC.
8) U.S. consumer CREDIT/DEBT expanded at the fastest rate in seven
months as Americans turned to their credit cards
to keep up spending in the face of rising food and energy
costs,"
reports CNBC. If "An Inconvenient Truth" sounded the alarm on global warming, "I.O.U.S.A.," a new documentary opening in theaters Friday, hopes to do the same for the rising federal deficit," reports WSJ .. trailer. "The film’s
inspiration comes from the 2006 book, “Empire of Debt:
The Rise of an Epic Financial Crisis,” by William Bonner
and Addison Wiggin," reports WSJ.
"The film does not offer a detailed solution, but it does express restrained outrage at the immorality of one generation of Americans — you and I — willing to mortgage the futures of our children and grandchildren to satisfy our own selfishness," reports AJC.
"I believe I.O.U.S.A. should be required viewing for anyone over the age of twelve. The film presents the TRUTH about the catastrophic state of our economy and the federal government's debts, which now total more than $50 TRILLION, that's $455,000 per U.S. household!" said Swiss America broker Candice Witherspoon who attended the film's debut in Phoenix, AZ. last Thursday.
9) INFLATION: "The inflation outlook remains highly uncertain because of the difficulty of predicting the future course of commodity prices, and we will continue to monitor inflation and inflation expectations closely," Fed Chairman Ben Bernanke told a gathering of global central bankers last Friday," reports Reuters. Meanwhile, wholesale inflation surged in July at the fastest pace in 27 years. "Prices shot up 1.2% in July, was more than twice the 0.5% percent gain economists expected," reports AP. "Growing evidence suggests American consumers, businesspeople,
and political leaders should all be bracing for double-digit
inflation, probably as early as 2009. Most Americans will have
to tighten their belts and accept lower living standards unless
this inflationary spiral can be stopped," reports BusinessWeek. The government reported the CPI rose .8% in July on last week. "Over the past year, consumer prices were up 5.6%, the biggest on-year increase since January 1991. The CPI has surged at a 10.6% annualized rate in the past three months, the second-worst spike in inflation in the past 26 years," reports MW. "Wages are primed to jump as surging oil prices prompt the
triumphant return of 1980s-style cost-of-living allowances
(COLA), sending the U.S. INFLATION rate to 6% by 2009,
said Jeff Rubin, chief economist at CIBC World Markets to
FP. "Coming to a store near you: Even HIGHER PRICES. "While most price increases have not been passed on at the retail level, it is inevitable
that they will be at some point," reports AP.
10) RUSSIA: "A U.S. military ship loaded with aid docked at a southern Georgian port Wednesday, and Russia sent three missile boats to another Georgian port as the standoff escalated over a nation devastated by war with Russia," reports AP. "Waves of Russian military convoys rolled out of key positions in Georgia last week. The Russians have without a doubt failed to live up to their obligations," US State Department spokesman Robert Wood said. "Establishing checkpoints, buffer zones are definitely not part of the agreement," reports Ukpress. Secretary of State Condoleezza Rice and her Polish counterpart signed a deal to build a U.S. missile defense base in Poland, an agreement that prompted an infuriated Russia to warn of a possible attack against the former Soviet satellite. Russia's Foreign Ministry issued a statement saying the U.S. missile shield plans are clearly aimed at weakening Russia," reports AP. "Syria sought to revive its security alliance with Russia today, when President Bashar al-Assad arrived in Moscow to clinch a series of military agreements, raising fears that the new Cold War that has erupted in the Caucasus will spill over into the Middle East," reports Times. ."Russia threatened a nuclear strike against Poland after a landmark deal to site American global anti-missile shields in the country," reports Telegraph.
"Sending US forces into Georgia represents the most serious military escalation between Washington and Moscow since the end of the Cold War," reports TheTimes.
"Russia is the second largest producer of crude in the world and they have been rather quiet since the Soviet Union’s breakup. Putin is KGB all the way and a very good friend of the Iranians. Russia, while denying claims they targeted oil pipelines, is having a hard time selling that to the international community. The Baku-Tbilisi-Ceyhan pipeline carries oil that is headed for the West to the Mediterranean Sea, much of that oil finds it's way to America," reports Swiss America CEO Craig R. Smith.
Stories of interest
THE FED said they remain concerned about rising inflation, stating last week "the inflation outlook remains highly uncertain". "It is clear that the Federal Reserve is not going to pull the economy out of this rut. This downturn wasn't caused by a central bank worried about inflation. And lower rates are not going to turn the economy around," reports MW. "The Fed swung monetary policy back and forth to extremes... This erratic behavior encouraged a series of financial bubbles in interest- sensitive assets -- first the stock market, during the late 1990s tech-stock boom, then housing -- but the Fed declined to do anything or even admit the bubbles existed. The nation is now stuck with the consequences of its blindness," reports TheNation. "Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson will either have to prepare America for a lot more pain or employ all their resources to bail everyone out of the mess with piles of freshly printed money to keep the spending orgy afloat," reports WND.
U.S. UNEMPLOYMENT jumped to 5.7% last month, a four-year high. The Labor Department reported that nonfarm payrolls fell for the seventh straight month in July while. "A trio of crises -- housing, credit and financial -- have badly bruised the ECONOMY. In response, employers have cut jobs for six months in a row, bringing total losses this year close to a staggering half-million -- 438,000. The Labor Department reported that layoffs rose sharply last week. New claims filed for unemployment insurance jumped to 448,000, the highest in five years. Meanwhile, GDP increased at an annual rate of 1.9% in Q2. That marked an improvement over the feeble 0.9% growth in the first quarter and an outright contraction in the economy during the final quarter of 2007, reports AP.
"President George W. Bush signed into law the HOUSING BILL, the government's most aggressive effort to combat the country's housing crisis in August. The housing package becomes law as bad news continues to mount for the housing sector, reports WSJ. Dr. Ron Paul reports the bill also includes: A provision to increase the national debt ceiling by $800 billion. The Treasury can now buy an unlimited amount of Fannie / Freddie housing securities and stock. Anyone working in the mortgage industry will now be required to be fingerprinted. Every credit card transaction will now be reported to the IRS," reports CFL
1) "The United States Mint announced the release of a new 2009 one-ounce ultra-high
relief 24-karat gold coin, creating a modern version of what
many have called the most beautiful gold piece ever made:
the 1907 Ultra High Relief Saint-Gaudens $20 Double Eagle. The mintage of the new coin will be unlimited for one year. The new collectible coin about 50 percent thicker than other United States Mint one-ounce gold coins. Only 2009-dated coins will be minted. The coins will go on sale in early 2009," reports CoinLink.
