Gold Prices Spike as Recession Worries Spread

NEW YORK — Gold prices soared again Wednesday, closing in on $1,700 an ounce, as worries that governments won’t be able to grow their way out of debt caused a rush into the safe haven asset.

Gold for December delivery rose $21.80 to settle at $1,666.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,675.90 and as low as $1,654.40 while the spot gold price was a bit less enthusiastic adding only $3.50, according to Kitco’s gold index.

Most Recent Quotes from www.kitco.com

Silver prices closed up $1.66 to $41.75 an ounce.

The US Dollar index was down 0.69% at $74.02 while the euro was up 0.75% vs. the dollar.

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7 Good Reasons Why The Dollar Will Fall and Gold Rise

It’s time to provide some fundamental reasons as to why the dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.

  1. The US has a massive current account deficit and it only seems to be getting bigger. Economists may play with the numbers by stating that one month is less than the other and so forth, but the trend is up. It now comes close to 6% of our total economic activity.
  2. The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. This trend is simply unsustainable.
  3. While Government officials talk big about a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.
  4. By inflating the money supply, the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (precious metals, lumber, oil, etc).
  5. Our national debt is 12.4 trillion and increasing. However, this does not take into consideration all our unfunded liabilities such as Social Security and Medicare. If these are combined, the debt levels soar to well unimaginable levels.
  6. 44 states are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Now that is a really scary thought. Since 2007 US states have collectively spent 300 billion more than they have generated. These deficits mean higher taxes and so far 33 states have raised taxes, but collections have plummeted to their worst levels in 46 years; you cannot squeeze water out of a rock. No jobs means no revenues but states are selling new bonds at record rates to raise funds. It’s a recipe for long term disaster.
  7. Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market in precious metals has only just begun.
About the author: Sol Palha

Wave of Debt Payments Facing U.S. Government

NY Times

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.

But that happy situation, aided by ultralow interest rates, may not last much longer.

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. Continue reading

Peter Schiff, James Bullard and Alan Blinder Argue Over Ben Bernanke

Putting Peter Schiff on a panel with St. Louis Fed President James Bullard and former Fed Vice Chair Alan Blinder is asking for trouble or, at the very least, a heated debate.That’s just what occurred last Sunday night in New York at an event sponsored by Princeton’s Business Today.Predictably, Euro Pacific Capital’s Schiff disagreed with Bullard and Blinder on just about everything, including the government’s role in causing the crisis, and the outlook for the economy and the dollar.But the most contentious moment came toward the end of the evening when a student asked the panel to comment on Ben Bernanke’s 2005 “global savings glut” theory, and what role China’s high saving rate played in the credit bubble.Schiff’s response, “Ben Bernanke has never gotten anything right,” generated some guffaws from the crowd and a sharp retort from Blinder and Bullard, who rose to Bernanke’s defense.

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Barry Ritholtz says, A Bad Economy Could Spell Good News on Wall Street for Years to Come

The economic recovery isn’t as strong as first thought. Revised GDP figures released this morning show the economy grew at a 2.8% annualized pace in the third quarter, less than the 3.5% initially reported. The revision was in-line with expectations but shows the economy didn’t have as much momentum heading into the fourth quarter as previously believed.Unlike Wall Street traders, consumers seem to know the recovery is “anemic,” as Barry Ritholtz, CEO of Fusion IQ, describes it. The Conference Board’s latest confident survey shows Americans feel worse about the current economic situation than they did in March, when the stock market was making new lows. (Thanks to Dan Greenhaus of Miller Tabak for pointing this out this last fact.)Yet, stocks are still near their highs of the year. Going into the final hours of trading Tuesday, stocks were in the red but well off the lows of the day. What’s driving the disconnect between Wall Street and Main Street?Ritholtz says it’s a classic example of bad news being good news on Wall Street. “We’re in a cycle that’s not based on profitability, not based on expanding economy but based on all sorts of government supports,” he says. “Bad news is going to be good news for the next couple of quarters probably.”That’s because low interest rates and liquidity provided by the Federal Reserve, coupled with government stimulus are enticing traders to buy into the market. “Cash is trash,” says Rithotlz, who remains bullish on stocks.Ritholtz is confident that eventually fundamentals will prevail and thinks the market will take a hit once the economy shows signs of improvement, meaning the “extraordinary” stimuli can be removed. But predicting the timing is anyone’s guess. “You could have this disconnect that goes on for not days, weeks or months but years and years,” he says. So, in the meantime, Ritholtz – who correctly predicted the 2008 crash and told Tech Ticker’s audience “the mother of all bear market rallies,” was upon us in March – is still long stocks and likes commodities (thanks to a weak dollar) and emerging markets.

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A Big Crisis is Coming with America’s Weak Dollar Policy

The Dollar Index hit yet another 14-month low early Monday after a Chinese central bank official urged the PRC to diversify its reserves into more euro and yen. A stronger-than-expected GDP report in South Korea also put pressure on the greenback as traders expect other central banks to follow Australia’s lead and raise rates while the Fed stands pat.”The dollar is a significant concern,” says Leo Tilman, president of L.M. Tilman & Co. and author of Financial Darwinism.” You can envision all sorts of crises scenarios where rest of the world stops buying U.S. assets because of the dollar [and] you have higher interest rates and all sorts of recessionary pressures.”With the U.S. Treasury set to auction a record $123 billion of notes this week and the Fed’s $300 billion Treasury purchase program set to expire, those risks should not be taken lightly. Of course, such concerns have been circulating for a while and have not come to fruition, to date.It’s “very difficult to say” when foreigners stop talking about diversifying away from the dollar and take more concerted action, Tilman admits. But “it’s hard to imagine a lot of foreign buyers are going to tolerate further declines in the dollar. “Tilman, whose firm advises institutions on strategic risk management, says the day of reckoning is likely to come within the next year.”A lot depends on how sustainable the recovery in the U.S. is: If the Fed has an ability to start hiking IR, that will mitigate some of the pressures on the dollar,” he says. “But if we see rest of the world starts hiking rates and the Fed lagging behind because the U.S. economy is so fragile, that will be the breaking point. We’re taking the second or third quarter of next year.”

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Jim Rogers Says, Gold Will Hit $2,000 and USA Will Lose Status As The World’s Reserve Currency

Good Time To Buy Gold

Good Time To Buy Gold

Famed investor Jim Rogers is “quite sure gold will go over $2000 per ounce during this bull market.”Rogers’ confidence gold will continue to rally stems from a view the U.S. dollar is on its way to losing status as the world’s reserve currency.”Is it going to happen? Yes,” Rogers says. “I don’t like saying it [and] I’m extremely worried about it but we have to deal with the facts. America is not getting better [and] the dollar is going to be replaced just like pound sterling [was].”Rogers didn’t offer a timetable, and it’s likely gold would exceed $2000 per ounce if the dollar were to lose its reserve status.Still, “I wouldn’t buy gold today,” Rogers says. “I think I’ll make more money in other commodities, which are cheaper,” as discussed in more detail here.Among many others, Rogers is “worried about the fact the U.S. government is printing huge amounts, spending gigantic amounts of money it doesn’t have,” the investor and author says. “People are very worried [and] skeptical about paper money [and] looking for places to protect themselves. The best way is to buy real assets. [That] has always protected one during currency turmoil, and it will again.”

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