Spot gold was bid at $935.10 an ounce at 1325 GMT, against $933.30 an ounce late in New York on Thursday. It earlier hit a session high of $939.65. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange edged up 50 cents to $935.40 an ounce.

The euro gave up ground against the U.S. currency after data released on Friday showed the U.S. economy contracted at a slower-than-expected pace in the second quarter, which analysts said backs views the recession is winding down.

“The U.S. GDP data was fairly good; it is still contracting but at a much slower pace, much better than the first quarter,” said Andrey Kryuchenkov, an analyst at VTB Capital.

“But the personal consumption data wasn’t so good,” he added. “Inflation is not there yet, that would weigh on gold.”

Gold is broadly tracking moves in the dollar within a narrow range. Dollar weakness tends to benefit gold, as it makes the metal cheaper for holders of other currencies.

The dollar fell versus a basket of currencies in earlier trade as a rise in stock markets sharpened appetite for currencies seen as higher risk.

But equity markets fell in Europe and stock index futures weakened in the United States after the data, which also showed the economy contracted more than previously reported in the first quarter of the year.

Oil prices also fell more than 2 percent as investors worried about demand weakness. Strength in crude can benefit gold, which is often bought as an inflation hedge.

DEMAND TAILS OFF

Underlying demand for gold remains weak, with a pick-up in sales in leading gold market India midweek tailing off towards the weekend and flows into gold-backed exchange-traded funds still stagnant.

But a World Gold Council official told Reuters India’s gold demand may pick up from August as pent-up demand is seen boosting sales.

Meanwhile Africa’s top gold producer AngloGold Ashanti said it will miss its output target for the year, adding that it will wind up its hedge book of forward sales by 2014.

Elsewhere silver was flat at $13.45 an ounce, platinum was at $1,184.50 an ounce against $1,179.50, and palladium was at $255.50 against $256.50.

Aquarius Platinum Ltd said on Friday its quarterly attributable production was up one percent from the previous quarter to 98,258 ounces.

Prices of platinum — consumed primarily by the car industry for use in catalytic converters — edged above $1,200 earlier this week on hopes economic stability would lift car demand.

But despite an expected fourth-quarter recovery in the European car market, analysts were cautious towards platinum.

VM Group analyst Matthew Turner said a third-quarter demand slump in Europe, a key market for platinum as its cars are usually diesel-fuelled and therefore use a higher proportion of the metal in their autocatalysts, could hurt prices.

“In the last few months car production has started to pick up again,” he said. “The problem is that a lot of the car sales in Europe are artificially boosted by government incentive schemes. That is probably bringing demand forward, it’s not increasing demand.”

LONDON, July 31 (Reuters)

He is best known for his daily newsletter, The Gartman Letter, which is read with morning coffees by countless Wall Street operators. In short, Gartman is an underground investor par excellence.
Gartman recently gave an interview with Canada’s The Globe and Mail. In it, he reveals his stance on the inflation/deflation argument and how to best hedge against an inflationary outcome.

Gartman is not your typical inflation hawk. He sees deflation and inflation taking hold in the future: inflation in raw materials prices “sooner rather than later” and deflation in wages. When asked, “Will we have inflation or deflation?” his answer is “Yes.”

For those who want to hedge against inflation, however, Gartman has perhaps the best hedge combination we’ve seen thus far here at Notes. This is a remarkably simple, yet we believe effective way of preparing your portfolio for an inflationary cycle, albeit one that doesn’t affect asset classes across the board (Gartman sees health-care costs rising for instance, but not car prices or house prices).

Gartman’s formula is as follows: equities (in raw materials manufacturers or miners) + gold + TIPS.

(We told you it was remarkably simple!)

Gartman is singularly measured in his approach to investing. He is conservative in his approach and has little time for the histrionics often displayed by the talking heads on TV. (He is dismissive, for instance, of popular dollar bear Peter Schiff, who he believes is “terribly hot headed and is prone to loud, ungentlemanly screaming at debates.”) What follows are some other Gartman gems that come out of his interview with The Globe and Mail.

• The dollar will trade “to parity… and beyond” with the US dollar. That’s because Gartman sees Canada “as a country of stability; of reasonably stable financials; of a stable banking environment and as an exporter of the things the world needs.”
• Gartman is bullish on the currencies and the stock markets of Canada, Brazil and Australia relative to the US dollar and US stock market. According to Gartman, “Canada, Brazil and Australia are net exporters of ‘stuff,’ and the world will need these things: grain; energy; water; et al.”
• The trend for gold is “quietly upward.” Gartman doesn’t believe the yellow metal will reach $5,000 in his lifetime. Nor does he see gold dipping below $840 an ounce. According to Gartman, “Someone or something is leaning on gold at $980-$1000.” He says he’ll let that seller be sated before he ventures back to the long side.
• The trend for nat gas is strong, but supplies are stronger. Those who are bullish, says Gartman, will have to wait for winter as a cooler summer means demand for air conditioning is unusually low. When Gartman does go long nat gas he will invest in the nat-gas trusts to ensure a “steady stream of income.”
• Gartman is cautiously bullish on raw materials manufacturers and miners: steel; copper; zinc; grain growers; water.
• Canada’s banks are in “much better shape” than their US counterparts and they enjoy the same benefit of the positively shaped yield curve.
• The dollar will remain the world’s reserve “until the US relinquishes its position as the world’s most important military power AND as the world’s largest economy.”
• Protectionism is “lurking everywhere and it is especially problematic in election years.” This is bad news for the US dollar.

Spot gold was bid at $925.20 by 1520 GMT after hitting an intra-day low of $922.60, the lowest since June 24. Earlier it hit a high of $944.70.

The precious metal reversed earlier gains when the dollar, which has been under pressure, gained against a basket of currencies after U.S. consumer confidence data.

“Obviously, in these days where everything is linked together, from crude prices to the price of gold, any change to people’s view of the economy and inflation expectations will cause a reaction,” said Ole Hansen, an analyst at Standard Bank.

Adding to the bearish signals for gold prices, crude oil dropped nearly 3 percent.

While investing in gold is usually seen as a hedge against risk, a strengthening dollar makes it relatively more expensive for holders of foreign currencies, weakening its appeal.

“Gold is following the dollar,” said senior trader Michael Kempinski at Commerzbank. “Euro/dollar falling below $1.41 triggered some profit-taking in gold,” he said.

Earlier in the London session, gold slipped after the European Central Bank said gold and gold receivables held by euro zone central banks fell by 96 million euros ($136 million) in the week ending June 26.

INFLATION IN FOCUS?

Matthew Turner, an analyst at VM Group, said gold investors seemed to be focusing more intently on long-term inflation expectations than recession fears, which would strengthen the link between crude and bullion prices.

“But there are no immediate signs of inflation anywhere for now, so investors are looking to the long term, and of course when inflation does start to go up, the price of gold will be rising well ahead of it,” he said.

U.S. gold futures for August delivery dropped by 1.5 percent to $926.90 per ounce on the day.

On the investment front, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings remained at 1,125.74 tonnes as of June 29, unchanged since June 25.

In other precious metals, spot silver was lower at $13.52 against $13.84 on Monday, platinum was unchanged at $247.00.

LONDON, June 30 (Reuters)

Spot gold touched a high of $946.90 in London — last seen in mid-June — up from $938.55 quoted late on Thursday in New York. The metal stood at $946.65 by 1134 GMT.

Global stocks rallied while the dollar fell against a basket of currencies, bolstered by a return to risk-seeking behaviour after remarks by the U.S. Federal Reserve convinced investors that borrowing costs would stay near zero and the debt-buyback programme would continue apace.

The weaker U.S. unit also made dollar-denominated gold cheaper for holders of foreign currencies.

The precious metal, viewed as a potential hedge against inflation, also got a boost from steady oil prices as supply concerns held crude above $70 a barrel.

Analysts said that gold was rallying on the weaker dollar and end-of-quarter deals, despite weak fundamental demand.

“From a fundamental perspective at least, $945 is a very good position for gold to be entering the second half of the year,” said Nick Moore, head of commodity strategy at RBS Global Banking and Markets.

RECOVERY PLAYS

Higher base metal prices, which have soared since the start of the year, could encourage investors to switch out of their holdings in gold to take advantage of higher demand for raw materials ahead of any economic recovery, analysts said.

“I’m concerned there will be more appetite for other things, and gold could get neglected if people want equities, energy and industrial metals,” said Robin Bhar, an analyst at Calyon.

“Next week is a new quarter, which could be associated with fresh investment flows into plays on the recovery,” he added.

Copper prices are up about 60 percent on the year, while aluminium used in transport and packaging is on track for its biggest monthly gain since May 1988.

Inflows into gold-backed exchange-traded funds waned, reflecting weak fundamental demand for gold from retail investors and the jewellery market.

Holdings at the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust , fell 0.5 percent to 1,125.74 tonnes as of June 25, down 5.5 tonnes from the previous business day.

U.S. gold futures for August delivery strengthened to $946.8 an ounce, rising 0.8 percent on the day.

In other precious metals, spot silver firmed to $14.25, against $14.01 quoted late in New York on Wednesday, while platinum climbed to $1,199.00, against $1,186.00 and palladium strengthened to $243.50 from $242.00.

London, June 26 (Reuters)

If you grew up in the United States, you know that English literature is one of those subjects they foist upon you in 10th grade or so. I recall very little from English Lit 101. Most of the stories and poems we read (or pretended to read) have become a hazy blur.

But after all these years, one poem still stands out. Due to its oddness and simplicity, I have never forgotten it. The poem is “Red Wheelbarrow” by William Carlos Williams, and it goes like this:

so much depends

upon

a red wheel

barrow

glazed with rain

water

beside the white

chickens.

That poem comes to mind as I ponder the odd yet powerful simplicity of this global market rally. If you take a look around, it is quite impressive how everything has moved higher. And I do mean just about everything. Commodities are up. Currencies are up. Emerging market equities (and bourses around the world) are up. Dead duck U.S. consumer retail stocks are up. Crude oil, which has moved twice as far in half the time in comparison to all previous rallies of the past two decades or so, is way, way up.

So what’s going on? With apologies to William Carlos Williams, here’s the poetic take:

so much depends

upon

a red China

stockpile

paid for by

stimulus

beside the massaged

data points.

Translation for all you non-poetic types: China has taken the “industrial inflation hedge” concept and gone to town with it. It has been stockpiling raw materials and hard assets like crazy, and this in turn has popped the Baltic Dry Index (lots of shipping required) and driven commodity prices up.

At the same time, a steady stream of rosy data points on the Chinese economy has convinced investors that all is well, that “decoupling 2.0″ is at hand, and that the dragon shall boldly lead us into the land of milk and honey (i.e. global economic recovery).

Stockpilin’

The “industrial inflation hedge” concept was introduced in these pages some time ago (and originally to Macro Trader members some time before that). On April 22nd we observed the following:

Hard assets like copper and nickel and zinc are immune to the whims of the printing press, and China will need all those metals and more, in substantial quantities, to build out the vision of economic prosperity it holds for the coming years. And what better time to stock up than in the quiet period before a stimulus- and debt-fueled inflation tsunami returns?

We further observed, in that April 22nd piece, that China would employ three specific strategies in its “stealth abandonment” anti-dollar campaign:

1. Speak to those with ears to hear (i.e. test the waters with subtle trash talk against the dollar).
2. Quietly circulate the yuan (start small, with the intent of later challenge once strength has accrued).
3. Embrace the industrial inflation hedge (buy boatloads – literally! – of raw materials and hard assets).

All three elements have come to pass, as predicted and expected, with one major caveat. Your humble editor expected these strategic moves to be deployed gradually and quietly. Instead they have been deployed rapidly and loudly, to a shocking a degree.

The dollar trash talk has become anything but subtle… Chinese officials are now making aggressive, vocal demands that the yuan be used in more transactions, even going so far as to call for the issuance of yuan-denominated U.S. debt (!)… and, last but not least, the dragon has gone absolutely hog wild with the industrial inflation hedges.

In an eye-opening piece titled “China’s Commodity Buying Spree,” The New York Times chronicles just how much of a hoarding groove China has gotten into:

At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak.

Commodities and shipping executives describe Chinese stockpiling in recent months of a range of other commodities as well, including aluminum, copper, nickel, tin, zinc, canola and soybeans. Starting in April, China began stockpiling significant quantities of crude oil.

No wonder commodities have been ripping and snorting like the good old days. And no wonder traders are looking around and starting to see inflationary pressures everywhere.

The Page One Problem

We went on record expecting this to happen, and it did. Man oh man, did it ever… and it’s still happening, right now. Copper and oil are breaking out to fresh highs as I write. The commodity currencies, too, are flying higher than a kite (great news for all of you who took our table-pounding currency diversification advice some months back). That’s all a reason to be happy, right?

Yes, but to be honest, for me it also creates a reason to be nervous. I look at some of these incredibly extended trends and I think about an old Yogi Berra line: “Nobody goes there anymore, it’s too popular.” Trends are like people – they can get frail with old age. Trends can also get winded. They need to breathe.

What’s more, China has been so blunt and upfront in its “down with the dollar, up with hard assets” campaign that I’m starting to wonder how far we are from the “page one” problem.

By page one I mean page one of the newspaper. The idea being, you don’t make money from news stories that are splashed above the fold in bold headline type. You make money from the story buried back on page sixteen, where few have really cottoned onto it yet.

It’s the process of migration from page sixteen to page one that produces the profits. By the time everybody and their brother know the deal, it’s pretty late in the game.

Then, too, I wonder how many checks China can write. Ninety freighters full of iron ore! Damn! Where are they going to put all that stuff? When it comes to hard assets, are they going to just buy everything available… or only buy as much as they can afford? Is there any distinction between the two?

It’s very tough to say, of course. We know little about China’s hidden intent, and Beijing likes to play it close to the vest. China-watcher energy analysts are so data starved, for instance, some of them are using the free satellite capability of Google Earth to make guesses about where China might (or might not) be storing crude. (Apparently there is a way to interpret building structures and ground movements with oil in mind.)

China’s strategic intent and spare buying capacity thus become key factors here. If the dragon intends to throw another couple hundred billion directly at hard assets, then maybe the page one treatment won’t matter. A buying spree with that kind of aggressive depth and duration could drive a move for quite a long time, regardless of how many caught wind of it… sort of how oil soared to triple digits and beyond even as the world gaped in awe.

But one has to wonder… could even cash-rich China find itself tapped for funds at some point? I mean, how much aluminum, copper, tin, canola, soybeans and so forth can a country sit on? And beyond a certain point, when the stockpiles pile up to the sky, aren’t there more pressing uses for the funds?

Dubious Data Points

The other disconcerting thing is the lack of visibility when it comes to China’s economy. We are told that China is doing amazingly well, and the official statistics seem to back this claim. Investors certainly seem to believe this, as China’s health is the rationale for bidding up emerging markets like gangbusters.

But there are all kinds of weird discrepancies on the ground. For example, China’s electricity usage has gone down when it should have gone up. That doesn’t make sense if factories are humming.

And then there’s this, via Grant’s Interest Rate Observer. In a recent Morgan Stanley fact-finding trip, the analyst who led the trip reported 11 out of 12 investors left Chinese soil with fresh concerns. “It’s not that the stimulus is not working,” the analyst noted, but more that “the trip exposed massive levels of excess capacity…”

So it sounds like China indeed has a leg up on the United States in terms of putting their half trillion bucks or so to immediate and aggressive work. But while the mandarins in Beijing know how to move fast, they aren’t necessarily the greatest at figuring out what to spend the dough on.

One might further think Western investors, as acquainted with the ills of government as they are, would be more skeptical than Chinese locals in regard to anticipating positive effect. But no… the outsiders buy the China recovery story hook, line and sinker, while the insiders maintain their doubts. “The local Chinese are clearly skeptical,” the same Morgan Stanley analyst tells Grant’s, “as savings rates are rising despite government incentives to consume.”

So Much Depends…

And now we come full circle back to the William Carlos Williams poem.

What we are experiencing now, I believe, is a massive sentiment-led rally (or bull move, or whatever you wish to call it)… and it is almost all pure sentiment so far, with buying rooted in hopes for the future rather than actual improvements reported. “So much depends” on China as savior – the cornerstone and lynchpin of the decoupling 2.0, turn-the-clock-back mentality that has now gripped the globe.

My slim hope is that the Chinese really and truly know what they are doing, because, in fueling investor optimism with such flair, they are playing a high stakes game. My worry is that they drop the ball, somehow, and the result shows up as a violent wake-up call for “high beta” assets… emerging market equities, energy, commodities and the like.

What happens next is far from clear. The huge stockpiles could continue to grow at a breathtaking pace – after all, Beijing has plenty of greenbacks to work through – and the dragon’s data points could continue to impress, or at least not frighten.

But with that said, a stumble from the dragon… and the shock of a sharp, swift deflationary contraction immediately following… does not feel like a far-fetched scenario at this point. It would certainly have profit potential as a surprise event, given how far the notion seems to be from Mr. Market’s mind.

Source: The Fate of This Rally May Rest in China’s Hands

Hedge fund legend Julian Robertson is betting the farm against long-dated US Treasurys. As Notes readers will be aware, we have been banging the drum on the vulnerability of long-dated US debt for over a month now. But Robertson, of Tiger Management fame, has a different way to make this short long-term Treasurys play (hat tip Market Folly).

Robertson is shorting long-dated US debt using something called a steepener swap play. Although the mechanism of this trade may be unfamiliar, at heart it’s a simple bet on inflation.

Robertson reckons inflation could easily hit 7% and that it could even reach 18%. Again, Notes readers will be familiar with this market script. This from eFinancialNews:

Steepeners are a type of interest rate swap, where one party agrees to pay the other a fixed rate in exchange for a floating rate, which is derived from the difference between long and short term rates. Many of these products also use high leverage, where the difference between the two rates is multiplied by up to 50 times to produce a higher return.

Retail investors can make the same play as Robertson without using interest rate swaps. It’s actually very straightforward.

Robertson is betting on the yield curve steepening. This happens when the difference between the yields of short-term and long-term US Treasurys increases. Robertson is essentially short the price of long-term US Treasurys and long the price of short-term US Treasurys.

Anyone with a brokerage account can do this by buying the iShares Barclays 1-3 Year Treas.Bd ETF (NYSE: SHY) and shorting the iShares Barclays 7-10 Year Treas.Bd ETF (NYSE: IEF). This would give you a leveraged return on an inflationary future, which not only Robertson but also many other underground investors we know are betting on.

Robertson reckons China and Japan will stop buying US government debt as the dollar weakens. This would bring down the price of 10-year T-notes and cause the yield to shoot up.

Of course, the reason Robertson is so sure that inflation is on the horizon is the Fed’s quantitative easing ‘solution’ to the economic crisis, aka the printing money route, combined with the enormous pressure on US Treasurys right now.

I’m amazed at the amount of money the government is throwing at this thing. You don’t even react anymore unless somebody’s talking about $1 trillion. I genuinely admire the administration’s courage in doing what it’s doing, but not the wisdom of it. I look at the TALF (Term Asset-Backed Securities Loan Facility) program, for example, and it’s almost a bribe to get people to put on more leverage … I ask anyone to give me an example of an economy beefed up by huge amounts of quantitative easing that did not inflate tremendously when or if the economy improved . I think what we’re doing now will either fail, or it will result in unbelievably high inflation – and tragically, maybe both. That would mean a depression and explosive inflation, which is frightening.

Even the mainstream media has started to pick up on the threat of inflation. How can you hedge against it other than by shorting long-dated government debt? Here’s what the Wall Street Journal recommends:

1. A managed gold fund such as Tocqueville Gold (TGLDX) or US Global Investors World Precious Minerals (UNWPX). This is a lower-risk alternative to buying gold directly, since the metal itself can be volatile.

2. A mutual fund that bets on long-term interest rates rising. The two best known are the ProFunds Rising Rates Opportunity fund (RRPIX) and the Rydex Inverse Government Long Bond Strategy fund (RYJUX).

3. An absolute return fund that can use derivatives and aims to beat inflation. An example: MFS Diversified Target Return (DVRAX), which aims to beat inflation over 5% a year over a market cycle. The problem: there are no guarantees. Many of these funds are new. And the track record is too short to judge.

4. Refinance your house into a new 30-year fixed mortgage immediately. Rates currently average about 5.32%. If inflation surges, rates will too.

5. Sell long-term bonds. A bond guaranteeing 7% a year for 30 years won’t be worth much if inflation hits 10% and CDs start paying 11%. Treasury bonds have sold off sharply. But corporate bonds haven’t. The yield gap between long-term investment grade corporates and 30-year Treasurys, which was nearly 5% in mid-January, has fallen to 3.5%.

6. If you want guarantees, buy inflation-protected Treasury bonds (TIPS). Right now, the 20-year TIPS yield is about 2.4% over inflation.

Just for kicks, I put the year 1980 in the calculator to see what would come out. If you had $25 then, you would need $64.54 today to purchase the same goods and services. If you had $5,000 then, you would need $12,907 to have the same buying power today.

So, what if you had $850 in 1980?  How much would you need today to match the same buying power? The government tells us that number is $2,194. Perhaps you see where I am going with this.

The previous all-time high in gold was $850 an ounce, reached in 1980. So, by the government’s own calculation (which many have shown to be biased to the downside), you would need about 160% more dollars today to match the same buying power you had in 1980.

So how is it that gold – “the world’s greatest inflation hedge” – is roughly the same price today that it was in 1980, after 30 years of inflation? Keep in mind that gold only hit $850 for one day in 1980. The average price of gold that month was only $650. But the point is still valid.

The biggest reason is… manipulation.

It used to be that you didn’t speak about market manipulation in polite company. Everyone knows those conspiracies don’t exist. Who could do such a thing? We now know those sentiments are woefully naïve. There is now a deep and wide body of evidence that points to willful and ongoing, official and unofficial suppression of gold prices. Much of this evidence has been compiled and documented by the good folks at the Gold Anti-Trust Action Committee (www.gata.org).

Why would politicians, central bankers, commercial banks and Wall Street institutions have any interest in suppressing the price of gold? That’s easy. Gold is like a burglar alarm. It serves notice that politicians are spending more than they take in. And it emits a screeching siren when central bankers inflate the money supply. Wall Street and commercial banks hate gold because it represents competition for your investment dollars and savings… and because they can’t make any money on it.

A rapidly rising gold price signals to the masses that all is NOT right with our money and in the financial system. When the price of gold is going up, savers and investors begin to wonder why in the world they are holding dollars in the bank. There are some VERY powerful interests that would like to keep the price of gold in check.

So, how do they do it?

There are a number of ways the banking and political establishment have tried to keep a lid on gold. The first is simply the war of propaganda. Make gold savers out to be the lunatic fringe and denigrate gold itself. This is where the term “gold bug” came from. It was meant to be a disparaging term for people who believe in sound money and honest government. This is also where the talk of gold as a “barbarous relic” originated.

But that argument falls on its face immediately. If gold is such an ancient “relic” and so unnecessary and un-useful in today’s world of modern finance, then why do central banks still insist on holding gold in their vaults? And why do these same banks use gold among themselves to settle final accounts?

They do this because they don’t trust each other. They know that paper money is too easy to fabricate from nothing, while gold is rare and must be labored into existence. Despite what they say, central bankers know that gold is vitally important to the modern financial system and that there is no substitute for it.

Other than the war of words, the banking and political establishment put pressure on gold in other ways as well. One of these is central bank “leasing” of gold. I put leasing in quotes because usually when you lease something out, you expect to get it back (more on that in a moment). For years, central banks have been “leasing” the gold in their vaults to “bullion banks,” operated by institutions such as Goldman, Citi, Morgan, HSBC, etc.

And what a lucrative racket it has been. For years, the bullion banks received massive amounts of gold from official vaults at the “good buddy” interest rate of about 1% a year. They then sold this gold into the market and invested the proceeds. How much money could you have made in the ‘80s and ‘90s if you were able to borrow billions of dollars at 1% and reinvest those dollars at 5% risk-free… or even higher if you were willing to take on some risk? Let’s just say it was a pretty good deal, if you could get it.

Not only has this provided a welcome source of cheap capital for the insider banks, but a near constant supply of gold to the market meant that there were always big sellers to keep pressure on the price.

By no means is this the only way gold has been manipulated, but it is certainly one way. But for this to work in the bullion banks favor, the price of gold must fall or remain flat. Borrowing billions of dollars worth of gold at $300 an ounce and paying it back at $600 an ounce is a recipe for bankruptcy. So you can imagine the enormous incentive within the system to keep the price of gold from rising.

But they have not succeeded. These gold leasing operations were running full tilt in the early part of this decade when gold was in the $200s and $300s. Gold is now three times higher than it was then. And these banks are on the hook for billions of dollars worth of gold.

But remember, these are insiders. By now you know what that means. They have no intention to pay back the tons of gold they have borrowed. And the central banks have no intentions of calling these loans. To do so would require the bullion banks to buy gold at the market, paying prices several times higher than the price at which the gold was borrowed. This would instantly bankrupt these banks, though we know they would be insolvent anyway without taxpayer bailouts. Therefore, the central banks simply roll the “leases” over, again and again.

So, back to the subject of manipulation. Why would you invest in a market that is so clearly manipulated? First, because it is the right thing to do to favor honest money over fraudulent money. But the other reason is that the establishment’s power to manipulate public opinion of gold and influence the market itself is becoming weaker and weaker, and will soon fail altogether.

I was investing in gold and silver and precious metals equities when gold was $260 an ounce. The cries about manipulation of the market were as loud then as they are today. The manipulation was real. And yet, gold has risen 240% in that time. Gold stocks have soared even higher. Despite the best efforts of the establishment, gold has climbed steadily for eight straight years. And considering what is happening in the monetary realm, this trend shows no signs of abating.

However the manipulation due to central bank leasing operations will most certainly abate. These banks do not have an unlimited amount of gold to sell into the market. And their appetite for doing so is clearly waning. Central banks around the world are now adding gold to their coffers rather than divesting.

And despite propaganda efforts to the contrary, the public is gradually waking up to the fraudulent nature of the fiat-based monetary system and the shaky notion of holding unsound dollars in unsound banks.

In the realm of world finance, gold is a tiny market. It won’t take a huge shift in sentiment to stir up a massive increase in demand… demand that could not be met by the world’s miners and would have to result in a sharp increase in prices. Sentiment has already turned. But not nearly to the degree it will when the specter of inflation returns.

That day is coming. Got gold?

Source:  Gold Is Manipulated…And You Should Buy it Anyway

Gold rose to its highest in a week on Monday before trimming gains as the dollar strengthened against the euro and oil prices eased, analysts said.

“It is mostly a story about the U.S. dollar, equity markets and inflation at the moment,” analyst Eugen Weinberg at Commerzbank said.

Gold had little incentive to move higher, with oil prices sliding, but firm buying once prices moved towards $800 an ounce created a floor, he said.

Gold rose as high as $845.55 an ounce, its highest level since Jan. 12, before trading at $831.85 an ounce by 1516 GMT, down 1.2 percent from $841.85 in New York late on Friday, as oil prices reversed course and slipped.

Demand from the jewelry industry was seen weak this year, accounting for 70 percent of total demand for gold, and falling inflation would also cap prices, Commerzbank’s Weinberg said.

Gold is traditionally bought as an inflation hedge and with inflationary pressures diminishing interest could fade.

“Whilst we recognize the likelihood of spikes above $1,000 an ounce during 2009, we believe that weaker physical demand limits the potential for a sustained rally in the metal,” Investec Securities said in a report.

The bank forecasts gold prices at $825 an ounce for 2009, falling to $800 in 2010 and $750 for 2011, the report said.

A firmer dollar weighed on gold as dollar-priced commodities tend to fall as the dollar strengthens because it makes them more expensive for holders of other currencies. The euro eased to $1.3139 against the dollar on worries about the health of the euro zone economy after a ratings downgrade on Spain and grim economic forecasts from the European Commission.

OIL WEIGHS

Oil edged lower to around $34 a barrel, having risen 3 percent in the previous session.

Sinking oil prices weigh on gold as the metal typically moves in line with crude, because it is often bought as an inflation hedge, and the direction of the oil market is an indicator of interest in commodities.

But dealers said record bullion holdings in SPDR Gold Shares supported sentiment. Gold holdings in the world’s largest gold exchange-traded fund jumped another 5 tonnes to 795.25 tonnes last week.

Platinum was trading at $946.50/951.50 an ounce, down from $946.50 late on Friday. More than 60 percent of platinum use goes to autocatalysts to clean exhaust fumes.

More bad news for automakers emerged on Friday as manufacturers in Japan, Europe and the United States all warned their businesses continue to struggle and outlooks remained uncertain.

“Given this negative dynamic, support for platinum metals prices from its most important demand sector is foreseeably going to be missing this year,” precious metals group Heraeus said in a report.

“Despite this, we do not expect a complete collapse in the platinum-metals prices. As we have been seeing for some months now, new production is going to slow down as well.”

Silver eased to $11.06/11.14 against $11.21 and palladium traded at $181/186 versus $183 late on Friday.

New York gold futures added $32.5 an ounce to $846.8.

Source: LONDON, Jan 19 (Reuters)

Gold climbed 1 percent on Tuesday, reversing earlier losses, as the dollar weakened against the euro on firming U.S. equity markets and oil prices recovered from 3-1/2 year lows.

Spot gold was quoted at $781.70/783.70 an ounce at 1522 GMT, up from $770.60 an ounce late in New York on Monday.

“Oil recovered and the euro-dollar is higher,” said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus. “Those are the main reasons for the move.”

“The outlook from here really depends on the leading indicators, as well as oil and the dollar,” he added.

Gold slipped in earlier trade, extending the previous session’s losses, as the dollar firmed against the euro and oil prices sank, denting interest in the precious metal as an inflation hedge.

In addition, rising risk aversion prompted a sell-off of equities and commodities, while “safer” assets such as the yen and government bonds are soaring.

Tumbling oil prices also pressured the precious metal, which is often bought as a hedge against oil-led inflation. However, prices have steadied in afternoon trade as firm U.S. and European stock markets helped crude to recover.

The dollar, the other main external driver of gold, also turned supportive for the precious metal, tumbling against the euro and a basket of currencies as a rebound in the equity markets cheered investors in other assets.

Investors are awaiting a spate of key data due out later this week, culminating in U.S. non-farm payrolls numbers on Friday, and interest rate decisions from central banks including the ECB, for signs as to the next direction of trade.

“Investors should adopt a cautious strategy today and monitor credit market developments,” said Standard Bank analyst Manqoba Madinane.

“Increased credit market tension could compromise precious metal investment flows, which could mean yet further price declines,” he said.

Elsewhere, imports of gold into India — the world’s largest bullion market — slipped in November to around 35-40 tonnes from 54 tonnes a year ago, the Bombay Bullion Association said.

Among other precious metals, silver rose to $9.62/9.70 an ounce from $9.26.

Platinum recovered after falling sharply on Monday in the wake of weak Japanese car sales data, having ended that session down 9 percent.

Traders are looking ahead to U.S. November car sales data due out later in the session and further news of a possible U.S. government plan to aid ailing carmakers.

“Sentiment remains nervous with concerns surrounding negotiations on a bailout for U.S. automakers this week,” said Barclays Capital in a note.

Ford said on Tuesday it has submitted its business plan to Congress, and that it expects its automotive business’ pretax profits to break even or be profitable in 2011.

Carmakers are submitting restructuring plans to Congress this week before lawmakers reopen debate on a $25 billion bailout plan for the automotive industry.

Platinum and palladium are sensitive to a downturn in car demand, as they are chiefly used as components in catalytic converters.

Spot platinum rose to $803.50/823.50 an ounce from $790.50 an ounce late in New York on Friday, while its sister metal palladium eased to $169.50/177.50 an ounce from $171.50.

By Jan Harvey
LONDON, Dec 2 (Reuters)

Reason #1: I still haven’t had the gas station clerk tell me about gold being the greatest investment in the world. More importantly, there aren’t any new shows out focused on investing in precious metals.

Considering the mainstream media hasn’t caught on to this en masse, it looks like there could still be a whole bunch of buyers if prices start rocketing again.

Reason # 2: Runaway inflation. You see, gold is an inflation hedge. If the dollar starts losing value, gold starts gaining it.

So this begs the question, will inflation stay stubbornly high? Let’s think. The government is projecting a budget deficit over $400 billion for 2008. There are also a slew of bailouts going on to try and save the world’s financial system. This involves more money (aka, more debt). Finally, no presidential candidate has offered any real solutions to cutting this deficit, only new spending initiatives and tax cuts.  It looks to me like inflation will still be kicking butt and taking names for the next few years.

Reason # 3: Uncertainty in the financial markets.

What we’re seeing – the complete unraveling of the financial system – is going to last for a few more years. Expect to see more bank write-offs. Expect to see more bank and brokerage failures. Expect to see more hedge fund collapses.

In the next year alone, 21 different hedge funds are projected to implode. That’s just what’s going on in the hedge fund world.

In the banking world, over 16 different banks and credit unions are on the verge of collapsing.

Should investor interest wane and these banks fail to get funding, then we’ll have an ugly situation on hand. I’ve even read that Fed member Donald Kohn was looking at ways to nationalize major banks.

Imagine that… banks with the ability to access cash at any time they choose. And if they lose billions, then tax payers get hit for the difference.

Yeah, I can see just how this could add to the deficit.

So as you can see, there are three big reasons why gold should move higher in the years to come.

Let’s face it, the case for gold hasn’t changed just because it dropped over a hundred bucks. In fact, gold could fall to $800 and still have its long-term uptrend intact.

This recent drop was nothing more than the fast money getting burned. But you know what? Every time gold prices fell in the recent bull-run marked a great time to buy, not to sell. Gold shows the classic pattern of making higher highs and higher lows.

Until this pattern reverses or the US figures out a way to make the dollar start moving higher, gold will be a great investment. And just because I talked solely about gold here, that doesn’t mean that I think less of silver. In fact, I think buying silver will get you a better return than buying gold.

I explain exactly why I feel this way in my White Hot Profits report. I also give the name of a small company that’s set to rocket. The upside on this company is so phenomenal, that I’d be willing to sell my neighbors three children to get the funding to put into this.

So I hope I’ve given you some confidence here about gold (and silver too). The truth is we’re in a very exciting time. And this might be your last chance to acquire an ounce of gold for under $900 ever again. So you should capitalize on it as soon as you can.

To your success,

Charles P.S. I just started up a new blog and would love for you to check it out.  Just go to http://stockcharlie.blogspot.com/.  I’ll be giving you my unrestricted opinion on economic developments and the effect politics can have on the markets.  Make sure to comment and let me know what you think!

P.P.S. Just last week, readers of IDE’s Global Profits Hotline were able to capture 35 percent in just one day on a Toyota put.  And that doesn’t include the other gains we’ve made this year of 98 percent and 88 percent.  To find out how you can take part in these gains, click here ]