Physical demand was also supportive for the precious metal, traders said, who saw the jewellery demand picking as as the festive period in India, one of the top gold consumers of the world, approches.

Spot gold was at $991 an ounce by 1121 GMT, slightly up from $990.95 an ounce late in New York on Friday, when gold hit a two-week low of $984.70 an ounce.

“The stronger dollar is the reason which pushed gold below the $1,000 an ounce level,” said Eugen Weinberg, Commerzbank analyst said. “On the other hand, we’d expect a pick-up in physical demand if prices decline ahead of the festive season.”

Gold’s inverse relationship with the dollar over the past few weeks has become stronger. It is often considered an alternative asset to the greenback, while a higher dollar makes commodities expensive for holders of other currencies.

The dollar fell against the yen but rose against higher-yielding currencies including the euro and the Australian and New Zealand dollars. But the euro trimmed earlier losses to trade at $1.4655.

“The dollar feels like it has to go much lower from where it is and gold could benefit from that,” said Afshin Nabavi, head of trading at MKS Finance.

Over two weeeks ago, gold hit $1,023.85 an ounce, its highest in eighteen months, within a striking distance of its record high of $1,030.80 an ounce struck in March 2008.

BARGAIN HUNTERS

But bullion’s failure to stay above $1,020 an ounce level has disappointed several investors and prompted an unwinding of long positions, which in the U.S. hit a record high for a third straight week.

“We’re seeing some long liqudiation from the speculative side of the market. The major support is at $975 an ounce,” Nabavi said.

The non-commercial net long position in gold futures on the COMEX division of the New York Mercantile Exchange stood at an all-time high of 236,749 lots for the week ended Sept. 22, figures from the Commodity Futures Trading Commission showed.

“Having said that the reason why gold is gradually falling and not crashing is bargain hunters and physical buyers are picking up the dips,” Nabavi said.

U.S. gold futures for December delivery was up 0.14 percent to $993 an ounce from $991.6 per ounce on the COMEX division of the New York Mercantile Exchange. On Friday, the contract fell $7.30.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , said its holdings stood at 1,094.107 tonnes on Friday, unchanged from the previous business day.

Silver was lower at $15.96 from $16.00

“Silver is generally vulnerable to Comex profit-taking,” said analyst John Reade at UBS in a research note. “The fact that the surge in Comex speculative longs over the past three weeks has struggled to lift silver prices further flags a specific downside risk over the coming weeks.”

Platinum was at $1,273 from $1,272.5 and palladium was at $289 from $288.

Sept 28 (Reuters)

U.S. stockowners got a break yesterday…the Dow rose 236 points. News reports tell us that investors were listening to Ben Bernanke. He’s speaking to Congress…intending to boost investor confidence. But we can’t find anything in Bernanke’s remarks that would give us much confidence.

In fact, consumer confidence is at a record low. And investors couldn’t have taken much comfort from the Fed chief. Bernanke said the economy would start to grow again in 2010…and then, only if the banking system is stabilized. Of course, Bernanke is talking nonsense. He doesn’t know when the economy will begin to grow in earnest again, and if it does begin to grow it won’t be because the banking system is stabilized. You can stabilize a comatose person. You can stabilize a battlefield. You can stabilize a ladder. But stabilizing a crummy bank won’t help the economy grow. For that you need a healthy bank. And the only way a bank can be a healthy bank is if it holds healthy assets and can earn decent money when it makes a loan.

Banks aren’t making loans now because they don’t know who will be able to pay them back…and don’t know what the collateral is worth. They’ll have to wait until this period of price discovery settles down. And that won’t happen until deflation has done its work…until prices have been knocked down to their lowest level. That could happen quickly…or it could take years.

AIG now says it is facing a $60 billion loss. How much is its stock worth? Citigroup (NYSE:C) is nearing bankruptcy, with the U.S. government getting ready to up its stake to 40%.

What will the shares be worth when the operation is over? GE finance says it will get by – maybe. Micro Tech is laying off 2,000 more people in Idaho. And Italy is officially in recession.

One by one, company by company, country by country…the whole world slips into depression.

Oil traded at $39 yesterday. And gold lost $25.

What’s ahead?

We’ll give it to you straight – darned if we know. Stocks could rally from here…or collapse. We have our ‘Crash Alert’ flag up…just in case. The Dow will probably get down to the 3,000 – 5,000 range before this crisis is over. If we’re right, it’s got to lose another 2,000 plus points. You don’t want to be holding stocks when that happens. Might as well get rid of them now – even at the risk of losing out on a rally.

As for gold…

Chris Wood says it will reach $3,500 by next year. Chris is more right than most analysts. In his newsletter, Greed and Fear, he warned that the bubble in sub-prime lending was going to blow up… The Wall Street Journal says he’s the “man who saw it coming.”

Why will gold soar? “It’s the only form of money or credit not contaminated by the credit system,” says Chris. Which explains why it has risen – even while inflation expectations are so low. Investors are not buying gold as a protection against inflation; they’re buying it to protect themselves from deflation. Yesterday, as deflation expectations subsided, so did the price of gold.

Wood is primarily an Asian analyst. Which is to say, he spends most of his time trying to figure out what it going on in the Far East. He’s watched Japan for decades. And now he sees the threat of the entire world entering a Japan-like slump. How to avoid it?

Nationalize the banks, says Wood. And create a ‘bad bank’ where you can dump all the toxic assets. That’s what is already underway…more or less.

Wood believes nationalization is the only way to get the rottenness out of the banking system – quickly. He’s not the only one. Nouriel Roubini is for it. So is Nobel Prize winner Paul Krugman. They believe, as we do, that the banking system is still resting on the sand of trillions in bad loans and radioactive investments. Taken as a whole, the entire banking industry in America is insolvent. That’s another reason banks aren’t making loans – they don’t have any money. And deflation continues to wash out the loose sand and expose the weak foundations of the banks’ assets. It will also undermine their collateral. Until this process is over…the system cannot begin to put itself right.

The banks mustn’t be stabilized as they are, in other words. They need to be cleaned out first.

We don’t disagree. But if it were up to us, we’d give nature a chance. The market seems to be doing a decent job, as near as we can tell. The value of everything on earth put together is about $100 trillion. In the space of less than two years it has wiped out about a third of the entire capital value of the planet.

If our hotline rings and Mr. Obama is on the phone, we know what advice we will give: Let the banks fail. Let them go broke. Let them be liquidated. Then, the surviving banks could buy up the decent assets and emerge stronger than ever.

*** With tax season upon us, everyone is scrambling to figure out what they can and can’t count as deductions. Turns out, with some clever accounting, cat food and even swimming pools can be added as deductions on your federal income taxes. But what about a brand-new car? Gunner and Jim at Penny Stock Fortunes have the answer, below…

“The folks in Washington are ready to make that happen now with plans to make the total cost of auto loans tax deductible – along with other rebate and incentive programs – to try to persuade those with older vehicles to trade in their junkers for new rides.

“The Senate’s tax deduction bill is pretty straightforward. Those with a new auto loan would earn an above-the-line deduction for loans up to $49,500. The second proposal supposedly has environmental benefits. Those who sell an older vehicle for scrap would receive a voucher to aid in the purchase of a newer, more-efficient vehicle.

“It’s difficult to say if either of these proposals will actually help revive auto sales. Some industry experts believe that a more effective fix would need to include measures to make it easier for buyers to secure auto loans in the first place.

“Of course, these are mere proposals – not new laws. And it is unclear at the moment whether any of the measures will become official, or for how long. But the fact that legislators are discussing the problems of the auto industry is a crucial step. Auto stocks will begin to turn around once investor confidence turns. Legislation – whether it will be effective or not – could very well spark a rally in this sector.”

As for right now, the data look bad at best. According to estimates from the National Automobile Dealers Association, 900 dealers closed their doors in 2008. That’s bad for them, but potentially good for one of the companies in the Penny Stock Fortunes portfolio…which is up to the double digits in just a couple weeks.

*** A ‘Slumdog Millionaire’ DR reader writes:

“Thank you for making me feel like the biblical Noah. I am Dinakarananda from India and I am grateful to the entire DR team. I have been an avid reader of DR for the past two years. I am very happy that I stumbled on DR soon after I landed in Melbourne and looking for some Australian business news website that was sensible and truthful. I have been an avid investor in India since 1993 and in the US since 1999.

“I cashed out almost all my investments in equities and bought 130Kg of gold back in October-November of 2007. DR was one of the major factors that influenced my decision and I am happy every minute of my life now to have found DR.

“Thanks a lot to Dan Denning, Bill Bonner, Mogambo guru and all of you in the DR team for guiding my ark and investments. One of those slumdog to millionaire stories inspired by DR I presume. I would be happy if my email finds its way to the reader email that is occasionally published and if it helps a few more slumdogs around the world.”

Until tomorrow,

Bill Bonner

Source: Give Liquidation a Chance!

Platinum bottomed at $1840 then moved upward in two sharp steps on the Nymex, ending at its intraday high of $1900/oz., up $35. For the week, platinum was down 2.9%.

Silver pushed to a high point of $16.50 at the noon hour, but eased in the afternoon hours to close at $16.37, up 22 cents. For the week, silver lost 2.8%.
(Click here for charts)

Though it was a day of rather modest gains, anything was better than the pounding the precious metals absorbed on Thursday. That gold quickly recovered from a dip under $850, and that silver held comfortably over $16 for the whole day, is certainly, while not confirmatory that the metals have bottomed, encouraging that that might be the case.

In addition, gold moved against a rising dollar, although it was supported by sharply higher crude prices.

The Hightower Report wrote of the ongoing tension in the market thusly: “While it might take a little longer to transition the bull camp in the gold market back to a classic inflation posture, from the recent flight to quality argument, it is difficult to suggest that a recovery in the US economy will be a long term bearish development for the gold market.

Certainly a host of buyers over the last year have banked on a persistent decline in the Dollar and in turn piled into gold. Certainly seeing fears of a historic financial debacle in the US added to the bull camp and therefore seeing the threat of a debacle in the US decline is naturally cause for a wave of long liquidation in gold.

However, as was seen in the early action Friday morning, gold can rise in the face of residual Dollar strength and gold can also re-embrace the ongoing potentially historic inflationary threat that could unfold in the event that the US economy gets back on track. In short, the gold market appears to be facing a tug of war between an exodus of flight to quality longs and a possible influx of fresh buyers off a rekindling of classical inflation prospects.”

James Moore, of TheBullionDesk.com remains cautious, writing that, “We still see gold remaining under pressure in the short term, with a substantial break below $850 potentially triggering a move back to technical support located around $836.75.”

Ned Schmidt, editor of the Value View Gold Report wrote that there’s “little doubt that recession is now the situation in both the U.S. and Canada,” and consequently “That reality has broken the short-term euphoria that had been chasing returns in real assets, from oil to gold to agri-food commodities … With a recession mentality now in place, commodities are being sold …”

Despite gold’s down day on Thursday, open interest showed a big increase…up 3,134 contracts. Doubtless there was some long liquidation/short covering, but it was equally obvious that someone was either piling on the shorts, or spread trades, or both….as those are the only two reasons that o.i can increase on a price decline. Silver’s o.i did the natural thing…it went down 955 contracts.

As far as Friday’s COT is concerned (for positions held at the end of Tuesday’s trading), there isn’t a lot to report. Silver showed no changes worth mentioning in any category…and in gold, the Non-Commercial category (tech fund country) showed a net long position increase of 4,115 contracts. However, the concentration ratios are just as extreme and obscene as ever. Net of spreads, the ‘8 or less’ traders in silver are short somewhere between 65-70% of the open interest…and in gold, the ‘8 or less’ are short somewhere in the vicinity of 80% of the open interest…net of spreads. Why the precious metals miners aren’t up in arms about this, is one of the greatest mysteries of our age…and is the complete explanation as to why the prices of both silver and gold are languishing where they are today. The ‘8 or less’ traders (bullion banks) completely control the prices in both the gold and silver markets…that’s all there is to it.

Here’s a bit of a giggle. This cartoon was sent to me earlier this week, and pretty well sums up what the Fed’s and Treasury’s priorities truly are. As if we didn’t already know….

I’ve got a couple of stories today, neither one of which is related to the precious metals market. They are related to food and farming. I was raised in farming country back in the 50s and 60s, and although farming has changed enormously since then, I still keep up with what’s going on ‘back on the ranch’. As they say…”you can take the boy out of the country, but you can never take the country out of the boy.”

The first story is about some of the serious problems facing farmers in North America today. It’s bad enough that they have to worry about the weather, pests, soil conditions, etc…but the modern day derivatives market can now be found in the farmhouses of our nation as well. Today’s story is from the Southwest Farm Press and has the rather ominous title of “The Stench of Fear in the Wheat Industry”. If you thought farming was simple, I’d like you to think about this story the next time you munch on a bun or put a spoon full of cereal in your mouth. It’s linked here.

The second story shows what happens when demand outstrips supply, or when the end consumer can no longer afford to pay world prices for food. We are all fortunate enough to have been born into a society where the cost of food is not much of an issue. We should be grateful, appreciative and thankful that it is that way now, because there may come a time when it isn’t. The story is from the Washington Times and is entitled “Global Food Riots Turn Deadly.” It’s sort of a follow-up story to one I ran yesterday. If things continue the way they have been for the last few months, then we can expect this problem to become much worse…and even more ugly. Click here.

Today’s “Blast from the Past” is from 30-odd years ago. I’m afraid I remember it all too well. Where the heck is the time going? I’m sure this piece will bring back a few memories. Click here.

With the US economy now acknowledged to be in recession, the powers that be are going all out to ensure that this doesn’t turn into a full blown depression. I’m sure that the Wall Street press will be radiating sunshine and moonbeams all weekend in an attempt to arrange an ‘everything’s fine’ open on Monday.

Enjoy the rest of your weekend, and we at Casey’s Daily Resource Plus will be here early on Tuesday morning, and we’ll see then.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

What we’re thinking about is that we have entered a much more dangerous and troublesome period in world financial history. The planet was leveraged up. Now it is going to be de-leveraged.

We have been talking about the battle between the forces of inflation and the forces of deflation. It is not clear which way it will go…or when. The feds – who favor inflation – seem to have the upper hand one week. The next week, Mr. Market – who seems to have thrown his lot in with the force of deflation – seems ahead on points.

Meanwhile, many of the foot soldiers are lost, separated from their units…shooting at their own men…and often blowing themselves up. Many don’t know which side they are on and are willing to switch sides at any minute. But in the fog of war you always get a lot of people bumping into one another. That’s why we get such peculiar reports from the front – such as when the feds cut short rates (which is inflationary)…but long rates nevertheless go up (which is deflationary). Or when the unemployment numbers go up (which is deflationary)…causing the dollar to fall (because investors expect another inflationary rate cut!)

No, we don’t know exactly which way it will go (so don’t ask us when gold will hit $2,000…or when the Dow will break below 10,000). But it scarcely matters. Because, we’re like the innocent civilians caught in the crossfire. Sooner or later, our assets are going to be shot down…and our liabilities are going to blow up. In other words, dear reader, this is not a war in which you should try to speculate on which side will win…this is a time to keep your head down.

It’s a Liquidation War…in which mistakes will be corrected BOTH by inflation and deflation. Take stock prices, for example. Our guess is that they’ll be taken down – either by inflation or deflation, or both. Prices will fall either in nominal terms, in other words, or relative terms. Already, adjust the Dow to the price of gold, or wheat, or oil, or copper and you get a very different picture. Instead of being flat over the last 10 years…the Dow is down a half to two-thirds.

“It’s the Greater Depression,” said Doug Casey at dinner Monday night, with a satisfied look on his face. “I’ve been expecting it for a long time. I was a little early. But now, it seems to be finally getting going.”

What happens in a Greater Depression? We don’t know, but we think we’re going to find out.

And we imagine its most important feature will be a general markdown of debt and the relative value of Western assets – stocks, houses, currencies, and labor. The East and developing world is on the rise; even if it stays put, the West, in relative terms, will sink.

Some assets will go into default – which is what is happening in the financial industry lately. UBS (NYSE:UBS) alone has lost 38 billion. Hedge funds are going broke. And the captains – present and past – of the financial industry are pointing fingers at each other.

Many people say we’ve seen the bottom for equities, and the financial sector in particular. Maybe in nominal terms. And maybe in the East and the developing world. But in America, in real, inflation-adjusted terms, we’d expect more of a selloff. The S&P is still selling for more than 18 times earnings; there is still plenty of room on the downside.

The financial sector looks particularly bad; there’s probably a lot more bad news coming. And since it was the big winner for the 25 years, it probably needs a bear market of at least 5 or 10 years. At the beginning of the boom in finance, which began roughly during the first Reagan Administration, people still wanted their children to grow up to be doctors, lawyers and businessmen. At the end of it, every mother’s son was encouraged to into ‘finance.’

But now, the bubble in finance is over. It will probably take many years before values appear and prices begin to rise – just look at what has happened in the NASDAQ. Or look at our favorite example – Japan. Many people thought Japanese stocks were a once-in-a-lifetime bargain after the Nikkei Dow crashed in 1990. Well, they’re an even bigger bargain today!

*** “Señor Bonner…I have to tell you. I won’t be able to work here any more.”

Francisco, who has been our ranch foreman, quit. He explained why:

“There’s no money in cattle now. So my father sold our ranch over in Angustura. We’re buying a big farm in Bolivia. It’s about 7,500 acres. Very rich. And with lots of water. It’s not in the high part of the country. It’s out on the eastern plain, where the Amazon begins.

“The place we’re getting is practically virgin land. It was farmed many years ago, and then abandoned. I don’t know why. And we’re going to plant soybeans. You just stick the seeds in the ground; three months later you have a crop you can market. And with prices this high, we can’t resist.

“Farming soybeans is about the easiest farming there is. You only have to go out to the farm a couple of times. And you don’t need any labor – it’s all mechanized. Labor is cheap in Bolivia, but it’s still a lot easier when you don’t have to deal with farm labor. And now with these genetically modified plants, it makes it easy to kill the weeds. We just spray herbicide from the air; it kills everything but the soybeans, because they’ve been modified to resist it.

“We’re going to plant about 1,000 acres this spring. Then, we’ll add another 1,000 next year. Some of the land is still covered by jungle. It’s just the opposite of here. Here it never rains. There, they get plenty of rain. We would plant more land, but the Bolivian government has banned clearing any more jungle. At least, there’s some restriction on it.

“And in Bolivia, the government lets you sell your crop on the world market, without taking half of it. [He was referring to the Argentine government's 49% tax on soy exports].

“Everybody is planting soybeans. But I’m not worried about the price going down. It can fall in half, and we’d still make money.”