Australian perspective on gold

http://www.moneymorning.com.au/20100329/china-buys-gold.html

It's instructive to roam outside the US to get a worldwide perspective on asset values. Australia's central bank just raised their interest rate for the fifth time in six months, in attempt to dampen inflation as their economy recovers. Nice problem to have, huh?

The Chinese are now the world's largest producer of gold, and the Chinese government is gobbling up available output--domestically and offshore, either via direct purchase or through investments in mining companies. Due to ramping up of their domestic production levels, their reserves will be kaput in 2016. Meanwhile, they are encouraging their citizens to consume gold, after repealing the ownership ban in 2001. Sure sounds like they are counting on their citizens to be the next source of gold when there's none left in the ground.

Sovereign funds no longer buying US Treasuries

http://www.bloomberg.com/apps/news?pid=email_en&sid=avsB.BdWGdIE

“Foreign central banks stopped buying Treasuries in January,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If this were to continue, if China were to stop recycling its dollars into U.S. Treasuries, it could have dire implications for Main Street America in that mortgage rates could move higher.”

Emerging markets stepping up to the gold window

Foreign central banks are snapping up gold bullion for their reserves for several reasons. Foremost is their diversification away from the USDollar, as too much exposure to the sinking dollar has caused their asset values in reserves to decline. Their economies are stronger relative to developed countries, so they need to boost their gold reserves accordingly to reflect their newfound economic health. In other words, their strong currencies need to be backed by gold vs. the USDollar.

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=8970ea5d-3ab9-4ad2-87a8-f76cca63c961

In the past, central banks could sell their gold holdings, in order to suppress the price of gold, as low gold prices enable sovereign governments to borrow at low interest rates. This support allows governments to run perpetual deficits and reduces their debt obligations in the form of low-yielding bond issuance.

But with mounting fears that governments worldwide are reckless in their deficit spending--debasing ALL currencies in the process, gold as re-emerged as a safe haven for monetary store of value.

In another article, the Reserve Bank of India hinted at buying the balance of the IMF's planned 403.3 tons of gold, of which 201.3 tons remain. India purchased 200 tons two weeks ago in a surprise move, as most observers expected China to buy the bulk of the planned sale. However, purchase of the IMF gold by ANY central bank is bullish for the yellow metal, as it further validates central bank net buying--not net selling.

http://www.mydigitalfc.com/plan/india-plans-buy-more-gold-imf-410

Correction in gold may be coming near-term

The IMF is planning to sell massive quantities of gold, almost 13 million ounces. The proceeds will be used to fund loans to poor countries. This will put selling pressure on the price of gold near-term, and will present a good opportunity to add to gold and gold-related holdings. If prices correct, this may be our last opportunity to buy gold under $1000/ounce.

Central banks from Russia, China, and India will be net buyers of this gold, which should provide some support. Mid-term and long-term, with renewed interest in India and newfound interest from China, the investment thesis for gold remains bullish.

http://www.imf.org/external/np/exr/faq/goldfaqs.htm

Peter Schiff's prediction--in 2006!

See how accurate he was--in the face of a consensus of detractors who insisted he was part of the lunatic fringe.

"The United States' (economy) is like the Titanic and I am here with the lifeboat trying to get people to leave the ship," said Schiff, president of Darien-based Euro Pacific Capital, a brokerage firm that specializes in trading foreign equities.

"I see a real financial crisis coming for the United States,"Schiff said. "I am helping my clients protect themselves."

Schiff likes the Titanic metaphor. Everyone thought the ship could never sink, just like most people think the U.S. economy can't, he said. But people were wrong about the Titantic, and they are wrong about this country's economic stability, he said.

Schiff sees a mammoth iceberg ahead that's going to obliterate the U.S. dollar. The investors' lifeboat, he said, will be to put their money into non-dollar assets and foreign currency.

Besides being down on the dollar, Schiff said U.S. equities are substantially overvalued and bond prices are on the verge of collapse.

Here's his take on real estate:
"The combination of artificially low interest rates, foreign central bank intervention, an irresponsible Fed, excessive credit availability, the proliferation of low or no-down payment, adjustable-rate, interest-only and negative-amortization mortgages, a can't-lose attitude among speculators validated by ever rising 'comps,' the complete abandonment of lending standards, widespread corruption in the appraisal industry, rampant fraud among sub-prime lenders and the moral hazards associated with loan originators reselling loans to buyers of securitized products who perceive minimal risk and an implied government guarantee, has produced the mother of all bubbles."