Central banks move into riskier assets

Emerging economy central banks are also allocating more gold into their reserves, which isn't mentioned in this article.

http://www.gata.org/node/12425

China's Central Bank Willing To Share $3 Trillion

http://www.forbes.com/sites/kenrapoza/2012/06/20/chinas-central-bank-willing-to-share-3-trillion/

Venezuela May Move Reserves From U.S. to ‘Allied’ Countries, Says Lawmaker

http://www.bloomberg.com/news/2011-08-16/venezuela-may-move-reserves-from-u-s-to-allied-countries-says-lawmaker.html

China to Add Staggering 5,042 Tons of Gold for 10% Reserves

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/2/8_China_to_Add_Staggering_5,042_Tons_of_Gold_for_10_Reserves.html

C.banker urges China to cut U.S. debt holdings

http://www.reuters.com/article/idUSTOE70902020110110

Citi: Central banks will dump USDollars

http://www.businessinsider.com/citi-central-bank-reserve-selling-2010-11

Iran bought gold

http://www.bloomberg.com/news/2010-10-31/iran-switched-15-percent-of-foreign-exchange-reserves-into-gold-mehr-says.html

'Gold is the best asset class to be in'

I generally agree with this article, with the exception of the last sentence, although as usual, the mainstream investment analysts have the price targets all wrong. They will be proven to be conservative--again, in my humble opinion.

Regarding the last sentence in the article, there are absolutely counterparty risks with owning gold and silver ETF's, specifically GLD and SLV. Read the documents before investing.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/7995084/Gold-is-the-best-asset-class-to-be-in.html

The trouble with chasing performance is that you often join the party too late. Yet gold continues to defy the odds and if the great and the good of the investment world are to be believed, the gold price has further to go.

Last week, the analyst rated the most accurate forecaster of the gold price said the precious metal would keep rising.

"You can't mine gold," say nervous investors who fear that the massive printing of money by central banks under the guise of quantitative easing can only lead to runaway inflation. Sceptics of gold as an investment point to the costs of owning it and the fact that it produces no income.

Finding an analyst who is bearish on gold is a tough task; most appear to believe that gold is a worthy asset, not least because of the continued economic uncertainty. But four years ago The Sunday Telegraph found one. Nick Goodwin, a much quoted South African mining analyst, warned people against jumping on the bandwagon when the price stood at $600 an ounce.

He said: "I have been following gold for 30 years and gold is a bitch. Why weren't people buying gold when it was $250 but want to buy it at $600? Gold has had a hell of run and it needs to take a breather." Mr Goodwin was proved mightily wrong and today the rationale for investing on gold stands firm.

Mr Hitzfeld said further increases in the price were "preprogrammed". He said factors exerting upward pressure were renewed fears among investors sparked by recent loosening of monetary policy by the US Federal Reserve and reforms in the Chinese market that gave investors there greater access to the metal.

"The Chinese government has encouraged consumers to invest in gold, and with great success. Chinese demand will now increasingly be felt on the global markets," Mr Hitzfeld said.

Although China is now the world's largest gold producer, this production would be insufficient to meet domestic demand, so China would increasingly import gold, draining supply from the rest of the world and putting upward pressure on the price.

The Chinese government's gold reserves have also risen sharply and there is scope for further increases, as they account for just 1.7pc of foreign exchange reserves, Mr Hitzfeld said.

Analysts from ANZ, the Australia and New Zealand banking group, agreed. Describing gold as "the best asset class to be in", the analysts, Mark Pervan, Natalie Robertson and Andrew McManus, said: "Gold has been the strongest performing and least volatile major commodity and financial asset class in the past 10 years – we expect this trend to continue.

"We see more upside for gold prices as the key drivers of a safe-haven and currency-hedge demand are joined by the emergence of strong demand from China and India.

The issue for investors who have yet to invest in gold is whether it is too late. Mr Soros may be a gold bull at the moment, but he still has his reservations. He said in January: "When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold."

I left out analyst price targets by design, as they are meaningless. I also left out the vehicles on how to own gold--I highly recommend reading the whole article. The article doesn't mention gold- and silver-related assets like mining shares.

And this is the last sentence I disagree with. Under normal market conditions, ETF's are good for tracking physical spot prices. But when markets aren't properly functioning in an orderly manner (which is one of the primary reasons for possessing physical bullion in the first place), the paper contracts of futures markets and ETF's could decouple from the spot price if there is a run on physical inventory. In other words, there are multiple claims on the same ounce of gold as they are not 100% backed by inventory.

Alternatively, follow Mr Soros and invest via an ETF – "physically backed" ones that own actual gold should be the safest.

See disclaimers in the side bar.

Disclosure: long gold and silver, long gold and silver mining shares.

China favors Euro over USDollar

Be careful who you accuse of currency manipulation. They may stop buying your bonds.

http://www.emirates247.com/markets/gold/tons-of-gold-imports-turn-to-dust-on-arrival-2010-08-15-1.279082

China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.

Congress, Geithner, Bernanke and Obama have been incessantly accusing the Chinese of manipulating their own currency lower in order to maintain a competitive advantage in exports. What our government officials don't understand is that the Chinese are merely pegging the yuan to the dollar, so any manipulation the Chinese is doing is a direct result of the US Treasury and Fed manipulating the dollar.

Also, our leaders should be mindful that you shouldn't rattle the cage of your biggest creditor. As threatened, the Chinese are net sellers of US Treasury bonds, as they seek diversification away from the USDollar and dollar-denominated assets. They are buying gold and other foreign currencies to reduce their exposure to a debased reserve currency, the USDollar.

Threats of retaliation by raising tariffs in a trade war is exactly the wrong recipe for stimulating the economy. Perhaps our government economists should study the Great Depression to see how well nationalistic trade wars worked out.

China may switch to currency basket

This is the latest hint that foreign central banks are diversifying their reserves away from the USDollar.

http://www.marketwatch.com/story/china-may-link-yuan-trade-to-currency-basket-2010-07-23

China should cut US Treasury holdings

http://www.reuters.com/article/idUSTRE66I05U20100719

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.

Uh-oh.

Chinese accumulating gold

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=106850&sn=Detail&pid=102055

...China's Cheng Siwei, a high-ranking economic representative is quoted as follows: "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not stimulate the market...China is buying the dips."

China buying more gold

http://www.reuters.com/article/idUSTOE63G00P20100417?type=marketsNews

Bond Peddler Geithner

Last week, I anticipated Treasury Secretary Tim Geithner's bond-selling trip (or perhaps more appropriately, begging mission) to China. He will have the unenviable task of trying to convince Chinese leaders that they should continue to buy US Treasury bonds, even while he, Bernanke, Obama et al, continue to trash the dollar. My prediction: one lie begets another lie.

Mr. Geithner will reassure the Chinese leadership that US Treasuries are still safe, and that US leaders are committed to reducing our national debt and curtailing our deficits. Sounds good and well, but actions speak louder than words.

In turn, the Chinese will respectfully nod their heads in agreement, all the while stockpiling their reserves with hard assets like commodities, precious metals, energy, and base metals--in a diversification away from dollar-denominated assets.

Good luck, Tim--you're going to need it.

More crooks

Stephen Obie, Director of Enforcement with the Commodity Futures Trading Commission (CFTC), which oversees the futures exchanges, is on Fox Business News preaching about transparency, oversight, regulation, and enforcement, and waving his hands on TV like a Dale Carnegie salesman. He's saying how the SEC and investors didn't oversee and perform due diligence on Bernie Madoff.

What's unbelievable is that the commodity pits are rife with manipulation and corruption beyond imagination. Big commercial traders and banks have artificially suppressed prices on the futures markets for years--yet, the CFTC never investigates the commercials--they know where their bread is buttered. Naked shorting makes it possible for the commercials to dampen prices on commodities like gold and silver, with no intention for physical delivery on settlement date. In other words, they'll sell short a futures contract with no inventory, and no intention to deliver at that date. These are phantom contracts, much like the toxic credit default swaps which were uncollaterized. These naked short-selling commercials are selling vaporware, and their massive short positions alone can drive prices lower due to no other reason than market manipulation.

Instead, the CFTC goes after the small-time speculators for minor non-compliance, but they will not reveal who takes large positions on either side of a trade--including the commercials who manipulate the markets. Transparency? What a crock--Fort Knox hasn't had an independent audit for its gold reserves since the early 1950's. Many conspiracy theorists are saying half of what is reported in vaults has either been sold off or leased, yet is still counted.

Eventually, this con game will be exposed when a seller will default, unable to meet physical delivery demands. That day is approaching, as buyers in the middle east are scrambling to buy gold and dealers are unable to meet that demand.

At least the Chinese government is warning us

BEIJING (AFP) – China warned Wednesday it would not keep lending money to the US economy indefinitely, even as new data showed it had consolidated its position as the top buyer of American government bonds.

"China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis," the China Daily said in an editorial.

The warning from the state-run newspaper, an English-language daily that mainly addresses a foreign audience, came after the US Treasury Department reported a steep increase in Chinese holding of US Treasury bonds.

China held 652.9 billion dollars of US Treasury bonds at the end of October, up 11.2 percent from 587 billion dollars a month earlier, when China became the largest creditor ahead of Japan, according to the data released Tuesday.

Japan remained in second place, with total holdings of 585.5 billion dollars at the end of October.

The China Daily said that, given the global economic crisis , the consequences would be serious if China and other nations stopped channelling money into the US economy.

"Interest rates in the US would rise to undermine that government's efforts to bailout distressed financial institutions and companies," it said.

China was also constrained by a lack of other places to put its money, according to the paper.

"With few options to invest its increasing reserves safely and profitably, China may thus have to buy more US Treasury securities in spite of growing domestic skepticism that such purchases may incur huge losses later," it said.

However, as China and other nations help prop up the US economy, the United States should use the window of opportunity to undertake necessary reforms, the China Daily said.

"The current strong foreign appetite should not be taken by the US government as solid proof of the long-term value of its Treasury bonds," it said.

"Instead, it should race against time to undertake painful but critical reforms to revive its economy before such demand peaks any time soon."

The return of the gold standard? Why gold is poised to explode...

Blue-collar, white-collar, manufacturing, services, etc.---it doesn't matter what type of jobs--the more the merrier, altho it would be nice to have higher-skilled job growth.

If you think about it, who invented the internet? (No, it wasn't Al Gore). It was a British scientist educated in Switzerland (or it was a Swiss educated in the UK). But as far as monetizing the technology, most of the $$ were generated here, as well as accompanying technologies and services. It's okay to be a consumer-oriented economy, as long innovation continues domestically.

I think that's what dawg was sarcastically inferring--we can't go backwards.

To be honest, the only way we go back to real economic growth--without inflation and the abuse of leverage, is to go back to the gold standard. History has shown time again that when sovereign governments abandon gold-backed currencies, paralyzing hyperinflation becomes the unintended consequence down the road. With fiat currencies, central banks are permitted to print money unjudiciously--most of the time to try to dampen deep recessions (sounds familiar?). Deflation and avoidance of The Great Depression category 5 is the concern du jour, but the Coming to Jesus day will arrive soon enough, and we will all pay for these bailouts, literally with higher taxes and a higher cost of living (and accompanying lower standard of living).

Think about it: with our reserve banking system, a 20% run on demand deposits would make every single one of our major banks insolvent. This is not just a mortgage crisis, a credit crisis, etc.--it's a crisis of confidence. And with flimsy fiat, finance-based economies, confidence is everything (since there is no gold backing up the currency).

Of course, resetting of a new gold standard would mean a level of around $1500/ounce, which would cut everybody's cash accounts in half, but that's what it would take. It happened in the early 30's, when FDR declared gold would be set at $35/oz, instead of the previous $20/oz. The federal government then went on to confiscate all individually held gold (with the exception of wedding rings), or citizens risked 10 years of prison and a $10,000 fine. All that gold is now at Fort Knox. This was due to the profligate Treasury printing presses during the easy money 20's, which in turn caused the Great Depression of the 30's. (See any parallels?).

I could go on and on about what's going on with the currency and gold markets right now, with the manipulation and placating of short-sellers, but I'll summarize with this: if JP Morgan and Citibank are openly predicting $1500/oz gold for next year, and if they are accumulating gold bullion as we speak (as are Dubai, Saudi and Chinese governments), then why are they selling short gold? Could it be they want to keep its price artificially low, in order to boost their purchases? Thing is, it's a dangerous parlor game, as short sellers have to deliver against futures contracts, and there are rumors that these shadow contracts entail no deliveries. But that is precisely why the two major banks are accumulating physical gold bullion, because when the shorts are covered (i.e. gold explodes upward in price), their inventory will (partially) offset their losing sales contracts.

Another compelling case for gold: The Treasury is printing trillions of dollars for bailouts--equal to half the US GDP. What happens when you have oversupply of a commodity--including a local currency? It removes scarcity, plummeting that currency. What happens when your currency is devalued? Gold soars--it's a mathematical reality, not some wild rantings of a gold bug.

Look, gold has been the absolute worst investment vehicle from 1980 - 2000.

But in the 70's, it was the absolute best--even with inventory costs taken into account. Gold went up 23-fold in that decade. Gold mining shares went up twice that level. If many prognosticators are saying this run is much worse than 73-74 and 78, what does that say about the price of gold? Does anybody think post-2008 will be a replay of the roaring 80's and late-90's stock market booms? Or are we headed for a very subdued 70's-like stagflation scenario? You decide.

BTW, the Big 3 is old news, despite the headlines. I called their demise 18 months ago, and their shares are down a nice 98%. It's done, finito. The next shocks will be a result of de-leveraging and the precipitous decline of most currencies and US long-term debt. Whoever buys US 10-year notes or Treasury bonds is going to get crushed. Taking on all that risk (after all, one could argue the US government is insolvent), and yet earning 2% on your money? When inflation rears its ugly head, and interest rates are in the double digits, those bonds will be worth less than Monopoly money.