Last year, central banks were net buyers of gold for the first time since 1988. In fact, they bought the most gold in any year since 1964. Total central bank holdings worldwide, according to the World Gold Council, grew by 425 metric tons last year.

True, that’s only 1.4% of the gold central banks already held. But it’s the trend that matters: China, India, and Russia all added to their reserves last year. And it fits into a bigger picture – growing distrust of the world’s reserve currency.

“I think we already have a gold standard…created by the marketplace,” says the inimitable Marc Faber. Not just the central banks, either: “We have the [exchange-traded funds] that have proliferated, and we have more and more physical buying of gold.”

At least there’s more physical buying when it comes to the ultra-wealthy who can buy huge bars of the stuff. Retail investors who buy coins? Not so much.

Sales of the popular Austrian Philharmonic gold coins have crashed 80% compared with a year ago. The numbers aren’t as dramatic in the United States, but still, sales of Gold Eagles in February fell 26% from year-ago figures.

“There’s no more upward surge in gold price to titillate buyers,” explains the Austrian mint’s veteran marketing director Kerry Tattersall. Plus, “a lot of people feel more relaxed about the economic crisis.”

Then again, maybe most of the folks who have the means to buy gold have done so already…and those who don’t are buying silver. Sales of US Silver Eagles in the first two months of 2010 are up 40% compared with the same period in 2009, according to CPM Group. Many buyers are waiting up to three weeks for delivery.

Addison Wiggin
for The Daily Reckoning

Gold Role Reversal: Central Banks Now Net Gold Buyers originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Chris Mayer, editor of Agora Financial’s research newsletter Mayer’s Special Situations, has been able to cut through the noise to make several determinations today:

“We got earnings out of gold miner, Northgate Minerals (AMEX:NXG). Northgate produced a record amount of gold last year and $187 million in operating cash flows. The market values Northgate at only $880 million. That means NXG trades for less than 5 times cash flow. It also finished the year with $253 million in cash and no long-term debt.

“The big cloud that hangs over Northgate is that its Kemess mine is in its final days. Mine life has been extended to the first quarter of 2011, but after that, Northgate will lose a lot of cash flow. Its remaining two mines, Fosterville and Stawell, are high cost. They produce gold at cash costs of $655 and $633 an ounce, respectively. So the market worries about that.

“The big positive is the Young-Davidson deposit, on which construction will start this summer. Production should start in 2012. This should be a very good mine with cash costs of only $306 an ounce and a 15-year life. It has 2.8 million ounces of gold, about 75% of NXG’s total reserve base.

“This will be the next great source of wealth creation for Northgate and is its most valuable asset. NXG has a good track record and the stock is a solid way to play gold. With its strong balance sheet, low-risk profile and the Young-Davidson project, NXG should be able to deliver good returns to shareholders even if the gold price goes nowhere.”

One key Northgate mine will soon be going offline, but the Young-Davidson deposit should be the “next great source of wealth creation” for the miner. If you’re interested in learning more, the best way to stay up-to-date on this and other findings by Mayer is to review the options available at the Agora Financial research and reports page.

Best,

Rocky Vega,
The Daily Reckoning

P.S. Speaking of Vancouver-based opportunities… Chris Mayer will also be speaking at the annual Agora Financial Investment Symposium in July. You can find additional details about the event and how to attend here.

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

Northgate Minerals Corp (AMEX:NXG) – Soon Building a “Great Source of Wealth Creation” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Like today, for example, when I am told that it is “essential” that I curtail my frenzied buying of gold, silver and oil this month so that one of the whining kids can go to the doctor (or dentist, I forget which) for some real or imagined discomfort, ache, pain, open wound, bloody discharge, festering sore, oozing abscess or gangrenous limb, like I am made out of money or something.

Normally, I would explain, with the patience of a saint, for the thousandth time, how the Federal Reserve is creating waaaaAAAAAaaaay too much money and credit so that the federal government can borrow and spend waaaaAAAAaaaay too much money, which is this selfsame “waaaaAAAAAaaaay too much money and credit” created by the Federal Reserve in the first place, which is a kind of strange circular logic, I admit, but which I think only serves to prove the bizarre, incestuous nature of the whole thing, but without any bodily fluids being exchanged.

And I told them, “If you don’t think so, just wait until the inflation in food and energy prices really gets here, good and hard, and when you look at the horrors this will create, you can tell me again how you don’t believe that inflation in the money supply leads to inflation in prices when all this new money enters into the marketplace, like a flood, adding massive amounts of money to the bidding for goods and services, which makes prices rise”, but they just kept whining, “No, daddy! I need to go to the doctor now, not when inflation is raging so that the cost will be higher and you will not want to pay those higher prices! So you want to send me now, when prices are lower!”

So you can see that there are two sides to every story; on the one hand this whole incident with crybaby kids and their whining, and complaining, and blacking out, and getting blood all over everything, and on the other hand there are “essentials” in the world, as in “essential insights”, which, in the case of Money Morning, is apparently true, as we note with surprise that David Stevenson writes in the newsletter that, in the United States, “Prices of commercial property – real estate – are down by 43% overall since the October 2007 top, says Moody’s Investors Service. Retail rents have plunged by a third from the peak. For offices, rents are down 40% and vacancy rates are as high as 18%.”

Now, most people, like me, and maybe like you, too, look at that paragraph and say, “Whew! That seems like a lot of numbers, which are already confusing by their very presence, which explains why I don’t understand!”

Being the peach of a guy that I am, I am going to show you – free! – the essential information in there, which is: If you own commercial property, you are screwed, and if you do not own commercial property, then it is getting cheaper and cheaper.

In the meantime, just keep buying gold, silver and oil stocks, not because I say so, which I do, and you should, too, but because we have no other choice, because if we did, I am sure that I would have read about, or heard about, someone buying it to successfully protect themselves against governmental stupidity at least one (pause) freaking (pause) time (pause) in the last 4,500 years of the economic history of the Whole Freaking World (WFW), especially since the whole thing seems to be about economic stupidities that flow from continual, ever-worsening government fiscal malfeasance, just like we have all over the world today and all over the world in all of the rest of history, but, in a word, I ain’t.

And, so, investing doesn’t get easier than that! Whee!

The Mogambo Guru
for The Daily Reckoning

Gold, Silver and Oil: Buying the Essentials in Tough Markets originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The short answer: No.

In general, the mail-order gold people are paying about 10-25 cents on the dollar.

We’re seeing monetary psychology at work here. It’s the feel of cash in hand. We have relatively unsophisticated people sending in “old” jewelry, and they don’t know what they have. The mail-order gold buyers are sending back a check, and the crinkle of that check makes people think they got a good deal.

Don’t sell your goods to the mail-order crowd, unless you want to get taken to the cleaners. If you sell your old disco chains at a reputable jewelry store, you’re likely to get a reasonable deal for the gold content [up to 75 cents on the dollar], as well as for any precious stones.

We’re living in tough economic times. There are a lot of people who are desperate for immediate cash. So they send in their “old” gold and such. But the process we’re seeing is a classic case of valuable goods flowing from weak hands to strong ones.

Byron King
for The Daily Reckoning

Don’t Mail in Your Gold originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The big news driving the dollar lower was the ‘leaking’ of Obama’s pick for Vice-Chairmanship of the Federal Reserve. He apparently has chosen Janet Yellen, the Fed Bank of San Francisco President. Yellen has recently been sounding rather dovish on interest rates, and therefore her nomination has all of those who were expecting an early rise in US interest rates heading for the exits. At EverBank, we have never bought into this ‘US interest rates are going higher in early 2010’ camp. Yellen has pretty strong credentials, as she served as President Bill Clinton’s chief economist in the 1990s; and will certainly be approved by the Senate.

So what will her appointment to the Vice Chairmanship mean for the Fed policy? The Vice Chairman doesn’t get an extra vote, and their vote is still just one of several. The big difference is that the Vice Chairman gets a permanent vote on monetary policy, while the other Fed heads only get a vote one year out of every three as a regional Fed chief. Therefore, the Vice Chairman has three times more influence on Fed policy and the direction of interest rates.

And Yellen wants to keep interest rates low in order to continue stimulating our economy. Last month she said the US economy “still needs the support of extraordinarily low” interest rates. She is a strong supporter of Bernanke, and has been a key advocate of the massive expansion of the central bank’s balance sheet, even as some other regional Fed officials have been calling for a pull back of the monetary stimulus. Yellen spent much of her career at the University of California at Berkeley, and is considered a leading expert in the causes and implications of unemployment. This background has shaped her opinions on monetary policy, which she believes should be used to promote ‘full employment’ rather than ‘price stability’.

Obama will also get to appoint two other governors, giving him the ability to reshape the Fed’s seven member Board of Governors. I am a bit biased, but it worries me a bit when those directing our monetary policy are mainly from NY and California. The data shows that these are the exact areas of the country that are in some of the worst financial shape! Doesn’t it scare anyone else that these individuals were in leadership positions and directed policy in states that are now basically bankrupt? How about choosing some individuals who are from states that aren’t in dire financial straights? I know it is becoming increasingly more difficult to find any US state in good shape, but why do we continually pick folks from the places where the economic downturn has been the worst?

Speaking of financial leaders who were asleep at the switch and still got kicked ‘upstairs’ to try it again; Treasury Secretary Geithner is taking some heat in Europe. The EU has proposed regulating hedge funds and private equity funds that operate in Europe in an attempt to make financial disclosures more transparent. Geithner is vehemently opposed to the EU proposals, and has enlisted the backing of the UK. Geithner is afraid the tighter regulations will lead to discrimination against US firms operating in Europe. The Europeans continue to be upset about the role Goldman and other US banks played in attempting to bring down the euro (EUR). It will be interesting to see how all of this plays out.

The euro moved nearly a full cent higher in overnight trading on optimism that Greece’s budget crisis has been contained. The successful bond offering in Portugal seems to have emboldened traders who are moving back into the euro, believing the worst is now over. German Finance Minister Wolfgang Schaeuble helped strengthen the euro with some tough words for EU members who continue to flout debt rules. Shaeuble has endorsed Chuck’s idea of a European monetary fund to help deficit plagued states, but wants the lending to be tied to strict conditions. “Should a euro-zone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union.” Shaeuble wrote in today’s FT. Tough talk like this had led many to believe that even if Greek can’t fix their problem, they won’t destroy the euro, as in a worst case scenario, they would simply be thrown out of the EU.

The Swiss franc (CHF) was up versus the US dollar, but weakened a bit versus the euro after the SNB kept rates unchanged. While the interest rate non-move was widely predicted, the statement accompanying the rate announcement hurt the franc. The central bank said it “will act decisively to prevent an excessive appreciation of the Swiss franc against the euro.” This language has refueled the intervention fears and pushed the franc lower versus the euro.

The British pound (GBP) climbed higher versus the US dollar for a second day after a report showed UK housing prices rose in February. The increase was the fastest pace in more than seven years, with prices jumping 1.9% compared to January. But this report is in direct contradiction to other data which shows values have been falling recently. Apparently there are much fewer transactions, making the numbers volatile and causing many to believe this big positive number will be revised down. I say take advantage of any pound strength to exit, as this currency will continue to move lower in the long term.

Moving to this side of the pond, the weekly unemployment numbers came in a bit worse than predicted. 462 thousand applied for unemployment benefits last week, 2Khigher than estimates, but slightly less than last week’s number. Other data showed the trade balance narrowed slightly, but we still have a $37.3 billion deficit.

Today we are scheduled to get the US retail sales numbers, which are expected to have contracted a bit in February. The snowstorms are being blamed for what is expected to be a 0.2% decrease in retail sales after they rose 0.5% in January. A later report will probably show that business inventories and consumer sentiment rose.

Gold is up for a second day, as the dollar slide helped spur demand for precious metals. Gold has had a very close negative correlation to the dollar, moving higher as the US currency drops, and falling as the currency rises. So the drop in the US dollar versus the euro propelled the metals higher. The price of gold was also helped by a report that showed production in South Africa fell 18% in January from a year earlier. As with all commodities, a drop in production causes an increase in price.

Speaking of South Africa, RBC Capital released a report yesterday which predicted that the rand (ZAR) will rally 10% in the next three months. The report credits improving economic growth and the upcoming Fifa World Cup tournament with pushing the South African rand higher. The report predicts the rand will reach a high of 6.75 per dollar by the time the World Cup ends on July 11th. “Investors are going to push the rand stronger as we approach the world cup, which will attract quite a lot of money into the country”. We have seen a pattern of major events pushing the host country’s currency higher, as the Olympic host country typically gets a boost in the months prior to the event.

The other commodity currencies also had a good day, with the Canadian dollar (CAD) hitting a five-month high and the Aussie dollar (AUD) approaching its highest level this year. These commodity currencies were under selling pressure early yesterday on fears of a Chinese slowdown, but rallied in the afternoon and overnight. Traders seemed to have figured out that the reason the Chinese are looking to slow their economy is that their economy is growing at a good clip!!! This is a good thing for commodity prices, as a growing Chinese economy will continue to put upward pressure on commodity prices.

The New Zealand dollar (NZD) also benefited from a report which showed that retail sales increased for a fifth time in six months in January. Reserve Bank Governor Alan Bollard said yesterday that he might start raising borrowing costs around the middle of 2010 as the economy recovers. Interest rate differentials should continue to support the New Zealand dollar. With US rates remaining at their current low levels, investors will be moving toward countries that have stable economies and where interest rates will be rising.

To recap: With Yellen having a bigger say, US monetary policy will remain dovish for some time; the euro moved up over 1 cent as the Greek crisis passes; Gold finally starts to move higher as the dollar slips; commodity currencies will continue to take advantage of interest rate differentials.

Chris Gaffney
for The Daily Reckoning

Yellen Brings the Dollar Down originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

I needed this kind of mental break to take my mind off of, for one thing, the sheer horror of today’s economic situation and how we are So Freaking Doomed (SFD).

Finally, I happened to catch a moment on CNBC just where Larry Kudlow was correctly making fun of Greece for saying that it will raise taxes and cut spending in an effort to get its ludicrous deficits and preposterous budget under control, and he had a deliciously snotty, supercilious, sarcastic attitude (the True Mogambo Way!) towards the idea of raising taxes and reducing spending as an economic stimulus of some kind! Hahaha!

I was with him all the way, too! And I had a few choice things that I wanted to say to Greece, too! Most of my complaints about Greece are about how Greek salads always seem to come with a damned oil and vinegar dressing that is terrible until you add some sugar, then it’s pretty good, so why in the hell don’t they add sugar to start with, the lazy bastards? God knows they had the money!

And then to add sour ripe olives to the mix – which is more of the same, only worse! – makes me want to jump to my feet and shout, “What is the matter with Greeks that they would they would do such a terrible thing to an otherwise delicious salad?”

So with Mr. Kudlow on the case to make sure that Greece gets its act together, I am sure that their deficit problem will soon be resolved, and this salad dressing thing will soon be a thing of the past, too, which may be part of the reason why I thought he was really good for about, oh, three seconds, which is about as long as the average period of time that I usually agree with Mr. Kudlow, or my wife, or my kids, or my boss, about anything.

The aforementioned three seconds during which I agreed with Mr. Kudlow is because he said something scornful in a rapier-like rebuttal, something like “Raising taxes and cutting spending is not the answer!” which is true.

But it is only true because there IS no answer! To even ridiculously assume that someone can come up with a plan to dissolve consumers’ debt and simultaneously pay off their creditors – the fabled “win-win” situation! – is ludicrous! Hahaha! Beyond ludicrous! Hahaha!

Mr. Kudlow and his little panel of “experts”, however, ignore my scornful laughter and the way that Icky Mogambo Spittle (IMS) shot from my lips, and implied that there really is a solution to this problem out there, somewhere, anywhere, maybe over here, maybe over here, which would marvelously, and magically, enable debtors to get rid of their debts without paying anybody anything, and creditors to get all their money back without being paid anything by anybody! Hahahaha!

But I understand that it’s Mr. Kudlow’s job to take positions on monetary, fiscal and economic policy that are the opposite of mine, because my job is to stay away from the majority, and his job is to get people to join the majority.

My position is so antagonistic because in these three cases, “the majority is always wrong.”

The majority is wrong in encouraging monetary insanity by always yammering for more and more monstrous Federal Reserve money-creation to buy the fiscal insanity of Congress’s avalanche of new government debt to fund Obama’s spendthrift imbecilities, which will cause inflation in prices, which is The One Big Freaking Thing (TOBFT) that you don’t ever, ever, ever want to have, which means that you can never, never, never allow excessive amounts of money to be created in the first place.

The majority is wrong on economics because they still, laughably, believe in the proverbial “free lunch”, a childish fiction where somebody gets something and nobody has to pay for it, and the majority are willing to bankrupt themselves, and destroy their own country, by letting Congress try to provide a free lunch to anyone and everyone who walks up with a hand out or a sad story.

And the biggest reason to go against the majority is in investing, because it’s less than a zero-sum game, and thus the majority must lose money and be bled dry by a ghoulish financial services industry (that is so large that it makes up 70% of all profits made in the country, and thus pays most of the taxes, which are actually paid by the “investors”) so that a minority of people (hopefully, me!) can make money despite being bled dry by the financial services industry and despite paying taxes on the gains. “Investing for the long term!” Hahahaha! I snort with derision! Snort!

So you can see why my natural anti-establishment makes me pound the table for gold and silver simply because the majority ignores them!

Okay, the real reason is that today’s dire economic condition, due to a staggeringly incompetent government and incompetent citizenry, has been played out thousands of times in the last 4,500 years, and in each case, the only thing that saved anyone’s butt was gold and silver.

There are those, of course, who say, “That explains why you are buying gold and silver, but it does not explain why you are always screaming at people to invest in oil, as well as in gold and silver.”

Well, since you asked, I say invest in oil because it has the most energy per cubic centimeter, and now that it is used in practically everything everywhere, nobody in the industrialized world can live without lots and lots of it, with guaranteed continual rising demand, but it is being rapidly depleted. Rising demand and falling supply? Who could ask for more in an investment?

As for those who go on to say, “Well, that is pretty convincing, alright, but it doesn’t explain why you are such a hateful, disrespectful, little creep”, I admit that, no, it doesn’t.

The Mogambo Guru
for The Daily Reckoning

Bet Against the Majority. Buy Gold. originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Consumer price inflation in China hit a 16-month high in February – a 2.7% year-over-year increase. China’s National Bureau of Statistics was quick to put out a statement reassuring everyone that “price rises this year will be moderate and controllable,” but that’s not enough to calm traders looking for excuses to feel jittery.

And any news that might, possibly, at some point in the future, signal monetary tightening in China…well, that’s enough to put the fear of God in them. Hence, the major US indexes opened down about 0.2% in the first hour of trading. The news is also an excuse for traders to bail out of gold, which clings to $1,105 as we write.

So much for the short-term noise from China. But the Middle Kingdom is also making real news this week. We’ll get to that in a bit, but first, we bring you this item to help put it in context.

Right in line with analysts’ forecasts, Uncle Sam’s budget deficit for the month of February was $220.9 billion – the largest monthly total in history. For the first five months of fiscal 2010, the total is $651.6 billion, 10% ahead of last year’s blistering $589.9 billion pace.

The details are even fuglier. Total revenues: $107 billion. Total expenditures: $328 billion. Yes, that’s only one dollar of revenue for every three dollars spent.

We have just two words for this: Banana. Republic.

So what does China make of numbers like this? As it happens, the National People’s Congress is holding its annual session this week. During the festivities, Yi Gang, the head of the Chinese State Administration of Foreign Exchange assured the world that US Treasuries would remain a major component of China’s reserves.

We noticed he said little about whether China would actually add to its positions and soak up some of that additional debt racked up last month.

Yi also pooh-poohed any role for gold in China’s wealth management strategy: “It is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves,” he said. “I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion…” barely a drop in the big bucket that contains $2.4 trillion of China’s forex reserves.

Of course, that’s what face the Chinese government puts on for the public.

Yet “the volume of China’s gold reserve in terms of its forex reserves only ranks fifth in the world, and is well below the global average,” says Russell Hsiao of the Jamestown Foundation.

Hsiao rounded up some interesting stories from Chinese media that shed additional light…

• The Guangzhou Daily reported in 2008 that China’s central bank was considering raising its gold reserve by 4,000 metric tons. (It’s currently 1,054 metric tons.)
• Ji Xiaonan, the chair of the supervisory board for major state-owned companies under the Chinese State Council’s state assets commission, set an even higher bar last year – 6,000 tons by 2014, and 10,000 tons by 2019
• According to the English-language website ChinaStakes, a senior official from the People’s Bank of China (PBoC) suggested last year that China should “secretly increase its gold holdings” as part of a long-term plan – with the central bank buying up as much domestic production as possible.

However it turns out, “the long-term implications of Chinese debates to increase its gold reserves,” Hsiao concludes, “will have far-reaching impact on the stability of China’s forex reserves and the yuan’s ability to become the next reserve currency of the world. The question for Chinese leaders now appears no longer if, but how, that will come about.”

Addison Wiggin
for The Daily Reckoning

The Ins and Outs of Chinese Gold Reserves originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Once again yesterday, investors demonstrated their preference for paper over the shiny yellow metal. The Dow Jones Industrial Average notched a slight 3-point gain, while gold tumbled about $17 an ounce.

This divergence between stocks and gold is not enormous, but it is telling. Most investors believe the credit crisis is a mere memory, and that an economic recovery is underway.

Your editor is not persuaded by this conventional wisdom. As a homegrown Californian, your editor is as eager to embrace a feel-god vibe as anyone. But this particular vibe doesn’t feel that good…or logical.

The worst of the credit crisis may have passed, but serious credit problems continue to beset the US banking system. Everywhere you turn you see an impaired loan dressed up like an Academy Award nominee.

And the economic recovery that so many folks pretend to see is nothing more than a mirage wrapped in a chimera. This so-called recovery is not a recovery at all; it is a Fed-induced bounce from “superbad” to merely bad.

Your editor is not buying this storyline, dear reader.

If he were buying anything at all he would be buying gold and/or the shares of companies that haul monetary metals out of the earth. No matter whether the US economic recovery is real or not, the tsunami of cash and credit that the Fed has unleashed on the US economy is very real…and the consequences are likely to be very inflationary.

But even if this logic eludes the Ivy League educated minds on Wall Street, it does not elude the minds that control the national balance sheets of India and China.

“On February 24, Reuters reported that the Reserve Bank of India was ‘set to be a buyer’ of the 191.3 tonnes (6.74 million ounces) of gold the IMF is selling,” reports Jeff Clark, Senior Editor, Casey’s Gold & Resource Report. “Although the bank wouldn’t comment directly on the possibility, they did say, ‘We are closely looking at the gold market…gold is a safe bet.’

“The article then quoted an unidentified official from the China Gold Association as saying, ‘It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.’

“But the next day,” Clark continues, “Finmarket news agency in Russia reported that China ‘confirmed its intention’ to buy the IMF gold. ‘Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market.’

“While they’ve been silent since,” says Clark, “both India and China have publicly hinted they want this latest batch of yellow bars from the IMF. There’s no way to know if a competitive bid would spring up between these two countries, but…can you imagine the ramifications if one did?

“When India bought 200 tonnes of IMF gold last November 3, it set off a buying spree that saw gold rise 14.2% in 4 weeks. What if this time around, a couple central banks both want the gold for sale? What if China says to India, ‘Not so fast, guys. We’d like to bid on that, too…’ and word of that clash leaked out?

“Pure speculation, of course,” Clark concludes, “but competing for gold purchases isn’t a far-fetched idea. This sale is not pre-arranged; it’s an open market sale. Also, there’s only so much to go around. These two countries have only a tiny amount of their reserves in gold. Throw in the fact that central banks worldwide are already net buyers. A pretty intriguing thought, wouldn’t you say?”

Yes…quite.

Eric Fry
for The Daily Reckoning

Investing in Gold During a Fed-Induced Bounce originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Now, that’s just what the markets wanted to hear… NOT! The markets were very content believing that Greece’s problems would fade away with a combination of Greek spending cuts, and aid from France and Germany… And you could see the euro shorts beginning to unwind… But… NOOOOOOOOO! The Greek PM sunk the rally’s ship, with his loose lips…

The Greek PM also said, “the Greek crisis has implications for the US dollar” but didn’t elaborate on that point, so the markets took that to mean the implications were good!

So… There you have it… Yesterday’s price action all rolled into a couple of paragraphs…

Overnight… We saw additional dollar strength… And when you see dollar strength, you also see yen (JPY) strength… At least since July of 2008. Safe haven flows… Yeah, right… And my first wife was a young Elizabeth Taylor… Yeah, that’s the ticket! Those “safe haven” flows sure helped shelter investors from losses last year, didn’t they? NOT!

Last night, the ratings agency, FITCH, fired some shots across the bow of the Eurozone… Let’s go the tape! FITCH told Portugal, that it may be downgraded if measures are insufficient, and they told Spain, its macroeconomic risks remain high.

The ratings agency also told Greece that their short outlook is probably OK… Huh?

Then FITCH went a step further and said, “there’s no pressure on the US credit rating in the short/medium-term though the US is vulnerable to interest rate shocks.”

Hmmm… Just last month the rating agency, Moody’s, issued a report that said the US debt problem was going to lead to a credit rating downgrade…

So… What’s it gonna be, boy? FITCH or Moody’s? I would have to think that since FITCH is the latest to come out, that it supersedes the Moody’s report last month… Or… That’s how the markets look at it, anyway!

The “loose lips, sink ships” arrow that was shot at the currency markets yesterday, carried over to the Aussie dollar (AUD), which makes little sense to me, given the rate differential, and the strong economic data that keeps printing in Australia… Last night it was the latest jobs report, which showed that job ads increased 19.1% in Feb, and… A business survey showed improvement in both conditions and confidence. Australia did receive one piece of economic data that is so strange you have to think that a revision will come… I’m talking about Capacity Utilization, which dropped from 82.1% in January to 80.7% in February… The 80.7% is the lowest print of Capacity Utilization since last September… Remember, just like here in the US… Capacity Utilization is about the only “forward looking” piece of data that prints… So… Just taking this report for what it said, one would think that going forward, the Reserve Bank of Australia’s interest rate hikes have begun to settle into the economy, which… Is a good thing, folks… The last thing you want to see in a country where you have money invested is an overheating economy!

Gold got smacked right on the chin yesterday… Just when it appeared that gold’s downtrend had been reversed (as I said last Friday), we get a day like yesterday, when the sellers of the shiny metal came out of the woodwork! Forces are pulling on both sides of gold these days, as there are those that believe gold will fall to $800… And there are those that believe gold will soar to $2,000… Me? I’m not a betting man, except for a shiny quarter, or a dollar to a Krispy Kreme, but I would think that gold slipping in price isn’t out of the question, but to $800? That’s a little extreme, and on the other side of the coin, $2,000 on the upside seems to be a little extreme…

I’m reading a story on the Bloomie this morning that caught my good eye; it’s about yields on Fannie and Freddie mortgage securities. It seems that the Fed’s buying of mortgage bonds to keep yields low, has worked… Unfortunately, that plan will cease to exist at the end of this month… What will mortgage rates do then? The Bloomie story was attempting to paint a picture whereby yields remain low after the Fed plan ends… I’m not buying that! I’m of the opinion, that the Fed might let this plan end, take a look at widening yields, and put it right back in place… But… I guess we’ll have to wait-n-see, eh?

I see where “my idea” of creating a European Monetary Fund (EMF) is gaining traction in Europe… I talked about this yesterday, and the plans to create this EMF began this past weekend. I had talked about the need for something like that last week! Of course I’m patting myself on the back right now, but it doesn’t mean that I’m full of myself! I’m sure there are thousands of people out there writing letters that talked about the creation of an EMF before the European authorities began discussing it…

The creation of this EMF would be like manna from heaven for Greece, and the other PIIGS… And… It would keep the egg off the faces of the ECB and the Eurozone officials. For those of you new to class, the ECB is the European Central Bank, and in no way are they going to allow the IMF to step in to help… This is the ECB’s baby.

OK… Enough on that! I read a report from my good friend, David Galland, yesterday, and his economist, Bud Conrad, who is among the best folks… Anyway… Bud was talking about the CBO’s (Congressional Budget Office) projections for the next 10 years, which says the deficit will see an additional $9.8 trillion… Bud was looking at the tax base, and concluded that the tax base will not grow as fast as the deficit.

So… That brings us back to what I always, always tell you… To finance the deficit, the country can raise taxes, raise interest rates aggressively, or allow a debasement of the dollar… Let’s go through those…

1. Raise taxes… This would increase the revenue, and decrease the amount of foreign financing needed.
2. Raise interest rates aggressively… This would make our Treasuries more attractive, and keep foreigners buying them to finance the deficit.
3. Allow a debasement of the dollar… This would allow foreigners to buy our Treasuries at a “discount” price and thus make them more attractive…

1. Hurts the economy… But face it, folks, this is what we’re leaving to our grandkids, higher taxes and less freedoms than we had, because of this deficit spending that’s gone on for 9 years now.
2. Hurts the economy… Yes, aggressively higher rates would bring the economy to its knees once again…
3. Well… You have to admit that what’s behind door #3 is what every politician, Treasury Secretary and Fed Chairman would prefer happened… But… For you and me… It represents a loss of purchasing power… Unless that is, you have taken steps to protect yourself from this choice…

In the end… It will most likely be a combination of higher taxes and a cheaper dollar… Oh boy, where do I sign up for that? I shake my head in disgust…

Then there was this… A new reader – and there a tons of them after the Wall Street Journal article – asked me what a “Pfennig” was… And I thought… Here’s my chance to tell everyone the history… In 1991, I took over the trading of foreign bonds at Mark Twain Bank. Now to do this job correctly I needed to come in quite early and get caught up on markets that were 8 hours ahead of me. I then noticed that the sales guys would come in and spend a good part of their morning trying to get caught up on the markets overseas… I decided to start writing a quick morning note about the markets that they would have on their desks when they came in, and therefore would be ready to begin trading immediately… The sales guys started taking those morning notes and faxing them to their customers… These were hand written, folks! In 1994, Frank Trotter, created the website for Mark Twain Bank, and we began putting the, now typed notes on the website… Frank then coined the term, “A Pfennig For Your Thoughts” which was the play on the American phrase, “A Penny For Your Thoughts”… The Pfennig, at the time, was the lowest denomination of a Deutsche Mark, and since I was talking about foreign markets and currencies it all fit… In 2001, the marketing team at EverBank changed the name to the “Daily Pfennig”… But I still refer to it as “A Pfennig For Your Thoughts”…

To recap… The currency rally yesterday was stopped in its tracks by Greek PM Papandreou’s comments… Loose lips, sink ships, is what he should have thought before speaking! Gold also took a shot to the chin yesterday. The Aussie jobs report was good, but Capacity Utilization dropped, which wasn’t good. We start today with currencies a bit lower than yesterday’s starting point…

US Credit Rating: Who Will be the First to Downgrade? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

From Wall Street Journal:

“For too many investors, though, this pursuit of El Dorado ends up as a financial nightmare. Even if you are lucky enough to pick a miner that finds a rich vein of gold, you can arrive so early that your stake crumbles while the miner navigates the hurdles between locating a gold deposit and actually producing it.

“Despite the ‘great sex appeal’ of early-stage mining companies, ‘most just wash out,’ says Frank Holmes, chief executive of U.S. Global Investors, which runs a gold and natural-resources fund. Those that do find a viable lode often end up hamstrung for years by environmental or governmental delays that erode share prices.

“The best way to reduce your risk: Focus on junior miners that are within a year of production. And understand the lifecycle of small mining stocks before you invest.”

The WSJ explains that the lifecycle of a junior miner includes three distinct phases, and you should know which phase the company you’re researching may be in. They include:

• Stage 1: Idea and exploration.
• Stage 2: Discovery and feasibility.
• Stage 3: Production.

Read more about the three stages and what they could mean for your potential investment in the Wall Street Journal’s coverage of when you should join the next gold rush.

Also, don’t forget that in July Frank Holmes will be speaking at the Agora Financial Investment Symposium in Vancouver. You can find more details about registering for the event here.

Best,

Rocky Vega,
The Daily Reckoning

When is the Best Time for You to Look at Junior Miners? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."