China sees another currency crisis as inevitable

From Mish’s Global Economic Trend Analysis:

…Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.

China must set up a firewall via currency policy and capital controls to cushion itself from external shocks, Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the central bank.

"As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable…

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Gold SURGE: Hits another new record at $1,375

From Bloomberg:

Gold rose to a record for the 15th time in the past month as the slumping dollar boosted investor demand for the metal as an alternative investment. Silver extended a rally to the highest level since 1980.

The dollar slipped for a second day and was near a nine- month low against a basket of six major currencies on speculation that the Federal Reserve will ease monetary policy further to spur growth. Goldman Sachs Group Inc., UniCredit SpA and Citigroup Inc. raised their gold forecasts in the past week, before prices reached $1,375.70 an ounce today in New York, the highest ever.

"Gold has become the world's third reservable currency as all currencies seem intent upon racing each other downward," said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. He advised clients to buy the metal. The dollar and the euro are the top reserve currencies.

Gold futures for December delivery climbed $23.80, or 1.8 percent, to settle at $1,370.50 an ounce at 1:55 p.m. on the Comex in New York. It was the biggest gain for a most-active contract since Oct. 5. The previous all-time high was $1,366 on Oct. 7.

Goldman Sachs forecast on Oct. 11 that the price would reach $1,650 in 12 months. UniCredit analyst Jochen Hitzfeld in Munich raised his 2011 target to $1,500 on Oct. 12, and Citigroup's "short- and medium-term" forecast on Oct. 7 was $1,450.

"This momentum higher will attract investors to participate in the next move up," said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland.

A Fed purchase of $500 billion of government securities would lead to lower interest rates, weighing on the dollar and aiding gold, Dincer said.

Treasury Purchases

In March, the central bank finished $1.7 trillion in purchases of Treasuries, mortgage-backed securities and housing- agency bonds. The Fed has kept its benchmark lending rate at zero percent to 0.25 percent since December 2008.

Gold, which pays no interest, becomes a more attractive investment when borrowing costs decline. The metal has gained 25 percent this year.

"Both gold and the dollar agree that Ben Bernanke will be victorious in his quest to foment a robust rate of inflation," said Michael Pento, a senior economist at Euro Pacific Capital in New York. Bernanke is the Fed's chairman.

Gold for immediate delivery reached a record $1,374.35.

Investors should be prepared for a correction in prices, Adam Sieminski, a Deutsche Bank analyst, said in a report. The 14-day relative-strength index for gold futures has been above 70 for the past three weeks, a signal to some traders that prices may decline.

Investors 'Wary'

"Investors need to be wary of a short-term correction in the U.S. dollar during October, and with it, a possible setback to recent price advances" in gold, Sieminski said. "We view any correction in gold prices over the next three weeks as yet another buying opportunity. The next hazard for bullish gold investors will be the first four weeks of next year, which has seen the dollar strengthen nine out of the last 12 years."

Silver futures for December delivery rose 78.5 cents, or 3.4 percent, to $23.932 an ounce on the Comex, after touching $23.975, the highest level since September 1980.

Platinum futures for January delivery gained $24.10, or 1.4 percent, to $1,707.40 an ounce on the New York Mercantile Exchange. Palladium futures for December delivery climbed $13, or 2.2 percent, to $593.65 an ounce.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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<b>Gold</b> Hits Another Record, Closing at $1370.50

Gold prices struck another record closing price today, settling at $1,370.50 an ounce on the Comex, as investors continued to look for safe investments in the wake of currency volatility. Gold reached its 16th record high in five weeks, surpassing Monday's closing price of $1,346.70 by advancing 1.8%.

Just last month, when gold was $1,271, GFMS Ltd. put out an industry report saying that gold would likely surpass the $1,300-an-ounce mark later this year. The gold bugs, however, couldn't wait that long.

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Is Gold Another Fiat Currency?

This past week gold surpassed $1100 an ounce in the futures market. This is certainly good news for gold bulls, and it's difficult to argue with this powerful trend. However, there are some things that bother me about the latest impulse move up. Maybe it's just my contrary nature. I am a long time gold bug. I started trading gold more than 30 years ago and I strongly believe in the principals and arguments favoring gold. But timing is another matter.

I just drove to Costco and during the 10-minute drive there I heard two commercials urgently urging listeners to buy gold now to protect their wealth. On the way home I heard three commercials, two on one channel and another upon changing the channel, again urging listeners to buying gold now. I admit I was in a bit of a Seattle traffic jam on the way home so it may have been a 15-minute drive. I just wonder if urging the public to buy gold at $1100 is going to be a sensible investment. I heard few commercials urging buying when gold was under $300 not that long ago.

One argument that gold bugs make is that gold is a hard asset that can't be created at the whim of a politician or fed chairman. Soybeans and pork bellies would also fit as a real asset, but gold is non-perishable and very resistant to degrading over time. Soybeans and pork bellies are more useful as they are commodities than have a use. Well, gold does have some uses. A miniscule amount can be used in industry, such as electrical contacts in important components which makes gold unique due to its anti-corrosive qualities. A much larger use is in jewelry. But the vast majority of gold is held in vaults as a store of value. It seems ironic that gold, that was once in the ground, requires such a huge effort in terms of human labor often in dangerous conditions to extract it from the Earth, only to return it to vaults and safes, often located underground as well.

But what about gold as a store of value. It is difficult to mine so it can't be created out of thin air, as being the case with paper fiat currencies. It is durable. It can't be debased, as the actual gold content can be determined. Even with all that going for it, there really isn't much in the way of intrinsic value, other than the small amount used in industry and for jewelry. The value of gold is really set by supply and demand. Traders riding trends have a big say in how high or low gold can go. Demand is fixed to some degree by the difficulty of getting the gold out of the ground. On the other hand, most of the gold ever mined is still available to dump on the market, so supply is available if those hoarding decide to sell. Very little gold is used up. Much of the demand side comes from the perception of safety. Those who bought at the peak in the early 1980s and held through more than 20 years of a bear market might have a different perception of the safety of gold. Adding insult to injury is the fact that the general stock market had its largest bull market in history during the very long gold bear market.

But how safe is gold as a store of value when the price can be set by people, much the way people set the value of a currency. A paper currency is nothing but a promise based on nothing but good faith. The price of gold isn't really based on much more than that if you think about it. What is to stop a central bank from dumping a huge quantity of gold on the market? What is to stop traders from riding a downtrend, forcing prices lower and lower? Demand can change quickly. There is no intrinsic value to guarantee that gold won't go back to much lower levels. And there is certainly no guarantee that prices will keep climbing, as promised by all the gold ads. People set the value of a currency. And people set the price of gold. The price isn't set in the heavens. It is perception creating supply and demand. It isn't absolute. If all the gold suddenly disappeared, nobody would miss a meal. The Earth would still rotate. Life would go on.

As governments can't possibly pay for all the spending and deficits, it seems logical that all paper currencies will continue to decline, and that so called hard commodities will at least hold their own in relation to those paper fiat currencies. But for those who believe that gold is a good hedge against irresponsible governments, timing gold purchases is probably still a good idea. Piling on the bandwagon after such a lengthy price increase might mean buying at too high a price. In the very long run as currencies continue to decline gold may still be a safe bet even at these nosebleed levels. But one might be better to wait until the bandwagon tries to knock off the speculators and prices come back down to Earth.

There have been a few technical divergences that might suggest gold could be ready for a pullback. One is the failure of gold mining issues to lead the way higher. Another is the relationship during the last impulse up between gold and silver. Gold and silver have had a symbiotic relationship for a very long time. There are times when one commodity is in favor over the other, but they generally move in the same direction. Sometimes, but not always, a clue to a turn can appear when one of the commodities makes a new high while the other fails to do so. This is the case now between the gold and silver market. In many of the impulse moves in the past silver would lead the advances as well as the declines. This can get decoupled a bit when there is fear of continued recession at a time when inflation appears to be a threat, such as in the current environment. After all, silver is more of an industrial metal than gold so it is more sensitive to weak industrial demand. But divergences between the two should be watched closely.

Calling tops in a greed driven bull market is very difficult, and I am not trying to call a top here. I'm just pointing out some warning signs. The trend is still up, but that could change quickly if the dollar should have a rebound rally and all the traders in gold rush for the exits at the same time. I've seen it many times in the past. This time probably won't be different.

Doug Tucker has a blog with daily commentary on stock indexes, precious metals, and other markets. There are many articles on technical analysis and indicator design and interpretation. To visit go to: http://tuckerreport.com/

<b>Gold Prices</b> Settle at Another Record High - Yahoo! Finance

{"s" : "auy,fcx,gfi,ngd","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} ByAlix Steel, , On Wednesday October 6, 2010, 2:53 pm EDT

NEW YORK (TheStreet) Gold prices popped to further record highs Wednesday as momentum buying and currency fears pushed investors into the precious metal.

Gold for December delivery closed $7.40 higher to $1,347.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,351 and as low as $1,340 during Wednesday's session.

The U.S. dollar index was down 0.48% at $77.43 while the euro was up 0.75% to $1.39 vs. the dollar. The spot gold price Wednesday was adding more than $5, according to Kitco's gold index.

Gold prices have gained 2% this week on high volume. Most analysts expect any profit-taking to be met with dip-buying to support higher prices.

James Moore, analyst at thebulliondesk.com, said the buying "mentality looks set to provide additional upside momentum with gold potentially looking to target $1,400."

George Gero, vice president of global futures at RBC Capital Markets, believes there is a perfect storm brewing for stronger gold prices with higher open interest in the futures market teaming up with higher moving averages and higher closes. The technicals are all met against the backdrop of weaker global currencies as governments race to debase their currencies to increase exports and spur growth.

"Other currencies are weakening to the point that the world needed to hedge the devaluation with gold," says Gero. Morgan Stanley raised its bullish forecast to $1,512 an ounce.

The story continued Wednesday with the private sector shedding 39,000 jobs in September, according to the most recent ADP report. The disappointing number is helping support the belief that the Federal Reserve will expand its balance sheet and buy more government debt. The Fed could join the Bank of Japan which announced a $60 billion asset purchase program of its own earlier this week.

Worries in Europe also continue as Fitch downgraded Ireland from AA- to A+ with a negative outlook due to bigger-than-expected costs related to bailing out its banks. The International Monetary Fund lowered its 2011 growth forecast for advanced economies to 2.2% from 2.4%.

Record high gold prices, however, have some analysts warning of a violent pullback and increased volatility especially headed into Friday's jobs number. A strong number could crimp the size of the Fed's money printing and bond purchase program while a weak number would all but ensure another round of quantitative easing.

U.S. Trust President Keith Banks, according to a report in Reuters, said that the company is not recommending gold right now because the "things driving high prices are beyond the types of things" where they can add value.

Banks is not alone in his cautious belief. Barclays Wealth has been recommending to clients that they short the SPDR Gold Shares, the most popular physically backed exchange-traded fund. Barclays believes that when the crisis premium comes out of the market that gold could fall to $800 an ounce. The ETF currently holds 1,301.91 tons of gold.

"I'm a skittish gold bug when it comes to values in the gold market being distorted by possible transitory phenomena such as hedge fund participation," says Jon Nadler, senior analyst at Kitco.com. Nadler believes gold prices should live between $800-$1,200 an ounce once the crisis abates "as investors comes back to more level headed type of asset allocation." Nadler still believes that 10% of every investor's portfolio should be in gold, which is actually higher than most money managers.

Pratik Sharma, managing director at Atyant Capital, is a long-term bull but is cautious on gold stocks over the short-term. "They are failing to make new highs on a stand alone basis as well as relative to gold ... gold stocks underperforming gold has historically served as a harbinger of a period of consolidation."

However, negative real interest rates seem here to stay in the short-term which is one of the most bullish factors for high gold prices. Key interest rates are between zero and 0.25% while the real inflation rate is somewhere 3% to 5%, according to analysts, which means your purchasing power is only 95% to 98% on the dollar. If the dollar is literally worth less, than investors turn to gold as a safer place to preserve their wealth until interest rates become positive again.

Silver prices settled up 30 cents to $23.04 while copper closed 2 cents higher to $3.75.

Gold mining stocks, a risky but profitable way to buy gold, were higher. Yamana Gold was up 0.51% to $11.79 while Freeport McMoRan Copper & Gold added 2.06% to $93.05. Other gold stocks Gold Fields and New Gold were trading at $15.85 and $7.07, respectively.

--Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

>To follow the writer on Twitter, go to http://twitter.com/adsteel.

>To submit a news tip, send an email to: tips@thestreet.com.

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Another Catalyst for Gold & Silver Shares?

If you’ve followed our work you know how useful intermarket analysis can be when deciphering future movements and trends in the precious metals complex. Years ago when I would analyze Gold I would only follow Gold. Now I am aware of a wealth of markets that can be analyzed, which can help provide an outlook for precious metals.

Today I am looking at the Canadian Dollar. Most Gold and Silver companies are Canadian companies. They earn and spend in Canadian Dollars. Thus, the US Dollar Gold price has much less of an impact then you’d think. It is the Canadian Gold price that matters. Below is a chart of the Canadian Gold price.

This setup looks potentially explosive. We see that the market has already broken above an 18-month rising channel or wedge. Normally a rising wedge is bearish but when it occurs when a market isn’t that extended (like we see here) it can have an extremely bullish outcome.

Two things we should note. First, note how each correction (since 2008) is getting smaller in terms of time. That means the market is getting stronger. Secondly, the market isn’t extended. It has only risen steadily by bouncing on and off the moving averages.

Earlier this year we discussed Gold/Euro and said it was going parabolic. The Euro has recovered, but not before Gold/Euro rose 30% in about three months!

Since most gold companies are Canadian, an explosive move in the Canadian Gold price would be a huge catalyst for many stocks both large caps and juniors.

While we are at it, let’s take a look at the Silver. Silver in Canadian Dollars has made a very clean, multi-year breakout. We should see a snapback to previous resistance before a continued advance. Note that the ATR indicator at the top shows no signs of an overextended trend ripe for reversal. At the bottom we show Silver against the Peso. Many silver companies operate in Mexico. The Peso can have a small impact on these companies.

Every day we see or hear about the movements in Gold and Silver prices. If they are up, then we assume the stocks will be also. However, we need to keep in mind the various factors, which will influence the mining shares. As we’ve explained, traders and investors need to key on the Canadian prices of these metals. Those prices are what matters to the companies.

This is the type of analysis we do. While mainstream analysts and talking heads say that Gold is overbought, we say, time to look deeper. The metals may be overbought in the short-term but these charts show that there is potentially plenty of upside over the next six to nine months. If you are looking for professional guidance in navigating this historic bull market, then we invite you to consider a free 14-day trial to our service.

Good Luck!

Jordan Roy Byrne

Trendsman.com

Jordan Roy-Byrne, CMT is the editor and publisher of Trendsman.com. You can get a free 14-day trial to his Gold/Silver service by clicking here.

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