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The Goldbugg Report – September 15, 2009

September 15, 2009

-China can no longer afford to let gold or silver price slump

-After 21 years, Barrick will finally wean itself off gold hedging

-Buy silver, the china factor. Watch video here

GOLD

-Hedge fund eyes gold at $1,600, sells equities. The price of gold could rise as high as $1,600 an ounce as investors opt for assets with lasting value rather than volatile currencies, says one hedge fund manager who has increased his exposure to the precious metal.

“All the fundamentals are in place. If it breaks last year’s high it can go to $1,200 to $1,400 quite quickly,” Pedro de Noronha, managing partner of Noster Capital told Reuters in an interview on Tuesday. Spot gold rose through the psychologically significant barrier of $1,000 an ounce on Tuesday its highest since March 2008 when it hit a record $1,030.80.

The precious metal was helped by a weaker dollar and expectations that government measures to revive economic growth will boost demand for basic resources. “If you adjust the gold price for inflation, to retest the early 80s highs gold would need to be at $1,600. I don’t think this figure is inconceivable, especially given the fundamentals that are behind this move in gold,” de Noronha said.

Nearly 50 percent of the $45 million Noster Capital fund is now exposed to gold after it raised its exposure last week. Quantitative easing by governments has increased the attraction of gold, de Noronha said, while leading global currencies are under pressure due to high levels of borrowing. “People say they hate the U.S. dollar, but is the euro or (British) pound any better?” he said.

“Do you want to own the stock certificates of a country burning cash year in, year out, or own something that, no matter what, you can’t produce more of? “I think it’s a third-quarter or fourth-quarter story it’s just getting into the time of year when gold performs best. All the stars are aligned for gold to work.” Read more here-

http://www.reuters.com/article/newsOne/idUSTRE5874DS20090908

-China has issued what amounts to the “Beijing put” on gold. You can make a lot of money but you really can’t lose. Read more here-http://www.gata.org/node/7761

-China can no longer afford to let gold or silver price slump. Chinese state endorsement of gold and silver as good investments means the country can no longer afford to let precious metals prices drop by any significant amount.

With Chinese state institutions hawking gold and silver to the general populace as a good investment the latest news on this front being that the biggest Chinese bank, the Industrial and Commercial Bank of China (ICBC), is setting up a special precious metals department to handle growing investor demand for gold and silver within the country, the corollary is that therefore the country cannot afford to let precious metals prices fall substantially and thus alienate millions of its citizens who have been taking state advice to buy them.

In a Reuters report the ICBC is quoted as saying “”China is the world’s largest gold producer and the second-biggest gold consumer, and Chinese always have a custom to keep gold as personal wealth. China’s gold market is growing rapidly and has a huge potential with the growth of individual incomes.” Surely yet another endorsement of gold as an investment by a Chinese state concern?

And China certainly has the power to manipulate the gold price in ways maybe not undreamt of by GATA which has long believed that there has been gold price suppression by western governments, central banks and financial institutions. This time the boot could be veritably on the other foot. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=88887&sn;=Detail

-China’s hidden gold purchase policy. Evidence suggests that China is continuing to buy gold for its reserves, but is doing so in a manner designed not to over-disrupt the global gold market. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=88700&sn;=Detail or http://www.gata.org/node/7760

-After 21 years, Barrick will finally wean itself off gold hedging. More than two decades ago, Barrick transformed the international mining industry with its new-fangled policy of hedging gold production. Now Barrick admits it’s finally time to let its hedgebook go. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=88850&sn;=Detail

-Barrick Sees $5.6 Billion Charge to End Gold Hedges. Barrick Gold Corp., the world’s largest gold producer, plans to record $5.6 billion in third- quarter costs to eliminate fixed-price contracts as the company bets that prices for the precious metal will climb.

As of yesterday, the company had gold sales contracts for 9.5 million ounces of gold, which had a mark-to-market position of negative $5.6 billion, Toronto-based Barrick said today in a statement. To fund some of the costs, Barrick agreed to sell 81.2 million shares at a price of $36.95 per share for proceeds of $3 billion, the company said.

Barrick has “an increasingly positive outlook on the gold price,” the company said in the statement. Gold today rose to the highest price since March 2008, topping $1,000 an ounce, as the slumping dollar and inflation concerns boosted the metal’s appeal to investors. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=a9BSZgMw3HB8

-DJ Sumitomo Metal Mining Makes Hedge Deals For Gold Output. The Japanese nonferrous metal supplier said it has contracted to sell 48% of the 7.5 tons a year output from its mine in Kagoshima Prefecture, southern Japan at $700-$1,700 per troy ounce through June 2012.

At its Pogo mine in Alaska, Sumitomo contracted to sell 28% of a set amount of its take at $750-$1,850 per troy ounce and the remaining 72% at $750-$1,700 through December 2014. Read more here-http://www.tradingmarkets.com/.site/news/Stock%20News/2515056/

-Coxe advocates overweight gold in commodity-oriented portfolios. BMO’s Don Coxe advocates gold as attractive havens that can outperform under the extreme scenarios of financial collapse and runaway inflation. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=88562&sn;=Detail

-If history’s any judge, fall is a great time to be a gold bug. Over the past 16 of 20 Septembers, the gold price has gone up, says Frank Holmes, CEO and chief investment officer of U.S. Global Investors, an investment adviser managing 13 natural resources and emerging market mutual funds. On average, he says, gold rises about 2.5% over its August price not too shabby. But will it be enough to break $1,000 for good? Read more here-http://www.hardassetsinvestor.com/features-and-interviews/1/1750-frank-holmes-a-september-for-gold.html

-GATA Chairman Bill Murphy has written a summary of GATA’s work, keyed to recent developments in the gold market, including China’s steady but until recently surreptitious acquisition of gold, about which he has written for years but which only now is catching the attention of the establishment financial press.

Murphy’s commentary is headlined “GATA Media Special: The Reason for Gold’s Imminent Price Moon Shot? It’s a Simple Supply-Demand Story.” Read more here-http://www.golddrivers.com/gata2.aspx or http://www.gata.org/node/7769

-GATA’s secretary-treasurer Chris Powell is interviewed by King World News on gold. Listen here-http://www.gata.org/node/7753

-Gene Arensberg: Gold, silver breakout in action. Read more here-http://www.gata.org/node/7771

-Gold Is Still the Opportunity of a Lifetime. The opportunity offered by precious metals is the opportunity to rid oneself of counterparty risk. The Dollar is the ultimate example of counterparty risk as it relies on the responsible performance of government and monetary authorities to maintain its value.

Since the two aforementioned entities have been absentee custodians of the Dollar for so long, its value has deteriorated dramatically. Precious metals have allowed individuals to compensate for that loss in purchasing power. Pundits will say that Gold is a lousy investment and they’re right. The problem with their thinking is that Gold is not an investment; it is sound money and should be regarded as such, not with contempt as is routinely the case in the mainstream press corps.

So as we begin another September, a time of year that seems to bring out the worst in our financial and banking system, I will say it again Gold continues to be the opportunity of a lifetime. Andy Sutton-Read more here-http://seekingalpha.com/article/160262-gold-is-still-the-opportunity-of-a-lifetime?source=article_sb_popular

-Gold looking for a new support level. The sharp break above $960 could suggest a further jump to around $1,110. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=88688&sn;=Detail

-Gold price could hit $1,300/oz in 2011-BMO Capital Markets. BMO Capital Markets asserts the market has become quite divided on the outlook for gold and gold stocks with no clear consensus on the gold outlook. Read more here-http://www.mineweb.net/mineweb/view/mineweb/en/page31?oid=88686&sn;=Detail

-Gold Prices May Hit $1,650 by 2010. Spot gold prices could jump to $1,650 an ounce in the medium term, predicts Jurg Kiener, CEO of Swiss Asia Capital. Watch video here-

http://www.cnbc.com/id/15840232?video=1244824610&play;=1

-Gold Rush by Many Investors Could Push Price Up to $1,200. Read more here-http://www.cnbc.com/id/32674100

-Gold market update from Clive Maund. Read more here-http://news.goldseek.com/CliveMaund/1252390500.php

-Gold Party Barely Started. Read more here-http://news.goldseek.com/GoldSeek/1252505222.php

-The Beginning of the Gold Era. Read more here-http://news.goldseek.com/GoldSeek/1252427988.php

-Gold Rally Signals Move Away From Currencies, Greenspan Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601083&sid;=acrGvxBXPDfk

-James Turk: Coming inevitably $1,000 gold and L10 silver. Read more here-http://goldmoney.com/commentary-coming-inevitably-1000-dollar-gold.html

-James Turk: Gold is always the safest haven. Read more here-http://www.gata.org/node/7767

-Ross Clark technical analysis, gold could not be better. Read more here-http://www.321gold.com/editorials/hoye/hoye091009.pdf

-13 Reasons for Major Gold BreakOut. Read more here-http://news.goldseek.com/GoldenJackass/1252612800.php

-The keys to gold’s near term performance and beyond. Even though gold may not have been able to maintain its initial surge through the $1000 barrier there are four key drivers towards regaining this figure and moving it further forward in the months ahead. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=88950&sn;=Detail

-A run on the Bank of the Gold Cartel. Read more here-http://news.goldseek.com/GATA/1252392300.php or http://www.gata.org/node/7764

-$1,000 gold could be bad for business. Demand during India’s busy festival season could be dented by the high prices currently being made by the yellow metal. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=88797&sn;=Detail

-Swiss gold shares beginning trading on NYSE this week. The product, launched by ETF Securities is backed by physical gold in Swiss vaults. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=88907&sn;=Detail or http://www.gata.org/node/7772

-Hong Kong recalls gold reserves, touts high-security vault. In a challenge to London, Asian states invited to store bullion closer to home. Read more here-

http://www.marketwatch.com/story/story/print?guid=FB75EAFA-EAE5-4032-BFA4-61CBB884280E

-Gold sensor can detect lung cancer. Read more here-http://www.thestandard.com.hk/news_detail.asp?we_cat=16&art;_id=87464&sid;=25284089&con;_type=1&d;_str=20090908&fc;=3

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,200 the silver price would be $15.00

Gold to silver ratio at 70 to 1 with gold at $1,200 the silver price would be $17.14

Gold to silver ratio at 60 to 1 with gold at $1,200 the silver price would be $20.00

Gold to silver ratio at 50 to 1 with gold at $1,200 the silver price would be $24.00

Gold to silver ratio at 40 to 1 with gold at $1,200 the silver price would be $30.00

Gold to silver ratio at 30 to 1 with gold at $1,200 the silver price would be $40.00

Gold to silver ratio at 20 to 1 with gold at $1,200 the silver price would be $60.00

Gold to silver ratio at 15 to 1 with gold at $1,200 the silver price would be $80.00

-Buy silver, the china factor. Watch video here-http://news.silverseek.com/SilverSeek/1252520450.php

-Forget gold. Silver is shining bright. Silver has outperformed the yellow metal in recent months and the silver spike might have more to do with a global economic recovery than inflation fears. Read more here-http://money.cnn.com/2009/09/08/markets/thebuzz/index.htm?section=money_latest

-Silver market analyst Ted Butler interviewed by King World News. Listen here-http://www.gata.org/node/7755

-Ted Butler silver market commentary, warnings ignored. Read more here-http://www.gata.org/node/7752 or http://thefundamentalview.blogspot.com/2009/09/china-and-buzz-of-pending-bank-default_03.html

-Silver market update from Clive Maund. Read more here-http://news.silverseek.com/CliveMaund/1252378732.php

-Sprott’s John Embry interviewed on gold, silver, and a lot more. Read more here-http://www.q1publishing.com/dispatch/502/Gold-Outlook:-Expolosion-in-the-Price-of-Gold-Imminent

-Rising silver demand and how far prices can go. David Morgan expects that once gold breaches the $1,000 level and remains there for several trading days, it will be time to look for the next level in silver.

“I’m expecting to see around the $1,250, $1,300 level in gold,” he said. “Silver may be lagging at that point somewhere in the $15-$17 range but once gold goes through it, it will have a magnet effect for silver. You’ll see silver reach the $21 high it experienced last year and move upward.”

For Mr. Morgan, silver’s key price level is $25/oz. “That is the point where I think you’re going to see an acceleration in the price of silver, because for all practical purposes, everyone that’s held silver and owns it at $25/oz is going to have it at profit.

“When markets go into a profitable scenario especially in a thin market like silver – everyone asks the question, ‘How high is high?’ So you have very few sellers, and they are all holding or buying more. That puts more upward pressure on the metal. I think we’re going to get to that scenario sometime in 2010,” he said. Read more here-

http://www.commodityonline.com/news/Rising-silver-demand-and-how-far-prices-can-go-20803-3-1.html

-NIA Officially Declares Gold and Silver Mania is Here. Read more here-http://www.reuters.com/article/pressRelease/idUS228786+08-Sep-2009+PRN20090908

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Chart of the week: Consumer Credit Collapse. Hoping for a consumer-led recovery? Don’t hold your breath. The latest data from the Federal Reserve shows that the year-over-year decline in total consumer credit is collapsing at an accelerating rate. God forbid consumers go back to living within their means. Read more here-

http://www.businessinsider.com/chart-of-the-day-consumer-credit-change-at-annual-rate-2009-9

-Record Plunge in U.S. Consumer Borrowing Signals a Slow Recovery in Demand. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=aAYZpSNGocVM

Source: www.chartoftheday.com

-Government employees move up the ladder through educational credentials rather than merit. People are given jobs and promotions based on seniority, race and gender rather than ability or talent. Such a system often overlooks the deserving and rewards the incompetent. There is no payoff for achievement. James Cook

-Short-sighted and impatient efforts to wipe out poverty by severing the connection between effort and reward can only lead to the growth of a totalitarian state, and destroy the economic progress that this country has so dearly bought. Henry Hazlitt

-What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment. Alan Greenspan, Bloomberg, 09 September 2009

-As gold skyrockets, governments will be forced to print more money to buy their own bonds to halt rates from skyrocketing. If the bond market collapses, a real estate holocaust will take place. Yet, ironically, the collapsing US dollar itself could cause banks to hike mortgage rates, regardless of the Fed’s T-bond buy programs. My sense is the whole situation is on the verge of blowing out of control.

Even the perception that this could possibly occur could cause a massive institutional buying panic of gold. Most investors have forgotten about oil. Given the absolutely hair-trigger situation in Iran, with Pakistan also pushing the limits of stability, the energy markets could be next to see a powderkeg price explosion upside! Stewart Thomson-Read more here-http://www.321gold.com/editorials/thomson_s/thomson_s_090909.html

-One year after the near collapse of the global financial system, this much is clear: The financial world as we knew it is over, and something new is rising from its ashes. Historians will look to September 2008 as a watershed for the U.S. economy.

On Sept. 7, the government seized mortgage titans Fannie Mae and Freddie Mac. Eight days later, investment bank Lehman Brothers filed for bankruptcy, sparking a global financial panic that threatened to topple blue-chip financial institutions around the world. In the several months that followed, governments from Washington to Beijing responded with unprecedented intervention into financial markets and across their economies, seeking to stop the wreckage and stem the damage.

One year later, the easy-money system that financed the boom era from the 1980s until a year ago is smashed. Once-ravenous U.S. consumers are saving money and paying down debt. Banks are building reserves and hoarding cash. And governments are fashioning a new global financial order. Read more here-http://www.mcclatchydc.com/226/story/75016.html

-Another financial crisis inevitable: Greenspan. Another global financial crisis is inevitable because human nature always reverts to “speculative excesses” during a period of sustained prosperity, former U.S. Federal Reserve Chairman Alan Greenspan said.

“The crisis will happen again but it will be different,” he told BBC Two’s “The Love of Money” television series. “That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that that will continue,” he said.

Greenspan, speaking to the BBC to mark the first anniversary of the fall of U.S. investment bank Lehman Brothers, said Britain will be hit worse than the U.S. by the subsequent worldwide financial crisis and global recession because it has a globally-focused economy.

Countries, smarting from the near collapse of the banking system, will struggle to match their stated desire for increased regulation with their other stated need for free global trade. Read more here-http://www.reuters.com/article/ousiv/idUSTRE5881R720090909

-UK was hours from bank shutdown. FSA ready to close cash machines during crisis. Britain was within hours of a banking shutdown last autumn as the government battled to piece together a rescue plan for the stricken Halifax and Royal Bank of Scotland, it has emerged.

Treasury mandarins and Bank of England officials battled the clock to come up with a support package on the weekend of 12 October. If they had failed, the Financial Services Authority could have ordered the closure of cash machines and prevented deposits at either of the two main casualties of the global financial chaos.

Hector Sants, chief executive of the FSA, said: “The FSA knew we could not have allowed them [RBS and HBOS] to open their doors on the Monday morning without a solution.”

In the absence of a deal, the FSA would have issued notices to the two banks forbidding them from taking deposits or allowing withdrawals. Such a drastic move, a year after the hugely damaging run on Northern Rock, was unthinkable and the authorities had to come up with a fully worked-out rescue.

“HBOS and RBS would not have survived without government intervention,” said Sants, who was involved in the frantic negotiations that weekend to ensure the banking system did not collapse. Read more here-http://www.guardian.co.uk/business/2009/sep/06/banks-fsa-rbs-financial-crisis

-Greed, Arrogance Fuel Subprime Disaster in ‘American Casino’. In January 2008, when Andrew Cockburn and his wife Leslie started making a documentary about the subprime mortgage crisis, the Dow Jones Industrial Average was above 13,000, the U.S. unemployment rate was under 5 percent and Lehman Brothers and Bear Stearns were still big names on Wall Street.

During the next 11 months, the Dow plunged 43 percent, Lehman Brothers and Bear Stearns collapsed and the U.S. economy fell into its worst slump since the Great Depression. “It was a big story when we started, but it got even bigger as we were making the film,” Andrew Cockburn said. “We certainly didn’t know that all these huge banks would fail and that the market would crash.”

The Cockburns examine the roots and ramifications of the subprime debacle in “American Casino,” which shows how the resulting financial crisis has affected Main Street as well as Wall Street. The film is playing in New York and will open in other U.S. cities throughout September and October. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=asU.JlUM4Sdk

-Delta Air Lines Inc. and the other big U.S. carriers are poised to make more cuts in available seats as the summer travel season ends this weekend, capping the industry’s deepest retrenchment since World War II.

Capacity at the six largest airlines, led by Delta, will shrink 6.8 percent by year’s end from 2008 levels, according to data compiled by flight information firm OAG Aviation Solutions for Bloomberg News. That’s equal to erasing the domestic network of US Airways Group Inc., the No. 6 U.S. carrier by traffic. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=aUBm5SGb6II8

-Iran rejected any compromise with the West over its nuclear program Wednesday, as blunt comments from the Obama administration over Tehran’s bomb-making capability suggested that the two sides were headed toward a renewed diplomatic crisis.

Iran offered Western officials a long-awaited package of proposals to restart negotiations over its nuclear program. But diplomats who viewed the offer Wednesday said the document of fewer than 10 pages essentially ignored questions over Iran’s production of nuclear fuel and instead focused broadly on other international issues. Read more here-

http://sec.online.wsj.com/article/SB125249646237795391.html?mod=rss_Page_One or http://www.bloomberg.com/apps/news?pid=20601087&sid;=alaYRZjHPgSc

-Iranian Atomic Work Nears Bomb Capability, U.S. Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=a7V8D6BH4McM

-Ex-CIA Boss Urges Curbs on Oil Firms Supplying Iran. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aX9.xRqSNQ2w

-OPEC Maintains Oil Quotas as IEA Raises Global Demand Forecast. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=aRiBc7COFFaI

-Supertankers May Halt Oil Trading, Frontline Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aXQU8JUfltCw

-H1N1 outbreak might hurt businesses, Harvard study says. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=avwZUXu9nrqg

-U.S. Poverty Rises, Median Household Income Falls. Household incomes decreased in 2008, the first full year of the recession, and the poverty rate rose to the highest since 1997, government data showed.

The median household income fell 3.6 percent to $50,303, snapping three years of increases, the Census Bureau said today in its annual report on incomes, poverty and health insurance. The poverty rate climbed to 13.2 percent from 12.5 percent. The number of people living in poverty rose to 39.8 million last year, an increase of 2.6 million from 2007.

Today’s report highlights concerns that consumer spending will play a limited role in leading any recovery from the worst recession since the 1930s. Plunging home values and stock prices have fueled a record $13.9 trillion loss in household wealth in the U.S. since the middle of 2007.

“The decline in incomes we’re seeing certainly has implications for consumer spending, particularly post-housing bubble when families can’t tap into home equity through loans,” said Heather Boushey, a senior economist at the Center for American Progress, a research organization headed by John Podesta, a leader of the Obama administration transition team. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=aDIvtqxX.pxY

WWW.RARECOLOREDDIAMONDS.COM

-The Rare Colored Diamonds Historical Value Tracker system is the perfect tool for investors to view the potential future value of a rare colored diamond based on the current market trend of a particular type of diamond. Track the potential future value of colored diamonds here-http://www.rarecoloreddiamonds.com/HistoricalPriceTrackingsystem.html

-Watch BTV interview of Harold Seigel on colored diamonds and his website http://www.rarecoloreddiamonds.com/. Watch video here-http://www.rarecoloreddiamonds.com/watchnow.html

-Some miracles have a way of going unnoticed. Gems and jewels have been doing brilliantly at auction for months, as if bidders had never been told that there is a recession. And yet this has not aroused much commentary. No one can reasonably argue that the market is faring poorly when earth-shattering world records are set.

On Dec. 10, when the mood in London was at an all-time low, Christie’s sold the most expensive jewel ever. The 35.56-carat blue diamond rose to $24.31 million, or to be strictly accurate, £16.39 million. (In the jewelry market prices are always quoted in dollars, and even the presale estimate for the blue diamond, stated only on request, was given as a flat $15 million.).

The faceting of the diamond was dazzling and the delicate ultramarine blue exceedingly rare, but this was more than just a beautiful gem. Its history went back to the 17th century, when Philip IV of Spain gave it to his daughter Margaret Theresa on her betrothal to Leopold I, the ruler of the “Roman Germanic Empire.” Later, it belonged to the Princes of Wittelsbach in Bavaria.

To round it off nicely, the stone can be shown today to have been cut by Sa’ida-ye Gilani, the Iranian poet, calligrapher and jeweler employed at the Moghul court by the emperor Jahangir (who reigned from 1605-1627), thus multiplying its potential value manyfold. However, the catalog did not mention this, since it was not known at the time of the sale. The world leader in diamonds, Laurence Graff of London, finding the blue diamond irresistible, paid a world record price, the highest for any stone ever auctioned.

Five months later, another extraordinary price within its range was realized at Sotheby’s in Geneva. This confirmed that the market was indeed exploding at the top end. Once again, the subject of the excitement was a fancy blue diamond.

With its “fancy vivid blue” color, the 7.03-carat gem dazzled connoisseurs out of their wits. It brought a staggering $9.48 million, just over $1.34 million a carat, making the diamond the most expensive stone per carat ever sold in any category. Unlike Christie’s fabulous historic diamond, it had no distant past. The bauble was cut from a 26.58-carat rough diamond recovered the year before at the Cullinan mine in South Africa. It was solely the lure of the stone that determined the prodigious price.

Sotheby’s press release announced that the buyer, Joseph Lau Luen-hung of Hong Kong, had acquired the diamond, and given it a name, “The Star of Josephine.” Josephine being his wife’s name, dealers were ecstatic. This really was a private acquisition, fully demonstrating the vibrancy of the market.

Other extraordinary prices were fetched at Sotheby’s Geneva auction, which netted a cool $35.76 million. A rare “fancy pink” diamond cut in the shape of a pear soared to $2.04 million, a huge figure for a 5.29-carat stone. When the glitter of a jewel makes it hard to resist temptation, money suddenly becomes available. There might be a lesson here for those who are in charge of the broader economy. Read full story here-http://www.nytimes.com/2009/09/05/arts/05iht-melik5.html or

http://www.idexonline.com/portal_FullNews.asp?id=32880

-Diamonds, Colored Stone Jewellery on Auction Block This Month. Three separate estates of rare fancy color diamonds, colorless diamonds, diamond jewelry, and colored stone jewelry will be auctioned Sept. 16, 2009, in New York.

The auction will be conducted by Gemological Appraisal Association Inc., part of the Palmieri Group, in the penthouse (34th Floor) of 580 Fifth Ave. at 10:00 a.m. The three estates are the Treasure Trove (rare collection of fancy color diamond rings), the Howard W. Klein estate (certified diamonds and jewelry), and Alison Gem Corp. (loose diamonds and commercial diamond jewelry). The lots will be auctioned in three sessions.

A kickoff presentation by Bruno Scarselli, principal of Scarselli Diamonds, and by the Natural Color Diamond Association, discussing fancy color diamonds, will begin at 9:00 a.m. Read more here-http://www.jckonline.com/article/339973-Diamonds_Colored_Stone_Jewelry_on_Auction_Block_This_Month.php

INFLATION-DEFLATION

-Investor Marc Faber said government spending and low interest rates will keep the U.S. deficit “very high” and will spur inflation. Interest rates will be kept “artificially low” and remain “near zero for a long time” in the U.S., Faber, the publisher of the Gloom, Boom & Doom report, said today in a presentation broadcast on the Internet. “The deficit will stay very high and that will create some kind of more inflation down the road.”

The Federal Reserve is likely to continue to “print money” in an effort to boost the U.S. economy, and that, combined with low interest rates, will spur weakness in the dollar, Faber said. U.S. President Barack Obama has pumped up the nation’s marketable debt to an unprecedented $6.94 trillion as he borrows to spur the world’s largest economy.

“Money printing will be unprecedented because the deficit will need to be financed,” Faber said. “The weaker the economy, the more the stock market will go up because the money that is being printed will go into” speculative assets. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=az3plDWXOx2c

-Does the world have the courage to deal with its debts? Deflation is spreading from the core of the global system to the most unexpected regions of the world. It has even reached Latin America. Prices are sliding in Peru, Chile, Colombia, Paraguay, Bolivia, Ecuador, Guatemala, and El Salvador, to the consternation of everybody. Read more here-

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6146859/Does-the-world-have-the-courage-to-deal-with-its-debts.html

INTEREST RATES

-Goldman Says Deleveraging May Keep Fed Rate Low for ‘Years’. The Federal Reserve may keep interest rates low for “many years” to help U.S. consumers and companies as they pare back debt, according to economists at Goldman Sachs Group Inc.

Sluggish spending as households reduce debt could lop as much as 2 percentage points from U.S. economic growth over the next three years, New York-based economists Peter Berezin and Alex Kelston wrote in a report released late yesterday. While not enough to threaten a long-term recovery, it may require the Fed to offset the weakness by keeping its benchmark rate unchanged through 2010, they said.

“It is hard to escape the conclusion that the Fed may need to maintain fairly low interest rates over a period of many years,” wrote Berezin and Kelston. “If you want to bring down leverage, you should keep monetary policy sufficiently accommodative to forestall a collapse in spending and a deflationary spiral.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=axL0qC8rIx_M

-The Bank of Canada kept its key interest rate at a record low and said persistent strength in the country’s dollar is threatening signs of faster-than expected growth in the second half of the year.

The target rate for overnight loans between commercial banks remained at 0.25 percent. Governor Mark Carney repeated a commitment made in April to keep that rate unchanged through June 2010 unless the inflation outlook shifts.

“Growth in the second half of 2009 could be stronger than the bank projected in July,” the central bank said today in a statement from Ottawa. “Persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target.” Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=aI4QKHgcJg74 or

http://www.bloomberg.com/apps/news?pid=20601082&sid;=ahOXUPRVeiP0

U.S. BANK FAILURES HIT 89

-Five More U.S. Banks Are Seized, Pushing Total for Year to 89. Lenders in Illinois, Iowa, Missouri and Arizona collapsed, pushing the number of bank failures to 89 this year amid continuing fallout from the worst economic slump since the Great Depression.

Illinois lenders InBank of Oak Forest and Platinum Community Bank of Rolling Meadows; Vantus Bank of Sioux City, Iowa; First Bank of Kansas City, Missouri; and First State Bank of Flagstaff, Arizona were shut by regulators, and the Federal Deposit Insurance Corp. was named receiver, the agency said in statements yesterday. Closing the lenders, with combined assets of $1.1 billion and deposits of $982 million, will cost the deposit insurance fund about $401 million.

Regulators have closed banks at the fastest pace in 17 years and more are likely as losses mount from soured real- estate debt. A total of 416 banks with combined assets of $299.8 billion failed the FDIC’s grading system for asset quality, liquidity and earnings in the second quarter, the most since June 1994, the regulator said in a report last month. Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=atIgNJeY9A6g or http://money.cnn.com/2009/09/04/news/companies/bank_failures/?postversion=2009090421

-Regulators closed banks in California, Maryland and Minnesota yesterday, pushing U.S. bank failures to 84 this year amid continuing fallout from the worst economic crisis since the Great Depression. The Federal Deposit Insurance Corp. was named receiver for Affinity Bank of Ventura, California, Bradford Bank of Baltimore and Mainstreet Bank of Forest Lake, Minnesota, after yesterday’s closings, the FDIC said.

Assets of $1.9 billion and deposits of $1.7 billion from the three banks were turned over to new lenders at a total cost of about $446 million to the FDIC’s deposit insurance fund, according to agency statements. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aSdMMGzkt1do or http://money.cnn.com/2009/08/28/news/economy/bank_failure/index.htm

OBAMA MAKING DEPRESSION MISTAKES

-Barack Obama is committing the same mistakes made by policymakers during the Great Depression, according to a new study endorsed by Nobel laureate James Buchanan. His policies even have the potential to consign the US to a similar fate as Argentina, which suffered a painful and humiliating slide from first to Third World status last century, the paper says.

There are “troubling similarities” between the US President’s actions since taking office and those which in the 1930s sent the US and much of the world spiralling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs.

In particular, the authors, economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House’s plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run. They say that by employing deficit spending and increased state intervention President Obama will ultimately hamper the long-term growth potential of the US economy and may risk delaying full economic recovery by several years.

The study represents a challenge to the widely held view that Keynesian fiscal policies helped the US recover from the Depression which started in the early 1930s. The authors say: “[Franklin D Roosevelt's] interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows.” Read more here-http://www.telegraph.co.uk/finance/economics/6147211/Barack-Obama-accused-of-making-Depression-mistakes.html

U.S. DOLLAR-STIMULUS

-UN wants new global currency to replace dollar. The dollar should be replaced with a global currency, the United Nations has said, proposing the biggest overhaul of the world’s monetary system since the Second World War. Read more here-http://www.telegraph.co.uk/finance/currency/6152204/UN-wants-new-global-currency-to-replace-dollar.html or

http://www.bloomberg.com/apps/news?pid=20601087&sid;=aSp9VoPeHquI

-U.S. Dollar Will Weaken, Currency Crash Possible, Roubini Says. The dollar will weaken and the U.S. risks seeing a crash of the currency unless it does more to control the deficit and reduce debt, said New York University Professor Nouriel Roubini, who predicted the financial crisis.

“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said in an interview today in Cernobbio, Italy. “The value of the dollar over time has to fall on a trade-weighted basis, but not necessarily relative to euro and yen.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a.SW_71xPhjA

-Dollar Index on Defensive, May Fall to 76: Technical Analysis. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aLH858tMUd50

-Two years ago Max Keiser warned of ‘Death of the Dollar’. Read more here-http://www.gata.org/node/7770

-China alarmed by US money printing. The US Federal Reserve’s policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy. Read more here-http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US-money-printing.html or http://www.gata.org/node/7759

-China’s Premier Wen Jiabao signaled he will maintain unprecedented government spending to drive a recovery from the slowest expansion in almost a decade. “China’s economic rebound is unstable, unbalanced and not yet solid,” Wen said yesterday in a speech at the World Economic Forum in Dalian, a city in northeastern China. “We cannot and will not change the direction of our policies when the conditions aren’t appropriate.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aF3.IaUQ.JEo

-European Central Bank policy makers signaled they intend to leave emergency lending measures in place into next year to support an economic recovery. “When the economy is walking solely with the aid of fiscal and monetary crutches, it’s not advisable to whip them away,” Bundesbank President and ECB council member Axel Weber said today in Ploen, Germany. Luxembourg’s ECB council member, Yves Mersch, said the bank will monitor the impact of its stimulus measures “until the end of the year.”

The Frankfurt-based ECB is flooding banks with cheap cash in the hope they will lend it on to companies and households and get them spending again. While Europe is showing signs of emerging from its worst recession since World War II, policy makers are concerned the recovery will falter if the extra liquidity is removed too soon. Read more here-

http://www.bloomberg.com/apps/news?pid=20601068&sid;=aALof_hn_AuM

U.S. UNEMPLOYMENT

-Fed officials see slow recovery for labor market. U.S. labor markets could take years to recover from the setbacks of the current recession, which have pushed the unemployment rate to a 26-year high, top Federal Reserve policy-makers said on Wednesday.

But the officials said the Fed may need to end its ultra-accommodative policy stance long before the jobless rate starts to plummet if inflation starts to rise. For now, though, that seems some way off given the tentative nature of the economic recovery. Read more here-http://www.reuters.com/article/ousiv/idUSN0961189820090909

-Employers’ hiring plans for the upcoming fourth quarter dropped to their lowest level in the history of Manpower’s Employment Outlook Survey, which started in 1962. Read more here-

http://www.marketwatch.com/story/story/print?guid=F014B933-B25C-44B9-9973-CE0426E80E25

-Temporary Hiring Shows Job Rebound Isn’t Imminent: Chart of Day. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=avYl515PP_pM

-U.S. Initial Jobless Claims Fell to 550,000 Last Week. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=ag9R1aoTYI_o

-The Labor Department reported that nonfarm payrolls (jobs) decreased by 216,000 in August. Today’s chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-2006 (dashed blue line).

As today’s chart illustrates, the current job market has suffered losses that are more than six times as much as average (20 months after the beginning of a recession). In fact, if this were an average recession-job loss cycle, the number of jobs would have begun to increase five months ago. Read more here-http://www.chartoftheday.com/20090904.htm?T

Source: www.chartoftheday.com

DAVID ROSENBERG MARKET COMMENTARY

-Canada Dollar Parity ‘Achievable’ by Year-End, Rosenberg Says. Canada’s dollar may reach parity with its U.S. counterpart by year-end as economic growth in Asia boosts commodity prices, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto.

The Canadian currency may strengthen as rising unemployment in the U.S. forces the government to adopt additional stimulus measures, further weakening the American currency, Rosenberg said in a telephone interview. Gluskin Sheff, a wealth manager, oversees $4 billion.

“If you’re going to give me a three- to six-month window, I would say it’s definitely achievable,” said Rosenberg, former North American chief economist at Merrill Lynch & Co., referring to Canada’s currency appreciating to C$1 per U.S. dollar. “It seems to me that the Asian economy is on a discernable upward track. That will be the tide that lifts the boat for the commodity complex.”

Canada’s dollar reached parity with the greenback in September 2007 for the first time in three decades, and hovered near there until July 2008, following a 60 percent climb over five years fuelled by rising commodity prices. Shipments of crude oil, natural gas, lumber, gold, copper and other raw materials account for more than half of Canada’s export revenue. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=a1FGLHvlZzx8

-Five points worth making on the markets, earnings and the economy.

1. This remains a hope-based rally in the equity markets (with strong technicals). What we are seeing transpire is without precedent – the magnitude of the employment slide versus the magnitude of the market advance.

2. Companies have not really been beating their earnings estimates – only the very final estimates heading into the reporting quarter.

3. Valuation is a poor timing device but even on “normalized” trailing 10-year earnings, the S&P; 500 is trading near 18x, which is now above the historical average of 16x.

4. All the growth we are seeing globally this year is due to fiscal stimulus.

5. While Mr. Market may be pricing in a fine future for the U.S., but when the 3-month Treasury-bill yield is 13bps north of zero, you know that there are still substantial fundamental imbalances that need to be worked through. David A. Rosenberg Chief Economist & Strategist Gluskin Sheff

-Okay, let’s get this straight. We are now being told by the pundits that the reason why Mr. Market is managing to so readily shrug off adverse data is because Mr. Market is discounting “normalized” 2011 earnings of $80. That is behind the latest round of S&P; 500 estimates of 1,200. After a momentous 50%+ surge from the lows, anything is certainly possible.

But let’s see if it makes sense. First, with household net worth down $14 trillion, employment down 7 million since the start of the recession and consumer credit down $110 billion from last year’s peak, it would seem to us as though there are too many gaping holes to believe we are going to be seeing anything remotely close to “normalized” earnings any time soon.

But even if that were the case, it would suggest that the market is trading near a 12x two-year forward multiple. Go back 80 years worth of data, and the mean two-year forward multiple is 7x. Too rich for our liking. David A. Rosenberg Chief Economist & Strategist Gluskin Sheff

-We did some digging and found that all of the world economic rebound in 2009 that is, 100% and them some is being accounted for by fiscal stimulus. There is still nary a sign that the global recovery is being sustained by organic private sector activity.

Oh yes, for 2010, we calculate that 80% of the growth that the consensus is penning in is derived from the public sector. Even FDR would blush over this unprecedented government incursion into the economy. Since the impact from government spending is a second-round effect on corporate profits, it will be interesting to see the extent to which earnings growth come into line with today’s lofty expectations. David A. Rosenberg Chief Economist & Strategist Gluskin Sheff

-The U.S. economy is actually 9.4 million jobs short of being anywhere remotely close to being fully employed, which is why any inflation that can somehow be created by the Fed is simply going to be unsustainable noise along a fundamental downtrend in pricing power.

After last Friday’s report, we have now lost 6.9 million positions that have been cut during this recession and we have to count in the additional 2.5 million jobs that need to be created but never were just to absorb the new entrants into the labour market. The ‘real’ unemployment rate is now 16.8%, so to suggest that this down-cycle was anything but a depression is basically a misrepresentation of the facts. David A. Rosenberg Chief Economist & Strategist Gluskin Sheff

U.S. STOCKS AT RISK OF 20 PERCENT DECLINE-INSIDERS STILL SELLING

-The U.S. stocks rally is “maturing” and the risk of a 20 percent retreat in the Standard & Poor’s 500 Index increased after sellers became more aggressive than buyers, Bank of America said.

Mary Ann Bartels, an analyst at Bank of America, said her volume intensity model, used to capture the market’s money flows, showed investor buying peaked last week and selling gained strength. That’s signalling the 50 percent rally in the S&P; 500 from a 12-year low on March 9 may be near an end, she said. Technical analysts study chart patterns to predict prices.

Selling pressure was the third of five indicators watched by Bartels to signal increased probability of a 15 percent to 20 percent “correction” in the benchmark for American equity, she said. Two others were triggered last month when China’s Shanghai Composite Index began a 16 percent slump and Investors Intelligence said bearish sentiment among newsletter writers shrank to less than 20 percent.

“These are all signs of a maturing rally,” Bartels, who ranked second among analysts who study price charts in Institutional Investor magazine’s most recent survey, wrote in a note published today. “The risk of a deeper correction is increasing.” Read more here-http://www.bloomberg.com/apps/news?pid=20603037&sid;=ak.1o0dVxWHo

-Insiders sell like there’s no tomorrow. Corporate officers and directors were buying stock when the market hit bottom. What does it say that they’re selling now? Read more here-

http://money.cnn.com/2009/09/10/news/economy/insider.sales/index.htm?postversion=2009091016

REAL ESTATE-MORTGAGES-FORECLOSURES

-Home Price Increases Depends on Foreclosure Sales. Read more here-http://blogs.wsj.com/developments/2009/09/08/home-price-increases-depends-on-foreclosure-sales/

-As an Exotic Mortgage Resets, Payments Skyrocket. Edward and Maria Moller are worried about losing their house not now, but in 2013. That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.

Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.

It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due. With many of these homes under water worth less than the loans against them many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.

The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom. “I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”

Keith Gumbinger, an analyst with HSH Associates, said: “This is going to be the source of tomorrow’s troubles. The borrowers might have thought these were safe loans, but it turns out they bet the house.” Read more here-http://www.nytimes.com/2009/09/09/business/09loans.html

-Commercial property defaults may set record according to study. Commercial mortgage defaults of loans made by banks are projected to peak in 2011, and could set a new record next year, according to a report released on Tuesday by Real Estate Econometrics.

The real estate research firm revised its early projections for the rest of the year, viewing the default rate of mortgage loans on office buildings, hotels, shopping centers hotels and other non-residential income earnings property to be 4.2 percent, up the most recent forecast of 4.1 percent. Falling rental rates, higher vacancies and the absence of a functioning credit market have combined to undermine borrowers’ abilities to keep current with their monthly payments.

Real Estate Econometrics also raised its default projections for next year and 2011 to reflect a larger number of loans moving from delinquency to nonaccrual — loans lending institutions do not expect to be repaid in full. In the second quarter, delinquent commercial mortgage balances across all banks fell by about $2 billion, while those in nonaccrual balances jumped $6.5 billion. Read more here-http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN0829660420090909

-U.S. Foreclosure Filings Top 300,000 for Sixth Straight Month. Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month as job losses that boosted the unemployment rate to a 26-year high left many homeowners unable to keep up with their mortgage payments.

A total of 358,471 properties received a default or auction notice or were seized last month, according to data provider RealtyTrac Inc. That’s up 18 percent from a year earlier, and down 0.5 percent from July, the Irvine, California-based company said in a statement. One in 357 households received a filing. Read more here-

http://www.bloomberg.com/apps/news?pid=20603037&sid;=a3dnPxhcGAxs or http://www.reuters.com/article/newsOne/idUSTRE5890VR20090910

-Option ARM Disaster Arrival: Mortgages More Problematic than Originally Thought. $134 Billion Recasting in Next Two Years. 94 Percent Made only Minimum Payment. Only 35,000 of the 1 million Option ARM loans Modified. Read more here-http://www.mybudget360.com/option-arm-disaster-arrival-mortgages-more-problematic-than-originally-thought-134-billion-recasting-in-next-two-years-94-percent-made-only-minimum-payment-only-35000-of-the-1-million-option/

-Treasury sees millions more foreclosures. Only 12 percent of U.S. homeowners eligible for loan modifications under the Obama administration’s housing rescue plan have had their mortgages reworked, and millions more foreclosures are coming, the Treasury Department said on Wednesday. Read more here-

http://www.reuters.com/article/ousiv/idUSTRE5883S620090909

-70% of July home sales in Las Vegas were foreclosures. Read more here-http://latimesblogs.latimes.com/laland/2009/09/70-of-july-home-sales-in-las-vegas-were-foreclosures.html

-On the corner of Flamingo Road and Pink Flamingo Lane, beyond the putting green, the crystalline lagoon and the Sawgrass Mills mall, a soaring monument to the great condominium bust bakes under the Florida sun.

The Tao Sawgrass, as the twin-towered complex is known, was built on the western fringes of Fort Lauderdale with easy money from the now tottering condo king of American finance: Corus Bancshares of Chicago. Only about 50 of the 396 units have been sold, The New York Times’s Eric Dash writes. Read more here-

http://dealbook.blogs.nytimes.com/2009/09/10/in-florida-empty-vestiges-of-the-boom/

© 2010, Worldwide Precious Metals.
www.wwpmc.com

The Goldbugg Report – September 15, 2009
Posted by Worldwide Precious Metals on Tuesday, September 15, 2009

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