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The Goldbugg Report - December 9, 2009

December 9, 2009

-China Should Boost Gold Reserve Holdings

-Roger Wiegand: $2,960 Gold on the Horizon?

-4 Reasons Why Silver Will Outperform Gold.

GOLD

-China Should Boost Gold Reserve Holdings, Youth Daily Reports. China should increase the amount of gold it holds in reserves to reduce potential losses from a depreciating dollar, the China Youth Daily said today, citing Ji Xiaonan, head of the supervisory committee at the state-owned Assets Supervision and Administration Commission.

“We recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years,” the paper quoted Ji as saying. China increased its gold reserves by 76 percent to 1,054 tons since 2003, the official Xinhua News Agency reported in April.

The dollar has fallen about 20 percent against the euro since Feb. 18. Dubai World’s possible default may give China an opportunity to invest its foreign currency reserves in the metal and oil, Ji said in a separate report by the Economic Information Daily.

“Given the size of their reserves compared with the size of the gold market, there’s a limit on how much they can add,” David Barclay, commodity strategist with Standard Chartered Bank in Hong Kong, said today. “But it certainly seems that there’s scope for further addition.” Ji said that the recommendation to buy gold was made by an unidentified group of experts who had convened since last year to discuss the issue, the Youth Daily reported. Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMnUukhsa.hM

-Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday. While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily.

"That could give China a buying opportunity to put some forex reserves into gold or oil reserves," Ji was quoted as saying by the paper, which is widely read by Chinese officials. Read more here-

http://www.gata.org/node/8108 or http://abcnews.go.com/Business/wireStory?id=9202792

-China 2009 Gold Demand, Output May Gain to Records. China, the world’s largest gold producer, may break records for both demand and output this year as jewelry consumption soars and miners expand production after prices reached all-time highs, the China Gold Association said.

Gold demand may be more than 450 metric tons compared with 395.6 tons in 2008, and output may climb to 310 tons, compared with 282 tons a year earlier, Zhang Yongtao, deputy secretary- general of the association, said at a conference in Kunming yesterday. China’s gold production increased by an average 9.5 percent in the past eight years, he said.

China overtook South Africa to become the world’s largest producer in 2007 and the World Gold Council said in July that the nation may pass India as the biggest consumer. Bullion touched a record of $1,195.13 an ounce Nov. 26 as a weaker dollar drove demand for precious metals as an alternative asset.

“China is likely to become the number-one supplier and consumer of gold this year,” said Rozanna Wozniak, investment research manager at the World Gold Council. Global jewelry demand remained weak in the third quarter, with China being the exception, according to slides provided by the council.

Bullion, up 33 percent this year, is set for a ninth annual gain as central banks, pension funds and individual buyers seek to protect their assets from potential currency debasement and inflation. Gold may climb to $1,500 an ounce as the dollar falls amid low interest rates, Kenneth Tropin, chairman of Graham Capital Management, told Barron’s in its Nov. 30 issue. Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6NPaKwHGXnc

-Chinese to become world's biggest gold consumers. Read more here-http://business.timesonline.co.uk/tol/business/markets/china/article6936926.ece

-China, gold, and the civilization shift. Read more here-http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100002252/china-gold-and-the-civilization-shift/

-China's appetite for high-flying gold to dominate. Read more here-http://www.reuters.com/article/marketsNews/idAFT887020091202?rpc=44

-As you read this, the Chinese government is doing an extraordinary thing something nearly unheard of in the modern world. It is encouraging citizens to put at least 5% of their savings into precious metals. The Chinese government is telling people gold and silver are good investments that will safeguard their wealth. After last year's meltdown in the stock market, people believe it. After all, Chinese citizens don't receive government retirement money and they don't have company pension plans like people in many other countries do.

This is why folks in China are lining up outside of banks, post offices, and the new official mint stores to buy gold and silver (they especially like silver because it's cheaper per ounce). The Chinese attitude toward gold and silver is a striking contrast to the American attitude right now. I don't recall a TV or radio ad from my congressman or President Obama encouraging me to buy gold or silver. Does your bank sell silver bars? Are gold mints popping up in your neighborhood? Are any of your friends, family, or coworkers scrambling to buy precious metals?

In spite of a few ads on television and satellite radio, buying gold and silver in the U.S. is still largely seen as a fringe-group activity. That's not the case in China. And in the big picture, there are three distinct trends occurring in China today that many in the Occidental world are not paying attention to. Read more here-http://news.goldseek.com/GoldSeek/1259177083.php

-Chinese central bank wary of gold bubble. Gold prices are currently high and markets should be careful of a potential asset bubble forming, a senior official at China's central bank said on Wednesday, as prices for the precious metal hit a record high.

"We must keep in mind the long-term effects when considering what to use as our reserves," Hu Xiaolian, a vice-governor at the People's Bank of China, told reporters in Taipei, when asked if China had plans to increase its gold holding in its foreign exchange reserves. "We must watch out for bubbles forming on certain assets, and be careful in those areas." Read more here-http://www.financialpost.com/news-sectors/story.html?id=2293716

or http://www.telegraph.co.uk/finance/china-business/6712676/China-wary-of-gold-bubble-danger-after-quietly-doubling-its-reserves.html

-Germany will buy gold soon, Max Keiser tells Russia Today. Read more here-http://www.youtube.com/watch?v=cSWSwhn-AWc&feature=player_embedded#

-James Turk interview, gold is going to meet the DOW at 8,000. Watch more here-http://link.brightcove.com/services/player/bcpid1079049304?bctid=53376757001

-In my last commentary about gold on October 25, I noted that “gold is a much different market over $1000 because of all the new players being attracted to gold.” Since then we have seen a good example of what I meant. Gold has rocketed higher, as is clear on the following chart.

Despite gold’s big gains in recent weeks, it is not yet time to take profits. The above chart remains very bullish, so it is reasonable to forecast higher gold prices in the weeks ahead.

Gold has clearly broken out from the huge base it formed over the past two years. This base is a ‘rocket pad’ that has launched gold, which I expect has the capacity over the next few weeks to climb into the $1200 to $1400 range I forecast for year-end, but it could be volatile. The $50+ trading range in gold this past Friday may be an indication that more volatility is coming.

In any case, gold is doing what I have been expecting. Namely, gold hurdled above $1000 with real power and follow-through. This powerful action is a point I made often made in my media interviews this past summer, namely, that gold would keep climbing once $1000 was hurdled.

What’s next for gold? I still think $1200-$1400 is a reasonable target for the end of this year, so I am staying with that forecast. Read more here-

http://www.fgmr.com/gold-november-25-2009-usd1200-usd1400-yearend-forecast.html

-The incoming chairman of the World Gold Council, Goldcorp Chairman Ian Telfer, was interviewed by Liz Clayman of Fox Business News for a little less than five minutes last week and predicted that the gold price could reach $2,000 in 2010. Read more here-http://www.youtube.com/watch?v=Bmi4PD97Ito

-New gold rush may soon see the yellow metal test US$1,300 Scotiabank. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=93804&sn=Detail

-Gold May Peak at $1,300 an Ounce in 2010, UBS AG Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601012&sid=ag3qTtdCBK_I

-Roger Wiegand: $2,960 Gold on the Horizon? Read more here-http://news.goldseek.com/GoldSeek/1259517797.php

-All the fundamental elements are in favor of gold, says Francois Moute, chairman of Neuflize Private Asset, speaking with CNBC's Lisa Oake & Karen Tso. And Brandon Wendell, master instructor at Online Trading Academy, tells them where gold prices are headed. Watch more here-http://www.cnbc.com//id/15840232?video=1346927569&play=1

-Second phase of the gold bull, or parabolic blow off top? Read more here-http://www.321gold.com/editorials/chan/chan112609.html

-Gold will Reach Mind-boggling Levels for Good Reason! Read more here-http://www.kitco.com/ind/Wilson/nov262009.html

-Gold's still looking good. I have a target price of somewhere around $1,400 by next spring. I have arrived at this target based on the repeating pattern that gold has displayed over the last decade. It tends to make a large, 50% plus move up, which lasts about six to nine months, and then consolidate for a year to eighteen months before setting off on the next move. The moves tend to start in the summer and peter out the following spring. Read more here-

http://www.moneyweek.com/investments/precious-metals-and-gems/golds-still-looking-good-94905.aspx

-Clive Maund gold market update. Read more here-http://news.goldseek.com/CliveMaund/1259564700.php

-Gold Buyers Nip at Ultimate Emotional Experience. At today’s prices, the Federal Reserve holds about $300 billion in gold. The Fed’s balance sheet values the holding at just $11 billion, but this is based on a price of about $42 a troy ounce, the so-called official U.S. government price established in 1973.

Gold long ago was used by nations to balance their trade books. When the U.S. bought more abroad than it sold, it paid the difference in gold. It’s comical to think of that today. Once the U.S. economy gurgles again, the Fed’s $300 billion in gold would only cover about six months of the nation’s trade deficit. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=a7J4poVoONig

-Is The Sheikh Right To Sell As Gold Tops $1,200? Read more here-http://news.goldseek.com/PeterCooper/1259772281.php

-Is gold a 'real' investment? Read more here-http://www.cbc.ca/money/story/2009/12/01/f-vp-pittis-gold-price-spike.html

-'Go for the gold' may mean going for a loss. Read more here-http://www.theglobeandmail.com/report-on-business/go-for-the-gold-may-mean-going-for-a-loss/article1383592/

-Australia ousts US as second-biggest gold producer, SA slips to fourth. Australia has surpassed the US as the world’s second-biggest gold-producing country in the first half of 2009, and is on track to maintain that ranking for the full year, Melbourne-based mining consultants Surbiton Associates said at the weekend.

China is the world’s number-one producer of the precious metal, with South Africa which was the top gold-producing country for more than 100 years slipping to fourth place. Read more here-

http://www.miningweekly.com/article/australia-ousts-us-as-second-biggest-gold-producer-sa-slips-to-fourth-2009-11-30

-Gold de-hedging rises to 3.18 mln oz in Q3 report. Read more here-http://www.reuters.com/article/marketsNews/idAFN0151719520091201?rpc=44

-Gold acquires new investment aura. When HSBC closes its vaults to hundreds of American gold bugs (investors) next July, it will be shutting the door on one of the fastest growing trends in the investment community. Read more here-

http://www.telegraph.co.uk/finance/businesslatestnews/6685093/Gold-acquires-new-investment-aura.html

-The rush by retail investors into gold has forced the US government to suspend sales of the world's most popular bullion coin, the American Eagle, after running out of inventories. The shortage, the second since the start of the financial crisis in August 2008, is the latest sign of investors seeking a safe haven into bullion amid the US dollar woes. Safe-haven buying spurred by concerns about the health of Wall Street and a spike in inflation due to a lax monetary policy have also benefited gold sales. Read more here-http://www.gata.org/node/8098

-More Evidence Gold is Being Hoarded as Comex Fulfills Gold Contracts With Paper. Read more here-http://wallstreetpit.com/12586-more-evidence-gold-is-being-hoarded-as-comex-fulfills-gold-contracts-with-paper

-Beware! More simulated gold products on the way. Read more here-http://www.gata.org/node/8114

-Holiday shopping have you in a quandary? Having trouble deciding on that perfect gift? Think gold. Read more here-http://www.marketwatch.com/story/story/print?guid=B626CB2B-964E-4402-9744-F646EEE171E9

-Canadian mint blames accounting errors for missing gold. Read more here-http://www.gata.org/node/8099

-Worth its weight in gold: World's largest coin goes on display. Read more here-http://www.dailymail.co.uk/news/article-1022519/Worth-weight-gold-Worlds-largest-coin-goes-display.html#ixzz0Yac7OHWx

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,500 the silver price would be $18.75

Gold to silver ratio at 70 to 1 with gold at $1,500 the silver price would be $21.43

Gold to silver ratio at 60 to 1 with gold at $1,500 the silver price would be $25.00

Gold to silver ratio at 50 to 1 with gold at $1,500 the silver price would be $30.00

Gold to silver ratio at 40 to 1 with gold at $1,500 the silver price would be $37.50

Gold to silver ratio at 30 to 1 with gold at $1,500 the silver price would be $50.00

Gold to silver ratio at 20 to 1 with gold at $1,500 the silver price would be $75.00

Gold to silver ratio at 15 to 1 with gold at $1,500 the silver price would be $100.00

-Peter Grandich: Silver's Turn to Shine. As silver approaches $20 an ounce again, Peter Grandich reckons it is a sector which could well shine, but thinks America's underlying economic problems will result in prolonged sagging trading performance elsewhere and advises investors "to remove their bullish hats if they're still wearing them." Interview with The Gold Report. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=93880&sn=Detail

-4 Reasons Why Silver Will Outperform Gold. Read more here-http://news.silverseek.com/SilverSeek/1259780758.php

-Clive Maund silver market update. Read more here-http://news.silverseek.com/CliveMaund/1259561040.php

-Silver market analyst Ted Butler interviewed by King World News. Listen here-http://www.gata.org/node/8101

-Gene Arensberg: Comex commercials position for gold, silver correction. Read more here-http://www.gata.org/node/8113

-Don’t ignore silver. Take the Jim Rogers route. Read more here-http://www.commodityonline.com/news/Don%E2%80%99t-ignore-silver-Take-the-Jim-Rogers-route-23487-3-1.html

-Is This Your Last Chance to Buy Precious Metals Cheaply? Read more here-http://news.goldseek.com/GoldSeek/1259776800.php

-Silver news for the first three quarters of 2009. Read more here-Q1 http://www.silverinstitute.org/images/pdfs/1q09.pdf Q2 http://www.silverinstitute.org/images/pdfs/2q09.pdf Q3 http://www.silverinstitute.org/images/pdfs/3q09.pdf

U.S. DEBT-TOO BIG TO FAIL?

-Chart of the day: The Rest Of The World Owns Us. As this chart shows, foreign appetite for the debt of the Federal government has not been diminished by our recession. Pessimists might say that we're increasingly reliant on international investors to fund our government. But we can just about squint our eyes up and see this as a vast improvement from the old "we owe it to ourselves" reassurance about government debt. We owe it to them and we're too big to fail. Read more here-http://www.businessinsider.com/chart-of-the-day-federal-debt-held-by-foreigner-investors-2009-12

Source: chartoftheday.com

CHART OF THE WEEK-QUOTES-QUICK HITS

-Holiday Shopping Loses Meaning for U.S. Economy: Chart of Day. Read more and see chart here-http://www.bloomberg.com/apps/news?pid=20601110&sid=a9Fn79fABBGE

-Chart of the week: Americans Are More Broke, And More Desperate For Deals. Why were shoppers wrestling with each other on the floor or Wal-Mart for a cheap price on a new videogame? Really, why do they put up with such horridness?

The answer: Americans are broke. As a survey from the National Retail Federation revealed, more Americans than ever intended to brave the Black Friday mess, and they intended to spend far less than in recent years. More people and more demand for bargains gets you total chaos. Read more here-http://www.businessinsider.com/chart-of-the-day-black-friday-shopping-pattern-2009-11

Source: chartoftheday.com

Chart of the week: Online Retail Sales Growth Remains Weak. Online holiday sales are set to grow a modest 8% this year according to research from Forrester, by way of Read Write Web. It's an improvement over last year's anemic 5% growth, but it's a long way away from the boom times just three years earlier. Read more here-http://www.businessinsider.com/chart-of-the-day-online-retail-holiday-sales-2009-11

Source: chartoftheday.com

-History strongly supports the proposition that major financial crises are followed by major fiscal crises. Niall Ferguson, Newsweek, 28 November 2009

-Remember to keep your debt low, save all you can and invest carefully in these markets. Most importantly, do not to forget your precious metals as this is your financial lifeboat. Always pray that you will never need your lifeboat, however, always make sure you have the best most seaworthy one you can afford close at hand. Buy some today and sleep better tonight. Larry LaBorde-Read more here-
http://www.321gold.com/editorials/laborde/laborde113009.html

-The holders of Dubai's real estate assets and sovereign debt are the major Western financial institutions already weakened by their escapades at home. Though the government of Dubai has distanced itself from the mess, the bursting of the 'Dubai bubble' will mean even more write-downs for Anglo-American investment banks.

This may prove to be the first of a new wave of defaults as the commercial mortgage markets begin to buckle. Worse still, any new series of major defaults could spread rapidly to and within the derivatives market. If that were to happen, a sudden cascade of settlement defaults could cause a devastating implosion of international financial markets one that central banks may be powerless to contain.

In such a world, wealth will retreat into the historic havens of safety gold and silver. Today, with gold at $1,215 and silver at $19.25, this process seems well underway. John Browne-Read more here-

http://www.321gold.com/editorials/browne/browne120309.html

-There is no recovery and there won’t be any recovery no matter how much money is poured into the system. There still isn’t adequate capital and there never will be. The system has to be purged and the Illuminists won’t allow it until their power is taken away from them. This Fed, this lender of last resort, is a criminal enterprise.

Do not expect any help or any admission relating to what they have done. Bank loans are off 16.2% yoy, and Citigroup is hoarding $244.2 billion and JP Morgan Chase $453.6 billion. While this goes on our currency continually is debased. It won’t take long for the roof to fall in. Just be patient and own gold and silver related assets. Bob Chapman-Read more here-http://news.goldseek.com/InternationalForecaster/1259776619.php http://news.goldseek.com/InternationalForecaster/1259564880.php

-We also see in today’s FT that even after the latest surge in gold, the fund holdings in ETFs ballooned to a record 1,766 tons (up 48% for the year). We have been gold bulls for about 90% of the time over the past decade (we skipped the 2007 bubble period) but like many other risk assets, bullion is a crowded trade for now. Don’t mistake this for a bearish call, but more like a near-term tactical view: we still see gold approaching $3,000/oz before the secular bull market runs its course. David Rosenberg-Gluskin/Sheff

-The DOW is back in a bear market. That is correct. While the market did make a new high in ‘deflated dollar’ terms just a short two-days ago, in gold terms, the Dow actually peaked on August 27 and is down 13.5% since then. As an aside just to show that the gold story is not JUST a weak U.S. dollar, bullion prices rose a further 1.6% yesterday to yet another new high even in the face of a 19bps recovery in the greenback. David Rosenberg-Gluskin/Sheff

-Gold just capped off its best month in a year up 14% in November and 34% so far in 2009. Not even the S&P 500 can compete with that. Helping drive the latest gains was the news out of the China Gold Association that the country’s gold demand is on pace this year to exceed 450 metric tonnes, a 14% increase over the 395.6 tonnes in 2008. (In contrast to India, jewelry sales are up double-digits in China so far this year.) By way of comparison, China, which recently surpassed South Africa as the world’s largest producer, is on its way to 310 tons of newly mined output this year, or more than 30% below its level of demand.

It’s not just the middle-class in China that is starting to buy gold, but the central bank, which has very deep pockets, is going to do likewise. We just came across a Bloomberg News article quoting an official from the state-owned Assets Supervision and Administration Commission (Ji Xiaonan, the Chief) as saying “we recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years.” China’s reserves, after a 76% buildup since 2003, currently stand at 1,054 tons, so we are talking here about the prospect of some pretty heaving buying in coming years.

If China were to lift their gold reserves to 5,000 tonnes, which is equivalent to about two years of global production, that shift in demand would boost the gold price by $800/oz to around $2,000 ($1,978) based on our models. If China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2,623/ounce if our calculations are in the ball-park.

Make no mistake, we are gold bulls. Central banks have deep pockets and production of gold is stagnant so the demand-supply backdrop for bullion is bullish. At the same time, we have to pay respect for market positioning over the near-term. The market for precious metals is overextended right now after the parabolic move of the past two months. The net speculative long position has swelled to a record 273,552 contracts (100 ounces each) on the COMEX. Open interest has never been higher, at 693,661 contracts. So this is one crowded trade as is the short-trade on the USD against all the major currencies, especially the commodity-based units.

So, we could get a meaningful gold correction at any time, and we are talking about a correction in what is still a secular bull market the 200-day moving average is $970/oz, which means we could get as much as a 20% pullback and no fundamental trendline would be violated. We remain long-term gold bulls, and our commentary remains fundamentally bullish, but anything that could spark a countertrend rally in the U.S. dollar, which is our principal near-term concern, would put gold at a much better price point for investors than the peak we are at today. David Rosenberg-Gluskin/Sheff

-This year’s amazing bear market rally has boiled down to three sources:

Hedge funds having their margin lines re-established and they leveraged this year to make up for last year’s disaster. They may now be in a position to simply lock-in.

Institutional PMs are running down their cash ratios from 6.0% to around 3.0%. The cash ratio is back to where it was in late 2007.

Massive short-covering, but for how much longer. In fact, the latest short-interest data show that the bears are growling again.

These are not sustainable sources of buying power. Ultimately, and this is what provided the sustained leg to the 1980s bull run, the individual investor has to participate, and he/she seems to have turned off the TV and cancelled his/her subscription for Wall Street research. This is a change in behaviour that may indeed be secular in nature because the fabled capitulation trade really should have happened by now.

Yet the general public has not participated and can you blame them after being burned badly by two failed new paradigms seven years apart. The median boomer is 52 going on 53, will likely live to 82, and has seen his/her net worth implode by 30%. Income is now king. The cult of equities that began with the replacement of the trusted pension plan with the participant-directed 401k in the late 1980s and early 1990s is losing disciples. David Rosenberg-Gluskin/Sheff

-In a recession, we do not typically see:

•15.7 million American households, or a third of those with a mortgage, have negative net equity (see page A16 Housing Weighs on the Economy of the Saturday NYT).

•17.5%, or 1 in 6 Americans, are either unemployed or underemployed.

•A mere 3.2% of respondents to the latest Conference Board’s Consumer Confidence Survey believe jobs are plentiful this is amazing considering that we have a 0% funds rate, a $1.4 trillion budget deficit, a super-weak exchange rate, and a $2.2 trillion Fed balance sheet. What should be done for an encore?

•1 in 7 Americans with a mortgage are now either in arrears or in the foreclosure process. In a recession, you don’t see, already two years after the recession began, articles like this make it to the front page of the Sunday NYT U.S. to Pressure Mortgage Firms For Loan Relief: Official Faults Banks Karl Marx would be proud.

•Small business failures are up 44% year-over-year as was the case in Q3 this far into a Fed easing cycle.

•1 in 8 Americans are now on food stamps and there are 239 counties where at least 25% of the population is on the program (again, see the front page of the Sunday NYT).

•A 35% slide in home prices; a 50% plunge in commercial real estate values; and a 20% mall vacancy rate nationwide (see page M6 of Barron’s) between 250 and 300 million square feet of retail space has to vanish just to bring the vacancy rate down to 12%. Some food for thought for those that think we are about to embark on anything close to a normal economic recovery. David Rosenberg-Gluskin/Sheff

-Hedge funds are shoveling money into stocks as individuals exit at the fastest rate in a year, a sign to professional investors that the Standard & Poor’s 500 Index is poised to extend its gains. About $37.3 billion has been pulled from U.S. mutual funds since August, according to the Investment Company Institute.

Hedge funds which lost half as much on average as the S&P 500 since stocks peaked in October 2007 boosted bets to the highest level since the end of that year in the third quarter and have kept buying, according to data compiled by Goldman Sachs Group Inc., industry consultants and Bloomberg. Read more here-http://www.bloomberg.com/apps/news?pid=20603037&sid=aidQnqm1KPik

-Eric Sprott's and David Franklin's monthly Markets at a Glance commentary posted over at Sprott Asset Management in Toronto. This month's offering is entitled "Don't Bank on the Banks". Read more here-

http://www.sprott.com/Docs/MarketsataGlance/11_09%20Dont%20Bank%20on%20the%20Banks.pdf

-In U.S. history, there may have been no better time to own a junk car, a rattling old fridge and a leaking dishwasher. On the heels of its ballyhooed "Cash for Clunkers" program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza, known as "Cash for Appliances." Supported by $300 million from the economic stimulus, the program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace their older models.

And like the $3 billion cars program that gave consumers money for swapping their clunkers for more fuel-efficient rides, the appliance initiative seems destined to inspire shoppers, drive up sales for a while and profoundly divide economists over how much lasting good this chunk of government spending will do for the economy. Read more here-http://www.washingtonpost.com/wp-dyn/content/article/2009/11/26/AR2009112602420_pf.html

-Dollar: not dead, just smells funny. BCA Research expects the trade weighted greenback to fall to fresh lows. Rising dollar commodity prices, generally from low points in the early stages of this year, are now seen by some commentators as possibly running into bubble territory, as, effectively, a one-way bet against the dollar. Dollar gold bullion, for one, has made fresh all time records within the past 24 hours, at more than US$1,200 an ounce. Commodities enjoy broader support, as reflected in the majority of world stocks exchanges trading at or close to the highest levels this year.

For speculators on the dollar commodity price train, the ceiling is yet to be reached, according to analysts at the Bank Credit Analyst, which reckon that "the dollar is not technically oversold and fundamental factors for a bottom are still not in place". Seen over the longer term, the dollar index recorded a bull market from 1995 through 2001. It has been in a protracted bear market since, but at current levels, is above multi year lows seen in April 2008, when it measured 70.70 points, the lowest since inception in 1973.

"First, there is still no indication that the dollar is oversold. Intermediate term price momentum has just edged below zero and can move much lower before flashing an oversold warning. Meanwhile, speculators are only modestly short the dollar (the size of the short position is considerably smaller than either early 2005 or late 2007) and while there are certainly more news articles discussing a ‘dollar crisis', the number of stories remains well below previous spikes.

"Second, fundamental conditions for a long term dollar bottom are also not in place. Since the breakdown of Bretton Woods in the early 1970s and the move to floating exchange rates, there have only been two major bottoms in the dollar: the late 1970s and the early 1990s. These bottoms shared two common features: the dollar had fallen to deep undervalued levels and the US current account balance had improved markedly, moving to a small surplus position. Neither has occurred yet. "Bottom line: Continued US policy reflation should see the trade weighted dollar index fall to fresh lows". Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=93901&sn=Detail

-Since the late 1980s I have believed that a strong dollar was in the US and world interest. Now, however, the context has fundamentally changed. The issue is no longer whether the dollar is in long-term decline but which of two options will be taken. Should Washington and other capitals calmly and deliberately manage the transition to a new era, or, by default, should they let the market do it, with the risk of massive financial disturbances. Today, governments have a choice. Soon they may not. Juan Trippe professor of international trade and finance at the Yale School of Management-Read more here-http://www.ft.com/cms/s/0/d7c5b756-dd14-11de-ad60-00144feabdc0.html

-Benign neglect may transform dollar from safe to danger. Read more here-http://www.gata.org/node/8104

-Bank of Israel Governor Stanley Fischer said on Thursday the world has to accept a weaker U.S. dollar in order to ensure the global economy recovers soundly. "We also have to realize, what is hard to get across, there has to be a global rebalancing. Either the U.S. runs a very long period of recession, which is a really bad idea, or the dollar has to weaken so that balance of payments can be straightened out," Fischer said in response to a question during a business breakfast in New York. Read more here-http://www.reuters.com/article/marketsNews/idAFN0337620091203?rpc=44

-Chaos reportedly erupted in North Korea on Tuesday after the government of Kim Jong Il revalued the country's currency, sharply restricting the amount of old bills that could be traded for new and wiping out personal savings. The revaluation and exchange limits triggered panic and anger, particularly among market traders with substantial hoards of old North Korean won much of which has apparently become worthless, according to news agency reports from South Korea and China and from groups with contacts in North Korea.

The currency move appeared to be part of a continuing government crackdown on private markets, which have become an essential part of the food-supply system in the chronically hungry North. In recent years, some market traders have stashed away substantial amounts of cash, while establishing themselves in profitable businesses that the government struggles to control.

But under the rules of the new currency system, the wealth of these traders has largely disappeared, unless it is held in euros, dollars or Chinese yuan. The revaluation replaces 1,000-won notes with 10-won notes but strictly limits the amount of old currency that can be exchanged, news reports said. Read more here-http://www.washingtonpost.com/wp-dyn/content/article/2009/12/01/AR2009120101841_pf.html

-North Koreans dare to protest as devaluation wipes out savings. Rush for dollars and Chinese yuan after Kim Jong-il's surprise move to reassert control over economy. Read more here-

http://www.independent.co.uk/news/world/asia/north-koreans-dare-to-protest-as-devaluation-wipes-out-savings-1833156.html

-In Wake of Dubai, Trying to Predict the Next Crisis. Like overstretched American homeowners, governments and companies across the globe are groaning under the weight of debts that, some fear, might never be fully paid back. As Dubai, that one-time wonderland in the desert, struggles to pay its bills, a troubling question hangs over the financial world: Is this latest financial crisis an isolated event, or a harbinger of still more debt shocks? Read more here-

http://www.nytimes.com/2009/12/01/business/global/01debt.html?_r=1&partner=rss&emc=rss&pagewanted=print

-An Empire at Risk. We won the cold war and weathered 9/11. But now economic weakness is endangering our global power. Niall Ferguson-Read more here-http://www.newsweek.com/id/224694/output/print

-Niall Ferguson: Even Krugman Admits the Deficit Is Unsustainable. Read more here-http://finance.yahoo.com/tech-ticker/article/380621/Niall-Ferguson-Even-Krugman-Admits-the-Deficit-Is-Unsustainable

-Is Britain on the brink of financial Armageddon? He's one of our top entrepreneurs who recently put all his investments into cash. The reason: He believes Britain faces bankruptcy. You may disagree with his bleak analysis but you can't afford NOT to read it. Read more here-http://www.dailymail.co.uk/news/article-1231563/Is-Britain-brink-financial-armageddon.html

-Morgan Stanley fears UK sovereign debt crisis in 2010. Britain risks becoming the first country in the G10 bloc of major economies to risk capital flight and a full-blown debt crisis over coming months, according to a client note by Morgan Stanley. Read more here-http://www.telegraph.co.uk/finance/economics/6693162/Morgan-Stanley-fears-UK-sovereign-debt-crisis-in-2010.html

-The new Iceland? Greece fights to rein in debt. Fears of default grow as years of profligacy come home to roost. Read more here-http://www.guardian.co.uk/business/2009/nov/30/greece-iceland-debt

-Obama's 'predictably irrational' economic policies. 14 reasons Obama's love of Wall Street will trigger the Great Depression 2. First: Kiss the rally good-bye, says Jeremy Grantham, legendary CEO of the $101 billion GMO money-management firm. Why? The market is overvalued 25%. A minimum 15% correction is coming in 2010, putting the Dow in the 8,000-9,000 range. The S&P 500? Not at 666 like last spring; maybe 800. Why a top? Black Friday? Dubai? Tiger Woods? All the dark films? The "2012" end of civilization? The post-apocalyptic "The Road?" Stop guessing, timing market turns is irrational.

Grantham's shift from bull to bear appears rational. Remember, earlier this year the Dow was near 6,000, banks near bankrupt, and we were praying for the new untested president to change America. In his latest editorial Grantham reminds us why his prediction made sense in the spring: "Regardless of the fundamentals, there would be a sharp rally. After a very large decline and a period of somewhat blind panic, it is simply the nature of the beast." Get it? A rally was predictable, based on the history of cycles.

Trust Grantham? 100%. Back in early 2007, he warned: "The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it's bubble time. Everyone, everywhere is reinforcing one another. The bursting of the bubble will be across all countries and all assets no similar global event has occurred before." Paul Farrell-Read more here-

http://www.marketwatch.com/story/story/print?guid=0AB82970-4BEF-451A-A965-08510DE0E68E

-Hussman Sees 80% Chance That Stock Market Will Plunge in 2010. U.S. stocks are likely to plunge again next year as more debt delinquencies cause the equity market to reverse the steepest rally since the Great Depression, investor John P. Hussman said.

“There is still close to an 80 percent probability that a second market plunge and economic downturn will unfold during the coming year,” Hussman wrote on his Web site in a posting dated yesterday. Bank earnings and capital ratios “have enjoyed a reprieve in the past couple of quarters, but delinquencies have not, and all evidence points to an acceleration as we move into 2010.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid=aPLctfeL7ptA

-El Centro, Calif., maintains 30% jobless rate. Southern California agriculture area continues to suffer higher metropolitan area rate. More urban areas face severe unemployment. Read more here-

http://money.cnn.com/2009/12/02/news/economy/metro_unemployment/index.htm

-Iran Announces Nuclear Program Expansion, Defies UN. Iran’s plans to expand its nuclear program in defiance of United Nations demands were condemned by the Obama administration, while France called the move by the government in Tehran “infantile.”

“It’s dangerous, but above all it’s dangerous for Iran,” French Foreign Minister Bernard Kouchner said in an interview with RTL radio today. U.K. Foreign Secretary David Miliband said the Iranian administration had chosen to “provoke” the international community. Germany warned that Iran may face further sanctions if it pursues the plans.

President Mahmoud Ahmadinejad’s Cabinet ordered the Atomic Energy Organization of Iran to begin building 10 uranium-enrichment sites within two months, the state-run Islamic Republic News Agency reported yesterday. All would be on the same scale as the Natanz enrichment site in central Iran, IRNA said. The U.S. and several major allies say the Iranian program is cover for weapons development, while Iran insists the work is for peaceful purposes including the generation of electricity. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=a5z59zEsSFts&pos=8

-Iran can enrich the uranium it needs for a medical reactor, President Mahmoud Ahmadinejad said, spurning an offer from UN Security Council members to produce the fuel abroad to make sure it isn’t boosted to bomb grade.

“The nuclear issue has come to an end and our nation will not negotiate,” Ahmadinejad said today in a speech in the Iranian city of Isfahan, according to the state-run Islamic Republic News Agency. “Thank God” Iran is capable of enriching uranium to the 20 percent level required for the reactor in Tehran that makes medical isotopes, he said.

The five permanent members of the United Nations Security Council and Germany, who have tried to convince Iran to scale back its nuclear program, offered in October to enrich the uranium that Iran needs for the reactor. The U.S. and its main allies allege Iran is using a civilian nuclear program to disguise weapons development. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=aWVUXflVKP70

-Iran Atomic Plans Make Sanctions Push ‘More Likely,’ U.S. Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=a06BzKdNJWAw

-'US warned China that Israel could bomb Iran'. Two senior officials from the White House, Dennis Ross and Jeffrey Bader, made a trip to China on a "special mission" to garner support in Beijing over the Iranian nuclear program, according to a Thursday report in The Washington Post.

The officials visited China two weeks before US President Barack Obama arrived in Beijing. The officials reportedly carried the message that if China would not support the US on the issue, Israel would be likely to bomb Iranian nuclear facilities. The paper quoted the officials as saying that Israel saw the issue as "an existential issue," and that "countries that have an existential issue don't listen to other countries." Read more here-

http://www.jpost.com/servlet/Satellite?cid=1259010987363&pagename=JPost%2FJPArticle%2FPrinter

-Obama Joins Johnson in Escalating Unpopular War He Inherited. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=akdZCMCkLKRE&pos=9

-Food Stamp Usage Across the U.S. See chart here-http://www.nytimes.com/interactive/2009/11/28/us/20091128-foodstamps.html?hp

-Gold Coin Dropped Into Salvation Army Kettle. Read more here-http://www.wgal.com/news/21761149/detail.html

-'12 days of Christmas' get pricier. The Christmas Price Index climbed an anemic 0.9% this year as plunging bird prices offset an increase in the cost of five gold rings. Read more here-http://money.cnn.com/2009/11/30/news/economy/Christmas_price_index/index.htm or http://www.google.com/hostednews/afp/article/ALeqM5j7ParIRW6Tx-r7eSHVifpu6RWlqQ

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

-Pink Diamond Fetches Record $10.8 Million at Hong Kong Auction. A ring with a pink diamond the size of a chickpea sold last night for a record HK$83.5 million ($10.8 million) at a Hong Kong auction of art, gems and antiques that was fuelled by Chinese buying.

The 5-carat gem was set by London-based jeweler Graff Diamonds and given the second-highest rating of potentially flawless. The so-called fancy-vivid stone broke the per-carat record for a diamond established in May with Hong Kong property tycoon Joseph Lau’s purchase of a 7.03-carat blue diamond in Geneva for 10.5 million Swiss francs ($10.5 million). A carat is a fifth of a gram.

The Graff jewel went to a phone buyer who wrested it from the Chinese millionaire stock-investor tycoon Liu Yiqian and his wife Wang Wei. They were bidding in the room and stopped at around HK$70 million. Host Christie’s International wouldn’t confirm if the lot was bought by another mainland Chinese. The jewelry sale tallied HK$372 million, with 89 percent of the 255 lots sold.

“Some prices were crazy, way above what one would pay even at a jewelry store,” said Donald May, a Hong Kong-based ruby and sapphire dealer who attended the auction. “There’s a lot of mainland Chinese buying; either they didn’t know what the items are worth or they wanted them so badly that price didn’t matter.” Read more here-http://www.bloomberg.com/apps/news?pid=20601088&sid=awCQTXePG1Os or http://www.reuters.com/article/lifestyleMolt/idUSTRE5B02P620091201

-Rare pink diamond sells for $10m. Watch video here-http://news.bbc.co.uk/2/hi/asia-pacific/8389415.stm

-Jewels: The Hong Kong Sale 1 December 2009 Hong Kong. Lot Description. A superb colored diamond and diamond ring by Graff. Set with an oval-shaped fancy vivid yellow diamond weighing 9.03 carats, flanked on either side by a pear-shaped diamond, mounted in platinum and yellow gold. Graff Accompanied by report no. 11386714 dated 20 July 2009 from the Gemological Institute of America stating that the 9.03 carat diamond is fancy vivid yellow, natural color, VVS1 clarity. Price Realized HK$11,860,000, ($1,537,615). Estimate HK$7,200,000-HK$9,000,000 ($933,301-$1,166,627).

-Jewels: The Hong Kong Sale 1 December 2009 Hong Kong. Lot Description. An important colored diamond and diamond ring by Tiffany & CO. Set with a rectangular-shaped fancy intense blue diamond weighing 3.02 carats, to the square-shaped diamond quarter-hoop, mounted in platinum, ring size 8. Signed Tiffany & Co. No. 23624184 Accompanied by report no. 6107994843 dated 10 August 2009 from the Gemological Institute of America stating that the 3.02 carat diamond is a fancy intense blue, natural colour, VS1 clarity. Price Realized HK$9,020,000 ($1,169,417) Estimate HK$7,500,000-HK$10,000,000 ($972,189-$1,296,252).

-Jewels: The Hong Kong Sale 1 December 2009 Hong Kong. Lot Description. A rare colored diamond and diamond ring. Set with a rectangular-shaped fancy red diamond weighing 0.84 carat, within a pear-shaped diamond surround, to the pavé-set diamond fluted three-quarter hoop, mounted in 18k white and rose gold, ring size 5½. Accompanied by report no. 1102729888 dated 14 May 2009 from the Gemological Institute of America stating that the 0.84 carat diamond is fancy red, natural color. Price Realized HK$2,420,000 ($313,746) Estimate HK$2,000,000-HK$3,000,000 ($259,250-$388,876).

-Petra’s Chicken-Egg-Sized Gem May Fetch $31 Million, BMO Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601116&sid=aNpckUFQQwdk

-Petra nets $6.28million in giant white diamond sale. Read more here-http://www.dailymail.co.uk/money/article-1231410/Petra-nets-6-28million-white-diamond-sale.html#ixzz0YZJWHQDS

-Rough Diamond Prices Rise 40%, Investors Secretly Cash In. As gold prices make the headlines on an almost daily basis recently, the 40% surge in uncut diamond prices has been almost a secret, until now and investors are cashing in, reports Nasdaq.com. Although diamond retail sales have fallen from $74 billion last year to $65 billion this year, prices for rough diamonds have risen more than 40% since February. Read more here-http://www.israelidiamond.co.il/english/News.aspx?boneId=918&objid=6215

REAL ESTATE

-Chart of the week: Dubai Shows What A Property Plunge Really Looks Like. Here's essentially what caused Dubai's debt extravaganza to finally come to an end. Far too much easy money flowed into Dubai during previous years, fueling a massive construction boom financed with debt. For awhile this debt looked sustainable to those involved because it was ostensibly backed by valuable property.

Yet when the global financial crisis hit, property prices fell in many parts of the world. Dubai property prices were hit especially hard. As shown below by the skiing Emirati, Dubai property rates per square foot fell 45% from Q3 2008 to Q3 2009 according to Colliers International.

Thus just as many American's went underwater on their mortgages due to the American property crisis, owing more to the bank than their house was worth, the same thing basically happened to the Nakheel property business of the Dubai state-owned conglomerate Dubai World.

Combined with near-term cash flow constraints, this finally forced Dubai World to admit to its creditors that it would not be able to meet all of its debt obligations. Read more here-

http://www.businessinsider.com/chart-of-the-day-dubais-average-property-prices-2009-12

Source: chartoftheday.com

-The meltdown of the U.S. housing market is not over yet, and home prices will soon start trekking downward again as a flood of foreclosures looms, a well-known economist said on Wednesday. Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, said in an interview with Reuters home prices will resume their decline by early next year as foreclosure sales pick up again. "The housing crash is not over," he said. Read more here-

http://www.reuters.com/article/newsOne/idUSTRE5B14TY20091202?ref=patrick.net

-Las Vegas Home Prices Fall 34% on Foreclosure Sales. Las Vegas home prices fell 34 percent in October from a year-earlier as foreclosed properties accounted for two-thirds of sales, reducing the value of single- family houses and condominiums, MDA DataQuick said today.

The median price paid for all new and re-sold houses and condos in the Las Vegas metropolitan area fell to $130,000 in October from $196,000 a year earlier, the San Diego-based real estate research company said today in a statement. The price has been at or close to $130,000 since July and hasn’t fallen below that level since April 1999, when it was $129,000. Read more here-

http://www.bloomberg.com/apps/news?pid=20601103&sid=amKdvZxx0AXk&ref=patrick.net

-Pending Sales of U.S. Existing Homes Rose in October. The number of contracts to buy U.S. previously owned homes unexpectedly rose in October as consumers rushed to take advantage of a tax credit that was due to expire. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=aCpsPN33fa1E

-One in Four Borrowers Is Underwater. Read more here-http://online.wsj.com/article/SB125903489722661849.html?mod=WSJ_hps_LEADNewsCollection

-Professor advises underwater homeowners to walk away from mortgages. Brent T. White, a University of Arizona law school professor, says that it's in the homeowners' best financial interest to stiff their lenders and that it's not immoral to do so. Read more here-http://www.latimes.com/classified/realestate/news/la-fi-harney29-2009nov29,0,1484610,print.story

-Commercial Mortgage Defaults at U.S. Banks Reach 3.4%. Read more here-http://www.bloomberg.com/apps/news?pid=20601083&sid=aaeiIiFNgSj0 or

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN3043256420091201

-Like many home owners, hotels are starting to drown in debt. They have been enticing travelers all year with sweet deals: credits for in-house spas and restaurants, up to 50 percent off five-star rooms, even free nights. But all that discounting hasn't stopped occupancy from dropping an average of 10 percent. The result? Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt. Read more here-

http://finance.yahoo.com/news/Hotel-owners-like-home-owners-apf-1306733990.html?x=0

-World’s Most Expensive Office Markets Get Cheaper. The world’s most expensive office markets got a little cheaper this year. More than 130 cities worldwide had declines in rent expenses in the year ended Sept. 30, CB Richard Ellis Group Inc. said in a report today. Almost 50 cities reported declines of more than 10 percent. Rental costs fell about 30 percent in Midtown Manhattan, 53 percent in Singapore and 41 percent in central Hong Kong. Overall, rents fell an average 7.7 percent across 179 markets worldwide. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=aSqhTjhF2IO4

© 2009, Worldwide Precious Metals.
www.wwpmc.com

The Goldbugg Report - December 9, 2009
Posted by Worldwide Precious Metals on Wednesday, December 09, 2009

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