By Howard S. Katz, GoldSeek

Some questions were raised by my article on unemployment of last week and so I want to continue the same subject.

Unemployment has become the central issue of our day and perfectly illustrates the genius of Ayn Rand in putting the spotlight on altruism as the central concept which is destroying our society.  Today (but not when Randwrote) the conservatives have adopted the left-wing’s ideas on economics. They are screaming that Obama has failed because, after little over a year in office the unemployment rate is 10%.

The conservatives are doing well in the polls and are looking forward to a big victory in November.  Hopefully, Obama will keep talking about health care because every time he opens his mouth about that subject he digs both his own grave and the graves of his fellow Democrats.  But if the attention of the American public ever shifts to economics, the conservatives are dead meat.

Last week I touched on cyclical unemployment.  This is the kind that makes the headlines and stirs people up politically.  For example, from early 2007 to late 2009 unemployment in this country rose from 5% to 10%.  From 2000 to 2003, it rose from 4% to 6%.  From 1989 to 1991, it rose from 5% to 8%.  All of these increases were caused by previous Federal Reserve increases in the rate of interest: e.g., the Fed tightening of 2004-06, the Fed tightening of 1993-2000 and the Fed tightening of 1986-89.

Whenever the Fed changes the interest rate, the effect is to influence interest-sensitive areas of the economy.  For example, I have data on the U.S.economy going back to the 1940s.  Every time the Fed eases, housing (which is a very interest rate sensitive area) booms.  The number of housing starts then goes from approximately 1 million per year to 2 million per year.  The same thing happens in all other interest-sensitive areas.  The total effect is to significantly reduce unemployment.  Then the political left brags that they have reduced unemployment.

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By Adrian Ash, GoldSeek

London Gold Market Report

THE PRICE OF GOLD gave back an early 0.6% rise vs. the Dollar as New Yorkopened for business on Monday, slipping together with world stock markets and commodity prices ahead of tomorrow’s Federal Reserve interest-rate decision.

The Euro and Sterling both fell on the currency market, helping the gold price for European and UK buyers to rise.

US Treasury bonds edged lower, nudging interest rates higher. German and UKgovernment debt went in the opposite direction.

“There is currently good buying just above $1100,” reports Walter de Wet at Standard Bank, but while “We expect no rate change” in Tuesday’s Fed announcement, “Initial tightening is likely in the form of liquidity withdrawal.

“Less liquidity would imply less support for gold.”

Latest figures from US regulator the Commodity Futures Trading Commission show speculative players in gold futures and options growing their bullish position by 0.3% in the week-to-last Tuesday.

Reaching a 7-week high equal to 839 tonnes, the “net long” position – meaning the number of bullish minus bearish bets held by speculators – remained almost one-fifth below its all-time peak of October last year.

Amongst gold-industry players, meantime, the “bull ratio” rose for the first time in 5 weeks on the CFTC data, ticking up to 27.7% of all directional bets held by these “commercial traders”.

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Whose gold is China buying? Its own, of course…

THE PRICE OF GOLD slipped last week, now trading 3.6% off its recent high, writes Dan Denning in his Daily Reckoning Australia.

Old yellow metal is trading a little above $1100 the ounce according to the April futures contract. The sense of urgency over the Greek crisis has eased. And no one thinks China is going to Buy IMF Gold. But why?

Speaking last week at the National People’s Congress, China’s foreign exchange regulator Yi Gant told a press conference that, "currently a few factors limit our ability to increase foreign-exchange investment in gold."

As we wrote in a note this weekend, most analysts immediately took that to mean China would not be a buyer of the 191.3 metric tonnes of gold the International Monetary Fund announced it would sell on February 17th. And if China were out as a major buyer of gold on international markets, speculators reckon that the Gold Price is in for a fall.

Yet as China bought 454.1 tonnes of gold between 2003 and 2009 – the last purchase reported – it didn’t have to go shopping overseas. China can buy its own home-grown gold instead, because for the last three years in a row, it’s been the world’s largest producer. China produced over 300 tonnes of gold for the first time ever in 2009, according to the China Gold Association.

That also means that last year’s domestic gold consumption – from private households alone – exceeded mine supply. Were Chinese authorities buying above ground gold too? The number of producing gold mines in China has fallen from 1200 in 2002 to 700 in 2009. You can see China is scrambling to produce as much gold as fast as it can.

This could be a case of a "Do as I do, not as I say." Why bid up the Gold Price on international markets when you can buy your own domestically produced gold? As a senior People’s Bank of China figure reportedly said:

"China should formulate a long-term plan and constantly and secretly increase its gold holdings…The People’s Bank should try to buy as much gold as possible from China’s annual gold output of almost 300 tons, while the gold needed by industries and residents could be imported."

Look, the case for gold is pretty simple. To paraphrase fund manager David Einhorn, if you believe monetary and fiscal policy across the world are sensible, sell gold and buy Treasuries. If you believe monetary and fiscal policy around the world are bad, sell Treasuries and Buy Gold.

You don’t have to a cult follower or a true believer to profit from that kind of trade. Gold made its biggest move in 1980. It peaked at $850 in early January, but what’s interesting is that 10-year US Treasury yields didn’t peak until more than a year later, hitting around 16% in June of 1981.

The speculators blew the top off the gold market, in other words, well before they were sure Paul Volcker had a lid on inflation. Once it became clear punitive US rates would kill inflation, the gold bull died.

But wait! US rates went up because the Fed was fighting inflation. And it was fighting inflation because…there was inflation! How can we expect gold to rise on higher rates if there’s no inflation to fight? The answer is that the Fed’s quantitative easing program is set to end this month.

Over the last year, the US central bank has spent over $1.25 trillion buying mortgage-backed securities. This has kept ten-year US interest rates low and mortgage credit flowing to the American housing market. The Fed has said that program will end by the end of this month.

What will happen next? Already we’ve seen investors crowding into the short-end of the US Treasury market. Treasury notes with maturities of three-years less are a nice, near-cash, highly-liquid alternative to taking any risks anywhere else. Hence lower short-term US interest rates, driven partly by the Fed and partly by the market.

With the Fed set to end its quantitative easing program, we’d expect market forces to assert themselves in the bond market. You’ll get a steeper yield curve. Without the government gaming the trade, investors are going to price US bonds based on the soundness of US fiscal and monetary policy. In this scenario, we think gold will attract more speculators (although the big ones like George Soros have already positioned themselves for this move).

Meanwhile in Europe, the news that finance ministers have agreed, in principle, to a bailout of Greece, might take a little of the urgency out of the sovereign debt crisis theme. And that, in turn, might drive the Gold Price lower. But all these things are prelude to a bigger crisis. Papering over the insolvency of the Welfare State can only last so long – and we think the dominos will begin to fall in months, not years.

In the meantime, though, the continued de-leveraging of the private sector means even larger public sector deficits. According to flow of funds data released the by the Federal Reserve last week, both US household and businesses reduced debt in 2009. The government added debt.

In fact the Fed data show that US households reduced debt on an annual basis for the first time ever in the history of the data series, going back to 1946. Household debt levels shrunk by 1.7%, with mortgage debt declining by 1.6% and credit card debt declining 4.6%.

It’s obvious at the household level, where the employment picture is awful, that Americans are preparing for less spending and less income growth. They are not borrowing from future earnings to sustain current living standards. The worm has turned.

And you can’t blame businesses for reducing debt by 1.8% either. Why borrow if you’re not going to increase capital spending or employment growth? There’s a political issue here too. You could argue that business investment is cyclical and will go up eventually. But with the US Congress deadlocked over health care legislation (that if passed might be repealed by the next Congress elected in November), there is a lot of uncertainty. You could also call that political risk.

Into the household caution and business uncertainty, the Federal government increased debt by 22.7% in 2009. It was below the 2008 record of 24.2%. But it’s clear that as the private sector deleverages, the government – under the misguided Keynesian assumption that it must support demand – is trying to fill the breech with borrowed money.

This sets the stage for the next episode of the US Dollar crisis. Right now, that may look remote, given the easing of tensions in Europe. But don’t get too complacent. The underlying fundamentals of the Dollar suck. With the Fed’s Quantitative Easing program set to end this month, a veritable monetary Pandora’s Box will be opened. Yes, the Fed could just announce it’s extending its Quantitative Easing program. But what effect would that have on the Dollar? On gold? On oil…?

Buying Gold today? "If there’s an easier way, I’ve yet to find it," says one BullionVault user…

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Measured against the Gold Price, the US stock-market’s huge 62% rally is less than stellar…

MARCH 9th 2010 marked the one-year anniversary of the elusive bottom of the most brutal bear market in global stock markets since the 1930s, notes Gary Dorsch at Global Money Trends.

At the time, US job losses were running in excess of 700,000 per month, and fear was rife that the US banking system was on the verge of being nationalized. American factories and miners were using 68% of industrial capacity, the lowest level since records began in 1948. Corporate profits fell sharply for the seventh consecutive quarter, the longest losing streak since the 1930s. The second coming of the "Great Depression" looked imminent.

In a final act of desperation to stop the carnage, the infamous "Plunge Protection Team" – the nickname given in the 1980s to the President’s Working Group on financial markets – unleashed the most powerful weapons in its arsenal, resorting to accounting gimmickry and nuclear Quantitative Easing.

Injecting $1.75 trillion into the coffers of the Wall Street oligarchs, the PPT sought to turn the bearish tide. Bankers were set free of mark-to-market accounting, and instead, were allowed to value their toxic assets at "mark-to-make-believe" prices, leading to a strong recovery in the financial sector.

Over the course of the next four-weeks, the Dow Jones Industrials climbed 1,500 points to close at 8,083 on April 9th, 2009. Still, there was great skepticism about the sustainability of the so-called "green-shoots" rally, the third such rally since the horrific crash of Sept-October 2008 that followed the default of Lehman Brothers and the bailout of American International Group (AIG).

Before hitting the ultimate bottom at 6,500, previous Dow rallies ended as "bear traps" that fizzled out before the market turned sharply lower again. There was a 1,500-point run-up during the week that culminated in the election of Barack Obama as US president, after which the Dow lost 2,000 points over the next three weeks.

The Dow Industrials staged another 1,500-point gain in December, triggered by Obama’s selection of Wall Street favorite Timothy Geithner as Treasury chief, before plunging 2,500 points during the first two months of 2009.

Since the Dow Industrials hit rock-bottom on 9 March 2009, US stocks have staged a $5.3 trillion recovery, one of the very biggest percentage gains since the Great Depression.

When viewed through the prism of Gold Bullion, however – and thus measured in "hard money" terms – one can see that the performance of the Dow Jones Industrials was less than stellar. The blue-chip indicator has been locked within a narrow trading band for the past 11 months, fluctuating on both sides of 9.5 ounces of gold since April 2009. (Learn more about the Dow/Gold Ratio here…)

The "green shoots" rally is, therefore, an optical illusion, simply reflecting the side-effects of the Fed’s hallucinogenic "quantitative easing" drug. Utilizing the chart above, one could argue that the value of the Dow Industrials is artificially inflated by about 2,500 points, engineered by the Fed’s monetization scheme and ultra-low interest rates. An ocean of liquidity is buoying the Dow Industrials above the 10,000-level, designed by the PPT to bolster household confidence, since the valuations of 401k retirement funds and investor portfolios can influence the propensity to spend.

Still, there are huge worries about unrelenting job losses, multi-trillion Dollar budget deficits for years to come, and the "Volcker rule", which could put the shackles on the Wall Street oligarchs, and force the liquidation of widely held stocks and commodities. But for now, the market’s climb above the 10,000-level means the possibility of a "double-dip" recession is more remote, and instead, trying to short-sell stock indexes, is like trying to push a helium balloon under water.

The broader-based S&P 500 Index of US stocks has rocketed 62% higher over the past year, a gain that would normally take five years to realize on modern trends.

The speed and strength of the stock market’s recovery caught many bond traders off-guard, and knocked US Treasuries for their worst annual losses since 1978. Most notably, the yield curve – the gap between short-term interest rates and longer-term government bond yields – rose to its widest level ever. The spread between yields on the Treasury’s 30-year bond compared to the one-year T-bill rate hit 440-basis points in December, the widest in history.

Traders reckon that the size of the US national debt – now exceeding $12.3 trillion – is weighing on bond prices, and a huge avalanche of debt still lies ahead. The Treasury is expected to issue $1.6 trillion in new debt in 2010, and $1.3 trillion the following year. Chinese central banker Zhu Min has warned it would become more difficult for foreigners to buy Treasuries when the US government has to fund its deficit by printing more Dollars. China slashed its holdings of Treasury securities by $34.2 billion in December, after months of complaining about the Fed’s Quantitative Easing scheme.

The extreme widening of the yield curve also reflects expectations that in the next phase of the Fed’s interest rate cycle, the central bank would be lifting short-term interest rates to contain an outbreak of inflation.

"When you have zero rates that go on indefinitely, you are inviting future problems," warned Kansas City Fed chief Hoenig on March 2nd. "Maintaining excessively low interest rates for a lengthy period runs the risk of creating new kinds of asset misallocations, more volatile and higher long-run inflation," Honeig said on Jan 7th.

However, the Fed is sending multiple messages to the media, that it’s determined to hold the fed funds rate steady at 0.25% through the remainder of this year. "Even though the recession appears to be over, it does not mean that we are where we want to be. Even with my moderate growth forecast, the economy will be operating well below its potential for several years," said San Francisco Fed chief Janet Yellen on Feb 22nd.

"If it were positive to take interest rates into negative territory I would be voting for that," she told reporters.

The Obama administration hailed the latest employment report, which showed a smaller-than expected loss of 36,000 jobs – and the 25th monthly decline in net jobs in the last 26 months – as a vindication of its economic policies.

For its part, the Dow Jones Industrials roared above the 10,500 level, buoyed by the "exploitation of labor" that is still widening company profits. So far then, the recovery in the economy has been limited to Wall Street’s oligarchs and S&P multi-nationals, which are profiting from trillions in taxpayer bailouts, virtually unlimited and cheap credit, exports to growing emerging markets, and the use of mass unemployment to slash the wages of Americans working in the service sector, which accounts for 85% of the US economy.

Meanwhile, top Wall Street firms paid their employees a record $145 billion in compensation last year, while social programs for the elderly, such as Medicaid and Medicare are being slashed, and millions of other jobs wiped out. The banking oligarchs, whose greed and speculation caused the crisis, refuse to expand lending to the private sector, but instead utilize zero-percent funds at their disposal to gamble in the markets, and all with the backing of government-financed guarantees.

Stock market rallies often climb along a "wall of worry". Yet despite persistent fears of a relapse into a "double-dip" recession, the most amazing aspect of the "Green Shoots" rally is the upward parabolic trajectory, was punctuated by only two brief corrections that barely caused a dent in the year-long bull market. The first correction in June 2009 was triggered by a sharp rise in 10-year Treasury yields to as high as the psychological 4-percent level. Yields have subsequently tumbled to 3.70%, far out of danger’s way, as far as market bulls are concerned.

The second correction, in January 2010, was triggered by China’s surprising hike in bank reserve ratios, plus Obama’s backing for the "Volcker rule" – banning risky trading by Wall Street Oligarchs – and a surge in crude oil prices above $80 per barrel.

However, Plunge Protection officials quickly put a safety net under the stock market, by promising to leave the Fed’s $2.2 trillion balance sheet untouched, and to maintain zero-percent borrowing costs for the biggest banks, for the rest of the year.

Thus, the Wall Street Oligarchs were able to return to the gambling table and re-engage in the most hazardous and riskiest forms of speculation. However, one of the consequences of the Fed’s ultra-easy money policies is a surge in crude oil prices above $80 per barrel, further reducing the purchasing power of Americans’ shrinking wages. And now that oil prices have latched onto the stock market’s joy ride, any attempt by the PPT to catapult the S&P Index rally above the January highs runs the risk of jettisoning crude oil into the $85-to-$90 region.

On March 10th, Saudi Arabia’s deputy oil minister, Prince Abdulaziz bin Salman, told reporters that a oil price of around $70-to-$80 per barrel was a satisfactory price for energy companies to invest in oil production capacity, and low enough for consumers that burn the fuel. Saudi Arabia, the Opec oil cartel’s largest producer, has shouldered most of the 4.2 million barrels-per-day of supply cuts adopted in late-2008. However, compliance to Opec’s output quotas, outside of the Saudis, Kuwait and the UAE, has fallen to 53%, which means the cartel is cheating by 2 million bpd.

"Energy demand is likely to continue to grow, led by rising consumption in Asia and the Middle East," bin Salman said, and the US Energy Information Agency predicts it could grow by 1.5 million bpd this year.

China, the world’s second largest oil guzzler, meantime imported 4.8 million bpd in February, the second highest tally on record. If oil prices surge to $90 per barrel – with "carry trade" speculators bidding-up prices using zero-per-cent loans from the US central bank – Riyadh could quietly increase its oil output without much fanfare to cool the market, or China’s central bank might be forced into tightening its monetary policy again.

Surging oil prices could thus ignite an "Oil Shock" for the global economy, and the Plunge Protection Team would be forced into action again, intervening in the stock index futures markets in order to limit the fallout. The PPT could also instruct the Fed to buy more T-bonds, so as to prevent yields from rising higher due to inflationary pressures emerging in the commodities markets.

And at that point, "hot-money" flows could once again pour into the precious metals markets, sending Gold Prices to record heights.

China’s manufacturing exports are growing again, up 45% from a year ago, and "hot-money" inflows are rising, adding to the pool of cash sloshing about the Chinese economy.

China’s stash of foreign exchange reserves has mushroomed to $2.4 trillion. And at the same time, in order to keep the Yuan tightly pegged to the US Dollar, the People’s Bank is buying vast quantities of US Dollars, Euros and Yen for its FX reserves, simultaneously printing equal amounts of Chinese Yuan to buy those currencies off local export companies, thus blowing bubbles in the Shanghai commodities pits and buoying the gold market.

Beijing is nurturing fertile ground for the Shanghai gold market, which has already risen 54% against the Yuan since the central bank opened the money spigots in November 2008. Gold demand in China grew by 14% to around 450 tonnes in 2009, outstripping 315 tonnes of supply. Speculation is rife that Beijing is Buying Gold from state-owned miners to avoid sending the international open-market price sharply higher.

Beijing has several "ideas and tool kits to manage inflationary expectations," warned Liu Mingkang, chief of the China Banking Regulatory Commission, on March 9th.

"Don’t get into too much of a panic or be afraid about inflation. China’s consumer and producer price index may rise slightly, but there’s only a small chance that inflation will be more than moderate," he said.

China’s consumer inflation rate surged to 2.7% in February, and factory-gate inflation surged to 5.4% last month. Thus, China’s inflation rate now exceeds the 2.25% interest rate on 12-month certificates of deposit, encouraging savers to withdraw their cash from banks and Buy Gold bars.

With food and energy accounting for half of China’s consumer price basket, soaring commodity prices are a ticking time bomb for social unrest. Yet Beijing is loath to further tighten its monetary policy, for fear of undermining the Shanghai stock market…

How best to Buy Gold today? Make it simple, secure and cost-effective by using BullionVault…

E.T.F. = Expect Tonnage to Flow. This Is A Two-Way River

Good Day,

Sovereign debt credit rating apprehensions once again arose in the markets as the mid-March sessions got underway worldwide. Such jitters lent fresh support to the precious metals complex overnight, however gains in gold were facing a stronger dollar, and the other side of the credit fears spectrum; that of China tightenting in the near future. Thus, advances during the nighttime hours were limited to the $1109 value zone for gold, and the yellow metal still had its work cut out trying to repair the worst weekly loss in values it sustained in seven last week.

(…)
Read the rest of Gold, Silver, Metal Prices Commentary – 3/15/2010 (1,616 words)

Gold Price Today submits:

Over the past few months there has been a growing amount of interest in the currency markets, especially the pound, the euro and the dollar. Each has faced issues that have exposed weaknesses. The pound has long come into criticism for being overvalued. The euro has been dragged through fresh scepticism by the Greek crisis, and the dollar continues to be questioned as the reserve currency of choice.

The three charts below plot the course of the gold price in 2010, measured in terms of the three aforementioned currencies (taken from the PM gold fix).

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Zacks.com submits:

Gold mining company Goldcorp’s (GG) adjusted net profits more than doubled to 25 cents in the fourth quarter of 2009 from 12 cents per share in the year-ago period. Earnings which benefited from high metal prices, were also ahead of the Zacks Consensus Estimate of 24 cents.

For the full year 2009, earnings were $588.2 million or $0.80 per share. Goldcorp was able to keep costs down in an inflationary environment. In the fourth quarter, cash costs were just US$289 an ounce.

On a GAAP basis, fourth-quarter profit fell to $66.7 million or 9 cents a share, from $958.1 million, or $1.31 a share. The large drop was due to revaluation of future income tax liabilities, brought about by the sharp year-on-year drop in the U.S. dollar.

Quarterly revenues jumped 28% to $778.3 million, as prices of the gold, copper and silver rose sharply after the price crash of late 2008. The company sold 573,100 ounces of gold in the quarter.

For the full year, revenues increased by 13% over 2008 to $2.7 billion on gold sales of 2.3 million ounces. Earnings from operations were up 21% year over year to $241 million.

Golcorp produced 601,300 ounces of gold at a total cash cost of $289 per ounce for the quarter ended December 31, 2009. For the year, the company produced 2.42 million ounces of gold at a total cash cost of $295 per ounce.

Operating cash flows, before working capital changes, totaled $1.2 billion, or $1.61 per share, a 29% increase over 2008. Long-term debt as of Sep 30, 2009 was $719 million, considerably higher than $5.3 million as of Dec. 31, 2008. Goldcorp embarked upon external sources to finance its capital expenditure. However, with cash and cash equivalents of $874.6 million as of December 31, 2009, higher debt should not be a major concern for Goldcorp.

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Anomalous Investments submits:

Kinross Gold (NYSE: KGC, TSX: K) may have kicked off the second Yukon gold rush after it announced on Thursday an acquisition bid for micro-cap exploration company Underworld Resources (TSX-V: UW, USOTC: UNDWF.PK), which values Underworld at approximately US$ 135 million (C$ 139 million).

Kinross has offered 0.141 of a Kinross common share, plus $0.01 in cash, for Underworld Resources. Based on the March 10^th closing price of C$18.54 per Kinross common share on the Toronto Stock Exchange, the implied offer price was approximately C$2.62 per common share of Underworld Resources.

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ASX- and JSE-listed gold junior Gold One plans to spin off its Megamine project into separately JSE-listed company, CEO Neal Froneman told Mining Weekly Online on Monday.

The Megamine project consists of prospecting rights over 16 000 ha in South Africa’s Witwatersrand basin. By listing a separate entity for the development of the Megamine project, Gold One would be able to raise capital without diluting shareholder value, Froneman said in an interview on the sidelines of the Paydirt Gold conference in Perth.

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China’s steelmakers should not try draw their government into iron ore price talks with Australian miners, Australia’s trade minister said on Monday, as the mills struggle to pin back soaring raw material prices.

Any overt efforts by Beijing to influence iron ore prices would likely deal the coup de grace to the decades old annual benchmark pricing mechanism, already teetering on the brink of collapse due to increasingly volatile market conditions and the growth in the spot market.

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