Gold and other precious metals spiked Thursday, as did crude oil and US stocks following a report by the Commerce Department saying the economy expanded at a 3.5 percent annualized pace in the third quarter. Gold’s rise broke a losing streak that had extended to five days. The Dow and S&P enjoyed their best one-day jumps in three months.

New York bullion figures follow:

• Silver for December delivery jumped 41.5 cents, or 2.6 percent, to $16.655 an ounce. It ranged from $16.12 to $16.71.

• Gold for December delivery advanced $16.60, or 1.6 percent, to $1,047.10 an ounce. The yellow metal ranged from $1,048.40 to $1,026.90.

• January platinum surged $31.30, or 2.4 percent, to $1,338.20 an ounce.

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Read the rest of Gold, Silver and US Stocks Rally (2,395 words)

After gold prices crossed above the psychological level of $1000, the target price for gold became a very popular topic on the markets. Jim Rogers predicts gold prices to go even to $2000. Some of latest analysis from Adam Hewison about gold:

In the first video Adam provides some mid and long term analysis for the US dollar, S&P 500 and gold.

Read more »

By Pham-Duy Nguyen

Oct. 19 (Bloomberg) — Gold’s rally to a record means
prices are still 53 percent below the 1980 inflation-adjusted
peak.

While gold rose 19 percent this year to $1,072 an ounce on
Oct. 14, consumer prices almost tripled in the past three
decades, eroding the metal’s value. Bullion hasn’t kept pace
with the cost of bread, fuel or medical care. In 1980, gold hit
a then-record $873 an ounce. In today’s dollars, that would be
$2,287, according to the U.S. Labor Department’s inflation
calculator.

Record government debt and interest rates close to zero
percent are pushing gold higher for a ninth straight year, and
options show investors expect the rally to continue. When prices
reached all-time highs, the contract with the most open interest
was the December call to buy the metal at $1,200. The contract
to purchase at $1,500 an ounce was the third biggest.

“Gold is not at any peak,” said Martin Murenbeeld, the
chief economist at Toronto-based DundeeWealth Inc., which
manages $58.5 billion in mutual funds and brokerage accounts.
“The world’s money supply has increased and gold hasn’t kept
pace,” he said. “We’re now in a period where gold is catching
up.”

The U.S. Dollar Index, which measures the currency against
those of six major trading partners, fell on Oct. 15 to the
lowest level in 14 months, and has dropped about 7 percent this
year. President Barack Obama has increased the nation’s
marketable debt 22 percent to $7.01 trillion to revive growth.

Preserving Value

Gold bulls say today’s record borrowing and low interest
rates mean the government will have to accept faster inflation
as the economy recovers. Investors buy bullion to preserve value
during times of turmoil and economic stress.

Financial institutions worldwide have reported credit
losses and writedowns of about $1.62 trillion since the start of
2007, when the credit crisis began. Group of 20 governments have
pledged about $11.9 trillion to ease credit and revive economic
growth, according to the International Monetary Fund.

“Gold is the hedge against currency devaluation,” John
Brynjolfsson, of hedge fund Armored Wolf LLC, said in a
Bloomberg Television interview from Aliso Viejo, California, on
Oct. 7. He predicted bullion will top $2,000.

Banks have raised their gold estimates. On Oct. 9, JPMorgan
Chase & Co. said the metal will average $1,006 an ounce next
year, compared with an earlier projection of $950. Deutsche Bank
AG forecast an average of $1,150, up 32 percent from its
estimate in July. Barclays Capital said Oct. 12 that “prospects
for a run at $1,500 should not be underestimated” next year.

Understated CPI

Gold would need to rise more than sixfold to top the 1980
record, using a more accurate inflation-adjustment, said John
Williams, an economist and the editor of Berkeley, California-
based Shadowstats.com. He said the government has understated
the cost of living over the past two decades with adjustments in
the way it measures the basket of goods and services monitored
by the U.S. consumer price index, or CPI.

Gold futures for December delivery closed Oct. 16 at
$1,051.50 an ounce on the New York Mercantile Exchange’s Comex
division, gaining for a third straight week.

“If the methodologies of measuring inflation in 1980 had
been kept intact, gold would have to hit $7,150 to be the
equivalent of the 1980 record,” Williams said.

The cost of living in the U.S. rose 0.2 percent last month,
the Labor Department said on Oct. 16. Compared with a year
earlier, consumer prices fell 1.3 percent. The CPI will drop 0.5
percent this year, before rising 1.9 percent in 2010, reflected
by the median estimates of 61 economists in a Bloomberg survey.
Annual increases averaged 2.8 percent a year in the past decade.

Purchasing-Power Adjustment

In March 1980, inflation surged to a 14.8 percent annual
rate, two months after gold capped a four-year rally. Adjusted
for the decline in the dollar’s purchasing power since then,
gold’s Oct. 14 record of $1,072 represents the equivalent of
$409 in 1980 dollars, the Labor Department calculator shows.

Since January 1980, the average price of a pound of white
bread has risen almost threefold, from about 50 cents to $1.38
in August, and medical care has surged more than fivefold, Labor
Department figures show. Gasoline and electricity prices have
more than doubled.

Today, the gap between gold’s spot price and its CPI-
adjusted equivalent is the widest ever.

Gold hasn’t been as effective a hedge against inflation as
oil since the 1980s, said Matt Zeman, of LaSalle Futures Group
LLC in Chicago.

Oil Beats Gold

Crude passed its 1981 inflation-adjusted record two years
ago. The cost of imported oil averaged $39 a barrel in February
1981, after Iran cut exports, according to the Energy
Department. That’s $89 in 2007 dollars, the Labor Department
calculator shows. Oil reached a record $147.27 on July 11, 2008,
and closed at $78.53 on Oct. 16 in New York trading.

“If you bought gold in the 1980s, you’re still losing
money today,” said Zeman, a metals trader. Gold prices in New
York languished for two decades after declining from the 1980
record, dropping to a 20-year low of $253.20 on July 20, 1999.

While bulls say gold is cheap, the inflation-adjusted price
is 15 percent above its 30-year average, Bloomberg data show.

The Federal Reserve may limit gains by raising interest
rates before inflation balloons, analysts said. Fed Chairman Ben
S. Bernanke said on Oct. 8 that policy makers will need to raise
interest rates “at some point” to control inflation.

‘Prepared to Tighten’

“When the economic outlook has improved sufficiently, we
will be prepared to tighten,” Bernanke said in remarks prepared
for an Oct. 8 conference in Washington.

Fed moves to cool inflation and the government’s revenue
needs will stop gold, according to Jon Nadler, a senior analyst
for Montreal metals dealer and refiner Kitco Inc.

“These wild calls for several-thousand-dollar gold are
typical of times when gold goes into uncharted territory,”
Nadler said. “The Fed will pull the interest-rate trigger and
the Obama administration will, in addition, pull the tax-hike
trigger before we get into any serious inflation. Once the man
on the street gets in, the gold rally is likely over.”

Gold held in exchange-traded funds climbed to records this
month at Zuercher Kantonalbank and ETF Securities Ltd. Holdings
in the SPDR Gold Trust, the biggest exchange-traded fund backed
by bullion, are up 42 percent this year. Hedge funds and other
large speculators hold their most-bullish position ever in gold
futures. So-called net-long positions, or bets prices will rise,
increased by 6 percent to 253,955 contracts in the week ended
Oct. 13, according to the Commodity Futures Trading Commission.

Gold Producers

The Philadelphia Stock Exchange Gold & Silver Index jumped
43 percent this year, as Phoenix-based Freeport-McMoRan Copper &
Gold Inc. tripled. Toronto-based Barrick Gold Corp., the world’s
largest producer, fell 10 percent. Barrick said Sept. 8 it will
record $5.6 billion in third-quarter costs to eliminate fixed-
price contracts as the company bets gold’s value will climb.

At Jersey, Channel Islands-based GoldMoney.com, which held
$759 million of gold and silver for investors as of Sept. 30,
founder James Turk said bullion can climb eightfold based on the
historical relationship between the metal and the Dow Jones
Industrial Average. The Dow is up 10-fold since January 1980.

Gold and the Dow, which has gained 14 percent this year to
9,995.91, were at about the same level during the Great
Depression and the early 1980s, he said. On Jan. 21, 1980, as
gold futures surged to $873, the Dow slipped to 946.25.

“The dollar is constantly being debased and inflated,”
Turk said. “By 2013, gold is going to be at $8,000 and the Dow
will be at 8,000.”

Gold-Dollar Link

Deutsche Bank said early this month that the dollar will
fall to $1.60 per euro next year, a drop of 7.3 percent from
last week, because of “rising fiscal deficits and loose
monetary policy.”

Gold has moved in the opposite direction of the dollar over
most of the past decade. The metal’s correlation coefficient to
the U.S. Dollar Index is minus 0.8539, Bloomberg data show. A
correlation of minus 1 indicates two assets move inversely to
each other, while a 1 would show they move in tandem. A reading
of zero shows no correlation.

Philip Gotthelf, the president of Equidex Brokerage Group
Inc. in Closter, New Jersey, says he expects gold to trade at
$1,250 by year-end.

“Gold has been pushing higher because it’s no longer just
a hedge against commodity inflation, it’s also a hedge against a
change in world-monetary standards.”

Read more….

By Glenys Sim

Oct. 7 (Bloomberg) — Investors should hold onto long
positions in gold as bullion has “significant upside
potential” to reach as high as $1,500 an ounce, Barclays
Capital said, citing trading patterns.

“Having rallied ‘off the charts’, we are left to resort to
projections and extrapolated trendlines to forecast where the
move might stop,” Jordan Kotick, global head of technical
analysis at Barclays Capital, wrote in a note e-mailed today.

So-called trendlines are used to determine momentum and are
found by connecting an asset’s high prices and low prices over a
given period to form a channel.

“Channel resistance currently is at $1,370; history
suggests a run at $1,500,” Kotick wrote. “Taking it a step at
a time, in the coming weeks, we view consolidation above $1,020
as extremely positive, targeting $1,050 initially, and $1,120,”
he added.

Gold for immediate delivery gained as much as 2.6 percent
to a record $1,043.78 an ounce yesterday, and traded at
$1,038.46 at 10:35 a.m. in Singapore.

“We suspect the rally is wave 3 of 5, indicating an
eventual push toward the $1,120 area and potentially beyond into
year end,” wrote Kotick, referring to the Elliott Wave theory,
which holds that market swings follow a predictable five-stage
pattern of three steps forward, two steps back.

“Initial resistance is found in the $1,050 area but that
is way too conservative given the springboard that a wide 18-
month range provides,” he added.

Not Unstoppable

To be sure, when compared against the major currencies,
it’s clear that the gold rally is “by no means unstoppable, as
none of the charts show prices concurrently pressing against
their respective all-time highs,” Kotick said.

Gold priced in euros, pounds, South African rand, Australia
and New Zealand dollars hit records in February as investors
turned to bullion as a hedge against weakening currencies. Gold
reached a peak of 783.87 euros and 692.66 pounds on Feb. 18.

“Against sterling, gold is making great strides, and
against the euro it is breaking higher out of range, but against
the yen it is holding in a well-defined range,” said Kotick.
“These charts speak volumes: as much about currency perceptions
as the value of gold.”

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA
gold

Read more….

FDIC Proposes Banks Prepay Deposit Fees Through 2012

By Alison Vekshin

Sept. 29 (Bloomberg) — The Federal Deposit Insurance Corp.
proposed asking banks to prepay three years of premiums to
replenish reserves dented by a rash of bank failures that the
agency said will cost $100 billion through 2013.

The insurance fund will run a deficit as of tomorrow after
120 banks failed in the past two years, the agency said today.
Half the costs from seized banks have been incurred already and
prepaying the fees will raise $45 billion, the FDIC said. The
agency rejected options for a second special fee or borrowing
from the Treasury Department.

“What we are proposing to do is to tap the ample liquidity
of the banking industry to improve our own liquidity position
without borrowing from the Treasury,” FDIC Chairman Sheila Bair
said at a Washington board meeting. The agency raised its five-
year loss estimate by 43 percent.

The agency is required by law to rebuild the fund when the
reserve ratio, or the balance divided by insured deposits, falls
below 1.15 percent. It was 0.22 percent on June 30. The fund,
drained by 95 bank failures this year, had $10.4 billion at the
end of the second quarter. The fund will erase its deficit by
2012, the staff said.

The proposal approved by the board requires banks to pay
premiums for the fourth quarter and next three years on Dec. 30.

The board backed prepayments over alternatives such as
borrowing taxpayer dollars from the Treasury, charging the
banking industry a special fee in addition to levies they
already pay and borrowing directly from the banks.

John Dugan, the head of the U.S. Office of the Comptroller
of the Currency, said he was pleased the agency proposal didn’t
impose another special assessment this year and next year.

Assessment Opposition

“For banks that were already feeling the effects of a weak
economy, special assessments could only make them weaker,” said
Dugan, a member of the five-person FDIC board.

Under the proposal, the FDIC wouldn’t impose another
special assessment this year. The agency would raise assessments
by 3 basis points in 2011.

The FDIC will seek public comment until Oct. 28 and then
make a decision on its approach.

The FDIC raised its projected fund losses, from $70 billion
in May, because the assets and number of failed and “problem”
banks have increased, said Arthur Murton, director of the FDIC’s
division of insurance and research. Bank failures will peak this
year and 2010, he said.

The banking industry lobbied against a special fee that
would be added to the regular annual premium, telling the FDIC
and Congress such a levy would hurt their ability to raise
capital. The industry welcomed the FDIC’s proposed approach.

‘Better Solution’

“It’s certainly a better solution than taking a large
chunk of money out of banks’ income and capital,” James
Chessen, chief economist at the American Bankers Association,
said.

The prepayment approach gives “the FDIC the cash that they
need, it will be paid for by the industry and it will not have
the severe impact that other options would have had on
banking,” Chessen said.

Banks paid a special assessment in the second quarter that
raised $5.6 billion for the insurance fund, in addition to an
estimated $12 billion in annual premiums. The agency also has
authority to impose fees in the third and fourth quarters.

Banks backed prepayment because the premiums are classified
as an asset when the payment is made, becoming an expense during
the quarter in which the obligation is due.

The agency has authority to borrow against a Treasury line
of credit that Congress in May increased to $100 billion. This
option would have put the FDIC in the position of borrowing from
taxpayers in the wake of public anger over the bank bailout.

Read more….

By Gabi Thesing and Christian Vits

Sept. 28 (Bloomberg) — European Central Bank President
Jean-Claude Trichet said a strong dollar is “extremely
important” for the world economy and it’s too early for the ECB
to unwind emergency stimulus measures.

“In the present situation it is extremely important that
we can have in the framework at the level of global finance and
the global economy a strong dollar, as the authorities in the
U.S. are saying,” Trichet told lawmakers in Brussels today.
“The solidity of the dollar is very important.”

Trichet’s comments come after a 15 percent slide in the
dollar against the euro since February that’s threatening to
hamper Europe’s recovery from the worst recession since World
War II. With the Group of 20 nations pledging to rebalance the
global economy away from a trade deficit in the U.S., the risk
for the ECB is that its economy feels the pain of further dollar
adjustment.

The euro fell from $1.4661 to as low as 1.4627 after
Trichet’s remarks.

“It would be premature to declare the crisis over,”
Trichet said. “Now is not the time” for the ECB to unwind its
stimulus measures. “However, at some point in time an exit
strategy will have to be implemented. The ECB has an exit
strategy and stands ready to put it into action when the time
comes.”

Non-Standard Measures

The Frankfurt-based central bank has lowered its benchmark
lending rate to a record low of 1 percent to fight Europe’s
worst recession since World War II. It is also employing “non-
standard measures” to get credit flowing through the economy
again, lending banks as much money as they need at the benchmark
rate and buying covered bonds.

“The euro-area economy shows signs of stabilization,”
Trichet said. “In the period ahead we expect to see a very
gradual recovery.”

The ECB this month predicted economic growth in the 16-
nation euro region of about 0.2 percent in 2010, revising a June
forecast for a 0.3 percent contraction. In 2009, the economy
will shrink about 4.1 percent, less than the 4.6 percent
contraction predicted three months earlier.

G-20 leaders concluded a summit in Pittsburgh on Sept. 25
promising to pursue policies that bring the world economy into
greater balance. That initiative may require the dollar to fall
further so as to narrow the U.S. trade deficit, according to
economists at Morgan Stanley.

Dollar’s Dominance

Trichet’s comments came the same day that World Bank
President Robert Zoellick said the U.S. dollar’s dominance as
the world’s main reserve currency will be challenged as the
financial crisis reshapes the global economy.

“There is every reason to believe that the euro’s
acceptability could grow,” Zoellick said. “Of course, the U.S.
dollar is and will remain a major currency. But the greenback’s
fortunes will depend heavily on U.S. choices” on inflation, the
budget deficit and financial oversight, he said.

U.S. Treasury Secretary Timothy Geithner last week defended
the dollar’s role as the world’s reserve currency. The U.S. has
a “special responsibility” to preserve confidence in its
financial system and “sustain the dollar’s role as the
principal reserve currency in the international financial
system,” he said Sept. 24 in Pittsburgh.

Trichet also urged banks to accelerate lending to their
economies. The global recession has made banks reluctant to lend
and also eroded demand for debt. In Europe, loans to the private
sector rose 0.1 percent in August from a year earlier, the
slowest growth since records began in 1991, the ECB said last
week.

There’s a “gradual improvement in financing conditions
which is expected to support demand for credit in the period
ahead,” Trichet said. “It is for this reason that the
Governing Council continues to regard ECB interest rates as
appropriate.”

“Our message to banks is clear: do your job,” he added.

Read more….

Simit Patel submits:

Just a quick note I wanted to make about what I am thinking in preparation for October — a month notorious for volatility and market crashes.

1. Currently, I’m still long gold, silver, and the Australian dollar against the USD (trades documented in my trade journal). These trades have been working out very well for me. Regardless of what happens in October, I’m confident about them.
2. We’re coming up on the 50% retracement level from the US equities crash in October 2008 (as noted in this recommended video and dicussion). This will be a key break or bounce level, in my opinion. Look for the 50% level on both the S&P 500 and the DJIA.
3. Non-US equities, in my opinion, remain safer than US equities. Many non-US equities have rallied more so than US equities.
4. If the market crashes, which I think is more likely than a break above the 50% level (of course we would want to look at at other technical indicators if/when the market reaches the 50% level), will the dollar rally as well? That is what we saw in 2008. However at some point the market will not be able to buy US dollars, especially with the Fed continuing to print more money. So, if US equities crash, we will see a flight to safety — though I think it’s still unclear whether safety means US dollars (like it did in 2008) or if it means something else, particularly gold and silver.
5. I’m long gold and silver, but I will be looking to exit some of my positions if gold breaks below $980/oz (see previous analysis of gold).
6. MZM, one of my favorite money supply indicators, turned deflationary this past month (meaning it declined). The last time this occurred was right before the crash of ‘08. MZM tends to be very well-correlated with the US dollar over the long run. The trend on MZM is still upwards, but the recent dip suggests we may get a dollar rally of some kind.
7. Conclusion: $980 is a key level on gold that I’m watching. At this point I think a dollar rally in October is a bit more likely, but of course I will let the charts tell me what is happening. Overall I remain quite confident that the major trends in the marketplace continue to exist and so I will be looking at a potential rally in the US dollar as an opportunity to short it from a higher level.

Disclosure: Long gold, silver, Australian dollar. Short US dollar.

Read more »

By The Mogambo Guru

In another episode where the comics page eerily mirrors real life, a recent “Garfield” cartoon has Garfield confronting a resident rat who has been taking cheese, but leaving IOUs, from the “cheese drawer” of the refrigerator. Garfield threateningly says to the rat “Stop with the IOUs” and the rat calmly holds up his hand in protest and says, with a look of utter sincerity on his face, “No, no…I’m good for it”!

Perhaps it is my Refined Mogambo Sense Of Humor (RMSOH), or perhaps it is my equally-refined Mogambo Sense Of Scorn (MSOS), but either way, using a diseased, lying, filthy, corrupt, thieving rat as a metaphor for Congress is the funny-because-it’s-true part! Hahaha!

I remember it because I was reading the comic strip before I fell asleep on the couch, snoring and snorting and having a wonderful time while taking a well-deserved nap after spending the busy morning writing hate mail to the Federal Reserve (“Dear Morons, I hate your guts because you are the weenies who have so little intelligence that you let the foul Alan Greenspan, chairman of the Federal Reserve 1987-2006, create So Damned Much Money (SDMM) and with So Damned Little Oversight (SDLO) that it allowed massive, MASSIVE bubbles in debt that produced bubbles in stocks, bubbles in bonds, bubbles in houses, bubbles in consumer spending, bubbles in derivatives, and huge, backbreaking bubbles in size and cost of government, and now we’re freaking doomed! Sincerely, Anonymous in Florida and fed up with you clowns!”).

I was just in that delicious part of my nap where I usually begin dreaming of wonderful things that might have been, had I only been prescient enough to say, “Marry you? What? Are you freaking crazy or something?” or “Have some kids? What? Are you freaking crazy or something?” but still buying lots of gold, silver and oil with which to get Fabulously, Fabulously Rich (FFR) so that I could tell lots and lots of other beautiful women, “Marry you? What? Are you freaking crazy or something?”

Let’s just say that fantastical things were getting dreamed up pretty good, if you catch my drift, when the kids come running in with a copy of Barron’s in their hands, yelling, “Wake up, daddy! Wake up! You can raise our allowances even if your income is down! There’s a way to do it! Wake up!”

I was lazily rubbing the sleep from my eyes and carefully watching to see if any of them came close enough that I could reach out and smack them for so rudely waking me up, which I feel empowered to do because that is what my wife did to me for doing the same thing just the other day.

I mean, there I was, early in the morning before the sun was even up, nervously looking at our finances and coming to the only conclusion I could; “The kids have got to go!” Before I knew what I was doing, I went running into their rooms, honking an air horn and anxiously yelling, “Get up! Fire! Get up and get out of the house! Emergency! Get out! Get out of the house!” whereupon they all went rushing outside in their pajamas and I locked all the doors so they couldn’t get back in.

It was, I admit, probably my most pathetic, desperate attempt to clutch at the only straw I had left, a move that led to the aforesaid incident of my wife hitting me, and the police watching her do it, yet doing nothing about it, and the kids wailing, “We’re so traumatized! He’s a horrible person who doesn’t give us enough money in our allowances! Boo hoo hoo!”

But they were right about the S&P 500 “paying more while making less”! The companies in the S&P 500 have been paying out $21.45 in dividends, which is whole multiples of the $7.90 that they have been actually earning, probably explaining why the index sells at a price so high (over $1,000), that the price-to-earnings ratio is 128! Hahaha! Unbelievable! Hahaha!

So, as the kids rightfully pointed out, the companies in the S&P 500 are paying more than they are making, and so there must be a way for me to pay them more than I make, too, and the only reason that I don’t give them more money to offset their rising costs is that I am stingy and hateful, which is true but not breaking any new ground, just as it is also true that buying these stocks at the price of the index would take an investor 128 years of getting everything the companies earn just to break even! Hahahaha!

It gets weirder when you realize that the companies would go broke long before that, because they are always paying out more than they make!

So I look at them and say, “And what kind of Stupid Moron Crap (SMC) is that?”

It was heartbreaking to see the disappointment in their eyes and hear it in their tender, young voices as they were telling me how monstrously cruel I am and how much they hate me, but I am still buying gold, silver and oil with every dime I can manage to keep out of the greedy, grubby hands of the kids, wife, family members and bill collectors, and soon they will understand why, and, if they are good, like not ever again waking me up from a nap, grow fabulously wealthy, insanely wealthy, preposterously wealthy along with me and all the other people who are buying gold, silver and oil as a defense against unbelievable government deficit-spending and monstrous amounts of money creation by the Federal Reserve, which is so ridiculously easy that you hear yourself saying, “Whee!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Debt for Dividends

By Garfield Reynolds and Wes Goodman

Aug. 19 (Bloomberg) — Pacific Investment Management Co.,
the world’s biggest manager of bond funds, said the dollar will
weaken as the U.S. pumps “massive” amounts of money into the
economy.

The dollar will drop the most against emerging-market
counterparts, Curtis A. Mewbourne, a Pimco portfolio manager,
wrote in a report on the company’s Web site. The greenback is
losing its status as the world’s reserve currency, he said.

“Investors should consider whether it makes sense to take
advantage of any periods of U.S. dollar strength to diversify
their currency exposure,” Mewbourne wrote in his August
Emerging Markets Watch report. “The massive amounts of U.S.
dollar liquidity produced in response to the crisis” have
helped reduce demand for the currency, he wrote.

The Dollar Index, which tracks the greenback against a
basket of currencies, touched 78.823 today, the lowest this
week. It has fallen 12 percent from this year’s high in March as
U.S. authorities pledged $12.8 trillion to combat the recession.
China, the world’s largest holder of foreign-currency reserves,
and Russia have both called for a new global currency to replace
the dollar as the dominant place to store reserves.

“While we have not yet reached the point where a new
global reserve currency will arise, we are clearly seeing a loss
of status for the U.S. dollar as a store of value even in the
absence of a single viable alternative,” Mewbourne wrote.

Percentage of Reserves

The dollar as a percentage of global central banks’ foreign
reserves increased to 65 percent in the first three months of
the year, from 64.1 percent in the previous quarter, according
to the International Monetary Fund. Its share has remained
around 65 percent the last five years, after falling from 72.7
percent in 2001.

The U.S. government boosted spending and the Federal
Reserve bought bonds to revive credit markets that seized up
after financial companies posted $1.6 trillion in writedowns and
losses, raising concern there is an oversupply of greenbacks.

The currency rose 0.1 percent to $1.4118 per euro as of
9:06 a.m. in New York. The Dollar Index is down about 2.8
percent this year, after a 6 percent gain in 2008.

Asian currencies stand to benefit as the region’s economy
grows and the dollar’s allure fades, said Rajeev de Mello,
Singapore-based head of Asian investments at Western Asset
Management Co., which oversees $473.4 billion.

Sample Coin

“We are positive on the Asian currencies against the
dollar and think they will continue to rally,” de Mello said in
an interview. “I do think the diversification of reserves is
something that’s important and I think we’ll see some from China
into other currencies and this will benefit as well Asian
currencies and other emerging currencies.”

China’s central bank renewed its call for a new global
currency in June and said the International Monetary Fund should
manage more of members’ foreign-exchange reserves. Russian
President Dmitry Medvedev last month illustrated his call for a
supranational currency by producing a sample coin after a summit
of the Group of Eight nations.

Mewbourne joins investor Jim Rogers, who said last year
that he was shifting all his assets out of dollars and buying
Chinese yuan because the Fed eroded the value of the U.S.
currency. The dollar is losing its status as the world’s reserve
currency, said Rogers, who is the author of books on investing
including “Hot Commodities.”

Sovereign Funds

Bill Gross, who runs the $169 billion Pimco Total Return
Fund, is also warning the U.S. currency will fall.

Holders of dollars should diversify before central banks
and sovereign wealth funds do the same because of concern
government budget deficits will deepen, Gross said in June.

Gross’ fund has returned 12 percent in the past year,
outperforming 96 percent of its peers, according to data
compiled by Bloomberg.

Billionaire Warren Buffett wrote in a New York Times
commentary today that the dollar is under threat from the
“monetary medicine” that has been pumped into the financial
system.

“Enormous dosages of monetary medicine continue to be
administered and, before long, we will need to deal with their
side effects,” Buffett, 78, wrote. The “greenback emissions”
will swell the deficit to 13 percent of gross domestic product
this fiscal year, while net debt will increase to 56 percent of
GDP, he said.

Budget Deficit

The U.S. budget deficit reached a record $1.27 trillion for
the first 10 months of the fiscal year and broke a monthly high
for July, the government said Aug. 12.

There is no viable immediate alternative to the U.S. dollar
for now as the euro region lacks a political union while Japan’s
economic weakness makes it impossible to consider the yen for
such a role, Pimco’s Mewbourne wrote. The currencies of emerging
states such as China can’t play a reserve role as long as they
are subject to capital controls, which restrict international
traders to using non-deliverable forwards, he wrote.

Pimco, based in Newport Beach, California, is a unit of
Munich-based insurer Allianz SE.

Read more….

By Ryan J. Donmoyer

Aug. 19 (Bloomberg) — IRS Commissioner Douglas Shulman
said the U.S. scored a “huge victory” in persuading
Switzerland to turn over the identities of 4,450 Americans with
secret UBS AG bank accounts and said the agency’s probe is
expanding.

Shulman said the Internal Revenue Service, as a result of
the UBS case, is aware of other financial institutions, law
firms and other entities that help Americans hide assets
offshore.

“We’re going to have our targets set on all categories of
folks,” Shulman said in an interview with Bloomberg Television.

Read more….