By Greg Hunter’s USAWatchdog.com
It was another 400 point loss on the Dow today. Manufacturing is contracting according to the latest reports, and Europe is in very big trouble with sovereign debt (especially with Spain and Italy). If the Euro falls apart, then the dollar will be the big near term beneficiary. So, the buck could actually strengthen for a short while because it would be the prettiest ugly girl in the currency room. If stocks (especially the banks) keep getting pounded and the economy keeps sinking, then the fed will be forced to act or let the economy and the market fall off a cliff.
Twelve of the 19 primary Dealers of Treasuries are foreign banks. Maybe that’s why the Fed spent $5 trillion bailing out foreign banks during the financial meltdown of 2008. If foreign banks get into trouble again, expect the Fed to bail them out again. I just want to caution folks buying gold that the price will not go straight up. At some point, there will be a correction, and the higher the price goes in this run, the bigger the correction will be. However, long term, physical silver should be a core holding in everyone’s portfolio.
The Fed is meeting in Jackson Hole, Wyoming, next week, and the dollar is about 11% lower this year since the meeting last year. I don’t think the Fed gives a hoot about the dollar, but I am sure it was not expecting a sinking economy after all the money it pumped into it. Remember, QE2 ($600 billion in money printing) was hatched out of that meeting. If there was ever a headline that said a third round of Quantitative Easing (QE3) was on its way, this is it: “Gold Surges to Record on Haven Demand as Economy Falters, Equities Tumble,” Bloomberg’s story today wraps up another wild day for stocks and gold. It reported, “Gold futures surged to a record $1,829.70 an ounce on demand for an investment haven as mounting concern that the global economy is faltering triggered a plunge in equities. The Standard & Poor’s 500 Index tumbled as much as 5 percent after manufacturing in the Philadelphia region unexpectedly contracted in August by the most in two years as orders plunged and factories shed workers. Europe’s debt crisis may freeze interbank markets and cut off funding, said Lars Frisell, the chief economist at Sweden’s financial regulator.
“There is further decay in the European situation,” Sterling Smith, an analyst at Country Hedging Inc., said in a telephone interview from St. Paul, Minnesota. “The nervousness in the equity markets is pushing people toward gold.”
Gold futures for December delivery jumped $28.20, or 1.6 percent, to settle at $1,822 at 1:45 p.m., on the Comex in New York, closing at an all-time high for the third straight day. The price has advanced 28 percent in 2011, after posting gains in the previous 10 years.
“If gold continues to climb at this rate for the next few days, we may touch $2,000 by the end of this month,” Smith said.
At the end of July, gold settled at $1,631.20.
Morgan Stanley cut its forecast for global growth this year, citing an “insufficient” response to Europe’s debt crisis and the prospect of fiscal tightening.
“A developed world with slower growth, a large fiscal deficit and near zero rates over the next few years, inflationary pressures in emerging economies, and larger political and economic uncertainty bodes well” for gold, Roxana Mohammadian-Molina, an analyst in London at Barclays Capital, said in a report.
Holdings of the metal in exchange-traded products rose 10.8 tons yesterday, the most since Aug. 8, to 2,198.7 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons last week as Standard & Poor’s cut the credit rating of the U.S.
Venezuelan President Hugo Chavez ordered the country’s central bank to repatriate $11 billion of gold reserves held in developed nations’ institutions.
Venezuela’s move “suggests a lack of comfort with holding gold abroad,” Edel Tully, an analyst at UBS AG in London, said in a report. “This is another central bank that wants gold to play a greater role in its international reserves.” (Click here for the complete Bloomberg story.)