Reuters
By Jan Harvey
LONDON | Wed Apr 20, 2011 10:31am EDT

Photo Credit: Reuters/Arko Datta

(Reuters) – Gold rose above $1,500 an ounce on Wednesday for the first time ever as the dollar wilted, oil rose, worries over the U.S. economic outlook boosted demand for the metal as a haven and rising inflation lifted Asian demand.

The Reuters-Jeffries CRB index was on track for its biggest one-day gain in a fortnight as commodity prices rallied.

Spot gold hit a high of $1,505.40 an ounce and was bid at $1,501.10 an ounce at 1403 GMT, against $1,493.90 late in New York on Tuesday. U.S. gold futures for June delivery rose $6.70 an ounce to $1,501.80.

Silver tracked gold higher, extending a stellar performance that has seen the grey metal outperform other precious metals this year. Silver hit a 31-year high at $44.79 an ounce and was later bid at $44.72 against $43.89.

Gold prices are up 5 percent in April and look set to extend gains as the metal’s appeal as a haven from risk was boosted by talk that Greece may have to restructure its debt and Standard & Poor’s threat to downgrade America’s triple-A credit rating.

“Gold has been acting as a currency in its own right, and that is why we are up at $1,500,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia. “There is an awful lot of bad news in the price. The S&P comment the other day has given us the final kicker to get up here.”

While investors in the United States and Europe are seeing the metal chiefly as a safe store of value and a hedge against currency devaluation, stronger inflation and rising consumer incomes in China and India are also boosting demand there.

“The theme of longer term higher inflation than we have seen in the last 10 years in China is a pretty solid view, so gold is going to be an asset class that is probably going to be more in favor in China than it has been in the past,” said Macquarie analyst Hayden Atkins.

China is the world’s second-biggest gold consumer behind India, as well as being the biggest producer.

RISING OIL, WEAKER DOLLAR

In the short term, losses in the dollar on Wednesday are supporting the precious metal above $1,500 an ounce. The dollar is usually sold off when risk appetite firms, as reflected in a rise in stock markets on Wednesday.

The dollar slid to its lowest in 15 months against the euro as the single currency was boosted by higher risk appetite and after a bond auction from Spain was well received by investors.

Weakness in the dollar boosts gold’s appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies. Gold priced in euros and sterling remained off recent highs on Wednesday.

Oil prices also recovered, rising back toward the multi-year highs they hit earlier this year as unrest in the Middle East and North Africa sparked fears of a supply outage.

Higher oil prices tend to benefit gold, both because they can boost commodities as an asset class and lift interest in gold as a hedge against oil-led inflation.

The gold:silver ratio — the number of silver ounces needed to buy an ounce of gold — meanwhile fell to its lowest since 1983 below 34.

“The last time silver was this expensive in relation to gold was almost 28 years ago,” said Commerzbank in a note. “Both precious metals are still reaping the benefit of the news of recent weeks and days.”

Platinum was at $1,800.99 an ounce against $1,761.50, while palladium was at $754.97 against $726.95.

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Kitco.com
April 19, 2011. 12:38 p.m EST
By Jim Wyckoff
Of Kitco News

(Kitco News) -Comex gold futures at midday Tuesday hit the major psychological level of $1,500.00 an ounce, after flirting with that key price for much of the morning. Tuesday’s new all-time record high in June gold futures now stands at $1,500.50 an ounce. A weaker U.S. dollar index and firmer crude oil prices are helping to support the higher gold price Tuesday. June Comex gold last traded up $1.50 an ounce at $1,494.50. The fact that gold has now hit the much-anticipated $1,500.00 mark will now garner even more general media attention, which in turn will likely draw even more general investor demand to the precious yellow metal. With the $1,500.00 mark now being hit for gold futures, traders and investors are now eyeing the next major upside technical price objective, which is $1,600.00 an ounce.

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CNN Money
By Ben Rooney, staff reporter
April 19, 2011: 8:20 AM ET

NEW YORK (CNNMoney) — The United States is at risk of having its pristine credit rating lowered if politicians in Washington cannot agree on a plan to bring down the nation’s deficits over the long term, ratings agency Standard & Poor’s said Monday.

S&P, one of the three main agencies that rate the ability of companies and sovereign nations to repay their debts, lowered its outlook for America’s long-term credit rating to “negative” from “stable.”

The change means that there is a one-in-three chance that S&P could downgrade the nation’s “AAA” credit rating within two years. That would make it harder for the U.S. government to borrow money to fund its activities.

While S&P believes the U.S. economy is diverse and that the nation’s monetary policy is sound, the agency said a downgrade is possible if Congress and the Obama administration fail to enact a credible deficit reduction plan.

The move puts additional pressure on Congress to come up with a plan to bring down long-term deficits, which lawmakers from both political parities say are unsustainable.

President Obama unveiled a proposal last week to cut $4 trillion from the deficits over 12 years by enacting a mix of spending cuts and tax increases.

Republicans have proposed a competing plan to lower the long-term debt by $4.4 trillion over ten years, in part by shrinking Medicaid and Medicare.

“More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” said S&P credit analyst Nikola Swann.

The Obama administration believes that lawmakers are making progress towards consensus on a long-term budget deal.

“We simply believe that the prospects are better,” said Jay Carney, the chief White House spokesman. “We think that the political process will outperform S&P expectations.”

Eric Cantor, the Republican majority leader in the House, said the S&P action underscores the need for “serious reforms” to ensure America’s “fiscal health.”

Cantor said Republicans will not move forward on Obama’s request to raise the country’s debt ceiling unless “it is accompanied by serious reforms that immediately reduce federal spending and end the culture of debt in Washington.”

Treasury Secretary Timothy Geithner told Congressional leaders earlier this month that he now expects U.S. debt to hit the country’s $14.294 trillion debt ceiling “no later than May 16.”

In a statement, a Treasury official stressed that S&P reaffirmed the nation’s pristine rating, adding that the agency assumes lawmakers will begin implementing a long-term debt plan by 2013.

Meanest budget cuts

“We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” said Mary Miller, the Treasury’s assistant secretary for financial markets.

Miller argued that dealing with the current fiscal challenges is “well within our capacity as a country.” She noted that Obama has called on Congress to begin developing a deficit plan next month, with the aim of reaching a legislative framework by June.

“The U.S. economy is strengthening as it emerges from the recent recession,” said Miller. “Both political parties now agree that it is time to begin bringing down deficits as a share of GDP.”

In its report, S&P said its outlook change was based on the growth of the United States’ deficits over the last several years as a percentage of gross domestic product, the broadest measure of economic activity.

From 2003 to 2008, the nation’s general government debt varied between 2% and 5% of GDP, which is “noticeably larger” than other countries with “AAA” ratings, according to S&P.

In 2009, as the government increased spending to stimulate the economy, the U.S. debt load “ballooned” to more than 11% and has yet to come down, said S&P.

In a conference call with reporters, Swann compared the U.S. fiscal position to other AAA-rated countries, including the United Kingdom, Germany, France and Canada.

“The U.K. has already agreed on fiscal consolidation plan and began to implement it last year,” he said. “The U.S. has yet to agree on a plan.”

S&P cut its outlook for the United Kingdom to “negative” in 2009, before the British government’s austerity plan was unveiled last year. It has since been restored to “stable.”

Of the 127 sovereign nations that S&P monitors, only 19 have AAA ratings. The agency has never lowered its outlook for the United States, and the nation has never had a rating lower than AAA.

On Wall Street, investors reacted to the news by pushing share prices down sharply. The Dow Jones industrial average sank more than 200 points in the first half-hour of trading.

In the bond market, however, the yield on the benchmark 10-year U.S. Treasury note eased to 3.4% from 3.41% on Friday.

Standard & Poor’s is one of three major agencies that evaluate public and private debt issues. Their ratings are key to measuring an investor’s risk in buying the debt, an important factor in determining interest rates.

Moody’s, one of the other big ratings agencies, described the two deficit reduction plans currently on the table as “a significant shift in the U.S. fiscal debate.”

“This potential change in the direction of fiscal policy is credit positive for the U.S. federal government,” according to Moody’s Weekly Credit Outlook report. “Although it remains uncertain what sort of budget will actually be adopted.”

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Bloomberg
By David Mildenberg and Pham-Duy Nguyen
April 18, 2011 3:34 PM PT

Gold-Shortage Threat Drives Texas Schools Hoarding 664,000 Ounces at HSBC

Dallas hedge-fund manager J. Kyle Bass helped advise the University of Texas Investment Management Co. on taking delivery of 6,643 gold bars, worth $991.7 million yesterday, that are stored in a bank warehouse in New York.

Bass, who made $500 million with 2006 bets on a U.S. subprime-mortgage market collapse, said managers of the endowment, known as UTIMCO, sought board approval to convert its gold investments into bullion this year. A board member, Bass, 41, said he was asked to help with that process.

While Bass, a managing partner at Hayman Capital Management LP, said in an April 16 e-mail that “the decision to purchase and take delivery of the physical gold” was made by endowment staff members, “I helped where I could.” Gold futures touched a record $1,498.60 an ounce today in New York before settling at $1,492.90.

The Texas fund’s $19.9 billion in assets ranked it behind only Harvard University’s endowment as of August, according to the National Association of College and University Business Officers. Last year, UTIMCO added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass.

Contracts Exceed Supply

Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand, Bass said.

“If you own a paper contract where they can only deliver you 10 cents on the dollar or less, you should probably convert it to physical,” said Bass, who isn’t related to Fort Worth’s billionaire Bass family. He said holding cash wasn’t a better choice because the rate of inflation exceeds money-market rates by 2.5 percent to 3 percent, eroding the value of cash.

“The call to take delivery is more of a challenge to the system and it borders on the anarchistic,” said Ralph Preston, a principal at Heritage West Financial Inc., a San Diego company that specializes in futures trading. “It’s like the Republicans trying to overturn President Obama over the birth certificate issue. It’s poor sportsmanship.”

Storage Costs

Bullion banks generally charge his clients about $15 a month to store a 100-ounce bar of gold, the amount covered by a single contract, Preston said. The Texas fund negotiated with Comex to pay about 0.1 percent of the metal’s value, Bass said.

That would indicate an annual cost of about $992,000 to store the delivered gold, based on today’s price. By comparison, the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, charges a management fee of 0.4 percent of invested assets. That would reach almost $4 million for the Texas fund.

Sovereign-debt concerns also boosted demand for the metal today, driving Comex futures to an all-time high as Standard & Poor’s revised its U.S. credit outlook to negative. The price has climbed 31 percent in the past year.

“Why hold your money in dollars when the Fed can double and triple the supply rather quickly and quietly and won’t even tell us what they are doing,” U.S. Representative Ron Paul, a Texas Republican who has for decades favored a return to a currency backed by precious metals, said today in a telephone interview. “Logic tells me a lot more people will do it.”

10-Year Rally

Gold’s 10-year rally has attracted billionaire investors such as George Soros and John Paulson, who seek a store of value as record-low interest rates erode returns on currencies.

“You’re starting to see institutional investors accepting gold and commodities as legitimate investible assets and taking physical control of them,” said Michael Cuggino, who helps manage about $12 billion at the Permanent Portfolio Funds in San Francisco. About 20 percent of the fund is in gold stored in Comex warehouses.

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said April 15 in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

Few investors take physical delivery of bullion. As of April 14, 2,860 contracts this month, about 0.5 percent of total open interest, had been converted to metal, exchange data show.

Slowing Deliveries

Physical deliveries have slowed as gold topped records this year, said Blake Robben, a senior market strategist who handles deliveries of Comex metals for clients at Chicago-based broker Lind-Waldock.

“It’s usually wealthy individuals with net worth over $1 million who want to take delivery to diversify away from the dollar,” Robben said. “Generally, it’s a big hassle and not worth it to take delivery.”

Investors should be wary of government attempts to curtail holding gold, Paul said, citing U.S. ownership restrictions in the 1930s. “Governments don’t like to be embarrassed.”

To own 100 ounces of gold futures with Lind-Waldock, investors pay a $100 fee and put up $6,571 in a margin account to buy a single contract. To take delivery of a 100-ounce bar, investors have to pay the contract’s full price.

Bass, a Texas Christian University graduate who was named to the endowment’s board in August, is a former salesman with Bear Stearns Cos. and Legg Mason Inc. He said about 5 percent of his hedge fund is invested in gold.

The endowment, which oversees funds held by the University of Texas System and Texas A&M University, has 664,300 ounces of bullion in a Comex-registered vault in New York owned by HSBC Holdings Plc (HSBA), the London-based bank, according to a report distributed at a meeting in Austin last week. The fund said its cost basis for the gold investment was $764 million.

“I simply voted as a board member to approve the storage facility and concurred with their decisions,” Bass said.

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Bloomberg
April 13, 2011, 11:59 AM EDT
By Pham-Duy Nguyen and Nicholas Larkin

April 13 (Bloomberg) — Gold will rise as much as 9.5 percent this year to a record $1,600 an ounce, extending a rally that began in 2001, as investors boost demand for the metal as an inflation hedge, said researcher GFMS Ltd.

Prices in New York touched an all-time high of $1,478 on April 11 amid speculation that governments will keep borrowing costs near record lows to revive economic growth, increasing the risk of accelerated costs for consumers. Total gold demand rose 0.4 percent to 4,334 metric tons in 2010, the third straight gain, according to an annual report from GFMS.

“The prospects for gold prices this year remain bright,” GFMS Executive Chairman Philip Klapwijk said in a statement. “Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly.”

Gold, the most widely traded precious metal, rallied 27 percent in the past year as the Federal Reserve kept the benchmark U.S. interest rate at zero to 0.25 percent since December 2008 in a bid to pull the economy out of recession. Last week, the European Central Bank raised the main borrowing cost 25 basis points to 1.25 percent.

Gold futures for June delivery traded at $1,460.90 an ounce by 11:21 a.m. on the Comex in New York.

Investment in exchange-traded funds backed by the metal rose 18 percent to 2,177 tons in 2010, and buyers increased purchases of gold bars, coins and jewelry, according to GFMS.

Inflation Target

Demand for physical gold bars rose 66 percent last year to a record 880.5 tons, led by purchases from China. The country’s central bank has raised rates four times since early October to combat accelerating prices. China’s consumer-price inflation reached 4.9 percent in February, above the government’s target of 4 percent.

India, the biggest user, accounted for most of last year’s rebound in global jewelry demand, which increased 11 percent to 2,017 tons, according to GFMS. India purchased 685 tons, up 36 percent. While higher prices will act as “a bit of a cap” on jewelry demand this year, a decline in consumption will be “limited,” Klapwijk said today in a presentation in London.

Buying Gold

Central banks bought 73 tons of gold last year, halting a two-decade trend of reducing their gold reserves, the researcher said. The banks were “consistent” net sellers of the metal from 1989 to 2009 and accounted for 10 percent of total supply between 2001 and 2009, according to the report. Central banks will likely keep buying gold this year, Klapwijk said in London.

Mine supply expanded by 3.8 percent to 2,688.9 tons, led by the biggest producer, China, GFMS said. Production will rise 4 percent this year, while scrap supply will have a “fair increase,” pushing total supply up 6 percent, Klapwijk said in the presentation.

Miners paid an average $557 an ounce to extract gold, a 17 percent increase from 2009, according to the report. De-hedging by producers this year will be limited, Klapwijk said.

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KITCO News
12 April 2011, 10:17 a.m.
By Kitco News

http://www.kitco.com/

A World Gold Council study says that a modest, consistent gold holding increases long-term risk-adjusted portfolio returns in a way that a commodities basket alone does not. In indices such as the S&P Goldman Sachs Commodity Index and Dow Jones UBS Commodity Index, gold’s weighting typically ranges between just 3% and 7%, the WGC says. So for an investor with 10% of a portfolio allocated to commodities, the effective exposure to gold is as low as 0.3% using the S&P GSCI and only as high as 0.7% when using the DJ-UBSCI, the WGC says. The Council lists its findings in a report titled Gold, A Commodity Like No Other. “Our research makes clear that to achieve true diversification an allocation to an outright position in gold provides benefits that cannot be replicated simply by investing in a wider commodities basket,” says Juan Carlos Artigas, investment research manager with the WGC. “This paper, therefore, supports the premise that gold should be viewed as a separate, distinct asset class, and a foundation to a well-diversified investment portfolio.”

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FORBES.com
Apr. 11 2011 – 2:35 pm
By Robert Lenzner

The price of oil and gold are likely to rise for the final 3 months of QE2 buttesssed by the widespread geopolitical unrest, and the approach of the summer driving season.

If the Fed keeps buying $100 billion of Treasuries until July 1, you can calculate that each $100 billion will push the commodity index up another 5% and the price of oil $7.00 a barrel. This is the conclusion of Russ Winter of Minyanville, a widely followed financial blog.

As QE2 is on couse through June, then, the potential uipward thrust in commodities is another 15% in total– while the price of oil could rise another $21 a barrel– putting it at $140 a barrel for Brent crude.

This bullishness on commodities was supported by PIMCO’s Richard Clarida, who told Bloomberg today that “secular forces are at work in suplly constraints of all commodities– and that we may not experience the classic price trend for commodities, which have always been “sharp advances followed by sharp declines.”

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, also feels strongly that “one factor fueling the run” in oil and gold has been the continued decline of the U.S. dollar, exacerbated by the political wars over the nation’s bloated budget deficit and the oncoming debate about raising the debt ceiling of the U.S.

As roughly two-thirds of the U.S. trade deficit in related to oil imports, oil prices have tended to go up asa the dollar moves lower. This negative correlation is a powerful force in predicting oil prices, Holmes feels.

On the other hand, Holmes sees a positive correlation between oil prices and gold prices. Some 75% of the time gold follows oil up, a trend which should be buttesssed by the onset of the summer driving season. Last week the index of gold mining shares were up 6.5% or almost double the price of gold.

Holmes also points out that King Abdullah’s $125 billion stimulus spending for wages and social infrastructure “has driven up the breakeven price for Saudi oil production to $88 a barrel; meaning a higher price for oil is in the interest of the Saudi budget and gdp. Bear in mind there could be social and political unrest in this feudal monarchy despite these monetary attempts to pacify the polulation. Oil prices could leap to $200-300 per barrel “if Saudi Arabia is hit by serious unrest, former Saudi Oil Minister Yamani said,” according to US Global Investors weekly market report.

If political unrest threatened Us supplies of crude oil from Saudi Arabia, “we must protect the source of our energy,” former Sec of State and Treasury Sec. James Baker warned yesterday on CNN. “If we lost some acess to energy resources in the gulf we’d be in big trouble,” Brady warned. This kind of anxiety in high places also puts a danger premium in the price of oil.

Meanwhile, supply constraints from the decline in mature fields in Mexico, Norway and the North Sea in respect to rising demand for oil in China and India, are also pressures going toward higher prices.

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National Inflation Association
April 7, 2011

Gold prices surged today to a new all time high of $1,463.70 per ounce, while silver prices soared to a new 31-year high of $39.785 per ounce. Silver is now up 129% since NIA declared silver the best investment for the next decade on December 11th, 2009, at $17.40 per ounce. The gold/silver ratio is now down to 37, compared to a gold/silver ratio of 66 when NIA declared silver the best investment for the next decade. This means that not only is silver up 129% in terms of dollars since December 11th, 2009, but silver has also increased in purchasing power by 1.78X in terms of gold.

Gold is the world’s most stable asset and the best gauge of inflation. This brand new breakout in the price of gold leads us to believe that the Federal Reserve is getting ready to unleash QE3 at the end of June. The Fed will surely not call it QE3, but NIA can pretty much guarantee that the Fed will continue on with their purchases of U.S. treasuries. If the Fed pauses after QE2, it will mean that treasury bond yields will need to surge to a level where they attract enough private sector and foreign central bank buyers in order to not only support the funding of our rapidly rising budget deficits, but to support the redemption of maturing treasury securities.

In the month of March, the U.S. government spent more than eight times its monthly tax receipts, when you include the money spent for maturing U.S. treasuries. The U.S. treasury netted $128.18 billion in tax receipts during the month of March, but paid out a total of $1.05 trillion, which included $49.8 billion in Social Security benefits, $47.4 billion in Medicare benefits, $22.58 billion in Medicaid benefits, and $37.9 billion in defense spending. However, by far, the U.S. paid out the most for maturing U.S. treasuries, which equaled $705.3 billion.

In order for the U.S. government to stay afloat with only $128.18 billion in tax receipts, it had to spend $72.5 billion from its balance of cash, which ended the month at $118.1 billion, and sell $18 billion worth of TARP assets. But most importantly, the U.S. treasury had to sell $786.5 billion in new treasury bonds.

The U.S. government is the largest ponzi scheme in world history. We can only fund our government expenditures and pay off maturing debt plus interest, by issuing larger amounts of new debt. Americans are lucky that we have been blessed with record low interest rates for an unprecedented amount of time, but NIA believes that as we roll over U.S. treasuries in the future, we will have to refinance them at much higher interest rates. Our national debt is now so large that interest payments on our debt will become the government’s largest monthly expenditure.

If the Federal Reserve doesn’t implement QE3, NIA believes it will just about guarantee a bursting of the U.S. bond bubble in the second half of 2011. If the Fed stops buying U.S. treasuries, there is a chance that we won’t find foreign buyers for our bonds no matter how high interest rates rise. The world is waking up to the fact that the U.S. government is insolvent, and the benefits of propping up the U.S. dollar are no longer worth the expense to our foreign creditors. The U.S. government ponzi scheme will soon be exposed for the world to see.

Japan has been the most consistent buyer of U.S. treasuries. With Japan needing to raise $300 billion to rebuild parts of their country that were destroyed by the earthquake, tsunami, and nuclear disaster, we believe they will be forced to dump their U.S. treasuries, at a time when the U.S. desperately needs Japan to roll over their treasuries into larger amounts of new ones. Not only that, but with Arab revolutions taking place across major Saudi states and the U.S. beginning to occupy Libya for no reason at all, we will likely see Gulf states follow in Japan’s footsteps and stop purchasing/dump U.S. treasuries. Plus, China appears to be becoming more reluctant to continue buying U.S. treasuries, and is positioning the yuan to be the world’s new reserve currency. Without Japan, Saudi states, and China, there will be no buyers left for U.S. government bonds.

The fact is, with no QE3, we could literally see the 10-year bond yield double from 3.52% to north of 7%, overnight. Even then, it is unlikely to attract foreign buyers and we will likely be faced with failing bond auctions, which would cause a massive rush out of the U.S. dollar and trigger the currency crisis NIA has been predicting. NIA sees no other option for the Fed, but for it to continue on with its endless money printing and destructive inflationary policies.

Federal Reserve officials discussed last month in closed-door meetings the possibility that rising commodity prices could cause inflation. The fact is, rising commodity prices don’t cause inflation, they are a symptom of inflation. When the Fed leaves interest rates at 0% for over two years and prints $600 billion as part of QE2, that money printing and easy money is the inflation of our money supply, and rising prices are the result.

The Fed is narrow-minded and continues to focus on the CPI, which only grew last month by 2.11% year-over-year. Fed Chairman Ben Bernanke says he expects rising commodity prices to create a “transitory” boost in U.S. inflation. Meaning, when the CPI rises even higher in the upcoming months, Bernanke will likely place the blame on what he considers to be temporarily high oil and soft commodity prices.

The CEO of Wal-Mart is now saying that U.S. inflation is “going to be very serious” and that Wal-Mart is already seeing “cost increases starting to come through at a pretty rapid rate.” He predicts that because of huge increases in raw material costs, along with soaring labor costs in China, and skyrocketing fuel costs around the world, retail prices will start increasing at Wal-Mart and all of their competitors in June, especially for clothing and food.

When asked about the predictions of Wal-Mart’s CEO, Bernanke said that he expects price pressures to remain largely stable, but then added, “Wal-Mart has more data than the government does.” Bernanke was also quoted as saying, “We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability.”

The European Central Bank (ECB) is expected to raise interest rates tomorrow for the first time since 2008. Many people are now speculating that the Federal Reserve will begin raising the Federal Funds Rate at the end of 2011. NIA is receiving many new ‘NIAnswers’ and email questions on a daily basis, asking us what will happen to gold and silver prices if the Federal Reserve were to raise interest rates.

In our opinion, the Federal Reserve raising the Fed Funds Rate would actually be very bullish for gold and silver prices, because it will serve as an admission that even the Fed believes inflation is becoming a major problem and beginning to spiral out of control. Historically, the best performing time period for precious metals has been when the Fed begins to raise artificially low rates. Remember, when the Fed begins to raise rates, they will probably raise rates only 1/4 or possibly 1/2 of a percentage point at a time. Interest rates of 1% or 2%, although higher than 0%, are still artificially low and will do nothing to curtail inflation. NIA believes the real rate of U.S. price inflation is now 6% and we will need to see the Fed Funds Rate rise to a level that is higher than the real rate of price inflation, if the Fed wants to have any hope of preventing hyperinflation.

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Gold and Silver PAC Update
April 6, 2011

After numerous months of delay the Senate has finally passed a repeal of the 1099 reporting requirement for all transactions of $600 with the exact language of the House (HR 4) and the bill is now headed to the White House for signature.

After the 87-12 vote (on Apr 5th), the White House indicated President Obama would sign the bill. (Numerous news sources)

The champion of this effort was led by Senator Mike Johanns of Nebraska. He has been submitting amendments to many Senate bills to get this issue passed.

Numerous business groups lobbied hard on the legislators and the White House to have this requirement repealed.

Upon President Obama’s signature this bill will become the law of the land.

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01 April 2011, 04:08 p.m.
By Daniela Cambone
Of Kitco News

http://www.kitco.com/

Texas (Kitco News) — Rep. Ron Paul, R-Texas, has one question for the U.S. Mint: why is there a coin shortage?

He is aiming to get to the bottom of this during a scheduled April 7 hearing of his U.S. House Subcommittee on Domestic Monetary Policy to examine the bullion programs at the U.S. Mint.

“We are going to try and find out what the Mint has done so they can give us a better answer as to why there is a shortage. Why can’t they keep the supply of coins up?” said the congressman in an exclusive interview with Kitco News.

Demand for precious metals in the futures markets and in physical gold bullion coins increases as the dollar weakens, which often leads to coin shortages.

Part of the problem lies in manufacturing the blanks, said Paul. The blank planchets are not made at the Mint, which hasn’t had the production capacity for this stage of the minting process since the budget cuts of 1981.

“Looks like we don’t even get (all) blank coins made in the U.S. – there is a contract with a foreign company, which makes no sense at all,” said the congressman.

Today there are three refineries that supply planchets to the Mint: VennerBeck Stern Leach in Rhode Island, Sunshine Minting in Idaho and Goldmark in Perth, Australia.

Paul said that a U.S. company may appear at the scheduled hearing with a solution.

“They can help relieve the shortage by providing these blank planchets for the Mint,” he said, not revealing the company.

“I think there is a huge demand and it is being provided by a bureaucracy, and the bureaucracy isn’t responding very well — but I can’t believe there is any excuse for this,” he said.

The Mint is planning a major overhaul of the metals composition of coins and how they manufacture them. The Coin Modernization, Oversight and Continuity Act of 2010 gives the Mint greater flexibility in meeting the demand for bullion coins as well as meeting the demand for gold and silver numismatic items.

Give Them a Choice: Paul

Paul is a strong advocate of currency backed by precious metals

Paul wants competition in currencies, and to do so, he said the tax on coins needs to be done away with. “Money shouldn’t be taxed with sales taxes or capital gains taxes, that would be my goal,” he said.

In March, Paul introduced H.R. 1098, the Free Competition in Currency Act of 2011, which would repeal legal tender laws in order to prohibit taxation on gold, silver, platinum, palladium and rhodium bullion. The bill has been referred to the House Committees on Financial Services, Ways and Means, and Judiciary.

A staunch critic of the Federal Reserve, Paul said that instead of arguing his case for the Fed to close down tomorrow, he’s arguing the fact it should not hold a monopoly. “They have a monopoly on a type of money that isn’t even constitutional,” he said.

“We would use no force, nobody has to use gold and silver coins,” said Paul. Rather, he said the Fed does use force. “They are a cartel and they make us use Federal Reserve notes,” he said.

The market provides a competition; however, he said there is always the threat of being taxed or the gold and silver being taken away as in the 1930s.

Paul explained that ideally, we should allow the market to pick the currency. “If you deal with international finance, people can use different currencies. Within the U.S., I believe you literally could, especially in this age of computers, that you could calculate two different currencies without difficulty.”

Return to Gold Standard

A common assumption is that Paul is calling for a return to a gold standard. He clarified, saying he is not so inflexible.

“I wouldn’t be overly rigid and say, ‘you must have a gold standard, you must go back to what we had.’ Our gold standard was imperfect, even though it worked better than the paper standard,” he said.

Lawmakers in several states, including Tennessee, Virginia, New Hampshire and South Carolina, have introduced bills to look into minting their own currencies in the event of a complete breakdown of the U.S. Federal Reserve. In Georgia, a bill to make the state only use gold and silver is in committee.

Utah has received the most media attention on this subject as the House and Senate have passed HB317, which would recognize gold and silver coins as legal tender and exempt them from certain state tax liability.

“Governments over the many, many centuries have always demanded monopoly control over money. Even when gold and silver were principally used in the economies, they still wanted monopolies,” Paul said.

Hence, he is not confident that any Utah law would be allowed to stand. “Well, they are going to fight it tooth and nail. They are not going to go along with this even though we have the law and Constitution on our side and it should appeal to all Americans to have competition.”

Interest Rates

Regarding U.S. interest rate hikes, Paul said they are going to be gradual and steady but they are indeed coming. “The next big shoe to fall will be interest rates going up on municipal bonds — that means a lot of these bonds will start defaulting,” he said.

Presidential Run

Paul has not ruled out a run at the presidency but has not confirmed it either. When asked what would stop him from running, he said: “minimal support.”

“So if there is a receptive audience out there, that is going to influence my decision,” he said. “I have to have a good sense that the message I have will be received well. Last go-around I kept talking about the dangers of the financial and housing bubble. This go-around, I’ve been concentrating on the dangers ahead for the dollar.”

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