Gold tops $1,680 for biggest gain in 3 weeks as U.S. GDP sputters

Gold capped the biggest gain in almost three weeks after a report showed the U.S. economy unexpectedly shrank in the fourth quarter, boosting demand for the metal as a haven. Silver jumped the most since September.

Gross domestic product, the volume of all goods and services produced, dropped at a 0.1 percent annual rate, weaker than any forecast in a Bloomberg survey and the worst performance since the second quarter of 2009, government figures showed Wednesday. Policy makers will keep buying securities at the rate of $85 billion a month, the Federal Open Market Committee said today at the conclusion of a two-day meeting after the close of New York floor trading for gold. 

"Clearly with the negative GDP, we're seeing a flight to safety," said Tim Evans, the chief market strategist at Long Leaf Trading Group in Chicago. "Growth has been fairly stable in recent quarters, but if we see more numbers like this, gold is going to have a good run."

The advance estimate for fourth-quarter U.S. GDP is out. The economy contracted 0.1 percent in Q4 versus economists' consensus expectations of a 1.1 percent expansion.

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"The Fed will maintain a steady foot on the gas pedal"

 "The Federal Reserve is going to maintain its monetary policy of aggressive easing at the end of its two-day meeting Wednesday, and will keep it in place until there are signs of a broad-based expansion, economists said," according to MarketWatch. 

"The Fed will maintain a steady foot on the gas pedal," said Julia Coronado, chief economist for North America at BNP Paribas. 

"For now, [Fed officials] are still not comfortable stepping back," said Carl Tannenbaum, chief economist at Northern Trust in Chicago. 

According to a CNBC poll: Wall Street expects the Federal Reserve to remain highly aggressive throughout 2013 but is divided over when quantitative easing will end and how it will be stopped, according to the January CNBC Fed Survey.

The 52 respondents -- including economists, strategists and money managers -- see the Fed on average purchasing $859 billion of assets this year for an average of $71 billion per month.

That is slightly below the $85 billion the Fed has already announced for January, in part because about 57 percent of market participants do not expect the Fed's purchases to remain at the January level for the entire year. ...

The downside: 44 percent believe QE will cause inflation, up from 35 percent in the December survey. Thirty-six percent believe it won't cause inflation, down from 46 percent. 

Meanwhile, a Bloomberg poll finds: Federal Reserve Chairman Ben S. Bernanke's latest round of bond buying will reach $1.14 trillion before he ends the program in the first quarter of 2014, according to median estimates in a Bloomberg survey of economists.

Bernanke will push on with purchases of $40 billion a month of mortgage bonds and $45 billion a month of Treasuries, according to the survey of 44 economists, even as some Fed officials warn his unprecedented balance-sheet expansion will impair efforts to tighten policy when necessary. 

"To get to the point where Bernanke would be comfortable letting up, you have to have a good solid string of economic reports that you're just not going to get" this year, said Eric Green, global head of rates and FX research at TD Securities Inc. in New York and a former New York Fed economist. 

And two key recent reports suggest that the economy is indeed still facing significant hurdles. Zerohedge reported: The conference board printed at the worst level in 13 months -- so all those 2012 gains are gone -- and fell month-over-month by the most since the August 2011 fiscal cliff debacle. For every income levels (except those earning under $15k) confidence plunged with the $35k-$50k bracket crashing the most. It would appear that the driver of 70% of the US economy is not buying the new normal being fed to us daily by any and every media outlet possible. 

Meanwhile, on the real-estate front: The Case-Shiller Home Price Index's unadjusted data "showed that in November, the 20 City Composite index posted its second consecutive monthly price decline in a row. Yes: on a year-over-year basis home prices did rise some 5.5%, but on the other hand, 'average home prices across the United States are back to their autumn 2003 levels for both the 10-City and 20-City Composites. And while the price decline into the year end is somewhat seasonal, it certainly does not fit with all the other economic data released by the government showing a housing picture so bright not even the tiniest drops in prices were allowed. 

So what to expect from the Fed on Wednesday? Chairman Ben Bernanke likely will pinpoint some bright spots in the U.S. economy, but the situation remains too precarious to take away the Fed's quantitative-easing life support anytime soon. And that would be good news for gold prices.

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Big players are buying Gold Bullion, Ray Dalio says

 "The way that I look at any market is to look at the buyers and the sellers," Bridgewater Associates founder and billionaire gold bull Ray Dalio tells CNBC in a Jan. 24 interview from the World Economic Forum in Davos, Switzerland. 

"And to understand, you know, sort of who's buying and who's selling and what are the motivations behind that. And so in each one of those cases, and I think if I was to get in to that a little bit much I would actually be dealing with sort of some confidential information. I think the important thing here to understand is that gold just generally is something that large buyers, those with lots of portfolios would like to accumulate over a very long time, very slowly ... and build that diversification. Because we're in a new era in terms of which is the currency. What are we? We're in a new world. What is money? And so there's a need to diversify that. However, gold is a very small market by comparison to that. And it's not a big, effective, you can't diversify it. So I think the behavior of gold makes, you know, complete sense, as does the behavior of equities and so on. I don't want to get too much into any one asset class, or what I think about them. I think the important thing here, if I'm an investor, let's go back to the investor, is the most important thing is that you can have is a good, strategic asset allocation mix. In other words you're not going to win by sort of trying to get what the next tip is and what's going to be good and what's going to be bad. That's -- you're definitely going to lose. So what the most investor needs to do is to have a balanced, structured portfolio, a portfolio that does well in different environments."

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Gold rush is on: Hedge fund converting a third of its assets into physical gold bullion

The Pacific Group Ltd., founded by a former PaineWebber Inc. trader, is converting one-third of its hedge-fund assets into physical gold, betting that prices will go up as governments print more money to pay off debt. 

The Hong Kong-based asset manager plans to take delivery of $35 million worth of gold bars that can be traded on the London Bullion Market Association and other international markets, William Kaye, its founder and chief investment officer, said in a telephone interview on Jan. 18. ... 

"Gold, the way we look at it, is anywhere from being undervalued to being seriously undervalued," Kaye said. "We're in the early stages, in our judgment, of what would likely be the world's largest short squeeze in any instrument."

The next big rally in precious-metal prices may be 18 months to two years away, triggered by a "financial catastrophe," he added. 

Ownership of gold through financial instruments based on it, such as Comex futures contracts, now represents more than 100 times the physical gold that exists above ground worldwide, Kaye said, citing the Pacific Group's own analysis. 

"All you actually need for a major upward revaluation of gold is for a small fraction of people to physically reclaim from major central banks or other depositories that are holding your gold and using it for their purposes," he added.

More information can be found online at http://www.goldbullionadvisors.com

Barron's Roundtable members say invest in Gold Bullion in 2013

Barron's Roundtable members Felix Zulauf of Zulauf Asset Management and Fred Hickey of The High-Tech Strategist were bullish on gold in 2012, and both are recommending it for the coming year:

Zulauf: "We are living in a world of money-printing. Almost 40 countries are pursuing a policy of zero or negative real interest rates to spur more economic growth. We have never seen anything like this in modern history. The people will try to protect themselves against this monetary baloney. It is accelerating the debasement of paper currencies around the world. That is why I have to recommend gold again. Gold's fundamentals are strong; although some technical indicators of sentiment and momentum turned down in the summer of 2011, gold is at the very end of a cyclical correction and the gold price will be up and running again soon. Once gold surpasses $1,800 an ounce, it will run to the low- to mid-$2,000s."

Hickey: "It has been great for 12 years, but it doesn't always go up. In the last great gold bull market, gold rose from $100 an ounce in 1970 to $800 in 1980. But it fell 46% in 1975-76. Anyone who left the market then missed the best part of the rally -- a subsequent rise of 600%. In the latest 12-year period, there have been five corrections in the gold price, ranging between 15% and 30%. The latest correction was 19%, and gold has bounced off its recent lows already.

"You have to be in gold. You have to be in real estate. Semiconductor sales have been poor, yet semiconductor stocks are rising. That is a result of money-printing. That is why the performance of stocks isn't related to the performance of the economy. Stocks could go up again this year. All assets could go up in price. But you'd better protect yourself. At some point, stocks will underperform and inflation will run higher. That is the history of all monetary inflations.

"Stocks will hold some but not all of their value. If you were an investor in Weimar Germany, your stocks lost 90% of their value. The best places to be were in other currencies and gold. But this time around, there is no alternative currency to the dollar."

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Gold Bullion will top $2,500 on supply crunch, Iamgold predicts

Iamgold Corp., the gold producer with mines in Canada and Mali, says the metal will rise to a record $2,500 an ounce as global output peaks and ore grades decline. 

The industry has exploited its best-quality gold reserves and is being forced to tap lower-grade and higher-cost deposits, Iamgold Chief Executive Officer Steve Letwin said. 

"I really think now we are at Peak Gold," Letwin, 57, said in a Jan. 10 interview at his company's Toronto headquarters. "Nobody has seen the kind of production profiles they thought they were going to see. ... 

"I really do believe, unless the demand for gold drops, you are going to have to see $2,500," said Letwin, who spent more than a decade at Enbridge Inc., Canada's biggest oil pipeline operator, before joining Iamgold in 2010. He said he couldn't give a timeframe for the rise to $2,500

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Central banks bought most gold in 48 years -- and bullish trend should continue

Central banks added 536 metric tons of gold to reserves last year, the most in 48 years, and will buy another 280 tons in this year's first half, Thomson Reuters GFMS said. 

Purchases increased by 17 percent in 2012 and buying in the first half will be 1.2 percent higher than in the year-earlier period, the London-based researcher said today in a report. Gross buying increased to 553 tons last year and gross sales fell for a fifth consecutive year to 17 tons, GFMS said. 

Nations from Brazil to Iraq to Russia are buying metal to add to official reserves. GFMS said the figures don't include the increase in reserves reported by Turkey, which has been accepting gold in its reserve requirements from commercial banks. 

"With continued monetary loosening in advanced economies, demand for gold as a reserve asset from developing countries will remain strong in 2013," GFMS, a unit of Thomson Reuters Corp., said in the report.

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Gold demand to rise as the world enters multi-currency reserve system

Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds.

This is the conclusion of a wide-ranging analysis of the world monetary system by Official Monetary and Financial Institutions Forum, (OMFIF), in a report commissioned by the World Gold Council, the gold industry's market development body. 

Driven by China's desire to increase its financial influence, the Chinese renminbi is likely to emerge gradually as a genuine international currency as Beijing eases restrictions on its use in transactions and investments abroad. During the coming period of uncertainty and transition between different reserve currencies, official central bank asset managers around the world are likely to increase their interest in gold as a result of doubts about the overall strength of global monetary arrangements. 

The OMFIF report explores the asset management consequences of greater dispersion of global economic power. It states: "The world is headed towards the uncharted waters of a durable multi-currency reserve system, where the dollar will share its pivotal role with a range of other currencies, including the renminbi."

OMFIF believes the re-balancing of the world economy through China's economic rise will occur gradually rather than abruptly and will not be straightforward. In particular, the move towards full renminbi convertibility is likely to be only gradual. Although the renminbi's rise as a reserve currency is unlikely to pose any immediate threat to the dollar, "during this period of change and transition reserve holders will spread their investments into a relatively wide range of assets and sectors."

While OMFIF does not envisage a return to a gold standard, the report says, "Gold will increasingly have a renewed role in the global monetary system, attracting a higher level of attention from policy-makers and financial market practitioners."

According to Natalie Dempster, World Gold Council Director of Government Affairs: "The report makes a substantial contribution to the debate around the global transition to a multi-currency reserve system, with important implications for reserve asset managers. We are already seeing many of the world's central banks increase the allocation of their reserves to gold and this report points to an acceleration of that trend."

The OMFIF report includes a foreword by Prof. Lord (Meghnad) Desai, chairman of the OMFIF Advisory Board. He states: 'As China weighs up its options for joining in the reserve asset game, gold -- the official asset that plays no formal part in the monetary system, yet has never really gone away -- is poised, yet again, to play a pivotal role.'

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QB Asset Management projects $3,400 gold by 2015

 In a recent investor letter, QB Asset Management explains how an inflationary reset button could slash the real value of the rapidly growing U.S. national debt:

"Using the U.S. as an example, the Fed would purchase Treasury's gold at a large and specified premium to its current spot valuation. The higher the price, the more base money would be created and the more public debt would be extinguished. An eight-tenfold increase in the gold price via this mechanism would fully reserve all existing U.S. dollar-denominated bank deposits (a full deleveraging of the banking system)."

QB maintains a chart of the shadow gold price (SGP). The SGP uses the Bretton Woods calculation for determining the exchange rate linking gold to the U.S. dollar. The calculation is base money divided by U.S. official gold holdings. Here is QB's latest chart. It includes projections of the base money supply through June 2015, assuming the Fed prints $85 billion per month. The SGP soars to $20,000 per ounce. ... 

If the ratio between the SGP and actual gold prices stays constant, gold could be $3,400 per ounce by 2015!

More information can be found online at http://www.goldbullionadvisors.com

Gold price to "explode" when Japanese pension funds increase holdings

Japanese pension funds, the world's second-largest pool of retirement assets after the U.S., will more than double their gold holdings in the next two years as the new government pushes for a higher inflation target, according to an adviser to the funds. 

Assets held by Japanese pension funds in gold-backed exchange-traded products may expand to 100 billion yen ($1.1 billion) by 2015 from less than 45 billion yen at present, said Itsuo Toshima, who represented the Tokyo office of World Gold Council for 23 years through 2011. 

New Prime Minister Shinzo Abe's pledge to spur inflation to 2 percent and end the yen's appreciation means Japanese pension funds now have to hedge against rising prices and a currency decline after two decades of stagnation. They're set to jump into gold after 12 straight years of gains with the precious metal now 14 percent below its all-time high reached 2011. Gold priced in yen reached a record a week ago. 

"Bullion's role as an inflation hedge, long ignored by Japanese fund operators, has come under the spotlight thanks to Abe's economic policy," Toshima, who now works as an adviser to pension-fund operators, said in an interview today in Tokyo. "Gold may be a standard asset-class in the portfolio of Japanese pension funds as Abe's target is realized." ...

"Pension money invested in bullion is 'peanuts' at the moment," Toshima said. "If 1 percent of their total assets shift to the metal, the gold market would explode."

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Gold hitting $2,000 this year is "a high probability," - Wealth Managers

 "I think there's a high probability" that gold could hit $2,000 this year, U.S. Global Investors CEO Frank Holmes says in a Jan. 7 CNBC interview. 

"If you look at mathematical models, gold is oversold, and any time it's oversold by 15% over 12 rolling months, you usually get a rally of 15% to 20%." 

On speculation that the Federal Reserve might be moving toward ending its gold-bullish quantitative-easing policy: "Let's just wait until it actually happens. ... What you're seeing from the government is this rhetoric comes out. However, they still will maintain negative real interest rates and the monetary base will expand. And as long as those two factors are driving it, then the price of gold will rise at higher levels. ... Maybe, and that's a big far-out maybe, so I would bet on still owning a small exposure to gold."

"There's still room for gold as a hedge," State Street Global Advisors exec Hon Cheung tells CNBC in a Jan. 6 interview. 

"Don't forget there's still significant financial stressors out there. I think the fiscal cliff (resolution) was a relief for the market, but we still have the U.S. debt ceiling coming up; the euro situation is still an ongoing concern for investors. ... Over the long term inflation certainly will be a concern. We're seeing interest from investors thinking of ways to hedge inflation. TIPS (or Treasury Inflation-Protected Securities) has been one of those, but gold actually has been quite an effective hedge as well. ... For 2013, it's going to be very, very volatile. If you see some of these uncertainties crystallizing, you're going to see some very good gains for gold." 

On the likelihood of $2,000 gold: "All it takes is another big blowup in the market and I think you'll see gold rally very strongly."

More information can be found online at http://www.goldbullionadvisors.com