Highest Ever Weekly Close For Gold!

What a week this past week was, ending with the highest ever weekly close for gold!  Forces are converging which will guarantee that this weeks close will not be the last highest ever weekly close for gold.  The trend is truly your friend and the trend in gold is up for now and into the future.

What a milestone, as Friday brought the highest ever weekly close for gold!  Before Friday, gold had popped up over $1,000, but had never closed above $1,00o at the end of any of  those weeks.  This is technically very bullish and the fact that gold has begun this move through $1,000 during the early part of September, is particularly  significant as we enter this historically strong time period for gold.

As I mentioned last week, caution should be exercised because the central banks will pull out all of the stops to try and bring gold back under control.  Pay attention to your price points on your stocks and take the profits that you set out for each stock as they come up.

Gold went as high as $1,011.90 before settling back to close at $1,006.20, up $9.70 (.97%).  Next week we will see what the shorts are going to do.  It seems pretty evident that unless they can pull a rabbit out of their hat, they are going to have their head handed to them shortly(no pun intended).  I don’t expect it. but I have learned that you must be ready for anything in the gold market.  I think it is wise to sell 1/3 to 1/2 of your shares as they reach their individual price points.  By so doing you have locked in a profit and you still have skin in the game.

I will sell my entire position in any companies  that have not performed as well as I expected since purchasing them,  in order to build up my cash position for the next correction.  If  I set a sell point at 20% and the shares have struggled while others exceeded their price points quickly, I am out of there. There are too many gold miners that are getting ready to rock, so why not use this time to clean out the dead wood at a nice profit?

We are looking at a major up leg in this gold bull market and now is not the time to be intimidated by the government media and their attacks on gold. There are many reason why this move in gold is for real, so let’s take a look at a few of them.

U.S. Government Policies, China and Derivatives

Last month’s budget statement was a mere $111 billion and most clear thinking people were shocked by it when they stopped to consider that only 6% of the stimulus money has been spent to date. This month the deficit has ballooned to $140 billion, with no end in sight under the current administration.  This is totally idiotic, unless the plan is to bring the country down to it’s knees and shove Fascism down our throats.  Maybe this is the “change” that so many of the “useful idiots” voted for.  OK, enough on that score, let me get back to the government’s policies.

Excessive government control and spending brought us to this point, and there is only so much that a capitalist free market system can stand before it goes under, and we are nearing that point. Quantitative easing, the printing of more paper money, will not cure the problems and  bubbles that too much easy credit and cheap money started in the first place.

The stimulus money money has been doled out to fat cat companies  that started the entire mess and the regulation  and supervision has been turned over to those that failed to see the crisis coming in the first place!  Everything changes and remains the same, except for the expanded roll of the government in the private sector.  What we need now is government reform!  We need the government to get out of the way so that the private sector can dig us out of this recession and provide jobs for the middle class, the poor and not expand the bank accounts of corporate execs that have met the approval of the Obama elite.

While we are on the subject of the government, the U.S. Senate is going to have to raise the federal debt limit beyond $12.1 Trillion by mid-October!  The Chinese noticed this even though almost no one in America seems to be aware of it.

By Ambrose Evans-Pritchard, in Cernobbio, Italy
Published: 9:06PM BST 06 Sep 2009

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than $2 trillion, the world’s largest.

“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to
buy whenever there is a price dip, putting a floor under any correction.

Mr Cheng said the Fed’s loose monetary policy was stoking an unstable asset boom in China. “If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

“Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.”

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

“This is where Greenspan went wrong from 2000 to 2004,” he said. “He thought everything was alright because inflation was low, but assets absorbed the liquidity.”

Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery.

China’s task is to switch from export dependency to internal consumption, but that requires a “change in the ideology of the Chinese people” to discourage excess saving. “This is very difficult”.

Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China.

“The US spends tomorrow’s money today,” he said. “We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.”

Yet the consequences are not symmetric.

“He who goes borrowing, goes sorrowing,” said Mr Cheng.

For the time being, the dollar and gold are joined at the hip.  Now, you might ask, who controls the dollar?  I can see all the eager hands in the front row going up with the answer, the Federal Reserve.  Wrong!   The Chinese control the dollar because we owe them so many of them. Any large movement out of their dollar position would send the dollar into a death spiral, so I don’t see that as a likely action.  It is to their benefit to keep increasing  their gold positions while they continue to build the case for the renminbi to be a substantial player in the basket of currencies that replaces the dollar as the world’s reserve currency. The Chinese think long term and they know that what this administration is doing will reap long term damage to the U.S. Dollar.

This week we heard a new voice calling for the replacement of the dollar as the world’s reserve currency.

By Edmund Conway, Economics Editor
Published: 6:45PM BST 07 Sep 2009

In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises.

It added that the present system, under which the dollar acts as the world’s reserve currency , should be subject to a wholesale reconsideration.

Although a number of countries, including China and Russia, have suggested replacing the dollar as the world’s reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.

In essence, the report calls for a new Bretton Woods-style system of managed international exchange rates, meaning central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving.

The proposals would also imply that surplus nations such as China and Germany should stimulate their economies further in order to cut their own imbalances, rather than, as in the present system, deficit nations such as the UK and US having to take the main burden of readjustment.

“Replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability,” said Detlef Kotte, one of the report’s authors. “But you will also need a system of managed exchange rates. Countries should keep real exchange rates [adjusted for inflation] stable. Central banks would have to intervene and if not they would have to be told to do so by a multilateral institution such as the International Monetary Fund.”

The proposals, included in UNCTAD’s annual Trade and Development Report, amount to the most radical suggestions for redesigning the global monetary system.

Although many economists have pointed out that the economic crisis owed more to the malfunctioning of the post-Bretton Woods system, until now no major institution, including the G20, has come up with an alternative.

Check This Out!

It’s is time for a musical interlude. Consider this half time. I like this video, probably because I made it, and because it tells a lot about where we are headed without me having to type.

What’s Next?

The world is going through major changes and it makes no difference whether you think that a conspiracy is to blame or that everything is just a sum of its parts and randomly ends up where we are today.  Either way, the world’s financial system is in the middle of a major turning point and all signs point to gold as being a survivor of the coming turmoil.  Let’s look at what is driving this change.

1. The world is beginning  to see U. S. Dollar for the paper sham that it has become.
2. The Fed’s complete roll over to government’s desire to monetize and spend their way out of debt.
   
3. The proliferation of OTC derivatives to over $1 quadrillion in value with no hope  of resolution,  regulation, and steeped in corruption and cronyism.
   
4. The total collapse of financial contract law.  (Read as:  The government removing the GM bond holders from the first position and arbitrarily putting the unions ahead of bond holders)
   
5. Huge price inflation on the horizon due to the massive infusion of cash by the world’s central banks.
   
6. There is developing trend of accumulation of commodities by Russia and China as they move to protect their economies from the coming inflation.

These are six of the ever increasing signs that change is on the horizon that will drive gold well past $1,600 in the next couple of years.  There is no sense in fighting it, gold and gold stocks are set to rise dramatically.  The long term picture is bright, but it is still important to pick and choose your entrance and exit points because the volatility level in gold is going to ratchet up.  The largest gold miner in the world realizes this, albeit a little late to the table!

Barrick will raise $3bn in share sale, eliminate gold hedges

By:  Liezel Hill 8th September 2009  MiningWeekly.com

TORONTO (miningweekly.com) – In a move to gain full exposure to a burgeoning gold price, the biggest miner of the precious metal, Barrick Gold, announced on Tuesday it will raise a whopping $3-billion in a bought-deal public offering of shares.

The company will use $1,9-billion of the money raised to eliminate all of its fixed-priced gold contracts within the next 12 months and about $1-billion to eliminate a portion of its floating spot price gold contracts.

“The gold hedge book has been a particular concern among our shareholders and the broader market which we believe has obscured the many positive developments within the company,” CEO Aaron Regent said.

“As a result of today’s decision, we have addressed that concern and maintained our financial flexibility.”

The company will take a $5,6-billion charge to earnings in the third quarter as a result of a change in accounting treatment for the contracts.

The decision to gain full leverage to the gold price on all future production was made in light of an “increasingly positive” outlook on the gold price, coupled with continually robust supply and demand fundamentals, Barrick said.

“The company expects global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies.”

Barrick also believes that the hedges and floating contracts were negatively affecting the company’s appeal to investors, and therefore weighing on its share price, Regent commented.

Gold producers across the industry have been reducing their hedge books for most of this decade, in order to take advantage of rising bullion prices.

Industry-watcher VM Group said in a report last month  that the global gold hedge book has fallen from more than 100-million ounces in 2001 to just 14,7-million ounces by midyear.

Another gold major, South Africa’s AngloGold Ashanti, has made significant cuts to its hedge book and promised further reductions by year-end.

Gold surged to $1 004,50/oz on Tuesday, the highest since March 2008 when the metal hit a record $1 030,80. It retreated to around $996/oz later in the day.

BOUGHT DEAL

Toronto-based Barrick said after markets closed on Tuesday that it has entered into an agreement with a syndicate of underwriters, led by RBC Capital Markets, Morgan Stanley & Co, JP Morgan Securities Inc and Scotia Capita, for a bought-deal public offering for gross proceeds of about $3-billion, representing 81,2-million common shares of Barrick at a price of $36,95 a share.

As of September 7, Barrick had gold sales contracts on 9,5-million ounces, with a mark-to-market position of a negative $5,6-billion.

These include three-million ounces of fixed price contracts where Barrick does not participate in gold price movements, with a negative mark-to-market position of $1,9-billion.

In the next year, Barrick will buy these ounces in the open market and/or deliver gold from its own production. These ounces will then be delivered against the gold hedges.

The company also has 6,5-million ounces of floating contracts, with a negative mark-to-market position of $3,7-billion. The company will use whatever is left over from the offering after settling the fixed price contracts to settle a portion of the floating contracts.

Thereafter, the remaining floating contracts will be compared with alternative sources of debt financing and will likely be repaid or refinanced “to the extent that more attractive sources of debt capital are available”, Barrick said.

It is good to see Barrick clear it’s hedge book, because ABX will be the consolidator going forward in the gold industry.  It is all a matter of when, not if, at this point.

I can’t wait until next week to see how things play out for gold as we conclude this week with the highest ever weekly close for gold.

Till next time, good luck and good trading!

More Gold Market Analysis:

• Barrick Unhedges: Stock Soars
• Three Undervalued Gold/Silver Stocks
• Gold: Close To Spot
• Inflation, Deflation, Barrick and China
• Gold Rallies VS. Major Currencies

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