United States Could Lose AAA Rating

Elizabeth Kraus

The most dangerous of that is Oil, its rising and will rise much further, which means, that Gas prices and Food will be even more expensive. But, the Chinese are the cleverest these days – they are not buying movie studios like Japanese in 80’s yet, but Copper, Gold and Lithium for Electric Cars. 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. Meantime, silver futures notched a fresh 31-year high near $44.00 an ounce Tuesday. A weaker U.S. dollar index and firmer crude oil prices helped to support the higher precious metals prices Tuesday. June Comex gold last traded up $4.30 an ounce at $1,497.20. Spot gold last traded up $1.00 at $1,497.50.The fact that gold 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 eyeing the next major upside technical price objective, which is $1,600.00 an ounce. Regal Assets president Ron Fricke commented on Monday that he is expecting gold to reach $1650.00 and silver to reach $90.00 by the end of 2011. “There is no avoiding inflation it is a simple guaranteed equation when the FED is printing money inflation has to follow” he said. The still-weak overall technical posture of the U.S. dollar index remains a bullish factor for the precious metals markets. If the dollar index can produce a sustained uptrend it would be a clue that gold has put in a near-term market top. But, such seems well off in the distance at present. Crude is still trading around $107.00 a barrel, which is also an underlying bullish factor for the precious metals due to the inflationary implications. Indeed, there are widespread notions inflationary price pressures will continue to build in the world’s major economies. Many raw commodity prices are near record or multi-year highs. Meantime, central bankers of the major world economies the past two years have been flooding the financial system with printed money.

As the precious metals market bulls continue to benefit from safe-haven demand coming from several fronts, the latest development came from a surprise move on Monday by the Standard & Poors ratings agency to downgrade the outlook for U.S. government debt to negative. Also, the European Union’s smaller countries’ have their own sovereign debt crisis that is back on the front burner. Greece and Ireland are making the headlines this week, amid credit ratings downgrades and EU efforts to control the situation. And while the tensions in the Middle East and northern Africa may have eased a bit, the problems in that oil-rich region will not go away any time soon. As oil prices skyrocket, the entire global economy is predicated on the ability to use massive amounts of inexpensive oil to cheaply produce food and other goods and transport them over vast distances. Without cheap oil the whole game changes. Topsoil is being depleted at a staggering rate and key aquifers all over the world are being drained at an alarming pace.

Global food prices are already at an all-time high and they are moving up very aggressively. According to the World Bank, we at present have “44 million people around the globe who have been pushed into extreme poverty since last June because of rising food prices. At our home front, most of us Americans are so accustomed to supermarkets that are absolutely packed to the gills with massive amounts of really inexpensive food, that we cannot ever imagine life could be any other way. Inflation is at hand, boosting precious metals prices in recent month’s part by heightened inflation concerns among investors that believe it will likely continue to be the case for the foreseeable future.

Legendary bond investor Jeff Gundlach gave a presentation last summer saying U.S. is in trouble and debt default was inevitable. Nine months later, S&P is leaning toward the same conclusion. When Standard & Poor’s Rating Services Inc. Monday downgraded its outlook on U.S. debt to “negative,” it sent the U.S. government a simple message: Deal with your deficits! The rating agency expressed concern that continued dithering in Washington over how to address the $14 trillion-plus debt and ever-growing annual budget deficits would “render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns” – a hint the United States could lose its AAA rating. 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.

While the US Treasury securities went from “stable” to “negative”, it was the first time since the attack on Pearl Harbor in 1941 that the US has received a “negative” rating. If the S&P “outlook” leads to an actual “downgrade,” US borrowing costs will increase. Gundlach identified three ways out of this debt crisis: Cut, print or default–cutting alone rarely works–printing is limited when foreigners own your debt—and as for the last option, he says “some type of polite default, at a minimum, will happen.”

Dr. Marc Faber speaking with CNBC the other morning about currency markets, notably the recent movements in the euro, and the global long-term position in the dollar, and the rise of gold and silver, he said, he expects the U.S. government to raise the debt ceiling. He doesn’t see Republicans and Democrats building a budget plan in which taxes are raised and spending cut, the real recipe for deficit reduction, and has encouraged individuals, is to be their own central bank and buy gold. He warns, “We’re in a contest for the ugliest currency; I don’t think people are heavily positioned in Euros. Most people still have 70-80% of their money in USD. Huge overhang of U.S. dollars globally. If people could sell their dollars and move into something they would believe in, they would. Gold and silver are the best currencies, “because the U.S. dollar will be in the future precisely its intrinsic value, namely zero.”

Source: http://goldcoinblogger.com/united-states-could-lose-aaa-rating/#more-2959

Why Gold Breached $1,500 An Ounce

Gold breached the $1,500 an ounce threshold on Wednesday as gold's appeal as a shelter from risk increased.

Reuters reported that spot gold hit a high of $1,505.21 an ounce and was bid at $1,505.16 an ounce at 5:42 a.m. ET, against $1,493.90 late in New York on Tuesday.

The yellow metal hit a high of $1,500.70 an ounce in Hong Kong trade.

Gold's rise was also coupled with Silver hitting a 31-year high at $44.56 an ounce and was later bid at $44.51 against $43.89.

The increase in price of Gold and Silver seems inevitable now and analysts point out the following facts.

S&P's revision of America's credit rating:

Standard & Poor's recently threatened that it will downgrade United States AAA rating due to the high budget deficit. Reuters quoted Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, who said that the downgrade could result in "wholesale abandonment of dollar assets and would potentially destabilize the entire global economy."

In such a scenario, where dollar assets seem to be losing their sheen, gold shines as good store of value.

Fears of weakening dollar:

Bloomberg reported that the dollar slipped 0.8 percent against six major currencies trading at a 16-month low. The weakened dollar has lent support to gold prices. Reuters reported that weakness in dollar boosts gold's appeal as an alternative asset. Also US Federal Reserve and central banks across Europe have attempted to deal with the debt crisis by pumping more paper money which will further decline the value of currency and increase the value of gold and silver.

According to Daily Markets analyst Michael Snyder, a sustained increase in gold and oil indicates that the dollar is on the decline. Synder wrote: "... when these commodities go up in price it is a sign that the U.S. dollar is dying and that our country is getting closer to economic collapse." He further elaborates that gold and silver price hike indicates that investors are losing trust in dollar and US treasuries.

No alternative currency:

In spite of the trillion dollar deficit which has created a lot of new money, the US dollar has still been the reserve currency as there is no alternative currency. Tom Simons, a money market economist at Jefferies & Co. in New York, told Reuters: "One of the reasons why the U.S. dollar is still the reserve currency is the lack of other options, and in two years there may still be no other options."  In such a scenario, dollars' value is obviously eroding while gold and silver appear as more stable form of investments.

Higher Inflation:

Higher crude prices, which according to WSJ, are up 1 percent at $108.20 a barrel, tend to increase investments in gold as a hedge against oil-led inflation. Gold acts as good hedge against inflation, primarily when interest rates in most countries are low.

Bloomberg reported that the difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities and a trader's expectations for inflation widened to as much as 2.66 percentage points on April 20. The spread reached 2.67 percentage points on April 11, the most in three years.

Inflation concerns and higher consumer income in China and India are fuelling gold prices as well. Macquarie analyst Hayden Atkins told Reuters : "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."

Decreasing investor faith in European Bonds:

Interest rate on Greek, Irish and Portuguese bonds increased on fears that some form default is imminent. Los Angeles Times reported that annualized yield on two-year Greek bonds soared to 20.72 percent on Tuesday, up from 16.42 percent a week earlier. Portuguese two-year-note yields are at 10.14 percent versus 9.05 percent a week ago. Irish two-year yields are at 9.69 percent versus 8.66 percent. This indicates that investors are no longer looking at bonds as safe havens and are thus turning to gold.

Gold and silver rally will continue as long as oil-led inflationary pressure caused by the Middle East crisis, weakening dollar and debt crisis deepens across the globe.

Source: http://uk.ibtimes.com/articles/136456/20110420/gold-1500-silver-record-standard-poor-debt-rating-bonds-oil-price-inflation-security-risk.htm

Gold Blowout: Hits $1,500... Mania Event Could Arrive Soon..

From Bloomberg:
Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. 

The greenback dropped against the euro on speculation that the European Central Bank will continue to raise borrowing costs as some nations struggle to contain sovereign debt. Standard & Poor's yesterday revised its long-term outlook on U.S. debt to negative from stable. Gold has climbed 32 percent in the past year, and silver prices have more than doubled. 

"The U.S. credit rating will undoubtedly be lowered in the next few years," said Michael Pento, a senior economist at Euro Pacific Capital in New York. "This will mean much higher borrowing costs and a much lower currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process." 

Gold futures for June delivery rose $2.20, or 0.1 percent, to settle at $1,495.10 at 1:38 p.m. on the Comex in New York. Earlier, the price climbed as much as 0.5 percent to the record. 

Gold for immediately delivery was little changed at $1,495.35 at 2:33 p.m. New York time. Earlier, the price rose as much as 0.3 percent to an all-time high of $1,499.32. 

Pento, who correctly predicted gold's rally in the past three years, said the metal will reach $1,600 in 2011. The commodity has gained every year since 2001 on increased investment demand for raw materials. 

'Buy Hard Assets' 
"The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets," said Lim Chae Myung, a Seoul-based trader with Hyundai Futures Co. 

The Treasury Department projected that the government may reach the $14.3 trillion debt-ceiling limit as soon as mid-May and run out of options for avoiding default by early July. 

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and has pledged to buy $600 billion in Treasuries through June to stimulate growth. 

The ECB this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation. 

The Fed probably won't risk damping economic growth by raising borrowing costs rapidly, Pento said. 

S&P changed its long-term rating, citing "material risk" that policy makers won't reach an accord on "medium- and long- term budgetary challenges." 

"There certainly has always been that lingering concern over U.S. debt and the S&P people are finally identifying the threat," said Stephen Platt, an analyst at Archer Financial in Chicago. "The world is awash in liquidity. Gold's slow, grinding action upward shows the deterioration in the dollar, excess liquidity and deficit problems are still in force." 

Silver futures for May delivery rose 95.7 cents, or 2.2 percent, to close at $43.913 an ounce. After the settlement, the price reached $43.95, the highest since 1980.

Source: http://www.thedailycrux.com/content/7481/Gold/eml