February 2010 Archives

The report by the International Atomic Energy Agency appeared to put the U.N. nuclear monitor on the side of Germany, France, Britain, and Israel. These nations and other U.S. allies have disputed the conclusions of a U.S. intelligence assessment published three years ago that said Tehran appeared to have suspended such work in 2003.

The U.S. assessment itself may be revised and is being looked at again by American intelligence agencies. While U.S. officials continue to say the 2007 conclusion was valid at the time, they have not ruled out the possibility that Tehran resumed such work some time after that.

Iran denies any interest in developing nuclear arms. But the confidential report, made available to the Associated Press, said Iran's resistance to agency attempts to probe for signs of a nuclear coverup "give rise to concerns about possible military dimensions to Iran's nuclear program."

Ali Asghar Soltanieh, Iran's envoy to the IAEA, told the official IRNA news agency that the report "verified the peaceful, nonmilitary nature of Iran's nuclear activities."

But in Washington, U.S. State Department spokesman P.J. Crowley said the findings were consistent with what Secretary of State Hillary Rodham Clinton has been saying "on our ongoing concerns about Iran's activities."

The language of the report — the first written by Yukiya Amano, who became IAEA head in December — appeared to be more directly critical of Iran's refusal to cooperate with the IAEA than most of those compiled by his predecessor, Mohamed ElBaradei.

It strongly suggested that intelligence supplied by the U.S., Israel and other IAEA member states on Iran's attempts to use the cover of a civilian nuclear program to move toward a weapons program was compelling.

"The information available to the agency ... is broadly consistent and credible in terms of the technical detail, the timeframe in which the activities were conducted and the people and organizations involved," said the report, prepared for next month's IAEA board meeting.

"Altogether, this raises concerns about the possible existence in Iran of past or current undisclosed activities related to the development of a nuclear payload for a missile," said the report, which was also sent to the U.N. Security Council.

Iran is weathering three sets of Security Cuoncil sanctions meant to punish its refusal to freeze its uranium enrichment program. It's recent rejection of a plan meant to strip it of most of its enriched stockpile plus its belated acknowledgment that it had been secretly building a new enrichment facility has increased sentiment for a fourth set.

The U.S., Britain and France support such a measure, with Russia undecided and fellow permanent Security Council member China — which depends an Iran for much of its energy needs — opposed.

Listing suspect activities known to it, the agency said it sought information on high-precision detonator and other explosives experiments; studies on setting off explosions high in the atmosphere; "whether the engineering design and computer modeling studies aimed at producing a new design for the payload chamber of a missile were for a nuclear payload," and other nuclear activities with a possible military link.

"Addressing these issues is important for clarifying the agency's concerns about these activities ... which seem to have continued beyond 2004," said the report.

The allegations build on material provided to the IAEA by U.S. intelligence from a laptop computer that reportedly was smuggled out of Iran. In 2005, U.S. intelligence assessed that information as indicating that Tehran had been working on details of nuclear weapons, including missile trajectories and ideal altitudes for exploding warheads.

Thursday's 10-page IAEA report did not go into specifics, and it many of the alleged activities listed had appeared in previous reports. But a senior international official familiar with the IAEA probe of Iran told the Associated Press on condition of anonymity that the agency continued to receive new intelligence from agency member nations on activities allegedly linked to attempts to build nuclear arms.

Among the newer pieces of information being weighed by the agency and U.S. intelligence agencies is the significance of a technical document, which appears to describe a work plan for developing a neutron initiator, used to detonate a nuclear bomb.

A government official recently told the AP that document had been known to American intelligence for more than a year and had already been factored into current analysis of Iran's nuclear program.

The report also confirmed Iranian claims of being able to enrich uranium to near 20%.

The senior official said the amount enriched to 19.8% in two days of operation last week was minute. Still, it was an important development that moved Tehran closer to the ability to make weapons grade uranium, should it opt to do so.

While enriching Iran's present stockpile of low enriched uranium to 20% would take about one year, using up to 2,000 centrifuges at Tehran's underground Natanz facility, any next step — moving from 20 to 90% — would take only half a year and between 500-1,000 centrifuges.

Iran has already amassed about 2 tons of low-enriched uranium — more than enough for further enrichment into material for one warhead. An IAEA-endorsed plan foresees taking 70% of that material to Russia for 20-percent enrichment and then to France for processing into fuel rods for Tehran's research reactor.

The proposal was endorsed by world powers because it would ensure a continued supply of medical isotopes from the reactor for Iranian cancer patients while at the same time delaying Iran's ability to further enrich to weapons grade uranium by stripping it of most of its low-enriched stockpile.

But the Islamic Republic rejected the plan and said it would make the reactor fuel on its own — a technical feat that world powers assert Iran is incapable of.

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Ali Akbar Salehi, who is also Iran's vice president, said Tehran intends to use its more advanced centrifuges at the new sites, a decision that could add to growing concerns in the West over Tehran's program because the technology would allow Iran to accelerate the pace of its program.

In November, Iran approved plans to build 10 industrial scale uranium enrichment facilities, a dramatic expansion of the program in defiance of U.N. demands it halt enrichment.

"Hopefully, we may begin construction of two new enrichment sites in the next Iranian year as ordered by the president," the semiofficial ISNA quoted Salehi as saying Monday. The Iranian calendar year begins March 21.

"As of now, our enrichment sites ... will be built inside mountains," Salehi added, according to ISNA.

The decision appears to be aimed at shielding the facilities from possible attack. Israel considers Iran a strategic threat because of its nuclear program, and has hinted at the possibility of a military strike against Iran if world pressure does not halt Tehran's nuclear efforts.

Iran's enrichment of uranium is the central concern of the United States and other nations negotiating with the country over its disputed nuclear program. The technology can be used to generate fuel for power plants and isotopes for medical purposes, but it can also be used to make weapons-grade uranium for atomic bombs.

Tehran insists its enrichment work is only meant for peaceful purposes, but Washington and its allies are suspicious of Iran's intentions and worry the program masks efforts to build a nuclear weapon.

Tehran has already said it may install its more advanced centrifuges at its small enrichment site near the holy city of Qom, which was made public last September. The new centrifuges are more advanced than the decades-old P-1 type centrifuges in use at the country's main enrichment facility at Natanz, in central Iran.

Centrifuges are machines used to enrich uranium — a technology that can produce fuel for power plants or materials for a nuclear weapon. Uranium enriched to a low level is used to produce fuel, but further enrichment makes it suitable for use in building nuclear arms.

The new models will be able to enrich uranium much faster than the old ones — which means Iran could amass more material in a shorter space of time that could be turned into the fissile core of missiles, should Tehran choose to do so.

Tehran produced its first batch of uranium enriched to a higher level earlier this month, prompting the U.S. and its allies to seek new U.N. Security Council sanctions.

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Mineweb
Author: Maria Sutt
Posted:  Thursday , 11 Feb 2010


A confluence of technical factors suggest gold price support between $1,019/oz and $1,025/oz as outlook remains bearish, but CIC's purchase of SPDR Gold Trust shares may represent the start of a more long term strategy.

China's sovereign wealth fund, the China Investment Corporation has taken a $155 million stake in the SPDR Gold Trust. This underlines China's voracious appetite for commodities and a desire to diversify its vast holdings of foreign exchange reserves which consist primarily of US dollars . This has led it to make its first investments in commodity-related exchange-traded funds and in the SPDR Gold Trust, the largest gold ETF. The stake of 1.45m shares is worth about $155.6m, or 0.4 per cent of the SPDR's assets. It is a small investment considering the massive size of the Chinese sovereign wealth fund of some $300 billion but may represent the start of a more long term strategy to diversify into gold.

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Feb. 23 (Bloomberg) -- U.S. “problem” banks climbed to the highest level in 17 years, signaling failures may accelerate in 2010, the Federal Deposit Insurance Corp. said. Bank lending had the biggest retreat in more than six decades.

The FDIC included 702 banks with $402.8 billion in assets on the confidential list as of Dec. 31, a 27 percent increase from 552 banks with $345.9 billion in assets at the end of the third quarter, the regulator said today in a quarterly report. “Problem” banks account for 8.7 percent of all U.S. lenders.

“The growth in the number and assets of institutions on the problem list points to a likely rise in the number of failures,” FDIC Chairman Sheila Bair said today at a Washington news conference. “Both the problem list and bank failures tend to lag behind economic recovery.”

Regulators are closing banks at the fastest pace since 1992, seizing 20 lenders through seven weeks this year after shutting 140 institutions in 2009 amid loan losses stemming from the collapse of the home and commercial mortgage market. A total of 28 banks failed in 2007 and 2008 combined.

“The pace is going to pick up this year and is going to exceed where we were last year,” Bair told reporters.

Banks showed “incremental” improvement in the fourth quarter, Bair said. Overall profit was $914 million, compared with a $38 billion loss in the year-earlier period. Net charge- offs slowed for a third consecutive quarter, the agency said.

“It’s not that this was a strong quarter,” Bair said. “It’s simply that everything was so bad last year.”

Income Slips

Banks reported combined net income of $12.5 billion for 2009, compared with $4.5 billion in 2008. The industry reported net income of $100 billion in 2007.

Industry lending fell as banks seek to emerge from the worst financial crisis since the Great Depression. Loans fell 7.5 percent in 2009, the largest annual decline since 1942, Bair said.

Sun Trust Banks Inc., the seventh-biggest U.S. bank by deposits, reported commercial lending in 2009 declined 21 percent, or about $8.5 billion, from the previous year, according to a regulatory filing today.

The lending declines reflect tightened standards imposed on borrowers combined with a drop in consumer demand, the FDIC said. Larger institutions accounted for 90 percent of the lending retreat, the agency said.

“The large banks need to step up to the plate” to increase lending, Bair told reporters.

Assets Decline

Industry assets declined 5.3 percent to $731.7 billion for the year, the largest annual drop in the since the FDIC was created more than 75 years ago, the agency said.

Banks, especially smaller community lenders, are “bumping along the bottom” of the credit cycle, Bair said.

“A wrenching experience of this magnitude takes time to get over and while there are signs of improvement it’s still a very difficult time for a lot of institutions,” Eugene Ludwig, chief executive officer at Promontory Financial Group and former Comptroller of the Currency, said today in a Bloomberg Television interview.

Provisions for loan losses fell 14 percent to $61.1 billion in the fourth quarter from the year-earlier quarter, the FDIC said.

The agency insures deposits at 8,012 institutions with $13.1 trillion in assets. The insurance fund is maintained to reimburse customers for deposits of as much as $250,000 when a bank fails.

Insurance Fund Deficit

The insurance fund deficit widened to $20.9 billion from $8.2 billion in the previous quarter, when the account had its first negative balance since 1992. The FDIC last year required banks to prepay three years of premiums, raising $46 billion on Dec. 30, the agency said today. The fourth-quarter balance doesn’t reflect the payments, as premiums are to be phased in each quarter during the next three years, the agency said.

The agency also has the authority to tap a $500 billion credit line with the Treasury Department.

The FDIC may gain power in the overhaul of the financial regulatory system. House and Senate lawmakers are considering expanding the agency’s authority to wind down systemically important, non-bank financial institutions, such as insurer American International Group Inc., which contributed to the collapse of the financial system in 2008.

Bair has requested the power to deal with the failing firms. The House passed a bill giving Bair the new authority while in the Senate, Banking Chairman Christopher J. Dodd, a Connecticut Democrat, is drafting the language of its bill.

A draft of the Senate bill will be put together “in the coming days,” Dodd said yesterday in Washington.

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NEW YORK (The Street) -- Investment buying drove gold demand higher in 2009, according to full-year results from the World Gold Council.

In an independent report by GFMS Limited for the World Gold Council, investment demand rose 7% vs. a year ago, making it the only subsector of gold demand to report growth. The advent of ETFs like SPDR Gold Shares  iShares Comex Gold Trust and ETFS Gold Trust have made it easier for hedge funds, institutions and average investors to invest in gold. According to the survey, ETF demand was 85% higher than in 2008, which represents an inflow of $17.7 billion. These results starkly contrast to industrial and jewelry demand both down 16% and 20%, respectively with the exception of China, which saw an increase of 30.3 tons in total consumer demand.

Overall identifiable gold demand fell 11% during 2009 as gold prices reached record highs across all currencies, $1,227 an ounce in U.S. dollars. "One of the most important [trends] is the diversity of demand ... in dollar terms demand was actually maintained at just over $100 billion for the full year," says George Milling-Stanley, managing director of the World Gold Council. "Demand was diverse geographically [as well] with China coming along to rival India as the largest consumer in the world." India demand was down 33% from 712.6 tons to 480 tons, but just fourth-quarter jewelry consumption rose 8% from the previous quarter leading many analysts to believe that demand from India is slowly improving as the global economy stabilizes.

According to Milling-Stanley, 2010 total gold demand will keep improving as long as the world avoids a double-dip recession. He is watching consumption figures from China, India and the U.S. as well as the growth rate of investment demand. The combination of recovering physical demand as well as rising investment demand "would be the ideal paradigm for the gold price."

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NEW YORK (MarketWatch) -- Gold futures finished 2.7% higher on Tuesday, benefiting from a slide in the dollar against the euro as concerns about Greece's debt ebbed. The market showed little immediate reaction to news of a bomb exploding just outside of the Athens office of J.P. Morgan Chase & Co. There were no injuries, according to initial reports. Gold for April delivery finished up $29.80, or 2.7%, at $1,119.80 an ounce at the New York Mercantile Exchange.

February 16, 2010

NEW YORK (The Street) --  Gold prices soared today as the U.S. dollar weakened.

Gold for April delivery was adding $28 to $1,118 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,121.90 and as low as $1,092. The U.S. dollar index was slipping 0.86% to $79.68.

Risk appetite pushed gold prices higher as U.S. investors returned after a long holiday weekend. Investors typically buy gold contracts on the first trading day of the week after closing out some of their positions before the weekend. Also supporting gold's rally are continued talks over a European Union bailout for Greece. Reportedly the eurozone countries are giving the country a month to improve its high debt levels before forcing Greece to impose tax increases and spending cuts. Details on what kind of financial support the EU could eventually provide the debt-laden country are still uncertain and any failure to resolve the crisis will lead to a decline in the euro and weigh on gold prices.

For now market sentiment remains positive and trading conditions stay thin. Barclays reported a 2009 profit that more than doubled which fueled risk appetite and Chinese markets are closed for New Year celebrations. Thinner markets can lead to higher and more volatile price swings.

But some analysts are optimistic. "[This is] the end of the correction," Peter Grandich, chief commentator on Agoracom.com. "We need to get above $1,125 to officially, technically put it behind us ... we need two trading days above [this level] ... today I think we should hold most of these gains. The rest of the week I think we're going to see the shorts give one last chance to stop the rally, but the surprises in gold ... will be mostly to the upside."

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Mon February 15, 2010 6:36 pm

INTERNATIONAL. The price of gold rose sharply in early London trade Monday, recording its highest-ever Gold Fix in Euros as global stock markets rose, government bonds slipped, and the major currencies were little changed.

Touching $1,100 an ounce for the first time in 7 trading days, the Gold Price in Dollars stood 5.2% above early February's's 14-week low at Us$1,045 an ounce.

Financial markets in China – where the government raised banking reserve requirements for the second time this year on Friday – were closed for the first of four public holidays to celebrate the Lunar New Year.

US markets will re-open on Tuesday after Presidents Day.

"We are looking at a possible change in the intermediate trend," says Phil Smith in his Reuters India Technical Gold analysis, "but it is early days and the chart still indicates downside potential.

"Gold still has a high correlation with stocks and a high negative correlation with the Dollar."

US-Dollar Gold Prices and the S&P 500 stock index have only moved in opposite directions on nine of the 29 trading days in 2010 so far, with a one-month correlation of +0.93 by Friday's finish.

That figure would stand at +1.00 if they moved perfectly in lockstep together.

Gold and the Euro, on the other hand, have moved in opposite directions vs. the Dollar on 10 occasions, with a one-month correlation of +0.83.

Losing more than 10% against the Dollar in the last nine weeks, the European single currency today held steady near US$1.3600.

The Gold Price in Euros meantime came within 0.5% of Deember's all-time intraday high, recording its best-ever London Gold Fix above €807 an ounce.

"Gold has attractions for those managers of private institutional funds who are wary not only of the Dollar but of Sterling, the Yen and the Euro," writes senior columnist John Plender in the Financial Times.

"Gold, by contrast, has no fiscal dimension...And for gold investors in the current period of exceptionally low interest rates, the opportunity cost – the income forgone on other investment opportunities – is unusually low."

New data released after Friday's close by US regulator the Commodity Futures Trading Commission showed a further retreat from the record speculative "froth" in Gold Futures and options reached as the metal hit all-time highs against almost all major currencies in late autumn 2009.

Amongst speculative traders, the net long position of bullish minus bearish bets shrank 14% in the week-ending Tuesday night (February 9th). Now equivalent to 694 tonnes of gold, this "non-commercial" net long has now fallen at its fastest pace month-on-month since the Lehman Bros.' collapse of fall 2008.

Bullishness amongst "commercial traders", in contrast – meaning those gold miners, refineries and bullion wholesalers who use the Gold Futures market to hedge their trading book – jumped to a 10-month high of almost one contract in every three they held last week.

Just shy of the commercial traders' five-year average, it rose from 27.5% to 30.1%.

"The week ahead looks to be important for precious metals," said one London dealer's note this morning, "as gold, platinum and palladium all have trend-lines converging. The inevitable break of one of these levels will give us a good technical signal."

Silver prices meantime held flat early Monday, trading tight around last week's finish of US$15.55 per ounce.

Crude oil ticked higher but the broader commodities market fell after Japan reported a smaller-than-expected rise in Dec.'s industrial production.

Following Greek government complaints that "speculators" were driving the country's bond prices lower and maliciously selling the Euro for profit – claims dismissed as "piffle" by The Economist magazine – Madrid's El Pais newspaper said yesterday that Spain's secret service is investigating "speculative attacks" on the nation's fiscal position.

"Greece must take extra measures to make its recovery plan credible," said European Central Bank president Jean-Claude Trichet this morning ahead of Tuesday's key meeting of finance ministers.

Last week's European Union summit failed to produce any concrete action on Greece's plunging government bonds and yawning public-purse deficit.

Fifty-three per cent of German voters surveyed this weekend by Emnid pollsters for the Bild am Sonntag newspaper said Greece should be expelled from the Eurozone "if necessary".

"Solving this problem cannot be about aid for Greece," announced coalition-government member Otto Fricke to Welt am Sonntag.

"If anything, it's about keeping any damage away from German tax payers."

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FEBRUARY 8, 2010, 4:17 P.M. ET

A slump in financial stocks sent the Dow Jones Industrial Average to its first close below 10000 in three months as concerns about the global economy and U.S. interest-rate policy simmered.

The blue-chip measure fell 103.84 points, or 1%, to 9908.39, near its intraday low in a session that saw selling accelerate into the closing bell. The Dow was led lower by a 3.5% decline in Bank of America, while American Express fell 2.8%, Travelers fell 2.5%, and J.P. Morgan Chase fell 1.6%.

Investors weighed a report in The Wall Street Journal that Federal Reserve Chairman Ben Bernanke will begin laying the groundwork for credit tightening later in the year, bringing to a close a period of historically low interest rates that have made it easier for ailing banks to book big profits.

Market participants also kept a close eye on financial instability in Europe, where issues surrounding the creditworthiness of several countries have recently surfaced, sending shockwaves through the financial markets.

The Dow slipped below 10000 in each of the previous two trading sessions but in each case was rescued from a finish below the milestone as bargain hunters swooped in before the closing bell.

Traders said that the round-number level, which the Dow has repeatedly crossed over the past decade, still carries some psychological significance in its own right. Under the current circumstances, many are also curious whether it might be a stepping stone on the way to a 10% correction for the market, which many Wall Street veterans say is overdue.

The Dow is now down 7.6% from its 15-month high set on Jan. 19.

"This is the first time in three months that I think we've moved into a lower trading range," said portfolio manager Uri Landesman, of ING Investment Management. "Clearly, the sovereign-debt worries are first and foremost for the market right now. We're going to need some more clarity on that before we establish a new trend."

Keith W. Springer, president of Capital Financial Advisory Services, noted that market watchers had been saying for months that a pullback has been necessary, but now that the rally in stocks has come to a pause for several weeks, it has been met with increased fear and concern.

"Every time you have a market run-up everybody goes, 'We need a 10% correction,' and as soon as the market drops 5%, you have everybody crying," Mr. Springer said. 

The S&P fell 0.9% to 1056.74, led by a 2.2% decline in its financial category. All its other sectors posted declines as well, with the industrials, materials, and utilities categories down more than 1% each.

The Russell 2000 declined 1.1%. The technology-heavy Nasdaq Composite fell 0.7%.

Among stocks to watch, Rubbermaid rose 1.7% after Morgan Stanley lifted its investment rating on the stock to "overweight" from "equal weight."

Home Depot rose 2.2% after Morgan Stanley upgraded the home-improvement chain's shares to an "overweight" rating from "equal weight."

Hasbro leapt 12.7% after the toy company posted a 77% jump in fourth-quarter profit, exceeding analysts' forecasts. Hasbro also said it expects to grow revenue and earnings this year.

CIT Group slipped 0.5% after the commercial lender named ex-Merrill Lynch CEO John Thain as its new leader.

CVS Caremark jumped 5.3% after the pharmacy-services company reported an 11% rise in net profit, topping expectations.

United Parcel Service fell 1% after announcing plans to furlough at least 300 of its pilots, citing a continued need for belt-tightening due to the slow pace of the U.S. economic recovery.

In other markets, the dollar weakened against both the euro and the Japanese yen. Crude-oil futures climbed and gold futures rose, snapping a three-day losing streak. Treasurys were little changed, with the 10-year note off 1/32 to yield 3.573%.

—Kristina Peterson and Donna Kardos Yesalavich contributed to this article

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FEBRUARY 4, 2010, 5:00 P.M. ET

Fears about the global economy and sovereign credit hammered stocks Thursday, causing the Dow Jones Industrial Average to briefly cross below 10000, though it settled slightly above the mark.

Other markets gyrated as well, with commodities reeling while Treasury prices and the dollar rose as investors sought safety.

The Dow fell 268.37 points, its worst one-day point slide since April 20, 2009. The measure was off 2.6% for the day to end at 10002.18, a three-month low.

Throughout the day, investor fretted over signs that Europe's governments are struggling to finance their debts and that America's employment picture may not be improving as much as expected.

"We may be in a run-for-the-hills scenario," in the sovereign-debt markets, said Ben Inker, director of asset allocation at the portfolio-management firm GMO. "You really do have to ask the question, what is the purpose of government bonds in my portfolio? If their purpose is to be the low-risk asset, what do we do if we don't see them as low-risk and there aren't yields to compensate us for that?"

In the credit markets, the cost of insuring the debt of eurozone members with large budget deficits against default rose, dashing hopes that the European Commission's qualified endorsement of Greece's budget plan would calm investor fears.

The moves followed news that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only €300 million ($417 million) of treasury bills at an auction, compared with an indicative offer of €500 million; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012.

Worries about Europe caused the euro to hit an eight-month low against the dollar. That helped to propel the broad U.S. Dollar Index to trade 0.7% higher.

"Anyone who thought the euro was going to be the next reserve currency has got to be questioning that this week," said Duncan Richardson, executive vice president at Eaton Vance Management in Boston. "It's not ready for prime time yet."

In U.S. economic news, initial claims for jobless benefits unexpectedly rose last week. The four-week moving average, which aims to smooth volatility in the data, also increased, sending a troublesome signal ahead of monthly payrolls data due Friday morning.

Twenty-nine of the Dow's 30 components fell, with Bank of America suffering the most, off 5% after New York Attorney General Andrew Cuomo filed civil securities fraud charges against former bank executives Kenneth Lewis and Joseph Price over their handling of the Merrill Lynch acquisition.

The only Dow stock to post gains was Cisco Systems, up 0.4% as investors responded to a better-than-expected profit report.

The Nasdaq Composite Index was off 2.9%. The S&P 500 fell 3.1%, hurt by declines in every sector. Financials were the weakest, off 4.2% as a group.

MasterCard slid 10.3% after the credit-card issuer reported a smaller than expected rise in quarterly earnings. Visa, which reported results after the close on Wednesday, gained 0.6% as its results bested analysts' forecasts.

The Chicago Board Options Exchange's Volatility Index, which measures investors' nervousness about upcoming market swings, leapt 20.9%.

The dollar's bounce hurt the prices of commodities traded globally in terms of the U.S. currency. Oil futures slid fell $3.84 a barrel, or 4.99% to $73.14 in New York, the lowest settlement since Jan. 29 and the biggest one-day loss in crude since July 29. Gold contracts fell almost $47 to $1,065.50 per ounce. The Dow Jones-UBS Commodity Index was off 2.2%.

Treasury prices climbed, with the 10-year note up 26/32 to yield 3.606%.

—Donna Kardos Yesalavich and Kristina Peterson contributed to this article.

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Feb. 4 (Bloomberg) -- Stocks plunged around the globe, with the MSCI World Index dropping the most in four months, and commodities tumbled on concern an unexpected increase in U.S. jobless claims and growing sovereign debt will derail the economic recovery. The euro slid to the lowest level since May.

The MSCI World Index of 23 developed markets sank 2.4 percent, the most since Oct. 1, while the Standard & Poor’s 500 Index fell 2.4 percent at 2:31 p.m. in New York and benchmark equity indexes for Brazil, Portugal and Spain plummeted the most in at least 11 months. Oil lost 5 percent, the biggest drop in six months, and gold tumbled the most since 2008 as a stronger dollar curbed demand for commodities as alternative investments. The euro sank 1 percent to $1.3759, the lowest since May 21.

U.S. equities added to the global slide as initial applications for unemployment insurance unexpectedly increased to 480,000 last week and companies from MasterCard Inc. to Monster Worldwide Inc. reported earnings that trailed analyst estimates. European shares extended earlier declines triggered when a disappointing Spanish bond auction added to concern some European nations will struggle to finance their budget deficits.

“Look at those initial claims,” said Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages $400 billion. “Unemployed people don’t spend money. That means the growth we’ve seen is not sustainable until people get jobs. Also, there are lots of uncertainties on a global basis. That’s certainly negative news for the market. I wouldn’t be surprised if we started to see dramatic increases in volatility again.”

Stocks Sink

Retreating shares in the MSCI World outnumbered rising stocks by almost six to one and by 16 to one on the New York Stock Exchange. Only 17 companies in the S&P 500 advanced and all but one of the 30 stocks in the Dow Jones Industrial Average declined. Monster Worldwide Inc., which offers help-wanted advertisements on the Internet, plunged 16 percent in its biggest decline since 2002. MasterCard lost 8.6 percent, the most since May 2009.

Brazil’s Bovespa index slumped as much as 5 percent as every company in the 63-stock gauge retreated.

Treasuries gained as investors fled to assets perceived as being the most safe, sending the yield on the benchmark 10-year note down 10 basis points to 3.61 percent.

The rally in U.S. government debt came even as Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

‘No Brainer’

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Warren Buffett’s Berkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp. Berkshire, which is taking on debt to fund the $26 billion takeover, was cut to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal for Burlington Northern. The company’s Class B shares slid 2.3 percent.

Europe’s Dow Jones Stoxx 600 Index sank 2.7 percent, the most since November, as national benchmarks from Britain to Germany tumbled more than 2 percent. Portugal’s PSI-20 Index slumped 5 percent and Spain’s IBEX 35 slid 5.9, the biggest plunges in 15 months for both.

Deficit Concerns

Greece’s ASE Index lost 3.3 percent on concern plans for a strike by the country’s biggest union show Prime Minister George Papandreou may not win enough support in parliament for spending reductions.

The European Union’s pledge yesterday to back Greece’s plan to cut the region’s biggest budget deficit prompted investors to shun securities of countries with the worst shortfalls.

Portugal led declines in government bonds, with the premium investors demand to hold the nation’s two-year securities instead of benchmark German bunds widening to 156 basis points, the biggest difference since 1997. Spain sold 2.5 billion euros ($3.5 billion) of three-year securities today to yield 2.63 percent, compared with 2.14 percent the last time the notes were issued Dec. 3.

Banco Santander SA, the biggest Spanish bank, slumped 9.4 percent.

Credit-default swaps on Portugal’s government debt soared 27 basis points to a record 223, according to CMA DataVision prices. Contracts on Greece jumped 14 basis points to 411.5, Spain increased 13 basis points to 165, Italy was up 7 at 138 and Ireland climbed 6.5 basis points to 169.5.

‘Focus Is Shifting’

“The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking.

European Central Bank President Jean-Claude Trichet said he is “confident” that Greece is moving in the right direction to cut its deficit. He spoke at a press briefing after the ECB left its benchmark interest rate unchanged at a record 1 percent.

The MSCI Emerging Markets Index dropped 2.8 percent, snapping a three-day rally. Poland’s WIG 20 Index fell 3.9 percent after the European Commission said the government’s budget gap may widen to a 15-year high of 7.5 percent of gross domestic product in 2010, from 6.4 percent last year, without “sizeable” measures.

The dollar gained against 15 of 16 major counterparts, adding at least 1.5 percent versus the Brazilian real, New Zealand dollar and South African rand. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.6 percent to 79.876, the highest since July.

Gold fell the most since 2008, with April futures losing 4.1 percent to $1,066.60 an ounce in New York.

Crude oil for March delivery fell 5.6 percent to $72.68 a barrel, headed for the biggest daily drop since July 29.

Copper lost 3.2 percent to $2.8775 a pound in New York, while aluminum, nickel and lead slumped at least 1.9 percent in London.

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Feb. 4 (Bloomberg) -- Eric Sprott, whose Sprott Hedge Fund increased more than fivefold in nine years, said gold may rise to $1,500 an ounce this year and $2,000 within two years as the U.S. government takes measures to counter the credit crunch.

“With quantitative easing and the financial problems we have, I suspect that the gold price goes up from here,” Sprott said today in an interview in Toronto, where he announced financial support for Canadian athletes.

“If you tell me how much quantitative easing there is, I’ll tell you where the gold price will go, but I have no trouble imagining we get to $1,500 this year and to $2,000 in two years.”

Sprott said in a Dec. 18 interview that the Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize. Gold rose 22 percent in New York in the two years ended yesterday as investors bought the precious metal as a safe haven during the global economic recession.

Gold futures for April delivery fell $44.30, or 4 percent, to $1,067.70 an ounce at 12:01 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest decline since Dec. 4.

Sprott’s C$1.39 billion ($1.3 billion) Sprott Canadian Equity Fund, which has gained about 18 percent in the past six months through yesterday, has 34 percent of its portfolio in mining stocks and another 39 percent in bullion as of Nov. 30.

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Copyrighted, Fortune.

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WASHINGTON – Facing a politically excruciating vote, House Democratic leaders are counting on new budget deficit curbs to help smooth the way for a bill allowing the government to go $1.9 trillion deeper into debt over the next year — or about $6,000 more for every U.S. resident.

The debt measure set for a House vote Thursday would raise the cap on federal borrowing to $14.3 trillion. That's enough to keep Congress from having to vote again before the November elections on an issue that is feeding a sense among voters that the government is spending too much and putting future generations under a mountain of debt to do it.

Already, the accumulated debt amounts to $40,000 per person. And the debt is increasingly held by foreign nations such as China.

Passage of the bill would send it to President Barack Obama, who will sign it to avoid a first-ever, market-rattling default on U.S. obligations. Democrats barely passed it through the Senate last week over a unanimous "no" vote from GOP members present.

To ease its passage, Democrats attached tougher budget rules designed to curb a spiraling upward annual deficit — projected by Obama to hit a record $1.56 trillion for the budget year ending Sept. 30. The new rules would require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

If the rules are broken, the White House budget office would force automatic cuts to programs like Medicare, farm subsidies and veterans' pensions. Current rules lack such teeth and have commonly been waived over the past few years at a cost of almost $1 trillion.

Skeptics say lawmakers also will find ways around the new rules fairly easily. Congress, for example, can declare some spending an "emergency" — a likely scenario for votes later this month to extend jobless benefits for the long-term unemployed.

And, indeed, there already are exceptions to the new rules, such as for extending former President George W. Bush's middle-class tax cuts past their expiration a year from now. That would add $1.4 trillion to the federal debt over the next decade.

In agreement with Obama's budget earlier this week, there is no exception for taxpayers in the two highest tax brackets whose marginal rates are due to rise by 3 percent or 4.6 percent to a pre-Bush maximum 39.6 percent next January.

But some new White House initiatives, such as doubling the child care tax credit for families earning less than $85,000, also would have to live within the rules, as would continuing subsidies for laid-off workers to buy health insurance — unless lawmakers make another exception.

The so-called pay-as-you-go rules have been a mantra with conservative "Blue Dog" Democrats in the House, who insisted they wouldn't vote to raise the debt ceiling without them.

"We don't have a choice," said Rep. John Tanner, D-Tenn. "We are on an unsustainable march toward a fiscal Armageddon."

Obama's budget projects the government's debt doubling to $26 trillion over the next decade. It offers few solutions for seriously closing the gap other than promising to appoint a bipartisan commission to come up with a plan to address the problem.

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Peter Koven, Financial Post  Published: Thursday, February 04, 2010

There are certain drivers to the gold price that everyone talks about: U.S. dollar weakness, rising investment demand, producer de-hedging, and reduced central bank selling. Citigroup Global Markets analyst Alan Heap focuses on a different one: China.

In a note to clients, he called China the "most important source" of future demand growth in gold. And it is not just from the central bank--he noted that in 2009, retail investment demand in China was "particularly" strong as overall Chinese demand rose 10%.

The focus on Chinese gold demand comes amid renewed concerns about asset price inflation in the country. Recently, the Chinese government has taken steps to curb bank lending after letting it run completely out of control in 2009. That stoked inflation fears and strengthened the case for citizens to own gold.

Of course, Asian central banks are not expected to ignore gold, either. Mr. Heap noted that Chinese and Indian central banks remain extremely underweight gold, with only 1.5% and 4.1% of their total reserves in the precious metal. That compares to the European average of 54%.

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Feb. 4 (Bloomberg) -- Gold will climb to $1,500 an ounce and silver will top $25 this year as the dollar loses its haven status, according to Jeffrey Nichols, managing director of American Precious Metals Advisors.

“Fear of sovereign debt defaults by one or another European country could benefit the dollar and temporarily hurt gold,” New York-based Nichols said in an e-mail to Bloomberg yesterday. “But gold is the ultimate safe haven and the dollar, without the support of sound monetary and fiscal policies, is a depreciating asset.”

Gold surged to a record $1,226.56 an ounce on Dec. 3 and has slipped 9.5 percent since then as the Dollar Index, a six- currency gauge of the greenback’s strength, rallied amid concern that sovereign debt problems in the 16-nation euro zone would spread.

The cost of insuring against losses on Portuguese government debt surged to a record yesterday and central bank Governor Vitor Constancio said cutting the budget deficit will require “difficult” measures.

Gold for immediate delivery was little changed at $1,110.10 an ounce at 10:43 a.m. in Singapore after declining as much as 0.3 percent earlier. Spot silver was little changed at $16.3875 an ounce.

“As in the past year, these occasional reversals will lead some to believe the party is over for precious metals,” said Nichols, a precious metals analyst for more than 25 years. “But I believe periods of weakness will be opportunities for those underweighted in gold and silver to augment their holdings of physical metal.”

Chinese Interest

Gold advanced 24 percent last year as the Federal Reserve held interest rates near zero to spur growth, pushing the Dollar Index 4.2 percent lower. The U.S. government has boosted spending to combat the global recession, pushing the nation’s marketable debt to an unprecedented $7.27 trillion.

“It baffles me that so many foreign exchange traders and institutional investors around the world think of the dollar as a safe haven at a time of currency market turmoil and continued U.S. economic and financial market crisis,” he said.

“It is only a matter of time before the dollar’s safe- haven appeal diminishes and gold regains its status as the ultimate safe haven,” Nichols said.

Growing Chinese interest in gold, increased central bank bullion purchases and a worsening outlook for production should all boost the metal, he added.

Nichols estimated China’s private-sector investment gold purchases totaled as much as 100 tons, or 3.2 million ounces, last year and said it could rise by more than 50 percent in 2010 as growing incomes and inflationary expectations give “more people both the means and the motivation to invest in the metal.”

Jewelry sales in China, which is bought both for adornment and as a store of wealth, totaled 350 tons last year and could increase by 100 tons or more this year, he said.

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by Alix Steel, 02/02/10 - 11:01 AM EST

NEW YORK  --  Gold prices were rising Tuesday as the U.S. dollar continued to struggle.



Gold for April delivery was rallying $7.60 to $1,112.60 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,117.40 and as low as $1,099.50. The U.S. dollar index was slipping 0.14% to $79.08.

Adding to dollar weakness was the news that the Reserve Bank of Australia held interest rates steady at 3.75% after most analysts predicted the central bank would raise rates. Lower global interest rates increase the likelihood of inflation which is bullish for gold prices as investors buy the precious metal as an alternative asset.

"I think gold in the next week or so will trade between $1,100 and $1,145 [an ounce]," says Jeffrey Nichols, Managing Director of American Precious Metals Advisors. "Near $1,100 we've seen in the last week more buying coming from the Asian markets ... ahead of the Chinese New Year ... [which] triggers buying not just of investment products but also jewelry."

Silver prices were rising 4 cents to $16.70 while copper was up 1 cent to $3.09. Platinum and palladium were conservatively stronger at $1,561 and $439, respectively. Many analysts speculate if investment enthusiasm has tired out after the initial excitement over the first two U.S. physically backed platinum and palladium ETFs, ETFS Physical Platinum and ETFS Physical Palladium.

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Obama's $3.8 Trillion Budget Forecasts a $1.6 Trillion Shortfall for 2010 Before It Drops

By Jonathan Weisman,

JANUARY 31, 2010

WASHINGTON—President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.

The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year's $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.

To get the deficit down by the middle of the decade, Mr. Obama will be relying on some cuts that have previously been proposed without success, on cooperation from a wary Congress and on a yet-to-be set up debt commission to suggest politically difficult choices.

At the same time, Mr. Obama is under pressure to address the country's continued high unemployment rate. And he will propose increases in spending for priorities such as education and domestic scientific research. All of this raises questions about how much progress the president is likely to make in trying to fulfill his pledge to halve by 2013 the $1.3 trillion deficit he inherited.

The budget embodies Mr. Obama's larger predicament of needing to contain the deficit without harming the economy, which remains fragile. The deficit has become a major political issue, as antigovernment activists swing independents against what they describe as Mr. Obama's big-government policies and Republicans try to regain the mantle of fiscal responsibility after the Bush years saw surpluses swing to deficits. 

Republicans have said they aren't likely to cooperate with Mr. Obama on his deficit-reduction approach, opposing tax increases even as they attack Democrats for proposing cuts to Medicare. Meanwhile, senior Democrats in Congress have shown themselves reluctant to cut spending with unemployment hovering at 10%.

Under the Obama budget, this year's $1.6 trillion deficit would fall to $1.3 trillion in the fiscal year that begins Oct. 1. It would drop to $700 billion in 2013 and 2014, the budget projects, on the assumption that the economy recovers, tax receipts start rising again with incomes, and stimulus spending drops off.

The deficit would drop to the equivalent of 5% of GDP in 2013 through expected economic improvement alone. Policy changes proposed by the president, such as a proposed freeze in nonsecurity domestic spending, would shave an additional percentage point.

Mr. Obama plans to rely on a new debt commission to come up with recommendations on how to meet his promise to bring the figure down to the equivalent of 3% of GDP by 2015, according to budget analysts briefed on the proposal.

The deficit is forecast to stabilize at $800 billion between fiscal years 2015 and 2018 before beginning to rise again, according to the White House projections. The projected rise is due to the retirement of the baby boomers, which is expected to result in increased spending on Medicare and Social Security.

With unemployment still at 10%, the president is finding it difficult to meet his promise to halve the $1.3 trillion deficit he inherited by January 2013. Job creation has become his top priority, and he is showing no sign of skimping on tax cuts and spending measures in the short term.

A bipartisan 18-member debt commission would forward any deficit-reduction proposals they come up with to Congress after this year's midterm elections. Issues it would face would include how to cut the deficit further in the short term and how to rein in long-term growth of entitlement programs, such as Medicare, Medicaid and Social Security. Commission members would have to come up with between $180 billion and $190 billion in cuts to meet the president's target.

Congressional leaders have promised the president that they would submit the panel's recommendations to an up-or-down vote in the lame-duck session of Congress, after the elections but before the newly elected House and Senate take office.

White House officials say they are ready to make some tough choices to get the deficit under control. White House communications director Dan Pfeiffer wrote on the White House Web site this weekend that the president's budget would propose to terminate or cut back more than 120 programs, saving about $20 billion in the fiscal year beginning in October.

The proposals include consolidating 38 education programs into 11, cutting the National Park Service's Save America's Treasures and Preserve America grant program, and eliminating the Advanced Earned Income Tax Credit, which allows low-wage workers to get tax-credit checks in advance but which is rife with abuse, White House officials say. The Brownfields Economic Development Initiative, which converts decayed former industrial sites to new uses, would be cut, and payments ended to states to restore abandoned mines, many of which have been long cleaned up.

But some of those efforts, such as the abandoned mines and Advanced Earned Income Tax Credit cuts, were proposed last year in Mr. Obama's first budget. They were ignored by Congress. Other planned cuts are presidential perennials, attempted without success by Presidents Bill Clinton and George W. Bush before Mr. Obama, such as eliminating whaling partnerships and implementing deep cuts to the Army Corps of Engineers.

The president is also expected to call for halting the National Aeronautics and Space Administration's plan to return astronauts to the moon, a tough sell in vote-rich Florida.

"There's no question there's a range of domestic discretionary that can be scaled back," said one Democratic budget analyst. "Politically, they will never get through."

Meantime, the president will ask for large increases in spending on education and civilian scientific research, according to analysts who have been briefed on the budget plans.

Mainly, the president plans to rely on the budget commission and budget rules in an effort to try to force Congress's hand, budget analysts say. The budget assumes the enactment of pay-as-you-go rules that would force any tax cut or spending increase to be offset by tax hikes or spending cuts.

Isabel Sawhill, a budget expert at the Brookings Institution, criticized the president's goal— a deficit of 3% of GDP long after the recession has ended—saying it amounted to "defining deficits down."

"The pay-go rules will make it more difficult for Congress to dig the hole deeper but won't affect currently projected red ink; and the commission will likely be a paper tiger," she wrote on Friday. "In short, these proposals will still leave us with unsustainable deficits as far as the eye can see. It is depressing to discover that we can no longer even aspire to balance the budget once the recession is over."

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