March 2, 2010 (Bloomberg) -- Gold rose to the highest price in almost six weeks in New York as concern about Greece’s debt increased demand for bullion as an alternative to holding currency.

The Greek government said it will announce new deficit cuts tomorrow. Greek government workers called a 24-hour strike on March 16 as Prime Minister George Papandreou prepares to meet German Chancellor Angela Merkel on March 5. European finance ministers the past few weeks put more pressure on Greece to rein in its budget deficit.

Gold is “security against any financial turmoil in any country,” said Wallace Ng, Hong Kong-based executive director of commodity derivatives at Fortis Nederland. “People are worried about national debt of the European countries, that’s why they sell euro and sell sterling. But if they are worried about the situation, they shouldn’t sell gold.”

Gold futures for April delivery added $16.60, or 1.5 percent, to $1,134.90 an ounce on the New York Mercantile Exchange’s Comex unit at 11:37 a.m. local time and earlier today gained to $1,135.40, the highest price since Jan. 20. Gold for immediate delivery in London was 1.4 percent higher at $1,134.53.

The metal increased to $1,126.50 an ounce in the afternoon “fixing” in London, used by some mining companies to sell production, from $1,116 at this morning’s fixing. Spot prices reached a record 836.63 euros today, while the metal climbed to an all-time high of 759.94 pounds.

The dollar has jumped 5.7 percent this year against the euro as concern about Greece’s ability to reduce its debt cut demand for assets denominated in the single European currency. The greenback was little changed today, paring earlier gains of as much as 0.9 percent. Gold futures reached a record $1,227.50 an ounce on Dec. 3 and are up 3.4 percent this year.

Austerity Plan

A spokesman for Greece’s government said the nation will await reaction to the cuts before selling any bonds. European Union Monetary Affairs Commissioner Olli Rehn yesterday said Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short.

“Gold is holding up well in a strong-dollar environment, supported by sovereign-debt worries,” analysts including Filip Petersson at Swedish bank SEB AB’s commodity unit said in a report. “Continued high liquidity, low interest rates, sovereign-debt and exit-strategy uncertainties as well as longer-term dollar skepticism are all likely to fuel demand and limit downside risk for gold prices.”

Bullion climbed to a record in pounds as the currency fell against the dollar amid concern Britons may fail to elect a government with a large enough majority to cut the country’s deficit. Sterling-denominated gold prices have advanced 12 percent this year, while the slide in the euro has pushed euro- priced bullion up 9 percent.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, were unchanged for a fourth day yesterday at 1,106.99 metric tons, according to the company’s Web site.

Silver for May delivery in New York climbed as much as 2.6 percent to $16.895 an ounce, the highest price since Feb. 3, and was last at $16.865. Platinum for April delivery rose to a one- month high of $1,570.70 an ounce, and was last up 1.7 percent at $1,570.70. Palladium for June delivery added 1.4 percent to $444.15 an ounce.

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by Myra P. Saefong
Friday, February 26, 2010

Precious metal and U.S. dollar start to trade in tandem, but for how long?

Gold's been quite the rebel lately -- and investors are giving it much more than a passing glance.

The precious metal recently broke from its usual inverse relationship with the U.S. dollar to move more in sync with the climb in the greenback, showing off its prowess as a resilient world favorite.

"Gold moving up with the dollar is a sign of tremendous strength in gold," said Sam Kirtley, chief executive officer of SK Options Trading.

Gold futures prices are up nearly 5% from this month's low of $1,050 an ounce in New York. The U.S. dollar index, which measures the U.S. unit against a trade-weighted basket of six major currencies, has also climbed, gaining more than 2% from its low in February.

"Both gold and the dollar have been trending upward since early this month," said Brien Lundin, editor of Gold Newsletter. "If gold and the dollar can decouple, [that would] hold important implications for the metal going forward."

And those implications are likely to be good for gold. A decoupling in the relationship would mean that "investors are not only buying gold as a U.S. dollar hedge but as a safe-haven asset too, and buying for this reason is so heavy it is outweighing the selling from U.S. dollar strength," said Kirtley.

But the direction of the precious metal and dollar are destined to diverge again -- and when they do, gold may or may not come out a winner.

The global markets are currently focusing on Europe's troubles, feeding a rally in the dollar, yet gold is still trading at around $1,100, said Kirtley. "So if gold can make gains, or even just tread water whilst the U.S. dollar rallies, it will soar if the greenback was to begin to drop."

On the other hand, "even though gold prices have been moving up with gold over the last month, if the U.S. dollar continues rallying, this will eventually flow through to have a negative impact on gold," he said. "In that case, "the biggest possible risk for gold at present is a strong, sustained rally in the U.S. dollar."

Eyes on the Metal

For now, however, the gold market's apparently changing relationship with the dollar deserves a closer look because it can offer hints for gold's next direction.

After all, "we are so used to looking at gold rising when the dollar falls that the concept of gold rising when the dollar rises seems to break the rules," Julian Phillips and Peter Spina, editors at GoldForecaster.com, said in a weekly newsletter sent Tuesday.

In most eyes, it has.

Most daily commentaries blame the inverse relationship between the gold and the dollar as the main reason for gold's moves, said Phillips and Spina.

And that "normal linkage" has been decoupled because of "worries over fiat currencies," leading traders to establish gold positions as protection against an unraveling of fiat currencies, said Charles Nedoss, a metals analyst at Olympus Futures. "This can be referred to as the 'fear trade'."

What's happening now is truly putting gold's durability on display.

"Gold's ability to rise in most major currencies is suggesting people are choosing it as an alternative to paper currencies," said Peter Grandich, a metals writer at Agoracom.com. And people are choosing the precious metal "because of the huge amount of debt the western world has piled up and the belief the only way out from under it is to reflate."

Consider, as well, that around the world, central banks have recently become net buyers of gold. That's likely just the "first inning" of these purchases, said Patrick Kerr, a managing director at Amerifutures Commodities & Options.

The central banks can buy gold now at these price levels or they can do it "later at higher prices, perhaps much higher prices," he said. The "smart" countries looking to buy gold are taking immediate action since "each day that goes by without as much gold as they can get reduces their national wealth as the fiat currencies are devalued."

There are "definitely changes brewing worldwide" and "gold is in transition right now," said Kerr.

"In a world where governments are openly devaluing their fiat currencies in an attempt to ease increasing stimulus debts and increase exports, central banks are figuring out the best way to preserve their wealth: the U.S. dollar and gold. Look for them to trade up together," he said.

However, gold may have an advantage.

Gijsbert Groenewegen, a managing partner at Silver Arrow Capital Management, points out that the dollar, which he said is likely to go higher purely for technical reasons covering the carry trade, "will not transform from a funding currency to an investment currency."

Carry trades involve borrowing funds in lower-yielding currencies, such as the dollar, and investing them in assets denominated in higher-yielding currencies. Carry trades are less attractive to investors as their appetite for risk wanes, and they liquidate their positions to avoid losses.

When investors unwinding those dollar-carry trades and are left holding the greenback, they will question why they're holding the currency when the U.S. economy is "in shambles," he said. "At that stage, investors will massively buy gold and silver."

Currency Fix

For now, investors are still interested in the dollar.

"Capital is fleeing from troubled currencies," said Phillips and Spina. "They turn to the dollar because it is the world's prime currency and one, at the moment, less in danger because of this role."

However, the fundamentals for the greenback are pointing to "trouble," Phillips and Spina warned. "When the crises really hit the dollar, all currencies ... of the monetary system [except China's yuan] will become volatile," he said.

As shown by the weakness in the euro, there are "structural dangers facing the paper currency system itself," they said. "The attempt by the eurozone to integrate so many of these politically, economically, culturally separate sovereign states was bound to suffer structural damage when a rough storm hit."

Now that the structural problems of the eurozone are exposed, "it is clear that both [the euro and dollar] face problems that should cause the gold price to rise," Phillips said in emailed comments.

Given that, "it is now in most nations' national interests to hold the gold they have in the face of the worst storm the currency system will ever see," Phillips and Spina said. "As a matter of prudence, gold is being acquired quietly, but in volume."

Warning Signs

Still, some may even argue that the dollar and gold haven't really decoupled at all.

"I don't think gold is moving up with the dollar, though there are individual days when this does occur," said Mark Leibovit, chief market strategist for VRTrader.com.

Right now, he thinks gold is following a "cyclical pattern for weakness into possibly mid-March." Afterwards, he expects prices to stage a strong rally that may take gold to new highs this summer.

Ned Schmidt, editor of the Value View Gold Report, wasn't quite so optimistic. "In a world where U.S. dollars are becoming relatively rare, little reason exists for the value of the dollar to fall against other currencies," he said, emphasizing that he doesn't see any decoupling between the dollar and gold.

"No inflation in the U.S. and lack of money supply growth means no inflation will arise," so the dollar will not crash and gold "will have one more rally before hitting lows in the coming summer," he said.

Then again, it may be good idea for investors to buy, if gold hits those lows between now and summer.

"Lack of money supply growth in the U.S. will force the Federal Reserve to take action by fall," Schmidt said. "That will send gold to new highs."

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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.

"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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By Phil Mattingly

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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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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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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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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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%.

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%.

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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%.

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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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By Rob Delaney

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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