Gold Rallying to $1,500 as Soros’s Bubble Inflates

By Nicholas Larkin, August 31, 2010, 9:30 AM EDT 

(Adds latest forecasts in fourth-to-last paragraph.)

Aug. 31 (Bloomberg) -- Investors are accumulating enough bullion to fill Switzerland’s vaults twice over as gold’s most-accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds.

Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high.

“Either a swift economic recovery or further dismal economic performance should bring new buyers into the market,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. “A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven.”

Investors added to their gold holdings through ETPs for three consecutive weeks, reflecting demand for assets typically favored in times of financial stress. Two-year Treasury yields fell to a record low of 0.4542 percent on Aug. 24 and the yen reached a 15-year high against the dollar the same day. Pacific Investment Management Co., Deutsche Bank AG and Citigroup Inc. have announced or are offering funds or traded instruments designed to guard against sudden market declines.

Swiss Reserves

Buyers accumulated almost 278 tons of gold in 2010 across 10 ETPs tracked by Bloomberg, worth $10.4 billion at this year’s average price. Total holdings are almost twice Switzerland’s official reserves of 1,040 tons, data compiled by the World Gold Council show. ETP holdings reached a record 2,078 tons July 19, data compiled by Bloomberg show.

One of the biggest buyers has been Soros Fund Management LLC, which oversees about $25 billion. George Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, described gold as “the ultimate asset bubble” at the World Economic Forum’s January meeting in Davos, Switzerland. Buying at the start of a bubble is “rational,” he said.

Soros Fund Management sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to an Aug. 16 Securities and Exchange Commission filing. That still left a holding of 5.24 million shares, equal to almost 16 tons. Soros declined to comment on the change, through a spokesman.

Accurate Forecasters

Gold may rise as high as $1,500 next year, 21 percent more than the $1,240 traded at 1:45 p.m. in London, according to the median in a Bloomberg survey of 29 analysts, traders and investors. Dan Brebner, an analyst at Deutsche Bank in London who is the most accurate forecaster so far this year, says the metal may reach $1,550.

Bullion gained 13 percent since January, beating an 8.4 percent return on Treasuries, an 8 percent decline in the MSCI World Index of shares and the 10 percent slump in the S&P GSCI Total Return Index of 24 raw materials.

Investors are concerned the recovery is weakening. Sales of new U.S. homes fell to an all-time low in July, the Commerce Department said Aug. 25. The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously calculated, the department said Aug. 27. U.S. growth will slow to 2.8 percent next year, compared with 3 percent in 2010, according to the median of as many as 69 economists’ forecasts compiled by Bloomberg.

‘Fear Another Crisis’

People “fear another crisis and so they will diversify into gold,” said Thorsten Proettel, an analyst at Landesbank Baden-Wurttemberg in Stuttgart, Germany, who was also the most- accurate forecaster in the first quarter. He expects gold to trade as high as $1,350 next year. Anne-Laure Tremblay, an analyst at BNP Paribas SA in London whose forecast was also the best in the period, is estimating a 2011 high of $1,370.

Bullion’s four-fold rally since the end of 2000 has attracted fund managers Eric Mindich and John Paulson. Mindich’s $13 billion Eton Park Capital Management LP bought almost 6.58 million shares of the SPDR Gold Trust in the second quarter, according to an Aug. 16 SEC filing. That’s equal to about 20 tons of gold. Paulson & Co., managing $31 billion, held 31.5 million shares in the SPDR Gold Trust, making it the largest investor, an Aug. 16 SEC filing shows.

Astor Sells

Astor Asset Management LLC, with about $570 million of assets, once had as much as 10 percent of its holdings in the SPDR Gold Trust, according to Bryan Novak, managing director of the Chicago-based company. The firm sold the stake at the end of last year for a profit and now owns silver, copper and a multicommodity ETP.

“We don’t believe we’re heading into a double-dip recession,” Novak said. “Gold carries some risk because a lot of people are piling into the trade.”

A plunge in equities may spur investors to sell their gold holdings to raise cash, he said. The Standard & Poor’s 500 Index dropped 14 percent since this year’s peak on April 26.

Investment demand of 1,901 tons last year exceeded jewelry consumption of 1,759 tons for the first time in three decades, according to London-based researcher GFMS Ltd. That trend continued into the second quarter, with total demand advancing 36 percent to 1,050.3 tons, the WGC in London said Aug. 25.

Newmont Mining

Earnings at Newmont Mining Corp., the largest U.S. gold producer, may increase 47 percent to $1.93 billion in 2010, according to the mean estimate of seven analysts’ forecasts compiled by Bloomberg. The 16-member Philadelphia Stock Exchange Gold and Silver Index advanced 8.7 percent since January.

Bets on gold may pay off even if economic recoveries strengthen. World growth will be 4.6 percent this year, the most since 2007, the International Monetary Fund said July 7. China, the second-biggest bullion buyer after India, will expand 10 percent in 2010, compared with 9.1 percent last year, according to the median of 24 economists’ forecasts compiled by Bloomberg.

Gold imports by India this year may total 600 tons to 625 tons, compared with an estimated 480 tons to 485 tons last year, according to Anjani Sinha, chief executive officer of National Spot Exchange Ltd., the country’s biggest bourse for trading physical gold.

While growth may curb investors’ appetite for gold to protect their wealth, it may also bolster purchases of jewelry, reviving demand that fell to a 21-year low in 2009, according to Jochen Hitzfeld, an analyst at UniCredit SpA in Munich and the best forecaster in the last three quarters. He’s predicting a 2011 high of $1,350.

More Bullish

Analysts are getting more bullish. Their median estimate for next year’s average gold price climbed 6.2 percent since June 16 to $1,247.50, according to 17 forecasts compiled by Bloomberg. That compares with a 2.6 percent gain in silver forecasts, 0.6 percent advance in platinum predictions and a 0.5 percent jump in their palladium outlook.

Gold averaged $1,166.43 since January, heading for a ninth consecutive year of higher average prices. That’s the longest streak since at least 1920.

Options traders are also betting on prices rallying. The biggest position is in call options expiring in November 2010, giving traders the right to buy the metal at $1,500 by then. The next biggest position is the call option for $2,000 expiring in November 2011, data from the Comex exchange in New York show.

“Investors’ interest is still growing and still hasn’t reached a reasonable part of their portfolio,” UniCredit’s Hitzfeld said. “Gold is still an under-owned asset, that’s perfectly clear.”

Gold prices had been selling off in early-morning trading Tuesday, but investors changed their tune to buy gold at "discount" prices as a safe-haven asset. Volume also picked up as momentum built, at 91,000 for the December futures contract on the Comex.

Despite prices settling near its record high at $1,250 an ounce, there still could be a correction. High gold prices could curb physical demand from India in September, traditionally a strong gold jewelry buying period, which could squash gold's rally.

Gold could also be subject to short-term profit taking. Prices have rallied 4% in August while the Dow Jones Industrial Average lost 4.3%, which makes the precious metal a prime target for investors looking to book profits.

In general, investors appeared hesitant to take new long positions before the long Labor Day weekend in the U.S. as the general mood in world markets turned fairly pessimistic. Japan's Nikkei index fell almost 326 points as global economic fears persisted and the yen continued its ascent. Investors were just as skeptical looking toward this week's flurry of U.S. economic data.

"I think we're in a case of bad news is good news for gold for the moment," Jeffrey Friedman, senior market strategist at Lind-Waldock. "I'm a buyer of dips ... the trend is still up ... the range is probably $1,225 to $1,242 [an ounce]."

For the long term, many analysts are still bullish on gold despite its 10-year rally. A new data report by Bloomberg showed that analysts expect the December contract for gold to rise, on average, to $1,500 in 2011.

But gold prices will have to get through Friday's U.S. jobs number to break out either to the upside or downside. The unemployment report is overshadowing all markets right now, including gold. A disappointing number might force investors to sell gold for cash but might also trigger another wave of safe-haven buying.

By Rita Nazareth and Lynn Thomasson

Aug. 30 (Bloomberg) -- Meyer Shields says earnings at Warren Buffett’s Berkshire Hathaway Inc. will increase the most since 2006 this year. He’s also telling investors to sell the shares because the economic recovery is weakening.

The Stifel Nicolaus & Co. analyst has plenty of company. For the first time since at least 1997, fewer than 29 percent of ratings for stocks covered by brokerages worldwide are “buys,” according to 159,919 recommendations compiled by Bloomberg. Analysts are turning more pessimistic even as they push up estimates for profit growth among Standard & Poor’s 500 Index companies to 36 percent, the highest since 1988.

“People are sitting on a fence,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion. “When I go and talk to our equity analysts, they look at the companies and say, ‘Boy these companies look pretty good, earnings are OK, they have plenty of cash. What if there’s a double dip?’”

Conflicting announcements two minutes apart by Intel Corp. and Federal Reserve Chairman Ben S. Bernanke last week underscore the challenges facing analysts and investors even as stocks trade at a lower price relative to estimated earnings than almost any time on record. Intel cut its third-quarter revenue forecast, citing weaker-than-expected consumer demand. Bernanke said the central bank “will do all that it can” to safeguard the recovery.

Stand Still

More than 54 percent of ratings for companies in the U.S., U.K., Japan and Brazil are “holds,” the highest level since Bloomberg began tracking the data in 1997. While the proportion of “sell” ratings in the U.S. has fallen to 5.1 percent, half the level of 2003, the total combined with “holds” reached a record 71 percent last month, the data show.

“A ‘neutral’ usually means historically a ‘sell,’” said Kevin Rendino, a money manager at New York-based BlackRock Inc., which oversees about $3.2 trillion. “Ratings chase stock prices. When everyone becomes risk averse, they don’t want to stick their necks out.”

While pessimism is increasing, analysts say profits for companies in the MSCI World Index of 24 developed nations will gain 28 percent in the next year. The MSCI index trades at 11.5 times forecast earnings, data compiled by Bloomberg show. Except for the six months starting October 2008, the index has never traded below 12.5 times reported earnings.

Topping Estimates

Trading on Aug. 27 illustrated the mixed messages facing investors this year.

Stock-index futures jumped at 8:30 a.m. when the Commerce Department revised its second-quarter economic growth estimate to a 1.6 percent annual pace, below the initial assessment of 2.4 percent reported last month, yet beating the 1.4 percent median forecast from a Bloomberg survey of 81 economists. The market opened higher, with the S&P 500 advancing 0.2 percent.

The gains were erased just before 10 a.m. when Intel said consumers were curtailing computer purchases. Two minutes later, Bernanke sparked a 1.7 percent rally in the S&P 500 by predicting an improving economy in 2011.

“This market has been whipsawing us back and forth,” said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $641 billion. “People are interpreting each and every data point either for validation or for repudiation of the view they hold.”

Economic Surprise

Gains on Aug. 27 trimmed the S&P 500’s weekly decline to 0.7 percent, closing at 1,064.59. The gauge fell 1.5 percent to 1,048.92 at 4 p.m. in New York.

The benchmark gauge for U.S. equities is down 4.5 percent in 2010 after Europe’s debt crisis wiped out an increase of as much as 9.2 percent. Citigroup’s Economic Surprise Index showing how much U.S. economic data is differing from forecasts fell to minus 64 on Aug. 25, the lowest since January 2009.

Analysts from Stifel’s Shields to Oppenheimer & Co.’s Rick Schafer and Anthony Gallo at Wells Fargo Securities LLC are advising clients against buying shares of Berkshire, Intel and C.H. Robinson Worldwide Inc. even after boosting profit forecasts.

Shields says his biggest concern is that joblessness will weaken consumer spending, which accounts for 70 percent of the American economy. The unemployment rate held at 9.5 percent for a second month in July and has fallen less than a percentage point from the 26-year high of 10.1 percent last year, according to the Labor Department in Washington.

‘Much Worse’

“It’s negativity on the economy and therefore the ‘sell’ rating on Berkshire,” Shields said in an interview from Baltimore. “Employment is much worse than what people have anticipated. That uncertainty is contributing to weaker-than- desired employment and if I had to pick one single factor that underlies our negativity, that’s what it is.”

Shields forecast on Aug. 9 that Omaha, Nebraska-based Berkshire will earn $6,381 a share for all of 2010, an increase from his previous estimate of $5,866. The company’s Class A shares, which carry greater voting rights, have rallied 19 percent to $118,100 this year. The Class B stock of the firm, whose holdings in railroads, insurers and newspapers make it a proxy for the U.S. economy, rose 20 percent to $78.78 in 2010.

E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, says rising “hold” and “sell” recommendations are bullish because it means investors can find bargains and wait for analysts to change their minds. He favors shares of technology makers and industrial companies.

‘A Little Nervous’

“Everybody is a little nervous to go out on the edge,” said Stone, whose firm oversees $103 billion. “That’s a positive. It gives the opportunity to either buy stuff that should be somewhere else. Maybe it’s a good company that’s being dragged down by the overall market.”

Profits for companies in the S&P 500 are forecast to reach $83.34 a share in 2010 and climb 22 percent in the next 12 months to a record $92.15 a share. Even slowing economic growth wouldn’t mean a stock-market crash, according to Laszlo Birinyi of Birinyi Associates Inc., which cut its year-end estimate for the S&P 500 to 1,225 from 1,325 on Aug. 25.

“While joblessness continues and the economy sputters, we would not necessarily ignore, but would instead downplay the vocal economists who believe another recession is upcoming,” the firm wrote. “There is a significant difference between the stock market and the economy. While both might be housed in the same building, they live on different floors.”

Bad Debt

Higher earnings don’t always make shares attractive to investors. At American Express Co., improving profits reflect the reversal of previous bad-debt reserves rather than a revival in consumer spending, said Jason Arnold, an analyst at RBC Capital Markets. He raised his 2010 earnings estimate for the New York-based company to $2.89 a share from $2.54 a share on Aug. 1.

“The estimate increase doesn’t reflect our outlook for a dramatic improvement in fundamentals,” Arnold said in an interview from San Francisco. Earnings are growing “not because they are seeing a tremendous pick-up in core performance, but because they are releasing credit reserves and are cutting expenses. It’s been more of a sugar high,” he said.

The likelihood that Intel’s profit margins will narrow should keep investors from buying the stock, according to Schafer at Oppenheimer. The Denver-based analyst boosted his 2010 profit projection by 12 percent and raised his 2011 forecast by 13 percent on July 14, while telling clients to hold the shares.

‘Peak Earnings’

“I’m no macroeconomist, but you’re certainly seeing data that suggests that things are slowing down,” Schafer said in an interview Aug. 26, the day before Intel lowered its sales forecast. “We’re underweight semis as a sector. We have seen peak earnings and most likely peak gross margins for this particular cycle.”

Schafer cut his 2010 and 2011 earnings estimates by 12 percent and 30 percent following Intel’s Aug. 27 announcement. The outlook from the Santa Clara, California-based company, whose chips run more than 80 percent of the world’s PCs, adds to evidence that the U.S. economic recovery is losing steam.

Wells Fargo analyst Anthony Gallo raised his 2010 profit forecast for C.H. Robinson last month and kept the “market perform” rating he has had since February. The Baltimore-based analyst said the transportation services company had earnings growth even as margins contract. He sees the shares as “fairly valued” given the economic uncertainties.

‘Hard to Envision’

“A catalyst on the horizon? It’s hard to envision one right now,” Gallo said in an interview. “We’ve seen a moderation in the rate of growth. We expect that to continue into the end of the year.” While expense cuts could help the Eden Prairie, Minnesota-based company, “it’s hard to see how that would be enough to continue to push estimates higher.”

The possibility revenue will disappoint investors is reason to sell shares of Dallas-based Texas Instruments Inc., said Daniel A. Berenbaum, who covers the stock for Auriga USA LLC, a New York-based research and trading company owned by Spanish investment firm Auriga Securities S.V. Sales at the second- largest U.S. chipmaker will surge 34 percent this year, rise 3 percent in 2011 and slump 1 percent in 2012, based on analysts’ estimates tracked by Bloomberg.

“The higher it goes now, the lower it could potentially go in the future,” said Berenbaum, who boosted his sales and earnings estimates for the technology maker last month. “I’m not inclined to raise my ‘sell’ rating.”

Lockstep

Wall Street firms are becoming more reluctant to award “buy” ratings because U.S. stocks are moving in lockstep with the S&P 500, limiting the opportunity for analysts to identify relative value, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC.

The correlation between the U.S. equity benchmark and its individual members was 0.81 in the 50 trading days through July 7 and has since remained close to that level, Birinyi data show. That’s almost twice the historical average of 0.45 from the past 30 years. A higher number means moves in individual stocks are increasingly related to the direction of the index as a whole and not on their own earnings prospects or valuation, the Westport, Connecticut-based research firm said.

“There’s a high amount of uncertainty,” said Newark, New Jersey-based Praveen, whose firm oversees $690 billion. “Analysts are trying not to stick out their necks. They are probably not really sure about how the economy is going to play out over the next couple of months. They are using that as an excuse to play it safe.”

Aug 26 2010 10:07AM

The World Gold Council’s latest quarterly recap of the gold market confirms much of the big-picture story we already knew: demand is strong (up 36 percent from a year earlier), supply (up 18 percent) is not keeping pace, and global economic worries are driving investors toward gold as a safe haven.

Drilling down a little further turns up a number of interesting points:

• Investment demand in the second quarter of 2010 (red bar in the chart) more than doubled compared to the same period in 2009, and accounted for more than half of total global demand. Investors bought the most gold since the first quarter of 2009, at the depths of the Great Recession.
  
  
• Demand from exchange-traded funds rose more than 400 percent to about 291 metric tons (9.4 million troy ounces), and retail investors bought about 30 percent more bars, coins and gold in other forms.
  
  
• Industrial demand is approaching pre-recession levels. The WGC credits the growing popularity of new consumer devices like iPads, Kindle electronic readers and netbook computers with driving this trend.
  
  
• Jewelry demand is down only slightly year-over-year, even though the gold price has risen from the $900+ per ounce range to $1,200 per ounce. In Hong Kong, for example, jewelry demand rose more than 30 percent in physical terms and nearly 80 percent in U.S. dollar terms.

The WGC says it foresees strong gold demand through the end of 2010, with India and China leading the way, along with concerns about economic recovery and the massive sovereign debt loads in Western Europe and elsewhere.

So far August has been an unusually good month for gold – as of midday today, the price is up 6 percent this month, where historically the August price tends to rise only 2.5 percent above July.

We recently wrote about gold seasonality – September, just a few days away now, is on average the best month for both gold and gold equities.  

We also have written about gold in the context of the global economic uncertainty and also about China's important role in future gold demand.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

by Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

George Soros has slashed the amount of money he is willing to gamble on the fortunes of the US stock market in the second quarter as market volatility increased.

George Soros' fund has approximately $25bn under management PhotoReuters

24 August 2010, 5:24 p.m.
By Daniela Cambone
Of Kitco News

"If there was no question about the gold being there, you think they would be anxious to prove gold is there," said U.S. Rep. Ron Paul of the Federal Reserve.

Texas (Kitco News) -- U.S. Rep.  Ron Paul , R-Tex., plans to introduce a new bill next year that will allow for an audit of US gold reserves, he told Kitco News in an exclusive interview.

Paul dropped the news in the interview, indicating that the bill still does not have an official name yet but will be unveiled at the start of the new U.S. Congress.

“If there was no question about the gold being there, you think they would be anxious to prove gold is there,” he said of the Federal Reserve.

This is not the first time the congressman has made his pitch. “In the early 1980s when I was on the gold commission, I asked them to recommend to the Congress that they audit the gold reserves – we had 17 members of the commission and 15 voted not to the audit,” said Paul. “I think there was only one decent audit done 50 years ago,” he said.  

Though Paul did not say whether there is any truth to claims that there is no gold in Fort Knox or the New York Federal Reserve, he said, “I think it is a possibility.”

“If we ever get around to deciding we should use gold in relationship to our currency we ought to know how much is there,” said Paul.  “Our Federal Reserve admits to nothing and they should prove all the gold is there. There is a reason to be suspicious and even if you are not suspicious why wouldn’t you have an audit?” he said.  

The gold audit follows his crusade last year looking to audit the Federal Reserve, which he says is the chief culprit behind the economic crisis.

“I don’t think the Federal Reserve should exist – it would be best for congress to exert their responsibilities and that is find out what they are doing”' said Paul.  "It is an ominous amount of power they have to create money out of thin air and being the reserve currency of the world and be able to finance runaway spending whether it is for welfare or warfare; it seems so strange that we have been so complacent not to even look at the books.  If we knew exactly what they were doing, who they were taking care of, there would be a growing momentum to reassess the whole system,” he told Kitco News.

Before the creation of the Federal Reserve however, the US saw 16 recessions from 1850 to 1910; they averaged 22 months long. During this time, the U.S. was in recession 60 out of 91 months. Many would argue that the severity of these recessions led to the creation of the Federal Reserve System. 

“I think they would be exaggerating what happened before 1913,” Paul responds. “We had some panics …they were usually short and there were no long depressions,” he said.  “The Fed creates the bubbles and they are much worse since 1913, if you think of the size of the government and the valuation of the dollar, we are down to about a 2 cent dollar from the 1913 dollar.”

Paul said everyone accuses him of wanting the gold standard but he said he doesn't accept that.  “I accept the idea of a gold coin standard and I think we can do much better than what we had," he said. "There was a lot that they did pre-Fed that was not exactly right but we never had a disastrous loss of purchasing power long-term, we didn’t have a great depression, we didn’t have the 1970s with stagflation and we wouldn’t have what we have right now.”

Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar said Paul.

Paul’s solution is to not replace the Fed with anything.  “It would make the dollar strong… who wants money to be devalued? I want a strong dollar and if it were equivalent to gold it would remain strong.”

Paul also said he wants to legalize the freedom for people to choose.  “My proposal for now is to legalize the constitution to use gold and silver as legal tender in a parallel standard and have it compete with paper money. If people get tired of using the paper standard they can deal in gold or silver,” he said.

On the topic of gold price manipulation, Paul said, “I think it is probably true.”

“I am not the one to lay out proof of this, others have done a lot of investigation.  One of the reasons I don’t dwell on that is they are not going to listen to us" he said. "But I think it is very important somebody talks about it and emphasizes it just as a warning to be careful; you don’t have to only anticipate what the markets are doing, but you have to anticipate what the government is doing.”  

The best example of manipulating the ratio of gold to paper would have been from the late 1950s to 1971, said Paul. “We printed money like currency, we printed too many dollars against the gold, so they said, ‘we will take your gold.’ …if they are capable of that they are capable of doing this as well, because they don’t want their cover blown, ” said Paul.  If the markets are saying not to trust paper money, they have to do everything they can to “destroy gold,” said Paul.

Recounting a visit with Paul Volcker, former Chairman of the Fed Reserve, Rep. Paul said the Chairman walked straight into the room, went immediately to his staffer and asked what the price of gold was. “They know gold is important. I think they are quite willing to manipulate it. That is the only way they can maintain this false illusion about gold.”

“If they are involved isn’t it pretty amazing what has happened in past year? What will happen if they throw in the towel?” said Paul.  

The current economic situation is very healthy for gold,  said Paul. “You see people rushing just to put their money in any place …they don’t even care about making money.”

New Regulations
 
When asked what regulations the Congressman is currently worried about, he said, “All of them.” However, Paul specifically points to the 1099 provision, a portion of the health-care act, passed earlier in the year.  “For every transaction of over $600, gold dealers have to fill out a form, it is a lot of paperwork,” said the congressman. Entities must file a Form 1099 with the Internal Revenue Service whenever they make transactions paying out $600 a year to another party.

US economy

It is going to continue to go downhill said Paul on the US economy. “I don’t believe in a double dip, I believe we have single-dip and it has been continuous.”

“The only reason it doesn’t look so bad is if you spend $2 trillion dollars and you have a $5 hundred billion increase in some GDP figures, you didn’t get much for your trillion dollars but it might improve your statistics,  so it was a fake recovery.”

As for another presidency run, Paul says it is too early to tell.

By Claudia Assis, Aug. 25, 2010, 1:01 a.m. EDT

SAN FRANCISCO (MarketWatch) -- Gold demand reached 1,050.3 metric tons in the second quarter, 36% higher than the same quarter in 2009, mostly thanks to soaring investment demand, a report from the World Gold Council showed early Wednesday.

Economic uncertainties around the world are expected to provide continued support for gold, said the council, an industry group backed by leading gold mining companies.

These concerns led investors to gobble up gold in the second quarter, the World Gold Council said. Demand for gold-backed exchange-traded funds rose 414% compared to the second quarter of 2009. Retail investment demand rose 29% in the same period.

Investors are making the switch from buying gold only in times of crisis to having gold as part of a diversified portfolio, said Jason Toussaint, a managing director for the World Gold Council.

"Gold is the ultimate diversifier," he said. "Correlation to U.S. equities is zero" in addition to its proven ability to not only hold value in times of crisis but increase.

Gold prices hit a record high June 18, when the most-active contract settled at $1,258.30 an ounce in the New York Mercantile Exchange. Prices settled at $1,233.40 an ounce on Tuesday, a 2% decline.

But the high prices for most of the second quarter hurt jewelry demand, which declined 5% compared to the same quarter a year earlier.

Second-quarter gold supplies reached 1,131 metric tons, 18% higher on-year, the World Gold Council said.

Recycled gold coming onto the market rose 35% to 496 metric tons as the rising price of the metal "encouraged consumers to sell their existing holdings," the group said.

Industrial usage of gold rose 14%, mainly thanks to a 24% increase in demand for gold in the electronics sector. Gold is used in a variety of consumer electronics, including smartphones.

India and China, traditionally big gold consumers, are expected to continue to provide the "main thrust" of demand, but European retail investors "appear to be making an increasingly important contribution to investment demand," the World Gold Council said.

That's because ongoing worries about sovereign debt levels in Europe and a wobbly euro have helped drive demand, the group said.

Meanwhile, support for gold prices from China is expected to rise in light of the recent government proposal to develop the Chinese domestic gold market.

"This further reinforces the WGC's view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply," the group said.

From Asia to Europe to the U.S. stocks were down, economic data was negative and growth worries persisted driving investors into gold. In Asia, the yen hit a 15-year high vs. the dollar which didn't bode well for the future of exports, which will now be more expensive to buy in other currencies. In Europe, Standard & Poor's downgraded Ireland's credit rating to AA- with a negative outlook. In the U.S., existing-home sales plummeted more than 27% to the lowest level in 10 years as the government's new homebuyer tax credit expired, and durable goods orders slipped in July.

Gold rallied 0.5% Tuesday as spooked investors sold stocks for gold. The trend is set to continue Wednesday as new-home sales in July fell 12% furthering fears of a double dip in the housing sector. Volume is also thin which will keep prices volatile and gold will look to the Federal Reserve's two-day meeting with world bankers in Wyoming, which begins Friday, for any signs of additional monetary easing.

"Every time the Fed has said something it's had a negative effect on general markets," says George Gero, vice president of global futures at RBC Capital Markets, which would spark a flight to safety into gold. For a short-term trade range, Gero is looking at "$1,175 as a bottom support, $1,250 for basically a real resistance level ... but the inside markets looks to me like its $1,200-$1,225."

Also adding fuel to the gold bull fire was the second quarter Gold Demand Trend report from the World Gold Council which said gold demand grew 36%. Overall demand was helped by a 118% surge in identifiable investment demand which offset a 5% decline in jewelry demand.

The gold market has come roaring back from early profit-taking selling pressure Tuesday morning, as bargain-hunting traders "bought the dip" and fresh safe-haven buying interest entered the market. December Comex gold last traded up $7.70 an ounce at $1,236.10. The U.S. dollar index has sold off after scoring early gains Tuesday, which is also supporting fresh buying interest in gold. The U.S. and European stock markets are lower Tuesday, and the U.S. Treasury markets are soaring, which underscores investors are moving to a keener risk-averse mode, which is bullish for gold. Technically, December gold futures are scoring a big and bullish "outside day" up on the daily bar chart, whereby the daily high is higher and low is lower than the previous day's trading range, with a higher price on the day.

The Standard & Poor’s 500 Index sank 1 percent to 1,056.89 at 11:42 a.m. in New York, paring a drop of as much as 1.9 percent. Japan’s Nikkei 225 Stock Average entered a bear market and the MSCI World Index of stocks in 24 developed nations fell 0.9 percent. The yen gained as much as 1.6 percent to 83.60 per dollar and the Swiss franc rose to a record against the euro. U.S. 10-year yields fell 12 basis points to 2.48 percent, the lowest since March 2009, and the two-year yield slipped to a record low.

Stocks extended losses after purchases of existing homes plunged 27.2 percent to a 3.83 million annual rate, figures from the National Association of Realtors showed today in Washington. The pace compares with the median forecast of a 4.65 million rate, according to a Bloomberg News survey.

“This is yet one more piece of disappointing economic news,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “Irrespective of whether there’s a double dip, jobs aren’t being created. Without jobs they’re not going to get better numbers on housing.”