The Street
By Alix Steel
February 9, 2012

NEW YORK (TheStreet ) — Gold prices were popping higher after Greece secured a debt deal and as the Bank of England pumped more money into the system.

Gold for April delivery was up $19.60 at $1,750.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,755.50 and as low as $1,728.30 an ounce while the spot price was adding $16, according to Kitco’s gold index.

Silver prices were 58 cents higher at $34.28 an ounce while the U.S. dollar index was 0.26% lower at $78.49.

Gold prices popped on the news that Greece has secured a debt deal, which would implement austerity measures and secure its second bailout of 130 billion euros. Gold were volatile on the news initially popping, then giving back gains then moving firmly higher. Once gold crossed the $1,750 its also possible that buy stops were triggered where traders buy gold at this predetermined price.

The question still remains — is this enough to save Greece or will the country have to leave the euro. The country still has to come to a bond swap deal with private bondholders and the European Central Bank to help its debt load.

On the one hand, if Greece is forced to leave the euro the currency could rally, “it’s like trimming the cancer off,” says Phil Streible, senior commodities broker at RJO Futures, and would most likely support gold. Although if risk appetite returns in full force, gold might be forgotten as a safe haven asset. If Greece leaves the euro and all hell breaks loose and the euro plummets, gold could sink along with it at least in the short term. Mario Draghi, head of the ECB, already said in a press conference today that the economic outlook remains “uncertain” and “downside risks remain.”

Also supporting gold was the news that the Bank of England added to its quantitative easing program by 50 billion pounds bringing the total to 325 billion pounds. The central bank left interested rates unchanged at 0.5% while the European Central Bank left its rate at 1%. Gold prices rose slowly after the news, but many experts had been expecting a bigger pop in the price with central banks unabashedly pumping money into the system.

“The reality is is that it’s all about the euro,” says Streible, “with the fragile state all of Europe is in right now, any sign of quantitative easing, or QE, is probably too little at this point … more types of stimulus plans means more spending cuts are soon to follow.” More stimulus can trigger a rush into gold as a hard asset, an alternative to the paper currency being devalued, but austerity measures bring in the deflation worry, where gold tends to selloff initially.

Rick Trotman, senior research analyst at MLV & Co., thinks that gold prices will do fine this year. “I don’t expect a blockbuster year but ending the year between $1,700-$1,800 an ounce is realistic.” Trotman does think that if Greece secures its second bailout and nails down a debt deal it would really depend on how good or bad that deal is. “If everyone is really happy with it, gold could trade down,” he says, “but if it looks good then Portugal will decide to step up to the plate as well hoping to get a really good deal and gold would trade up on that.”

Trotman also says gold will start looking to the U.S. presidential elections in November. Trotman suggests that if the polls keep leaning towards President Obama that that would be good for gold as “Democrats would spend a lot of money,” as the dollar is devalued gold rises in response. “A Republican President would be bad for the price of gold,” asserts Trotman.

James Steel, analyst at HSBC in a recent 2012 gold outlook report says that it’s not just the U.S. going through an election cycle. “The political process will result in the election or selection of a hose of leaders in countries that represent more than 50% of the world’s GDP.” The political upheaval ranges from the U.S. to France to Egypt to Russia. “Uncertainty about changes in government may boost safe-haven demand for gold, in our view.”

Another wild card playing out for gold Thursday was the news that inflation in China rose to a three month high at 4.5%. The higher reading is good for gold as it might push consumers into buying the precious metal as a safer place to invest as real interest rates are a negative 1%. However, the higher reading might also confirm the central bank’s reluctance to lower interest rates, to firmly commit to a loose monetary policy.

China has been pushing its banks to lend more into order to avoid a hard landing, or strong slowing of growth. M2 supply in the country, cash in circulation plus savings, checking and any travelers checks, grew 13.6% at the end of 2011 to 85.16 trillion yuan. This trend will need to continue to support strong gold buying. The country imported 427 tons of gold in 2011 and consumed 787 tons.

Gold mining stocks were rallying Thursday. Barrick Gold was up more than 1% at $49.64 while Newmont Mining was 0.64% higher at $61.90.

Other gold stocks, Goldcorp and Yamana Gold were trading higher at $47.63 and $16.676 respectively.

Kitco News Commentary
By Jim Willie CB
February 9, 10:26 a.m. EST

The interminable extension by the US Federal Reserve on the 0% rate into 2014 represents history in the making, making pure heresy in monetary policy. Worse, it forces foreign central banks to adopt the same destructive policy in the Competing Currency War. Accommodation on interest rates must be temporary, but is made a fixture. The financial system is irreparably broken, the symptom being endless financial crisis. The risk trade is coming back, whose corollary message is to back up the truck to buy GOLD. Many are the messages behind the 0%. Other nations like Japan have been criticized for its adoption. But when the United States is the adoptive parent custodian, it is supposedly all good. Stimulus is a ruse, as destruction of working capital is the constant refrain in a tragic opera. The unintended consequences abound, but mostly not perceived or comprehended well. Few even in the financial community are aware of the powerful leverage mechanisms that enforce the artificially low interest rate. Introduce the Interest Rate Swap contract, upon which heavy reliance is the norm. While Europe is embroiled in austerity, the United States is besieged by central bank apologies for failure disguised less and less with each passing month and each dismissed speech.

The solution is Gold & Silver investments, as all things paper will lose value either from erosion or theft in fraud. The MFGlobal case is far from finished. We have seen this Madoff movie before, but few recognize its sequel starring Jon Corzine and similar supporting cast. The protection is with Gold & Silver, in physical form. The next wave will feature the Gold investors painted as financial terrorists. Refer to the New York Times article with FBI contributors. This is highly disturbing to anyone who holds the Constitution as sacred.

HIDDEN MESSAGE OF PERENNIAL 0% RATE

The 0% official Fed Funds rate has been almost three full years in entrenched policy, when originally promised as temporary. No exit strategy here. Greenspan once stated that it should never be held fixed so low for more than six to nine months. He implied the system would be broken otherwise, subjected to pressures that would distort the valuation mechanisms beyond repair. My view is that extending 0% as monetary policy into year 2014, five years of accommodation, is a gross admission of failure. Bernanke constantly apologizes for stimulus having failed, for an economy unable to recover. The main effect of 0% policy is sustenance of the surprising weakness, draining capital from the system, and improperly pricing the debt which is at high risk. The reality is that the USEconomy is stuck in harsh deep recession of minus 3% to minus 5% GDP. The reality is that the USGovt debt burden is stuck in fast escalation at well over $1 trillion annually, while demand for the debt securities is vanishing. The heavy hidden reliance upon monetary inflation devices for USTBond demand has become a fixture in the financial landscape. Its marquee banner reads failure.

SYSTEMATIC DESTRUCTION OF CAPITAL

The fixture of 0% as monetary policy carries with it an admission that money is worthless. No directive by the flailing discredited US central bank could say it better. Money has no cost because it is not worth anything, being paper in basis and backed by no collateral. The latest travesty is the upcoming dissolution of Fannie Mae itself. What miracle they might conjure up to make its rotten ramparts and acidic paper and corrupt core go away. Fannie will be buried at sea (of liquidity). The cast of economists cannot comprehend the heavy cost of 0% in the widespread systematic destruction of capital. Marginal business units shut down, turn off the equipment, lay off the workers. The costs rise from the rising price of commodities. The material costs rise from basic hyper monetary inflation, due to the unilateral USFed paper factory output. The essence of retired capital and its broad capital destruction is a foreign concept to economists. They still believe the USEconomy will enjoy the benefits of continued 0% stimulus. How wrong, how backwards, how tragic!! The 0% policy destroys capital and furthers the deterioration process.

UNINTENDED CONSEQUENCES

A repeated message since so important. Focus on suppressed long-term interest rates and their damaging consequences. The US leaders boast of benefits from ultra-low interest rates. Suppressing the 10-year bond yield has dire consequences. Some but not all of them appear unintended. The power centers want unlimited easy money for sure. But in doing so, they permit some horrendous developments like feeding a cancer.

1. Savers are given nothing in interest yield, slowing the economy with asset erosion
2. Banks hold home inventory, making housing market clearance impossible
3. Big banks continue their USTreasury Bond carry trade schemes instead of business capital formation
4. Investment banks are encouraged to continue speculation, rather than to invest in business formation that create jobs
5. The USFed further expansion of its balance sheet to buy toxic assets, as rot sets in
6. The USGovt is not discouraged from deficit reduction, sure to lead to systemic failure
7. The free money helps to conceal in vast turnover the toxic paper held under the USGovt roof, as in Fannie Mae, and other fraudulent mills such as MFGlobal lookalikes in the sovereign debt securities and their related derivatives.

ALTERNATE NEMESIS TO AUSTERITY

The Europeans are dealing with austerity measures in government budgets. The sovereign debt securities remain a constant problem, although in recent weeks the bond yields have come down to manageable levels, like below 6% in Italy and Spain. Few economists and bank analysts seems to realize that austerity plans put in place result in lower economic activity, more job cuts, fewer large scale projects, and thus higher deficits down the road. The austerity plans are Poison Pills, one and all, designed perhaps to enable installation of unelected Goldman Sachs technocrats in prime minister posts. The Greek situation is testimony, as budget cuts, asset sales, and massive amputations have resulted in worse fiscal deficits. So bring on more of the same!! The plague in the United States is of an opposite type. The budgets are unrestrained, notwithstanding the charades. The integrity is lost while foreign creditors have jumped ship. Instead, the urgent calls within the hollowed (not hallowed) Untied States are for continued 0% policy in order to make the mammoth gargantuan debts and fraudulent toxic paper coverup more cost-free. What incredible opposites exist in Europe and the North America!! The US controls the global reserve currency, having turned its printing press into a well-oiled national shrine. In no way does the USEconomy have the advantages that Japan boasts, like export trade surpluses, a diverse industrial base, and a nationalist fervor that abhors outsourcing. Japan forced JGBond investment by the unions, and the USGovt will do something similar with private pension funds.

ULTIMATE JET ASSIST FOR GOLD

Back in 2003, the gold community made it well-known that the negative real rate of interest was the underlying jet asset kick starter ignition system for the Gold bull market. Take the baseline interest rate, subtract the baseline price inflation rate, and arrive at the real rate of interest. At 2% or 3% for long-term interest rates, at 8% or 10% for accurate honestly measured price inflation, the real rate of interest is calculated in the minus 5% to minus 7% range. Investment in commodity resources, especially Gold & Silver, is the best protection and smartest reaction to the negative real cost of money. The USEconomy is mired in quicksand amidst vast capital destruction. The actual Gross Domestic Product is in a chronic recession of minus 3% to minus 5% for four years running. That explains the absent job growth. Take the payroll tax withholding series to see the steady decline in national income, not easily masked.

GOLD & SILVER READY TO SOAR

Check out the obvious reversal pattern on the Gold chart in full view. It has a 200-point potential rise, which would take the Gold price to 1950. All solutions discussed are bogus and founded in funny money output, new debt, toxic bond redemption, and cost-free recapitalization of banks. No more liberated gold bullion like from Libya via mercenary wars on the horizon. Its 144 metric gold tonnes proved useful to the London and Wall Street Boyz. Syria ain’t got no gold to release. When the 1750 defended flank is overrun, the rise in the Gold price will be rapid. It will capture global attention again. Gold is real money, easily noticed during a time when sovereign debt has turned toxic.

Check out the obvious reversal pattern on the Silver chart in full view. It has a 7-point potential rise, which would take the Silver price to 42 per ounce. The large gap between 32 and 40 has been filled halfway, the next half to be filled in the following several weeks, possibly very quickly. When the 35 defended flank is overrun, the rise in the Silver price will be rapid, more rapid than Gold since the gap will offer little resistance. The rise will capture global attention again. Silver is not just an industrial metal. It has outperformed Dr Copper easily.

Kitco News
By Jim Wyckoff
February 9, 2012, 9:29 a.m. EST

(Kitco News) -Comex gold futures rallied and moved to a fresh daily high Thursday morning following news reports that the Greek government and its private sector had finally reached an agreement to restructure debt that would then allow that country to receive more bailout funds from the European Union. The news injected more risk appetite into the market place as the U.S. dollar index weakened, the Euro currency rallied and crude oil prices also rallied. Gold and silver prices, in turn, pushed higher. Gold and silver bulls continue to enjoy the overall near-term technical advantage on the charts. April gold last traded up $20.70 at $1,752.00 an ounce.

The Street
By Alix Steel
February 7, 2012

NEW YORK (TheStreet ) — Gold prices were rising Tuesday, shaking off a two day decline left the metal down 2%.

Gold for April delivery was up $8.91 at $1,733.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,735 and as low as $1,712.60 an ounce while the spot price was adding $12, according to Kitco’s gold index.

Silver prices were 5 cents lower at $33.70 an ounce while the U.S. dollar index was down 0.37% at $78.80.

Gold prices were finally making their way higher Tuesday, helped by a stronger euro and weaker dollar. Gold had been digesting the big 5.5% move they had after the Federal Reserve announced low interest rates until the end of 2014. “I think the breakout we saw a couple of weeks ago is still holding up,” says Stan Dash, vice president of applied technical analysis at TradeStation, who is monitoring $1,709 an ounce as a key support level. A close under $1,709 would signify a more dramatic selloff, “then I think you have to be more serious about a retest of $1,675 an ounce.”

During the week after the Fed announced it would keep rates low for longer, speculative long positions on the Comex increased by 24,000 contracts. On the one hand it means traders are starting to rebuild long positions and will continue to do so if prices hold up. However, those traders could also contribute to any selloff if they have tight sell stops — which is a predetermined selling level initiated in order to protect profits – they could have dumped their positions over the last few trading days accelerating the recent selloff.

Gold was seeming to take in stride the news that China only imported 38 tons of gold from Hong Kong in December, down 62% from November. This means that the country was not enticed by lower prices ahead of its New Year festival. On the flip side, China still wound up importing 427 tons of gold in 2011 and consuming 787 tons, which includes the 360 tons the country produced on its own.

“Chinese gold imports from Hong Kong tripled from 2010,” says Mark O’Byrne, executive director at GoldCore, a bullion dealer. “There continues to be suspicions of Chinese official sector gold bullion buying.” Frank Holmes, U.S. Global Investors CEO and chief investmentofficer, also says not to make too big a deal over the headline number.

“October and November import figures were much higher than usual and the December figures reflect a reversion to the mean,” Holmes. “On the year, gold imports from Hong Kong were up over 250 percent from 2010, that doesn’t sound like a slowdown in demand.”

According to HSBC, dealers in China said that jewelry demand grew 10%-20% during the lunar New Year, steeply down from the 30% growth rate in 2010. “The weak consumer demandis seen as a byproduct of uncertainty over global growth,” wrote James Steel, analyst at HSBC, in a recent note.

Holmes, on the flip side, said figures were stronger than that “the Beijing Municipal Commission of Commerce reported last week that sales of precious metals jumped nearly 50% from the same time last year during China’s week-long New Year’s holiday in January.”

With the International Monetary Fund warning of slower Chinese growth this year, Chinese gold demand remains a dicey support for higher gold prices. If China’s trade surplus narrows, the government could possible crack down on gold imports as a way to curb the inequity. “Barring any changes to China’s monetary policy, renewed eurozone weakness may impact China’s growth, which may curb demand for gold jewelry,” says Steel. ‘Barring any changes’ is the key part of that statement, however, as any signs of significant growth slowing could trigger monetary easing, which is good for gold as people look for a safe place to store wealth.

Unfortunately for gold it seems like it’s short term fate will be tied to the euro. Greece was able to raise 812.5 million euros over 6 months at slightly lower yields but to slightly lower demand. The euro was tentatively positive on the news as well as on hopes that the Greek government could agree on austerity measures needed to secure a second bailout. The modest optimism, despite a 24-hour strike in the country protesting 15,000 jobs cuts, was helping to stem gold’s losses.

With the economic data light Tuesday, gold will also be checking in with Fed Chairman, Ben Bernanke, as he testifies to the Senate Banking Committee. Any signs that the Fed might revise their economic forecasts upward could mean a rate hike earlier than the end of 2014.

“If the Fed would start raising rates that would be a very negative sign for gold,” says Adrian Day, president of Day Asset Management. In fact, Day calls it his game changer for higher gold prices. “What matters is if rates are positive or negative and it matters the direction.”

Day thinks the Fed would needs to see more months of solid job growth before taking action. Deutsche Banksays if the unemployment rates dips to 7.6% the Fed might reverse its policy. Day does think that there is less incentive to loosen monetary policy anymore based on positive U.S. economic data, which is another reason why gold prices have been moderating. Despite the two day selloff, the SPDR Gold Shares

has not shed any gold and still holds $1,277 tons.

Gold mining stocks were struggling Tuesday. Barrick Gold was down slightly at $49.14 while Newmont Mining was 0.85% lower at $60.37.

Other gold stocks, Goldcorp and Yamana Gold were trading lower at $47.29 and $16.74, respectively. Yamana was downgraded from buy to hold at Dahlman Rose.

CNN Money
By Cyrus Sanati
February 6, 2012

To form a strong fiscal union and return confidence to the euro, eurozone members must be willing to give up some degree of control of their national budgets to a central European authority.

FORTUNE — The European Central Bank has thrown cold water on the sovereign debt crisis by injecting billions of euros into the banking system, but the embers of the crisis are still smoldering. S&P says the eurozone has a 40% chance of entering a severe recession this year, with the economy projected to shrink by as much as 2%. Unless comprehensive reform creates a much tighter fiscal union, uncertainty will continue to cast a dark cloud over Europe’s economic future.

It may seem as if Europe is out of the woods. Bond yields for Italian, Spanish and French debt have come off their record highs from last year, allowing the countries to issue more debt at lower interest rates. Greece has received some much needed breathing room and has been able to negotiate massive haircuts on its debt with its private creditors, many of which are hedge funds and investment banks here on Wall Street. And most importantly, European banks are no longer facing an imminent liquidity event, sparing the continent of a Lehman-like shock to its financial sector.

The root of all this easing comes from the European Central Bank’s decision in December to flood the eurozone banking system with cheap cash. The ECB’s long-term refinancing offering (LTRO) saw nearly half a trillion euros injected into the banking system in one major slug. A second LTRO auction is scheduled for the end of the month, which is anticipated to be as large as the December auction.

With the ECB riding to the banking sector’s rescue and the U.S. Federal Reserve guaranteeing the banks access to cheap dollar funding, the crisis seems to have stabilized. There’s no longer fear that a short-term liquidity event will cripple one of France’s major banks, which rely heavily on cheap cash from the private sector to facilitate their lucrative and risky trading operations. Italian and Spanish banks, which buy up a lot of their respective nation’s sovereign debt, now have plenty of cash on hand to participate in bond auctions, sending yields down to pre-crisis levels.

But despite all the progress, the eurozone is still in deep trouble. The ECB’s actions, while helpful and sorely needed, are only a temporary fix for this seemingly never-ending crisis. While the bond market vigilantes may have backed off their attacks on the big European economies, they are still at work in the background, pushing up bond yields for eurozone members on the far periphery.

Portugal Problem

Last week, banks required massive upfront payments to buy credit protection (credit default swaps) on Portuguese debt. The CDS news, coupled with some sour economic news, sent yields on 10-year Portuguese bonds to a record high of nearly 18%. There is now talk that Portugal, like Greece, will need a second bailout to make its upcoming interest payments. It seems that the ECB couldn’t justify lending enough money to the Portuguese banking sector to keep the country afloat. Such a scenario could eventually face Spain and Italy and we could be right back where we started.

There is no easy solution to ending this crisis, which is now entering its third, grueling year. The ECB’s actions were necessary to contain the crisis, but aren’t sufficient to put an end to it. Eurozone members must now work to bring back confidence to the single currency. A call for the formation of a fiscal union among eurozone members seems to be the first logical step to buttress the crumbling single currency’s reputation. But in order to form a strong fiscal union — one that would instill real confidence back in the euro — individual eurozone members must be willing to give up some degree of control of their national budgets to a central European authority.

The European sovereign debt crisis has proved that it is difficult, if not impossible, to have a monetary union without a fiscal union. The founders of the euro chose to put in place rules to limit members from engaging in profligate spending, as opposed to centralizing fiscal policy, because it was politically expedient. Those rules proved to be totally ineffective in controlling member behavior. The main fiscal rule that limited members from running budget deficits equivalent to no more than 3% of their GDP was broken by almost all members at some point in the last 10 years, including Germany.

Greek Fix?

Last week, a leaked draft German government document proposed that an EU commission be formed to oversee Greece’s fiscal decisions as a precondition to receiving their second 130 billion euro bailout. The commission would basically take over Greek fiscal policy to ensure that the nation stays within the bounds of its prescribed budgetary agreements made with the eurozone. It was the first test of a true fiscal union.

The Greeks went ballistic. The Greek education minister called the document “sick,” while another said it was an unacceptable attack on the nation’s sovereignty. But what the German draft document implies is the beginning of a true fiscal union. Greece felt insulted because it was singled out. For this to work, all the members must be willing to submit their budgets to a central authority with the power to basically say “no, you can’t afford that.” This loss of sovereignty should be expected once a government turns over its monetary policy over to a central authority.

For now, the Europeans have moved collectively to form a pan-European fiscal pact over a true union. This pact would force governments to pay fines to the EU if they exceeded certain debt limits. The European Court of Justice would be put in charge of overseeing the rules.

The pact doesn’t seem strong enough to stabilize the euro crisis. For starters, the legality of the pact is in question as it calls on existing EU institutions to sanction members, something that most EU scholars believe would eventually require a treaty change by all 27 members of the EU, not just the 17 members of the eurozone.

Great Britain vetoed a treaty change in December, so it may be best for just the eurozone members to get together and create a whole new institution to enforce a true fiscal union. A fiscal pact that moves to cap spending based on some arbitrary number won’t cut it, either. Tax and spending decisions should ultimately be harmonized to ensure proper redistribution of resources. That would ensure that the entire eurozone economy moves together as one cohesive unit. This would then allow the ECB, the eurozone’s centralized monetary institution, to set interest rates that would be in the best interest of all members.

For now, European leaders don’t seem to have the political will to make such a bold move. Giving up budgetary control would be a major surrender of power for member states, which may be too much to ask at this early stage in the euro’s history. It may take decades before Europe is ready to take such a leap forward in its integration. But without a true fiscal union soon, the euro may not outlive the time it takes the politicians get their act together.

MarketWatch
February 3, 2012
By Myra Saefong

Silver has given a stellar performance so far this year, but it’s not likely to outperform gold for the rest of 2012.

At last check, silver futures prices has climbed around 19% year to date, while gold has added 11%.

Renewed concerns about the euro zone will probably drive further gains in the price of silver, from around $34 an ounce to around $42 in 2013, said Ross Strachan, commodities economist at Capital Economics, said in a note issued Friday.

Recovery in the global economy will likely disappoint, he said. So, “the main support for silver prices will therefore have to come from investment demand. This should remain strong and indeed strengthen further, driven by a renewed escalation of the crisis in the euro zone.”

But Strachan expects silver will still underperform gold because of its “greater dependence on industrial demand and because its increased price volatility makes it less attractive as a safe haven.”

CNN Money
By Blake Ellis
February 3, 2012

NEW YORK (CNNMoney) — A growing number of states are seeking shiny new currencies made of silver and gold.

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

“In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos,” said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

Unlike individual communities, which are allowed to create their own currency – as long as it is easily distinguishable from U.S. dollars — the Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make “gold and silver Coin a Tender in Payment of Debts.”

To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law. And since gold has grown exponentially more valuable, while the U.S. dollar continues to lose ground, the notion has become increasingly appealing to state lawmakers, he said.

The state gold rush: Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law last March that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins — which include American Gold and Silver Eagles — are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.

Since the face value of some U.S.-minted gold and silver coins — like the one-ounce, $50 American Gold Eagle coin — is so much less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.

Local currencies: In the U.S., we don’t trust

“A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins,” said Rich Danker, a project director at the American Principles Project, a conservative public policy group in Washington, D.C.

South Carolina Republican Representative Mike Pitts proposed a currency system that would allow people to use any kind of silver or gold coin — whether it’s a Philippine Peso or a South African Krugerrand — based on weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors, that the state is facing “an economic crisis of severe magnitude.”

Republican representatives from Washington State followed suit in January, introducing a bill that would also allow any gold and silver coins to be considered legal tender based on metal values. Minnesota, Iowa, Georgia, Idaho and Indiana are also considering similar proposals.

Many of the bills would make it possible for residents to exchange the physical coins for goods and services, so you could use coins to buy anything from groceries to a car as long as the store chooses to accept them.

However, most people aren’t going to walk around with such valuable coins in their pockets, said Vieira. Plus, calculating the value of the coins — especially if they come from different parts of the globe and are of different sizes and shapes — will get tricky.

It’s more likely that the states will create electronic depositories and accounts for the coins to make transactions easier, when and if the initial bills are passed, he said.

Utah Gold & Silver Depository is already developing a system where customers could use debit cards linked to their gold holdings. When customers swipe their debit cards to make transactions, physical gold and silver coins would be transferred between accounts in privately-owned depositories (or vaults) based on the market value of the metals.

Before deciding on a specific form of currency, some states — including Minnesota, Tennessee, Virginia and North Carolina — are considering proposals that would first require a committee to review their alternative currency plan.

The future of U.S. currency: The states’ proposals have been gaining steam among Tea Partyers and Republicans, many of whom also endorse a nationwide return to the gold standard, which would require the U.S. dollar to be backed by gold reserves.

Tea Party “father” Ron Paul is sponsoring the “Free Competition in Currency Act,” which would allow states to introduce their own currencies, and rival Newt Gingrich is calling for a commission to look at how the country can get back to the gold standard.

But it will be the individual states that could really get the ball rolling, said Vieira. Even if several of the current proposals get killed, the introduction of so many bills at the state level is drawing national attention to the issue, he said.

Of all the state proposals circulating right now, Republican-controlled states including South Carolina, Georgia, Idaho and Indiana have the best chance of passing their proposed bills this year, said American Principles Project’s Danker. If just one or two states implement an alternative currency, it could have a Domino effect, he said.

“I think we could get a couple passed in this legislative session, and that would show this is mainstream, popular and it would be a justification for more of the risk-averse states for doing this,” he said.

There are, of course, many people who think the recent push foralternative state currencies should be stopped in its tracks. David Parsley, a professor of economics and finance at Vanderbilt University, said he thinks state-issued currencies are a “terrible” idea.

“Having 50 Feds” could debase the U.S. dollar and even potentially lead the country into default, he said. “The single currency in the United States is working just fine,” said Parsley. “I have no idea why anyone would want to destroy something so successful — unless they actually wanted to destroy the country.”

Associated Press
By Martin Crutsinger
February 2, 2012

Bernanke urges Congress to be careful not to derail recovery with excessive deficit reduction

WASHINGTON (AP) — Ben Bernanke is urging lawmakers to balance their desire to cut deficits with policies that could help boost the weak economy in the short run.

Bernanke told the House Budget Committee that he recognizes that huge budget deficits represent a serious threat to the economy.

“Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery,” Bernanke said. “Fortunately, the two goals … are fully compatible.”

The Federal Reserve chairman is testifying a week after the Fed signaled that a full recovery could take at least three more years. As a result, the Fed said it doesn’t plan to raise its benchmark interest rate from a record low before late 2014 at the earliest.

The hearing began on a contentious note. Chairman Paul Ryan, a Republican from Wisconsin, said the Fed’s policies were adding to uncertainty and raising risks of higher inflation down the road.

Ryan was critical of the Fed’s decision last week to announce that it hoped to hold interest rates at record low levels for three more years.

“I think this policy runs the great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar,” Ryan told Bernanke. “The prospect of all three is adding to uncertainty and holding our economy back.”

Bernanke is also appearing two days after the Congressional Budget Office estimated that the deficit will top $1 trillion for a fourth straight year and could stay around that level for years.

The two leaders offered contrasting views last summer over how to handle high budget deficits. Bernanke warned Republicans that threatening to block a pending increase in the nation’s borrowing limit could hurt the economy. He said the debt ceiling was the “wrong tool” for trying to push federal spending cuts through Congress.

Ryan countered at the time that using the debt-ceiling vote as leverage to win meaningful deficit reductions was a valid approach.

This time, Bernanke will likely point to some economic improvements. Factories are making more goods. Americans are buying more cars. The unemployment rate is near its lowest level in nearly three years. And employers have produced six straight months of solid hiring.

Still, growth was only modest in the final three months of last year. And consumers will likely slow their spending if hiring and pay increases don’t strengthen.

A key reason the deficit has surged in the past four years is that the government collected less tax revenue. In part, that’s because the economy has yet to regain the millions of jobs lost during the Great Recession.

And the government has had to spend more on emergency unemployment benefits and efforts to boost growth, such as the Social Security tax cut that will expire in February unless Congress extends it.

The Fed has also taken extraordinary measures during and after the recession to try to help the economy recover. In June, it completed its second round of bond buying.

At a news conference after last week’s Fed meeting, Bernanke said a third round of bond buying might be necessary. Some economists think the Fed could announce more bond buying as soon as its next meeting in March.

The Street
By Alix Steel
February 1, 2012

NEW YORK (TheStreet ) — Gold prices climbed higher Wednesday along with the euro, building on their 11% January rally.

Gold for February delivery closed up $9.10 at $1,749.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,754 and as low as $1,735.40 an ounce while the spot price was adding $9, according to Kitco’s gold index.

Silver prices rose 54 cents to close at $33.80 an ounce while the U.S. dollar index was down 0.48% at $78.90.

Gold prices were adding to their January gains Wednesday as the dollar fell against the euro. The Automatic Data Processing employment report showed that the private sector added just 170,000 jobs in January, which was less than expected, and revised December’s whopping 325,000 private job gain down to 292,000. The lackluster reading underscored the Federal Reserve’s commitment to keep rates low until the end of 2014. Extended low rates have been a catalyst for gold.

Murenbeeld thinks gold could spike to $2,000 an ounce this year, but won’t average that price as a stronger dollar could be a headwind if gold and the euro maintain their positive correlation. “On a day to day basis it appears what the euro does is what gold is going to do,” he says, but “if you look at that correlation over the past couple of years it really breaks down,” which means investors can’t count on that correlation always being a negative for gold. Murenbeeld says the longer term correlation between the two assets is actually zero. “Net net European problems will be positive for gold [even though] there could be shocks on the negative side.”

Adding further pressure on the dollar Wednesday and further helping gold was some positive news out of Europe. Portugal raised 1.5 billion euros at lower yields. Although demand was somewhat tepid, the lower interest payments were a relief as the country’s borrowing costs have been on the rise on speculation the country might need a second bailout. Germany also raised more than 4 billion euros over 10 years at an average yield of 1.82% lower than the previous auction. Demand, however as well, was a little light.

The euro also gained vs. the dollar on reports that Greece would reach a final deal with private bondholders on what kind of loss they would have to take in their debt swap deal. Bondholders are exchanging old debt for new debt and might take a loss of more than 70%. Greece and investors were also debating the interest payment on the new debt. Reports indicate it might be a 3.75% compromise.

Gold had a big run in January, up 11%, and some experts are bracing for a possible profit taking pullback. “Eight weeks up for gold is probably a stretch now and ripe for something to happen to induce some profit taking,” says George Gero, senior vice president at RBC Capital Markets, “but the technical and fundamentals don’t signal a reversal.”

Gold mining stocks were volatile Wednesday. Kinross Gold was slightly lower at $11.25 while Yamana Gold was 0.2% lower at $61.36.

Other gold stocks, Agnico-Eagle and Eldorado Gold were trading mixed at $37.46 and $15.15, respectively.

CNBC.com
By Paul Toscano
February 1, 2012

As the U.S. government spends an unprecedented amount of money to fix the economy, there is an equally great need to raise the cash to pay for it. This is accomplished through borrowing, whereby Uncle Sam sells Treasury securities of varying maturity.

For investors, government bills, notes and bonds are considered safe because they have a guaranteed rate of return, based on faith in future U.S. tax revenues. The government has been partially funding operations via Treasury securities for decades.

This borrowing adds to the national debt, which has recently surpassed $15 trillion and is rising every second. The amount of debt is quickly approaching the federal debt ceiling, a legal limit to borrowing that currently stands at $16.4 trillion.

Much of that debt is held by private sector, but about 40 percent is held by public entities, including parts of the government. Here’s who owns the most. Foreign countries listed include private and public investors, according to monthly U.S. Treasury data.

1. Federal Reserve and Intragovernmental Holdings

U.S. debt holdings: $6.328 trillion

That’s right, the biggest single holder of U.S. government debt is the Federal Reserve system. The Fed’s system of banks and other U.S. intragovernmental holdings accounted for a stunning $6.328 trillion in U.S. Treasury debt in Spetember 2011 (the most recent number available). The amount is an all-time high as the Federal Reserve continues to expand its balance sheet, partially to purchase U.S. government debt securities.

About a decade ago, the total government holdings were “only” $2.5 trillion.

2. China

U.S. debt holdings: $1.132 trillion

The largest foreign holder of U.S. Treasury securities, China currently has $1.132 trillion in American debt, although it is down from all time highs of $1.173 trillion in July 2011. For more on China and currency, see CNBC Explains.

3. Other Investors/Savings Bonds

U.S. debt holdings $1.107 trillion

With the most recent numbers from June 2011, this extremely diverse group includes individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts, estates, savings bonds, corporate and noncorporate businesses for a total of $1.107 trillion.

Although the level of debt held in U.S. savings bonds has remained basically constant since 2000, the broad category of “other” investors has nearly quadrupled since reaching a four-year low in December 2007.

4. Japan

U.S. debt holdings: $1.038 trillion

One of the U.S.’s largest trade partners, Japan is also one of the U.S.’s largest debt holders, currently owning $1.038 trillion in Treasury securities.

5. Pension Funds

U.S. debt holdings: $842.2 billion

Pension funds control large amounts of money, reserved for personal retirements, and thus are obligated to make relatively safe investments. This group, which includes private and local government pension funds, holds $842.2 billion in U.S. debt. The private pension fund category also includes U.S. Treasury securities held by the Federal Employees Retirement System Thrift Savings Plan G Fund.

6. Mutual Funds

U.S. debt holdings: $653.5 billion

According to the Federal Reserve, mutual funds hold the sixth-largest amount of U.S. debt compared to any other group, although mutual fund holdings have diminished by more than $105 billion since December 2008. Including money market funds, mutual funds and closed-end funds, this group of investments managed about $653.5 billion in U.S. Treasury securities as of June 2011, which are the most recent numbers available.

7. State and Local Governments

U.S. debt holdings: $484.4 billion

U.S. state and local governments have nearly a half-trillion dollars invested in American debt, according to the Federal Reserve. The level of investment has remained stable since 2006, moving within the range of $484 billion and $576 billion. The current debt holdings, however, represent the lowest aggregate level for state and local governments since December 2005, when they stood at $481.4 billion.

8. The United Kingdom

U.S. debt holdings: $429.4 billion

The U.K. currently holds $429.4 billion in U.S. debt, but the country’s investment has fluctuated dramatically during the past two years. Now at its all-time high (and rapidly increasing), British holdings were as low as $55 billion in June 2008.

9. Depository Institutions

U.S. debt holdings: $284.5 billion

As of June 2011 (the most recent numbers available), the Federal Reserve Board of Governors lists depository institutions as holding about $284.5 billion in U.S. debt.

This group includes commercial banks, savings banks and credit unions. In 2011, its holdings more than tripled from the 2008 low of $105 billion. Between June and September 2011, holdings for depository institutions fell by nearly $44 billion.

10. Insurance Companies

U.S. debt holdings: $250.1 billion

According to the Federal Reserve Board of Governors, insurance companies hold $250.1 billion in Treasury securities. This group includes property-casualty and life insurance firms.

11. Oil Exporters

U.S. debt holdings: $232 billion

Big oil means big money … and big investment into U.S. debt. Included in the group of oil exporters are Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Algeria, Gabon, Libya and Nigeria. The group holds a total of $232 billion in U.S. debt, within the range of the $204 billion to $236 billion it has maintained during the past year.

12. Brazil

U.S. debt holdings: $206.4 billion

The South American economic giant has $206.4 billion in holdings, according to the Treasury. Brazil’s investment into U.S. debt has been fluctuating slightly in the past two years, with current holdings under the high of $211.4 billion in May 2011.

13. Caribbean Banking Centers

U.S. debt holdings: $185.3 billion

The U.S. Treasury identifies this group as institutions in the Bahamas, Bermuda, the Cayman Islands, Netherlands Antilles, Panama and the British Virgin Islands. Holdings are currently listed at $185.3 billion, up from $106.6 billion in June 2008, but it remains off the group’s high of $213.6 billion in March 2009.

14. Taiwan

U.S. debt holdings: $149.6 billion

Taiwan’s holdings of U.S. debt have remained relatively steady over the last year, but in the past two years it has surpassed both Russia and Hong Kong in total holdings. To date, Taiwan holds $149.6 billion in Treasury securities, compared with Russia’s $89.7 billion. Russia’s holdings have been rapidly shrinking as the country diversifies.

15. Switzerland

U.S. debt holdings: $113.9 billion

Switzerland’s holdings of U.S. debt reached a high of $147.5 billion — or about 28% of the country’s GDP — in August 2011, but has dropped in recent months to $113.9 billion. The country’s holdings have surpassed those of Hong Kong, Russia and Canada in the past several years.