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Will the $8.5 trillion government-taxpayer pledge lead to higher gold?

*Bloomberg, by Pham-Duy Nguyen & Nicholas Larkin, January 30, 2009

“Gold Rally Fills Vaults on Banks’ Unprecedented Steps

The same unprecedented steps that central bankers are taking to rescue the banking system are driving investors to gold, the commodity investors buy when they lose confidence in financial assets.

David Einhorn, manager of the $5.1 billion Greenlight Capital Inc. hedge fund, bought gold for the first time. Steven Lehman, the Federated Investors Inc. fund manager who beat 99 percent of his peers last year, is betting on bullion with Toronto-based Yamana Gold Inc. and Goldcorp Inc.

The combination of central banks spending trillions of dollars to prop up the banking system in the worst financial crisis since the Great Depression will cause gold to appreciate at least 17 percent this year from $882.05 an ounce on Dec. 31, surpassing the record of $1,032.70 in London, according to 16 of 24 analysts surveyed by the London Bullion Market Association. The metal rose to a three-month high of $927.36 today.

‘The government can print endless money, but they cannot increase the supply of gold,’ said Michael Pento, chief economist at Delta Global Advisors Inc. in Huntington Beach, California, who is doubling holdings of the precious metal to 8 percent of his $1.5 billion in assets. ‘Anything the government cannot replicate by decree, I want to own.’

Investors typically buy gold during times of financial turmoil as a store of value. The commodity has gained in five of the past six U.S. recessions.

Printing Money

To rescue the U.S. economy, the Federal Reserve reduced its target interest rate for overnight loans between banks to as low as zero percent, more than doubled its total assets during the past year and agreed to buy long-term Treasuries. The government pledged $8.5 trillion on behalf of American taxpayers and spent $350 billion so far under the Troubled Asset Relief Program to bail out banks.

The U.S. House passed an $819 billion economic stimulus package this week, Germany pledged 80.3 billion euros ($104 billion) over two years and China is spending 4 trillion yuan ($585 billion) on infrastructure projects.

George Soros, the billionaire hedge-fund owner, said the economy ‘will deteriorate’ and the International Monetary Fund said growth this year will slow close to zero. The U.S. economy shrank the most since 1982 in the fourth quarter, contracting at a 3.8 percent annual pace.

Only 20 percent of 1,124 chief executive officers surveyed by PricewaterhouseCoopers LLP expect revenue to increase this year, according to a report released as leaders met at the World Economic Forum in Davos, Switzerland, this week.

American Buffalo

The U.S. Mint suspended sales of American Buffalo 1-ounce gold coins in September after supplies ran out. The Perth Mint, producer of so-called Kangaroo and Nugget coins in Australia, said in October that it doubled output in six months. Muenze Oesterreich AG, the Austrian mint, almost quadrupled production of its Philharmonic coin in the first nine months of 2008.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Monex Bullion Investor