The Morning Gold Report by Peter A. Grant
Gold Surges Above $1,000
March 14, a.m. (USAGOLD) -- I'd like to apologize for posting this report so late today. As you might imagine, our phones have been ringing off the hook since I walked in the door at 4:00AM Denver time. I hope everyone understands that our clients always come first. Call volume is also a good technical indicator, suggesting that people are still viewing gold as a buy even at these lofty levels.

Spot gold surged above the $1,000 level in early NY trading, a day behind the futures moving through this key psychological barrier. News that Bear Stearns had arranged for emergency funding from JPMorgan and the NY Fed prompted the latest gains.

US investment bank Bear Stearns' announced today that they had arranged for emergency funding from JPMorgan and the NY Fed due to a significant deterioration of their liquidity position. This announcement comes in the wake of Bear's vehement denial earlier in the week of rumors they were in trouble. The market has been anticipating something along these lines, and worse, for some time. Now the market will be waiting for the next shoe to drop. The stock market has dropped significantly.

With the stock market looking pretty vulnerable, we look for gold to benefit from money coming out of equities seeking a safe haven.

The recent acceleration in downside momentum for the dollar has resulted in mounting expectations of coordinated central bank intervention to prop up the ailing greenback. Both Morgan Stanley and Goldman Sachs made note of the potential for intervention in a Bloomberg article yesterday. An editorial in the FT today also calls for intervention to stabilize the dollar.

The dollar fell to new all-time lows against the euro and Swiss franc today and set a new 12-year low against the yen as well. The dollar also remains soft against the British pound. Sterling appears poised to regain the 2.0400 level. A breach of 2.0465 would lend considerable credence to the scenario that calls for a retest of the record high in sterling at 2.1137 from late last year.

US Treasury Secretary Paulson's reiteration of the United State's "strong dollar" policy has fallen on deaf ears. The truth of the matter is that a strong dollar policy has got to be backed up by...well, policy. Just saying that a strong dollar is in the best interest of the country does not translate into a strong dollar.

The truth of the matter is; we haven't seen any remotely dollar positive policy since 2005 when the Fed continued to raise interest rates from historic post-9/11 lows. This led to a yearlong rally in the dollar, but even that was viewed by most as a correction within the long-term downtrend, which has been evident since just after WWII.

Interventions in the FX market have historically not been terribly effective. For one thing, it takes a lot of money to move a market that trades over $3 trl a day on average. The global FX market is far and away the largest market in the world, dwarfing its nearest competitor, the global bond market. Think about it; the unprecedented $200 bln capital injection announced this week by the Fed equates to around 6% of daily FX volume. A mere drop in the bucket.

It would require coordination on the part of the world's central banks, backed up by strong policy on the part of the US to result in any kind of sustained turn-around in the dollar. The central banks can certainly fight a delaying action, effectively slowing the decent of the dollar by making speculators more cautious when establishing short positions. However, the trend is decisively bearish at this point and the central banks throwing a couple billion at the FX market at a crack will likely just be viewed as selling opportunities.

Gold is the classic hedge against a declining dollar. With the greenback under persistent pressure, we look for gold to continue to trend higher. Broad-based economic concerns, worries about systemic risks within the global banking system along with record oil and inflation, all conspire to keep the yellow metal underpinned. Given the breach of $1,000, sights are now set on $1,078.13 and $1,148.60 based on Fibonacci projections.

Gold Market Movers:

US CPI For Feb unchanged, well below market expectations.

Michigan sentiment dipped to 70.5 in Mar.

Bear Stearns gets Kenoli Gold Investments  as shares plummet

Fed funds fully pricing 75bp cut with growing odds of 100bp cut and inter-meeting move.

WaMu downgraded to near junk, but rumors of capital infusion from UK hedge fund supports shares.

Kenoli Investments is monitoring market developments closely and will continue to provide liquidity as necessary.

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Afternoon Report
Gold futures reach new high -- $1009

The COMEX April gold futures contract closed up $5.70 Friday at $999.50, trading between $991.70 and $1009.00

March 14, p.m. excerpts:
(from Bloomberg) --
Gold surged to a record $1,009 an ounce in New York as the Bear Stearns Cos. bailout and a plunging dollar increased demand for the precious metal. Bear Stearns got emergency funding from JPMorgan Chase & Co. and the New York Federal Reserve. The securities firm said its cash position had "significantly deteriorated." Shares of Bear Stearns, the second-largest underwriter of U.S. mortgage bonds, plunged as much as 53 percent in New York Stock Exchange composite trading. Gold has jumped 19 percent this year, while the Standard & Poor's 500 Index fell 13 percent. "Gold's assault on $1,000 is happening for a good reason," said James Turk, founder of GoldMoney.com. "Gold is not only an inflation hedge, it's a catastrophe hedge. Gold is becoming increasingly important as the credit crunch continues to spiral out of control." The metal has tripled in the past five years. "Gold at $1,000 is a clear sign of a lack of confidence in the dollar and the Fed's handling of monetary affairs," said Adrian Day, president of Adrian Day Asset Management. The Fed earlier this week said it would lend banks $200 billion in exchange for mortgage-backed debt. The dollar fell to a record against the euro and a 12-year low against the yen. "Many investors are unwilling to sit down and wait to see if the monetary experiment, which is moving in new directions, works," said Shayne McGuire, director of global research at Teacher Retirement System of Texas, the eighth-largest U.S. pension fund. "They are taking cover in assets recognized over centuries as stores of value that cannot be printed."...more
(from Thomson Financial) --
The dollar's freefall has made gold cheaper for those trading in stronger currencies, while concerns of a global slowdown and crashing equity markets have seen investors head towards safer assets, like bullion. Also, players are betting on the likelihood of an aggressive US Federal Reserve interest rate cut on March 18. Such a move should weaken the dollar and support gold. "The expectation of the coming cut will likely keep the gambling (hedge funds) on the boil and have them trying for another spike in gold," said Kitco analyst Jon Nadler. Earlier today players were betting the Fed will make a 0.75 percentage-point cut in the federal funds target come next Tuesday, after this morning's tame report on consumer inflation. However, rumours of an emergency Fed rate cut are "again doing the rounds with Fed funds futures now beginning to price in the chances of a 100 basis points cut. 75 bps had been a done-deal after the CPI data but dealers are now of the belief that deeper cuts may help the situation," said IFR analyst Matthew Foster-Smith. Since the credit crisis struck financial markets noticeably last August, there have been three episodes when the credit markets nearly seized up entirely, in August and December 2007 and again this month. "On each occasion, the US Federal Reserve responded with a rescue plan that was initially well received by the markets, but soon after, credit problems quickly resurfaced, credit spreads widened, the USD weakened, and gold charged higher. Indeed, the three main rallies in the gold market since August occurred in line with escalations of the credit crisis," said HSBC precious metal analyst James Steel. "Developments in the financial markets do not generally give any indication that the current state of affairs is likely to end anytime soon," added Steel...more
(from MarketWatch) --
"The Bear [Stearns] news seems to be blowing this market up through $1,000," said Zachary Oxman, a senior trader at Wisdom Financial. "Bear is the first, who is next? That question is haunting investors right now and they are looking for a flight to quality," Oxman said. Gold posted a weekly gain of $25.30 from last Friday's closing level of $974.20 an ounce. J.P. Morgan said it's providing Bear with secured funding for up to 28 days, in conjunction with the Federal Reserve Bank of New York. "Expansion of the monetary supply continues at an aggressive pace and simultaneously fear and panic are starting to emerge, and confidence in the system is deteriorating quickly," said Peter Spina, an analyst at GoldSeek.com. "As it deteriorates further, a greater awakening will occur and the move into gold will turn into a rush," Spina said. "In a year from now, I suspect gold at $1,000 and silver at $20 will look cheap to us." On Thursday, gold futures surpassed the psychologically key level of $1,000 an ounce for the first time...more

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