By: John Melloy
Executive Producer, Fast Money & Halftime

In one of the most bullish gold calls since the Federal Reserve announced a new round of easing last week, one strategist sees a 36 percent jump in the metal’s price, to $2,400 an ounce, by the end of 2014.

“The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December,” wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.

“Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy,” Blanch added. “In our view, this is unlikely to happen until the end of 2014.”

Last week, the Federal Reserve announced its third round of stimulus since the financial crisis, saying it would buy $40 billion in mortgage-backed securities each month.

The Fed used open-ended language in describing how long so-called QE3 would last, saying in its statement it would continue these purchases — and possibly employ other methods — until the outlook for the labor market improves substantially.

“The combination of open-ended MBS purchases and the possibility of additional Treasury bond purchases starting in December could further lift gold prices by adding over $2 trillion to the Fed’s balance sheet over the next two years,” explained Blanch in his report entitled “Gold Under QE-Infiniti.”

Gold is up two percent since the Fed’s statement as others besides Bank of America pile into the metal on fear these actions may spark inflation and leave the metal as the only store of value in a world of paper currencies. Morgan Stanley also upped its gold forecast today, saying the metal would average about $1,800 an ounce next year.

“Since the Roman Empire, all fiat currencies have ended poorly,” said Guy Adami, managing director of StockMonster.com and a long-time bullion bull. “With that in mind, all roads lead to gold.”

Christopher F. Davis

Whether a third round of quantitative easing and European central bank bond buying actually happens is still in question, but both are becoming ever more likely as both high unemployment in the United States and the eurozone crisis persist. While it seems that many stocks in the S&P 500 have been pricing in possible stimulus, other asset classes such as gold, as measured by the (GLD) and (IAU), have yet to see such moves. In recent articles I have suggested that gold prices could have some tailwinds in the form of inflationary pressures and have recommended picking up the gold miners as a way to play it. Now that we are in a situation where the stock market has already begun aggressively pricing in more stimulus, I would like to highlight three ways to invest in silver given that I have stated that it could outperform gold in the next few months.

There are three ways investors can get exposure to silver and I recommend them all as buys right now at current prices. My top approach for silver exposure is purchasing physical silver bullion and coins, followed by purchasing shares of ETFs that track silver prices, and finally through the stock of the individual silver companies/miners.

Physical bullion or coins: This is the best way to invest in silver in my opinion. I encourage people to carry away as much as they can from local dealers while silver prices remain depressed at current levels. There are numerous dealers in most cities and on the Internet where you can buy silver bullion bars and/or coins. I not only consider physical silver as a wise investment given potential government stimulus, but I also consider it to be a form of insurance in case of a total meltdown of the fiat currencies and modern financial systems we have in the world today. If you decide to invest in physical silver assets do so only from a reputable dealer. This is especially important if you’re purchasing over the Internet, where you will want to look for a well established dealer with a long history and stability in the business. The only downside from Internet purchases is high shipping and insurance costs as well as the possibility of a required minimum purchase. Whenever possible, buy locally to avoid such excessive fees. Read More...

By: Reuters

Gold prices rose on Monday, extending the last session’s recovery from four days of declines, as investors bet that Friday’s better-than-expected jobs data would not be enough to head off another round of monetary easing in the United States.

 The metal briefly dipped in the wake of data showing that U.S. employers added more jobs than expected last month but quickly rebounded as traders digested a rise in the jobless rate.

Speculation that the Federal Reserve may have to unleash another round of quantitative easing — essentially, printing money — to boost U.S. growth has firmly underpinned gold prices this year.

Spot gold was up 0.6 percent at $1,613 an ounce, while U.S. gold futures were up $5.50 an ounce at $1,612 an ounce.

Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom as well as weighing on the dollar and boosting inflation expectations in the longer run.

“There is still room for easing if it is required, and there is still a perception that it may be required,” Mitsui Precious Metals analyst David Jollie said. “The question of when that is, with the U.S. elections approaching, makes it difficult to be super bullish on gold, but that doesn’t alter the fact that (the perception is there).”

Prices have traded within a tight $75 range for the past four weeks, supported by QE expectations but also under pressure from soft physical investment flows, lighter demand in key Asian markets and threats to the euro from the euro zone debt crisis.

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After a final day of partisan battles that prevented action on a massive relief package for drought-striken farmers and on protecting the nation from cyberattacks, Congress has left for five weeks of vacation, facing a fall fraught with decisions on the political and economic future of the country.

Most lawmakers were headed home to make their party’s case for who should be entitled to tax cuts, how the government should avoid automatic cuts to defense and domestic programs and who should be the next president. Many will drop by the Republican and Democratic presidential conventions in Tampa, Fla., and Charlotte, N.C., respectively. .

The last day, Thursday, saw lawmakers fall short in finding agreement on two pressing problems: how to help livestock producers suffering from the widespread drought and how to protect critical industries from cyberattacks launched by terrorists or other enemies. The GOP-led House narrowly approved a bill that would revive expired disaster relief programs for cattle and sheep farmers who have seen the price of feed soar because of drought damage to corn and other crops. But the Senate, controlled by Democrats, sidestepped action on the bill, saying that it was insufficient and that the House should instead consider a comprehensive five-year farm policy bill that the Senate passed in June.

The Senate also reached an impasse on legislation to bring the government and businesses together to protect the nation’s infrastructure from cyberattacks. The main stumbling block was the role the Homeland Security Department and other federal agencies should play in protecting U.S. businesses. Republicans blocked further consideration of the Senate bill, supported by the White House, saying it would lead to Washington imposing a heavy hand on the private sector without substantially reducing risks. Both parties said they were committed to approving a final bill when they return in September, although bridging differences in their approaches will not be easy   Read More…

By: Jeff Cox
CNBC.com Senior Writer

While this quarter’s earnings reports have crossed a substantially lowered profit bar, future expectations through the year indicate a recession could be on the way.

Estimates for the third and fourth quarters have been dropped to levels not seen since the days of the 2008 financial crisis, below even the muted 2 percent expected level of inflation.

That’s an ominous recession sign for an economy that has barely managed to attain positive growth this year even with the strong level of earnings beats, according to an analysis by Nicholas Colas, chief market strategist at ConvergEx in New York.

“Revenue estimates for the back half of 2012 have been slowly working their way lower this year,” Colas said. “This trend, however, has accelerated to the downside over the past 30 days and we are fast approaching levels where these estimates are unambiguously pointing to the risk of a U.S./global recession later into 2012 and 2013.”

For the current quarter, about 69 percent of companies in the Standard & Poor’s 500  have beaten analyst profit estimates. Only 42 percent, though, have beaten on top-line revenue estimates, indicating that growth is weakening.

That’s evidenced by a rash of downward forward revisions from analysts.

In the broader S&P 1500, analysts have cut outlooks for 792 companies and raised for just 323, with the decreases especially prevalent in technology, which saw half its components down, the highest level since February 2009, according to Bespoke Investment Group.

In Colas’ analysis, though, he limited his look to the companies in the Dow Jones Industrial Average  

Analysts now expect revenue to grow at just 1 percent to 1.5 percent pace in the third quarter. The forecast for the fourth quarter is 3.9 percent, though Colas says “I doubt any analyst could defend this point of view unless they expect a rapidly weakening dollar…or a truly epic round of liquidity-pumping operations from the world’s central banks.”

Colas is not alone in his expectations for recession.

Laksman Achuthan, at the Economic Cycle Research Institute, made headlines late last year when he said he expected recession to hit the U.S. in the first quarter, which, according to the most current data, didn’t happen.

But he recently said in media appearances that he is sticking to the call, saying the country already could be in recession or is progressing toward one later this year.

“There have been a lot of economists and analysts who have had their blinders on for quite some time,” said Brian LaRose, an analyst at United-ICAP in Jersey City, N.J. “We’re not bullish on the recovery here in the U.S. We think that there are far greater problems ahead that have yet to be addressed.”

Colas also is not alone in his surprise that stock prices have continued to trend higher despite the bleak economic prospects.

The only reason he, and other strategists, have devised for the climb in equities has been hope for more Federal Reserve intervention. The Fed has carried out two asset buying programs called quantitative easing, as well as a third program that entailed buying and selling debt in equal amounts known as Operation Twist, which it voted to extend last month.

“When corporations feel the pinch from a slower economy, they lay off workers,” Colas said. “When they lay off workers the Fed executes on its dual mandate and increases liquidity. And when the Fed increases liquidity, stocks go up.”

LaRose, though, thinks investors “want a QE3 so badly, they refuse to accept the fact that there will be no QE3.”

The rise in stock prices that has accompanied those easing hopes in fact, may be what actually thwarts another round. Fed Chairman Ben Bernanke favors the stock market as a gauge of economic health and the vehicle for a wealth effect that boosts sentiment.

“If the economy was plummeting into a recession then it would be obvious that monetary policy needed to be eased,” said Paul Dales, chief U.S. economist at Capital Economics. “But, even allowing for the deterioration in the incoming data, the economy is still growing modestly, stock markets have not tanked and the euro-zone crisis is still rumbling along without ever really developing into a full-scale meltdown.”

Should the economic data continue to deteriorate and earnings through the rest of 2012 come in as low as Colas expects, the case will become clearer for a  recession and, perhaps, more Fed intervention.

Bank of America Merrill Lynch has been below consensus economic forecasts, looking for just 1.1 percent growth this quarter, and said Friday that if anything it could be too optimistic.

“The European crisis shows no sign of fading and, in the usual lagged fashion, should have increasing rather than decreasing collateral impacts on growth outside Europe,” Ethan S. Harris, BofA’s North American economist, said in a note.

“Last but not least, the risks of the fiscal cliff have just started to work their way into corporate psychology,” he added. “We are frankly a bit puzzled by the persistent optimism in consensus and official forecasts.”

© 2012 CNBC.com

Commerzbank said Wednesday it expected gold to rise markedly by the end of 2102 thanks to demand picking up again in the second half of the year. The bank forecast the precious metal would rise to $1,900 an ounce, reaching last year’s record.

Benchmark U.S. COMEX gold futures for August delivery were last up $6.50 at $1,620.30 an ounce. The contract was up about 3 percent so far this year on uncertainty over the euro zone debt crisis and possible further U.S. monetary easing.

Disappointing demand in India for gold has been offset by strong demand in China, which will likely overtake India as the world’s largest consumer of gold this year, analysts at Commerzbank said.

However, jewelry demand in India was expected to recover after the monsoons, due to the wedding season and important Hindu festivals in the following months.

“A good monsoon season has a positive effect on the incomes of the rural population, which accounts for around 70 percent of gold demand in India,” the analysts said.

Commerzbank lowered its forecast for silver this year to $35 an ounce due to slow economic growth.

The bank forecast platinum $1,750 an ounce and palladium at $750 an ounce by the end of the year after a recovery in the second half.

Spot gold was last up 0.72 percent at $1,621.15 an ounce, down from an earlier high of $1,615.20, while U.S. gold futures for August delivery were up $9.30 at $1,623.10 an ounce. The spot price climbed as high as $1,617.40 an ounce on Tuesday as a move through key chart levels prompted fund buying.

Concerns over the outlook for the euro zone continued to simmer after worries over Spain’s banking sector were heightened on Tuesday by a sharp rise in its borrowing costs, while Greece headed for elections this weekend that could determine its future membership of the euro zone.

Although gold has failed to react positively to elevated risk in the euro zone, signs that economic jitters are spreading from Europe to the United States may prove supportive to prices. The metal rallied on June 1 as poor U.S. jobs data reignited expectations for another round of U.S. quantitative easing (QE), which could undermine the dollar and boost interest in gold as an alternative to volatile currencies.

“(Federal Reserve Chairman Ben) Bernanke, in comments made to the Congress committee last week, seemed to be intimating that QE was off the table,” said Citigroup analyst David Wilson. “But I wonder (whether) if Europe continues to drag, the likelihood of QE continues to grow,” he added. “That in itself should be supportive for gold.” He said he expected no further monetary stimulus before the November U.S. elections, however.

European shares inched down, yields on safe-haven German bonds rose and the euro flat-lined on Wednesday on worries about contagion from Spain’s banking crisis and the Greek elections.”So far the financial aid promised to Spanish banks has failed to have its desired effect. On the contrary, the sell-off of Spanish and indeed Italian government bonds continues,” Commerzbank said in a note. “The sovereign debt crisis can be expected to keep the markets on tenterhooks for quite some time yet and cause demand for gold to pick up again — not only among retail investors.”

Next Big Level

From a chart perspective, gold is currently holding near its 50-day moving average at $1,613.07. Technical analysts identify the $1,640 an ounce area as the next big level to break for gold.

“Only a break above the current June high at $1,641 will (put) the 50 percent Fibonacci retracement of this year’s decline at $1,659.07 and the May high at $1,672.10 in (gold’s) sights,” Commerzbank said in a note. “Below here, the outlook will stay neutral.”

Kazakhstan, which last week said it planned to boost its gold reserves to 15 percent of its total gold/forex holdings, has now announced it will raise that proportion to 20 percent through the acquisition of 20 tons of gold from the Kazzinc mining corporation and a further 4.5 tons from Kazakhmys.

Kazakhstan is one of a number of countries, including Russia, Mexico, Colombia and South Korea,  that have built up their official gold holdings in recent years. Most buying has been seen from Asian and emerging market central banks.

Among other precious metals, silver was last up 0.35 percent at $29.04 an ounce, tracking gains in gold.

Spot platinum was last up 1.18 percent at $1,464.25 an ounce, while spot palladium was up 0.38 percent at $622.75 an ounce. The platinum/palladium ratio, which measures the number of palladium ounces needed to buy an ounce of platinum, rose to its highest in a week on Friday at 2.34 as platinum marginally outperformed, boosted by supply fears from major producer South Africa.

The Christian Science Monitor

Wednesday June 6, 2012

For all of the hemming and hawing about spending cuts in Washington, the Congressional Budget Office’s latest long-term budget forecast reflects two painful facts for Washington: How large the nation’s problems remain, and how the GOP’s 2010 surge into Washington has had only a limited impact in changing America’s fiscal trajectory.

The annual report, released on Tuesday by Capitol Hill’s nonpartisan budget umpires, argues that if Congress’s current policies continue – meaning that the Bush tax cuts are renewed at year’s end and Medicare providers don’t face drastic reductions in payments, among other issues – federal debt held by the public will reach 93 percent of gross-domestic product (GDP) by the year 2022. That’s down about seven percentage points from CBO’s 2011 forecast, which saw the nation’s debt as a share of GDP rising to 100 percent by 2021.

That’s thanks in large part to the Budget Control Act of last summer – also known as the debt-ceiling deal – where Congress achieved more than $2 trillion in savings over the next decade through a combination of spending cuts and discretionary spending caps.

Could ‘fiscal cliff’ push US into recession? Five questions answered.

In 2010, however, the CBO foresaw debt at 109 percent of GDP by 2025 – a number that would match America’s post-World War II high for debt as a share of GDP. This year, the CBO sees the nation breaching that historical ceiling only a single year later under current policy.

The tea-party backed conservatives who helped Republicans retake the House have had only 18 months as part of the majority in one half of Congress. But election-year promises to cut federal spending back to 2008 levels, for example, have not come to pass.

It’s important to acknowledge what the CBO means by “current policy,” which is different from current law. Under current law, a bevy of tax cuts and spending decreases will crash onto the economy in 2013. That would improve the debt picture, but a separate CBO analysis found that allowing all of current law to come into effect would likely put the economy back into a recession.

“Current policy” assumes that Congress will find a way to avoid that fate and continue on a path similar to the one in effect now. Looking current policy reinforces the massive fiscal challenges confronting the US. Simply put, following current policy puts the nation into dire financial straits faster. Under current policy, debt spirals to nearly 200 percent GDP by 2037. Beleaguered Greece, by comparison, had debts of 165 percent of the nation’s GDP in 2011.

And that’s not the worst case: under the CBO’s most pessimistic economic assumptions, America’s debt hits 2.5 times GDP in 2035, creating an economic scenario so dire that the CBO’s forecasting model breaks down.

It’s not something Congress hasn’t heard.

By: Jeff Cox
CNBC.com Senior Writer              

June is picking up right where May left off — with a string of bad economic news that is among the worst the market has ever seen.

On Monday, reports showed that factory orders fell unexpectedly in April, while New York business activity entered contraction mode.

That followed Friday’s hugely disappointing May jobs report, confirming that the US economy is rapidly weakening.

In fact, last week’s batch of 21 economic reports—at least compared to expectations—was the worst ever, with 18 missing forecasts and only one beating them, according to Bespoke Investment Group, which began tracking the difference in 1998.

“That’s a truly unbelievable stat, and we have to believe that this is what the Fed was talking about when they said that they’re ready to act if the economy shows signs of weakening,” Bespoke’s Paul Hickey said.

As if the major miss in expectations for May job creation wasn’t enough — a gain of just 69,000 against predictions for about 155,000 and the unemployment rate [cnbc explains] rising to 8.2 percent — the economy also fell short in terms of housing, consumer confidence and manufacturing, among a slew of other indicators.

The result, according to Bespoke, is that economic reports have missed the mark 15 times more than they have beaten over the past 50 days, which is comparable to what happened during downturns in the past two years.

“Historically, minus 15 has been an inflection point aside from the huge drop we saw in 2008, so hopefully we’ll see a rebound soon,” Hickey said. “If global leaders continue to fail to come up with any kind of resolutions to ongoing problems, however, we’ve got our hands up in the air.”

While conditions definitely are slowing, one factor in the dismal performance may be with economists themselves.

One reason for the proliferation of data misses is that expectations are too robust for an economy that faces pressures from the European debt crisis [cnbc explains] as well as the fiscal cliff in the U.S., said Ethan S. Harris, North American economist for Bank of America Merrill Lynch.

The “cliff” refers to the slew of tax increases and spending cuts that will kick in at the end of the year unless warring congressional factions work out a compromise.

Economists are using outdated forecasting tools that assume business cycle bounces, mean reversion — the tendency of growth to return to normal — and predictable reactions to economic shocks, Harris said.

“In this slow, erratic ‘rehab’ recovery, some of these forecast methods have worked very poorly,” Harris said.

Gripped by fears that Europe’s debt crisis is driving the world economy into a ditch, companies are delaying plans to raise capital and canceling deals, while investors are taking refuge in cash or any other place they think their money will be safe.

The retreat has been so acute that yields on German two-year bonds have gone negative, meaning investors have become so wary of losses elsewhere that they are willing to pay for the privilege of lending money to the German government. Stocks and commodities have been hammered.

And with the economic picture dimming in the United States and major developing economies, including Brazil, India and China, brave is the major corporation willing to take on new workers. The pace of hiring in the United States in May was the slowest in a year.

“What we’re seeing is a sharp deterioration in economies worldwide. It’s a very unstable situation. Markets are being driven by fear, and they’re tougher to call than ever,” said Gregory Whiteley, who helps manage $35 billion at DoubleLine Capital in Los Angeles.

The scariest part is this: the tighter people batten down the hatches, the worse things can get. Slower growth will worsen government budget deficits as tax revenue dries up in the United States and Japan, while making it all but impossible for indebted European countries such as Spain, Ireland or Italy to grow their way back to health.

If activity slows enough, large swathes of the world could tumble back into recession less than four years after the collapse of Lehman Brothers triggered the global financial crisis and brought many nations to edge of a precipice.

The grim outlook has already toppled a series of European political leaders in the past two years and is compromising U.S. President Barack Obama’s chances of winning reelection in November. With the jobless rate soaring in some European countries, the risk of widespread social unrest has increased.

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