Rasslin' Rascals Rumble

By Jon Nadler May 4 2009 9:28AM www.kitco.com

Good Morning,

Gold prices rose overnight, following three consecutive declining sessions. A lower dollar helped the yellow metal recover some lost value and return to the $890 area. Calls for a gallop to 'the races' are still being issued from various quarters, but they still include a liberal sprinkling of the word 'if' as well as the invocation of the $960 figure as a must-break barrier. As of now, bullion is almost smack in the middle of the broader $845-$960 range and appears relatively comfortable within it, as an absence of market-moving news is manifest.

New York spot trading opened the new week at $890 per ounce, with a $4.20 gain. By the start of the session, the greenback was actually showing a flash of...green on the index, rising 0.30 to 84.75, while crude oil, which had quietly snuck up to $53 was on the retreat, with a half-dollar loss. Today's focus was to have been the US banks' stress-test results, but we will now have to wait until Thursday to learn the gory details. In the interim, hearsay from 'people close to the situation' about Citi and BofA needing some $10 billion in capital continue to swirl around.

Silver climbed 7 cents this morning, to start at $12.57 per ounce. Platinum rose $8 and palladium added $1 at $1097 and $216 respectively. Automotive sector talk continues to include the "B" word for GM, following the Obama administration's showing that when it comes to euthanasia, it is willing to employ it as needed. On the better news front, China's manufacturing expanded for the first time in nine months, adding a few more green shoots to the global economic recovery sapling.

Over the weekend, it was the battle of the loudmouths. The Sage of Omaha versus the Commodity Guru. Nebraska versus Alabama. Inflation expectations versus what a market makes (supply/demand, buyers/sellers). In the left corner, Mr. B - who predicts inevitable inflation as the outcome of current maneuvers. He did not forecast the death of the US currency, and he did not paint a US-as-Zimbabwe picture to his audience.

Mr. Buffet said he is "100% enormously optimistic" about the prospects for the US economy. Okay, we think we got it, with clarity. While he did not mention specific inflation 'targets' and acknowledged the fact that the US has lived with debt-as-percentage-of GDP ratios as high, or higher than what is now being talked about, his take went as follows (at CNNMoney.com):

"Berkshire Hathaway chief Warren Buffett defended the government's handling of the economic crisis, but warned that the purchasing power of the dollar may fall as policymakers stretch to finance expensive rescue plans. Reflecting on the near implosion of the financial system last fall, Buffett said officials should be judged more leniently when facing "as close to a total meltdown as you can imagine." But he warned that efforts such as the Treasury's $700 billion Troubled Asset Relief Program and the $787 billion fiscal stimulus plan passed this year by Congress will have to be paid for, one way or another."

In the right corner, expat Jim Rogers -whose neighborhood is now sparkly and orderly Singapore. While Mr. R said he intends to hold on to his gold (and perhaps buy more if presented with the opportunity) he sees at least one major hurdle that the metal must overcome in the near future. Commodity Online asks:

"Will the International Monetary Fund's (IMF) decision to sell 403 metric tons of gold drive down gold prices? Yes, gold prices will plunge to $700 or below that if and when IMF really sells its gold reserves, says legendary global commodities investor Jim Rogers.

Rogers, who left the United States to settle down in Singapore last year, and who is regarded as a commodities guru globally said he will hold on to his gold and is waiting to buy more gold because he expects gold prices to considerably come down when IMF sells its gold holdings.

”The fact is that IMF is trying to get permission from everybody to sell gold. I don’t know it will succeed or not. But if and when IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to US$700. IMF has got a lot of gold to sell. If it does, I hope I’m brave enough and smart enough to buy more,” Rogers told Bloomberg Radio in an interview.

Rogers launched the Rogers International Commodity Index in 1998. The index is a composite, US dollar-based, total return index, designed to meet the need for consistent investing in a broad based international vehicle. The Index represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy to metal products.

Rogers who is known for a investor across various commodities has never been fascinated by gold. Recently he had stated that gold trading at COMEX was a paper game. Rogers said that is worried that gold prices are under pressure because of the IMF decision to sell gold reserves. He said owns own some gold. But at the same Rogers is not planning to buy any more yellow metal because IMF, which is one of the largest owners of gold in the world, is desperate to sell its gold.

Rogers’ comments come in the wake of the G20 leaders’ decision that IMF should sell gold from its reserve to help stimulate the world economy.

"Additional resources from agreed sales of IMF gold will be used, together with the surplus income, to provide US$6 billion additional concessional and flexible finance for the poorest countries over the next two to three years," G20 leaders had said. The IMF’s board approved a proposal in April 2008 to sell 403.3 metric tons of bullion as part of a plan to close the Washington-based lender’s annual deficit. The sale of 403.3 tonnes of gold was originally proposed in 2007 after a committee chaired by Andrew Crockett recommended the IMF adopt a new funding model. The IMF is the third-largest holder of gold reserves after the US and Germany, with 3,217 tons in deposits, according to the World Gold Council (WGC).

Countries like India and China want IMF to sue the money to invest to raise IMF liquidity or spend it to improve incomes of the poorest countries. A large part of the IMF gold may find its way into central banks and private players. Since most of it will be out of reach for retail markets, gold prices may not get hammered. Globally gold prices now are in the $870-$950 per ounce range. India and Turkey, traditionally big buyers of gold, have not bought much lately because of low domestic demand.

According to IMF, a recent surge in IMF lending to countries facing balance of payments crises related to the global economic slowdown and financial turmoil has led analysts to question whether the Washington-based institution will proceed with the plan. The sale is expected to hit the gold price, which is at the peak now. Following the recession, gold prices have soared to new heights as safe haven buying increased."

Sit back and expect the spin to start being spun from various quarters. Bits and pieces of the statements made by both men will be shaped to fit a sales agenda or another. The very story above fails to mention the fact that this hoopla is not about 403 tonnes of potential sales. Make that, certain sales. The subtext that is missing, is the remaining 2800 tonnes in the IMF's coffers. How much of that stash will need to be mobilized, may be mobilized, and what the effects of same might be.

With the crystal sphere still out on loan, we cannot offer any soothsaying on that matter. All we can add is that holding on to the metal Rogers style cannot be unwise. It's the expectations of lunar-orbit hyper-performance that may be misguided.

Until later - Happy Trading.