Daily Commentary

Silver Continues Higher

Silver has rebounded very nicely this morning, up $.25 in early trading.  Gold, while it has recovered from it's low of $867.70 on the August contract, is still down $4.40 at $879.40 in the futures.  Oil also is bouncing back after trading lower earlier, up $1.22 at $123.53.  The dollar is slightly softer, down 4 basis points at 73.40.

Comments by ECB President Trichet strengthened the euro.  He indicated the ECB is discussing the possibility of higher rates and could raise rates next month.  That would be in stark contrast to the situation at the Fed.  While Fed Chairman Bernanke and Treasury Secretary Paulson tried to "jawbone" or "talk" the dollar up, the ECB may take concrete action to defend its currency and to reduce inflationary pressures by maintaining high interest rates.  That is a luxury that the Fed does not have because of the severe problems in the financial system.  Banks have become extraordinarily over leveraged.  Private debt in this country has skyrocketed to a point where it is more worrisome and problematic than public debt.  In that environment a stronger dollar and higher interest rates would be catastrophic.  I believe the central bank has to remain accommodative for some period of time until this heavy debt overhang can be gradually reduced.

After testing support at the $873 level, we will soon see whether gold has the strength to rebound and hold above that support level.  On the initial rebound it prompted a considerable amount of short covering, which could have the potential to bring gold back to unchanged or even into positive territory.  Jim Sinclair and other analysts continue to assert that gold is climbing the proverbial wall of worry, as it typically does in all bull markets.  In spite of all of the negative bombs thrown at the market, it continues to hold firm and to find support and fresh buyers.  That is particularly true in Asia and the Middle East where the demand for physical gold is excellent. 

U.S. Regulators reported today that U.S. banks and thrifts continue to face significant challenges from eroding credit quality, as consumers and businesses increasingly fall behind on their loans.  FDIC Chairman, Sheila Bair said these issues could pose a problem for the FDIC, which insures bank deposits.  She moreover commented, "Given the current difficulties ...' the possibility remains that the fund could suffer insurance losses that are significantly higher that indicated by staff projections in March."  Understanding what she is saying, it is clear the problems in the banking system are worse than they were in March.  As loans continue to go bad, both in housing and in other sectors of the credit markets, the banks are required to write down non-performing assets and at some point their capital may be impaired.  The FDIC is anticipating as many as 300 banks will fail over the next couple of years.  This further highlights the fact that no matter what the Fed says, it isn't in a position to take the kind of aggressive action that would be necessary to truly cause the dollar to rally. 

These situations are extremely bullish for gold as people seek a "safe haven" and look to diversify and protect purchasing power with gold.  The position of the FDIC was echoed by Fed Vice-Chairman, Donald Kohn who told lawmakers that banks are likely to continue reporting weak earnings and asset valuation write downs in coming quarters.  In other words, he confirmed that the problems in the banking system are very troublesome.  Moreover, he said financial institutions need to be prepared for "the possibility that market liquidity may erode quickly and unexpectedly". 

Perhaps the only surprise in this entire scenario is that the economy is holding up better than expected.  Looking at the principal analysts in the precious metal sector, we see that Standard Chartered Bank increased its price forecast for gold to an average of $935 an ounce this year.  This means they are anticipating gold above $1,000 an ounce.  They point to the fact that Anglo-Gold is in the process of covering its hedge book and will be purchasing millions of ounces of gold before the end of the year.  In addition we have quotes from some of the major bank analysts who continue to forecast a substantial move to the upside.  For example, David Davis of Credit Suisse Bank said he sees gold rising to a high of $1,110 an ounce.  He is pointing to supply/demand fundamentals, geopolitical tensions, and problems in the financial sector.  His view is that the average price of gold for the year will be $950 an ounce.  You will notice that is very similar to the forecast by Standard Chartered Bank. 

During this period of correction and consolidation gold continues to be an excellent buying opportunity.

Investors should contact Goldline and ask them to explain the features, benefits and cost structure of the various gold and silver investments that are available to you.  Select those that best meet your own personal and individual investing needs and objectives.  Investors looking for low transaction costs may wish to consider bullion assets such as American Eagles, Krugerrands, Canadian Maple Leafs, Silver Bags or Silver Bars.  However, the Price Guarantee Program is not available with these assets. 

If you would like to take advantage of the Price Guarantee Program, which provides you with a two-week window of opportunity in which to re-price your order in the event of a correction, you must select assets with some collectible value such as Swiss 20 Francs, Double Eagles and Silver Dollars.  When you acquire 29 Swiss 20 Francs, you will receive the 30^th coin for free.  Investors may wish to consider several tubes of these coins to obtain several free Swiss 20 Franc gold coins.  Call Goldline at 1-800-827-4653 for further information.

To receive the free information package including the special booklet from the FDIC that helps you to understand whether your bank accounts are safe and enables you to be sure that your bank has the proper insurance to protect your deposits, call Goldline.  We also provide several other helpful articles.  There are also a number of other independent third party source articles that you will find extremely helpful and informative.  You will also receive the company brochure and a Coin Facts Risk Disclosure Booklet, which you should read carefully before you make an investment. 

Goldline will also send you a free CD of the special interview with analyst Frank Barbera if you ask for it.  This is a remarkable interview and I think everyone would benefit from listening to it.  Call Goldline now to receive your free information package at 1-800-827-4653.

^{You should carefully read the client Account Agreement and the Risk Disclosure information. These explain important things you need to know before you invest in precious metals, such as: past performance does not guarantee future results. Transaction costs are generally 5% to 10% on bullion and 30% to 35% on coins. This is also referred to as the spread, or the difference between the buy price and the sell price. The market must go up enough to overcome this spread before an actual profit is achieved. All markets go up and down. Coins are a long-term, three- to five-year, preferably five- to ten-year investment, suitable for 5% to 10% of the average portfolio. Please see Goldline's Risk and Disclosure Statement for further details.}

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