MERRILL LYNCH PREDICTS $2,000 GOLD BY YEAR’S END   

The Gold price rose sharply today in conjunction with a buoyant equity market. So, what is next? Federal Reserve Chairman Ben Bernanke is expected to speak next week, and a great deal of speculation exists on whether he will drop hints of an upcoming QE3. There is a strong contingent that says QE3 is coming, and this probably factored into Friday’s large market gains. Merrill Lynch threw its name into this hat Wednesday, when it predicted the  Gold price would soar to $2,000 by year’s end. Francisco Blanch, head of Global Commodity and Multi-Asset Strategy for Merrill Lynch, expects that the Federal Reserve will initiate an asset purchasing program of up to $500 billion in the last half of 2012. If this occurs, he predicts it will drive Gold prices to the $2,000 per ounce level.

Whoops! JP Morgan announced today that its recent bad trade that was thought to be in the $2 billion dollar range has almost tripled  to $5.8 billion in losses. The founder of Peregrine Financial Group, Russell Wasendorf, admits to having  forged bank statements  for more than 20 years. No wonder there are skeptics when it comes to financial institutions. Where do you keep your money? In a recent broadcast of “Mad Money,” host Jim Cramer was asked by one of his viewers his thoughts on Gold. Cramer declared that you have to consider Gold as a currency and not a commodity, and he recommended a 10 to 20 percent portfolio allocation. Seeing Gold as a currency and not a commodity seems to be gaining traction in the financial community. Have a great weekend!

At 5 p.m. (EDT), the APMEX Precious Metals prices were:

• Gold, $1,590.30, Up $23.50.
• Silver, $27.36, Up $0.12.

An appreciating American dollar has been good for those with cash savings,  but it has pushed down other investments lately. Today was no exception. Gold ended the day slightly down after recovering early losses. Stocks dropped for the sixth straight day Thursday, indicating traders’ hesitancy to invest in equities in a climate where American exports could be in trouble due to currency exchange rates. A weakening euro has led investors to seek assets denominated in other currencies, and since the American dollar is the most traded currency in the world, its liquidity and safe haven appeal has caused it to outperform most of its peers. As the dollar gains strength, it takes fewer dollars to buy an ounce of metal (or almost any physical asset, for that matter), causing the price of that metal to fall.

After poring over Spain’s austerity and bank bailout plan, many analysts are saying that it only buys time for the ailing country and  does little or nothing to alleviate the problems plaguing the highly indebted nation. Furthermore, some are wondering if Spain can even follow through with the austerity measures it has promised. “We doubt whether the envisaged 65 billion euros in fiscal savings will be realized in full,” Dutch brokerage ING stated. In a nation where one in four are unemployed, the population could be extremely resistant to more cuts in government spending. The Spanish government is expecting a prolonged recession, saying it has little hope for any economic growth before the end of 2013. Analysts are expecting the current plan to lead to a recessionary spiral, where austerity measures lead to economic contraction, reducing government revenues and therefore triggering the need for more austerity measures.

At 5 p.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,573.30, Down $3.90.
• Silver, $27.25, Up $0.15.

The minutes from June’s Federal Open Market Committee meeting released yesterday are still weighing on Precious Metals markets today. While the Fed does appear to be open to buying Treasury bonds, it is still not of a mind to take additional action. “It is a case that any hints, any clues that are coming out of the Fed over when they might do it, whether they might do it,  are absolutely central to Gold prices. There have been a few comments by FOMC members suggesting they are more prepared for QE (quantitative easing), but the Fed minutes we got last night gave a much more balanced, more neutral view of things,” said Nic Brown of Natixis. Since the inception of quantitative easing in 2008, Gold prices have more than doubled.

Joining the ranks of those who believe Gold is undervalued is investment bank Merrill Lynch, which is expecting the Federal Reserve to act in the second half of this year. In an appearance Thursday on CNBC, Francisco Blanch, head of Global Commodity and Multi Asset Strategy Research at Merrill Lynch, said, “We think that $2,000 an ounce is sort of the right number. We believe that ultimately the Fed will be forced to do quantitative easing. If it happens in September, as our economists expect, we will get a rally sooner in Gold. If it happens after the election (in November), we will get the rally a little bit later probably we will touch $2,000 an ounce sometime next year.”

China’s stimulus policy seems to be gaining ground as its senior economists are forecasting growth of 7.5 percent in the second quarter. While this number corresponds to similar numbers from a poll by Reuters, the actual data is due tomorrow. “The economy is likely to stabilize and even recover modestly in the second half  as such policy measures show results,” said Yu Bin, director of macro economic research department of the Development Research Center (DRC). “Growth in the first half was close to 8 percent,” he said

At 1 p.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,564.70, Down $12.50.
• Silver, $27.14, Up $0.04.

The disappointment from the minutes of the recent Federal Open Market Committee meeting is overshadowing fresh economic news this morning, sending stock futures and Gold down. Weekly jobless claims are at  their lowest level in four years, but that wasn’t enough to turn around the markets. Instead, as Jim Reid of Deutsche Bank explains, “The minutes showed that  further (quantitative easing) is not yet a consensus  view among FOMC members and would only likely be triggered if the economic recovery were to lose momentum.” Investors are clearly disappointed at this revelation.

Hedge fund manager Eric Sprott recently said, “I just can’t imagine the demand for Gold is going down.I don’t personally see a solution to the problem that we’re in, the financial leveraging issue that we all have where everybody wants to shed debt and there’s no buyers.”  Sprott believes that Gold will see a new record high by the end of the year, which equates to a 22 percent increase.

A new deposit rate in the European Union began overnight, and it had an immediate effect.  The move to a zero rate for deposits is unprecedented, and the hope among EU leaders is that it will lead to more interbank lending, which hopefully will lead to a reinvigorated economy. European Central Bank Governing Council member Josef Bonnici said it “provides an incentive for the banking system to look at what alternatives there are to improve their earnings.”

At 9 a.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,562.30, Down $15.00.
• Silver, $26.71, Down $0.39.

American markets, with hopes for additional quantitative easing,  ended mostly lower today  after the minutes of the most recent Federal Open Market Committee meeting were released. The minutes, which give insight into policy makers’ decisions, showed a lack of support for further easing. “On balance, the minutes do not on the surface suggest a sizable body of support for further immediate action, although it should be borne in mind that the comments were made prior to recent data disappointments,” said Peter Buchanan, economist at CIBC World Markets.  The American dollar climbed in value, pushing the euro to its lowest value in two years. The Gold price had little change today, as the downward pressure on Gold was mostly offset by demand from investors seeking a safe haven.

With the entire global economy in the midst of  synchronized slowdown, many analysts see further easing of monetary policy as a catch 22. Fiscal stimulus measures such as quantitative easing and record low interest rates are “now seen as a sign of weakness rather than strength,” said Andrew Kenningham, senior global economist at Capital Economics.

Goldcorp Inc. of Canada, one the world’s largest Gold mining companies,  cut its output forecast for 2012 by nearly 10 percent today, pushing its stock valuation down by the same percentage. With physical demand still strong, the reduction in supply could affect the Gold market.

At 5 p.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,577.50, Up $3.80.
• Silver, $27.16, Up $0.21.

Gold is trading slightly lower this morning, while Silver has given up some early gains amid news that the  United States trade deficit narrowed. The 3.8 percent drop in the deficit was expected, so it has not had much effect on the markets. However, in a new sign that the economic recovery in the country is shaky, hiring from American companies declined. The main focus for the day is on the release of the Federal Open Market Committee minutes, set for 2 p.m. (EDT).

The situation in Greece is still negative. There is much speculation on when the newly formed pro bailout government in that country  will run out of money, and when the next bit of aid will come from the European Union and the International Monetary Fund. There are political issues with the bailout, as well, with the new government being asked to make more cuts before more money is received, and opposing political parties are standing in the way. Leftist leader Alexis Tsipras said recently, “The bailout is a political and economic crime imposed on the country by the troika.”

Concerns over events like those in Greece  have investors seeking out safe havens. Lately, that haven has been the American dollar instead of the traditional safe haven investment: Gold. However, with “taxmageddon” looming and what looks to be a dicey election, many are wondering how long the dollar will hold that status. One thing seems clear: Equity markets are not where investors are looking for safe investments. Jiban Nath of Solo Capital said, “The problem in the equity markets at the moment is confidence -- there is very little of it.”

At 9 a.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,574.40, Down $6.90.
• Silver, $26.97, Up $0.02.

The euro fell in value today  when compared to 16 of its most-traded peer currencies. Recent interest rate cuts by the European Central Bank have led traders to rid their portfolios of euro assets in favor of currencies with higher yields. This has happened despite the success of eurozone leaders in organizing a rescue package for ailing Spanish banks, as well as planned possible aid for the cash strapped government of Italy. Overall, the euro has lost 2.5 percent of its value in the last month, which is traditionally a large move in currency markets, although recent volatility has made such moves more common. The American dollar gained strength, which helped push Precious Metals prices down.

The Federal Reserve is still open to more fiscal stimulus, a point made by San Francisco Fed President John Williams. Speaking to reporters in Coeur D’Alene, Idaho, Williams said, “We are right at that edge, that if economic data keep coming in below our expectations -- and our view is we are not making progress on our mandates, or we don't expect to make progress on our mandates -- then I think we would need more accommodation.”  Williams cited possible methods of stimulus, including the purchase of mortgage backed securities in an effort to support a still floundering American housing market. Williams also stated that he would support further stimulus even at the risk of causing inflation to rise higher than the Fed’s target.

At 5 p.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,567.90, Down $22.70.
• Silver, $26.84, Down $0.67.