“A fabulous run-up”

Gold this morning was trading at about $1,322 an ounce, only $65 off its all-time high set last Thursday. “The main pressure [on gold] is the dollar, but also profit-taking,” said Commerzbank analyst Eugen Weinberg. “There has been so much hot money flowing into the markets over recent weeks that it is not surprising to see profit-taking on the current weakness.” The dollar was on track for its first weekly rise in six weeks, and traders are awaiting the G20 meeting in South Korea for direction. Gold “has had a fabulous run-up, and a correction back $70 is nothing, really,” said ANZ Bank analyst Peter Hillyard. Gold investors should be taking advantage of these types of dips.

China hurls rate-hike curveball

In a surprise move Tuesday, China raised its benchmark one-year interest rates in an attempt to combat inflation, slowing gold’s push toward $1,400. However, losses are likely to be limited as investors look ahead to a meeting of the Federal Reserve’s Federal Open Market Committee next month. “Gold is not going to move much lower when you have the FOMC ahead of us in early November, the G20 preparations later this month and the full summit next month,” said Credit Agricole analyst Robin Bhar. “These are all potentially friendly towards the gold market, certainly the FOMC, where it is expected that they will embark on further easing. We will see that perhaps pushing the dollar lower.” Analyzing gold’s dip Tuesday, Richcomm Global Services analyst Pradeep Unni said: “What we saw yesterday was more of a panic selling in response to the surprise rate hike by China. Fundamentally however, nothing has changed … and the weakness in the dollar persists. Markets are waiting for the quantity of quantitative easing by the Fed. Bargain hunters are likely to ... (use) this dip as a buying opportunity.”

This chart offers proof that gold is not in a bubble; rather, the bubble is in paper investments. If the number of investors in precious metals increases by just a small percentage, gold and silver will rise to unforeseen heights.

Fed kingpins signal more money printing

Three regional Fed presidents reinforced the idea that policymakers will start a second round of quantitative easing, with two saying asset purchases must be big enough to aid the economy. Chicago Fed President Charles Evans said the central bank would need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily. And Atlanta Fed President Dennis Lockhart said, “I don’t think it makes sense to do small portions of quantitative easing,” adding that a pace of $100 billion of purchases a month is “in the range of numbers one might consider.” Separately, New York Fed President William Dudley said his Oct. 1 assertion that officials will probably need to add stimulus “still stands.” Dudley also called the state of the U.S. economy “wholly unsatisfactory.” Read more

“They wouldn’t be talking about it in such a way if they weren’t on the verge of engaging in another round of asset purchases,” said RBC Capital Markets Corp. economist Tom Porcelli, who expects the Fed will announce a “piecemeal approach” that will eventually accumulate to $1 trillion in purchases.

Geithner’s greenback gobbledygook

“It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity,” Treasury Secretary Timothy Geithner said Monday, making the unbelievable pledge that the U.S. would keep the dollar strong. Geithner’s whopper ignores not only his own policies and the Fed’s latest tilt toward more quantitative easing but also the greenback’s loss of purchasing power for the past century. CNBC anchor Larry Kudlow couldn’t believe what he heard either: “Is Tim Geithner out of the closet as a hard-money dollar protector? Or is he engaging in some sort of cognitive dissonance, blowing smoke at us? Is he speaking with forked tongue, or is he going to mean business about protecting the dollar? I don’t know the answers here. But I do know that if the Fed sets sail with its pump-priming campaign to put one trillion new dollars in circulation, the greenback is going to fall mightily more.”

“The dollar is going to be toilet paper”

In an MSNBC interview, Rolling Stone investigative journalist Matt Taibbi explains just how quantitative easing works and how much it will hurt the dollar – and anyone with a bank account. “Remember, if all of this money ends up in the economy … next thing you know ... we’re Zimbabwe. The dollar is going to be toilet paper. You have a hyperinflationary situation, and that’s a disaster. ... Once the dollar is depreciated, if you have money in your bank account, and it’s worth three-quarters of what it was a few months ago, then you’ve lost all that money. Basically that money is gone to subsidize capitalizing the banks. It’s a straight-up capital transfer from ordinary people who have savings to banks that are now making profits.”

“In a low cost-of-capital world, be long gold”

Swiss bank UBS on Tuesday said a fresh round of U.S. monetary easing could be a “game changer” for commodities like gold. The bank said recent comments from the Fed made it a “racing certainty” that more quantitative easing would be introduced in November. “We believe that QE2 will prolong the bull market in commodities. … In a low cost-of-capital world, be long gold,” it said.

$1,550 gold ahead

LGT Capital Management agrees with UBS, forecasting that gold is headed to $1,550 in 12 months. “We see more upside potential if major central banks continue with expansive monetary policy,” analyst Bayram Dincer said. Read more

South Korea looks at bullion

South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its holdings of gold to diversify its dollar-heavy portfolio. “We need to give careful consideration to the matter of increasing gold volumes in the foreign reserves,” South Korean central-bank official Kim Choong-soo said Monday. “Such a move would have a powerfully bullish effect on the gold market,” London’s Financial Times reported.

Golden buying opportunity

Famed investor Felix Zulauf of Zulauf Asset Management remains bullish on gold. “The secular case is as solid as it has been for the last few years, and that will continue,” the longtime Barron’s Roundtable member said. “The only question is whether we will have some interim corrections or not, and corrections are here not to sell but to buy gold.” Zulauf is pessimistic about equities and the world in general. “This is the end game of our system. Our system is basically exhausted. Our authorities try to prolong the good times that we have been in for several decades by printing paper money, by going into more debt, etc., etc., to support the system and get it growing. But it won’t get back to where we’ve come from. At some point of time something has to give.”

10 reasons to buy gold at $1,300

Monsoon Wealth Management chief Marvin Clark offers 10 reasons to invest in gold at current price levels: