Gold bugs calm short-term, buoyant long-term

Yesterday, Harry Schultz's Gold Charts R Us service offered technical reasons for a rebound. Looking at the weekly gold chart, it said it saw:

"A one-year reverse Head and Shoulders development, with $879.40 left shoulder support (being tested as we write) -- that also coincides with a 50% retracement of the October rally-leg. If bullion manages to hold around this level, the odds for shorter, higher highs will remain intact via the formation of a possible right shoulder and a fourth attempt to breach the psychological $1,000 resistance."

GCRU added that, if this doesn't work out, it expects "July 2005 uptrend line support, currently around $750."

GCRU concluded cheerfully: "Don't let this gold dip dishearten you. Our patience and discipline will soon be rewarded by a new golden sunrise."

The underlying reason for this cheerfulness is not technical but fundamental. There is disturbingly universal expectation among gold-watchers that Federal Reserve monetary expansion must blow off into inflation.

The Pamela and Mary Anne Aden's Aden Forecast is typical, commenting recently:
"Gold is the ultimate inflation hedge, and there's no telling where it'll end up, at least well into the thousands of dollars in the years ahead, and maybe sooner. ... Remember, gold's peak in 1980 at $850 is now the equivalent of about $2,200 in today's dollars. Gold has not even approached that level yet. Once the dollar declines again and inflation kicks in, it'll be another story."
And how many thousands of dollars? The Aden sisters write: "Using the gains in the 1970s as an example to forecast where gold could end up ... $5,800 would be the equivalent upside target."
Short term, they write in chartspeak:

"A 'B' decline is still underway, and if gold closes below $883, we could see $705 tested. Any weakness like this would provide a wonderful buying time. ... On the upside, once gold rises and stays above $945, the B decline will be over and a C rise will be underway. Once gold closes above its year-ago March level at $1,004, we could see gold jump to possibly $1,200."
This optimism is no longer confined to the investment letter fringe. John Reade, the respected non-gold bug London-based chief metals strategist for UBS, wrote:

"Based on the conversations we continue to have across our client base, gold remains something that investors are looking at with unprecedented interest, although participation levels remain lower than the interest would suggest."

"But the reasons why investors bought gold -- fears of longer-term inflation and currency debasement -- remain intact, and we see no reason why investors will not buy gold in very good quantities at some point. ... once the correction has run its course and gold has stabilized, we expect bottom-fishers to begin the next cycle of investment."

More depressingly, Reade dismissed a gold-skeptical comment in the London Financial Times by expressing skepticism about stocks: "We have no doubt that if equity, commodity and property markets are set for a sustainable rally from current levels, then gold would indeed lose its luster. But unfortunately we believe that the recent rally in risk assets, which has seen U.S. equities post their biggest four-week gains in 70 years, may be running out of steam."
Oh.

Then there's veteran Bill Meridian of Cycles Research, one of the few editors who admit to using astrology -- openly, that is. ( See March 9 column.) He writes with remarkable confidence:
"Gold has retraced 38% of its prior advance. This is a quite normal pullback in a bull market. ... Gold is likely to trade down into April 2nd-3rd, pop up again, and then make a firm low on the 10th or 13th. On those latter dates, Cycles Research will switch to a buy signal."

Meridian appears to have made this particular prediction on a cycles theory.

But looking at the stock market, he writes: "Note that the full moon falls on the morning of April 9th. Some of the biggest moves recently have occurred on lunations. Thus the 9th is likely a big daily move at the end of a week-long rally."

PRECIOUS METALS: Comex Gold Gains Slightly On Bargain Hunting

NEW YORK (Dow Jones)--Gold futures rose slightly Wednesday on continued investor bargain hunting after recent down moves, a slightly lower U.S. dollar and book squaring ahead of Friday's holiday.

June gold rose $2.60 to settle at $885.90 an ounce on the Comex division of the New York Mercantile Exchange.

"I think gold got a little oversold," said Michael Gross, broker and futures analyst with OptionSellers.com. However, "it looks like kind of a listless trade today," he said.
George Gero, vice president with RBC Capital Markets Global Futures, said the nearing holiday led to some short covering in gold.

"A move over $900 and we may see returning fund buyers," he said.
"Gold today is recovering from its rather ugly selloff on Monday," said Sterling Smith, vice president with FuturesOne.

Silver futures gained on the back of higher gold prices. Comex May silver rose 13 cents to settle at $12.34 an ounce.

The metal moved higher as the dollar weakened and copper and oil strengthened, Gross said.
As gold was closing, the ICE Futures U.S. dollar index was down 0.158 point and Nymex May crude was up $1.59 a barrel.

Platinum and palladium futures also followed gold prices higher. Nymex July platinum rose $12.40 to settle at $1,187.40 an ounce while June palladium on the exchange gained $9.70 to settle at $235.70 an ounce.

Any dips the platinum group metals are seeing have been met by support from Asian demand, a trader said.

News of proposed U.S. exchange-traded funds for the metals is also lending support, he said.
"Certainly the fact that that's out there has only lent upside to platinum," the trader said.

Volcanic, and Political, Eruptions in Alaska

Steam rose from the top vent in the summit crater of Alaska’s Mount Redoubt on March 21, the day before it started erupting.

President Obama’s stimulus package might be creating a sandstorm in some states, but in Alaska, it was nearly volcanic.

Literally.

All last weekend, the Mount Redoubt volcano rumbled, and then blew early Monday, spewing ash more than nine miles into the air. It last blew in 1989 and 1990, and eruptions continued for four months.

The volcano, 103 miles southwest of Anchorage, west of the Cook inlet, is in a fairly remote location, with the nearest town of any size 50 miles away, and so the biggest concern is the ash spewing into the atmosphere, where it can clog airplane engines. Indeed, Alaska Airlines canceled 19 flights in and out of Anchorage on Monday. And that stranded several legislators in Anchorage, preventing them from reaching the capitol in Juneau, where a debate is brewing over the federal stimulus package.

Governor Sarah Palin, a Republican, had declared last week that she was turning down 31 percent of the estimated $930 million in stimulus money headed to Alaska. Like some other Republican governors who were rejecting at least some of the money, she said it came with strings.

Her decision provoked outrage throughout the state. Democrats quickly accused Ms. Palin, the 2008 Republican vice presidential nominee, of playing to conservative distrust of the stimulus and trying to gain an advantage in the 2012 presidential primaries. Even some fellow Republicans thought she might have made a misstep and prepared a resolution that would position the state to be able to accept all the stimulus money

There was considerable confusion, in Alaska and elsewhere, over the process for acquiring the money and the deadlines by which legislatures needed to act. In Alaska, State Senator Bert Stedman, a Republican and co-chairman of the finance committee, filed the resolution on Friday and prepared it for a vote on Monday because he believed that the legislature had to act by

At the same time, Ms. Palin’s office was backtracking on her earlier statements, saying she had not actually rejected the federal money, but had simply wanted a full airing on the consequences of accepting it

By the end of the day Friday, Mr. Stedman’s office said a review of federal guidelines determined that the legislature did not need to act by Monday. But whether the state will get all of its stimulus money is still up in the air. While an immediate confrontation with the governor was averted, another could lie ahead. And if the legislature votes to take all the stimulus money, the governor could veto part of that plan. It is not clear yet what Ms. Palin will do.

“We still have plenty of time to work through any differences between the Palin Administration and the legislature,” said Miles Baker, chief of staff to Senator Stedman, in an e-mail message. He said the resolution remains on the Senate secretary’s desk “for the time being.”

As the political volcano appeared to be simmering down, the physical one did too, at least for the moment

As we noted here on The Lede, when Gov. Bobby Jindal of Louisiana suggested that the stimulus package was wasteful, he cited “$140 million for something called volcano monitoring.” But on Monday, a television station in Alaska posted an article on its Web site noting that “volcano monitoring became a political football last month but Alaska’s system worked well when Mount Redoubt erupted” this week.

Ryan Bierma, a volcanologist with the Alaska Volcano Observatory, said that after the eruptions Monday morning, there had been earthquake tremors as well as “vibrating and unrest,” but no further eruptions.

“We’re still watching pretty closely,” he said. “It could ramp up pretty rapidly again. It’s tough to make any predictions.”

The eruption of a volcano in Alaska is fairly common, Mr. Bierma said. “We have over 40 active volcanoes in the state right now, and we have at least one significant ash-expelling eruption every year,” he said.

Just as there’s no predicting whether Redoubt might blow again, there is no predicting whether the matter of the stimulus money will erupt again either

By Katharine Q. Seelye

Special gold nanoparticles show promise for 'cooking' cancer cells

SALT LAKE CITY, March 22, 2009 — Researchers are describing a long-awaited advance toward applying the marvels of nanotechnology in the battle against cancer. They have developed the first hollow gold nanospheres — smaller than the finest flecks of dust — that search out and "cook" cancer cells. The cancer-destroying nanospheres show particular promise as a minimally invasive future treatment for malignant melanoma, the most serious form of skin cancer, the researchers say. Melanoma now causes more than 8,000 deaths annually in the United States alone and is on the increase globally.

The topic of a report presented here today at the American Chemical Society's 237th National Meeting, the hollow gold nanospheres are equipped with a special "peptide." That protein fragment draws the nanospheres directly to melanoma cells, while avoiding healthy skin cells. After collecting inside the cancer, the nanospheres heat up when exposed to near-infrared light, which penetrates deeply through the surface of the skin. In recent studies in mice, the hollow gold nanospheres did eight times more damage to skin tumors than the same nanospheres without the targeting peptides, the researchers say.

"This technique is very promising and exciting," explains study co-author Jin Zhang, Ph.D., a professor of chemistry and biochemistry at the University of California in Santa Cruz. "It's basically like putting a cancer cell in hot water and boiling it to death. The more heat the metal nanospheres generate, the better."

This form of cancer therapy is actually a variation of photothermal ablation, also known as photoablation therapy (PAT), a technique in which doctors use light to burn tumors. Since the technique can destroy healthy skin cells, doctors must carefully control the duration and intensity of treatment.

Researchers now know that PATs can be greatly enhanced by applying a light absorbing material, such as metal nanoparticles, to the tumor. Although researchers have developed various types of metal nanoparticles to help improve this technique, many materials show poor penetration into cancer cells and limited heat carrying-capacities. These particles include solid gold nanoparticles and nanorods that lack the desired combination of spherical shape and strong near-infrared light absorption for effective PAT, scientists say.

To develop more effective cancer-burning materials, Zhang and colleagues focused on hollow gold nanospheres — each about 1/50,000th the width of a single human hair. Previous studies by others suggest that gold "nanoshells" have the potential for strong near-infrared light absorption. However, scientists have been largely unable to produce them successfully in the lab, Zhang notes.

After years of research toward this goal, Zhang announced in 2006 that he had finally developed a nanoshell or hollow nanosphere with the "right stuff" for cancer therapy: Gold spheres with an optimal light absorption capacity in the near-infrared region, small size, and spherical shape, perfect for penetrating cancer cells and burning them up.

"Previously developed nanostructures such as nanorods were like chopsticks on the nanoscale," Zhang says. "They can go through the cell membrane, but only at certain angles. Our spheres allow a smoother, more efficient flow through the membranes."

The gold nanoshells, which are nearly perfect spheres, range in size from 30 to 50 nanometers — thousands of times smaller than the width of a human hair. The shells are also much smaller than other nanoparticles previously designed for photoablation therapy, he says. Another advantages is that gold is also safer and has fewer side effects in the body than other metal nanoparticles, Zhang notes.

In collaboration with Chun Li, Ph.D., a professor at the University of Texas M.D. Anderson Cancer Center in Houston, Zhang and his associates equipped the nanospheres with a peptide to a protein receptor that is abundant in melanoma cells, giving the nanospheres the ability to target and destroy skin cancer. In tests using mice, the resulting nanospheres were found to be significantly more effective than solid gold nanoparticles due to much stronger near infrared-light absorption of the hollow nanospheres, the researchers say.

The next step is to try the nanospheres in humans, Zhang says. This requires extensive preclinical toxicity studies. The mice study is the first step, and there is a long way to go before it can be put into clinical practice, Li says.
###
The U.S. Department of Defense and the National Science Foundation funded the research in Zhang's lab while the National Institutes of Health funded the work in Dr. Li's lab.

The American Chemical Society is a nonprofit organization chartered by the U.S. Congress. With more than 154,000 members, ACS is the world's largest scientific society and a global leader in providing access to chemistry-related research through its multiple databases, peer-reviewed journals and scientific conferences. Its main offices are in Washington, D.C., and Columbus, Ohio.

Will Oil and Gold Prices Rise Further on Fed's Latest Moves?

Last week’s surprise move by the Federal Reserve to buy $300 billion in long-dated bonds and effectively start printing money brought a sharp fall in the US dollar, and a strong bounce in oil and gold prices.

Is this the story of things to come? Pimco CEO Bill Gross, the bond king says the Fed may need to expand its balance sheet from a projected $2-3 trillion to $5-6 trillion to get the economy moving again.

This is a slow motion process. The more immediate impact, apart from lowering the cost of borrowing, is a lower dollar. Then by 2011 or so Mr. Gross sees the return of inflation, and is buying inflation-protected bonds called TIPS - which also jumped in price last week.

Oil market

For Middle Eastern investors in particular this scenario has important implications for the oil market: a lower US dollar generally means a higher oil price. Remember it was dollar weakness that helped to drive oil prices to $147 last July, and dollar strength popped that bubble (see graph above).

But hold on a moment, how are stock prices going to react to quantitative easing or money printing by any other name? Last week the 20 per cent rally in the Dow Jones stopped and reversed on news of the Fed’s action.

The US stock market will be nervously watching statements this week for more detail of the Fed and Treasury’s plans. However, if you look at share valuations then they are back to the lows of 2003 and that hardly appears low enough for the profit depression now certainly ahead for major companies.

Stock sell-off

Now what happens if shares sell-off again, perhaps in a probably not unjustified panic about the three-year outlook for profits? Then the dollar will rally, precisely as it did last autumn, because stocks will be sold for cash, increasing the demand for the dollar.

That would lower oil and gold prices, just like last autumn. So it might still be too early to go back into stocks, and even to abandon US Treasuries. For there is another down leg in the stock market to endure before such a shift should be considered.

All the same, with inflation definitely on the horizon - albeit at some distance - oil and gold will eventually come out on top, and may not suffer as much in the next bear market down shift.

Feds Shut Banks in Georgia, Colorado, Kansas

WASHINGTON (AP) -- Regulators on Friday shut down banks in Georgia, Colorado and Kansas, marking 20 failures of federally insured banks this year. More are expected to succumb to the prolonged recession.

The Federal Deposit Insurance Corp. was appointed receiver of the failed banks.
FirstCity Bank of Stockbridge, Ga., had about $297 million in assets and $278 million in deposits as of March 18. Colorado National Bank of Colorado Springs, Colo., had $123.5 million in assets and total deposits of $82.7 million as of Dec. 31. Paola, Kan.-based Teambank N.A. had assets of $669.8 million and total deposits of $492.8 million as of Dec. 31.

The FDIC said it will mail checks to depositors of FirstCity Bank for their insured funds on Monday morning. Direct deposits from the federal government, such as Social Security and veterans' benefits payments, will be transferred to SunTrust Bank.

At the time of closing, FirstCity Bank had an estimated $778,000 in deposits that exceeded the insurance limits, the FDIC said. Regular deposit accounts are insured up to $250,000.
Amarillo, Texas-based Herring Bank will assume all of the deposits of Colorado National, whose four branches will reopen as Herring Bank branches on Saturday.

In addition to assuming all of the deposits of the failed bank, Herring Bank agreed to

buy about $117.3 million in assets at a discount of $4.2 million. The bank agreed to pay a 1 percent premium on the deposits.

The FDIC said it will keep the bank's remaining assets for future sale. Additionally, Herring Bank entered into a loss sharing agreement with the FDIC, wherein the FDIC will assume 80 percent of the losses and Herring Bank 20 percent of the losses on $62 million in assets.
Teambank's 17 branches will reopen on Saturday as branches of Great Southern Bank. The Springfield, Mo.-based bank is assuming $474 million of Teambank's deposits for about $4.7 million, while the FDIC is paying out $18.8 million in deposits directly to brokers.

Great Southern Bank has also agreed to buy about $656.5 million in assets at a discount of $100 million. The remaining assets will be sold at a later date, the FDIC said. Additionally, the FDIC has agreed to cover 80 percent of the losses on about $450 million in assets, while Great Southern Bank will cover the remaining 20 percent of losses.
The FDIC said Teambank was affiliated with Colorado National Bank.

The FDIC estimates that the cost to the deposit insurance fund from the closings of the three banks will be about $207 million.

The last bank closing, two weeks ago, involved a Georgia bank, Freedom Bank of Georgia in Commerce, Ga.

As the economy sours, unemployment rises, home prices tumble and loan defaults soar, bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

The FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013.

The agency said Friday that the nation's banks and thrifts lost $32.1 billion in the final quarter of last year, even worse than the $26.2 billion originally reported last month. "Significant" revisions also lowered the industry's net income for all of 2008 to $10.2 billion from $16.1 billion.
Rising losses on loans and eroding values of assets bit into the revenue of U.S. banks and thrifts in late 2008, causing them to post the first quarterly deficit in 18 years.

The $26.2 billion loss originally reported for the October-December period already was the largest in 25 years of FDIC records. It compared with a $575 million profit in the fourth quarter of 2007.

And the originally reported 2008 net income of $16.1 billion was the smallest annual profit since 1990, during the savings and loan crisis.

The 18 bank collapses this year follow 25 failures in 2008, which included two of the biggest savings and loans, Washington Mutual Inc. and IndyMac Bank. Last year's total was more than in the previous five years combined and up from only three failures in 2007.
The FDIC had 252 banks and thrifts on its list of troubled institutions at the end of 2008, up from 171 in the third quarter.

The agency recently raised the fees that U.S. banks and thrifts pay, and levied a hefty emergency premium in a bid to collect $27 billion this year to replenish the insurance fund.
President Barack Obama has outlined a federal budget proposal that calls for spending up to $750 billion for additional financial industry rescue efforts atop the $700 billion that Congress has already approved.

Citigroup Inc. and Bank of America Corp., for example, have had to go back to the government well for more cash amid continuing losses from toxic assets and soured consumer loans. They each have received $45 billion in bailout money, and the government recently agreed to exchange up to $25 billion of Citigroup's portion for as much as a 36 percent equity stake in the struggling banking giant.

AP Business Writer Sara Lepro contributed to this report from New York.

by AP / MARCY GORDON

Citigroup Plans Big Bonuses Despite Rules Against Them

By Stephen Gandel TIME

AIG isn't the only bailed-out financial firm paying big bucks to managers who helped steer their company to near collapse. Citigroup has pledged millions of dollars in bonuses to senior executives for the next few years, despite lawmakers efforts to eliminate such payments.
It's not clear whether the bonuses, which Citigroup says are for 2008 but won't start paying out until 2010, will be allowed. Under compensation rules passed by Congress in mid-February, cash bonuses are barred for top executives at bailed-out banks. (See pictures of the global financial crisis.)

But Citi finalized its bonus program shortly before the new rules were introduced. That might make the payments permissible, though they could be made almost worthless by new tax rules just passed by the House of Representatives and headed for consideration in the Senate. Even so, Citigroup's move in January to set in place bonus payments for years to come raises questions about whether it was trying to evade compensation rules it knew were coming.
"If an executive legitimately earns a bonus, then paying it out over a number of years makes a lot of sense,' says Paul Hodgson, a senior research associate at the Corporate Library, which examines issues of corporate governance. "But I find it hard to believe that any top executive at a bailed-out bank would have had the performance in 2008 to generate a multimillion-dollar bonus." (Read "Is Citibank Really Out of the Woods?")

Under Citi's proposed compensation plan, three of the company's top five executives would be paid a total of nearly $12.5 million in cash bonuses over the next five years. One of the executives, James Forese, is a co-head of Citi's Institutional Client Group, which lost $20 billion in 2008. Forese is rewarded $5 million under the plan. At least 15 other Citi executives are in line for multimillion-dollar payouts. Citi declined to say how much in total it has promised under the plan.

According to a proxy statement Citi filed with the Securities and Exchange Commission, the company finalized its bonus plan on Jan. 14. Twelve days later an amendment barring such payments was inserted by the House of Representatives into the $787 billion fiscal stimulus bill, which went into effect on Feb. 17.

The revelations about Citi's bonus plan come at a time when anger over executive pay, particularly in the troubled financial sector, is boiling over. On Thursday, the House overwhelmingly passed a bill that would impose a 90% income tax on all compensation over $250,000 earned by employees at banks that have received more than $5 billion in bailout funds. The Senate is working on its own bill to raise taxes on highly compensated bankers. President Barack Obama indicated he would sign legislation that curtails bonuses.
See 25 people to blame for the financial crisis.
See the top 10 financial collapses of 2008.

"In the end, this is a symptom of a larger problem, a bubble-and-bust economy that valued reckless speculation over responsibility and hard work," Obama said in a statement released by the White House. "That is what we must ultimately repair to build a lasting and widespread prosperity."

Citi has also been criticized this week for an estimated $10 million renovation of its executive offices, and reports that the firm was considering boosting salaries for its top executives.
The bonuses for top executives at Citi are particularly surprising because the company is typically seen as the most in danger of failing among the nation's largest banks. Citi has received more government assistance than any other bank: $45 billion in cash infusions and over $300 billion in loan guarantees since late October. By comparison, none of Bank of America's top five executives will receive a cash bonus for 2008.

"There is no question [Citigroup] is violating the spirit of executive-compensation rules,' says Heather Slavkin, who studies executive-pay issues for the AFL-CIO. "Hopefully by the time Citi tries to pay these out we will have gotten over this idea about the sacredness of contracts, and these bonuses won't be allowed either.'

A Citigroup spokesman denied that the company did anything wrong, noting the pay packages in question were set a month before the bonus ban became law. "Overall executive compensation [at Citigroup] substantially decreased from 2007 to 2008," the spokesman said. "CEO Vikram Pandit and CFO Gary Crittenden declined any bonus for last year as well. As always, we will comply with the new restrictions on compensation ... in addition to continued adherence to the substantial changes we already have made to our compensation structure.'
Citi has long deferred the payment of stock options that are granted at the end of the year. Cash bonuses, though, have always been paid at the time they were granted, typically in January for prior-year performance. But this year Citi decided to defer bonus payments for the first time. Instead of paying a lump sum in early 2009 for 2008 performance, payouts would be spread over four years, with the first payouts in January 2010.

For example, Forese, the Institutional Client Group executive, received a salary of $225,000 and was awarded a cash bonus of $5,265,000 for 2008. But he won't get any of his millions yet. Instead, he has a promise from Citi that he will get a check for $1.3 million in January 2010 and three checks for the same amount over the following three years.

On the surface, the plan looks like a good public relations move. At a time when people are angry about bonuses, Citi can say it isn't currently handing out bonuses to its top executives for work they did in 2008. What's more, the Citi bonuses include a provision that allows the bank to "claw back" the money if it is found that an executive made false statements to the company.

The problem is that Citi's payment plan is not consistent with executive-compensation rules put into place by the stimulus package. The American Recovery and Reinvestment Act signed by Obama on Feb. 17 says banks that have received money from the government's $700 billion Troubled Asset Relief Fund are barred from paying cash bonuses to their top executives. They can pay stock bonuses equal to as much as a third of an employee's salary, but the employee is not allowed to sell those shares until the government's money is paid back by their company.
The rub is that a provision was inserted into the stimulus package that says the rules do not apply to any bonuses contained in employment contracts signed before Feb. 11. (It is this provision that AIG has cited in defending its controversial bonuses to top executives.) Citi finalized its plan for paying 2008 bonuses in January. But it's unclear whether Citi's deferred-payout plan would be considered a valid employment contract under the rules set out in the stimulus package. The law leaves that up to Treasury Secretary Tim Geithner to decide.
Compensation experts say that as the government increases its efforts to curtail executive pay, companies will come up with more and more creative ways to keep their employees happy. "Citi may have bent the rules a bit,' says top compensation consultant Alan Johnson. "But if these firms don't come up with some way to pay their people, they are going to be out of business.'
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