Roubini on Gold, China, IMF Sales

Gold is a special commodity in that the fundamentals of physical supply and demand are minor influences on its price. Gold’s price is most often driven by speculative demand for a hedge against inflation or economic uncertainty. Many investors see gold as a substitute for fiat currencies. Consequently, gold prices sometimes track changes in central bank holdings of gold.

Gold markets largely ignored China’s surprise revelation that it had increased its gold reserves as much of this had already been priced in by speculators. Moreover, China produces its own gold. The increase in China's gold holdings is just a mere drop in the bucket of its total $1.9 trillion in foreign exchange reserves. Gold's share in China's foreign exchange reserves remains much lower than the global average and well below the U.S. share. But China's interest in gold is consistent with its taste for real assets to gradually diversify from its U.S. bond-heavy portfolio. If other central banks followed suit, gold demand could increase sharply.

IMF gold sales will likely have little impact on gold prices if it sells its gold to central banks rather than the free market. The European Central Bank Gold Agreement’s expiration in September 2009 may have more impact. The signatories are likely to renew the agreement and continue limiting central bank gold sales. Fears that monetization of rising public debts will erode currency values may spark demand for gold as an inflation hedge.

Source RGE Monitor Newsletter and RGE Monitor

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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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IMF Sets Toxic Debt at $ 4 Trillion

Toxic debts racked up by banks and insurers could spiral to $4 trillion. This is a new forecasts coming from the International Monetary Fund (IMF).

Previously, the IMF forecast U.S. toxic assets at $2.2 Trillion by the end of next year. The new assessment for the U.S. is likely to be set at $3.1 Trillion.

Nouriel Roubini set the target as $3.6 Trillion six months ago.

The term toxic asset now refers to all bad loans.

Stay tuned.

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President Obama on G 20 and Global Economy

To prevent future crises, we agreed to increase transparency and capital protections for our financial institutions. We’re extending supervision to all systemically important institutions, markets and products, including hedge funds. We’ll identify jurisdictions that fail to cooperate, including tax havens, and take action to defend our financial system. We will re-establish the Financial Stability Forum with a stronger mandate. And we will reform and expand the IMF and World Bank so they are more efficient, effective and representative.

During the question-and-answer section, the President answered a concern on the minds of many:

QUESTION: What concrete items that you got out of this G-20 can you tell the American people back home who are hurting, the family struggling, seeing their retirement go down, or worrying about losing their job, what happened here today that helps that family back home in -- in the heartland?

PRESIDENT OBAMA: Well, as I said before, we’ve got a global economy. And if we’re taking actions in isolation in the United States but those actions are contradicted overseas, then we’re only going to be halfway effective, maybe not even half.

You’ve seen, for example, a drastic decline in U.S. exports over the last several months. You look at a company like Caterpillar, in my home state of Illinois, which up until last year was doing extraordinarily well. In fact, export growth was what had sustained it even after the recession had begun.

As a consequence of the world recession, as a consequence of the contagion from the financial markets debilitating economies elsewhere, Caterpillar is now in very bad shape.

So if we want to get Caterpillar back on its feet, if we want to get all those export companies back on their feet so that they are hiring, putting people back to work, putting money in people’s pockets, we’ve got to make sure that the global economy as a whole is successful.

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Global Economy Grinding to a Halt

The International Monetary Fund (IMF) is now forecasting the global economy to grow at one half of one percent (.5%) in 2009. This is stunning news. Just two months ago the same group was forecasting annual growth at 2.2 percent. Olivier Blanchard, the IMF's chief economist offered these sobering words:

"We expect the global economy to come to a virtual standstill in 2009."

The situation in China continues to deteriorate as growth is forecast an annual rate of 6.7% about half the growth rate they reported in 2007. The forecast of 6.7 percent is suspect due to the way the numbers are calculated in China. One can only wonder if their is a "silent" backlash toward China brewing in the U.S. Helping foster the growing negative attitude in China yesterday Vice President Joe Biden said:

the U.S. would be “blunter with the Chinese” and that China must “play by the rules.”

The U. S. long term bond market reacted by dropping a whopping three points.

In a seperate report the IMF forecast that

financial institutions face much larger losses on U.S. securities than foreseen just weeks ago. Losses now are expected to reach $2.2 trillion, up from the $1.4 trillion estimated last fall.

This can only be regarded as more bad news in the financial sector.

The IMF is predicting that in order to prevent further deterioration in their ability to lend, major U.S. and European banks require an additional $500 billion in new capital, the report said. One can only wonder how these enormous capital needs are going to be met.

This news does not bode well for equities world wide. It is not likely that these continued dire forecasts have been digested into the equity market. And worse, most forecast continue to become more dire with each new release.

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World's Elite Visit Davos in Doubt

Forty heads of state signed up to attend the annual meeting of the World Economic Forum that begins Tuesday in Davos, Switzerland. They will be focusing on the current disarray of the world's financial economy. The International Monetary Fund is recalculating its estimate of global growth and is likely to lower it to less than 1%.

"Why are we surprised all the time, almost weekly" by bad financial news, said Victor Halberstadt, professor of economics at Leiden University in the Netherlands and a veteran of the Davos event. "Do we really understand too little about the economy? I'm afraid the answer may be 'yes,' and that is why policy makers are going to Davos."

Right now, they are expecting about 2,500 participants for this mega-economic conference. More than 1,400 chief executives and chairmen of companies are making the trip despite the deep slump in corporate revenues and stock markets.

"This may be the first Davos where capitalism is widely viewed as a failure, rather than something to be admired," says Ethan Kapstein, professor of economics and political science at French business school Insead, who has been going to Davos since 1994.

"The capitalist myth is lovely and youthful. It kicked off the industrial revolution, but maybe we need a new one," says Richard Olivier

Right now things are looking bleak in the word economy. If the less than one percent forecast for the world economy holds true it will surely lead to additional problems and drops in the stock market. The conference will discuss the real fear worldwide--global deflation. Or worse, stagflation.

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FACTBOX-Details on World Economic Forum meeting in Davos

Jan 26 (Reuters) - The world's business and political elite will hold its annual meeting in the Swiss mountain resort of Davos this week in the shadow of the global financial crisis.

Here are some key facts on the World Economic Forum:

* SOME FACTS ABOUT THE 2009 MEETING:

-- Over 2,500 participants from 96 countries will gather in Davos. Over 55 percent are business chiefs, drawn principally from the Forum's Members and the 1,000 foremost companies from around the world and across economic sectors.

-- Also attending are around 250 public figures, including 41 heads of state or government, 60 ministers, 30 heads or senior officials of international organizations and 10 ambassadors.

-- Fifty heads or representatives of non-governmental organizations will also attend, as well as 225 media leaders, 215 figures from academic institutions and think tanks, 10 religious leaders of different faiths and 10 trade unionists.

* AIMS:

-- The World Economic Forum, founded in 1971 is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.

* A SHORT TIMELINE OF ACHIEVEMENTS AT DAVOS:

1979 - The Forum becomes the first non-governmental institution to initiate a partnership with China's economic development commissions.

1988 - Prime Ministers Andreas Papandreou of Greece and Turgut Ozal of Turkey embark on a peace initiative, setting up a crisis "hot-line" and vowing to avoid war.

1994 - Israeli Foreign Minister Shimon Peres and PLO Chairman Yasser Arafat talk late into the night over the delayed Israeli withdrawal from Gaza and Jericho and one aide talked of "an atmosphere of compromise".

1999 - United Nations Secretary-General Kofi Annan announces the "Global Compact," to give "a human face to the global market" at the Forum's annual meeting.

-- Annan called on business leaders to set global labour, human rights and environmental standards and said, "We have to choose between a global market driven only by calculations of short-term profit, and one which has a human face."

2001 - Microsoft Corp boss Bill Gates pledges $100 million to help develop an African AIDS vaccine which could be ready within five years.

2002 - The Forum provides a platform for the creation of a Disaster Resource Network, leveraging engineering and transportation industry firms' resources to assist with disaster relief efforts.

2005 - Actress Sharon Stone raises $1 million in five minutes for malaria at the Davos summit, while Britain's Tony Blair shared a platform with rock star Bono and world's richest man Bill Gates to pledge aid to Africa.

2006 - The international dispute over Iran's nuclear ambitions, militant attacks on oil facilities in Nigeria and Russia's gas disputes with its neighbours raised the profile of energy supply security.

-- Trade ministers from around the world said there was a new sense that progress had to be made on all outstanding issues relating to the so-called Doha round of talks, which aim to help poor nations out of poverty by lowering trade barriers.

* LAST YEAR'S GATHERING:

-- Japanese Prime Minister Yasuo Fukuda unveiled a five-year, $10 billion fund to support efforts in developing countries to combat global warming.

-- The Forum Member companies and the U.N. launched initiatives to facilitate broader and deeper private sector support of humanitarian relief operations.

-- Some key ministers gave the Doha talks new impetus when they agreed at Davos, against a background of concern about the global economy, to meet later with a view to reaching a final trade deal that would add confidence by the end of 2008. Trade ministers did get close to a major breakthrough at a meeting in Geneva in July, but that effort collapsed over a farm trade dispute between the United States and India. (Writing by David Cutler, London Editorial Reference Unit;)