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Fearing Shortage, UT Takes Delivery of Endowment’s Gold

by TwoCentsEditor

Published on: 04/18/2011

Categories: Current Events, Economics, Financial Markets

Tags: etf, gold, money, precious metals, stocks

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Editor’s Note: Kudos to Bloomberg News for carrying this piece. This should underscore the importance of holding physical gold rather than paper futures or ETF gold. Enough big investors follow UTs lead here and the charade at the COMEX will be over.

April 18 (Bloomberg) — Dallas hedge-fund manager J. Kyle Bass helped advise the University of Texas Investment Management Co. on taking delivery of 6,643 gold bars, worth $987 million on April 15, now stored in a bank warehouse in New York.

Bass, who made $500 million with 2006 bets on a U.S. subprime-mortgage market collapse, said managers of the endowment, known as UTIMCO, sought board approval to convert its gold investments into bullion this year. A board member, Bass, 41, said he was asked to help with that process.

While Bass, a managing partner at Hayman Capital Management LP, said in an April 16 e-mail that “the decision to purchase and take delivery of the physical gold” was made by endowment staff members, “I helped where I could.” Gold futures touched a record $1,489.10 an ounce April 15 in New York before closing at $1,486.

The Texas fund’s $19.9 billion in assets ranked it behind only Harvard University’s endowment as of August, according to the National Association of College and University Business Officers. Last year, UTIMCO added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass.

Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand, Bass said.

Printing Money

“If you own a paper contract where they can only deliver you 10 cents on the dollar or less, you should probably convert it to physical,” said Bass, who isn’t related to Fort Worth’s billionaire Bass family. He said holding cash wasn’t a better choice because the rate of inflation exceeds money-market rates by 2.5 percent to 3 percent, eroding the value of cash.

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said April 15 in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

Sovereign-debt concerns also boosted demand for the metal on April 15, driving Comex futures to an all-time high. The price has climbed 28 percent in the past year.

Gold’s 10-year rally has attracted billionaire investors such as George Soros and John Paulson, who seek a store of value as record-low interest rates erode returns on currencies.

Wealthy Buyers

Few investors take physical delivery of bullion. As of April 14, 2,860 contracts this month, about 0.5 percent of total open interest, had been converted to metal, exchange data show.

Physical deliveries have slowed as gold topped records this year, said Blake Robben, a senior market strategist who handles deliveries of Comex metals for clients at Chicago-based broker Lind-Waldock.

“It’s usually wealthy individuals with net worths over $1 million who want to take delivery to diversify away from the dollar,” Robben said. “Generally, it’s a big hassle and not worth it to take delivery.”

Investors can own 100 ounces of gold futures with Lind- Waldock by paying a $100 fee and putting up $6,571 in a margin account to purchase one contract. To take delivery of a 100- ounce bar, investors have to pay the full price of the contract.

Bass, a Texas Christian University graduate who was named to the endowment’s board in August, is a former salesman with Bear Stearns Cos. and Legg Mason Inc. He said about 5 percent of his hedge fund is invested in gold.

The endowment, which oversees funds held by the University of Texas System and Texas A&M University, has 664,300 ounces of bullion in a Comex-registered vault in New York owned by HSBC Holdings Plc, the London-based bank, according to a report distributed at a meeting in Austin.

“I simply voted as a board member to approve the storage facility and concurred with their decisions,” Bass said.

Zoellick – One Shock Away from A Full-Blown Crisis

by TwoCentsEditor

Published on: 04/17/2011

Categories: 'Best of Web', Current Events, Economics, Financial Markets

Tags: commodities, food prices, IMF, stocks, World Bank

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Robert Zoellick cited rising food prices as the main threat to poor nations who risk “losing a generation”.

He was speaking in Washington at the end of the spring meetings of the World Bank and International Monetary Fund.

Meanwhile, G20 finance chiefs, who also met in Washington, pledged financial support to help new governments in the Middle East and North Africa.

Mr Zoellick said such support was vital.

“The crisis in the Middle East and North Africa underscores how we need to put the conclusions from our latest world development report into practice. The report highlighted the importance of citizen security, justice and jobs,” he said.

He also called for the World Bank to act quickly to support reforms in the region.

“Waiting for the situation to stabilise will mean lost opportunities. In revolutionary moments the status quo is not a winning hand.”

Continue reading the main story

Food price changes Q1 2010 to Q1 2011
Source: World Bank Development Prospects Group
Maize	74%
Wheat	69%
Palm oil	55%
Soybeans	36%
Beef	30%
Rice	-2%

At the Washington meetings, turmoil in the Middle East, volatile oil prices and high unemployment were also discussed.

IMF chief Dominique Strauss-Kahn raised particular concerns about high levels of unemployment among young people.

“It’s probably too much to say that it’s a jobless recovery, but it’s certainly a recovery with not enough jobs,” he said.

“Especially because of youth unemployment… there is now a risk that this will be turned into a life sentence, and that there is a possibility of a lost generation,” he said.

Push to Bring Back Gold Standard Intensifies

by TwoCentsEditor

Published on: 04/15/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton, Centsible Investor, Federal Reserve, gold, gold standard, Ron Paul, stocks

Comments: No Comments

Starting in May, Utah residents will be able to shop
in a currency other than the dollar — gold,
something that hasn’t happened since 1933.

Utah became the first U.S. state last month to
recognize gold and silver coins minted by the federal
government as legal tender. More than a dozen other
states are considering similar measures, and are
expected to follow Utah’s example. The move,
proponents say, is caused by declining faith in the U.
S. monetary system and concern about rising
inflation.

The gold standard, a monetary system in which the
dollar is valued against a certain weight of gold,
lasted until the Great Depression, when the Federal
Reserve confiscated gold held by the public.
President Nixon abolished the conversion of dollars
to gold at a fixed rate in 1971.

It doesn’t literally mean people would pull out gold
coins at the cash register. Instead, the Federal
Reserve would be required by law to make their notes
redeemable for gold and hold gold coins and bullion
as reserves. The printing of U.S. dollars would also
be weighed against the value of gold.

The last time the gold standard was seriously
considered was during President Ronald Reagan’s
administration. Reagan appointed a commission in
1981 to study the role of gold in the U.S. monetary
system, but the group mostly came out against it –
except for two members, including now-Rep. Ron
Paul, R-Texas, a champion of the Tea Party movement.

Despite continued calls by proponents like Paul to
consider the gold standard, it had mostly stayed
under the radar, until now.

The Tea Party‘s growing momentum and rising
inflation is giving new life to the issue, as evident in
Utah.

“We are just now starting to see some interest. These
actions by state legislatures are mostly symbolic –
declaring that people can use a one-ounce federally-

minted gold coin at its face value of $50 doesn’t
really give people a reason to do that. But it’s a
statement by the state legislators that they are
concerned by the state of the dollar,” said Lawrence
H. White, a professor of economics at George Mason
University who has published several reports on the
topic.

State lawmakers are “concerned about the future of the
dollar, worried that [worse] inflation is coming,” White
said. “People need to have an alternative if the dollar
melts down.”

April’s Centsible Investor is Available!

by TwoCentsEditor

Published on: 04/15/2011

Categories: Centsible Investor Info., Current Events, Economics, Financial Markets, Foreign Exchange Markets, Podcast Content

Tags: alex jones, andy sutton, Dr. Chris Busby, Economics, investment newsletter, michael ruppert, money, portfolio, stocks, the centsible investor

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April 2011′s Edition of The Centsible Investor is Now Available!

A quick status update on the Original Model Portfolio: Currently, the dividend-producing segment has a total return of 15.74% including dividends. This while the major indexes are off around 15% during the same time period. The precious metals section is leading all segments, up 33% as some of the early silver purchases are now up well over 150%. Our spec REE picks are up 104% and 51% since we added them just a few months ago.

This month’s keynote addresses some key preparation issues that everyone should be considering. The economic picture is pretty much unchanged in terms of direction and velocity since March, so it was a good time to talk at a deep level about why we are where we are and more importantly, the little things you can do that can make a BIG difference moving forward.

The Energy report focuses on gas prices, subsidies for the provisioning system, demand destruction and the importance of the fact that we’re seeing demand destruction much sooner than we did the last time prices spiked in 2008. It is another very clear window into the true state of the US economy.

Precious metals is dedicated this month to currencies, an update on several fronts regarding currencies, the situation with silver backwardation, the prospects for the same in gold and some practical holding tips you can put to use in your own life. Our ‘other’ precious metals focus, REOs, have gotten a nice boost recently from news that the US Government is considering its own stockpile of these critical metals. We explore the prospects for this taking place.

Our interest rate model is close to issuing another short-term signal. We’ve selected the past 80 weeks of the model and put them in their own chart to better illustrate the accuracy of this powerful weapon in terms of predicting rate moves. The last short-term signal, issued several weeks ago, nailed a bottom in rates and the subsequent move has been significant.

We also analyze the correlation between the DJIA and crude oil; something many subscribers have been asking about since they’re hearing it on TV. We found some interesting potential trends over the past decade and discuss them as well.

Click Here for more information or to subscribe.

Banks Stare at $3.6 Trillion Wall of Debt

by TwoCentsEditor

Published on: 04/14/2011

Categories: Centsible Investor Info., Current Events, Economics, Financial Markets

Tags: andy sutton, money, My Two Cents, stocks, Sutton & Associates, The centislble investor

Comments: No Comments

Editor’s Note: One of these days these people will realize what we’ve known for years – debt does matter. It is a pretty strong bet that there will be no middle class left to fund the next mega-bank bailout. Hopefully these guys like Ketchup with their T-Bills.

The world’s banks face a $3.6 trillion “wall of maturing debt” in the next two years and must compete with debt-laden governments to secure financing, the IMF warned on Wednesday.

Many European banks need bigger capital cushions to restore market confidence and assure they can borrow, and some weak players will need to be closed, the International Monetary Fund said in its Global Financial Stability Report.

The debt rollover requirements are most acute for Irish and German banks, with as much as half of their outstanding debt coming due over the next two years, the fund said.

“These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources,” the IMF said.

Overall, the IMF said global financial stability has improved over the past six months.

The most pressing challenges in the coming months will be funding of banks and sovereigns, particularly in vulnerable euro area countries, it said.

The IMF and European Union bailed out Greece and Ireland, and are in talks with Portugal on a lending program as sovereign borrowing costs surge.

Many investors have questioned whether Spain can avoid a similar fate, but the IMF said Spanish authorities were taking the right steps to address the country’s debt problems.

“The actions that have been taken in Spain recently have managed to decouple, in the views of markets, the fortunes of Spain relative to those of Portugal” and Ireland, said Jose Vinals, director of the IMF’s Monetary and Capital Markets Department.

European banks hold large amounts of euro zone sovereign debt, making them vulnerable to losses if countries are forced to restructure.

Vinals said lending programs in Greece and Ireland were built on the assumption there would be no such restructuring, and the programs needed time to work.

Still, worries about bad debt exposure have heightened investor concerns about bank balance sheets, making it even more important for firms to shore up their capital.

US banks built up capital buffers in 2009, when regulators completed a set of stress tests that revealed some large holes.

But European banks still need to raise a “significant amount of capital” to regain access to funding markets, the fund said.

“It is … imperative that weak banks raise capital to avoid a pernicious cycle of deleveraging, weak credit growth, and falling asset prices,” it warned.

Living Dangerously

The European Central Bank’s upcoming stress tests provide a “golden opportunity” to improve bank balance sheet transparency and reduce market uncertainty about the quality of assets on banks’ books, the IMF said.

European banks won’t be able to obtain all the necessary capital from markets, and public money may have to fill some of the gaps, it added.

Banks could also cut dividends and retain a larger portion of earnings.

“Overall, a comprehensive set of policies — including capital-raising, restructuring and where necessary resolution of weak banks, and increased transparency about banking risks — is needed to solve banking system vulnerabilities,” it said.

“Without these reforms, downside risks will re-emerge.” The IMF said banks’ exposure to troubled sovereign debt is “uncertain,” which adds to the funding strains.

It said government debt was generally high and on a worrying upward path in many advanced economies.

It repeated its warning that the United States and Japan faced particularly dangerous debt dynamics.

Advanced economies were “living dangerously” with high debt burdens, and faced the difficult task of trying to pare deficits without choking off the economic recovery.

The fund said government interest bills would likely rise, although the burden should generally remain manageable provided countries proceed with deficit reduction plans.

For 2011, Japan and the United States face the largest public debt rollovers of any advanced economy at 56 percent and 29 percent of gross domestic product, respectively.

“While the United States and Japan continue to benefit from low current (borrowing) rates, both are very sensitive to a potential rise in funding costs,” it said.

More Americans Leaving Work Force

by TwoCentsEditor

Published on: 04/14/2011

Categories: Current Events, Economics, Financial Markets

Tags: american debt, andy sutton, austerity, Centsible Investor, credit, debt, investment newsletter, money, stocks

Comments: No Comments

Editor’s Note: The biggest piece of misinfo in this article is that the shrinking labor force is being caused by purely demographic factors. They near totally discount the increasing number of discouraged workers. Seems to me these type of pieces are building a foundation for clamming shut entitlement spending (austerity).

The share of the population that is working fell to its lowest level last year since women started entering the workforce in large numbers three decades ago, a USA TODAY analysis finds.

The bad economy, an aging population and a plateau in women working are contributing to changes that pose serious challenges for financing the nation’s social programs.

“What’s wrong with the economy may be speeding up trends that are already happening,” says Marc Goldwein, policy director of the Committee for a Responsible Federal Budget, a non-partisan group favoring smaller deficits.

For example, job troubles appear to have slowed a trend of people working later in life, putting more pressure on Social Security, he says.

Another change: the bulk of those not working has shifted from children to adults.

In 2000, the nation had roughly the same number of children and non-working adults. Since then, the population of non-working adults has grown 27 million while the nation added just 3 million children under 18.

USA TODAY analyzed employment numbers and 2010 Census data to see how the ratio of workers to non-workers has changed.

Other key findings:

•Men leave. Working-age men have been dropping out of the labor force for decades. The disappearance quickened when construction and manufacturing jobs vanished in the recession from December 2007 through June 2009. Until the 1960s, more than 80% of men worked.

•Women stay. The trend of women getting jobs offset the loss of working men until the late 1990s. The share of women holding jobs rose from 36% in 1960 to 57% in 1995, then leveled off. The rate was 56% in 2010.

The aging of 77 million Baby Boomers born from 1946 through 1964 from children to workers to retirees is changing the relationship between workers and dependents.

Retirees generally are more costly to support than children.

The average public school education costs $10,000 a year. The average retiree gets $25,000 a year in benefits — $13,000 in Social Security and Medicare benefits of $12,000.

In all, taxpayers will spend about $125,000 educating a child and $500,000 caring for a senior, in today’s dollars at current life expectancies, according to federal education and retirement program data. The costs are paid differently, too. State and local governments, through sales and property taxes, pay most education expenses. The federal government, though income taxes, pays most retiree costs.

“No matter how wealthy you are, you have a problem if half the population is not working and depending on those who are,” says John Goodman, president of the conservative National Center for Policy Analysis. “Wherever you look, we’ve overpromised.”

Economist Eileen Applebaum of the liberal Center for Economics and Policy Research says the real problem is a lack of jobs. Another 25 million people would work in a healthy economy, and incentives such as child care assistance could help, she says: “We’re getting richer. We can afford things. We just need to fix what needs to be fixed.”

IMF Cuts US Growth Forecast

by TwoCentsEditor

Published on: 04/11/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton, Centsible Investor, IMF, oil, oil prices, stocks, World Bank

Comments: No Comments

Editor’s Note: But they’re certainly sipping Kool-Aid from the same glass as the government. Just a 2.2% increase in consumer prices? Do they think everyone just fell of a turnip truck?

April 11 (Bloomberg) — The International Monetary Fund lowered its forecast for U.S. growth this year, predicting higher oil prices and the pace of job gains will restrain the recovery.

The world’s largest economy will expand 2.8 percent this year, down from the 3 percent projected in January, the IMF said today, citing the need to reduce deficits and boost exports. Global gross domestic product will grow 4.4 percent in 2011, matching the previous estimate, according to the Washington- based lender’s World Economic Outlook report.

Consumer spending, the biggest part of the U.S. economy, faces headwinds from the rising cost of food and gasoline. Federal Reserve officials last month said the expansion is on “firmer footing,” lessening the need to extend a bond purchase program beyond June.

“If the U.S. is going to do fiscal consolidation of the size that it has to do, then demand has to come from elsewhere,” Olivier Blanchard, chief economist at the IMF, said today at a news conference. “It has to come from net exports. This just has to happen for the U.S. to be able to sustain growth.”

The economy grew 2.9 percent last year, the most since 2005, according to figures from the Commerce Department. U.S. GDP will expand 2.9 percent this year and 3.1 percent in 2012, according to the median estimate of about 70 economists surveyed by Bloomberg News from April 1 to April 7.

‘Pause that Refreshes’ – Pure Propaganda

“This may just be a pause that refreshes in the overall expansion,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an interview on April 8. “The primary risk to the forecast is oil, front and center.”

Oil for May delivery fell 69 cents, or 0.6 percent, to $112.10 a barrel at 10:50 a.m. on the New York Mercantile Exchange. Futures settled at $112.79 a barrel on April 8, the highest closing price since Sept. 22, 2008. Prices have risen 32 percent in the past year.

“Recovery in the labor market remains lackluster,” the IMF said in the report. “The drag on 2011 growth from oil price increases largely offsets the boost from the Federal Reserve’s unconventional policies and from stronger net exports.”

The jobless rate in the U.S. will average 8.5 percent this year and 7.8 percent in 2012, the IMF said in the report. Unemployment was 8.8 percent in March, according to U.S. Labor Department data.

“Job creation has recently accelerated, but the pace of improvement in the labor market remains disappointing considering the size of the job losses during the decline,” the fund said in the report.

Several Risks

The IMF also highlighted several risks to the recovery, including a spike in oil and commodity prices that “could dampen confidence and weaken consumer spending.” The housing market, which precipitated the recession that began in December 2007 and ended in June 2009, may see home prices decline further, according to the report.

The Fed, after its latest policy meeting March 15, pledged to continue its program of purchasing $600 billion of bonds through June, in order to “promote a stronger pace of economic recovery.” Fed officials also said a rise in commodity prices signaled the deflation risk had diminished and they were unlikely to expand the bond purchase plan.

Living Cost

Consumer prices will climb 2.2 percent this year and 1.6 percent in 2012, according to the IMF report. The cost of living in the U.S. increased 2.1 percent in the 12 months ended February, according to the Labor Department in Washington.

The fund also called for the U.S. to tackle its growing deficit. “A credible strategy to stabilize public debt in the medium term, and a down payment on fiscal consolidation in 2011, are urgently needed,” the IMF said in the report.

Signs of improvement in the economy, according to the IMF report, consist of business investment in durable goods, manufactured items meant to last at least three years, and “healthy corporate balance sheets,” putting companies in a position to “support stronger hiring.”

Gas Prices Less than 10% Below All-Time Highs

by TwoCentsEditor

Published on: 04/10/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton, crude oil, EiA, gas prices, lundberg survey, matt simmons, money, oil, oil companies, profits, stocks, taxes, the centsible investor

Comments: No Comments

Editor’s Notes: There is a lot to say on this issue, and some key analysis that will be reserved for our newsletter subscribers. There is a lot more in this report than the size of the article might indicate.

NEW YORK, April 10 (Reuters) – The average price for a gallon of gasoline in the United States has moved closer to $4, jumping more than 19 cents since mid-March to a level less than 10 percent below its all-time high, a widely followed survey said on Sunday.

The Lundberg Survey said the national average price of self-serve, regular unleaded gas was $3.765 on Friday, up from $3.573 on March 18, and up 91.3 cents from $2.852 a year ago.

Prices in several western U.S. cities are already above $4 per gallon, led by San Francisco at $4.13. Chicago was close behind at $4.11 a gallon, the survey said.

The national average would have been higher had refiners and retailers not resisted passing on rising crude oil prices as customers grow less willing to pay what it takes to fill their gas tanks, analyst Trilby Lundberg said in an interview.

“Demand has been falling at these prices,” she said.

The record high average pump price is $4.112 set on July 11, 2008. Lundberg tracks roughly 2,500 gas stations.

Crude oil prices are higher amid unrest in Libya and elsewhere in the Middle East, as well as a weaker U.S. dollar, which on Friday fell to a 15-month low against the euro.

A falling dollar often lifts dollar-denominated commodities such as oil. This is because some investors use commodities as an inflation hedge, and consumers who use other currencies may view the commodities as cheap and buy more, driving up prices.

U.S. crude CLc1 settled Friday at $112.79 per barrel, after earlier reaching its highest intraday price since September 2008. ICE Brent crude LCOc1 settled at $126.65 per barrel, the highest settlement since July 2008.

Even if crude prices do not change, Lundberg said pump prices could rise another dime per gallon as earlier increases work their way into the retail market.

“One gets a little bit depressed talking about it, but we are getting closer” to a $4 per gallon average, though “there is no telling” when or whether it will occur, Lundberg said.

The average price for diesel fuel did top $4 per gallon for the first time since 2008, rising to $4.09 from $3.978 three weeks earlier, and $3.056 a year ago, according to the Lundberg survey, which is done in Camarillo, California.

The lowest average price for a gallon of unleaded gas in the 48 contiguous states was in Tucson, Arizona, at $3.41, Lundberg said. San Francisco had the highest price.

US Debt Jumps $54 Billion in Week Preceding Deal to Cut $38 Billion

by TwoCentsEditor

Published on: 04/09/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton, debt, fiscal gap, government, government crime, hypocrisy, lies, LLC, money, politics, stock market, stocks, Sutton & Associates, the centsible investor

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The federal debt increased $54.1 billion in the eight days preceding the deal made by President Barack Obama, Senate Majority Leader Harry Reid (D.-Nev.) and House Speaker John Boehner (R.-Ohio) to cut $38.5 billion in federal spending for the remainder of fiscal year 2011, which runs through September.

The debt was $14.2101 trillion on March 30, according to the Bureau of the Public Debt, and $14.2642 on April 7.

Since the beginning of the fiscal year on Oct. 1, 2010, the national debt has increase by $653.4 billion.

Investors Catching Gold and Silver Fever

by TwoCentsEditor

Published on: 04/08/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton, dave ramsey, Federal Reserve, fiat money, gold, money, precious metals, silver, stocks, the centsible investor

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When Jean-Claude Trichet announced a quarter-point jump in interest rates this week, gold and silver prices dipped as the European Central Bank chief emphasised his inflation-fighting focus.

But the two well-known inflation hedges were only temporarily dented by the tough talk; on Friday silver pushed above $40 a troy ounce for the first time since 1980 and gold pushed to a new all-time high in nominal terms at $1,474.19.

The metals’ rallies have clear links to rising fears about inflation. But recent predictions for silver to hit $50 and gold to breach $1,500 are based on more than just these fears.

“Both markets actually have surplus supply. Demand for both is good – particularly industrial demand for silver – but this isn’t enough to absorb all the supply,” says Suki Cooper, precious metals analyst at Barclays Capital. “That leaves the rest down to investor demand.”

Investors have indeed been piling in. Holdings of gold to back exchange-traded funds – the popular way for retail investors to gain exposure – jumped 19.9 tonnes on Thursday alone in the biggest single inflow since late January, according to Barclays. On the same day, holdings of silver jumped 42 tonnes to another record at 15,554 tonnes.

Interest itself has been triggered by a range of factors, not least geopolitical tensions. After a weak January, prices of the metals spiked higher in February when the unrest that toppled governments in Tunisia and then Egypt sent investors scrambling for havens.

During the financial crisis, investor fear manifested itself in strong demand for physical holdings. In spite of recent turmoil, there has not been the same scramble to buy physical supplies this time round.

“The fear factor is not as key right now,” says Osvaldo Canavosio, a hedge fund analyst at Man Investments in New York. “At the height of the financial crisis, in precious metals there was a bit of a panic to hold physical.”

Yet the haven buyers were out in force again on Friday, watchers said, as investors braced for a potential shutdown of the US government if last-ditch talks between Republicans and Democrats fail to reach agreement.

Retail investors are showing particular interest in silver coins in many countries, including the US. Last month the Utah state legislature passed a bill accepting US gold and silver coins as legal tender and other states are considering similar legislation in a direct rebuke to the Federal Reserve and its ultra-loose monetary policy.

“Utah has crossed the Rubicon, others are likely to follow suit,” says Daniel Brebner at Deutsche Bank.

Analysts and investors now see $1,500 gold and $50 silver as likely to be breached in the coming months, as the potential for looser monetary policy for longer in the US weighs on the dollar.

Commodities, including gold and silver, are typically priced in dollars so a weaker dollar boosts raw materials prices. The euro hit a 14-month high of $1.4443 against the dollar on Friday. Some gold bugs are even betting on a third round of quantitative easing, dubbed QE3, by the Federal Reserve, after its current scheme ends in June.

“Expectations that QE2 could be followed by QE3 are higher in the gold market than in other markets,” says Edel Tully, precious metals strategist at UBS.

This could leave gold investors setting themselves up for disappointment. “I would expect gold to march to $1,500 sooner rather than later,” says Ms Tully. “Towards the end of this quarter gold could hit a stumbling block if QE2 ends.”

An end to QE would tighten US monetary policy but it would be a small step compared with the inflationary impact of soaring oil and food prices, which have pushed real US interest rates – nominal rates minus inflation – to negative levels, analysts say.

“Gold is ultimately dependent upon real rates, which are a function of both inflation expectations and monetary policy,” says Jeffrey Currie, head of commodities research at Goldman Sachs, which forecasts gold will hit $1,625 by the end of the year. “A top in gold prices will only become apparent when the risks of sovereign default are behind us with a clear and successful exit of the stimulus we’ve seen over the last few years.”

Negative real rates are not just a US issue; the same is true in China – where demand for bullion is skyrocketing, bankers say.

“The cost of carry [the difference between interest on deposits and non-interest bearing gold] is zero,” says Walter de Wet, head of commodities research at Standard Bank. “It incentivises money to be invested in assets.”

Analysts are, however, less confident on silver, whose move higher has been so dramatic that many believe a sharp correction could soon be on the cards.

“I’m less convinced we’re going to remain so high, if only because we’re expecting a generous increase in mine supply,” says James Steel, commodities analyst at HSBC. “Short-term, we could go higher, but it’s increasingly vulnerable to a correction.”

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Food price changes Q1 2010 to Q1 2011