Frank Holmes, CEO and CIO of U.S. Global Investors, a long time gold bull sees no reason for this trend to end.

He tells Aaron in the accompanying clip, “there are many compelling factors both from a supply side and then from the demand side that looks like gold will trade higher.”

Holmes’ reasons to bullish on gold:

– Massive federal deficits and low interest rates in the United States and elsewhere will raise inflation risks and keep downward pressure on currencies.

– Rising incomes in Asia, where affinity for gold runs deep, will have a sizable positive impact on demand; Holmes tells Aaron that China is now the largest producer of gold in the world but that won’t drive down prices because the government is “using it as a reserve currency for themselves.” However, bulls should note China’s chief for exchange official said this morning they would limit their purchases.

– Peak Gold? Gold production from mines is not adequate to meet demand. Production is dropping around the world. Holmes notes worldwide production ell 10% in 2008 and is especially dramatic in South Africa – the world’s largest producer.

Holmes, however, does have a few words of caution for those looking to get rich on gold. He only recommends a 10% allocation in gold that would be divided evenly between bullion and stocks. Among his favorite gold stocks is Randgold Resources Limited, a stock he owns and has recommended here in the past for its strong management

In Europe, the FTSE 100 index of leading British shares was essentially flat, down a bare 2.05 points at 5,482.01 while Germany’s DAX fell 8.57 points, or 0.2 percent, to 5,767.99. The CAC-40 in France was 5.72 points, or 0.2 percent, lower at 3,806.20.

Wall Street was also poised to open steady — Dow futures were down 3 points at 10,396 while the broader Standard & Poor’s 500 futures were unchanged at 1,117.40.

The main focus in the markets continues to be centered on Greece ahead of an expected announcement from the government that of a further euro4.8 billion ($6.5 billion) in spending cuts, which will likely include lower bonus pay for civil servants and ratcheting up the sales tax to 21 percent to try to lift the country out of a major financial crisis, officials said Wednesday.

Prime Minister George Papandreou says the country is in a “state of war” and was fighting for its national survival.

Government officials, speaking on condition of anonymity because it was ahead of the official spending cuts announcement, said the measures would save the government euro4.8 billion.

They said the measures would include cuts in civil servant’s annual pay through reducing their Easter, Christmas and vacation bonuses by 30 percent each, and a 2 percentage point increase in sales tax to bring it to 21 percent from the current 19 percent.

The new austerity package comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.

Papandreou is due to meet German Chancellor Angela Merkel on Friday and the markets will be looking to see what Merkel says about the revised Greek plan and whether Europe’s biggest economy is prepared to offer support. Worries about Greece’s ability to stabilize its finances have eased in recent days amid speculation European leaders will orchestrate a bailout and the government will take needed steps to reduce its mountain of debt.

Neil Mackinnon, global macro strategist at VTB Capital, said the latest announcement on Greek budget measures “puts the ball in Angela Merkel’s court at this Friday’s meeting.”

Jane Foley, research director at Forex.com, said the continued fall in Greek bond yields this week, which has taken the spread between Greek and Germany yields to below 3 percentage points, is “a sign that the market believes that the EU has little option but to ensure that Greece is not forced to default on its debt.”

Though a prospective bailout alongside the more savage budgetary cuts have brought some calm to the markets, there are clear question-marks about the government’s ability to push through the measures.

“The proof of the pudding is in the eating; there is still a very long way to go before Greece’s budget deficit is anyway near the 3 percent of GDP limit outlined in the Maastricht Treaty, thus neither Greece nor the euro is out of the woods yet,” said Foley.

The euro was 0.1 percent higher at $1.3626.

Earlier in Asia, Japan’s Nikkei 225 stock average edged up 31.30 points, or 0.3 percent, to 10,253.14.

South Korea’s Kospi was up 0.5 percent at 1,622.44 but Hong Kong’s Hang Seng lost 0.1 percent to 20,876.79.

Elsewhere, Australia’s market rose 0.7 percent, lifted by news the local economy grew at its fastest pace in nearly two years, signaling that the country has emerged from the worst of the global crisis.

Shanghai’s market was 0.8 percent higher.

Benchmark crude for April delivery was up 14 cents to $79.82 a barrel. The contract rose 98 cents to settle at $79.68 on Tuesday.

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report

It isn’t clear exactly when Sunaga, a former head of European investment banking at Nomura Holdings Inc., will leave Barclays, said one of the people, who declined to be identified as no public announcement has been made.

Barclays, which bought Lehman Brothers Holdings Inc.’s U.S. operations in 2008, hired Sunaga in January last year as part of a push to expand in Japan, where Citigroup Inc. and UBS AG were shedding jobs. Sunaga said in a March 2009 interview that Barclays aimed to double its local investment-banking workforce to 80 people over two years.

“Japan is a treasure-trove,” Sunaga, 48, said at the time. “The incentive for Japanese companies to buy foreign assets is getting stronger as the prolonged financial turmoil pushes asset prices lower.”

Mariko Hayashibara, a Tokyo-based spokeswoman at Barclays, declined to comment. Sunaga didn’t pick up calls to his office phone seeking comment.

Sunaga joined Barclays as a managing director in charge of corporate finance and merger advisory in Japan, according to a Jan. 9, 2009, company statement. He shares the title of co-head of local investment banking with Takemi Ando and reports to Hong Kong-based Matthew Ginsburg, a former Morgan Stanley banker who joined Barclays in September as head of investment banking for Asia Pacific.

Sumitomo Mitsui Sale

Barclays is the third-biggest underwriter of Japanese equity and equity-linked transactions this year, according to data compiled by Bloomberg. It helped Sumitomo Mitsui Financial Group Inc. raise about 970 billion yen ($10.8 billion) selling common stock in January.

During the more than two decades he worked at Nomura, Sunaga advised Matsushita Electric Industrial Co. on its takeover of a building materials and electrical appliances affiliate in 2004 and helped the firm underwrite a global equity offering for East Japan Railway Co. in 2002.

Barclays has hired about 100 people in Japan since October 2008, mainly former Lehman employees, building its equity and research sales team there even as UBS, HSBC Holdings Plc and Citigroup retrenched in the world’s second-largest economy.

“I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB for Greek government bonds,” Soros told reporters in Jakarta today. The European Central Bank has limits for the ratings of bonds it accepts as collateral.

World stock markets rallied since yesterday as prospects for a bailout of Greece eased concern that deteriorating government finances will derail the global economic recovery. The European Union is scheduled to hold a summit in Brussels tomorrow as the Greek government braces for a wave of strikes protesting plans to reduce the region’s largest budget deficit.

German Finance Minister Wolfgang Schaeuble will brief lawmakers today on steps he may take to support the Greek government as European leaders dropped their resistance to rescuing the nation in an effort to protect the rest of the euro region from market turmoil.

“Providing Greece meets its target, I hope the European Union, the European Central Bank, the euro zone will find a way to finance the government in a way that’s not too expensive for Greece to provide some relief,” said Soros, 79, who was in Indonesia meeting Vice President Boediono.

‘Strict Conditions’

Any support would come “under strict conditions and if the Greek government undertakes far-reaching state reforms,” Michael Meister, financial-affairs spokesman for German Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday. Options include bilateral aid or a package put together by a group of countries using the euro, Meister said.

Greek Prime Minister George Papandreou’s government yesterday floated new steps to reduce the deficit, including cuts of as much as 5.5 percent in government workers’ wages and a waiver on taxes for Greeks who repatriate funds held abroad.

Fitch Ratings analyst Brian Coulton said yesterday that any country leaving the euro area would likely face a “banking crisis.”

Credit Default Swaps

The cost to protect investors from default on Greek government bonds fell a record 50 basis points today, CMA DataVision prices show. Credit default swaps for Portugal and Spain also declined.

The MSCI World Index of developed-market stocks climbed 0.1 percent at 2:53 p.m. in Tokyo, a second straight gain, paring the year’s losses to 5.7 percent. The index has slumped for four straight weeks on concern that deficits and sovereign debt in Europe will slow the global recovery.

“I think the markets are generally concerned on sovereign debt and Greece is at the forefront of that issue,” Soros said.

Soros gained fame in 1992 when he reportedly made $1 billion betting that Britain would fail to keep its currency in a European exchange-rate system that pre-dated the euro. He also wagered that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year.

At 0812 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.8 percent at 988.54 points after gaining 0.2 percent in the previous session. The index, which fell nearly 4 percent last week, is up 53 percent from a record low in March 2009.

Banks were among the top gainers, with Standard Chartered (STAN.L), HSBC (HSBA.L), Barclays (BARC.L), Lloyds (LLOY.L), Royal Bank of Scotland (RBS.L), BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) rising 1.2 to 2.3 percent.

“May be the market has exhausted its neurosis near term. You can’t have a sell-off every day on the basis of Greece. The market is consolidating, but is still in a cyclical bull phase,” said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin.

“It’s highly unlikely that there will be any decisive bailout in the form of debt guarantees for Greece or any of the other peripheral economies. The onus is still very much on the Greeks to make necessary adjustments,” he added.

European governments have agreed in principle to help Greece, a senior German coalition source said on Tuesday, in what would be the first rescue of a euro zone member in the currency’s 11-year history.

The comments were the strongest signal so far that European Union economic heavyweight Germany may be ready to step in to stave off a crisis of confidence in the 16-nation currency bloc that has roiled markets around the globe.

ArcelorMittal (ISPA.AS), the world’s top steelmaker, fell 5.3 percent. It forecast higher shipments but lower prices in the first three months of 2010 and a core profit that could fall from a fourth-quarter figure that just missed expectations.

Common Stock
Common stock is, well, common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn’t come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).

Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.

Different Classes of Stock
Common and preferred are the two main forms of stock; however, it’s also possible for companies to customize different classes of stock in any way they want. The most common reason for this is the company wanting the voting power to remain with a certain group; therefore, different classes of shares are given different voting rights. For example, one class of shares would be held by a select group who are given ten votes per share while a second class would be issued to the majority of investors who are given one vote per share.

When there is more than one class of stock, the classes are traditionally designated as Class A and Class B. Berkshire Hathaway (ticker: BRK), has two classes of stock. The different forms are represented by placing the letter behind the ticker symbol in a form like this: “BRKa, BRKb” or “BRK.A, BRK.B”.

An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.

Depending on the direction of the position, limit orders are sometimes referred to more specifically as a buy limit order, or a sell limit order.

Limit orders typically cost more than market orders. Despite this, limit orders are beneficial because when the trade goes through, investors get the specified purchase or sell price. Limit orders are especially useful on a low-volume or highly volatile stock.

Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. This comes down to figuring out what news is positive for a company and what news is negative. There are many answers to this problem and just about any investor you ask has their own ideas and strategies.

That being said, the principal theory is that the price movement of a stock indicates what investors feel a company is worth. Don’t equate a company’s value with the stock price. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. For example, a company that trades at $100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 that has 5 million shares outstanding ($100 x 1 million = $100 million while $50 x 5 million = $250 million). To further complicate things, the price of a stock doesn’t only reflect a company’s current value, it also reflects the growth that investors expect in the future.

The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn’t going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Wall Street watches with rabid attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their future value of a company on their earnings projection. If a company’s results surprise (are better than expected), the price jumps up. If a company’s results disappoint (are worse than expected), then the price will fall.

Of course, it’s not just earnings that can change the sentiment towards a stock (which, in turn, changes its price). It would be a rather simple world if this were the case! During the dotcom bubble, for example, dozens of internet companies rose to have market capitalizations in the billions of dollars without ever making even the smallest profit. As we all know, these valuations did not hold, and most internet companies saw their values shrink to a fraction of their highs. Still, the fact that prices did move that much demonstrates that there are factors other than current earnings that influence stocks. Investors have developed literally hundreds of these variables, ratios and indicators. Some you may have already heard of, such as the price/earnings ratio, while others are extremely complicated and obscure with names like Chaikin oscillator or moving average convergence divergence.

So, why do stock prices change? The best answer is that nobody really knows for sure. Some believe that it isn’t possible to predict how stock prices will change, while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know is that stocks are volatile and can change in price extremely rapidly.

The important things to grasp about this subject are the following:

1. At the most fundamental level, supply and demand in the market determines stock price.
2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless.
3. Theoretically, earnings are what affect investors’ valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors’ sentiments, attitudes and expectations that ultimately affect stock prices.
4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.

The Bombay Stock Exchange Sensitive Index is valued at 20 times estimated profits, higher than China for the first time since November 2006 and the second-most expensive among the 25 biggest markets after Japan, according to monthly data compiled by Bloomberg. Even after the Sensex sank 4 percent last week, the most in almost three months, its stocks trade within 6.1 percent of analysts’ average 12-month price estimates.

Rising valuations prompted analysts to cut “buy” ratings on Indian equities to a record low. Goldman Sachs Group Inc. said the Reserve Bank of India plans its first interest rate increase since 2006 this week to curb inflation. The last eight times wholesale price increases climbed above their long-term average, the Sensex posted average losses of 5.6 percent, Bloomberg data show.

“There are better opportunities in other emerging markets,” said Roger Groebli, the Singapore-based head of financial market analysis at LGT Capital Management, part of a group that oversees about $84 billion. India “will be an underperformer for the first quarter,” he said.

Growth Rebounds

The Sensex gauge fell 0.9 percent to 16,715.34 as of 10:04 a.m. in Mumbai. The gauge surged 117 percent from its March low to a high on Jan. 6 as growth in the fourth-largest emerging economy after China, Brazil and Russia accelerated. Gross domestic product grew 7.9 percent in the three months through September, from 5.8 percent at the beginning of 2009. India may expand 6.4 percent in 2010, according to the Washington-based International Monetary Fund.

The rally pushed the Sensex’s valuation above China’s Shanghai Composite Index, which trades for 18 times analysts’ earnings estimates. Chinese valuations are falling as faster growth adds pressure on policy makers to slow the rise in asset prices. The government reported last week that the economy expanded 10.7 percent in the fourth quarter, the fastest pace since 2007.

Brazil’s Bovespa trades at 13 times earnings estimates and Russia’s Micex is valued at 9.2 times. Japan’s Nikkei-225 Stock Average has a ratio of 40, compared with 14 for the Standard & Poor’s 500 Index, Bloomberg data show.

Tata Motors Ltd., maker of the world’s cheapest car, led the Sensex’s advance since March with a 470 percent gain. The Mumbai-based company is valued at 27 times analysts’ earnings estimates, compared with 23 times for Shanghai-based SAIC Motor Corp., China’s largest carmaker.

Analysts Cut Ratings

Surging equity valuations prompted India stock analysts to drop their “buy” ratings to 49 percent of total recommendations, the lowest level since Bloomberg began tracking the data in 1997 and down from 59 percent a year ago.

The rise in price-to-earnings ratios may prompt companies to sell shares in stock offerings. Indian firms have plans to raise as much as $30 billion while the government may sell about $10 billion of shares in state-controlled companies, according to Kotak Securities.

Indian stocks risk a “tactical correction” because investors have failed to price in the effect of rising interest rates and inflation, according to Goldman’s Hong Kong-based strategist Timothy Moe.

Inflation Surge

India’s wholesale-price index climbed 7.3 percent in December, the fastest pace in more than a year. Central bank Governor Duvvuri Subbarao probably will raise the key reverse repurchase rate by 25 basis points to 3.5 percent and the cash reserve ratio by 50 basis points to 5.5 percent at the next policy announcement on Jan. 29, Moe said in a Jan. 15 research report.

Eleven of 15 economists surveyed by Bloomberg predict policy makers will keep the reverse repurchase rate unchanged. Subbarao said last week he aims to support the nation’s economic recovery without “compromising” on price stability. A basis point is 0.01 percentage point.

Overseas investors sold a net $123.9 million of shares on Jan. 21 as the government said food inflation stayed above 15 percent for the ninth week. The report dragged down financial shares from Housing Development Finance Corp. to ICICI Bank Ltd., which are both based in Mumbai.

‘Go Too Far’

India’s market “hasn’t factored in the risk of tightening whereas China has already begun to,” said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors, which oversees about $90 billion globally. “The macro backdrop in India and the share-market valuations are less favorable.”

The Shanghai Composite has dropped 10 percent from its 2009 peak in August as the People’s Bank of China raised the proportion of deposits that banks must set aside as reserves and allowed three-month bill yields to rise. Policy makers are trying to reduce funds in the banking system after record loan growth spurred concern that bubbles will form in the equity and property markets.

Stocks plunged around the world Jan. 21 as concern grew China will do more to cool its economy after the fourth-quarter GDP report.

“What China is trying to do is take the foot off the accelerator,” said Oliver. “It’s already having a negative effect on the stock market because investors are concerned that they’ll go too far.”

2010 Retreat

The Shanghai Composite is down 5.2 percent this year, the biggest decline among benchmark indexes in the largest emerging- market economies, or BRICs. The Sensex and the Bovespa dropped about 4 percent. Only Russia’s Micex is up this year with a gain of 3 percent.

AMP cut holdings of Indian stocks to “underweight” relative to China and other emerging markets near the end of 2009, Oliver said. India is the only underweight holding for money managers among the BRIC markets, according to a Bank of America Corp. survey this month.

India’s higher valuations are justified because profits are poised to rise as the economy keeps expanding, said Ivan Leung of JPMorgan Private Bank. Ten of the 16 companies in the Sensex that have reported third-quarter results topped analysts’ estimates, Bloomberg data show.

India Delivers

“Earnings growth looks solid and economic growth, even post-tightening, still looks pretty good,” said Leung, the Hong Kong-based chief investment strategist at JPMorgan Private Bank. “India simply trades at a premium because it strongly delivers on that earnings growth.”

Indian companies may post compound annual profit growth of 22 percent over the fiscal years ending March 2011 and March 2012, JPMorgan Chase & Co.’s brokerage estimates.

Better-than projected profits have failed to stem declines in the Sensex. The gauge dropped 3.5 percent since Bangalore-based Infosys Technologies Ltd., India’s second- largest software exporter, kicked off the earnings season on Jan. 12 with results that topped analysts’ estimates.

ICICI, India’s second-largest bank, sank 2.9 percent on Jan. 21 even after reporting better-than-expected results. Wipro Ltd., India’s third-largest software exporter, lost 1.7 percent on Jan. 20 after beating analysts’ profit estimates.

The Sensex posted an average drop of 5.6 percent during periods when wholesale inflation climbed above its long-term average of 5.2 percent, Bloomberg data show. That compares with an average decline of 3.4 percent in rupee terms for the MSCI emerging index during the same periods.

“Inflation pressures are rising swiftly,” Goldman’s Moe wrote. “India seems most vulnerable.”