27-Oct (USAGOLD) — Gold remains well bid as risk appetite jumps following the full reveal of the eurozone “master-plan.” The euro has jumped to new 7-week highs and stocks are higher as well after European leaders agreed to leverage the EFSF bailout fund by 4 to 5 times and investors have reportedly agreed to a voluntary haircut of 50% on Greek debt. Reports that China has agreed to invest in the new ESFS SPV are helping the cause.

Europe has been yanked back from the precipice and all is good and right in the world once again. Risk-on revelry may continue for a while, but focus will eventually shift to implementation risks.

US advance Q3 GDP came in at a 2.5% annual pace. While this print was in line with expectations, it was the most robust growth since Q3 of last year. An uptick in the recovery from anemic to not-quite anemic, combined with the weaker dollar, has US stocks called sharply higher. The weaker dollar is helping to underpin gold, while the bounce in growth and another modest downtick in initial claims stokes price risks.

• US Q3 GDP (advance) +2.5%, in line with expectations, vs 1.3% in Q2.
• US initial jobless claims -2k to 402k in the week ended 22-Oct, near market expectations, vs upward revised 404k in the previous week.
• Canada average weekly earnings +0.8% in Aug, but annual pace falls to +1.9%.
• German HICP decelerated to 2.8% y/y in Oct, in line with expectations, vs 2.8% in Sep; CPI 2.5% y/y, just below median of 2.6%.
• Eurozone Oct consumer confidence confirmed at -19.9, slightly above expectations.
• Swedish Riksbank keeps repo rate steady at 2.0%, as expected; adds that it expects to resume a gradual tightening path sometime next year.
• South Korea Q3 GDP (advance) steady at 3.4% y/y.
• Japan total retail sales -1.2% y/y in Sep, vs -2.6% y/y in Aug; large retailers -3.6% y/y, vs -2.6% y/y in Sep.
• BoJ held rates steady at 0.0%-0.1% and expanded asset purchases by ¥5 tln to ¥20 tln. Citing slowing global growth, BoJ cut its economic outlook for current and next fiscal years.

27-Oct (Financial Times) — In typical European fashion, a summit deal which seemed out of reach at midnight last night was triumphantly unveiled at 4am. The deal does not, and was not intended to, have any effect on the core problems facing the eurozone. There is still an urgent need to restore growth to economies which are hamstrung by uncompetitive business sectors, and continuous fiscal tightening. Recession still looms, especially in the southern economies.

What the deal is intended to provide is adequate medium term financing for sovereigns and banks which have been facing urgent liquidity problems. On that, it is notable that the summit has not really raised any new money, apart from an increase in the private sector’s write-down of Greek debt by some €80bn.

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26-Oct (Bloomberg) — French President Nicolas Sarkozy plans to call Chinese leader Hu Jintao tomorrow to discuss China contributing to a fund European leaders may set up to bolster its debt-crisis fight, said a person familiar with the matter.

The investment vehicle was one of the options being considered by European leaders at a summit tonight to expand the reach of its 440 billion-euro ($612 billion) European Financial Stability Facility.

Sarkozy’s plea to his Chinese counterpart would come the day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors.

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PG View: A headline from earlier today may offer a suggestion as to how receptive China might be: EFSF Guarantees May Be Backed by Assets, Gold, Bild Says

26-Oct (CNBC) — Euro zone leaders intend to scale up their emergency fund, the European Financial Stability Facility, to around 1.0 trillion euros, EU sources said on Wednesday.

The sources said the 440 billion euros ($611.4 billion) fund, set up last year, would have about 250-275 billion euros available after amounts are set aside for aid to Greece, Ireland and Portugal and for the recapitalizing the region’s banks.

That amount would be scaled up around four times, arriving at a headline figure of around 1.0 trillion.

“The ratio of the leverage will be of at least 4 times,” one source said, while another said the spare capacity available to be leveraged was 250 billion to 275 billion.

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PG View: Leverage is very much a double-edged sword, also capable of amplifying losses. Nobody ever seems to talk about that. Of course Europe can always bailout its bailouts…

26-Oct (Financial Times) — Eurozone leaders will attempt to reduce Greece’s outstanding debt to 120 per cent of gross domestic product by the end of the decade, but were struggling on Wednesday night to pin down details of the private sector’s contribution, needed for a comprehensive deal.

The sharp reduction in Greek debt levels, announced by Angela Merkel, German chancellor, would be likely to force bondholders to accept that their debt payments be cut in half, according to an analysis by authorities. International lenders believe Athens is on track for its debt to peak at 186 per cent of GDP in 2013, compared to 83 per cent for Germany.

But officials were making little progress with bondholders in talks that stretched into the evening, and it appeared likely that negotiations would continue beyond the much-anticipated summit of eurozone leaders. They were gathering in Brussels in an effort to finalise a three-pronged plan to tackle the European sovereign debt crisis.

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Gold Reclaiming its Role as the Safe-Haven Asset of Choice

26-Oct (USAGOLD) — Gold continues to gain ground and nearly 50% of the entire correction from 1920.50 to 1534.06 has now been retraced as concerns about whether policymakers will be able to pull Europe back from the brink persist.

The German Bundestag voted to approve leveraging of the EFSF bailout fund earlier today, but sticking points remain. Germany continues to oppose ECB bond buying. There has also apparently been substantial push-back from the banks regarding an increase in haircuts on Greek bonds from the 21% that was agreed upon in July, to something in the 50-60% range. It may in fact need to be higher even than that. An EU official said today that “involuntary” haircuts can not be ruled out.

That of course would reek havoc with the carefully crafted narrative of an orderly and voluntary restructuring of Greek debt. Forcing larger than agreed upon haircuts would unquestionably be a default and would trigger CDSs on Greek debt. The likely repercussions of that aren’t readily knowable, but there must be a reason that the EU has been working so hard to avoid that eventuality.

Amid all this persistent uncertainty, and in the continued absence of a cohesive and coordinated plan to mitigate the European debt/banking crisis, gold is returning to its role as the safe-haven asset of choice.

25-Oct (Globe and Mail) — Sir Mervyn King, governor of the Bank of England, ordered up another $300-billion (U.S.) in easy money earlier this month, then mentioned, by way of explanation, that we are living through the most serious financial crisis since the Great Depression – “if not,” he said ominously, “ever.” Sir Mervyn’s warning was only marginally more sobering than the collective warnings of Prime Minister Stephen Harper, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney.

This is not to mock. These men know enough not to scare people out of their wits unless it necessary to do so. So the question is, what do these people know that the rest of us don’t?
More related to this story

To put Sir Mervyn’s warning into its historical perspective, it must be noted that “ever” goes back a long way. The biblical record cites one calamitous meltdown 4,000 years ago, “when money failed in the land of Egypt.” Did Sir Mervyn deliberately or inadvertently include the financial crashes of antiquity in his portentous warning? Isn’t it the failure of money that now threatens the world?

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26-Oct (Bloomberg) — Guarantees for bonds in the enhanced European bailout, known as the European Financial Stability Facility, fund may be backed by collateral such as central bank gold, the Bild Zeitung newspaper reported, citing the interpretation of German lawmakers.

The proposal is embedded in a working document prepared for today’s summit of European leaders in Brussels, Bild reported.

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25-Oct (The Wall Street Journal) — Stocks tumbled Tuesday following a mixed bag of corporate earnings and as hopes for a big solution to Europe’s debt crisis waned.

The Dow Jones Industrial Average dropped 207.00 points, or 1.7%, to 11706.62. The losses snapped a three-day winning streak in which the blue-chip Dow rose more than 400 points.

The action followed reports that a Wednesday meeting of EU finance ministers was cancelled, although a scheduled summit among European leaders seeking a way out of the debt crisis is still planned.

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25-Oct (CNBC) — The European Union is doomed to fail because the divide between the northern and southern countries is just too great, former Fed Chairman Alan Greenspan told CNBC in a recent interview.

“At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t,” Greenspan said. “Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits.”

Greenspan predicts that as the south’s fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe’s standard of living will go down.

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25-Oct (Reuters) — The International Monetary Fund is considering taking part in a special investment vehicle being proposed by the euro zone bailout fund but has not made a decision yet, euro zone officials said on Tuesday.

“The IMF has indicated that they are considering it — they have not taken a position,” one euro zone official said. “It will all depend on the whole package.”

Euro zone leaders are expected to approve a plan on Wednesday to increase the fire power of the European Financial Stability Facility, a 440 billion euro bailout fund, without euro zone countries having to put more money into it.

Under the plan, the EFSF would create a special purpose investment vehicle (SPIV) which would issue debt and use the proceeds to buy bonds of distressed euro zone sovereigns on the secondary market or extend loans to at-risk governments.

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25-Oct (The Wall Street Journal) — A meeting of EU finance ministers ahead of a gathering of European leaders was canceled Tuesday, raising concerns that governments are seeking more time to wrap up a deal as parts of the package to stem the region’s debt crisis remain in doubt.

The finance ministers from all 27 EU countries were to meet early Wednesday, ahead of the evening summit of EU leaders, to sign off on agreements that as of Tuesday afternoon still appeared out of reach. The meeting of EU heads of state in Brussels will proceed as scheduled,

Eurozone finance ministers have canceled a preliminary meeting that was scheduled ahead of the Wednesday Summit to End All Summits.

“Further work at the level of ministers of finance will be conducted based on the outcome of the heads-of-state meeting. The aim is to adopt all necessary elements and details concerning the package, as promptly as possible,” the government of Poland, which holds the six-month rotating EU presidency, said in a statement.

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Europe Remains in Disarray

25-Oct (USAGOLD) — Gold briefly came under modest intraday pressure after Wednesday’s EU EcoFin meeting was canceled. The euro retreated on the news, lifting the dollar in the process. The EU’s Jacek Rostowski wrote in a letter to Jean-Claude Jüncker, “As things stand at present, I understand that the full package may not be ready by Wednesday, 26 October. Were this the case, the presidency would need to postpone the Ecofin council meeting by a day or two.” However, those downticks proved short-lived as the realization that Europe may not be any closer to a solution heightened the safe-haven appeal of gold.

Officials have confirmed that while the EcoFin meeting has been canceled, the EU leadership summit will take place as scheduled. This is the summit that was hastily added after it became apparent that Sunday’s summit would fail to generate any kind of meaningful agreement on how to mitigate the European debt and banking crises. Europe is in disarray, but for some reason the single currency — and global stocks for that matter — largely been able to look past this train-wreck. All I can think is that the markets believe that the EU — and especially Germany — will ultimately bite the bullet and come in with a huge bailout. If that is indeed the case, gold would likely be a beneficiary as well.

Here in the States, the S&P/Case-Shiller home price index for 20-cities rose just 0.2% in Aug, -3.8% y/y, below market expectations. The housing market remains an anchor tied around the neck of the broader economy and even the President’s new refinance program, announced yesterday, is not likely to have a big impact on this reality.

Additionally, US consumer confidence missed expectations, plunging to 39.8 in Oct, a new 2-year low. With the critical holiday shopping season fast approaching, this is a bad omen indeed.

The still moribund housing market, along with flagging consumer confidence, has heightened expectations that the Fed will offer additional accommodations. As QE3 becomes more likely, the dominant uptrend in gold is likely to re-exert itself.

Even Canada took a more dovish tone today, removing the ‘withdrawing stimulus’ reference from its policy statement after holding rates steady at 1.00%

• US consumer confidence plunges to 39.8 in Oct, well below market expectations of 47.0, vs 46.4 in Sep.
• US S&P/Case-Shiller home prices index +0.2% (nsa) in Aug for 20-cities, below market expectations, vs 0.9% in Jul.
• BoC held policy rate steady at 1.00%, in line with expectations, but ‘withdrawing stimulus’ verbiage was dropped from statement.
• UK Q2 current account narrows to -£2.02 bln, vs -£9.35 bln in Q1.
• Germany GfK consumer confidence better than expected in Nov at 5.3.
• Italy consumer confidence (sa) falls to 92.9 in Oct, vs negatively revised 94.2 in Sep.
• Singapore manufacturing production falls to 12.8% y/y in Sep, vs upward revised 22.8% y/y in Aug.
• New Zealand Q3 CPI falls to 0.4%, vs 1.0% in Q2.

25-Oct (Financial Times) — It’s getting uncomfortably close to crunch time for eurozone leaders, with just over 24 hours left before the summit-to-end-all-summits. But will they actually be able to agree on the big euro rescue plan? A letter sent last night by Jacek Rostowski, the Polish finance minister, makes it seem doubtful.

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24-Oct (The Wall Street Journal) — Copper futures surged 7.1%, ending at a one-month high as strong manufacturing data from top consumer China and hopes for a European debt deal sent investors who had bet against the industrial metal rushing to reverse those positions.

The contract for October delivery rose 22.8 cents to settle at $3.447 a pound on the Comex division of the New York Mercantile Exchange, the highest settlement price since Sept. 22.

Copper futures have swung wildly in recent days, dropping a combined 9% on Wednesday and Thursday as investors bet that the prospects for a speedy resolution to Europe’s debt crisis were slipping, only to rise by 13% in the subsequent two sessions as those bets were reversed amid upbeat sentiment and Chinese manufacturing data.

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PG View: Inflation worries are heating up again as oil prices rose as well.

24-Oct (Der Spiegel) — Chancellor Angela Merkel has provided German party heads some details of the planned euro rescue package set for approval by European leaders on Wednesday. They include a Greek debt cut of up to 60 percent and leveraging the bailout fund to one trillion euros. The measures will be put to a full vote in German parliament on Wednesday.
Info

German Chancellor Angela Merkel has told German lawmakers that the financial strength of the euro rescue fund, the European Financial Stability Facility, is to be leveraged to €1 trillion ($1.39 billion), and that a Greek debt cut of up to 60 percent is planned, opposition leaders said on Monday.

The type of leveraging planned remains unclear, with a number of versions being discussed. It emerged earlier on Monday that the controversial measure to increase the firepower of the €440 billion rescue fund will be put to a full votein the German parliament on Wednesday, rather than just a vote by the budget committee as initially planned.

Given the intense public debate on boosting the EFSF, Merkel’s center-right coalition decided to seek a broader mandate than just budget committee approval.

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24-Oct (USAGOLD) — Gold is higher this morning after nothing meaningful came out of the weekend EU summit, beyond an agreement that European banks need an additional €108 bln in capital. Given the higher euro, the market seems to be holding out hope that the EU will fulfill its pledge to come up with a comprehensive solution by month-end. There is another summit scheduled for Wednesday this week.

Talk that another downgrade of the US is in the offing is keeping the dollar under pressure and buoying gold.

• Eurozone Reuters Manufacturing PMI (advance) falls to 47.3 in Oct, below market expectations, vs 48.5 in Sep; Services falls to 47.2.
• Eurozone industrial orders (sa) +1.9% m/m in Aug, vs upward revised -1.6% in Jul; 6.2% y/y, down from upward revised 8.9% y/y in Jul.
• Japan trade balance-CC (nsa) rebounded to surplus of ¥300.4 bln in Sep, vs -¥777.2 bln in Aug.
• China HSBC/Markit Flash Manufacturing PMI rebounded to 51.1 in Oct, vs 49.4 in Sep.
• Singapore CPI 5.5% y/y in Sep, vs 5.7% in Aug.
• Australia Q3 PPI +0.6%, vs 0.8% in Q2.
• New Zealand Q3 CPI +0.8%, down from 1.0% in Q2.

24-Oct (ABCNews) — The United States is in for another credit downgrade by year’s end if Congress fails to agree on a long-term plan to tame the nation’s $14.8 trillion debt, Merrill Lynch warned.

In a research note, the Bank of America unit predicts that either Moody’s or Fitch will move to downgrade the U.S. AAA rating. Standard & Poor’s cut the nation’s bond rating in August, causing the stock and bond markets to swoon, after months of bickering by Congress on how to best reduce spending and cut the deficit. The United States spends about 40 percent more annually than it collects in taxes.

“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill’s North American economist, Ethan Harris, wrote in the Friday report. ”Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”

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