05-Jan (USAGOLD) — A more risk averse tone today has gold under modest pressure, but downticks below $1600 have been tentative thus far. In fact, the yellow metal is showing good resilience in the face of renewed dollar strength.

Better than expected US jobs data has been offset by heightened concerns in Europe. Today’s French bond auction didn’t go as well as hoped and borrowing costs rose, as did the OAT-Bund spread, amid persistent rumors of an impending French downgrade. The market is also looking forward nervously to next week’s Spanish and Italian debt auctions, with yields on 10-year BTPs continuing to probe above the troubling 7% level. European financial shares, and in particular Italian financials (most notably UniCredit) are getting shellacked today.

The euro has come under more intense selling pressure, trading with a 1.27 handle against the dollar for the first time since September 2010. EUR-JPY set a fresh 10-year low at 98.48.

Our sources in Europe have made note of robust demand for gold coins and rising premiums. Our call volume from Europe has increased notably of late as well. While European banks are accumulating cash (both euros and dollars) as a buffer against persistent uncertainty, European citizens it would seem are growing increasingly suspicious of “cash”. They are instead turning to a reliable and liquid store of value that knows no nationality.

• US ISM non-manufacturing index rose to 52.6 in Dec, below market expectations of 53.0, vs 52.0 in Nov.
• Canada Ivey PMI rose to 63.5 (sa) in Dec, well above market expectations of 58.0, vs 59.9 in Nov.
• US initial jobless claims -15k to 372k in the week ended 31-Dec, below market expectations of 375k, vs upward revised 387k in previous week.
• US ADP employment survey +325k in Dec, well above market expectations of +175k, vs +204k in Nov.
• Germany retail sales unexpectedly fall -0.9% m/m in Nov, on expectations of +0.2%, vs negative revised -0.2% in Oct; 0.8% y/y.
• UK CIPS Services PMI better at 54.0 in Dec, vs 52.1 in Nov.
• Eurozone PPI +0.2% m/m in Nov, y/y pace moderates to 5.3% from 5.5% in Oct.
• Eurozone industrial orders (sa) +1.6% m/m in Oct, below market expectations of +2.5%, vs -6.4% in Sep; 1.8% y/y.

05-Jan (Washington Post) — The specter of Europe’s debt crisis returned Thursday after a brief respite, as bank stocks fell sharply on worries about losses on government debt and a French bond auction drew lackluster demand from investors.

Financial stocks slumped across Europe as it became clear banks would have troubled raising billions in new capital in coming months. In Italy, trading in UniCredit shares was halted after they lost a quarter of their value since yesterday morning, when the bank admitted it had to offer huge discounts to new investors to attract capital.

The banks need the money to cover potential losses on government debt, whose value has plummeted across most of Europe in recent months on fear of defaults. Many countries in the region have to roll over billions in debt in coming months, putting huge focus on their bond auctions.

[source]

France sold 7.96 billion euros ($10.2 billion) of debt, with borrowing costs rising in its first bond auction of the year as credit companies threaten to cut the nation’s AAA rating.

The government sold 4.02 billion euros of benchmark 10-year bonds at an average yield of 3.29 percent, from 3.18 percent on Dec. 1. France, which also auctioned 2023, 2035 and 2041 securities, had aimed to sell a maximum of 8 billion euros. French 30-year bonds pared their declines.

…France has the biggest debt burden of the six top-rated euro nations, at 85 percent of gross domestic product. The extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds rose to 204 basis points on Nov. 17, the most since 1990, as concern deepened Europe’s debt crisis was spreading. While the gap was 145 basis points at 12:24 p.m. Paris today, it compares with a premium of 44 basis points for AAA rated Finland and 37 basis points for the Netherlands.

[source]

PG View: The EUR-USD fell to new 15-month lows, probing below 1.2800. The real test will be the Spanish and Italian auctions next week. Italian 10-year bonds are already back above the troubling 7% level as Italian financial shares get hammered, led by UniCredit.

04-Jan (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke sent a staff study on the U.S. housing market to House and Senate committees today discussing policy options to help clear away one of the biggest drags on the economy.

“The challenge for policy makers is to find ways to help reconcile the existing size and mix of the housing stock and the current environment for housing finance,” according to the paper sent to members of the Senate Banking Committee and the House Financial Services Committee. “Fundamentally, such measures involve adapting the existing housing stock to the prevailing tight mortgage lending conditions.”

[source]

PG View: A reminder that the primary cause of the original crisis several years ago, remains a major problem to this day.

By William H. Gross
04-Jan (PIMCO) — How many ways can you say “it’s different this time?” There’s “abnormal,” “subnormal,” “paranormal” and of course “new normal.” Mohamed El-Erian’s awakening phrase of several years past has virtually been adopted into the lexicon these days, but now it has an almost antiquated vapor to it that reflected calmer seas in 2011 as opposed to the possibility of a perfect storm in 2012. The New Normal as PIMCO and other economists would describe it was a world of muted western growth, high unemployment and relatively orderly delevering. Now we appear to be morphing into a world with much fatter tails, bordering on bimodal. It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century. Welcome to 2012.

…For 2012, in the face of a delevering zero-bound interest rate world, investors must lower return expectations. 2–5% for stocks, bonds and commodities are expected long term returns for global financial markets that have been pushed to the zero bound, a world where substantial real price appreciation is getting close to mathematically improbable. Adjust your expectations, prepare for bimodal outcomes. It is different this time and will continue to be for a number of years. The New Normal is “Sub,” “Ab,” “Para” and then some. The financial markets and global economies are at great risk.

[source]

04-Jan (ZeroHedge) — Wondering why gold has moved by over $20 in the last few minues? Wonder no more – according to a note just released by Citi analyst Tom Fitzpatrick, the gold correction “has run its course and a rally is now back on the cards.” Granted it is not all smooth sailing – “Gold may drop to $1,550 before turning”, but when the turn comes, Fitzpatrick sees it as going all the way up to $2,400.

[source]

04-Jan (USAGOLD) — Gold is back below $1600 as yesterday’s improved risk appetite — driven by better than expected manufacturing data — proved short-lived. A more risk averse stance emerged today after two ECB dollar liquidity tenders garnered $31.7 bln uptake from eurozone banks. While this was lower than the $33.0 bln allotted in the 21-Dec operation, it is still a disturbingly high number, indicative of ongoing strains within the European banking system.

On top of that, the banks also parked a record high €453.2 bln at ECB overnight facility. So commercial banks in the EU are still clamoring for dollars, while hoarding euros with the ECB. This would suggest a troubling level of uncertainty that bodes ill for growth prospects and may suggest a rise in concerns about a possible breakup of the EU. Greece threatened this very thing earlier in the week if their latest round of bailout funds were not released in a timely manner.

As long as this uncertainty prevails, the quid pro quo that the ECB was expecting — we provide you with unlimited cheap euros and you plow them back into periphery sovereign bonds — seems unlikely to be honored.

The euro came under renewed selling pressure and all of yesterday’s gains have been erased. This buoyed the dollar, which in turn took some of yesterday’s shine off the yellow metal.

Portugal saw its short-term borrowing costs fall as it sold €1 bln in 3-month bills with an average yield of 4.346%, down from 4.873% in early December. There was also a solid 1.27 bid cover in today’s €4.057 bln German 10-year bund auction, but the market seemed nonplused. French yields rose ahead of Thursday’s OAT auction, amid persistent market chatter of an impending downgrade. Italy and Spain will be selling debt next week and there are real concerns that Italy in particular may have difficulty moving about €100 bln in redemption and coupon payments coming due early in the new year. Will the ECB step in to fill the demand void if one does indeed develop?

• US factory orders jumped 1.8% in Nov, in-line with expectations, vs positive revised -0.2% in Oct.
• Eurozone Markit PMI – Composite revised up to 48.3 in Dec, vs 47.9 preliminary print. Services revised up to 48.8, vs 48.3.
• Eurozone HICP inflation decelerated in Dec to 2.8% y/y, in-line with expectations, vs 3.0% y/y in Nov.
• UK CIPS Construction PMI 53.2 in Dec, vs 52.3 in Nov.

03-Dec (Reuters) – The Federal Reserve on Tuesday said it would begin publishing forecasts on the path of interest rates later this month, a significant milestone in Ben Bernanke’s push for greater policymaking transparency.

The move is meant to better align bets in financial markets with the views of policymakers at the central bank, and it could show that rates will be on hold for longer than previously expected.

[source]

PG View: …because signalling 0% interest rates until mid-2013 was a failure, now it will be ZIRP from here to eternity…

03-Jan (MarketWatch) — Gold futures were back at $1,600 an ounce on Tuesday, rallying alongside oil and stocks and helped by a weaker dollar to start the new year on a high note after a 10% yearly gain in 2011.

Gold for February delivery rose $33.10, or 2.1%, to trade at $1,600 an ounce on the Comex division of the New York Mercantile Exchange. It traded as high as $1,602 an ounce earlier.

[source]

03-Jan (USAGOLD) — Gold begins the first US trading day of the new year on a positive note, underpinned by renewed risk appetite after some better than expected manufacturing data overseas. The yellow metal was up more than $25 at one point, but momentum has waned ahead of $1600, which has been an important pivot point in recent weeks.

China’s official PMI for Dec came in at 50.3, above market expectations and up from 49.0 in Nov. This was also better than last week’s HSBC/Markit PMI print for Dec. Swiss and UK PMI’s also showed solid gains, besting market expectations. The euro firmed on short covering, putting the dollar under pressure, which in turn added to the bid in gold.

• US calendar has Dec ISM manufacturing and Nov construction spending at 15:00GMT.
• Switzerland SVME manufacturing PMI rises to 50.7 in Dec, above market expectations, vs 44.8 in Nov.
• Germany unemployment change (sa) -22k in Dec, a much bigger drop than expected, vs -20k in Nov; unemployment rate (sa) 6.8%.
• UK CIPS manufacturing PMI rises to 49.6 in Dec, above market expectations, vs 47.6 in Nov.
• China Official PMI rose to 50.3 in Dec, above market expectations, vs 49.0 in Nov.

03-Jan (BBC) — Greece may have to leave the eurozone if it fails to secure its latest bailout from the EU, IMF and banks, a government spokesperson has warned.

“The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro,” spokesman Pantelis Kapsis told Skai TV.

The government is struggling with public opposition to new austerity measures, demanded by lenders.

Analysts suggest the warning is designed to win support for the moves.

[source]

PG View: Greece is a train-wreck to be sure, and not exactly in a position to be making demands. A more Oliver Twist type tone — “Please sir, I want some more” — might fall on more sympathetic ears. However, Greece is only a train-wreck because the EU turned a blind-eye and allowed them to become one.

03-Jan (Bloomberg) — Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.

…Borrowing costs for G-7 nations will rise as much as 39 percent in 2011, based on forecasts of 10-year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys.

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PG View: This quantifies the central theme in my year-end report. The mass of debt maturing this year will need to be rolled and all that supply will put upward pressure on yields. The higher costs associated with refinancing will result in additional budgetary pressure on governments. This may lead to further — or ongoing — bailouts and almost assuredly the huge supply will result in central banks creating more artificial demand via quantitative measures.

02-Jan (Telegraph) — Markit’s eurozone manufacturing Purchasing Managers’ Index (PMI) rose slightly in December to 46.9 from November’s 46.4, but marked its fifth month below the 50 mark that divides growth from contraction.

The level of manufacturing activity contracted in Germany, France, Italy and Spain as well as Greece, separate polls for Markit showed today.

Markit said levels of production and new orders fell in all of the eurozone countries covered by the survey for the second month running.

[source]

02-Jan (Washington Post) — Spain’s new government warned Friday that the country’s budget deficit will be much higher than anticipated this year, as it unveiled a first batch of austerity measures that include surprise income and property tax hikes.

Following the new conservative government’s second Cabinet meeting, the budget deficit for this year was revised up to 8 percent of national income from the previous government’s forecast of 6 percent.

Alongside the upward revision, which comes amid predictions that the Spanish economy will soon be back in recession, the government headed by Prime Minister Mariano Rajoy announced further measures to get a handle on its debts, including €8.9 billion ($11.5 billion) in spending cuts.

[source]

02-Jan (Der Spiegel) — The year 2011 was a bad one for Europe. But 2012, Angela Merkel believes, could even be worse — for her country at least. Both the German chancellor and Finance Minister Wolfgang Schäuble believe the euro crisis will finally make itself felt in Germany. The outlook isn’t any rosier elsewhere on the Continent.

It seemed like hardly a week went by in the latter half of 2011 without a counterintuitive story about how well the German economy was doing despite the euro crisis raging around it. Growth continued, private consumption was up and exports were strong.

2012 has started with another eyebrow raiser. On average in 2011, 41.04 million people in Germany were employed, the most ever since the country’s reunification in 1990. It was an increase of 1.3 percent over 2010.

That, though, might be the end of the good news for a while. It would appear that most in the country, led by Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble, believe that 2012 will be the year when Germany finally begins to feel the effects of the euro-zone crisis which chewed its way through much of the 17-member currency union in 2011.

[source]

01-Jan (New York Times) — Europe’s leaders braced their nations for a turbulent year, with their beleaguered economies facing a threat on two fronts: widening deficits that force more borrowing but increasing austerity measures that put growth further out of reach.

French President Nicolas Sarkozy will meet on Jan. 9 with German Chancellor Angela Merkel to discuss a new fiscal treaty intended to impose stringent budget requirements on European Union nations.

Saying that Europe was facing its “harshest test in decades,” Chancellor Angela Merkel of Germany warned on New Year’s Eve that “next year will no doubt be more difficult than 2011” — a marked change in tone from a year ago, when she praised Germans for “mastering the crisis as no other nation.”

Her blunt message was echoed in Italy, France and Greece, the epicenter of the debt crisis, where Prime Minister Lucas Papademos asked for resolve in seeing reforms through, “so that the sacrifices we have made up to now won’t be in vain.”

[source]

The Financial Times, which would never be mistaken for a gold advocacy group, has published an optimistic year-end outlook for the yellow metal. Gold closed in the London market yesterday at $1531 per ounce. Having started the year at $1388.50, that puts the metal at a 10.3% gain on the year, even after the sell-off over the last quarter. The remainder of the FT forecast linked below is well-worth your time. FT sees the coming year as a mixed bag and one likely to produce its share of surprises.

Here’s what it had to say about gold:

Has gold peaked?
No. It will take some time for gold to regain its reputation with investors after a violent fall in the final months of 2011. But ultimately that will be restored, if only because they have few alternatives while the crisis continues. Investors need no reminding of the risks elsewhere while US and European politicians dither over economic growth measures and their ballooning sovereign debts.

Most importantly, Asian and Middle Eastern investors – from central banks to sovereign wealth funds – will continue buying lots of gold. Though there may be drops along the way, the gold price in 2012 will surpass 2011’s peak of $1,920 an ounce, rising above $2,000 for the first time in history.

– Jack Farchy

Link
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I would like to take this opportunity to wish you and yours the very best for 2012. 2011 was a very good year for gold owners, and 2012 — an election year — promises at the very least to be an interesting one. Gold, for all the years of double digit returns, still boasts asset preservation as its principal contribution. Ours is not to make a fortune on our gold, but to preserve the fortunes — small or large — we have already made. By seeing gold as wealth insurance, as opposed to an investment for gain, and by owning it in unassailable form, i.e., gold coins, we secure the advantage. Unfortunately, price volatility is likely to continue for the foreseeable future both up and down, but we should never lose sight of the real reasons why we own gold. In this age of uncertainty the old questions remain the most important: Should I own it? Do I own enough?

Last, I would like to thank our clientele for making 2011 a very good year for the firm as well. You provide the mettle for keeping this website front and center — one of the top gold sites on the internet. Please remember it is your purchase of gold and/or silver from USAGOLD-Centennial Precious Metals that nourishes these pages.

Michael J. Kosares
Founder: USAGOLD-Centennial Precious Metals
Author: The ABCs of Gold Investing – How to Protect and Build Your Wealth with Gold

Dec 29 (Bloomberg) — The European Central Bank’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis.

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending to companies and households and prevent a credit shortage. Barclays Capital estimates the loans injected 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. So far, banks are parking the money back at the ECB. Overnight deposits at the central bank increased to an all- time high of 452 billion euros yesterday.

[Source]

JK Comment: Debt, Debt and more Debt. Sounds reminiscent of what occurred in the US a few years ago. Central bank provides huge bailout to local banks to loan money to businesses and households in effort to jump-start economy. Only the banks don’t lend the money, they just place it back on deposit with the central bank, defeating the “intended purpose” of the bailout…if that is really the “intended purpose”.

Dec 29 (Commodity Online) — What followed was not a plunge that erased the whole bull market. It was not a prolonged consolidation either. The fact is that similar “breakdowns” have been (in all cases seen on the chart) followed by the final bottom of the consolidation (not to far below the line that is has broken), which was in turn was followed by a strong rally.

In these cases, lower prices were never seen thereafter!

In the past, when price levels did not pursue the level of the previous high, declines generally stopped close to the level of the original bottom and then rallied. This would coincide with our $1,550 target level from the bottom seen earlier this year, so there is a good chance that gold will rally if the decline takes it down this far.

This is precisely what we might be seeing now.

Based on the points made above, gold remains in a bull market from both fundamental and technical perspectives, and what we’re seeing right now may be the best buying opportunity that we’ll see in the coming years.

[Source]

JK Comment: Gold sold down below $1530 temporarily this morning, and has now rallied back just shy of $1550 level. The physical buying we’re seeing here today suggests a large number of our clients agree with the analysis presented here.