“Investors in India are withdrawing from government bonds and national-savings schemes to pour record amounts into gold.”

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USAGOLD comment: Indian demand has also served as a precursor in the past to larger global movement into physical metal. Savings withdrawals in India are the largest since 2000 — just before the long-term bull market in gold began. Similar reports are circulating from China. Imports from Hong Kong jumped a record 30% in September according to a Bloomberg report. Chinese investors like to buy when things are quiet, and right now things are quiet. But as the previous post indicates. . . .perhaps not for long. ( I wouldn’t be surprised to hear a couple of months from now that it was Chinese investors buying on the dips over the past 30 days.) Lance Roberts, Streettalk Advisors, sums it up: “The turmoil in Europe has brought the fear trade back to gold.” Nothing moves gold market demand like concern about the financial system, and more often than not in this bull market run, it has been demand from China and India on the dips that has led the way. MK

Nov. 10 (Bloomberg) — Gold options traders are placing the most bullish bets since August as Europe’s debt crisis spreads. . . Demand for calls on the gold ETF, the world’s biggest exchange-traded product backed by precious metals, has surged to the highest level since Aug. 8. That day, the ratio jumped to a one-year high of 1.57 on the first trading session after Standard & Poor’s stripped the U.S. of its AAA credit rating. (Ed. Note: That ratio of calls to puts is now at 1.5 calls to 1 put.)

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USAGOLD comment: If you look back at the price of gold on August 8, 2011 (the reference point for this article), gold was just under $1700 sitting on the tarmac revving up its engines. A month later the price surpassed the $1900 per ounce level, and as this article points out, the big jump in the call/put ratio preceded the surge in prices. The market senses trouble brewing. . . . . .more so than at any time since early August. MK

10-Nov (USAGOLD) — Gold has turned to corrective after failing to sustain upticks above $1800 earlier in the week. There is some sense of relief that at least Greece has its new leader, but an interim unity government is certainly on a cure-all for all that ails Greece. Despite doubts that arose yesterday, it is former ECB vice president Lucas Papademos that will take the helm of a country in financial turmoil. The first order of business is to push the latest 26-Oct EU bailout proposal through Parliament. Of course the question is — and I’ve made tongue in cheek reference to this in recent reports — is this a troika puppet government, doing what’s best for the eurozone as a whole? Or, is L-Pap doing what’s best for Greece? Or is what’s best for Greece, what’s best for the EU? In other words, confusion still abounds.

Former European Commissioner Mario Monti seems to have emerged as the frontrunner to succeed Silvio Berlusconi as Prime Minister of Italy. Acknowledged as a “technocrat” with “connections at the top levels of European policy making,” again one has to wonder where his true allegiance might lie.

Interestingly, ECB Board Member Bini Smaghi announced that he was resigning today, apparently succumbing to the sentiment that there were too many Italians on the board since Mario Draghi took over the reigns of the central bank. It was Dutch Finance Minister Jan Kees de Jager that launched the anti-Italian sentiment earlier in the year when it became clear that Draghi was the favorite to replace Jean-Claude Trichet as ECB President, saying, “An Italian will have to go because there is already an Italian on the board and he should be replaced by at least a French national.” It will be interesting to see who is tapped as Smaghi’s replacement.

There was some talk that Italy was selling gold this morning. I initially heard it from a very reliable source, but I have my doubts. Beyond a desperate need for liquidity — and Italy may well fall into that category — I don’t know why anyone would be looking to sell such a valuable asset right now if they don’t have to. If core-Europe overlooked Greece actually adding to their gold holdings in the midst of their crisis, I’m not sure why Italy would be treated any differently. And as China made quite clear in September (China’s gold imports jump sixfold), there’s always going to be somebody happy to take the other side of the trade if a sovereign is forced to sell.

08-Nov (Forbes) — After an intense day of investigation, I have just discovered that a CFTC rule(1.29) allowed Jon Corzine’s MF Global to use the margin and cash in customers heretofore segregated accounts to amass a risky $6.3 billion investment in European sovereign debt that backfired. Nor did Corzine have the obligation to inform any of these customers he was gambling with their money. Or that he was intending to keep all the profits for himself and his troubled firm. Nothing for the customers.

The language of Rule1.29 allows “The investment of customer funds in instruments described in 1.29 shall not prevent the futures commission merchant (MF Global) or clearing organization so investing such funds and retaining as its own any increment or interest resulting therefrom.” Increment refers to any trading profits or gains.

The criminal division of the Justice Department in New York — as well as the SEC and the CFTC and members of Congress– are investigating whether any laws were violated and if so, whether any criminal charges can be brought. As of 3pm today, there has been no sign of the missing $633 million. My sources believe it was probably grabbed by the institutions that made the margin calls on MF Global as the European bonds sank in value.

This shocking loophole, which is available to all commodity traders, whether giant ones like Goldman Sachs or members of commodity exchanges, means that huge risks are being taken with money that does not belong to the trading firms– without the customers having any idea of the danger they are in. As Andy Abraham, a futures trader in Israel put it to me today; “this means they can take segregated funds and leverage them to kingdom come. It means nothing is safe.”

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PG View: Yet another glaring example of the counter-party risk that is seemingly ignored by many investors. That’s why when it comes to gold at least, you buy physical metal for delivery and keep it in your own procession. It’s one of the only ways to invest where your asset isn’t simultaneously a liability on someone else’s books.

10-Nov (WSJ Blogs) — There was a time, not so long ago, when talking about the vague chance that the euro could one day possibly, maybe break up was heresy.

For analysts and investors, it was seen as more than their job was worth. No one, particularly at a European bank, wanted to put their neck on the line by voicing the unthinkable. And no one wanted to put more strain on already-frazzled market nerves.

“It’s like shouting ‘fire!’ in a crowded cinema,” said one veteran market observer in mid-2010.

But now, suddenly, euro disintegration is the talk of the town. It’s an open topic of discussion.

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10-Nov (The Wall Street Journal) — Greece has named former European Central Bank Vice President Lucas Papademos as the next prime minister, ending a three day deadlock between the country’s two main political parties over who will lead an interim government to finalize talks for an aid payment to avoid a cash squeeze.

Greek President Karolos Papoulias said Thursday he has instructed Mr. Papademos to form a government after chairing a meeting of almost five hours with outgoing Prime Minister George Papandreou, the leader of New Democracy Antonis Samaras and Georgios Karatzaferis, leader of the smaller nationalist party.

“It was agreed that the goal of the new government is to implement decisions relating to the Oct.26 summit and implement the economic policy connected to these decisions,” said Mr. Papoulias.

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PG View: A “troika” man takes the helm of Greek interim government.

09-Nov (The Wall Street Journal) — U.S. bank stocks slumped Wednesday as the market turned ruthlessly on Italy, raising fears about the third-largest economy in Europe and its ability to remain current on debt payments.

The latest scare, which sent the yields on Italian bonds above what is considered a sustainable rate of 7%, worried investors in U.S. banks for two reasons: that a faltering by Italy would severely jolt the global economy, and that banks are exposed directly to any default. One clearinghouse had demanded more collateral for trading Italian bonds, signaling the market’s fear.

“The market, at some level, has been held hostage by Europe over the last few weeks and months,” said Steve Sosnick, an equity risk manager at Timber Hill/Interactive Brokers Group. “The financials are dealing with it worse because if clearinghouses are requiring greater margin on sovereign debt, anyone who holds that debt has to potentially put aside money that they otherwise could use more productively.”

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09-Nov (Bloomberg) — U.S. stocks extended declines following a report that German Chancellor Angela Merkel’s party wants to make it possible for European nations to exit the euro area.

The Standard & Poor’s 500 Index lost 3.6 percent to 1,230.66 at 2:11 p.m. in New York, its biggest drop on a closing basis since Aug. 18.

Merkel’s Christian Democratic Union party wants to make it possible for European Union members to exit the euro area, Handelsblatt reported in a preview of an article to be published tomorrow, citing unnamed participants in the discussion.

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PG View: If true, this is huge. Just weeks ago policymakers in core-Europe were adamant that there was no mechanism for countries to abandon the EMU. More recently, the implications of Greece leaving the union were openly discussed, and perhaps now Merkel’s CDU is crafting a framework to allow that to happen. What a difference a couple of weeks make.

If Greece and Italy were to leave the monetary union, might there be a temptation to repudiate their euro denominated debt? We’re not in the EMU any more, but we’ll gladly pay you in freshly printed drachma and lira…

09-Nov (The Wall Street Journal) — We have seen this movie before. Italian government 10-year bond yields are at a euro-era high of 6.7%—a level from which no other euro-zone government bond market has recovered. Increased European Central Bank bond buying has failed to halt the price slide. European banks are dumping Italian bonds at a loss and being rewarded by the market. Given the euro zone’s inadequate bailout facilities, many argue only an unlimited ECB commitment to buy Italian bonds can prevent the debt crisis spiraling out of control.

But investors shouldn’t bank on the ECB doing the market’s bidding. First, the central bank has repeatedly said it has no mandate to act as lender of last resort to countries. To do so would breach European law. New ECB President Mario Draghi said so again last week, stressing the ECB’s bond buying is limited and temporary.

The European treaty is unequivocal: Article 101 prohibits the ECB from lending to governments, while Article 103 says the euro zone shouldn’t become liable for the debts of member states. It would be odd for Mr. Draghi to do something he has said is illegal.

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By Mohamed El-Erian
09-Nov (Financial Times) — Here we go again. Europe’s debt crisis has entered a new, more dangerous phase with the yield on Italian 10-year bonds crossing the seven per cent level on Wednesday morning. This is a eurozone-era record that, if sustained, would severely destabilise the debt situation of the world’s third largest bond issuer and one of the original six founders of the modern European project.

Those who lived through the horrid days of the various emerging market debt crises will quickly recognise the four distinct factors that have come together in the last few days to form a highly destabilising cocktail. And they may well agree on what needs to be done to stop a bad situation getting worse.

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09-Nov (Globe&Mail) — Greek party leaders have named who will head the country’s new coalition government.

Barring any last-minute changes, sources said house speaker Filippos Petsalnikos would take over the post of Prime Minister.

‘We have agreed on Petsalnikos but things can change between now and when the prime minister sees the president,’ a source close to the discussions said.

Outgoing Prime Minister George Papandreou and opposition leader Antonis Samaras had been locked in talks since Sunday on who would lead a new government to take the country to elections in February.

They were under mounting pressure to reach a deal from Eurozone countries which are also grappling with a crisis in nearby Italy.

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09-Nov (Financial Times) — Markets on Wednesday demonstrated a collapse of confidence in Italy’s ability to chart a clear course out of its political and debt crises, sending 10-year bond yields to new euro-era highs over 7.5 per cent and into territory that forced Greece, Portugal and Ireland to seek international bail-outs.

A commitment made on Tuesday night by Silvio Berlusconi to resign as prime minister as soon as parliament passes a package of economic reforms agreed by the EU contained neither a timetable nor a clear political way forward, sowing panic among investors.

“We cannot go on like this. The country is already in the abyss,” declared Emma Marcegaglia, head of the Confindustria business lobby, warning that Italy risked following Greece in the eurozone debt crisis.

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09-Nov (USAGOLD) — Gold remains well bid as the situation in Europe continues to deteriorate. Italy has now moved to the forefront of the eurozone crisis as the market gives a resounding vote of “no confidence” to embattled Prime Minister Silvio Berlusconi. While Berlusconi has said he will step-down, he is attempting to linger until a new financial reform package is passed. A lame-duck government is not what Italy needs right now. Italian yields have surged above 7%, a critical level that promoted other EU countries to seek bailouts.

Similarly, a lame-duck government in Greece is not what the market was hoping for. The uncertainty springing from both Italy and Greece is weighing heavily on markets. Negotiations to find a successor to Greek PM George Papandreou have apparently broken down.

There are rumors this morning that the ECB has called an emergency meeting. The ECB has refused to comment. They could certainly cut the refi rate again, but with the benchmark rate already at 1.25%, there’s precious little maneuvering room. They could probably ramp up bond buying in the secondary market, but there is resistance to this within its ranks — most notably the Germans. The options are really quite limited.

The pseudonymous Tyler Durden of ZeroHedge commented this morning, “It is far more likely that the Fed will print to bail out Europe than the ECB printing.” You know, that may actually not be very far from the truth…

• US wholesale sales +0.5% in Sep, below market expectations of +0.8%, vs 1.0% in Aug; inventories -0.1%.
• UK trade balance (visible) widened to -£9.8 bln in Sep, vs negatively revised -£8.6 bln in Aug.
• South Korea unemployment rate (sa) ticks lower in Oct to 3.1%.
• China CPI falls to 5.5% y/y in Oct, below market expectations, vs 6.1% in Sep y/y.
• China PPI falls to 5.0% y/y in Oct, below market expectations, vs 6.5% in Sep y/y.

09-Nov (NY Times) — Italy’s financial crisis deepened on Wednesday despite a pledge by Prime Minister Silvio Berlusconi to resign once Parliament passes austerity measures demanded by the European Union.

The move failed to convince investors, propelling Italy’s borrowing costs through a key financial and psychological barrier of 7 percent, close to levels that have required other euro zone countries to seek bailouts.

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09-Nov (NY Times) — Negotiations to choose a new Greek prime minister seemed to have been plunged into new confusion early on Wednesday following widespread reports only hours earlier that Lucas Papademos, a respected economist, was on the verge of being named to the job.

The list of candidates mentioned in news media reports included an array of senior figures — Finance Minister Evangelos Venizelos was among them — after Vassilis Skouris, president of the European Court of Justice, was mentioned as the most likely contender.

But analysts said they did not rule out a surprise challenger emerging to succeed Prime Minister George A. Papandreou. After months of protest and building pressure from the European Union, Mr. Papandreou agreed two days ago to step down once political negotiators had established a new unity government. But from the start those negotiations were dogged by reverses.

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Gold Probes Back Above $1800

Gold has traded with an 1800 handle for the first time in 7-weeks. A pretty positive technical picture is helping to underpin the yellow metal, as is continued uncertainty surrounding Europe. It looks like former ECB Vice President Lucas Papademos has been tapped to head an interim “100-day” government. The first order of business is to assure the troika that fundamental changes will be made to ensure the next tranche of bailout money isn’t immediately flushed. Ah, but the new PM in-waiting is a troika man…

Meanwhile, the market continues to squeeze Italy, with yields continuing to establish new euro-era highs, on their relentless march to 7%. Italian Prime Minister Silvio Berlusconi has lost his Parliamentary majority and is apparently on the verge of resigning. I’m not sure who the frontrunners are to replace him, but like in Greece, I would expect at least some contenders to have troika credentials.

Sean Egan of Egan-Jones estimated today on CNBC that the hole in Europe’s finances is a whopping €2.5 trillion. He made a couple of suggestions of how that hole might be filled, most of which are implausible. Basically, austerity isn’t going to close the collective budget gap, nor will Europe be able to grow its way out of debt. Finally, he offer up “massive printing of currency” as a possibly solution, stressing that this would only be possible when the public is ready for it. In other words, the public needs to be afraid — really afraid — before they can have a massive currency devaluation foisted upon them.

Although Egan doesn’t explicitly say it, I was left with the impression that of the solutions proffered, printing may be the most likely. And quite honestly, how else does Europe fill a hole that big in a politically feasibly manner. As is so often the case over the course of history, printing and devaluation is the path of least resistance.

However, Bundesbank president and ECB council member Jens Weidmann took the opportunity to again rain on the easy-money parade, saying that the ECB can’t finance EU “public debt via the money printing press.” Leave it to a German to remove the punchbowl just before the party gets started. Weidmann cites the “key lesson from the experience of hyperinflation after World War I.” Of course, the hyperinflation of Wiemar Germany is the defining moment in German economic history. They have every reason to be concerned about the impact of unrestrained money supply growth to pay down those monstrous debts.

Or perhaps Herr Weidmann — and the rest of Germany — simply isn’t afraid enough yet…

with Katie Stockton – Chief Market Technician, MKM Partners

JK Comment: A nice compliment to Pete’s Daily Market Report yesterday. On gold, Katie states, “I don’t think gold ever even stopped it’s uptrend,” she says, pointing out that the support line runs through about the $1,600 an ounce level. She sees no nearby resistance and “doesn’t think we’re in store for a retest anytime soon.” And as the moderator puts bluntly at the close of the video: “Gold, Buy it here and Buy it Now!”

08-Nov (Bloomberg) — European Central Bank council member Jens Weidmann said the ECB cannot bail out governments by printing money.

“One of the severest forms of monetary policy being roped in for fiscal purposes is monetary financing, in colloquial terms also known as the financing of public debt via the money printing press,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Berlin today. The prohibition of monetary financing in the euro area “is one of the most important achievements in central banking” and “specifically for Germany, it is also a key lesson from the experience of hyperinflation after World War I,” he said.

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PG View: Leave it to a German to spoil the easy-money party. Of course, the post WWI nightmare inflation is the defining moment in German economic history, so they have every reason to be concerned.

08-Nov (ZeroHedge) — We had a feeling that the modest upward blip in Greek August deposits by corporations and households, to the tune of €1.4 billion, was a “transitory” event. It was. According to just released data by the Bank of Greece, the September collapse in gross deposits from €188.7 billion €183.2 billion was the largest ever, and took the total to an amount last seen in June 2007. Indicatively Greek deposits peaked at €237.8 billion in September 2009. Said otherwise, in addition to being massively undercapitalized, banks cash in the form of deposit liabilities has plunged 23% from its all time highs.

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08-Nov (Wall Street Journal Blogs) — Italian Prime Minister Silvio Berlusconi failed to muster a majority in a key vote in the lower house of parliament on Tuesday, likely setting in motion a chain of events that could lead to his resignation and the possible formation of a national unity government charged with steering Italy out of the euro-zone debt crisis.

“It is clear the government no longer has a majority,” said Pier Luigi Bersani, leader of Italy’s biggest opposition party, speaking after the vote.

Mr. Berlusconi’s governing coalition garnered 308 votes, seven votes shy of a majority needed in the 630-member lower house of parliament. That means the parliament approved the routine budget bill that was on the ballot, but only because 321 lawmakers abstained from voting.

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