10-Jan (ZeroHedge) — We have often seen requests to show the price of gold going back as long as possible. Tonight we can oblige, with a gold price chart, indexed in 2010 British Pounds, going all the way back to 1265. To the surprise of many, the early 1980s gold price surge is not the only time in history when gold exploded as America’s game with inflation was almost lost. It appears that based on the surge in gold back in the late 15th century, there was actually quite a serious need for Columbus to go forth and find a source of gold, because last we checked Ferdinand and Isabella did not have Bernanke’s money printers back then. And yes, as Goldman says, there were no ETFs back in the 16th century to draw demand away from the real deal and into make believe exposure.

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PG View: The two charts presented in this piece provide some pretty important perspective to the recent 11-year rally in gold. As we’ve pointed out many times in the past, the yellow metal is still well below historic highs as measured in real terms. In other words, there’s room to run…

11-Jan (Reuters via MineWeb) — Gold rallied for a second day on Wednesday, hitting its highest in a month after a stronger euro helped boost the price above a key technical level and evidence of strong demand from major consuming nations further supported the market.

Gold has risen by 1.5 percent so far this week, in line with a modest pick-up in the euro, which is battling against fresh concerns about the ability of several euro zone nations to fund themselves given sovereign debt yields remain high and there is no immediate solution in sight to the crisis.

The gold price vaulted above the 200-day moving average around $1,635 an ounce on Tuesday, which prior to December’s sell-off had marked an important level of support, but since then has acted as stiff overhead resistance.

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11-Jan (Reuters) — The worst is yet to come in the euro zone’s debt crisis but the currency union will survive 2012 intact, according to a Reuters poll of economists who say France will probably lose its top-notch credit rating.

While just nine out of the poll’s 64 economists said the bloc had turned the corner on a sovereign debt crisis, only 10 said the euro zone would not survive the year in its current form. The rest were reasonably confident it would.

A similarly firm majority of those surveyed in the last few days said France would lose its coveted ‘AAA’ rating in the next three months, while Belgium, Italy and Spain will suffer further cuts to their ratings.

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11-Jan (CNBC) — Already mired in controversy about whether it should play a greater role in solving the European financial crisis, the European Central Bank is facing criticism over what they’ve already done to help — buying Greek debt.

Negotiators involved in lowering Greece’s private-sector debt (known as Private Sector Involvement) believe the ECB should also accept a haircut on the Greek debt on their books.

Their argument is as follows: the ECB bought Greek debt at a discount, or below face value, and yet they expect to be repaid at full face value. Private-sector creditors are asking: why should the ECB get 100 cents on the euro when they paid less than that? And should the ECB be making a profit on Greek debt as the country struggles on the massive weight of its obligations?

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10-Jan (Reuters) — Wall Street banks lowered their outlook for U.S. economic growth due to concerns over the European debt crisis, oil prices, regulatory uncertainties and “continued disarray in Washington,” according to a financial industry survey released on Tuesday.

The survey, which included bankers from Morgan Stanley, Wells Fargo Securities and Citigroup, forecast that the U.S. economy will grow at a rate of 2.2 percent this year, down from a previous forecast of 3.1 percent.

Several bankers said that U.S. financial markets and the economy were “greatly exposed to the risk of contagion from a systemic event arising from Europe.”

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Ben S. Bernanke is signaling his willingness to double down on a three-year bet that’s failed to revive housing, showing the extent of the Federal Reserve chairman’s effort to wrest a recovery from the deepest recession.

Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen 4.1 percent, and is down 32 percent from its 2006 peak, according to an S&P/Case-Shiller index. The central bank is poised to buy about $200 billion this year, or more than 20 percent of new loans, as it reinvests debt that’s being paid off. Some Fed officials have said they may support additional purchases that Barclays Capital estimates could total as much as $750 billion.

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11-Jan (MarketWatch) — Much like Greece, Hungary was one of those small, slightly peripheral countries that most people in the financial markets probably thought they could get through a career without ever worrying about very much.

With a population of slightly less than 10 million, and with a total gross domestic product of less than $200 billion — only half the market value of Apple Inc. — it hardly had much of a claim on the attention of investors.

But right now, Hungary is could be the epicenter of the latest next financial storm.

…Much of the debt that was built up in the last decade is, in reality, never going to be re-paid. The investors will have to take some losses, and the economy will have to suffer some austerity. A one-sided deal is not, in the medium term, going to be acceptable.

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11-Jan (USAGOLD) — Gold is firm after setting a new 4-week high of 1647.00 overseas. The next resistance levels I’m watching are 1662.60 (50% retracement of the decline from 1802.80 to 1522.40) and 1674.47 (38.2% retracement of the decline from 1920.50 to 1522.40). Those gains in Asia came on news of record Chinese gold imports from Hong Kong.

The yellow metal is battling a firmer dollar again today, as the euro plums its recent lows against both the dollar and yen. This despite strong demand at today’s 5-year Germany Bobl auction. While demand for German paper was pretty good and spreads have tightened, there is a concern that this will detract from demand at tomorrow’s all-important Italian and Spanish debt auctions. There also continues to be rumblings of a possible French downgrade. It apparently won’t be Fitch as they said pretty definitively yesterday that they have no plans to downgrade France this year, but S&P and Moody’s both have France on negative watch as well.

David Riley, the head of the sovereign debt unit at Fitch said today that the ECB should buy more bonds to combat the EU debt crisis. The ECB and particularly the Germans remain opposed to such measures. New Italian PM Monti ratcheted up the rhetoric today, warning of possible unrest in Italy and calling Germany “the ringleader of EU intolerance, and against the ECB.” Those are very strong words indeed.

Meanwhile, Chicago Fed dove Evans made it clear again today that he continues to favor “substantial” accommodations until unemployment dips under 7% or inflation rises above 3%. He acknowledged that the Fed has fallen short of fulfilling both its employment and inflation mandates and that will likely continue in 2012.

Today’s headlines reinforce the themes I outlined in my article The Homeric Choice: Scylla, Charybdis and Gold.

• US MBA mortgage market index +4.5%; purchases +8.1%, refis +3.3%.
• US Treasury $21 bln 10-year reopen at 18:00GMT, Fed’s Beige Book at 19:00GMT.
• German annual GDP growth slowed to 3.0% in 2011, in-line with expectations, vs 3.6% in 2010.
• UK Trade Balance (visible): Deficit wider than expected at -£8.6 bln in Nov, vs -£7.9 bln in Oct; non-EU25 moves to surplus of £5.0 bln.

11-Jan (Bloomberg) — China’s gold imports from Hong Kong surged to a record as consumers bought the metal before the Lunar New Year this month and investors sought to hedge against financial turmoil. Bullion rallied to a four-week high.

Mainland China bought 102,779 kilograms from Hong Kong in November, up from 86,299 kilograms in October, according to the Census and Statistics Department of the Hong Kong government. China doesn’t publish gold trade data.

Demand for gold is climbing in China as investors seek to protect their wealth against slumping property prices and equity markets amid an inflation rate above 4 percent. The nation overtook India in the third quarter as the largest gold jewelry market, according to the World Gold Council. The country is also the biggest producer. Bullion rose as much as 0.9 percent to $1,647.45 an ounce today, the highest since Dec. 13.

“China’s appetite for gold is very strong and growing,” said Tao Jinfeng, chief investment consultant at Haitong Futures Co.

…“There is always the possibility that some purchases were made by the central bank,” said Tao, rated the fourth-best China gold analyst in a Futures Daily and Securities Times poll.

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Barrons (Jan 9) — Such a fall has narrowed “the disconnect between gold’s price and its fundamental picture,” Goldman Sachs’ (GS) head of commodity research said Monday at a global strategy conference. Jeffrey Currie told analysts meeting in London that the recent drop in the yellow metal’s price after a lofty build-up presents a “significant value opportunity” for investors, according to a Dow Jones Newswires report.

Gold is not only cheaper to store when interest rates are low but is also an attractive alternative to traditional bank savings, he said. However, as broad markets slumped in late 2011, gold holdings were sold in order to generate cash.

“The world demanded dollars more than it demanded gold,” said Currie. “But what happens when that demand reverses?” he added.

With U.S. real interest rates and inflation expected to remain low in 2012, gold should be supported in the year ahead, Currie predicted.

“Our view on gold is determined by our view on the rates cycle,” he noted. “We will continue to be long on gold until we can see an absolute turn in the rate cycle, which we don’t see happening any time soon.”

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10-Jan (USAGOLD) — Now that we have officially entered the new year, we have two articles of interest to offer. The first is written by our own resident economist, Peter Grant: The Homeric Choice: Scylla, Charybdls and Gold. The second is a lengthier treatment of what might evolve in the new year by James Quinn, titled 2012 – The Year of Living Life Dangerously — an analysis which revisits the accurate portrayal of what’s to come in William Strauss and Neil Howe’s, The Fourth Turning. As we turn the corner on a new year, it might be good to recalibrate from a golden perspective.

Our continued best wishes.

10-Jan (Bloomberg) — Hungary sold its target amount of debt at an auction at the highest cost in 2 1/2 years as the country’s chief negotiator traveled to Washington to meet with the International Monetary Fund on a bailout.

The government sold 45 billion forint ($183 million) in three-month Treasury bills as the average yield rose to 7.98 percent, the highest for that maturity since August 2009. Tamas Fellegi, the minister leading foreign aid talks, started discussions with the IMF in Washington yesterday, state news service MTI reported, citing a statement from the country’s embassy there.

The forint fell to a record low against the euro last week after the IMF and the European Union broke off talks with Hungary after Prime Minister Viktor Orban refused to withdraw new central bank regulations the institutions objected to. Markets rebounded after Orban said he is ready to accept “any kind” of credit line that strengthens the country’s market financing.

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PG View: Yields above 7% generally signal trouble.

10-Jan (The Wall Street Journal) — Portugal’s central bank Tuesday sharply lowered its economic outlook for 2012, citing a worse-than-expected drop in internal demand, and warned the government may have to undertake more austerity to meet deficit targets this year.

In its winter report, the Bank of Portugal said it now expects the economy to contract 3.1% this year. Its fall forecast called for a 2.2% contraction.

The bank also revised its 2011 forecast, saying the economy likely shrank 1.6% last year, not quite as much as the 1.9% previously expected. The bank said the economy should recover in 2013, growing some 0.3%.

The bank expects internal demand to decline 6.5% this year, with public consumption decreasing more than expected. Earlier it had expected demand to fall 4.8%.

Portugal’s expanding public sector is seen as the biggest reason the country’s deficit has ballooned in recent years, forcing the country to seek a bailout last year.

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10-Jan (Bloomberg) — German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde will meet in Berlin tonight as pressure grows to complete a Greek debt swap needed to put a rescue plan in place.

The deal, hammered out by European Union leaders, Greek officials and the nation’s creditors on Oct. 26, called for bondholders to accept a 50 percent cut in the face value of their Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.

More than two months after the accord was announced, creditors and authorities still need to agree on the coupon and maturity of the new bonds to determine the total losses investors would suffer.

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PG View: Really? More than 2-months after (what was it?) the third(?) rescue of Greece, there’s still no real plan in place?

09-Jan (Bloomberg) — Billionaire investor George Soros said Europe’s sovereign-debt woes are “more serious” than the financial crisis of 2008 and that the world faces the prospect of a “vicious circle” of deflation.

“We have a more dangerous situation now than in 2008,” Soros, 81, said in response to a question at an event in the southern Indian city of Bangalore today. “The crisis in Europe is more serious than the crash of 2008.”

Leaders in the euro region have struggled to solve the debt crisis that is now in its third year and which has clouded the outlook for the global economy. The European Central Bank has provided unprecedented cash injections to try to avert a credit crunch, while Greece, Ireland and Portugal have already been forced into bailouts.

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10-Jan (CNBC) — Fitch Ratings does not expect to cut France’s triple-A credit rating this year, while countries under review such as Italy or Spain could be downgraded by one or two notches, the agency’s EMEA ratings head said on Tuesday.

Fitch put Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on negative watch late last year, with a conclusion expected by March. France has a negative rating outlook from Fitch, which normally means that it could be downgraded within two years.

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PG View: I don’t think I would call that “good news.” More like “not quite as bad news.”

10-Jan (USAGOLD) — Gold is up smartly, flirting once again with the 200-day moving average (1635.86 today) and the high from 2-weeks ago at 1641.65. A breach of the latter — an a decisive close above the former — would be encouraging technical events.

The yellow metal is being bolstered by improved risk appetite, which took a little of the recent shine off the dollar. The euro has edged higher on word that at least Fitch has no plans to downgrade France in 2012. European sovereign debt spreads narrowed and stocks gained. Some better then expected UK data helped the cause, as did some soft Chinese trade data. Both exports and imports slowed in Dec, increasing the likelihood of further PBoC accommodations.

• US calendar has wholesale sales (expectations +0.6%), inventories and JOLTS job openings at 15:00GMT.
• Canada housing starts+200.2k in Dec, above market expectations of 186.0k, vs 185.6k in Nov.
• UK BRC Retail Sales (same store) +2.2% y/y in Dec, well above market expectations of +0.3%, vs -1.6% in Nov; All stores +5.1%, vs 0.7% in Nov.
• UK RICS House Price (Balance) unexpectedly ticked higher to -16 in Dec, on expectations of -20, vs -17 in Nov.
• China export growth slowed to +13.4% y/y in Dec, vs +13.8% in Nov.
• China imports slowed to +11.8% y/y, vs +22.1% in Nov.
• China trade surplus widened to $16.5 bln in Dec, vs $14.5 bln in Nov.

09-Jan (Bloomberg) — Consumer borrowing (CICRTOT) in the U.S. surged in November by the most in 10 years, showing households are optimistic enough to take on debt and banks are willing to lend.

Credit increased by $20.4 billion, the biggest jump since November 2001, to $2.48 trillion, Federal Reserve figures showed today in Washington. The advance was almost twice as big as the highest forecast of 31 economists surveyed by Bloomberg News.

Increasing borrowing signals a drop in unemployment (USURTOT) is giving households the courage to take advantage of holiday discounts, buy cars and finance higher education. At the same time, dependence on credit means the job market has yet to improve enough to provide the incomes needed to sustain consumer purchases, which account for about 70 percent of the economy.

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PG View: Wow! That’s a big miss; +$20.4 billion on expectations of +$7.0 bln. Can this all be attributable to revived confidence? I find myself wondering if some consumers are running up their credit cards on rising expectations that everyone with a Fannie/Freddie mortgage is going to get refi-ed for free this year.

09-Jan (Financial Times) — Germany issued debt on Monday for the first time with a negative yield, meaning that investors were in effect paying Berlin for the privilege of lending it money.

A €4bn auction of six-month bills drew a negative yield of 0.0122 per cent in a sign of Germany’s haven status amid the eurozone debt crisis.

But demand for the debt was down with the so-called bid-to-cover ratio dropping to 1.8 times from 3.8 times at the previous auction a month ago.

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PG View: It is any surprise that demand is down in an environment where investors have to pay the government for them to use their money, because of the perception of safety. Of course this has been the case in real terms (factoring inflation) for some time now, and seems unlikely to change any time soon. As long as real interest rates are negative — and certainly with negative nominal rates — the dominant long-term uptrend in gold remains protected.

09-Jan (CNBC) — Commercial banks’ overnight deposits at the European Central Bank hit a new record high of 464 billion euros, data showed on Monday, and traders said they could hit half a trillion euros by next week.

High deposits indicate banks prefer the safety of the central bank for their funds to higher rates they could get by lending to each other.

Banks are awash with cash after taking an unprecedented 489 billion euros in the ECB’s first-ever three-year liquidity operation late last month, and are mulling what to do with the money in the longer term.

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The Homeric Choice: Scylla, Charybdis and Gold

06-Jan (USAGOLD) — Gold winds down the first week of the new year more than 3% higher than the closing price of 2011. The yellow metal continues to trade in close proximity of the 200-day moving average (1633.00) and a definitive close above this level is still awaited to bolster bullish sentiment. The high from 2-weeks ago at 1641.65 is an important level to watch as well.

Renewed euro weakness was a central theme of the past week, and despite the corresponding dollar strength, gold has displayed impressive resilience. A decent German bund auction failed to allay worries about upcoming periphery debt sales. A point that may have been driven home when the French saw their borrowing costs rise this week amid persistent rumors of an impending downgrade. Spain and Italy will attempt to sell bonds next week and global investors will be eying demand closely. They’ll also be watching to see if the ECB steps in to cover and absence of “real” demand; primarily as an indication of the central bank’s relentless creep toward full-on quantitative measures.

The marked retreat in the euro, particularly against the dollar and yen, suggests the market isn’t terribly optimistic. There continues to be strong interest in dollar swaps and parking of funds in the ECB’s overnight facility, suggestive of ongoing stresses in the European banking system, or perhaps preparation for a black swan event. Deposits in the ECB overnight facility hit a new record high of €455.3 bln last night.

Black swans by their very definition are difficult to predict, but clearly what everyone remains worried about is the EU fracturing. If Greece for example were to exit the EMU — as they again threatened to do last week — it might well stop at Greece, but then again it might not. There are many respected economists and analysts that maintain that the monetary union can’t possibly hold together in its current form. Many banks and corporations have taken proactive steps to shield themselves against this possibility. Building a cash buffer — accumulating both euros and dollars — is a piece of that reality. It is also widely believed that the EFSF/ESM is a very flimsy firebreak between Greece and the rest of the periphery.

What policymakers in the eurozone (and elsewhere for that matter) are desperate to prevent is a disorderly breakup. If some event were to trigger such a disorderly breakup, the global repercussions would make what happened in 2008/2009 look like a walk in the park by comparison. For the same reason, the ECB would almost assuredly move aggressively to prevent such a catastrophe. I’ve always believed that the Germans need to be scared just enough to squelch their fears about inflation. If that point is reached, the ECB will follow the QE path blazed by the BoJ, Fed and BoE before it. As for the rule of law; sometimes its just easier to ask forgiveness than permission.

It is these twin fears that are underpinning the gold market: The fear that the whole system could still come crashing down around our ears, as it nearly did just a couple of short years ago. And the fear that the central banks will do whatever it takes to prevent that from happening. Truly we are between Scylla and Charybdis.

The central banks are trying to sail exactly between the two beasts, hoping to stay just out of reach of both. It’s not an easy task though, as measures taken by one central bank have negative implications on others seeking to save their own bacon. One slight over or under reaction could trigger a string of events that may well hurdle the fleet into the maw of one of those monsters.

As the legend goes, Odysseus chose to confront Scylla (a six-headed monster) and risk losing a handful of sailors, rather than to risk the loss of his entire ship to Charybdis (a whirlpool). It is my belief that most central banks view systemic risks, austerity and deflationary depression as that whirlpool. That would make expansive monetary policy and inflation Scylla in this analogy — the lesser of two evils. The Fed’s move toward inflation targeting is a pretty clear indication of where our own central bank stands on this issue.

By the 8th century BC, when Homer is thought to have written the Odyssey, gold already had a long history of being used as money. And the striking of gold coins would commence just a century or so later. So when you think about how best to protect your wealth from stormy seas and sea monsters, choose something that has withstood the test of time. Choose gold.