15-Nov (MarketWatch) — Crude-oil futures closed above $99 a barrel Tuesday, buoyed by better-than-expected U.S. data on retail sales and manufacturing, but a stronger dollar and renewed worries about Europe’s debt outlook helped keep a lid on price gains.

Crude for December delivery rose $1.23, or 1.3%, to settle at $99.37 a barrel on the New York Mercantile Exchange. That was the highest closing level for a most active contract since July 26, according to data from FactSet Research.

“Retail sales were good, which would tend to suggest that demand for gasoline is going to get a little bit better,” said Phil Flynn, a vice president at PFG Best.

[source]

15-Nov (MarketWatch) — Gold futures finished higher Tuesday after spending the session wavering between gains and losses, as traders mulled the metal’s safe-haven appeal against a backdrop of pressure from a stronger U.S. dollar and upbeat economic data, and support from growing euro-zone concerns.

For gold, the trading environment is filled with ingredients that make “quite a soup, and one has to watch the various ingredients all the time,” said Steve Gillette, president of Cirrus Commodities Exchange.

For now, “gold support comes from the general safe-haven notion, but waiting for the euro shoe to drop,” he said.

…“Gold is choppy within the recent range as heightened [European Union] contagion risks have bolstered the dollar somewhat,” said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.

“Yields have ratcheted uncomfortably higher in both the periphery and in some of the core-European countries,” he said. And “any sense of relief, associated with the recent changes in the governments of Greece and Italy, has quickly dissipated.”

[source]

15-Nov (Washington Post) — With the crisis in Europe still raging, analysts are frantically trying to game out what a euro zone implosion would mean for the United States. Yesterday, the Federal Reserve Bank of San Francisco put out a research note pegging the odds of a U.S. economic contraction in early 2012 at “greater than 50%,” noting that a European sovereign debt default (Greece, say) would very likely plunge us into recession.

Part of the reason for that is that Europe is one of our major trading partners — accounting for about one-fifth of U.S. exports.

[source]

PG View: While we may slip back into recession here in the US without any help from Europe, a sovereign default across the pond would certainly hurry things along.

15-Nov (Financial Times) — Eurozone bond markets suffered a mass sell-off on Tuesday as investor fears spread beyond Italy and Spain to triple A rated France, Austria, Finland and the Netherlands.

The premium that France and Austria pay over Germany to borrow rose to euro-era records of 192 basis points and 184bp respectively, levels investors say are no longer consistent with top credit ratings.

“Markets are losing patience so they are going for the jugular, which is the core countries and not the periphery,” said Neil Williams, chief economist at Hermes, the UK fund manager. “There is convergence but it is convergence on the ­weakest.”

Mike Riddell of M&G, one of Europe’s biggest fund managers, called it “probably the most worrying day” of the crisis so far.

[source]

15-Nov (TheHill) — Senate Majority Leader Harry Reid (D-Nev.) and House Speaker John Boehner (R-Ohio) met Tuesday, a sign they might take a larger role in deficit talks, congressional aides say.

A leadership aide said Reid and Boehner discussed a range of topics in Boehner’s office but declined to provide any details.

Some congressional sources interpreted the meeting as a sign that the deficit-reduction talks of the supercommittee are moving to the leadership level.

But leadership aides in the Senate and House say the meeting does not signal that Reid and Boehner are taking over the floundering negotiations.

[source]

PG View: If lawmakers once again prove unable to advance meaningful fiscal reforms, it becomes all-but assured that the Fed will take another whack at the problem from the monetary side.

15-Nov (USAGOLD) — Gold remains consolidative amid heightening of EU contagion risks. The EUR-USD rate has ticked back below the 1.3500 level as yields across the eurozone have continued to ratchet higher.

Italian 10-year yields traded back above the 7% level, just two-days after the fall of the Berlusconi government. Spain’s 12 and 18-month bond auctions disappointed, with yields rising markedly to reach 14-year highs. The spread between 10-year French OATs and German Bunds also hit a euro-era record wide. Europe appears increasingly on the verge of a true panic and all eyes are trained on the ECB, looking for some kind of reaction.

One might argue that full-on debt monetization is the only option at this point. In fact Grant Williams says exactly that in his most recent newsletter: “[Those in charge of Europe] are left with a stark choice – print money or allow the break-up of the Eurozone and the end of the common currency known as the Euro. At this point it really IS that simple.”

Despite some mildly encouraging economic data in the US, the stock market is heavy as a result of risk aversion associated with the uncertainty in Europe. The dollar has been buoyed by the renewed euro weakness. While that is serving to limit the upside in gold for the time being, a more threatening retreat in stocks, whether it be driven by euro contagion worries or our own ongoing economic malaise, may well prompt the Fed to react with more easy money of its own. Ultimately it is the likelihood of massive liquidity injections both in Europe and America that supports the underlying uptrend in gold.

• US business inventories unch in Sep, below market expectations of +0.3%, vs 0.4% in Aug.
• US retail sales +0.5% in Oct, just above market expectations of +0.4%, vs +1.1% in Sep; Ex-auto +0.6%.
• US PPI -0.3% in Oct, below market expectations of -0.1%, vs +0.8% in Sep; Core unch on expectations of +0.1%.
• US Empire State index rebounded to 0.61 in Nov, above market expectations of -2.00, vs -8.48 in Oct.
• France Q3 GDP (preliminary) +0.4% q/q, just above market expectations of +0.3%, vs negative revised -0.1% in Q2; 1.6% y/y.
• Germany Q3 GDP sa (1st release) +0.5% q/q, as expected, vs positive revised 0.3% in Q2; 2.5% nsa y/y.
• Eurozone Q3 GDP sa (1st release) +0.2% q/q, below market expectations of +0.3%, vs 0.2% in Sep; falls to 1.4% y/y.
• UK CPI – EU Harmonized +0.1% in Oct, below market expectations of +0.2%, vs +0.6% in Sep; moderates to 5.0% y/y.
• UK retail price index unch in Oct; moderates to 5.4% y/y.
• Germany ZEW economic sentiment drops to -55.2 in Nov, below market expectations of -53.0, vs -48.3 in Oct; Current situation falls to 34.2.
• Singapore retail sales (nominal) -0.1% y/y in Sep, vs positive revised 3.5% y/y in Aug.

15-Nov (Reuters) — Italian government bond yields climbed back towards 7 percent and even non-German triple-A rated issuers saw premiums over safe-haven Bunds mark new highs on Tuesday as a change of government in Italy failed to ease the euro zone debt crisis.

Despite the appointment of former EU Commissioner Mario Monti to head a new government in Italy, Italian bond yields were around 19 basis points higher at 6.94 percent, reflecting the huge challenges facing not just Rome, but all euro zone policymakers struggling to solve the crisis.

The Spanish 10-year yield rose to 6.3 percent ahead of the launch of a new 10-year bond on Thursday, and the spread of French and Belgian 10-year bonds over Bunds marked euro-era highs.

Austrian 10-year bond yields are also at euro-era highs versus Bunds, while the equivalent Dutch spread was at its most since early 2009.

…Particularly worrying in recent sessions has been the rise in French bond yields — over 30 basis points in 10-year yields in the last week, pushing the spread over Bunds to new euro-era highs above 170 basis points.

[source]

14-Nov (CNBC) — Though the daily market gyrations might indicate otherwise, realization is beginning to creep in that the European debt crisis and its effect on the U.S. will not take days, weeks or months to unwind—but years.

How many years is up for debate, but a common range bandied about among investment experts is two to five.

That prolonged time frame — which entails the period it will take to reduce government spending, come up with workable debt repayment plans, and, most likely, witness the contagion that will follow — means that the market tumult that the crisis has brought also won’t be going away anytime soon, either.

[source]

Gold Retreats from $1800 Level Again

14-Nov (USAGOLD) — Gold begins the week on mildly corrective footing after failing to recapture the 1800 handle at the end of last week. With a former ECB man installed as the PM of Greece, and a former EU council member now running the show in Italy, perhaps there is some sense that the troika may finally begin advancing their agendas in these troublesome countries. Nonetheless, the euro is under pressure today along with global stocks as a general sense of uncertainty prevails.

Italy sold €3 bln in 5-year bonds today, and despite the weekend exist of Berlusconi, the yield hit a euro-era highs of 6.29%. This reportedly prompt the ECB to intervene and buy bonds. It would seem that simply changing the government is no panacea.

Perhaps that is why pressure is mounting on the ECB to simply print currency and engage in all-out quantitative easing; like the BoJ, BoE and Fed have already done. Some within the ECB — mostly those that speak German — continue to claim this is simply not possible, but those voices may be shouted down as the situation in Europe becomes increasingly dire.

As we discussed in Friday’s Daily Market Report, there is indeed a sense in Europe that the politicians are turning up the heat on the central bank. We’ve seen a several governments fall already because of the eurozone debt/banking crisis, and I don’t think we’ve seen the last. However, I do think that governments are increasingly looking at the ECB as their last best chance of salvation.

I also believe there is a high-stakes game of chicken going on: Either the ECB will need to step-up and prevent Europe from falling off the cliff, or just perhaps, if they wait long enough, the Fed — the true lender of last resort to the world — will move first, in order to prevent contagion to America. Either way, there is a growing likelihood that the world is about to get inundated with a flood of new liquidity; and with respect to the corresponding bullish implications for gold, it really doesn’t matter whether that liquidity comes in the form of euros or dollars.

Perhaps worse yet, if everyone is frozen — incapable of meaningful action — the world may be on the precipice of an unprecedented global crisis. The type of crisis that was mostly averted by a flood of Fed liquidity in 2008 and 2009.

14-Nov (Bloomberg) — Earlier this month, Prime Minister Silvio Berlusconi told reporters what he thought of the risk to Italy’s solvency as the European debt crisis sent bond yields toward euro-area records, and who he thought should fix it.

“Restaurants are full, it is difficult to reserve a seat on a plane, resorts during holidays are fully booked,” he said at a Group of 20 meeting in Cannes, France. “We really are a strong economy. I can’t see another figure on the Italian scene capable of representing Italy on the international stage. I feel obliged to stay on.”

Four days later he offered his resignation after his parliamentary majority eroded and the country’s bond yields soared past the 7 percent mark. Berlusconi made good on that pledge on Nov. 12 after parliament passed parts of a 45.5 billion-euro ($62.6 billion) austerity package aimed at restoring investor confidence and taming financing costs.

His departure paves the way for a coalition government to be led by former European Union Commissioner Mario Monti. Berlusconi remains in parliament and could lead the People of Liberty party he founded in the next elections, which are due by April 2013.

[source]

11-Nov (MarketWatch) — The allure of gold is thousands of years old, but nowadays the precious metal has a youthful look.

Gold’s spectacular, decade-long run, coupled with the sovereign-debt crisis in Europe, an uncertain outlook for the U.S. dollar, and worries of worldwide recession, has tapped a new vein of investors in their 20s and 30s.

The popularity of gold among young investors speaks to the metal’s impressive role as a storer of wealth — and says a great deal about a generation that has seen its share of stock market booms-and-busts, a housing market collapse, and, over the past few weeks, government debt of Greece and Italy trading at yields more akin to junk bonds.
Generation Au

Accordingly, many of these gold buyers have little faith in equities and, unlike older investors, are more inclined to consider alternative investments. Others seek tangible, hard assets as a counterweight to stocks, bonds and cash in the aftermath of the 2008 U.S. financial crisis.

[source]

PG View: Our firm has witnessed heightened interest in gold from “Generation Au” first hand. If you’re young and contemplating your first purchase of the yellow metal, give our highly experienced and friendly staff a call for a no-pressure consultation.

12-Nov (Dow Jones) — Argentines withdrew $645 million in U.S. dollar-denominated deposits from private sector banks in the first week after the government made it harder for individuals and companies to buy dollars.

The numbers, published by the Central Bank of Argentina late Friday, seem to confirm that the new currency controls have made Argentines nervous and led many to do what they typically do during times of crisis–buy dollars or withdraw them from the banking system.

Private sector banks had $14.833 billion in dollar deposits before the currency controls were imposed on Oct. 31, according to the central bank. Five days later that had declined by 4.3% to $14.188 billion.

…Government officials say the currency controls aim to curb money laundering. But most analysts say the real aim of the crack down on dollar purchases is to stem capital flight that has cut central bank reserves to $46.57 billion from $52 billion in early August.

[source]

Here was the headline for Reuters gold report on Thursday, November 10, 2011:

Gold edges down as Italy worries ease

Here was the headline for the Reuters gold report on Friday, November 11, 2011:

Gold edges up as Italy fear eases

MK comment: If market reports on the financial pages these days seem a bit schizophrenic, it is because they are. How could the same circumstance produce one result on Thursday and the complete opposite on Friday? Perhaps we should be charitable about Reuters confusion though. I, for one, go back and forth in my own mind whether or not gold is following the euro or struck out on its own. Over the past week, gold seems to have reacted to the upside both when things were going well in the European Union and when they were going badly. It looks like there is a group of buyers out there who buy gold when it looks like the euro is going to disintegrate and another that buys it when the euro looks strong. If so, we will sit back and let them battle it out. . . . . (Posted with a wink.)

Don’t Be Lulled Into a False Sense of Security

Gold is ending the week on a solid note, back within striking distance of the $1802.80 peak from Tuesday. And as we discussed in Monday’s Daily Market Report, I’m really liking the technical setup I’m seeing in this market. I don’t find the midweek correction to 1735.55 in the least bit troubling.

There seems to be a growing consensus that the ECB is going to cave to political pressures and start monetizing EU periphery sovereign debt. In other words, they’ll print euros and use those euros to buy Greek, Italian and other bonds, much as the BoJ, Fed and BoE have already printed their respective currencies and bought assets. Of course the structure of the eurozone and its central bank pretty much precludes such measures; something that Bundesbank President and ECB council member Jens Weidmann has been shouting from the rooftops this week, suggesting there may indeed be a big push underway. I suppose it’s ultimately easier to ask the Germans for forgiveness than permission.

Not surprisingly, assets in general, seem to love the notion of even more liquidity flooding into the system. Estimates of what it will take to save Europe range broadly from €1.5 to €2.5 trillion. The mess that is Europe is certainly a driving force in the gold market of late, and the USAGOLD – Breaking Gold News page has been positively humming this week with plenty of reasons for gold investors to pick up the phone and call their brokers,

Gold traders most bullish since ’04 on debt crisis
Investors in India pouring record amounts into gold
Option traders placing big bullish bets on gold — biggest since just before the last big run-up
China’s gold imports jump sixfold

…just to name a few. Yet there is a distinct lack of urgency, reminiscent of the lull before the storm in 2008. I think this paragraph from an Ezra Klein column on Thursday sums it up nicely, although we here at the USAGOLD office had the exact same conversation earlier in the week:

As in 2008, we’re entering another period in the global economy where the unthinkable might actually happen. But we don’t seem to be thinking about it very hard. When you talk to participants in the 2008 financial crisis, they lament the seven months between when Bear Stearns fell and when Lehman collapsed. It was wasted time, they’ll tell you. We saw the crisis beginning and we had time to prepare for it but we did nothing of the kind. Everyone wanted to believe it would be alright, that we could go on pretty much as usual. Much as we’re doing now.

Don’t let yourself be lulled into a false sense of security simply because the DJIA remains buoyant on expectations of ever-more easy monetary policy. With gold more than $100 dollars off its all-time high, now is the time to prepare. Now is the time to act.

10-Nov (Bloomberg) — James Rickards, senior managing director of Tangent Capital Partners, talks about Federal Reserve monetary policy and the possible impact on the U.S. economy.

Rickards also discusses the gold standard and his book “Currency Wars: The Making of the Next Global Crisis.” He speaks with Deirdre Bolton on Bloomberg Television’s “Money Moves.” James Grant, publisher of Grant’s Interest Rate Observer, also speaks.

[Link to Video]

PG View: This is a great interview with two of the smartest guys in the financial business. Watch it!

11-Nov (Bloomberg) — “Gold traders and analysts are the most bullish in at least seven years as investors accumulate metal at the fastest pace since August to protect their wealth from a widening European debt crisis.”

Link

MK View: This goes with the other two posts I made late yesterday about the demand undercurrent now at work in the gold market. To some extent, it may have surfaced today with the strong rallies in both gold and silver.

11-Nov (USAGOLD) — Gold is retracing recent corrective losses after failing to sustain tests above $1800 earlier in the week. The US Treasury market and the Fed are closed today in observance of Veterans Day. All other markets are open.

While the political situations in both Greece and Italy may be stabilizing, the underlying issues are far from being resolved. Implementation of the 26-Oct troika bailout proposal — which is the first task of the new Papademos government — will pretty much condemn Greece to years of economic stagnation and high unemployment. Meanwhile, the Italian Senate has approved a new austerity plans, which will have a similar impact and may actually make the country’s budget woes worse; as economic contraction, driven by those austerity measures, negatively impacts tax revenues. They’re pushing on a rope.

European officials has apparently rejected Chinese conditions for their further participation in the bailout of the Continent. “We are willing to help, but we are not a charity,” a source with ties to the Chinese leadership told Reuters. Chinese demands included greater influence with the IMF and a “more rapid path to inclusion of China’s yuan in the IMF’s special drawing rights (SDR) currency unit,” market economy status with the WTO and an end to the European arms embargo.

You mean China isn’t going to help bailout Europe purely out of the goodness of their collective hearts? Shocking!

• UK PPI output prices ease to 5.7% y/y in Oct, below market expectations, vs 6.3% in Sep; input prices moderated to 14.1% y/y.
• Spain Q3 GDP – preliminary (sa) unch, vs 0.2% in Q2.
• India industrial production falls to 1.9% y/y in Sep, vs negatively revised 3.6% in Aug.
• Hong Kong Q3 GDP tempered to 4.3% y/y.
• China Oct M2 +12.9% y/y.
• BoK holds repo rate steady at 3.25%.

On behalf of everyone here at USAGOLD – Centennial Precious Metals, a heartfelt thank you and wishes for a happy Veterans Day to all that have served our country.

11-Nov (UK Express) — “PREPARATIONS were under way last night for the break-up of the euro as Europe’s debt crisis spiralled out of control. . . Ministers are understood to be deeply concerned that French President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel are secretly plotting to build a new, slimmed down eurozone without Greece, Italy and other debt-ridden southern European nations.”

source

MK View: The talk today is of a “slimmed down” eurozone led by Germany and France. Italy, Greece and other miscreants would be expelled. The problem with this line of thinking is that it doesn’t rid Europe of debt contagion problem. A “slimmed down” version of the eurozone is just as vulnerable as the plump version that exists now. Does anyone believe that the debt problem in any of the GIIPs (which were PIIGS before the term obviously became politically incorrect) will suddenly vanish through some political sleight of hand? Demonizing Italy, Greece and the rest for their political failings disguises neither the same deficiency in the rest of Europe nor the full brunt of the interlocking sovereign debt problem. The problem in Europe’s banking system transcends all borders — old borders, new borders, slimmed-down borders, plump borders. The gold market will recognize this latest political dance for what it is and act accordingly.

This New York Times graphic says it all:

11-Nov (CNN) — Economist Lucas Papademos was formally sworn in Friday as the head of Greece’s new unity government, as the nation seeks to regain political and financial stability after weeks of uncertainty.

Papademos, a former banker and European Central Bank vice president, becomes the country’s interim prime minister after several days of political wrangling.

…Papademos pledged the new government’s chief task will be to implement a bailout package and austerity measures agreed to with European leaders last month.

[source]

11-Nov (CNN) — The Italian Senate passed a series of austerity measures Friday demanded by Europe, as it seeks to ward off fears of a debt-driven crisis.

The package was approved by 156 votes in favor to 12 against, with one abstention. It only had to be passed by those of the 320 senators who were present for the vote.

The lower house, the Chamber of Deputies, is expected to discuss the measures and vote Saturday.

Prime Minister Silvio Berlusconi is expected to step down after the austerity measures are adopted by both houses.

[source]

11-Nov (Reuters) — Diplomatic deadlock is curbing China’s will to provide cash to help end the euro zone crisis after Europe spurned the simplest of Beijing’s three key demands, two independent sources have told Reuters.

China had offered help in return for European support to grant it either more influence at the International Monetary Fund, market economy status in the World Trade Organisation, or the lifting of a European arms embargo, said the sources, both of whom have direct knowledge of the matter, including one who has ties to the leadership in Beijing.

…For their part, some European policymakers are irked by what they call the opportunism of China’s apparent wish to trade some of its vast foreign wealth for increased influence.

[source]

PG View: I suggested earlier in the year that the Chinese likely had an agenda in playing the role of Europe’s white knight. That agenda is starting to be revealed.

10-Nov (Bloomberg) — Investors in India are withdrawing from government bonds and national-savings schemes to pour record amounts into gold.

Funds that invest in sovereign debt shrank 4 percent from a month earlier to 30.2 billion rupees ($606 million) in September and those that buy gold rose 8 percent to an all-time high of 81.73 billion rupees, according to the Association of Mutual Funds in India that is also known as AMFI. Individual investors withdrew 78.7 billion rupees between April and September from small-savings deposit plans such as those run by post offices, the most since at least 2000, government data show.

…“There is asset-switching, and people are betting more on gold as it is a safer asset and offers a hedge against India’s high inflation and the economic uncertainty affecting the world,” Debasish Mallick, the Mumbai-based chief executive officer at IDBI Asset Management Ltd. that oversees about $1 billion, said in an interview on Nov. 9. “Investing in gold is a very prudent asset-allocation strategy.”

…“Inflation is running ahead of bank deposit rates,” Ritesh Jain, the Mumbai-based head of investment at Canara Robeco Asset Management Ltd. that oversees about $1.75 billion, said in an interview on Nov. 9. “People are seeing the value of their money eroding. There is still enough juice in gold to continue to attract investment.”

[source]

PG View: One of the driving forces of gold demand in India is “inflation is running ahead of bank deposit rates.” In other words, real interest rates are negative and the rupee deposits of savers are losing value. Indian savers are turning to gold as an alternative means of savings. Über-easy monetary policy here in the US has resulted in negative real interest rates as well, so if you’re sitting on a bunch of dollars and are disinclined to watch their purchasing power erode away, you should be looking seriously at saving in gold too.