16-Nov (Mineweb) — A loss of faith in the political system and the currencies that underpin it has been growing over the past few months. Its most visible manifestation is the “Occupy movement that has moved from Wall Street all over the world.

Its second most visible manifestation, some would argue, is the price of gold and the throngs of investors that are buying the yellow metal in all shapes and forms.

Speaking to Mineweb.com’s Gold Weekly podcast, Erste Group gold analyst, Ronald Stoeferle says that in recent months there has been a distinct shift in investor attitudes and a growth in fear.

“Where before at the end of presentations I was asked whether or not gold was in a bubble and what my long term price targets are, no I am increasingly asked for my views on gold confiscation and what the chances are like for further riots in the streets,” he said.

“The monetary aspect of gold is getting more and more important. People don’t want to make big money, they just want to preserve their purchasing power and their wealth.”

[source]

16-Nov (ABCNews) — Don’t look now, members of the “supercommittee” battling the national debt, but the amount the U.S. owes topped the $15 trillion mark Wednesday afternoon.

That’s a lot of George Washingtons, as you can see here live at USdebtclock.org.

With a week until the committee’s deadline to reach agreement on cutting $1.2 trillion to $1.5 trillion from the federal deficit over the next 10 years, the Joint Select Committee on Deficit Reduction still has no agreement to stem automatic cuts to the budget.

…A sense of deep pessimism has gripped the supercommittee, and judging from the limited public statement by panel members, a debt bargain could be out of reach.

[source]

By Bruce Krasting
16-Nov (EconMatters) — I’m not surprised that the halo effect of political changes in Italy and Greece had a very short half-life. Why would it? Nothing has changed.

I’m not surprised that the contagion has worked its way to France. After all, the ECB intervention policy insures that France becomes a target. “If you can’t sell Italy, sell France”, is the market’s response.

But I’m absolutely blown out by the pace of things. France’s bonds are being devalued on a daily basis. Italy has been functionally shut out of the new issue market. Market liquidity has dried up. What were once routine transactions are now difficult to price. E100mm bond transactions for France and Italy were normal; today E25mm is a market amount.

What is becoming scarily clear is that there is no more announcements coming that are going to make a difference. All the news is out on expanding the EFSF. The only thing that could reverse this tide is an agreement to “federalize” the debts of Europe. This would leave Germany (massively) on the hook. There is zero chance of this happening.

[source]

The Impending Unwind of the False Risk-On Signal

16-Nov (USAGOLD) — Gold remains choppy within the recent range, displaying a negative intraday bias at this point. Persistent turmoil in Europe pushed the EUR-USD rate convincingly back below the 1.3500 level; and while the euro attempted to mount a comeback in earlier trading, probes back above 1.3500 have proven unsustainable. The corresponding dollar strength has served to limit the upside in gold.

Given the worsening of the situation in Europe over the past several months, the rise in the EUR-USD rate to 1.4245 through the end of October — along with the strength in the stock market — was rather puzzling. The answer to the puzzle likely lies in a piece of Deutsche Bank analysis cited on the ZeroHedge blog this morning, under the title The Biggest Market Headfake Ever: Is A Wholesale French Bank Liquidity Run The Sole Reason For The Euro, And S&P, Surge?

In a nutshell, the major interbank liquidity squeeze in Europe has prompted “wholesale asset liquidations” and euro repatriation. That repatriation drives up the euro and “legacy correlation arbs” view that as an “empirical signal of equity ‘cheapness’”. In other words, the liquidity crisis in Europe has generated a false “risk-on” signal.

More than 61.8% of the EUR-USD rally from 1.3146 to 1.4245 has now been retraced and investors are starting to realize that this is truly a “risk-off” environment. While further dollar gains may keep a short-term cap on gold, it is likely to be simultaneously underpinned by renewed equity losses as that “headfake” gets unwound. Additionally, there are still considerably concerns here in the US that the Super Committee will reach a consensus before next week’s deadline. That would likely raise the specter of another US downgrade.

We can also be reasonably sure that in the absence once again of any meaningful fiscal reforms, the Fed will take another whack at our problems from the monetary side of the equation. So QE3 might be forthcoming even as most of Europe continues to cajole Germany to consent for the ECB to launch its own brand of quantitative easing. Yes, the entire global economy may be on the cusp of a massive liquidity infusion that could well drive gold on to new record highs.

16-Nov (CNBC) — Greece’s new government should comfortably survive a vote of confidence on Wednesday but Prime Minister Lucas Papademos faces a daunting task repairing shattered public finances, and cracks are already appearing in his crisis coalition.

Polls show Papademos, a former vice president of the European Central Bank, has the backing of three in four Greeks but the need to implement painful tax rises and spending cuts to secure fresh loans and stave off bankruptcy will sorely test that support.

[source]

16-Nov (Bloomberg) — Italian and Spanish 10-year government bonds rose for the first time in three days after the European Central Bank was said to buy the nations’ debt.

The advance sent Spanish five-year note yields down from a euro-era record. The ECB bought larger-than-usual sizes and quantities of the Italian debt, said two people with knowledge of the trades. Italian Prime Minister-designate Mario Monti will announce his new government today and Greek Prime Minister Lucas Papademos will face a vote to give him a three-month mandate to implement budget measures. German bonds underperformed French and Belgian debt after a sale of two-year notes.

[source]

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.)