17-Jan (CNBC) — Rating agency Fitch said on Tuesday that Greece would default on its debt, although it said that such a default was likely to take place in an orderly manner.

“It is going to happen. Greece is insolvent so it will default,” Edward Parker, Managing Director for Fitch’s Sovereign and Supranational Group in Europe, the Middle East and Africa told Reuters on the sidelines of a conference in the Swedish capital. “So in that sense it shouldn’t be a surprise to anyone.”

The Fitch comments come after Moritz Kraemer, head of Standard & Poor’s rating agency’s European sovereign ratings unit, said on Monday Greece would default shortly on its debt obligations.

[source]

17-Jan (CNBC) — The Treasury on Tuesday started dipping into federal pension funds in order to give the Obama administration more credit to pay government bills.

Treasury started suspending reinvestments in a federal pension fund known as the G-Fund in order to avoid hitting the country’s $15.194 trillion debt limit.

…The House of Representatives is expected to vote Wednesday on the Obama administration’s request to increase the debt limit by $1.2 trillion.

[source]

17-Jan (MarketWatch) — Gold futures pushed toward $1,660 an ounce on Tuesday, moving in the opposite direction to a weakening U.S. dollar and finding lingering support on Europe’s recent debt downgrades.

Gold futures for February delivery rose $28.30, or 1.7%, to $1,658.90 an ounce on the Comex division of the New York Mercantile Exchange.

Gold buyers are concerned with currency devaluation and loss of purchase power, and they note “the downgrades of the euro zone countries means fiscal stimulus is not far behind,” George Gero, a vice president with RBC Capital Markets, said in emailed comments.

[source]

17-Jan (USAGOLD) — Gold jumped to new 4-week highs in overseas trading after some more favorable European economic data and bond market activity inspired further risk appetite. This despite S&P’s follow-on downgrade of the EFSF from AAA to AA+. The dollar retreated as the euro found some bids. However, upside momentum in the single currency seems to have already evaporated, knocking the yellow metal off its intraday highs.

More modest Dec inflation in the eurozone, along with a marked rebound in German investor confidence offset the recent S&P downgrades to some degree. While Spanish refinancing costs fell, Portuguese yields remain elevated near record highs in advance of an important auction on Wednesday. Last week’s S&P downgrade of Portugal to junk status prompted Citi to remove the country from its European Bond Index. Since many bond funds mirror that index, there is an expectation of reduced demand for Portuguese debt. Additionally, Chinese growth slowed, but not as much as expected, allaying some concerns about a hard landing.

• BoC leaves policy rate steady at 1.00%, in-line with expectations; maintains neutral stance.
• NY Empire State index surged to 13.48 in Jan, above market expectations of 10.5, vs 8.19 Dec.
• UK CPI (EU harmonized) +0.4% m/m in Dec, in-line with expectations, vs +0.2% in Nov; a tick higher to 4.2% y/y. Core 3.0%.
• German ZEW investor confidence rebounded to -21.6 in Jan, well above market expectations of -49.8, vs -53.8 in Dec.
• German ZEW current situation improved to 28.4 in Jan, above market expectations of 25.0, vs 26.8 in Dec.
• Eurozone Dec HICP revised down to 2.7% y/y, vs 2.8% y/y previously; core steady at 1.6%.
• Japan Tertiary Industry Index (sa) -0.8% in Nov, vs upward revised 0.7% in Oct.
• China GDP slowed to +8.9% y/y in Q4, vs 9.1% y/y in Q3; retail sales +18.1%; industrial output +12.8%; fixed investment +23.8%.

16-Jan (Financial Times) — Standard & Poor’s on Monday stripped the eurozone’s bail-out fund of its AAA credit rating, potentially constraining its ability to contain the region’s debt crisis and focusing attention on efforts to create a more robust successor.

S&P lowered the European Financial Stability Facility’s rating to AA+, following its decision on Friday to remove the triple-A ratings of France and Austria, two of the find’s guarantors.

[source]

16-Jan (The Wall Street Journal) — Iranian authorities sent police into the streets of the capital Monday to crack down on informal currency trading and support the rial, signaling Iranians’ heightened insecurity over their dwindling buying power and Tehran’s increasingly hard-handed efforts to stave off economic panic.

The move follows last week’s steep Iranian Central Bank interest-rate increase, a bid to try to stem the growing demand for U.S. dollars in the country as the economy lurches amid fears over a new round of sanctions promised by the U.S. and Europe.

Iran’s rial currency has declined 40% to 55% against the dollar on the black market since December. Iranian inflation, meanwhile, now exceeds 20% a month, according to the Central Bank.

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16-Jan (Der Spiegel) — Ever since the European Central Bank began flooding the markets with cheap money, European banks have rediscovered their taste for sovereign bonds. But the crisis is far from over, as Standard and Poor’s recent raft of downgrades showed. Some bankers are saying it’s just a matter of time before yields on peripheral bonds shoot up again.

…Indeed, the problems are too far-reaching to be solved with a single measure from the bank’s bag of tricks. But for all intents and purposes, the ECB’s new strategy is just that — a trick. By flooding the banks with cheap money, it is artificially generating demand for sovereign bonds. In doing so, it can also cut back on its own bond purchases, which have also been highly controversial within the bank itself.

For the banks, it’s a fantastic deal. They can borrow money from the ECB for three years at the prime interest rate, which currently stands at 1 percent. If they used that money, say, to buy Italian bonds last Friday, they would get the much higher interest rate of 4.83 percent. Then they could turn around and deposit these bonds at the ECB as security, and borrow even more money at 1 percent.

This new ECB strategy would appear to benefit all the major players: the banks, the cash-strapped countries and the ECB itself. But it has also triggered worries that Draghi has merely created a kind of financial perpetual-motion machine. In any case, the strategy does nothing to alter the fact that the institution ultimately bearing the risks is still the ECB — and, with it, the taxpayers.

[source]

by Julian D. W. Phillips
13-Jan (The Gold Report) — You heard the saying, but what does it really mean? We live in a world where performance is stressed. Hedge funds can be measured on a monthly basis. Twenty percent charges on profits are levied by fund making their view short-term. Daily assessments are made, comparing one sector to another giving the impression that short-term performance is what it’s all about. But is it? No it is not.

Just look at where real wealth resides and why it’s there. Old Money means wealth held for many generations. How can wealth be held in this way, and how was it made up? While that’s a huge subject and one we cannot cover here, it’s important for you to realize that this was not made on a monthly, trading basis. It certainly was not made through day or week or month trading.

…Investments that have done well in bad times since 2007 will continue to do well. Leading that pack are gold and silver bullion as well as the derivatives and mining company shares producing them.

…With little sign of the hoped-for, effective reforms of the financial system and future stability and growth, the time to move out of that global cash has not arrived, and the only globally-accepted, all situations “cash” is gold!

There will be the occasional situation where individual companies or assets outperform gold, but a core investment for the bulk of investors that want wealth protection remains precious metals –in particular gold and to a lesser, but potentially more profitable, silver.

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13-Jan (USAGOLD) — Despite the marked revival on Friday of “risk-off” sentiment — and a corresponding jump in the dollar to new 15-month highs — gold continues to display remarkable resilience. The yellow metal closed down $8.75 going into the long holiday weekend, essentially right on the 200-day moving average. However, the market was still up more than $20 on the week and managed to set a new 4-week high on Thursday at 1661.76 before succumbing to those selling pressures.

The week went out with a flurry as S&P downgraded France, Italy, Spain, Austria and five other EU member-states. While these downgrades were widely anticipated, they really put a damper on the modest euphoria that sprang from generally favorable Italian and Spanish debt auctions earlier in the week. Fitch is expected to announce a number of downgrades as well by the end of the month. On top of that, efforts to finalize the details of the second Greek bailout broke down. It would seem the buy-in from private bondholders that we were assured was secured back in October, was a falsehood.

Weak December retail sales here in the US and a collapse in American exports to Europe sparked a flurry of downward revisions to US growth outlooks. Perhaps not surprisingly, Fedspeak that centered on the increasing likelihood of further accommodations escalated into the weekend. The dangerous passage between Scylla and Charybdis continues.

While heightened growth and systemic risks were at the fore this past week, a rather significant rise in Chinese gold demand caught the attention of investors in the yellow metal. This is an important underlying theme that we have been highlighting for a number of years. Several important news articles on this topic were posted on our Breaking Gold News page:

China’s Gold Imports From Hong Kong Reach Record on Demand
Don’t Believe In Gold? That’s Ok, Just Leave It To The Chinese
Chinese goldbugs take the lead

They’ll make for some interesting reading in between NFL playoff games. Our Broncos will have their hands full with the Patriots.

13-Jan (Bloomberg) — France and Austria lost their top credit ratings at Standard & Poor’s in a swathe of downgrades that left Germany with the euro area’s only stable AAA grade, hindering leaders’ efforts to stem the region’s fiscal crisis.

France and Austria were cut one level to AA+ from AAA and face the risk of further reductions, the rating company said in Frankfurt today. While Finland, the Netherlands and Luxembourg kept their AAA ratings, they were put on negative watch. Spain and Italy were also downgraded. The first gauge of the report’s impact will come on Jan. 16 when France sells as much as 8.7 billion euros ($11 billion) in bills.

“In our view, the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S&P said in a statement.

[source]

13-Jan (BBC) — France has lost its top AAA credit rating from Standard & Poor’s and many other eurozone governments have also been downgraded by the ratings agency.

Rumours of S&P’s move prompted stock markets to fall earlier in the day.

London’s FTSE 100 ended the day down 0.5% and Frankfurt’s Dax 0.6%, while the Dow Jones in New York fell 0.7%, although it was widely expected that the ratings cuts were coming.

Italy and Spain were also downgraded, but Germany kept its AAA rating.

Austria, like France has lost its top AAA rating, and been downgraded to AA+. Its economy exports a lot to recession-struck Italy, while its banks are facing losses on subsidiaries they own in financially troubled Hungary.

[source]

PG View: I trust all the smart buyers of Italian and Spanish debt this week immediately dumped it on the ECB in the secondary market. I’m sure those that didn’t will be pledging it as collateral in the next ECB LTRO.

13-Jan (Financial Times) — Did China just overtake India as the world’s largest gold consumer?

Little more than a year ago it would have been almost laughable to ask that question. In 2010 India’s gold consumption was a full 46 per cent – or 275 tonnes – higher than China’s, according to data from consultants GFMS published in the World Gold Council’s quarterly reports.

Even three months ago it would have been a stretch. In the first nine months of 2011, Indian gold demand totalled 743 tonnes, compared to 612 tonnes for China.

But data released in the past few days suggests that China may have closed the gold gap, inching ahead of India in terms of overall gold demand in 2011.

[source]

13-Jan (CNBC) — Federal Reserve officials are seriously considering giving the US economy—and especially the housing market—an added jolt with more quantitative easing.

Fed officials are likely to discuss such a move at their Jan. 24-25 meeting, when the central bank [cnbc explains] will issue its first quarterly forecast on interest rates under the new communication policy.

Two of the new voting members this year on the Federal Open Market Committee [cnbc explains] , which sets interest-rate policy, have recently suggested they would support more assets purchases.

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PG View: The changing of the guard at the FOMC is likely to result in a more dovish bias. Is QE3 on the way?

13-Jan (Financial Times) — Talks over Greece’s debt restructuring collapsed on Friday, an unexpected breakdown that makes it more likely Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.

Lead negotiators for Greek bondholders said the latest offer made by Athens “has not produced a constructive consolidated response from all parties”– a clear reference to International Monetary Fund conclusions that bondholder losses must be increased significantly or a second Greek bail-out would have to be bigger than the agreed €130bn.

Government negotiators have been pushing for interest payments that would make the new bonds worth even less than the 50 per cent “haircut” in the bonds’ face value, which had led to a revolt among some debt holders involved in the talks.

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PG View: If you recall, this deal was allegedly agreed to back in October. As recently as yesterday, finalization was deemed to be “imminent.” The sticking point of course is buy-in from private holders of Greek bonds, who have seen the size of the haircut they are expected to “voluntarily” accept ratchet steadily higher.

13-Jan (The Wall street Journal) — The Standard & Poor’s ratings agency could announce the downgrades in the credit ratings of a number of European governments as early as Friday, said people familiar with the matter.

One person familiar with the matter said an S&P notice is being circulated among euro-zone governments and that an announcement “could be imminent.”

[source]

13-Jan (USAGOLD) — Gold is lower weighed by tempered risk appetite and a rebound in the dollar. While their were generally favorable results to today’s Italian debt auctions, ratings agency Fitch quickly rained on the parade, saying that they would give their verdict on the six EU countries they have on ratings watch negative by the end of the month. Italy is of course one of those countries. Downgrades are considered likely and could be as large as two-notches.

Additionally, there are now rumors circulating that S&P may downgrade a number of EU countries as soon as today. That may include the long awaited French downgrade. The USD-EUR, which approached 1.2900 after the Italian auctions, has come under intense selling pressure, plunging back below 1.2700.

• University of Michigan consumer sentiment jumped to 74.0 in Jan, above market expectations of 71.0, vs 69.9 Dec.
• US import prices -0.1% in Dec, in-line with market expectations; exports -0.5% as European troubles weigh.
• US trade deficit widened to -$47.75 bln in Nov, bigger than the -$44.7 bln expected, vs -$43.3 bln in Oct.
• Eurozone trade surplus (sa) jumped to €6.1 bln in Nov, vs €0.5 bln in Oct.
• UK output PPI (nsa) 4.8% y/y in Dec, below market expectations of 4.9%, vs 5.4% in Nov; input PPI fell to 8.7% from 13.6 in Nov.
• Japan M2 increased at a 3.1% y/y pace in Dec, vs 3.0% in Nov.
• BoK held repo rate steady at 3.25%, in-line with expectations.
• China FX reserves fell to $3,181 bln in Dec, vs $3,202 bln in Nov; first drop in over a decade.

13-Jan (AP) — A number of euro countries, including Italy, could see their credit ratings downgraded by the end of this month as they struggle to cope with too much debt and slowing economic growth, Fitch Ratings said Tuesday.

Though the agency remains confident that the 17-nation eurozone will not break up over the next year, it is concerned about the weak economic outlook and is urging the European Central Bank to step up its involvement in solving the crisis, notably by buying more government bonds in the markets.

[source]

PG View: Well that’s a punch in the gut to the improved sentiment that emerged following today’s Italian bond auctions…

13-Jan (Financial Times) — China’s gargantuan stash of foreign exchange reserves has got a little bit smaller, shrinking in the final quarter of 2011 for the first time in more than a decade.

China’s reserves fell by $20.5bn as its trade surplus decreased and capital flowed out of the country, much like other emerging markets.

It was the first drop since the Asian financial crisis in 1998, but Beijing still controls almost $3.2tn in official currency reserves – an unprecedented amount for any country and nearly triple Japan’s reserves, the world’s second biggest.

…Beijing has tried to diversify into everything from oil and gold to stakes in listed companies in Europe and property in Manhattan.

[source]

13-Jan (Financial Times) — Italy successfully sold about €4.75bn of bonds on Friday, capping a relatively strong week for European government short-dated debt auctions as investor sentiment towards the eurozone shows signs of improvement.

In Friday’s auction, Italy sold €3bn of benchmark securities due in November 2014 at a yield of 4.83 per cent, far lower than the 5.62 per cent yield set at the last comparable bond auction. Italy also priced €779m of its 4.25 per cent bond due in 2014 at a yield of 4.29 per cent and a further €971m of a 4.5 per cent bond that matures in 2018, which carries a yield of 7.75 per cent.

[source]