Dec 28 (IBT) — Nichols discussed his latest outlook on the yellow metal at the China Gold & Precious Metals Summit in Shanghai earlier this month. Despite gold’s recent weakness, he asserted that “Gold will move up sharply in the years ahead, reaching heights that might lead some to label me a ‘gold bug.’ I believe that the price of gold will, over the course of this decade, reach a multiple of recently prevailing prices.”

“Prices of $3000, $4000, and even $5000 an ounce are very likely during the course of this long-lasting bull market,” he added, “a bull market that still has years of life left to it…I’d be very surprised to see gold dip into ‘three-digit’ territory – that is below $1000 an ounce – ever again.”

Nichols went on to discuss 12 “building blocks,” or catalysts, that formed the basis of his bullish gold price outlook. Several noteworthy factors included:

- low or negative real rates of interest and unprecedented central bank monetary creation

- the affect rising wealth is having on emerging-economy central banks…prompting some countries that are over-weighted in U.S. dollars and underweighted in gold to diversify their official reserves through the prudent acquisition of the yellow metal

- the legitimization of gold as an investment class and rising investor participation

- world gold-mine production, although growing, will not keep pace with the expected growth in global gold demand

With respect to rising demand for gold from central banks – which Nichols highlighted as one of the most critical building blocks – he noted that “Importantly, much of the gold bought by central banks has been bought for the long term – and will likely be held not just for a few days or months or even a few years…but for decades or longer, even at much higher prices.”

“As a result, central banks are now creating an upside bias to the market and are reducing the ‘free-float’ available to meet future demand, even at much higher prices,” he continued. ”As a consequence, we can expect less downside volatility – and a more sustainable bull market with much higher prices in the years to come.”

[source]

Dec 27 (CNN) — The Obama administration will formally ask Congress later this week to raise the nation’s debt ceiling by $1.2 trillion, a Treasury Department official tells CNN.

The latest request is the third of three requests authorized by the contentious debt ceiling agreement reached last August and is expected to come on December 30 – the day the debt is projected to fall within $100 billion of the current $15.194 trillion ceiling. The new request asks the ceiling be raised to $16.39 trillion.

[source]

JK Comment: Didn’t we just go through this?

Dec 27 (China Daily) — “The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation,” said Zhang Jianhua, director of the research bureau affiliated with the People’s Bank of China (PBOC).

Zhang said bleak economic conditions, increasing international liquidity as countries turned to monetary easing and the resulting high inflation had dampened investors’ confidence. He said that gold had become the only “safe haven” for risk-averse investors. “No asset is safe now. The only choice to hedge risks is to hold hard currency – gold.”

“The PBOC may have realized that its euro-denominated assets are in greater danger than it expected and started to eye gold,” said Li Jie, director of the foreign-reserves research center at the Central University of Finance and Economics.

Li added that there was no easy way for China to get as much gold as it wished because major economies such as the US hold the majority of gold and market supplies are very limited.

[source]

JK Comment: Pretty strong endorsement of the yellow metal. Two important takeaways: First, it appears China is willing, able, and willing to ‘buy the dips’ in gold. China is single-handedly ensuring that a “floor” will exist in the gold market. Second, even if China wanted to diversify dramatically into gold, it can’t. Even a small allocation of their vast currency reserves would cause such a dramatic upward move in gold, it would quickly become far too great an expense to justify the purchase (if the gold even existed in sufficient quantities to allow such an acquisition) – For now. Pretty easy to put two and two together: China wants gold. There isn’t enough gold out there to fill China’s demand. As the international monetary system continues to destabilize, the luxury of waiting on “favorable fluctuations” will be replaced by outright “urgency and necessity”. It is hard to make a more bullish long term case for gold than this: The holder of the largest currency reserves in the world thinks that “no asset is safe” and “the only choice” is GOLD.

Dec. 27 (Bloomberg) — The euro traded at almost its lowest level since January against the dollar as concern lingered that Europe’s debt crisis will slow regional economic growth.

“The European peripheral bond markets are still looking quite fragile and we’ll be watching that,” said Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York. “People are going to be quite cautious in terms of trading events. It’s going to be a quiet week.”

Ten-year bond yields in Italy advanced six basis points, or 0.06 percentage point, to 7.04 percent, above the 7 percent level that spurred Greece, Ireland and Portugal to seek bailouts.

“The major theme going into 2012 is going to be the euro zone still,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “There’s going to be some large bond supplies coming from some of the periphery countries, Italy and Spain in particular, and that’s going to be the focus.”

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12/27 (ETF Trends ) This is very healthy for further gains in 2012, especially if we hold above $1,500. We could see the market trade in a range through mid summer,” John Person, president of NationalFutures, said in the article. Person predicts gold to peak between $2,200-$2,400 by late October 2012.

Over the long-term, gold bulls point to the loose monetary policies of the Federal Resrve and European Central Bank that will eventually debase their currencies and contribute to the attractiveness of gold.

“$2,000 gold can be delayed in the short term, but the fundamentals will carry it there sooner or later,” Mladjenovic added. “2012 has very bullish conditions so higher gold prices are more plausible.”

[source]

Despite Correction, Gold Poised to Register Another Solid Performance in 2011

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23-Dec (USAGOLD) — Gold is consolidating below $1600 in the last week of the year. The last London gold fix of 2010 was $1405, so barring any dramatic price changes in the last week of the year, the yellow metal is on-track for yet another double-digit gain of about 14%.

That’s pretty impressive given the dramatic delveraging sell-off from the 1920.50 record high we saw in September, which prompted all manner of commentary proclaiming the end of gold’s decade-long rally. More recently — amid another bout of deleveraging associated with rising uncertainty about the fate of European Union — the yellow metal retested the September low at 1534.06 along with important channel support. While much was made of the technical damage done by the recent move below the 200-day moving average, gold continues to display good resilience, underpinned by solid fundamentals.

Monthly Gold Chart

Daily Gold Chart

Those supporting fundamentals are unlikely to change anytime soon as the world continues to seek solutions for an overwhelming level of debt and anemic growth prospects. Thus far, the focus remains on creating more of what is arguably to primary source of the problem. Debt.

Of course someone needs to buy that debt, so we have also witnessed unprecedented — and in some instances “unlimited” — liquidity pumps to perpetuate the now institutionalized game of “hide the debt.” I don’t think that anyone really believes that more debt is really the answer to our global debt crisis, but in staving off a complete economic catastrophe several years ago with massive deficit spending and liquidity schemes, the United States effectively set the tone. Actually, the US was simply following the example set by Japan more than 20-years ago; drive interest rates to zero and hold them there by printing currency and buying bonds with it.

In fact, Japanese debt is fast approaching ¥1 quadrillion! That rather ominous benchmark is expected to be surpassed by the end of Japan’s fiscal year in March. The BoJ’s balance sheet is a startling ¥138 trillion. Meanwhile the Fed’s balance sheet has contracted in recent months, but is still in excess of $2.7 trillion. But perhaps most troubling is the expansion of the ECB’s balance sheet. Despite their persistent assurances that quantitative measures simply aren’t an option, the ECB’s balance sheet has grown by nearly a third, approaching €2.5 trillion. Hey Mr. Draghi, if you’re not engaged in QE, explain that exploding balance sheet.

There are policymakers in Europe, including ECB board member Lorenzo Bini Smaghi, that favor true — or at least un-obscured — quantitative easing by the ECB to prevent another recession in Europe. Imagine the implications for the central bank’s balance sheet if the objections are ultimately circumvented.

Late in December, the ECB unleashed a wall of money, €489 bln ($638 bln) in 3-year LTROs to 523 eurozone banks. The positive reaction to all this new liquidity was very short-lived. The euro remains under pressure and eurozone spreads have widened back out.

As the FT’s Gillian Tett pointed out in a recent column, the hope was that the banks would use this abundance of cheap ECB money to buy European sovereign debt, much in the same way that US banks plowed the proceeds from mortgage backed securities sales to the Fed into US Treasuries. Basically, the private sector ends up financing the government with funds provided by the government. Being in the middle of this financing cycle results in a potential profit bonanza for the banks.

ZIRP and liquidity. Liquidity and ZIRP. From here to eternity…

There are growing rumblings that the Fed is about to extend their ZIRP guidance from mid-2013 out to 2014 and potentially beyond. I’m sure when the BoJ launched their quantitative measures they were expected to last maybe a couple of years. Here it is 20 some years later and Japan still has 0% interest rates. Do you suppose this is our fate as well?

Some of the major financial firms are predicting lofty average gold prices for the coming year: Goldman Sachs $1810, Barclays $2000 and UBS $2050 to name just a few. We maintain that the long-term uptrend in gold is protected as long as we remain in a negative real interest rate environment. This in fact seems all-but assured for quite some time. On top of that, the ongoing expansions of debt, monetary bases and central bank balance sheets, along with broadly positive supply/demand dynamics — highlighted by robust investment and central bank demand — conspire to underpin gold as well in the new year.

On behalf of everyone here at USAGOLD – Centennial Precious Metals, we wish you a very merry Christmas and a most prosperous 2012.

22-Dec (Financial Times) — A few weeks ago, some senior officials at Bank of Tokyo Mitsubishi spotted a fascinating fact: for the first time the volume of Japanese government bonds sitting on the bank’s balance sheet swelled above corporate and consumer loans.

Yes, you read that right: at an entity such as Bank of Tokyo Mitsubishi, it is now the government – not the private sector – which is grabbing most credit, as the bank gobbles up JGBs, notwithstanding rock-bottom low rates.
More

Welcome to a key theme of 2012. During the past four decades, it was widely assumed in the western world that the main role of banks and asset managers was to provide funding to the private sector, rather than act as a piggy bank for the state. But now, that assumption – like so many of the other ideas that dominated before 2007 – is quietly crumbling. And not just in Japan.

…Whatever you want to call it, then, the state and private sector finance are becoming more entwined by the day. It is a profound irony of 21st century “market” capitalism. And in 2012, it will only deepen.

[source]

23-Dec (USAGOLD) — Gold is narrowly confined as trading thins ahead of the long Christmas weekend. This morning’s US data was largely an offset: While durable goods orders exceeded expectations of Nov, personal income and expenditures disappointed.

Despite the huge flood of ECB 3-year money this week, yields on Italian BTPs have climbed back above 7%, suggesting the turmoil in Europe is far from being resolved. Meanwhile there are growing expectations that the Fed is already contemplating revising their ZIRP guidance from “mid-2013″ to 2014 or beyond.

We firmly believe that as long as we remain in a negative real interest rate environment, the long-term uptrend in gold is not in jeopardy.

• US personal income +0.1% in Nov, below expectations of 0.3%; PCE tepid at +0.1% on expectations of +0.3%.
• US durable goods orders +3.8% in Nov, well above market expectations of 2.0%, vs unch Oct.
• Canada GDP flat in Oct, in-line with expectations, vs +0.2% in Sep.
• France Q3 GDP (final) revised down to +0.3% q/q, vs +0.4% previously; +1.5% y/y, vs +1.6 previously.
• France PPI +0.4% m/m in Nov, above expectations of unch, vs +0.5% in Oct; 5.6% y/y on expectations of 5.2%, vs 5.8% in Oct.
• Italy consumer confidence (sa) slides to 91.6 in Dec, vs downward revised 96.1 in Nov.

22-Dec (The Wall Street Journal) — The Federal Reserve could signal it is likely to keep short-term interest rates near zero into 2014 or beyond, to bolster the fragile economic recovery.

Fed officials have grown increasingly uncomfortable with their August statement that they are likely to hold short-term rates exceptionally low at least through mid-2013. Some believe low inflation and high unemployment could warrant low rates for longer.

[source]

PG View: I’m sure the BoJ played this game at first too: ZIRP for just a couple years…okay maybe 5-years…20-years later interest rates are still 0%…

21-Dec (The Economist) — THE European Central Bank has come under criticism for its failure to act as lender of last resort to embattled sovereigns. Yet when it comes to banks, the traditional recipients of central bank support, the ECB is lender of last resort on steroids. Today, it lent €489 billion to 523 banks at 1%, at its first three-year refinancing operation. It was its largest refinancing ever.

Banks used some of that to pay off shorter term loans from the ECB. Even so, net lending of €235 billion brought the ECB’s total loans to banks to almost €1 trillion. Mario Draghi, the ECB president has repeatedly insisted the ECB’s purchases of government bonds were neither “eternal nor infinite”, but that clearly doesn’t apply to its lending to banks. As banks’ private sector funding dries up, the ECB has supplied not just all the short-term funds they need, but all the dollar funds they need (via the revamped swap lines from the Federal Reserve) and now long-term funds as well.

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21-Dec (Financial Times) — The explosion in central bank balance sheets continues. As explained in this earlier blog, the ECB, the Fed and others have become the holders of last resort for much of the private sector risk which no-one else is willing to touch. Today’s announcement of a record liquidity injection by the ECB, along with a further rise in the Fed’s balance sheet as part of the dollar swap programme, looks particularly dramatic, but it really just represents a continuation of a process which has been underway for many months now.

…we should call a spade a spade. This is quantitative easing on a significant scale, and the lines between this form of QE, and the direct monetisation of budget deficits, which is forbidden by the spirit of the eurozone treaties, are becoming increasingly blurred.

…the monetary base will expand rapidly as central bank funding for the banking sector replaces private funding, and this is likely to prevent the large drop in M3 which would otherwise have occurred.

Questions will be asked, especially in Germany, about whether this liquidity injection will be inflationary.

[source]

22-Dec (HousingWire) — The United States could lose its AAA sovereign debt rating by the end of 2013 if policymakers fail to make inroads in cutting the federal deficit in the next year and a half, Fitch Ratings said Thursday.

Fitch and Moody’s Investors Service still maintain AAA ratings for U.S. sovereign debt even though Standard & Poor’s lowered its rating for U.S. sovereign debt to AA+ from AAA back in August. In August, Moody’s affirmed the country’s gilt-edged rating, but assigned U.S. sovereign debt a negative outlook, saying a downgrade could occur if fiscal discipline weakens in the coming year.

Fitch says political gridlock and the failure of the Joint Select Committee on Deficit Reduction to cut $1.2 trillion from the deficit only forestalls the debt reduction process, creating even more gridlock with 2012 being an election year.

[source]

Gold Eases Within Range

22-Dec (USAGOLD) — Gold is lower this morning and has probed back below $1600 intraday. Mixed US economic data were largely seen as offsetting, so what little activity we are seeing is being driven by position squaring ahead of the long Christmas weekend. While the test back above the 200-day moving average (1625.17 today) was seen as ecouraging, the inability of the yellow metal to register a close above the average leaves the technical picture somewhat questionable.

Keep in mind though that gold has tested below the 200-day on several occassions throughout this rally and the dominant uptrend always re-exerted itself. In fact, reversions to the proximity of the 200-day MA have proven to be excellent buying opportunities over the past decade.

The fundamental picture on the other hand remains broadly constructive for gold. Basically everything that has driven gold higher over the past decade is still in place and expanding. I’ll sum it up by calling it the ‘proliferation of paper’; paper in the form of debt issuance and paper in the form of fiat currency expansion. Yesterday’s massive €489 bln ($638 bln) ECB LTRO drives home my point. In a one day operation, 523 eurozone banks snapped up nearly the equivalent of the 2009 US fiscal stimulus. Astounding.

However, paper ounces of gold have grown rather dramatically over the course of the multi-year rally as well. Just last week, Nigeria’s bourse listed a new gold ETF. Estimates vary widely, but the most commonly cited statistic is that there are 100 ounces of “paper gold” for every ounce of real gold. When you consider the magnitude at which this artificial supply has expanded in just the last several years alone, it’s quite astounding how easily the gold market absorbed those ounces.

That dear friends is a testament to the underlying fundamentals of this market. And the reality of simple supply and demand economics.

Gold Rallies, Then Falls on ECB Liquidity Pump

21-Dec (USAGOLD) — Gold surged back above the 200-day moving average on expectations that today’s ECB offering of unlimited 3-year money at about 1% would ease liquidity concerns and provide some sense of stability within the eurozone. The uptake on that cheap money was at the very high-end of expectations at €489 bln ($638 bln), with 523 banks participating.

The massive liquidity pump was viewed as a positive for a fleeting moment, but then the market started considering the real implications of so many banks needing nearly half a trillion euros. Upon that second examination, the market determined that the crisis within the EU banking system was worse than they thought and investors quickly switched to a “risk-off” mindset. Gold peaked at 1641.65 and then proceeded to retreat back into the range, moving into negative territory on the day.

It was widely perceived that the abundance of new-found cheap liquidity would be plowed back into sovereign debt markets, lowering refunding costs and providing additional stability within the eurozone. However, the evaporation of risk appetite gave the commercial banks pause and spreads widened. The ECB seemed to be the only one actively buying EU sovereign debt today. Some are already calling the LTRO scheme a bust, but it is in fact too early to tell.

The obvious reality here is that what the ECB created today is more debt. If I’ve said it once, I’ve said it a thousand times; you don’t extract yourself from a debt crisis by creating more debt. PIMCO’s Bill Gross tweeted the following this morning: What does #LTRO stand for? 1. A shell game; 2. Cash for trash; 3. Three-card “monti;” or 4. All of the above.

Undoubtedly the bulk of that €489 bln is going to be invested somewhere; after all these are loans that will have to be paid back, so the banks will have to find something to yield more than the approximately 1% they’re paying on this 3-year money. Speculation about quid pro quo arrangement with the ECB not withstanding, the banks seem to have at least initially determined that sovereign debt purchases are not their first order of business. Perhaps they’re holding out for higher yields. Perhaps they’ll look to buy back the gold they delevered out of last week first…

20-Dec (The Economist) — THE world’s recovery from recession is slowing, according to The Economist’s measure of global GDP, based on 52 countries. Third-quarter growth expanded by 3.6% across the world, down by 1.5% from the same period in 2010.

[source]

21-Dec (Bloomberg) — European banks borrowed enough cash from the European Central Bank at its first three-year offering to refinance almost two-thirds of the debt they have maturing next year amid concern that markets will remain frozen.

The 523 euro-area lenders took a record 489 billion euros ($638 billion) from the Frankfurt-based central bank in 1,134- day loans today, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. That equals about 63 percent of the European bank debt maturing in 2012, according to Goldman Sachs Group Inc. analysts.

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21-Dec (HousingWire) — The National Association of Realtors revised its existing home sales downward 14.3% in the period from 2007 to 2010, after the group said its data diverged from actual market conditions.

The trade group announced the revisions Wednesday in its monthly existing-sales report. November sales rose 4% from last month and 12.2% from a year ago. Jed Smith, the head of quantitative research at NAR said in a conference call that numbers in reference to supply and demand in the market are unchanged.

Lawrence Yun, NAR chief economist, said about half of the revisions came from a decline in for-sale-by-owner transactions. NAR said those sales dropped from 16% of the market in 2000 to 9% in 2010.

Multiple listings, geographic population shifts and house flipping also contributed to the revisions, Yun said.

[source]