27-Jan (CNBC) — Rick Santelli runs some rather disturbing numbers on the latest $1.2 trillion hike to the US debt ceiling.

27-Jan (Reuters) — Fitch Ratings on Friday downgraded the sovereign credit ratings for Italy, Spain, Slovenia, Belgium and Cyprus indicating there is a 1-in-2 chance of further downgrades in the next two years.

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27-Jan (The Big Picture) — The degree to which central banks around the world are printing money is unprecedented.

The first eight charts below show the balance sheets of the largest central banks in the world. They are the European Central Bank (ECB), the Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), the Bundesbank (Germany), the Banque de France, the People’s Bank of China (PBoC) and the Swiss National Bank (SNB). Noted on the charts are significant events or growth rates.

Shown is the size of each respective balance sheet in its local currency. Note that all are exploding higher as every chart goes from the lower left to the upper right. Most are still making new all-time highs. If the basic definition of quantitative easing (QE) is a significant increase in a central bank’s balance sheet via increasing banking reserves, then all eight of these central banks are engaged in QE.

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27-Jan (Bloomberg) — Gold traders are bullish for a fourth consecutive week, betting that the Federal Reserve’s pledge to keep interest rates low until late 2014 will extend the metal’s best start to a year in more than three decades.

Nine of 15 surveyed by Bloomberg expect prices to gain next week. The value of gold held in exchange-traded products jumped $3.9 billion on Jan. 25, the most since October, as the central bank laid the groundwork for a possible third round of asset purchases, data compiled by Bloomberg show. Lower interest rates increase the appeal of bullion because it generally earns investors returns only through price gains.

Bullion rose 2.7 percent, the most in three months, after Chairman Ben S. Bernanke said he’s considering additional bond purchases to boost growth. The Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 to June 2011, during which gold appreciated about 70 percent. Investors are now buying American Eagle gold coins from the U.S. Mint at the fastest pace since July 2010, data on its website show.

…Gold rose 9.9 percent to $1,720.65 an ounce this month by yesterday, the best start to a year since 1980 and rebounding from the first quarterly decline in three years. Bullion is beating the 3.3 percent advance in the Standard & Poor’s GSCI Total Return Index of 24 commodities and the 5.8 percent gain in the MSCI All-Country World Index of equities. Treasuries lost 0.2 percent, a Bank of America Corp. index shows.

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PG View: …and gold is up more than another $12 today.

26-Jan (MarketWatch) — Uncertainty over currencies and high inflation are among the key factors often cited, if not celebrated, by gold investors to explain the spectacular rise of the precious metal in recent years, including its jump to record highs above $1,900 an ounce in 2011.

It seems the government of India, which just slapped its first import-duty increase on gold in two years, now also wants to benefit from those trends.

The idea: Using India’s position as the world’s largest consumer of gold to at least partly plug the gaping hole in the government’s finances and the nation’s current-account deficit, both cited as factors in last year’s slide in the rupee.

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PG View: The Indian government is seeking to narrow its current account deficit on the backs of gold buyers with a 73% hike in tariff. Hmmm, mightn’t taxation of gold become an attractive option elsewhere in the world as the appeal of the yellow metal as an inflation hedge continues to expand?

27-Jan (MarketWatch) — Big changes could be underway for China’s currency this year, as Beijing moves forward with plans to free up its forex rules and increase the use of the yuan in its trade with the world.

Unnerved by the financial crisis in the euro zone, Chinese policy makers are contemplating a new approach that won’t be immediately obvious in the currency charts, according to one analyst.

Economist Intelligence Unit’s Asia economist Duncan Innes-Ker in London said the consensus in Beijing is tilting towards efforts to accelerate the internationalization of the yuan — a reform that would also entail a gradual appreciation of the Chinese currency and would bring forward the eventual end of China’s managed foreign-exchange regime.

“What you saw last year was the Chinese trying to diversify their foreign-exchange reserves [which are] being savaged by what’s going on in the euro area,” said Innes-Ker.

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PG View: This is just another piece in the ongoing transfer of economic power from West to East. When Mr. Innes-Ker talks about FX reserve diversification, while he doesn’t mention it specifically, this is also part of the global transfer of gold from West to East…

27-Jan (The Wall Street Journal) — Gold has had a good year so far. It may not have made it back to those $1,900 highs it saw last year but it is still hovering back around $1,700 an ounce. Dow Jones’s Francesca Freeman explains what is driving the rally.

27-Jan (USAGOLD) — Gold remains well bid, eking out additional 6-week highs following this week’s assurance that the Fed will keep its foot on the gas at least into late-2014. Additionally, rumors continue to circulate that a deal with private holders of Greek debt is close at hand. This has lifted the euro at the expense of the dollar. A weaker dollar has a supportive impact on gold.

Of course we’ve been hearing about a deal on Greece for several weeks now. In fact, the original “deal” in principle was actually allegedly struck back in October of last year. In the wake of yesterday’s report that that Greece’s funding gap may be wider than previously thought. Well, that’s something we’ve been hearing with a disturbing degree of regularity dating back to the first iteration of the Greek crisis in late-2009, when it was determined that data reported to Eurostat where a complete fabrication.

The most significant events this week regarding gold were the Fed’s extended guidance, the Fed initiating inflation targeting and Senate approval of yet another $1.2 trillion bump in the US debt ceiling. And having never met a debt ceiling we couldn’t ultimately exceed…I have no delusions that $16.39 TRILLION is where this madness will end…

• University of Michigan consumer sentiment (final) rose to 75.0 in Jan, above market expectations, vs 74.0 preliminary read.
• US Q4 GDP (advanced) +2.8%, below market expectations of +3.0%, vs 1.8% in Q3.
• Germany import price index +0.3% m/m in Dec, in-line with expectations, vs +0.4% in Nov; 3.9% y/y.
• Switzerland KOF Leading Indicator -0.17 in Jan, below market expectations of -0.05, vs 0.01 in Dec.
• Eurozone M3 (sa) grew at a 1.6% annual pace in Dec, below market expectations of 2.2% y/y, vs 2.0% y/y in Nov.
• Japan CPI (National) -0.2% y/y in Dec, vs -0.5% y/y in Nov.
• Japan Total Retail Sales rebounded to 2.5% y/y in Dec, vs -2.2% y/y in Nov.

27-Jan (Bloomberg) — The U.S. economy expanded less than forecast in the fourth quarter as consumers curbed spending and government agencies cut back, validating the Federal Reserve’s decision to keep interest rates low for a longer period.

Gross domestic product, the value of all goods and services produced, climbed at a 2.8 percent annual following a 1.8 percent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 3 percent increase. Excluding a jump in inventories, growth was 0.8 percent.

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PG View: Thanks to a huge $58.0 bln inventory add in Q4, the headline figure was just modestly below expectations, but all that inventory may-well weigh on Q1 GDP.

27-Jan (Chart of the Day) — Severely depressed real estate prices continue to be a concern for investors. For some perspective on the magnitude of the decline in home prices, today’s chart presents the median single-family home price divided by the price of one ounce of gold. This results in the home / gold ratio or the cost of the median single-family home in ounces of gold. For example, it currently takes a relatively low 105 ounces of gold to buy the median single-family home. This is dramatically less than the 601 ounces it took back in 2001. When priced in gold, the median single-family home is down over 80% from its 2001 peak, remains well within the confines of a six-year accelerated downtrend and remains very near its 1980 trough.

PG View: Makes me wish I had rented and plowed all the money that went into my house into gold…

26-Jan (MarketWatch) — Greece and its private-sector creditors were set to resume negotiations in Athens later Thursday to restructure the country’s towering debt load, a process accompanied by concerns that Greece’s funding needs might be bigger than originally thought.

Euro-zone officials in October agreed to provide Greece with debt relief with a planned package to ensure that its debt equals to no more than 120% of its gross domestic product in 2020. Since then, further deterioration in the Greek economy and a budget deficit that has widened to nearly 10% of GDP could put those projections in doubt. The new debt-sustainability study, due for release by the European Union and the International Monetary Fund once talks with the private creditors are completed, might require a rethink on the funding Greece will need to be able to service its debt for the rest of the decade.

Greece’s debt restructuring is planned to take the form of a bond exchange in which creditors holding some EUR200 billion in Greek bonds swap their securities for new instruments with half the face value. The key sticking point is how much interest new bonds should pay. Germany and the IMF have led calls for private-sector bondholders to accept a coupon of well under 4%, while investors so far have insisted on 4% on the new bonds as a minimum.

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PG View: Bet you didn’t see that one coming… Okay, all you private bondholders, your 50% haircut, that turned into a 68% haircut is now 90%. And you can forget about that 4% coupon. You’ll be lucky to get 2%…

26-Jan (ZeroHedge) — Below we present the indexed return of ES (or stocks) and of gold over the past 24 hours since the Bernanke announcement of virtually infinite ZIRP, and the latent threat of QE3 any time the Russell 2000 has a downtick. It is unnecessary to point out just when Bernanke made it all too clear that the Fed has nothing left up its sleeve, expect to directly compete with the ECB over “whose (balance sheet) is bigger,” as it is quite obvious. What is not so obvious, is that for all intents and purposes, Bernanke may have unwillingly, become a gold bug’s best friend, as gold (and implicitly silver) has benefited substantially more that general risk. Much more. So for the sake of all gold bugs out there, could the Fed perhaps add a few more FOMC statements and press conferences? At this rate gold should be at well over $2000 by the June 20 FOMC meeting.

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26-Jan (Politico) — Despite Republican opposition, the Senate on Thursday voted to allow President Barack Obama to increase the debt ceiling by $1.2 trillion, an amount large enough to ensure the federal government can pay its bills through the November elections.

On a mostly party-line 44-52 vote, the Democratic-controlled Senate rejected a measure that would have set up a vote to block hiking the debt limit to $16.39 trillion.

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Negative Real Interest Rates for Years to Come

26-Jan (USAGOLD) — The message from the Fed yesterday was quite clear; they are expecting the economy to continue limping along for at least another 3-years. As part of their new communications strategy, the Fed extended their ZIRP guidance from mid-2013 until late-2014. Even if the Fed does start raising rates at that point, they are likely to be small incremental hikes, which would likely keep real rates (factored for inflation) in negative territory for some-time after 2014.

The Fed first cut the Fed funds rate to 0-0.25% in December 2008: That would mean somewhere around 6-years of zero interest rate policy is now anticipated. We’ll be more than half-way through our own lost-decade. I’m sure the Bank of Japan thought they could extract themselves from the ZIRP trap within a decade too. They’re now into their third lost decade.

Going further, the Fed is now targeting inflation — core-PCE to be specific — at 2%. So, we have a moribund economy, that the Fed itself expects to persist for at least 2+ more years. We have a high rate of unemployment, that the Fed also expects to remain elevated for at least a couple more years. We have households attempting to de-lever, to pay down debt by scaling back consumption. And we have the ‘sword of Damocles’ that is Europe, hanging over all of that.

How exactly is the Fed going to generate 2% inflation — excluding food and energy — in such an environment? They’re going to expand the money supply of course. They’re going to print with abandon. The not so subtle message is: Spend your dollars now, because they will buy less tomorrow. This is as much a 2% dollar devaluation target as an inflation target. It is truly an attack on savers.

One has to wonder what the other measures of inflation might look like if they do achieve 2% core-PCE. What will food and energy prices do? What will gold do?

The $80 rally in the yellow metal off of Wednesday’s intraday low is a good initial indication of what gold is likely to do. There’s now a more compelling case than ever to buy gold as a means of wealth preservation — a hedge against the inflation the Fed is now obligated to manufacture.

If you are a saver, your best defense against an uber-dovish Fed seeking to spur consumption by eroding the value of your dollars…is to choose to save in gold.

26-Jan (USAGOLD) — Gold is adding to yesterday’s solid gains, setting new 7-week highs near 1730.00. The yellow metal was boosted by yesterday’s revised Fed guidance, which now projects that zero interest rate policy will continue into late-2014. The Fed has also embarked on inflation targeting: In other words they are looking to devalue the dollar by at least 2% a year.

The Fed also provided a weaker assessment of the US economy and chairman Bernanke indicated that additional asset purchases are an option that is “certainly on the table.” The takeaway from all this is that the Fed remains very worried: Worried about sluggish domestic growth. Worried about high unemployment. Worried about Europe…

In a moribund economy with a high jobless rate that is further saddled by endless uncertainty across the pond; how exactly to you manufacture 2% inflation? You print like mad of course. And that explains why gold is up more than $80 from yesterday’s intraday low.

• US new home sales and LEI at 15:00GMT.
• US durable goods orders +3.0% in Dec, well above market expectations of +1.8% on SouthWest aircraft order; ex-trans +2.1%.
• US initial jobless claims +21k to 377k in the week ended 21-Jan, above market expectations of 370k, vs upward revised 356k in previous week.
• Germany GfK Consumer Confidence rose to 5.9 in Feb, above market expectations of 5.6, vs upward revised 5.7 in Jan.
• Italy Consumer Confidence (sa) steady in Jan at 91.6, below market expectations of 91.8.
• South Korea Q4 GDP (advance) 3.4% y/y, vs 3.5% y/y in Q3.
• Singapore Manufacturing Production +12.6% y/y in Dec, vs upward revised -8.0% y/y in Nov.
• RBNZ holds official cash rate steady at 2.5%, in-line with expectations.

26-Jan (Bloomberg) — Ben S. Bernanke laid the groundwork for a third round of large-scale asset purchases should unemployment remain higher than the Federal Reserve would like while inflation falls below a newly-established target.

The Federal Open Market Committee “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation,” Bernanke said yesterday at a press conference in Washington.

Stocks and Treasuries rallied after policy makers said the benchmark interest rate would stay low until at least late 2014, pushing back a previous date of mid-2013. Fed officials also lowered their projections for economic expansion and inflation for this year and next.

…The U.S. central bank’s “two main tools” to boost growth are asset purchases and communications, and bond buying is “an option that is certainly on the table,” Bernanke said. “The unemployment level is elevated and the inflation outlook is subdued.”

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Jan 25 (The Street) — Gold prices reversed directions Wednesday and popped higher after the Fed said it would maintain low interest rates until late 2014, a year longer than previously stated. The Fed also promised to stay accommodative. “That’s really really dovish and you are seeing a lot of people running into gold,” says Phil Streible, senior commodities broker at RJO Futures.

The Fed said that inflation remains subdued, which Streible said was a good thing for gold. “Inflation will be created … [the Fed is] artificially creating inflation for the next couple of years.” The U.S. dollar index sold off on the news as more easy money means a devalued dollar. When paper currencies lose value, gold becomes appealing as a safe haven asset.

“The Fed telling us no rate increase to at least 2014 is a sharp rally promoter for gold,” says George Gero, senior vice president at RBC Capital Markets, “as low interest rates to continue will make gold a good alternative hold and not expensive to maintain” The rise in gold also triggered short covering where investors who had been betting against gold bought back positions.

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25-Jan (FRB) — Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.

The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.

Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee’s policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee’s goals.

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.

The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee’s policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants’ estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC’s Summary of Economic Projections. For example, in the most recent projections, FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.

In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee’s assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate.

25-Jan (MarketWatch) — Gold prices rallied Wednesday, reversing course as the Federal Reserve’s monetary policy committee extended its pledge to keep interest rates at exceptionally low levels to late 2014, which will help boost demand for the precious metal.

“The Fed telling us no rate increase to at least 2014 is a sharp rally promoter for gold as low interest rates to continue will make gold a good alternative hold and not expensive to maintain,” said George Gero, a vice president with RBC Capital Markets, said in emailed note.

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