30-Jan (Bloomberg) — The U.S. Treasury Department lowered its borrowing estimate for the current quarter by $97 billion to $444 billion, reflecting higher receipts and lower spending.

The Treasury revised downward the first-quarter net- borrowing estimate of $541 billion made three months ago. U.S. Treasury officials also project net borrowing of $200 billion in the second quarter. The projection sets the stage for the Treasury’s quarterly refunding announcement on Feb. 1.

[source]

PG View: Treasury is wasting no time in burning through the additional $1.2 trillion in debt ceiling clearance approved by the Senate last week…

29-Jan (Forbes) — This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms. Beijing does not release gold trade figures, so for this and other reasons the Hong Kong numbers are considered the best indication of China’s gold imports.

Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010. “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.

…The People’s Bank of China, the central bank, has been hinting that it is purchasing. “No asset is safe now,” said the PBOC’s Zhang Jianhua at the end of last month. “The only choice to hedge risks is to hold hard currency—gold.”

…A better explanation for the gold-buying binge of Chinese citizens is that they are using the shiny commodity as an inflation hedge, as the Financial Times recently suggested.

…Not every Chinese citizen is in the position to export cash, so the next best tactic for the nervous is to buy gold, a refuge from plunging property prices and declining stock markets as well as an anticipated depreciation of their currency.

[source]

30-Jan (USAGOLD) — Gold begins the week on a mildly defensive footing as last week’s assurances that a Greek PSI deal was nigh proved unfounded once again. In fact, the realization that Greece will now need €145 bln for its second bailout, rather than the currently proposed €130 bln and a German proposal that Greece cede its budget authority to an EU czar may well leave the two sides of the negotiation further apart than ever.

The rising chances that Greece will simply have to default on its outstanding debt keeps 10-year yields elevated near 35%. Meanwhile, Portuguese 10-year yields surged to record highs above 17% on the belief that if there is no resolution to be had for Greece, then Portugal is probably next in line for a disorderly default.

The uptick in risk aversion associated with the rise in uncertainty has weighed on the euro, lifting the dollar in the process. This has in turn knocked gold off the new 6-week highs established on Friday. However, the yellow metal already seems to have found support and is trading more than $10 off its intraday low.

EU leaders will meet today to discuss moving Europe toward a tighter fiscal union. However, the periphery seems disinclined to cede additional sovereignty to the core, while the core seems disinclined to throw good money after bad without some control over what they perceive as periphery profligacy.

• US personal income +0.5% in Dec, above market expectations of +0.4%. PCE flat on expectations of +0.1%.
• Eurozone economic confidence improves to 93.4 in Jan, below market expectations of 93.8, vs negative revised 92.8 in Dec.
• Eurozone consumer confidence ticks lower in Jan to -20.7; industrial confidence steady at -7.2; services improves to -0.6; business climate better at -0.21.
• Germany CPI – preliminary falls to -0.4% in Jan, in-line with expectations, vs +0.7% in Dec; decelerates to 2.0% y/y
• Spain Q4 GDP (sa) – preliminary -0.3% q/q, in-line with expectations, vs 0.0% q/q in Q3.
• South Korea current account (nsa) narrowed to $3.96 bln in Dec, vs negative revised $4.56 bln in Nov.
• Taiwan unemployment rate (sa) moderates to 4.22% in Dec, vs 4.3% in Nov.

30-Jan (ChinaDaily) — A “gold rush” swept through China during the week-long Lunar New Year holiday this year, with demand for precious metals and jewelry surging since the Year of the Dragon began.

Sales of gold, silver and jewelry rose 57.6 percent during the week-long holiday at Caibai, one of Beijing’s best-known gold retailers, according to data released by the Ministry of Commerce (MOC) on Saturday.

Other jewelry stores across the country also saw sales boom during the period, with customers favoring New Year-themed gold bars, gold ingots and other types of Dragon-themed jewelries.

“Long treasured by Chinese, gold is no longer owned only by a privileged few, but has become a new investment channel open to all,” said Guan Qiang, assistant manager at Caibai.

…During the week-long holiday, which lasted from January 22 to 28, the sales volume in Caibai and Guohua, another of Beijing’s top gold retailers, reached about 600 million yuan ($95.28 million).

The figure showed a 49.7-percent increase over that of last year’s Spring Festival, said a report released by the Beijing Municipal Commission of Commerce.

[source]

30-Jan (Reuters) — Stock index futures fell on Monday as concerns grew about the state of Europe’s finances as Greece and Germany sparred over budget measures for Athens.

Bank stocks led the way lower after a report that Germany was pushing for Greece to give up control over its budget policy to European institutions as part of discussions over a second bailout package.

[source]

PG View: Looks like the “imminent” deal we heard about again on Friday wasn’t so imminent after all as Greece rejects direct budget oversight.

Europe’s politicians are losing touch with reality. Greece is broke, and yet Brussels wants to send the country billions in new loans, to which there is growing opposition within the coalition government in Berlin. Rescue efforts are hopelessly bogged down by bickering over who will ultimately step up.
Info

Martial music booms from the loudspeakers as warlike images gallop across monitors. A short euro crisis film montage shows police officers being posted in front of the parliament building in Athens and the jostling of frantic reporters, then US investor George Soros uses grim words in an appeal to rescue the euro zone. “The alternative is just too terrible to contemplate,” he says.

…The Greek economy is shrinking faster than European politicians believed was possible in autumn, and now the country is short on funds once again. The representatives of the so-called troika, consisting of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), estimate the shortfall to be about €15 billion, meaning that Greece needs €145 billion instead of €130 billion. “We do not assume that the additional funds can be collected solely from private creditors,” say sources within the troika.

[source]

30-Jan (Financial Times) — Greece’s finance minister angrily rejected a German plan for the eurozone to impose a budget overseer onto Athens in return for a new €130bn bail-out, saying it would improperly force his country to choose between “financial assistance” and “national dignity”.

Evangelos Venizelos said the proposal to create a European Union “budget commissioner” with the power to veto Greek tax and spending decisions, revealed by the FT, “ignores some key historical lessons”. He added EU lenders already had sufficient monitoring safeguards in place in its bail-out programme.

…EU and International Monetary Fund officials have already presented the Greek government with a 10-page list of “prior actions” Athens must take before being granted the new bail-out. The list, obtained by the Financial Times, includes cutting 150,000 public sector jobs within three years and cutting this year’s budget deficit by a further 1 per cent of economic output.

[source]

(MarketWatch) — The yield on 10-year Portuguese government bonds continued to explore euro-era highs Monday, topping 15% on fears the country may need to eventually seek an additional bailout or a writedown on the value of its current debt.

…yields on Portugal’s sovereign debt soaring because investors are worried that if Greece has a disorderly default or a forced debt restructuring, then Portugal would be next,” wrote strategists at Bank of America Merrill Lynch.

[source]

PG View: This story wasn’t written very long ago at all, and the Portuguese 10-year yield is already above 17%.

“. . .’At times like these, survival is the most important thing,’ he [George Soros] says, peering through his owlish glasses and brushing wisps of gray hair off his forehead. He doesn’t just mean it’s time to protect your assets. He means it’s time to stave off disaster. As he sees it, the world faces one of the most dangerous periods of modern history—a period of ‘evil.’ Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. The global economic system could even collapse altogether.”

MK comment: It is difficult to understand how an individual thinking like this would ignore owning physical gold in the form of coins and bullion — Soros’ ownership of which the author of the article linked below denies. Much ado was made of Soros past comments on gold as “the ultimate asset bubble,” and his subsequent disposal of ETF gold holdings — something which has since been quantified as having occurred in the early months of 2011. If so, the legendary Soros left a good bit still on the table, since gold traded at the time in the $1300 to $1400 range.

Since then, there has been speculation here and elsewhere that Soros may have sold his paper gold holdings to acquire something a bit more tangible. No one knows for sure and Soros, as might be expected, isn’t saying. His remarks, in this studied opinion, mask a tell-tale heart. (That from someone who has listened over the years to the reasoning of many high net worth investors who translated dollars to gold. Let me just say that Soros’ analysis has the ring of familiarity.) After all, he did at one time own gold in the form of the ETF. He did unload that position for no apparent or logical reason. And his thinking does sound like what is ordinarily expressed by individuals who have diversified their holdings into gold as the ultimate safeguard.

The article referenced above appeared at the Daily Beast website and is remarkable in its own right. Soros by this rendition is holding mainly cash, recently purchased $2 billion in Italian bonds, and likes “long-term stock picks with solid companies.” Cash? Italian bonds? George Soros? Really?? The name of his upcoming book is “Financial Turmoil in Europe and the United States.” He states that Greece is likely to default in 2012; that China is unlikely to come to Europe’s assistance; and that the entire West could descend into chaos at any moment. What’s missing here?

At any rate here is the link to the Daily Beast article. By the way, as mentioned at the top, he is predicting riots in the streets of the United States: “It will be an excuse for cracking down and using strong-arm tactics to maintain law and order,” he asserts, “which, carried to an extreme, could bring about a repressive political system, a society where individual liberty is much more constrained, which would be a break with the tradition of the United States.”

If Soros isn’t a gold owner, he certainly sounds like one. The rest of us do not have to walk on the West’s broken glass, as Soros might because of his position. We can take the most direct route to “survival” without worrying about public criticism for having done so.

George Soros, the survivalist — extraordinary. . . .

“The situation in Europe and the United States,” he says, “is about as serious and difficult as I’ve experienced in my career.”

Sometimes the constant drip of the news becomes background noise, until somebody says something that serves as a wake-up call. Though the writer of this article attempts to transpose Soros’ remarks to something akin to a call for political action, I detect something else going on — something deeply personal for Soros, and something of which we should all take note. Like so many of us, he seems to have moved away from politics as a final recourse to the crisis and begun to think about the practical business of personally surviving it.

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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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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