02-Feb (USAGOLD) — Gold extended to new 9-week highs, putting important chart/Fibonacci resistance at 1762.70/1768.43 to the test amid persistent uncertainty emanating from Europe and more dire assessments about the US economy from Fed chairman Ben Bernanke.

There is still no deal with Greece’s private bondholders, despite assurance yesterday that an agreement was expected with hours. Whether there is ultimately a deal or not, Greece will be in default and everyone knows it. The whole charade with private bondholders “voluntarily” swapping debt is to provide a pretense to not trigger credit default swaps. That begs the question: What’s the point of having insurance against a sovereign default if policymakers are going to go through such wild gyrations to ensure that they never get triggered?

Fed chairman Bernanke spoke before the House Budget Committee this morning, making note of the “frustratingly slow” pace of the US recovery. He went on to express his concerns about current fiscal policies that he said, “based on plausible assumptions” could lead to “the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to GDP rising rapidly.” He called that dynamic “clearly unsustainable.”

The Bernanke Fed has directly contributed more than $110 to the gold price in the last week, with the FOMC statement that extended ZIRP guidance into late-2014 and initiated inflation targeting, through today’s testimony. With the door open for further asset purchases and projections of persistent weakness in the economy to provide the cover for such actions, the long-term uptrend in gold seems to be re-exerting itself.

• US initial jobless claims -12k to 367k for the week ended 28-Jan, just below expectations of 370k, vs upward revised 379k in previous week.
• US Q4 productivity +0.7%, below market expectations of +0.9%, vs +2.3% in Q3.
• Eurozone PPI-0.2% in Dec, below market expectations of -0.1%, vs +0.2% in Nov; 4.3% y/y.
• UK CIPS Construction PMI fell to 51.4 in Jan, below market expectations of 53.5, vs 53.2 in Dec.

02-Feb (FRB) — Over the past two and a half years, the U.S. economy has been gradually recovering from the recent deep recession. While conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed. Moreover, the sluggish expansion has left the economy vulnerable to shocks. Indeed, last year, supply chain disruptions stemming from the earthquake in Japan, a surge in the prices of oil and other commodities, and spillovers from the European debt crisis risked derailing the recovery.

…Globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe.

…Unfortunately, even after economic conditions have returned to normal, the nation will still face a sizable structural budget gap if current budget policies continue. Using information from the recent budget outlook by the Congressional Budget Office, one can construct a projection for the federal deficit assuming that most expiring tax provisions are extended and that Medicare’s physician payment rates are held at their current level. Under these assumptions, the budget deficit would be more than 4 percent of GDP in fiscal year 2017, assuming that the economy is then close to full employment. Of even greater concern is that longer-run projections, based on plausible assumptions about the evolution of the economy and budget under current policies, show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to GDP rising rapidly. This dynamic is clearly unsustainable.

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Our latest Newsletter, entitled, “Gold Surges 13.9% in January”, is now available.

Excerpt: Gold had a rather stellar January, posting a 13.9% monthly gain based on the LBMA PM fixings of 1531.00 on 31-Dec-11 and 1744.00 on 31-Jan-12. That’s a bigger gain than the yellow metal achieved for the entirety of last year!

Last week — when gold was up less than 10% for the month — Bloomberg came out with a story noting that this was the best start to a year since 1980. Indeed gold did rally smartly in January 1980, but it also put in a nominal 27-year high that month. Should today’s investors be worried that a similar fate awaits them? I think not.

by Peter A. Grant

To receive our free newsletters, and continue reading this month’s issue, click here.

01-Feb (BUSINESS WIRE) — Despite last year’s decline in US bank failures, at least 758 lending institutions are at risk of failure over the next two years, according to an analysis by Invictus Consulting Group, which conducts stress and sustainability tests on all FDIC-insured banks for regulators, banks and investors.

Based on all publicly available data on banks for the third quarter ended September 30, 2011, Invictus said that absent corrective action to raise capital or merge, the 758 banks are unlikely to remain viable. This is primarily due to the weak recovery, which could trigger a new wave of loan defaults. Approximately 200 of these banks are subsidiaries of publicly-traded bank holding companies.

Invictus arrives at these conclusions after stress testing all FDIC-insured banks, using its proprietary ICAMTM (Invictus Capital Assessment Model). The model produces an Invictus Sustainability Rating for the banks it stresses, rating them from 1 (strongest) to 5 (most vulnerable). There are 758 banks rated 5. These banks have total assets of around $440 billion, or roughly $580 million on average. Over the past three years, 389 banks and thrifts failed, including 90 in 2011, according to FDIC figures.

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01-Feb (USAGOLD) — Gold tacked on additional 6-week highs above 1750.00 after posting an impressive 13.9% gain in January. That’s more than the yellow metal gained in the entirety of 2011! Keeping a close eye on chart/Fibonacci resistance at 1762.70/1768.43.

There were more assurances today that a Greek PSI deal was close at hand and the euro dutifully rose, pressuring the dollar. There will come a point, where these cries of “wolf” will simply be ignored. In the interim, most market watchers will continue to be amused by them. The latest proposal centers on the addition of a GDP warrant, which would pay bondholders more if the Greek economy rebounds. So bondholders concede the lower coupon that’s being demanded, but make an additional (arguably ridiculous) bet on a Greek recovery.

Reportedly the additional payout based on an economic rebound could range from 0.5 – 3.0%. I wonder what fantasy gets the bondholders the 3%?

So let me get this straight… Private bondholders “voluntarily” take a 70% haircut (or more), they take a ridiculously low coupon that doesn’t remotely reflect the true risk, and their bone is an additional bet on some likely unattainable GDP fantasy. Sure. Sign me up.

• US construction spending +1.5% in Dec, more than double market expectations of +0.7%, vs 0.4% in Nov.
• US ISM rose to 54.1 in Jan, below market expectations of 54.5, vs 53.1 in Dec.
• US ADP employment survey +170k in Jan, below market expectations of +180k, vs negative revised+292k in Dec from +325k previously.
• Germany CPI – EU Harmonized (preliminary) -0.5% in Jan, below market expectations of -0.4%, vs +0.7% in Dec; 2.3% y/y.
• Eurozone Markit PMI – Manufacturing revised to 48.8 in Jan, vs 48.7 preliminary read; Germany revised up to 51.0.
• Eurozone CPI- Flash Estimate 2.7% y/y in Jan, in-line with expectations, vs 2.7% in Dec.
• Switzerland Retail Sales 0.6% y/y in Dec, below market expectations of 0.9%, vs 1.8% in Nov.
• Switzerland SVME Manufacturing PMI fell to 47.3 in Jan, well below market expectations of 51.5, vs negative revised 49.1 in Dec.
• UK CIPS Manufacturing PMI 52.1 in Jan, above market expectations of 50.3, vs upward revised 49.7 in Dec.

by William H. Gross

• ​Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside.

• Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation.

• We can’t put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering and refusing to extend maturities and duration.

…The transition from a levering, asset-inflating secular economy to a post bubble delevering era may be as difficult for one to imagine as our departure into the hereafter. A multitude of liability structures dependent on a certain level of nominal GDP growth require just that – nominal GDP growth with a little bit of inflation, a little bit of growth which in combination justify embedded costs of debt or liability structures that minimize the haircutting of or defaulting on prior debt commitments. Global central bank monetary policy – whether explicitly communicated or not – is now geared to keeping nominal GDP close to historical levels as is fiscal deficit spending that substitutes for a delevering private sector.

Where else can one go, however? We can’t put $100 trillion of credit in a system-wide mattress, can we? Of course not, but we can move in that direction by delevering and refusing to extend maturities and duration. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.

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31-Jan (AP) — U.S. home prices fell for a third straight month in nearly all cities tracked by a major index. The declines show that most homeowners are not reaping the benefits from some signs of an improving housing market.

Prices dropped in November from October in 19 of the 20 cities tracked, according to the Standard & Poor’s/Case-Shiller home-price index released Tuesday. The steepest declines were in Atlanta, Chicago and Detroit. Phoenix was the only city to show an increase.

The declines partly reflect the typical fall slowdown after the peak buying season.

Still, prices fell in 18 of the 20 cities in November compared to the same month in 2010. Only Washington and Detroit posted year-over-year increases.

[source]

31-Jan (USAGOLD) — Gold pushed to new 6-week highs and silver probed above $34 for the first time in 12-weeks in early US trading on Tuesday before settling back into their respective ranges. Risk appetite seems to have been revived following the approval of a new EU fiscal pact, which lifted the euro and pushed the dollar lower.

While tighter coordination of fiscal policies and tighter spending rules across the eurozone inspire some confidence, this likely translates into further austerity which could well condemn Europe to a weak collective economy for years to come. It also does nothing with regard to the immediate problems that are Greece and Portugal.

The volatility in markets of late that is being driven by the ebb and flow of risk aversion is evidence of just how desperate the market is for yield in this zero interest rate environment. They are willing to grab at any glimmer of hope, but quick to abandon their trades at the first sign that said-hope was false. The resulting choppy market is something that the average investor has little appetite for, which makes gold an increasingly appealing alternative investment.

Weak US data is already sapping the glimmer of hope that sprang from the December nonfarm payrolls report. A seventh consecutive monthly drop in the Case-Shiller home price index in November and negative misses in both Chicago ISM and consumer confidence for January quash any notion that the economy is finding its footing. On top of that the CBO released The Budget and Economic Outlook: Fiscal Years2012 to 2022 today; which reads like a Stephen King novel… Big and scary.

The CBO negatively revised their GDP forecasts to 2.0% this year and 1.1% next year, adding that they expect “economic activity to quicken after 2013 but to remain below the economy’s potential until 2018.” Time for the Fed to confirm our lost decade by extending their ZIRP guidance through 2018! But the real horror is in the details about deficits and employment. You can read the summary here.

• US consumer confidence tumbled to 61.1 in Jan, well below market expectations of 68.0, vs upward revised 64.8 Dec.
• Chicago ISM sank to 60.2 in Jan, well below market expectations of 63.0, vs 62.2 in Dec.
• US S&P Case-Shiller home prices -0.7% in Nov for 20-cities index, -3.67% y/y, weaker than market expectations.
• UK GfK Consumer Confidence improves to -29 in Jan, above market expectations of -31, vs -33 in Dec.
• Germany retail sales -1.4%, in Dec, well below market expectations of +0.7%, vs negative revised -1.0% in Nov; -0.9% y/y.
• France consumer spending – manufactured goods (sa) -0.7% in Dec, well below market expectations of +0.3%, vs -0.1% in Nov; -3.1% y/y.
• Eurozone unemployment rate hits life of euro high at 10.4% in Dec, in-line with expectations, vs 10.3% in Nov.
• South Korea industrial production moderates to +2.8% y/y in Dec, vs 5.8% y/y in Nov.
• Japan PMI (Markit/JMMA) improves to 50.7 in Jan, vs 50.2 in Dec.
• Japan unemployment rate ticks higher to 4.6% in Dec. Personal income -1.0% y/y. PCE +0.5% y/y.
• Singapore unemployment rate (sa) steady at 2.0% in Dec.

31-Jan (Financial Times) — Europe’s new fiscal pact brought some cheer to markets on Tuesday, despite gloomy eurozone jobs data and signs that debt-laden Greece faces a struggle to meet its latest deadline to strike a deal with creditors and agree terms of a fresh bail-out.

Stocks rose and eurozone borrowing costs fell after 25 of the European Union’s 27 members late on Monday night signed up to a new treaty enshrining tougher spending rules aimed at stemming the euro crisis.

However, new data published on Tuesday underscored the depth of Europe’s economic malaise, as unemployment in the 17 euro countries climbed to 10.4 per cent in December, with the November rate revised upwards to the same rate, a record since the introduction of the single currency in 1999.

[source]

31-Jan (CNBC) — Euro zone unemployment has risen to its highest level since the euro single currency was introduced, data showed on Tuesday, a day after EU leaders promised to focus on creating millions of new jobs to try to kickstart Europe’s floundering economy.

Seasonally adjusted unemployment [cnbc explains] among the 17 countries sharing the euro rose to 10.4 percent in December, on a par with an upwardly revised November figure, the European Union’s statistics office Eurostat said.

It was the highest rate since June 1998, before the introduction of the euro in 1999.

…But most economists expect scant progress while the euro zone’s high debtors are compelled to persist with harsh austerity programmes.

[source]

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]