Daily Telegraph (Feb 16) — By Graham Smith

A team of builders renovating a vineyard facility in France were stunned when U.S. gold coins worth $1million rained down on them from the rafters.

The treasure trove of 497 coins was hidden in the attic of an old building in the rural village of Les Riceys in the country’s famed Champagne region.

The pieces, which have a face value of $20 each, were minted between 1851 and 1928 and are the equivalent of 17 kilograms of gold.

[Source]:

JK Comment: Its interesting to think about this story in the context of the time in which these coins were stashed away. In 1933, FDR confiscated gold. Many citizens smuggled gold coins out of the United States to relatives in Europe to avoid this confiscation. Fearing similar draconian measures in their own country, these coins were hidden with such care it took 80 years for them to resurface. Impressive to witness the great lengths some go to to protect their gold.

Breakout (February 16)

JK Comment: My favorite part is the casual statement that, “Remember this (gold) is a currency, everybody’s printing money, even the Japanese now are going to start buying bonds.” Given that proponents for gold are often marginalized with references like “gold bugs” and “conspiracy theorists”, its refreshing to see such matter-of-fact analysis on gold. Gold is a currency. That simple fact, when taken into the context of how developed countries around the world are managing their paper currencies, is all the argument one needs to justify diversification into gold.

Another interesting point from Yamada worth noting, “…and the interesting thing is, in many cases now, did you that India now is going to pay for Iranian oil in gold to bypass the embargo in dollars” As events like this repeat into a trend, the dollar’s role as the world reserve currency is increasingly threatened.

16-Feb (CNBC) — Demand for gold hit an all-time high in 2011 as European, Indian and Chinese demand soared.

In Europe, Germany and Switzerland were the main drivers of the growth as the euro zone debt crisis escalated and investors looked for safe havens, according to the World Gold Council’s annual report.

While the jewelry market was resilient, the gold investment market grew more, with a 5 percent increase in annual demand.

[source]

16-Feb (ZeroHedge) — There are those who have been waiting to buy undilutable precious metals in response to a headline announcement from the Fed that it is starting to buy up hundreds of billions of Treasurys or MBS. This is understandable – after all that is precisely the trigger that the headline scanning robots which account for 90% of market action in the past year are programmed to do. And the worst thing that one can do is put on the right trade at the wrong time. Yet it may come as a surprise to some, that while the world was waiting, and waiting, and waiting, for Bernanke to hit the Print button, virtually every other central bank was quietly unleashing it own mini tsunami of liquidity. In fact, as Morgan Stanley puts it, “the Great Monetary Easing Part 2 is in full swing.”

[source]

16-Feb (USAGOLD) — Gold’s correlation to the dollar on Wednesday has proven unsustainable as the yellow metal retreated along with the euro today on further dimming of the prospects for Greece to get its next bailout. Eurozone policymakers have once again put-off making a decision on Greece. The next meeting is slated for Monday.

The proposal to forestall a decision on Greece until after the April elections, when commitments to reform may actually have some credence, seemed to have gained some traction. Furthering such speculation, the German daily Die Welt reported that EU officials were considering a €14.5 bln bridge loan to get Greece passed a likely uncontrolled default in March and through the April elections, at which point a full bailout can be reconsidered. Shortly after this report broke, the German finance ministry claimed it was off the table.

Later in the morning, another rumor broke that an agreement had been reached on how Greece would achieve the additional €325 mln in cuts being demanded. Like a cat responding to a can-opener, the euro jumped back into the range, dragging gold along for the ride. The yellow metal has rebounded nearly $20 off the intraday low and support defined by the short-term range low at 1704.75 has been reinforced.

Positive misses on initial claims, housing starts and Philly Fed index, heightened risk appetite, lifting stocks and helped gold find support. This despite word from Moody’s that they had placed 114 European financial institutions and 5 major US banks on watch for possible downgrades.

• US Philly Fed index jumped to 10.2 in Feb, above market expectations of 8.8, vs 7.3 in Jan.
• US PPI +0.1% in Jan, below market expectations of +0.4%; core was the opposite, rising 0.4% on expectations of +0.1%.
• US housing starts +.5% to 699k in Jan, above market expectations of 675k, vs 689k in Dec.
• US initial jobless claims -13k to 348k in the week ended 11-Feb, below market expectations of 365k, vs upward revised 361k in previous week.
• Spain Q4 GDP (sa) confirmed at -0.3% q/q; +0.3% y/y.
• Norway Q4 GDP (sa) +0.5% q/q, vs negative revised +1.1% in Q3; 1.5% y/y (nsa).
• Riksbank cuts repo rate 25 bp to 1.50%, in-line with expectations.
• Australia employment rebounds in Jan by 46.3k jobs, vs negative revised -35.6k in Dec; unemployment rate ticks lower to 5.1%.
• Singapore Q4 GDP confirmed at 3.6%.

16-Feb (Bloomberg) — China, the world’s largest consumer of energy and base metals, is set to displace India this year as the biggest gold user on an annual basis as surging incomes drive increased demand for jewelry and investments.

Demand in China jumped 20 percent to 769.8 metric tons in 2011, while consumption in India fell 7 percent to 933.4 tons, according to a report from the producer-funded World Gold Council today. “It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” said Marcus Grubb, managing director of investment.

China’s economic growth has lifted the nation’s consumption of everything from soybeans to copper, while boosting incomes in the world’s most populous country. Gold has rallied for 11 years on rising investment and jewelry demand, led by consumers in Asia, and increased central-bank buying. China is also the world’s [biggest] gold producer.

[source]

16-Feb (Financial Times) — The president of the group of eurozone finance ministers said a decision to supply Greece with a new €130bn bail-out would not be made until next week, representing yet another delay in the fractious and prolonged process to help the indebted country avoid a messy default.

Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of finance ministers, said in a statement following a conference call on Wednesday night that he was “confident that the group will be able to take all the necessary decisions” on Monday, adding that “substantial further progress” had been made this week.

[source]

16-Feb (Reuters) — The euro fell to a three-week low versus the dollar on Thursday as euro zone officials put off agreeing further aid for Greece, sparking fears of a chaotic default and leaving the euro vulnerable to more falls.

Frustrated by Greek political wrangling, euro zone finance ministers on Wednesday failed to reach agreement on a bailout package for Athens, delaying a decision on the matter until ministers meet on Monday.

Analysts said most in the market still expect Greece to avoid a disorderly default, and anything that shakes this conviction would trigger another wave of euro selling. The options market showed investors were increasingly looking to buy protection against further euro losses.

[source]

PG View: Desire to delay any final decision until after April elections seems to be gaining some traction.

15-Feb (CNNMoney) — Five big U.S. banks were among 17 global institutions placed under review for downgrades Thursday by the rating agency Moody’s, reflecting the ongoing economic pressures from Europe’s fiscal crisis.

Separately, Moody’s placed 114 European institutions under review, including nine that are subject to the review of global banks.

Moody’s is placing under review the long-term ratings and credit assessments of Bank of America, For, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, as well as the Royal Bank of Canada. All except JPMorgan Chase and Royal Bank of Canada are having some or all short-term ratings reviewed.

[source]

16-Feb (Dow Jones) — Moody’s Investors Service placed various ratings of 114 financial institutions in 16 European countries on review for possible downgrade Thursday, highlighting the region’s banks’ vulnerability to the euro-zone sovereign debt crisis.

The institutions affected include Barclays, BNP Paribas, Commerzbank, Credit Agricole, Deutsche Bank, HSBC, ING Group, Royal Bank of Scotland, Santander, Societe Generale and UniCredit.

European bank shares were lower Thursday amid renewed worries about their exposure to the crisis in the currency bloc. Analysts noted that the move by Moody’s was largely priced in by the markets and that the day’s losses were mainly driven by reports that the second bailout package to Greece could face a delay.

[source]

15-Feb (The Economic Times) — World gold prices could “easily poke through $2,000″ an ounce this year, AngloGold Ashanti chief executive Mark Cutifani said on Wednesday.

In a conference call with reporters after the release of fourth quarter earnings, which fell far below expectations, Cutifani said he saw the price of bullion averaging $1,700-$1,850 throughout 2012.

[source]

15-Feb (USAGOLD) — Gold pushed to a new high for the week, despite the Greek bailout deal seemingly unraveling yet again. Today’s Eurogroup meeting was cancelled amid concerns about the Greek government’s commitment to reforms being required to free-up the second bailout funds. There are reports that the Eurogroup may try and kick the can until after Greece’s snap election in April in the hopes of securing those reform commitments from a government that might be around for a while. The problem is, Greece runs out of money in March.

Gold of late has been trading like a risk asset, rising along with the euro and stocks on hopes that the Greece mess is moving toward resolution, and falling along with the euro as the dollar rises when such hopes ultimately erode. Today is different though: The euro tumbled as one might expect on the latest deterioration of the Greek situation, but gold rallied this time in tandem with the dollar. Perhaps this is an early indication that the yellow metal is reverting to its traditional role as a safe-haven asset.

We saw Greece’s Q4 GDP numbers yesterday, a whopping 7% contraction y/y. Today, we saw Q4 GDP data from the eurozone as a whole (-0.3% q/q), Germany (-0.2% q/q), France (+0.2% q/q) and Italy (-0.7%). Europe is slipping back into recession — if their not there already — with Greece as a millstone around their neck. It is that reality that likely explains the rise in calls for Greece to be ejected or leave the EMU.

Perhaps the only thing that prevented a rout of the euro today were renewed pledges from China to help resolve the debt crisis. PBoC Governor Zhou Xiaochan echoed the comments of Premier Wen Jiabao, saying that China stands ready to be more involved through the EFSF and ESM. Understandably, China does not want to see its largest trading partner implode. Certainly China has ample FX reserves to dedicate to periphery bond purchases, but in reality, China seems to have a growing aversion toward foreign bonds. And particularly bonds whose yields don’t accurately reflect risk.

The PRC’s State Administration of Foreign Exchange might have a hard time justifying a move out the still relative safety of US Treasuries in favor of Greek and Portuguese bonds for example. Oh they will likely dabble, in the hopes of giving the sovereign bond market some sense of stability, while quietly continuing their reserve diversification plans. Plans that very much revolve around the further accumulation of gold.

• US NAHB housing market index jumped to 29 in Feb, above market expectations of 26, vs 25 Jan.
• US industrial production flat in Jan, below market expectations of +0.7%; capacity use 78.5%.
• US TIC net inflows +$17.9 bln in Dec (ex-swaps), vs $61.3 bln in Nov.
• NY Empire State index surged to 19.5 in Feb, above market expectations of 14.7, vs 13.5 in Jan.
• Eurozone Q4 GDP -0.3% q/q, vs negative revised +0.1% in Q3. Germany -0.2% q/q, France surprises with +0.2% q/q.
• UK claimant count jumps 6.9k in Jan, more than double expectations of 3.0k, vs upward revised 1.9k in Dec; unemployment steady at 8.4%.
• Malaysia Q4 GDP softens to 5.2% y/y, vs 5.8% y/y in Q3.
• Singapore retail sales (nominal) slow to 4.2% y/y in Dec, vs negative revised 6.2% y/y in Nov.
• South Korea unemployment rate (sa) ticks higher to 3.2% in Jan.
• New Zealanl Q4 retail trade +2.2%, vs positive revised 2.4% in Q3.

14-Feb (Financial Times) — Rioters burn the German flag in street protests. A demonstrator defaces the façade of the Bank of Greece, the central bank, so that it reads “Bank of Berlin”.

Most shockingly, a rightwing Greek newspaper depicts Angela Merkel, Germany’s chancellor, in a Nazi uniform above the headline “Memorandum macht frei” – an allusion to the memorandum in which Greece’s foreign creditors demand more austerity measures and to the Auschwitz slogan.

In these anxious times anti-German sentiments are not unusual in Greece. Locked in a struggle to avoid economic ruin and exit from the eurozone, Greece is confronting the potential collapse of its self-image as a country with a secure place in Europe’s family of nations.

To blame Germany draws on deep wells of national suffering endured during the 1941-1944 Nazi occupation of Greece. It is not the only response: Greek economic mismanagement, public sector corruption and dysfunctional politics inspire much self-criticism. Animosity towards Germany is not sweeping through all levels of Greek society.

…Today’s Greek outbursts against Germany are a cry of anger from a country that knows it committed so many mistakes that its fate lies to a great extent in the hands of outsiders.

[source]

15-Feb (Bloomberg) — Greece said that Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.

Finance Minister Evangelos Venizelos leveled the accusation after a decision slated for tonight on aid totalling 130 billion euros ($171 billion) was postponed until Feb. 20 at the earliest.

“We are continually faced with new terms,” Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

[source]

15-Feb (Reuters) — Euro zone finance officials are examining ways of delaying parts or even all of the second bailout programme for Greece while still avoiding a disorderly default, several EU sources said on Wednesday.

Delays could possibly last until after the country holds elections expected in April, they said

While most of the elements of the package, which will total 130 billion euros, are in place, euro zone finance ministers are not satisfied that Greece’s political leaders are sufficiently committed to the deal, which requires Athens to make further spending cuts and introduce deeply unpopular labour reforms.

[source]

PG View: The Eurogroup is understandably reluctant to cut loose with €130 bln for Greece based on promises made by a government that may well be ousted in April. But in waiting to get promises from a new government at that time, Greece runs out of money in the interim. Interesting conundrum.

14-Feb (The Wall Street Journal) — Twelve European Union member nations, including Italy, Spain, the U.K. and France, are suffering from significant economic imbalances that leave them vulnerable to further shocks, the European Commission said Tuesday.

In a press conference in Strasbourg, European Economics Commissioner Olli Rehn said that the EU’s executive arm will conduct an in-depth analysis into nearly half of the EU’s 27 members, which could eventually lead to demands for policy changes and potentially to sanctions for euro-zone countries.

[source]

14-Feb (USAGOLD) — Gold remains narrowly confined within the recent range as it remains unclear whether Greece is inching toward its second bailout, or the progress has stalled completely and policymakers are simply stalling for additional time in the hope of controlling an inevitable default and prevent contagion. The EU’s Olli Rehn said today that a decision on Greece was coming “soon.” Yawn…whatever.

And speaking of ‘yawns’: Moody’s downgraded a number of European countries, including Italy, Spain and Portugal and warned that France, the UK and Austria where in jeopardy of losing their AAA ratings. This latest bunch of downgrades was largely ignored by the market, because like the obligatory daily rumor of an impending Greek deal, investors have become disturbingly accepting of downgrades.

Meanwhile, data were released today that confirms what was widely acknowledged; that Greece’s recession (at what point can we call it a depression?) worsened at the end of the year. The Greek economy contracted by 7% y/y in Q4, versus -5% in Q3. The FT pointed out in an article this morning that, “Greece’s economy has now shrunk in every quarter but one since mid-2008.” Given the dismal absence of growth — and the reality that the additional austerity being demanded is only going to make things worse — it is becoming increasingly clear that the €130 bln second bailout that Greece is seeking is simply not going to be enough…if it ever was…

Here in the US, headline January retail sales disappointed. The ex-auto number was better, but with negative Q4 revisions and softness in Dec business inventories, expectations that Q4 GDP would beat the advance 2.8% figure have evaporated.

Across the other ocean, the BoJ held its overnight call rates steady at 0-0.1%, but surprised the market by offering additional accommodations. The BoJ is now targeting near-term inflation at 1.0%. They also pledged an additional ¥10 trillion in asset purchases. So, the BoE increased asset purchases last week and the BoJ today…Fed, you’re up next! Of course many would like to see the ECB buying more bonds as well, but for the timing being they remain relegated to skulking around the secondary market.

• US business inventories +0.4% in Dec, in-line with expectations, vs 0.3% in Nov.
• US retail sales +0.4% in Jan, below market expectations of +0.7%; +0.7% ex-autos.
• US import prices +0.3% in Jan, above market expectations of +0.2%; exports +0.2%.
• Eurozone industrial production (sa) -1.1% m/m in Dec, in-line with expectations, vs upward revised unch in Nov; -2.0% y/y (wda).
• Germany ZEW Economic Sentiment improved to 5.4 in Feb, above market expectations of -12.2, vs -21.6 in Jan; Current Situation 40.3, vs 28.4.
• UK core CPI moderated to 2.6% y/y in Jan, vs 3.0% in Dec.
• Japan industrial production (sa) – Revised +3.8% m/m in Dec, vs -2.7% in Nov.
• BoJ holds rates steady at 0-0.1%, targets inflation at 1%, announces additional asset purchases.

14-Feb (CNBC) — Despite its recent slip, inflation will remain above the Bank of England’s 2 percent target in the UK for a long time, as the Bank is taking no action to bring price rises down, Andrew Sentance, a former member of the Monetary Policy Committee, told CNBC on Tuesday.

Figures released on Tuesday showed inflation fell to 3.6 percent in January from 4.2 percent in December as the effect of a rise in value-added tax faded, but Sentance said that since the middle of the years 2000, inflation has been at a “sustained high level” above target.

“I think it’s a sign of the times that when inflation falls below 4 percent it seems a good thing,” Sentance said.

The Bank of England decided last week to boost its asset-purchasing program, also known as quantitative easing, by 50 billion pounds ($79.3 billion), to kick-start the economy.

[source]

14-Feb (MoneyNews) — Gasoline prices are headed for $5 a gallon in many locations in the United States this year, says John Hofmeister, founder of Citizens for Affordable Energy and the former CEO of Shell Oil’s U.S. operations.

Global demand will rise and pressure supply, while U.S. politicians aren’t doing anything to ease prices at home such as allowing for significantly more drilling.

“What’s really unprecedented is developing countries, particularly China and India, have this insatiable need for more oil and that has not been taken into account when we think of public policy in this country,” Hofmeister tells CNBC.

[source]

PG View: Good thing the Fed doesn’t count something as trivial as gasoline prices toward its inflation target…