By Claudia Assis and Virginia Harrison
April 1, 2011 (MarketWatch) — Gold futures settled lower Friday, a day after ending at a record high, hit by hawkish comments from a U.S. Federal Reserve official and a government report that showed the U.S. economy added jobs at the fastest pace since May.

Gold futures for June delivery lost $11, or 0.8%, to $1,428.90 an ounce on the Comex division of the New York Mercantile Exchange. Gold ended at a record of $1,439.90 Thursday.

“People are certainly concerned about what the Fed is going to do,” said Walter de Wet, an analyst with Standard Bank in London. Any talk about the end of monetary easing “is going to be perceived negatively for gold. With the unemployment figures, the market has leaned toward that happening sooner rather than later.”

Worries about loose monetary policy and currency debasement are one of gold’s main pillars of support as the metal is viewed as the ultimate way to store wealth.

[source]

April 1 (Bloomberg) — Spencer Patton, founder and chief investment officer at Steel Vine Investments, discusses the outlook for gold and coffee prices. Patton, speaks with Lisa Murphy on Bloomberg Television’s “Fast Forward,” also discusses investment strategy.

Gold and silver discussion begins at 3:45 mark in video.

[source]

India’s Demand For Gold Surges Along With Population

Much of the international discussion about populations and gold in recent years has centered on China as they vied with India to become the world’s largest consumer of the yellow metal. However, India is, and will remain, a powerhouse in global gold consumption. On Thursday, census data showed that the population of India now stands at 1.21 billion. That’s an increase of 181 million over the past decade, or as The Wall Street Journal put it, the “equivalent of about five Canadas.”

While population growth in India has slowed, it hasn’t slowed as much as expected, prompting the Planning Commission to push their estimate for population stabilization out more than 15-years to 2065. The UN estimates that India may surpass China as the world’s most populous nation as early as 2030. This reality may change a lot of assumptions about China definitively taking the global lead in gold consumption for good. China may maintain a short-term advantage due to its larger population (for now), more robust economic growth and relatively small per capita gold ownership. However, the rapidly rising population may prompt — or perhaps force — India to remove barriers that have impeded the inflow of foreign capital. If that happens, India could really take-off.

The Indian economy grew 8.7% last year and estimates for this year are running around 8%. Continued robust growth has contributed to the rapid expansion of the Indian middle-class. The new-found wealth of the middle and upper classes stokes a desire for gold. There is a strong cultural affinity toward gold in India, as a store of wealth and as gifts for weddings and various festivals. According to The World Gold Council, in the same decade that saw a 17.6% increase in the Indian population, Indian demand for gold grew by 25%, despite a 400% increase in the price of gold. Clearly the notion that Indian buyers are too price sensitive is misplaced.

And its not just the people of India that are buying. The government has been aggressively building its gold reserves as well. The most notable purchase was the 200 metric tonnes that the Reserve Bank of India purchased in 2009 from the IMF. Indian gold reserves now stand at 557.7 tonnes, ranking them 11th on the list of gold holding countries, but that’s only 7.9% of their total reserves. India’s official holdings — in total and as a percentage of total reserves — are likely to increase in the years ahead as well. It would seem the government’s view of gold, reflects that of the people.

The WGC projects that Indian demand for gold will continue to accelerate, “growing by almost 3% per annum over the next decade.” That’s nearly another 30% rise in demand in the next 10-years. The WGC went on to say that “Indian demand for gold will be driven by savings and real income levels, not by price.” This will continue to be a driving force in the gold market for decades to come. Further amplified by the same circumstances in China and elsewhere throughout the emerging world. Add to that, the heightened interest in gold throughout the industrialized world, along with tighter supplies, and you don’t need to be an economics major to come up with the likely price implications.

A recent WGC report said that “Indian demand for gold will be driven by the concept of enduring value, not price.” Couldn’t we all benefit from an asset with “enduring value” in our portfolios?

By Peter Gorenstein
April 1, 2011 (Daily Ticker) — Congress has a week to reach a budget compromise and prevent a government shutdown. …… As dire as the U.S. fiscal situation may be, the GOP and the Tea Party are playing with fire, says David Walker CEO of Comeback America Initiative, former U.S. Comptroller General and head of the Government Accountability Office (GAO) in both the Clinton and the second Bush administration’s.

“They’re talking about limited government, individual liberty, fiscal responsibility, I’m all for that and most Americans probably are too,” Walker tells the Daily Ticker’s Aaron Task and Dan Gross. “The difficulty is that they have unrealistic expectations about how much you can do and how quickly you can do it.”

On top of staying steadfast on their budget cut goals, House Republicans are holding up the negotiations over ideological issues. Speaker Boehner is standing his ground on the House bill’s defunding of Planned Parenthood and National Public Radio. Negotiating over these items with little economic impact is not time well spent, in Walker’s view. In fact, he says, the entire back and forth over the $30 billion or so on a $3.7 trillion budget misses the point. “This like arguing about the bar tab on the Titanic,” he quips.

[source]

by Michael T. Snyder
April 1, 2011 (SeekingAlpha) — During a recent meeting with USA TODAY’s editorial board, Wal-Mart CEO Bill Simon said that rising inflation in the United States is “going to be serious” and that Wal-Mart is “seeing cost increases starting to come through at a pretty rapid rate.” For many years Wal-Mart has been famous for their “low prices,” so for the head of Wal-Mart to publicly warn that much higher prices are coming is more than a little alarming.

… But Wal-Mart is not the only major corporation that says that inflation is coming. Hershey has just announced price increases of about 10 percent on its line of products.

… In fact, Aaron Smith, the managing director of Superfund Financial, believes that coffee, sugar and cocoa will all be five to ten times more expensive by 2014 than they are today.

… Most Americans don’t realize just how precarious things are at the moment for the global economy. The financial crash of 2008 did a lot of lasting damage, and the next wave of the financial crisis could potentially be even worse. Unfortunately, the global financial system is more vulnerable than ever right now.

… The dollars that you have today are never going to be more valuable than they are right now. Don’t wait too long to use them. If you have a huge pile of dollars sitting in the bank your wealth is slowly but surely rotting away.

[source]

Inflation forecast to swamp consumer
April 1 2011 (Bloomberg) –

… Food costs were at “dangerous levels” after pushing 44 million people into poverty since June, World Bank president Robert Zoellick said last month. That added to the more than 900 million people around the world who go hungry each day.

It was “an incredibly difficult humanitarian story because the poorest countries will be hit the hardest”, [Superfund Financial's Aaron] Smith said. “The average person is going to be swamped by food inflation. The new arms race is food and energy.”

An indirect way of betting on food prices was to buy gold, because it tended to do well when inflation accelerated, he said.

[source]

By Herbert Lash
April 1 (Reuters) — Global stocks rose and the U.S. dollar extended gains on Friday after an upbeat U.S. employment report signaled the recovery in the world’s largest economy remained firmly on track. … The greenback added to early session gains and was up 0.7 percent against a basket of major currencies and up 0.5 percent versus the euro.

A total of 216,000 nonfarm U.S. jobs were added in March, the government said, well above the 190,000 expected in a Reuters poll. January and February employment figures were revised to show 7,000 more jobs than previously reported, and the unemployment rate fell to a two-year low of 8.8 percent.

“The numbers are obviously good, and one can hope that we will continue to see the market rise in continuing months,” said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, New Jersey. Baumohl cautioned that rising energy prices could threaten the employment outlook by putting a squeeze on household spending and business investment. “One has to wonder whether we’ll see the pace of hiring slow as a result,” Baumohl said.

U.S. Treasuries extended losses after the data, as investors’ hunt for risk picked up pace…. “If the economy has lifted off and the labor market continues to produce jobs, that can only mean one thing … we’re getting closer to the day when the Fed starts to normalize interest rates,” said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ.

“And if the Fed is going to do that, that means 10-year yields under 3.5 percent don’t have a lot of value.”

[source]

by Jan Harvey
April 1, 2011 (Reuters) — Gold fell on Friday after data showed the US economy added more jobs than expected in March, lifting the dollar and supporting expectations US authorities may move towards tighter monetary policy.

Spot gold slipped 1% to a session low at $1419.60 an ounce and was bid at $1421.35 an ounce at 1302 GMT, against $1436.48 late in New York on Thursday. US gold futures for April delivery fell $17.10 to $1421.80.

Gold prices hit a record $1447.40 an ounce last month as unrest across the Middle East and North Africa, the reemergence of euro zone sovereign debt issues and a devastating earthquake in Japan prompted buying of the metal as a haven from risk.

But while they recorded a tenth consecutive quarter of gains in the first three months of 2011, it was the smallest such rise since the financial crisis gripped the markets in late 2008 as investors worried about the prospect of rising rates.

… But elsewhere the US Mint said it sold more gold American Eagles in the three months to end March than in any quarter since the end of 2009, and reported its highest ever quarterly sales of silver American Eagle coins.

[source]

Gold and silver retreated as a robust nonfarm payrolls number for Mar increased risk appetite. Payrolls jumped 216k, which was better than the market was expecting, but below the ‘whisper’. The unemployment rate slipped to 8.8%. The jobs report wasn’t all roses and sunshine though: The average duration of unemployment rose by nearly 2-weeks in Mar to 39-weeks, from 37.1-weeks in Feb. The long-term unemployed’s now account for 45.5% of the unemployed, up from 43.9% in Feb. Hourly earnings stagnated in Mar, when the market was looking for a continuation of the recent modest rise.

Continued acceleration in job growth is going to intensify the already worrisome inflation risks, upping the pressure on the Fed to remove accommodations and tighten. That might prove difficult in the face of still sluggish economic growth and a double-dipping housing market.

by Joseph Stiglitz
March 31, 2011 (FT) — The international monetary system needs fundamental reform. It is not the cause of the recent imbalances and current instability in the global economy, but it certainly has been ineffective in addressing them. So a broad set of reforms is required, beginning with an immediate expansion of the current system of special drawing rights or money that can be issued by the International Monetary Fund. And here the Group of 20 leading nations must take the lead.

… we now have a system dominated by holdings of US dollars. This has several disadvantages. The first is it creates a global recessionary bias during and after financial crises – because it places the burden of adjusting to payments imbalances on nations which run a deficit.

The second is the tension it creates, due to the use of a national currency, the dollar, as the global currency. This can lead to global volatility as a result of growing US current account deficits. These deficits are necessary, for creating sufficient global liquidity, but they also generate excessive indebtedness, both external and internal. So if the US were to shrink its deficit too quickly, a deficiency of supply of the global reserve currency could result.

… the G20 should encourage the IMF to issue a significant amount of new SDRs during the next three years, up to a value of $390bn a year.

…Further, when crises occur in many countries simultaneously, as happened, for instance, during the 1998 east Asian crisis, IMF lending could be totally financed by new SDR issues in unlimited amounts. If and when the world economy recovered or boomed, SDR issues could then cease, or even be reabsorbed. Thus the IMF would have a greater role in creating official liquidity, in a way that curbed both recessionary and inflationary trends at different times.

[source]

RS View: Joe has been drinking deep from the special tank of Kool-Aid known only to professional economists, and in a fog of sugar-fueled delirium he is seen here trying to sell his fraternity’s pipe dream of SDRs that NOBODY is seriously buying. But other than that, keep up the good work, Joe!

By Myra P. Saefong
March 31, 2011 (MarketWatch) — Gold futures notched a nominal record high Thursday, as a weaker U.S. dollar, ongoing instability in Arab countries and euro-zone debt concerns lured investors to the precious metal.

Gold for [June] delivery rose $15, or 1.1%, to settle at $1,439.90 an ounce on the Comex division of the New York Mercantile Exchange. That handily supplanted gold’s March 23 close of $1,438 an ounce. Gold tapped an intraday record high of $1,448.60 an ounce on March 24.

“Geopolitical concerns are taking the lead over expectations of [monetary-policy] tightening,” said Jim Steel, a precious-metals analyst with HSBC in New York. A rally for oil and concerns about Portugal’s sovereign debt also propelled the metal higher, he added.

[source]

By Ben Kunz
(Bloomberg Businessweek) — … Nongamers may have missed Facebook’s clever foray into the world of “virtual currency,” where Facebook Credits cost 10 cents each and can be exchanged for game points or cartoony gifts. Those dimes are adding up — the U.S. market for virtual goods will reach $2.1 billion in 2011, according to research firm Inside Network. Facebook’s currency, while just part of that market, is getting real. You can now purchase gift cards for Facebook Credits at Wal-Mart, Target, and Best Buy.

So why couldn’t Facebook use them as real currency, too? In fact, why couldn’t Facebook become your bank? At first blush, this seems like a crazy idea. Facebook would need to overcome consumer privacy concerns, expand its Credits into a payment system that works everywhere, and surmount regulatory hurdles to handle businesses such as deposits and mortgage servicing. Crazy, until you realize how smartphones are changing the world of money. … The next payment platform is no farther than that glass gadget in your pocket.

… Facebook recently expanded its monetary systems with Facebook Payments, purportedly for paying app developers. But the incorporation documents state that Payments is “organized for the purpose of transacting any or all lawful business.” Hmmm.

If only one of every five Facebook users adopted Credits to buy things, Facebook would be as big as PayPal. And once Facebook makes us comfortable with Credits, it could then transition to a “traditional” global bank, storing your financial assets like gem points in Bejeweled Blitz.

[source]

RS View: Squarely bagged, tagged, and identified, the critter that runs amok and answers to the name ‘Money’ is truly little more than an ethereal form of economic communication. No wonder that smartphones and the web-dominating Facebook are well positioned to make inroads on the domain previously dominated by the traditional banks and financial houses. But no matter which entity emerges from the contest as the prevailing monetary messenger, the fact remains that notions of money, being mere words on the wind, can aid in the coordination of the immediate transaction or business at hand, but it can never do adequate service in conveying true wealth across time and space (i.e., geography). For that purpose you need tangible savings, a role for which physical gold is uniquely well-suited and already performing its part.

by Financial Foghorn
March 31, 2011 (SeekingAlpha) — In my last Tuesday memo, I said not owning gold in the current gold bull market is insane. Then I thought, wait, maybe some folks aren’t buying because they’re listening to financial TV that’s telling them gold is in a “bubble.” “Whoa,” say the Wall Street trolls and mavens. Stay away from gold! We’re here to save you.” Yeah, right.

Are these are the same Wall Street idiot-savants who overlooked the tech bubble, failed to notice the credit meltdown, and totally missed the subprime real estate eruption? And now they’ve developed “vision,” and are able to see frothiness in the gold market … the same gold market they ignored for the past 10 years? And why are you listening to those guys?

Yes, we’re in a gold bull market. We’re in Act two of a three Act gold bull market. The upward price slope is nicely positive. Act II is when institutions buy. Today, mutual funds, insurance companies, foreign money managers and hedgies are wading into gold, and the car and pharma company advertisers at CNBC don’t like that. So CNBC knocks gold.

Every bull market ends with a party mania, and Act III is the bubble finale. Act III soars upwards…

… gold buyers in an Act III bubble buy with conviction, not skepticism. As John Templeton said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on Euphoria.” Yes, 2011 is hardly euphoria.

[source]

Gold Moves Back Within $10 of Record High

Gold continues to recoup the latest corrective losses. Well over 61.8% of the recent pullback has already been retraced, returning considerable credence to the underlying uptrend. The yellow metal and silver continue to be supported by ongoing concerns surrounding the nuclear crisis in Japan, as well as geopolitical tensions and war in the Middle East and North Africa. Add to that rising inflation worries across the globe and a continued worsening of the debt crisis in Europe and the result is a greater risk aversion and greater appeal for the precious metals.

Amid ever-more reports about spreading radiation danger in Japan, the market remains understandably tense. We remind ourselves once again that the crisis in Japan is above all else a humanitarian disaster, yet the economics can’t be ignored. In the first indication of the economic impact, Mar PMI plunged to 46.4, the lowest reading in 2-years. However, the drop from the Feb reading of 52.9 was the biggest m/m plunge ever recorded. The data are an ominous indication, given a resolution to the nuclear crisis continues to seem a long way off.

In North Africa, the debate continues about the US role in Libya, as forces loyal to strongman Muammar Gaddafi continue to press their advantage. Elsewhere in the region, anti-government protesters in Bahrain and Saudi Arabia are calling for another “Day of Rage.” Continued regional instability has kept oil prices elevated, stoking inflation worries.

In Europe, Mar HICP unexpectedly accelerated to 2.6% y/y, above market expectations, vs 2.4% y/y in Feb. As inflation continues to surge above the ECB target, tightening expectation obviously go up as well. However, the worsening debt crisis continues hamstring the central bank. A hike to benchmark rates would raise the interest rates in heavily indebted periphery countries, which they can ill-afford. The Portuguese yield curve has inverted for the first time since 2006 amid ongoing political uncertainty — in the wake of last week’s collapse of the government — and continued debate over whether the country should accept a bailout.

S&P downgraded both Greece and Portugal again on Wednesday, despite the fact the eurozone ministers moved closer to a permanent bailout mechanism. The rating service Fitch suggested that the EU plan to give the new ESM preferred creditor status could discourage private investors from buying bonds for fear of a haircut, and actually increase the risks of sovereign defaults. There have already been fractures in the reported solidarity for the ESM this week. The ECB’s Nout Wellink said, “The competition pact (bailout facility) has been weakly designed.” Recent resounding regional election defeats for Germany’s Chancellor Merkel and French President Sarkozy give a pretty clear indication of where the taxpayers in Germany and France stand on the issue of more bailouts.

The Irish government released the results of their third bank stress tests this afternoon. To nobody’s surprised, the banks will need another €24 bln in aid, bringing the total bill to €70 bln. Trading in Bank of Ireland & Allied Irish Banks was suspended ahead of stress test results. Irish Life & Permanent Plc was suspended yesterday. While the ECB’s Axel Weber threw his remaining weight behind Irish PM Kenny’s pledge to protect the Irish taxpayer at the expense of bank bondholders, it remains to be seen if that will actually happen.

Finally, agriculture commodities surged after the latest USDA prospective planting report suggested a further tightening of supplies, despite more acres of primary grains likely to be planted. This will further escalate food price inflation, adding to already substantial global geopolitical risks.

March 31, 2011 MUMBAI (Economic Times of India) — Gold demand in India will continue to grow and is likely to reach 1,200 tonnes [annually] or approximately Rs 2.5 trillion by 2020 at current price levels, according to a research by World Gold Council (WGC). [Comparing, that's up from 963 tonnes (Rs 1.7 trillion) in 2010.]

“The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market, and as private wealth in India surges over the next ten years, so will Indian demand for gold,” WGC Managing Director, India and the Middle East, Ajay Mitra said in a statement here.

Indian gold demand has grown 25 per cent despite 400 per cent price rise… [reaffirming] the country’s status as a key driver of global gold demand.

… He pointed out that Indians tend to be risk averse and place great faith in the wealth preservation qualities of gold, which inspires confidence, stability and security.

“Therefore, the view that Indian demand for gold will be driven by the concept of enduring value, not price,” he said.

… “We predict that the new demand for gold will be driven by rapid GDP growth, urbanisation, the emergence of a strong middle class and a sustained and potentially rising savings rate of 30-40 per cent of income,” he said.

[source]

RS View: Look long and hard at that list above. Note that the strength of gold does not require the small-minded trading on perpetual gloom and fear, but rather can soar on the wholesome basis of economic growth — a win-win situation worth aspiring to.

By Addison Wiggin, Guest blogger
March 31, 2011 (ChristianScienceMonitor) — Might America’s trading partners one day sell off their US Treasury holdings?

Impossible, said Warren Buffett. In fact, he insisted, they couldn’t…because they’d need to convert it into some other currency, which would be little better than the dollar. No one else chimed in to challenge the assertion.

“Buffett’s answer assumes that there is no alternative,” author, friend and local Baltimore resident Bill Baker writes in his 2009 book Endless Money: The Moral Hazards of Socialism, “because for generations, all the world’s currencies have been backed only by the promise that governments would accept them in payment of taxes.

“But that ignores a currency that has been used effectively by man for thousands of years: gold. China and other countries might exchange their US dollars for it now.”

Indeed, China is quietly building its gold reserves. They totaled 600 metric tons in 2004. Then in April 2009 came an announcement they’d grown to 1,054 metric tons. And the buzz from Beijing is that the central bankers want to grow that stash another tenfold.

… These are the first steps toward what Baker sees as the “remonetization” of gold – coming soon to a country near you.

… we’re approaching the end of the Great Dollar Standard we wrote about in The Demise of the Dollar. The only world anyone below the age of 40 has ever known – in which all the world’s currencies float freely against each other – is nearly over.

[source]

RS View: While it is accurate to say that gold is on track to become the primary reserve asset again, the issue of money is something else entirely different. Contrary to the article’s assertion that the world in which currencies float freely against each other is nearly over, the paradigm in store is that national currencies will increasingly be floating independent of each other (except for a few currency unions modeled after the euro), in which sense it is more accurate to say that it will be gold floating upward into the sky as the currencies independently float (or founder and sink!) upon (or beneath!) an undulating, bottomless ocean.

Alix Steel and Jim Cramer
NEW YORK (TheStreet) — Jim Cramer reveals why he likes junior miners, large caps and the physical metal. Says, “It’s a currency… you NEED to own gold.”

[source]

by Simon Rabinovitch
Thursday March 31, 2011 NANJING, China (Reuters) — Tightly controlled exchange rate regimes are the main flaw in the international monetary system and the solution is simple, U.S. Treasury Secretary Timothy Geithner told a G20 meeting on Thursday. … Geithner said that countries should have flexible exchange rates and permit free flows of capital to be major players in the global currency order.

… The G20 seminar was spear-headed by France, which is pushing a bold reform agenda in its year-long presidency of the group, and was meant to be focused on ills in the monetary system.

Geithner offered a straightforward diagnosis. While major currencies moved freely and most emerging economies were well along that path, there were still some with little exchange rate flexibility and extensive capital controls, he said. This asymmetry fueled inflation risks in the economies whose exchange rates are undervalued, magnified currency appreciation in others and also generated protectionist pressures, he added.

“This is the most important problem to solve in the international monetary system today. But it is not a complicated problem to solve,” he said, according to the prepared text of his remarks.

“It does not require a new treaty, or a new institution. It can be achieved by national actions,” he added.

… The Chinese government told countries attending the G20 seminar in the eastern city of Nanjing not to mention specific currencies in their speeches and to keep their focus on broader questions in the global monetary system, according to a source attending the meeting.

[source]

RS View: Judging from the highlighted quote above, one might develop the crazy notion that I’ve shared more than a casual lunch with someone or two in the inner policy circles…

On November 5th, 2009 I wrote here:
“When you understand that it is economically (and therefore politically) undesirable for other major currencies to appreciate against their peer currencies (which is exactly what would happen to any currency replacing the dollar’s reserve status), you will subsequently know why gold shall continue to emerge as the de facto solution to the international reserve question.
+
And here I emphasize de facto rather than de jure because this has become a global phenomenon driven by a natural evolution (survival and ascent of the fittest) and does not require any additional international treaty or enabling legislation as a prerequisite or for motivation.
+
The breeze is fair and the road ahead is clear for the ascent of gold.”

AND…
almost exactly a year later (just 5 months ago) I touched lightly again on it November 8th, 2010 as I wrote here while detailing an article in which ECB’s President Trichet said the gold standard was not discussed by the central bankers:
“Of course the central bankers wasted no time discussing a gold standard because a fixed (implied) gold standard is too rigid for an international policy prescription that requires greater flexibility. Hence, gold will simply be allowed to float freely in terms of all national currencies as the fair and impartial international monetary arbiter. No muss, no fuss, and its already a done deal… no fancy treaty required.”

AND…
most recently, yesterday March 30, 2011 I wrote of the ease of the implementation:
“CBs need merely to adjust the reserve management decisions at the margin…… [and] need only to enhance efforts of moral suasion, education, and rational adjustments to policy & best practices…”

Piece of cake. Cheers.

R.

March 31, 2011 (Reuters) — Gold rose in Europe on Thursday, rebounding after the previous session’s late price retreat, as dollar weakness, concern over euro zone sovereign debt and unrest across the Middle East supported buying.

The metal is on track for a tenth consecutive quarter of gains, also supported by low interest rates and high liquidity in the wake of a raft of quantitative easing programmes. But its quarterly rise is set to be its smallest since the third quarter of 2008, before the financial crisis took hold, as investors fret over the prospect of monetary tightening in the United States and the euro zone.

[source]

by Philip Haddon
Mar 31, 2011 (CityWire) VIENNA — The former chief strategist of Credit Suisse Asset Management, Philipp Vorndran, thinks inflation levels in the next five years will take everyone by surprise.

… ‘I think we will see double digit inflation in the next few years,’ he said. ‘This is because of rising commodity prices, a devaluation of our currencies, and higher labour costs. This will be the case for both emerging and developed markets.’

In addition, he predicts a ‘crack-up boom’ as people try to spend their cash.

“On the other side, in countries with higher debt, we will see a deflation of trust, leading to higher velocity and a flight out of fiat money. People will buy new cars, new kitchens, afraid that in two years’ time they wont be able to afford these things. This will generate a crack-up boom, built on a distrust of the future. This will lead to much higher inflation numbers. We don’t think we will see hyper-inflation, but it will be high inflation. Over five years we need inflation of around 70%-100%, as the only way to deflate the debt away.”

… He thinks investors need 25% of their portfolio in a mixture of physical gold and precious metal equities. Indeed, he believes gold could hit $2000 in the next 18 months.

[source]

Gold continues its rebound, underpinned by Japanese nuclear disaster and ongoing turmoil in the Middle East and North Africa. The dollar fell overseas as EUR-USD regained 1.4200 after eurozone Mar HICP inflation unexpected accelerated to 2.6% y/y pace, ratcheting higher ECB tightening expectations.

Reports of discord within the ECB regarding the EU “competitiveness pact” (permanent bailout scheme), took some of the wind out of the euro’s sails, which had been supported by month-end flows and rising expectations of central bank tightening.

Portuguese yield curve inverts for the first time since 2006 amid political uncertainty and ongoing debate about need for bailout.

Results of Irish bank stress-tests slated for release at 15:30GMT. Likely to highlight the need for reform as ECB’s Weber throws his support behind PM Kenny’s “burn the bank bondholders” position. Weber said today that it’s a “Mistake to make taxpayers liable for banks.”

US initial jobless claims fell 6k, to 388k in the week ended 26-Mar, above market expectations.

S Chicago ISM slipped to 70.6 in Mar, above expectations, vs 71.2 in Feb.

By Wallace Witkowski and Myra P. Saefong
March 30, 2011 (MarketWatch) — Gold futures quit a four-session losing streak Wednesday as demand for the precious metal as a hedge against euro-zone debt worries and fighting in Libya brought buyers in at recently lowered prices.

Gold for June delivery ended up $7.40, or 0.5%, at $1424.90 an ounce on the Comex division of the New York Mercantile Exchange. The precious metal touched a high of $1,431.70 an ounce early in the day, then dove to a slight loss and an intraday low of $1,413.10 an ounce before rebounding.

Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago, said many of the common themes pushing up gold still apply, such as uncertainty about the Middle East and the impact of crippled nuclear plants in Japan. “Today’s move lower was rejected: There are more reasons to be a buyer than a seller,” Klopfenstein said. “Fresh money likes to come in on any signs of weakness.”

… Standard & Poor’s Ratings Services lowered its rating Tuesday on Portugal to BBB-minus from BBB, one notch above junk status. The ratings agency also cut Greece’s credit rating to BB-minus from BB-plus.

[source]

by The Gold Report
Wednesday, 30 Mar 2011 (Mineweb) — Rick Rule explores some of the implications for resource investors when two megatrends from opposite ends of the socioeconomic spectrum collide.

… “The bottom line is that your own financial and psychological preparedness for dealing with volatility will determine whether you come out of the next year or two substantially better off-or substantially worse,” Rick says. “It’s your responsibility to determine your response and hence your own financial future.”

… And you must have cash, he adds. Despite the fact that the U.S. dollar is losing value (particularly with the help of quantitative easing [QE] initiatives) and real interest rates are at minus 4% or 5%, he tells investors to hold cash as ammunition in a market crash. “Although you get penalized for maintaining liquidity-as investors should recall from the 2008 liquidity crunch-when the market collapses, cash is the only thing that gives you the fiscal and psychological strength to react.”

He further recommends maintaining some liquidity in physical gold and silver and their proxies. “It’s not in anticipation of profiting from a run in gold and silver prices — although that isn’t a bad aim either — but because they increasingly constitute good cash in a world where many forms of cash aren’t so good.”

… the U.S. is coming face-to-face with its inability to service pension obligations that have been promised but not funded for the last generation. “This is truly an ugly set of circumstances that requires substantial savings to deal with,” he summarizes, “and the savings don’t exist.”

And quantitative easing, because it devalues the currency practically by definition, undermines what meager savings do exist in the U.S. and other Western economies. Rick sees a “damned if you do, damned if you don’t” situation. “I don’t think we can continue quantitative easing and I don’t think we can afford to discontinue it either. I really sort of expect that we’ll end up having QE90,” he continues, “and I don’t like the potential of that. Not just in the context of the U.S. dollar, but in terms of the Western world standard of living.”

[source]

by Simon Rabinovitch
Wednesday March 30, 2011 (Reuters) — Dollar dominance is sowing the seeds of financial turmoil, and the solution is to promote new reserve currencies, a Chinese government economist said in a paper published on the eve of a G20 meeting about how to reform the global monetary system.

Although not an official policy statement, the paper by Xu Hongcai, a department deputy director at the China Center for International Economic Exchanges, offered a window onto the domestic pressures bearing on Beijing to move away from a dollar-centric global economy.

… “Nations around the world have no way of restricting dollar issuance by the Federal Reserve. The current international monetary system lacks both stability and fairness,” Xu wrote.

… Chinese central bank governor Zhou Xiaochuan said two years ago that the SDR would be better than the dollar as a supra-national reserve currency, disconnected from the interests of any single country. … But China itself appears to have cooled on the SDR, instead describing it as a largely symbolic issue.

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RS View: The unspoken elephant in the room is a golden one. To bring a gold-centric alternative to the fore (from its waiting-in-the-wings status), CBs need merely to adjust the reserve management decisions at the margin — opting to redeem any retained surplus forex flows for physical gold rather than U.S. bills/notes/bonds or other dollar-denominated debt securities. And finally, to bring such a gold-centric reserve system closer to perfection (i.e., to eliminate the obstructions to full valuation), CBs need only to enhance efforts of moral suasion, education, and rational adjustments to policy & best practices to subsequently restrict the flood of paper gold issuance being perpetrated by the myopic commercial banking and financial sector (and bought by a gullible/vulnerable public.)

Wednesday, March 30, 2011 (Bloomberg) — … The monetary policies of the U.S. Federal Reserve have caused excessive global liquidity and inflation and are the root cause of surging oil and commodity prices, Xu Hongcai, a departmental deputy director at the China Center for International Economic Exchanges, wrote in a paper outlining his views on reform of the global monetary system.

… The current system means the U.S. is the only economy that can pursue an independent monetary policy, which “has led to disorderly capital flows and abnormally volatile exchange rates and affected global financial stability,” Xu wrote. His institute is co-hosting a meeting of finance ministers, central bankers and academics from the G-20 in the Chinese city of Nanjing tomorrow.

Xu’s paper puts the focus on the dollar ahead of meetings where officials including French Finance Minister Christine Lagarde and Chinese central bank Governor Zhou Xiaochuan will discuss topics including “shortcomings in the international monetary system” and dealing with volatile capital flows.

The world has fallen into a “dollar trap” where many countries have developed a growth model that is too reliant on exports and lacks sufficient domestic demand because they seek to accumulate U.S. dollar reserves, Xu wrote.

An increase in such reserves raises exchange-rate risks while a reduction in holdings will weaken the dollar, causing losses on countries’ foreign-exchange reserves, he said.

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by Colin Barr
March 30, 2011 (Fortune) — A top Chinese economist warned that the world has fallen into a “dollar trap,” as U.S. trading partners lack an alternative to the greenback and can’t prevent the Federal Reserve from printing more money.

The arrangement means big holders of dollars – such as China, which holds some $3 trillion of foreign exchange reserves, mostly in dollars – must sit idly by and watch as the value of their holdings erode. They can’t lightly diversify out of dollars at the risk of accelerating the erosion.

The setup “lacks both stability and fairness,” wrote Xu Hongcai, an economist at the China Center for International Economic Exchanges.

He made the remarks in a paper published ahead of Thursday’s meeting of G-20 finance ministers in Nanjing. They will discuss what might replace the current dollar-centric system – a subject that has vexed economists and policymakers for years and has grown more pressing with the rise of China.

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by Alix Steel
March 30, 2011 (TheStreet) — Gold prices were rising Wednesday after a reading on the number of jobs companies added in March failed to meet expectations. … The gold price has traded in a wider range today to a high of $1,431.70 and to a low of $1,415.50.

The ADP employment report, although falling short of expectations, wasn’t interpreted as a significant miss. The private sector added 201,000 jobs in March, in line with what analysts are expecting from Friday’s jobs number. But the snag came in that February’s number was revised lower from 217,000 to 208,000.

… Also supporting gold’s rally is the end of the first quarter on Thursday, which can trigger strong buying or selling from portfolio managers as they want to show they own gold or book profits from it. “I think you are going to find some rebalancing,” says Mihir Dange of Arbitrage. “[But] the majority of the rebalancing you’ll find at the end of [the second quarter] and at the end of the year.”

“Put a feeler on both,” advises Scott Redler, chief strategic officer for T3Live.com. According to Standard & Poor’s, since 1975 the gold price has risen 0.9% in the first quarter but 4.3% in the second. Gold prices are relatively flat for the year.

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By Jan Harvey
Wed Mar 30, 2011 (Reuters) — Gold prices rose 1 percent on Wednesday amid broad support from unrest in the Middle East and North Africa, with investors cheered by the metal’s early recovery from four straight sessions of losses. Gains were capped by expectations monetary policy in key regions may tighten, however, analysts said.

Spot gold was bid at $1,427.70 an ounce at 1255 GMT against $1,415.95 late in New York on Tuesday, having earlier touched a high of $1,430.00. U.S. gold futures for April delivery rose $4.40 an ounce to $1,420.60.

“(Gold) held well technically (over) the last couple of days and there has been reasonable physical support around as well,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia. “Overall it is still rangebound, but dips are there to be bought.”

… Investment in products such as gold-backed exchange-traded funds remained soft, meanwhile, with holdings of the largest, New York’s SPDR Gold Trust , slipping around two tonnes on Tuesday to their lowest in three weeks. The fund is heading for its largest quarterly outflow of bullion since its launch in the first three months of 2011.

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by Sutanuka Ghosal, Pk Krishna-Kumar & Madhvi Sally
March 30, 2011 (Economic Times) — Gold buying in India, the world’s largest consumer of the metal, is set to rise 15% as buyers shrug off record high prices ahead of the wedding season that starts next month. The wedding season, which along with festivals whets the country’s appetite for gold, begins from the second week of April. Purchases start a fortnight before that and account for about half of all purchases.

Jewellers say buyers have been investing more in the yellow metal to cash in on the uptrend in prices. … Reports say India imported over 900 tonne of gold in 2010 as consumers expected prices to climb further.

… “The consumer knows that prices are bound to remain firm and hence there is no impact on the shopping. We expect sales to pick up in April,” said Akhil Jain, owner of Chandigarh-based Nikka Mal Babu Ram Jewellery Arcade.

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By Jordan Roy Byrne
Mar 29, 2011 (MarketOracle) — In this missive we reply to the supposed reasons against investing in Gold.

Point: “Gold is a crowded trade and a bubble.”

First of all, ignore anyone who calls Gold a trade. It’s a bull market not a trade. A trade makes it sound like it is a fad and aberration. Yes, there will be wild swings both ways but the global allocation to Gold and gold shares is 1%. Its estimated that the allocation to Gold and gold shares in pension funds is 0.3%. Does that sound like a bubble? Not even close. Good God, can you imagine if that figure went to 5%?

Point: “You can’t eat Gold.”

I didn’t know the US Dollar had any nutritional value.

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By Claudia Assis and Virginia Harrison
March 29, 2011 (MarketWatch) — Gold futures on Tuesday slipped to their lowest point in nearly two weeks, extending their losing streak to four sessions as investors locked in some of their recent profits.

Gold for June delivery, the most active contract, fell $3.80, or 0.3%, to $1,417.50 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s lowest settlement since March 18. It had traded as low as $1,412.10 an ounce earlier, but prices came off lows as a key gauge of consumer confidence fell sharply in March. A report from the nonprofit Conference Board pointed to rising prices of food and energy as the main source of worries for U.S. consumers.

… “Investors are clearly still taking profits after the price of gold marked a new record high last week,” Commerzbank analysts said in a note. “The fall in price yesterday was accompanied by outflows from gold [exchange-traded funds],” they said.

… Japan struggled to contain radiation leaks at its crippled Fukushima Daiichi power plant, with plutonium found in soil near the plant. Prime Minister Naoto Kan said the government was on “maximum alert” and called the situation at the plant “unpredictable.”

… Fears of currency debasement and loose monetary policy are top reasons for gold’s decades-long bull market.

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