by Kerri Shannon
April 12, 2011 (MoneyMorning) — Investors have been flocking to precious metals to protect from looming inflation and a weak outlook for the U.S. dollar. … The demand for “safe-haven” metals investments continues pushing prices to new highs:

Gold is up 5% so far this year after a 30% rise in 2010, and hit a record high of $1,476.21 an ounce Monday.
Silver has climbed about 32% this year, after an 83% surge in 2010, and hit a 31-year high this week.
Platinum is up 2.8% this year following a 20% jump last year.
And palladium is holding steady, up 1.8% this year after a staggering 96% leap in 2010.

While gold was the popular topic of 2010, silver has been the star this year, getting more investor interest as a cheaper alternative to the yellow metal.

“People are quick to take profit when gold reaches a record,” Matthew Zeman, a strategist at Kingsview Financial, told Bloomberg News. “The silver market is the one everyone is in love with and afraid of missing the boat. People fully expect silver to get to $50.”

[source]

by Heather Struck
April 12, 2011 (Forbes) — A poll of UBS clients found that 58% expect the Federal Reserve’s Treasury buying program to wrap up at the end of June as intended. While the impact of the end of QE2 may already be priced into some asset classes, UBS precious metals strategist Edel Tully says it presents a “hurdle” to gold prices.

How high or low this hurdle may be depends on the state of the recovering U.S. economy after the Fed’s bond-buying program ends. Investors may continue to seek safety in gold over looking for returns in equities or fixed income. With these options on the horizon, Tully said, gold will continue to rally, and $1,500 won’t be far off. Hurdle cleared.

… Investors are also showing a broader interest in gold as a portfolio component beyond the “safe-haven” nature that most are familiar with, which came into play during the financial crisis. International factors also exist, as central banks outside the U.S. have been adding gold to their reserves, making 2010 the first year in two decades that reserves were net buyers, rather than sellers, of gold. Central banks are continuing to buy gold into 2011, according to UBS.

[source]

By Claudia Assis , MarketWatch
April 12, 2011 (MarketWatch) — Gold futures settled 1% lower on Tuesday as a selloff for oil dampened investors’ appetite for commodities overall and pushed inflation worries to the back burner at least for the day.

Gold for June delivery declined $14.50, or 1%, to $1,453.60 an ounce on the Comex division of the New York Mercantile Exchange. It had traded as low as $1,445 an ounce. … Gold had pared its decline in early floor trading, but the attempt at a comeback evaporated as losses mounted for oil and U.S. equities

Crude futures stumbled after weak U.S. trade data led to a rash of pessimistic views on U.S. economic growth and renewed doubts about oil demand.

“The pullback in oil has helped undermine precious metals,” said Jim Steel, a commodities analyst with HSBC in New York. A 3% drop for oil muted inflation concerns, he said. In addition, several economists have slashed their forecasts for U.S. growth, which diminishes appetite for commodities as a whole, Steel said.

… Gold’s correction is likely to continue in the short term, analysts at Commerzbank said in a note to clients. “The medium- to long-term positive outlook is still intact, especially for gold,” they added. “Gold should remain in demand as a safe haven in any case and the price should be well supported.

[source]

April 12 (Bloomberg) — The U.S. government, on course to reach a record annual budget deficit, posted a monthly shortfall of $188.2 billion in March, wider than a year earlier, Treasury Department statistics showed today.

Last month’s deficit was up from a $65.4 billion gap in March 2010, when the government marked down the cost of the Troubled Asset Relief Program by $115 billion.

The White House and Congress last week reached agreement on a spending plan for the current fiscal year, which started Oct. 1, and face another fiscal hurdle next month with the prospect of reaching the statutory debt limit of more than $14 trillion. Last week’s agreement averted a shutdown of government agencies.

[source]

By Rie Ishiguro and Shinji Kitamura
Tue Apr 12 TOKYO (Reuters) — The economic damage from Japan’s massive earthquake and tsunami last month is likely to be worse than first thought as power shortages curtail factory output and disrupt supply chains, the country’s economics minister warned on Tuesday.

The more sober assessment came as Japan raised the severity of its nuclear crisis at the Fukushima Daiichi nuclear plant to a level 7 from 5, putting it on par with the Chernobyl nuclear disaster in 1986.

The Bank of Japan governor said the economy was in a “severe state,” while central bankers were uncertain when efforts to rebuild the tsunami-ravaged northeast would boost growth…. The government and main opposition party have agreed to a spending package to get some reconstruction work started, but setting a large additional budget will be difficult due to Japan’s heavy debt burden.

… Finance Minister Yoshihiko Noda said on Tuesday that he would explain the Japanese government’s efforts on post-quake reconstruction and the nuclear crisis at a Group of 20 meeting in Washington on April 15.

“We were in recession already,” said Takuji Okubo, chief economist for Japan at Societe Generale. “This time it will take longer for industrial production to rebound, because just-in-time delivery systems have become even more complicated.”

“Our economy is in a severe state,” BOJ Governor Masaaki Shirakawa told lawmakers on Tuesday. … At its latest policy meeting last week, the BOJ launched an ultra-cheap loan scheme for banks in the area devastated by the quake, and has signaled its readiness to ease monetary policy further if damage from the quake threatens Japan’s return to a moderate recovery.

[source]

by Michael Trifunovic
April 12, 2011 (WA Today) — … In a speech at the Council on Foreign Relations last September, the former Federal Reserve chairman Alan Greenspan argued that currencies move in relation to gold and that currencies are themselves a zero sum proposition as they net out. He then went on to argue that if gold was rising it points to a “problem with respect to currency markets globally”. He goes on to describe gold as a canary in a coalmine.

… In a 1966 essay, Gold and Economic Freedom, Greenspan, argued that gold stood in the way of welfare statists using the banking system for an unlimited expansion of credit and the resultant wealth confiscation via the associated inflation. Gold stands as the protector of property rights.

It appears gold is reasserting this function.

Alchemy is the word often used to describe the art of transforming something of value from nothing, a practice of mind over matter. In the realm of money, it essentially is a confidence trick, where one gets others to believe something is of value.

The confidence trick around our currencies is unravelling. In contrast, gold seems to be standing the test of time.

[source]

by Geoff Candy
Tuesday , 12 Apr 2011 (Mineweb) — Speaking on Mineweb.com’s Metals Weekly podcast, Deliberations on World Markets author Ian McAvity said, “The debt numbers that are being created both in Europe and in the United States are absolutely frightening in an historical context and ultimately the perception is that they hope that they can inflate it away without having a deflationary crash in financial assets first.”

… One of the major reasons why he is doubtful of a successful end to the contest is his belief that the U.S. housing market is headed toward a double dip.

… For McAvity in the event of such an outcome, gold and oil (largely as a result of the ongoing destabilisation of the Middle East) are likely to be the least affected. “The gold price holds up even while other markets come off largely as the only place to hide…Gold will come into one of those periods where it loses the least on a sharp decline on the other markets.”

Part of the reason behind gold’s resilience in the face of a very high likelihood of further problems in the west is the monetary role that it has played and, is increasingly playing again.

As McAvity explains, ” These guys are just continually depreciating the purchasing power of money and in fact what you’re seeing in the gold market is gold coming back on stage as a final form of money. I don’t think that we’re ever going to see a viable day-to-day operating gold standard kind of a system and nobody other than the US dollar is really going to replace the US dollar as a global reserve currency. But the US dollar has lost a lot of status.”
McAvity says, at the moment, given the state of the U.S. dollar, with the questions being asked of the euro zone and the yen, “there is a real need for an alternate currency to the U.S. dollar and gold is playing that role to an extent.

[source]

Gold Turns Choppy

Gold is choppy this morning, initially underpinned by risk aversion after Japan’s Nuclear and Industrial Safety Agency raised the severity level of the Fukushima Dai-Ichi nuclear accident from a 5 to a 7, the highest reading on the global scale. This puts Fukushima on par with the 1986 Chernobyl disaster. Oil was underpinned by the news as well and the quick reversal in expectations that an African Union brokered cease fire was at hand in Libya. However, when Goldman Sachs analyst David Greely warned that oil is due for a “substantial pullback”, traders quickly moved to lock-in profits. Crude retreated and the precious metals followed.

The downside in gold and silver is still thought to be limited amid persistent weakness in the dollar and continued worries about inflation. The dollar index extended to yet another 16-month low, weighed upon by the euro, which hit a new 15-month high against the greenback at 1.4518. Only renewed weakness in Sterling prevented a more serious dollar rout. Nonetheless, the 74.16 low in the DX from November 2009 remains vulnerable to a test. This is the last significant barrier ahead of the all-time low at 70.67.

It has primarily been central bank policy expectations that are driving flows in the currency market. Flows chase yield — or yield expectations — in the FX market. The ECB’s recent rate hike — and expectations of an additional 75-100 bps in tightening — have been underpinning the euro, despite worsening sovereign debt crises in the periphery. Meanwhile, The Wall Street Journal’s FedWatcher John Hilsenrath wrote today that the Fed has signaled that they will keep credit cheap, even as other central banks raise rates. Hilsenrath cites particularly dovish Fedspeak by vice-chairwoman Janet Yellen and the New York Fed’s William Dudley in dismissing the notion that tighter Fed policy is in the offing.

While Hilsenrath seems to expect the Fed to complete the bond purchases of QE2 on schedule at the end of June, he doesn’t take on the prospect for further quantitative easing beyond June. I suspect he believes (as do I) that the Fed will keep that option open based on economic conditions as H1 winds down. If for example a continued rise in energy prices threatens the fragile economic recovery, we could very well see further asset purchases. That would add further weight to the already weak dollar, driving up the price of gold in the process.

The grim economic data out of the UK today may give the Fed further pause about removing accommodations. UK BRC retail sales plunged 1.9% y/y in Mar, their biggest decline since the series began in 1995. The BRC says declining real wages (inflation), higher VAT and government budget cuts all weighed on sales. These factors actually contributed to a decline in Mar CPI to a 4.0% y/y pace. As shoppers reigned in their spending, retailers competitively reduced prices in an effort to induce spending. The data reduces the likelihood that the BoE will tighten anytime soon, which in turn weighed on the pound.

12 April 2011 (Reuters) LONDON — Gold slid by more than 1 percent on Tuesday, echoing a sharp decline in the oil price and ignoring the decline in the dollar to succumb to profit-taking after having hit record highs on Monday. … Brent crude oil futures lost more than $3 a barrel after top producer Saudi Arabia cut production in response to weak demand, according to two Saudi-based industry sources.

This added to pressure on the commodities complex from Goldman Sachs’ decision on Monday to book profits on its positions in crude oil, copper, platinum and some agricultural commodities weighed on the raw materials sector, including gold.

Spot gold was last down 1.1 percent at $1,449.66 an ounce by 1419 GMT, having earlier held at a session high of $1,467.10.

… “Market players are taking the opportunity to take some profits after the sharp rises of the last few days or weeks, said Commerzbank analyst Daniel Briesemann, adding that he believed gold would eventually resume its current uptrend to challenge $1,500 an ounce.

Adding to potential support for gold was Japan’s decision to raise the severity of its nuclear disaster to the highest level.

… The gold/silver ratio fell to its lowest since at least 1989 on Tuesday, reflecting silver’s outperformance relative to gold. … “If this was safe-haven buying, you wouldn’t see silver so much stronger than gold. This just shows the spec money is going into silver,” said VTB Capital analyst Andrey Kryuchenkov.

[source]

by Alix Steel
April 12, 2011 (TheStreet) — Gold and silver prices were treading water Tuesday as investors were stuck in wait-and-see mode.

… The International Monetary Fund also released growth and inflation forecasts for 2011, which are a mixed bag for gold and silver. The IMF’s global growth forecast was lowered to 4.4% with the EU predicted to grow the least, at 1.6% in 2011. The downgrade was due to high oil prices and even higher budget deficits. Slower growth would tighten demand for commodities which could hurt gold’s recent rally.

On the flip side, the IMF said that the EU’s inflation rate for 2011 will be 2.3% and the U.S. will hit 2.2%, both only slightly above the 2% target which signals central banks might not have to raise rates. Cheap money is good for gold and the hard asset becomes a more attractive investment.

[source]

by Margie Lindsay
April 12, 2011 (Hedge Funds Review) — Hedge Funds Review talks to Frank Holmes, CEO and chief investment officer of US Global Investors and investment team leader for the Meridian Global Gold and Resources Fund, about prospects for gold.

“I’ve always advocated that people should consider 5% into bullion and 5% into unhedged gold stock and to rebalance,” explained Frank Holmes, CEO and chief investment officer of US Global Investors.

… On the subject of a gold bubble, Holmes dismisses the idea. He believes bubbles occur when there is innovation, people then copy the innovation and leverage to exploit it. “In 1980 when gold went to $850 an ounce from $400 in a short time it was done on the futures market. It was very leveraged. Most of that run was built on fear but the leverage was 10-20:1. When buying ETFs the margin is 2:1, if there is a margin. A lot of pension funds are diversifying into it. It’s a cash trade. So you’re not seeing this huge exponential move like you’ve seen in previous bubbles,” he explained.

… Looking ahead Holmes forecasts a doubling of the gold price from current levels to around $3,000 in 2016 with oil rising to $200 a barrel.

[source]

Gold and silver are higher this morning on an uptick in risk aversion after Japan’s Nuclear and Industrial Safety Agency raised the severity level of the Fukushima Dai-Ichi nuclear accident from a 5 to a 7, the highest reading on the global scale, matching the 1986 Chernobyl disaster. Additionally, as hopes of an African Union brokered cease-fire in Libya quickly faded, prompting a rebound in oil prices.

Despite the worsening EU sovereign debt crisis, the single currency continues to benefit from safe-haven flows, with the EUR-USD rate probing above 1.45 for the first time in 15-months. The dollar continues to look rather weak.

German HICP unexpectedly revised up to 2.3% y/y from 2.2% in Mar, CPI 2.1%. Mar ZEW confidence falls to 7.6, much weaker than expected.

UK BRC retail sales plunged 1.9% y/y in Mar. Biggest decline on record. Like-for-like measure -3.5% y/y. BRC says declining real wages, higher VAT and government budget cuts all weighed on UK retail sales. UK CPI came in at 4.0% y/y in Mar, well below market expectations, vs 4.4% in Feb.

US imported prices surged 2.7% in Mar on rising oil prices. Export prices +1.5%. The US trade deficit narrowed to -$45.76 bln in Feb, above market expectations, vs -$46.97 bln in Jan.

By Claudia Assis
April 11, 2011 (MarketWatch) — Gold futures traded modestly lower Monday, taking a breather after a string of record highs last week and as the dollar gained strength.

Gold for June delivery declined $6, or 0.4%, to settle at $1,468.10 an ounce on the Comex division of the New York Mercantile Exchange. Silver ended a smidge higher, keeping above $40 an ounce.

Gold ended at a record high of $1,474.10 an ounce Friday, the latest in a series of such milestones for the metal on the past week.

Investors took profits following the record, and some discussion in Washington about curbing the U.S. debt also took a toll on gold, said James Cordier, a portfolio manager at OptionSellers.com in Florida. The debate made investors feel “that maybe there’s an end to the dollar printing and the increase in debt,” he said.

Friday’s record was partly achieved on fears of a government shutdown, averted with a last-minute deal, that knocked the dollar. This week, President Barack Obama is expected to unveil a plan to reduce the U.S.’s debt.

The metal notched a 3.2% weekly gain, its highest five-day gain since early December and its third weekly gain in a row.

[source]

April 11 (Bloomberg) — The struggle last week to avert a government shutdown may be little more than the warm-up for a much bigger battle in coming months over raising the debt limit.

The U.S. government is projected to slam into the $14.3 trillion legal cap on government borrowing sometime this spring. As the price of their vote to allow the government to go further into debt, congressional Republicans are demanding far deeper cuts than the $38 billion they got last week in the deal to fund the government for the last six months of the 2011 fiscal year.

[source]

By John Detrixhe and Sara Eisen
Apr 10, 2011 (Bloomberg) — The world economy needs a new global reserve currency to help prevent trade imbalances that are reflected in the national debt of the U.S., said Nobel-prize winning economist Joseph Stiglitz.

A “global system” is needed to replace the dollar as a reserve currency and help avoid a weakening of U.S. credit quality, said Stiglitz, a professor at Columbia University in New York. The dollar fell to an almost 15-month low against the euro last week, and the U.S. trade deficit widened more than forecast in January to the highest level in seven months.

“By taking off the burden of any single country, we don’t have to have trade deficits,” Stiglitz said in an interview in Bretton Woods, New Hampshire. “Things would be much worse if it were not the case that Europe was having even more of a problem, but winning a negative beauty pageant is not the way to create a strong economy.”

… “Reserves are IOU’s,” Stiglitz said. “When IOU’s get big enough, people start saying maybe you’re not a good credit risk. Or at least, they would change in their sentiment about credit risk.”

Stiglitz, who won the 2001 Nobel Prize for economics, was attending the Institute for New Economic Thinking’s conference in Bretton Woods at the hotel where U.S. and European officials met in 1944 to remake the global monetary system.

… The existing monetary system means “there’s a very good risk of an extended period of low growth, inflationary bias, instability,” Stiglitz said. It’s “a system that’s fundamentally unfair because it means that poor countries are lending to the U.S. at close to zero interest rates.”

[source]

RS View: Forgive my old friend Joe for not speaking more clearly on this matter. He said, “Reserves are IOU’s,” which could inadvertently lead a dim listener to draw the erroneous conclusion that reserves must be IOU’s. He should have said, “As presently practiced, reserves today are largely IOU’s”. Expressed in this latter form, it clears the stage of clutter so that any reasonable thinker can more easily see that the practice of reserve management/accumulation has a natural course of evolution ahead, which will shift away from holding IOU’s and move more predominately toward holding that one reserve asset in the present assortment which is NOT an IOU. Gold. Physical gold.

by Kelley Holland
Monday, 11 Apr 2011 (CNBC) — A new report from the Bank for International Settlements suggests that nearly all reserve currencies may be poised to depreciate.

The BIS examined the relationship between foreign-exchange turnover and per capita income, and found that the richer the country, the greater the turnover in their currency. In fact, they were able to fit most of the data along a pretty neat regression line, suggesting that there is a relatively consistent relationship between forex turnover, trade, and GDP per capita.

So who were the outliers? You guessed it: the U.S., Japan, Great Britain, Australia, and a few others have far more forex turnover than their trade and GDP would suggest.

“One interpretation of this analysis is that demand for the all of the currencies that fall above the regression line should decline over time, and should experience at least some depreciation,” the analysis found.

[source]

April 12, 2011 (AFP) — Iran plans to slash four zeros from its national currency in “one to two years”, seeking parity between its rial and the US dollar, Central Bank Governor Mahmoud Bahmani has said.

“The new rial (…) will be equal in value to one (US) dollar,” the official IRNA news agency quoted Bahmani as saying late Sunday. He added the plan would take “one to two years” to be implemented.

Bahmani did not indicate whether the authorities would try to maintain a fixed parity beetween the greenback and the Iranian currency following the planned reform…..

“Some people think removing the zeros will weaken the national currency … but it will instead cut inflation. Removing four zeros will also facilitate trade,” IRNA quoted him as saying.

[source]

RS View: Posted not for any redeeming economic value to be found in the article (i.e., none) but rather for adding incrementally to the general sense of a timeline with respect to consensus change in the international monetary realm… “one to two years” puts us again at mid-2013.

By Pham-Duy Nguyen
Apr 11, 2011 (Bloomberg) — Gold futures fell on sales by investors after a rally to a record of $1,478 an ounce. Silver climbed close to $42 an ounce, extending a surge to a 31-year high. … Silver gained for the sixth straight session, the longest rally in four months.

“People are quick to take profit when gold reaches a record,” said Matthew Zeman, a strategist at Kingsview Financial in Chicago. “The silver market is the one everyone is in love with and afraid of missing the boat. People fully expect silver to get to $50.”

… Silver futures for May delivery advanced 0.4 cent to $40.612. Earlier, the metal reached $41.975, the highest since January 1980. The price has more than doubled in the past year. The record in 1980 was $50.35.

[source]

By John Detrixhe
April 11, 2011 (Bloomberg) — China’s decision to keep its currency weak has caused the government to lose control of inflation and risks fuelling wage-price gains, billionaire investor George Soros said.

While the policy helped insulate China from the financial crisis in 2008, the world’s second-biggest economy has missed its chance to allow the yuan to appreciate to tame inflation, Soros, chairman of Soros Fund Management LLC, said yesterday at a conference in Bretton Woods, New Hampshire.

“It would be very advantageous to allow the currency to appreciate as a way of controlling inflation,” Soros said. “The authorities missed that opportunity. You now have inflation somewhat out of control, and causing some serious danger of wage-price inflation.”

The yuan gained 4.6 percent against the U.S. dollar in the past two years, the second-smallest gain of 10 Asian currencies tracked by Bloomberg…. The yuan’s gain since April 2009 compares with a 31 percent advance for the Indonesian rupiah, a 22 percent climb by the South Korean won and a 21 percent jump by the Singapore dollar. Only the Hong Kong dollar, which is pegged to the U.S. currency, has appreciated less than the yuan.

… [Soros] spoke at a conference sponsored by the Institute for New Economic Thinking, which Soros helped found and supports.

U.S. and European officials met in Bretton Woods in 1944 to draw up rules that governed much of the world economy for almost three decades. Nations agreed to fix exchange rates… in the aftermath of World War II by encouraging coordinated economic policies.

The Bretton Woods era ended in 1971, when inflation forced the U.S. to abandon the dollar’s peg to gold, an anchor of the system, heralding the era of floating exchange rates. The Bretton Woods agreement had linked currencies around the world to the price of gold and restricted their fluctuations versus the dollar, requiring intervention by participants to comply.

[source]

Gold Corrects as Government Shutdown Averted

Gold is modestly lower to begin the week after a budget compromise was reached at the eleventh-hour on Friday, preventing a shutdown of the Federal government. However, it’s worth remembering that the recent budget battle was over the remaining 6-months of FY2011. The real battle — over a hike to the debt ceiling and the FY2012 budget — will begin in earnest, as soon as our representatives in Washington are done patting themselves on the back. Given the contentious nature of the recent battle over what amounted to a paltry $38 billion in spending cuts — trimmed from President Obama’s record $3.69 trillion budget proposal — it’s reasonable to assume that when the stakes are raised by an order of magnitude (or more), things are going to get really nasty again…really quickly.

As we’ve suggested in the past, the most expedient way to deal with exploding debt in the face of a lack of real resolve in Washington, is to devalue the dollar. This allows the Treasury Department to pay down that debt with cheaper dollars. Last week’s plunge in the greenback to new 16-month lows, bringing the dollar index within about 4% of its all-time low is attributable in part to this realization. The return of considerable credence to the long-term downtrend in the dollar threatens to un-anchor inflation expectations, which could drive the US economy back into recession.

Reports that Libyan strongman Moammar Gaddafi has accepted a “road map to peace” proposed by African leaders, knocked oil off its recent highs. However, rebel leaders seem adamant that any deal that doesn’t require Gaddafi to step down immediately is unacceptable. The African Union peace mission reportedly got a pretty frosty reception in Benghazi, the de facto capital ant-Gaddafi rebels. Protesters suggested that most members of the AU delegation were Gaddafi allies. The retreat in oil has been tentative thus far, suggesting the market is skeptical that a lasting peace is at hand.

Just as the EU is taking up Portugal’s request for a bailout, Der Spiegel is reporting that a restructuring a Greek debt is inevitable. Greece was the first EU country to require a bailout, but despite receiving €110 billion in EU and IMF loans nearly a year ago — and presumably at least an attempt at fiscal reforms — the situation in Greece continues to erode. Greek sovereign debt has been downgraded further and yields on that debt have pushed to record highs. Ireland — the second country to request a bailout — also continues to struggle amid speculation about restructuring and haircuts for sovereign bondholders. The market has clearly cast a vote of ‘no confidence’ in EU rescue measures, yet they will continue down the same path with Portugal next.

by Rajendra Jadhav
Mon Apr 11, 2011 (Reuters) MUMBAI — Indian gold futures edged lower on Monday tracking a drop overseas, lifting demand in domestic physical markets, which were subdued on the weekend, dealers and jewellers said. …… the most-active gold for June delivery on the Multi Commodity Exchange was trading 0.1 percent lower at 21,391 rupees per 10 grams.

… “Demand has improved. Jewellers are buying hoping for a rise in retail demand in coming weeks,” said Harshad Ajmera, proprietor of Kolkata-based wholesaler JJ Gold House. With the wedding season underway in India, demand for the yellow metal is strong as gold jewellery forms part of the bridal trousseau.

International spot gold was trading at $1,468.35 an ounce against $1,472.70 late in New York on Friday.

The Indian rupee, which plays an important role in determining the landed cost of the dollar-quoted yellow metal, fell on Monday, limiting losses in bullion.

[source]

April 11, 2011 (FXstreet) — Despite reaching fresh record highs earlier today, gold futures are currently easing to the downside by mid-day over Europe following news of another Japanese earthquake measuring 6.1 on the Richter scale. Currently the most active contract for June delivery trades more than $10 off its maximum at $1467.60/ounce.

While overall market sentiment remains mostly subdued due to little economic information to go on today, it seems gold traders are taking advantage of profit-taking opportunities in light of recent historic highs. … Looking ahead, the HY Markets team suggests: “Stochastics and the RSI remain bullish signalling that sideways to higher prices are possible near-term. The inverted head and shoulders formation projects a potential upside target later this spring. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted.”

[source]

Gold is modestly lower this morning after the US government successfully averted a shutdown at the eleventh-hour on Friday. However, the FY2011 budget battle was merely a precursor to the much larger fights in the offing over the debt ceiling and the budget for FY2012. The dollar has edged slightly higher, but continues to look extremely vulnerable having tumbled to 16-month lows last week.

Silver extended to a new 31-year high of 41.93 in overseas trading.

There is talk that Libyan strongman Moammar Gaddafi has accepted a “road map to peace” proposed by African leaders. This has initially prompted a retreat in oil, but rebel leaders seem inclined to reject the deal, maintaining their demand that Gaddafi step down immediately.

Traders are warning of a dramatic change in dollar selling. They fear central banks from the Middle East may force their Asian rivals to more aggressively drive the dollar down.

In 10 months, the Dollar Index has lost 14% because the world keeps accumulating dollars it doesn’t want and sells them. Asian central banks are key.

Many Asian central banks have been forced into waging wars to keep their currencies from appreciating because of the influx of investors to emerging markets. They sell waves of their own currencies into the market in an attempt to keep exports competitive.

[source]

PG View: Ongoing weakness in the dollar, along with competitive currency devaluations around the world will continue to underpin the gold market.

By Claudia Assis and Nick Godt
April 8, 2011 MarketWatch) — Fears of rampant inflation and U.S. dollar weakness added fuel to gold’s fire on Friday, pushing the metal to a record high, and took silver to a close above $40 an ounce, its first in three decades.

Gold for June delivery advanced $14.80, or 1%, at $1,474.10 an ounce on the Comex division of the New York Mercantile Exchange, a settlement record. Bullion traded as high as $1,476.20 an ounce, an intraday record high.

Gold had reached such milestones the previous four sessions. The metal rose 3.2% on the week, its highest five-day gain since early December and its third weekly gain in a row.

“Two words, the dollar and inflation,” said Frank Lesh, a broker and analyst with FuturePath Trading in Chicago, of gold’s rally. “I’ll tell you when it will correct: when the dollar quits going down. This tit for tat in Congress right now just makes us look bad, and it’s reflected on the dollar.”

Silver for May delivery, gained $1.06, or 2.7%, to $40.61 an ounce, its highest price since early 1980 and a fifth session of gains.

Spot silver set an intraday record of $50.35 in January 1980.

Investors priced out of gold have flocked to silver. The metal gained 7.6% this week. Yearly gains for silver have reached 31%, dwarfing gold’s 3.7%.

The run for gold and other commodities also lifted copper prices, which traded 1.9% higher. May copper added 9 cents to $4.50 an ounce.

[source]

RS View: OMG… they’ve always quoted copper by the pound, and here we’re seeing it quoted by the ounce! Perhaps the upward march of metal prices has forced copper to step up and serve a new role as the poor man’s silver… [Thank the Good Gods of Humor for blessing us with these occasional typos in the media.]

ALSO…

Gold rises to record high
by Frank Tang
April 8, 2011 (Reuters) — Gold rose to a record high for a fourth straight day and silver surged on Friday, as a weaker dollar, the prospect of a US government shutdown and inflation worries lifted precious metals in a broad commodities rally.

Gold was set for its biggest weekly gain in four months, drawing support from renewed euro zone sovereign debt fears amid Portugal’s financial crisis and inflation jitters as crude oil and corn hit new highs this week. Bullion broke above key resistance on technical charts and could target above $1,500 an ounce. The metal has risen more than 10 percent since late January when political unrest began to flare in the Middle East and North Africa. … Gold remained far below its all-time inflation-adjusted high, estimated at almost $2,500 an ounce set in 1980 as a result of heightened geopolitical pressure and hyperinflation.

“With the expected future inflation being higher in this low interest rate environment, investors are more inclined to have some contributions to commodities as an inflation hedge,” said Hakan Kaya, commodities portfolio manager at Neuberger Berman, which manages about $190 billion client assets.

The gold-to-silver ratio — the number of silver ounces needed to buy an ounce of gold — fell to a 28-year low near 36 on Friday.

“One would expect silver to outperform in this environment because it bears a higher risk than gold on a volatility basis,” Kaya said.

[source]

By Ben Rooney
April 8, 2011 (CNNMoney) — Gold prices have hit a series of record highs this week, as a combination of inflation worries, a weaker U.S. dollar and geopolitical turmoil have weighed on investor confidence. On Friday, gold futures for June delivery were up $15.40, or 1%, to $1,474.90 an ounce….

Gold has been on a tear since late January, when the metal traded as low as $1,320 an ounce. But the rally kicked into high gear this week, with gold touching new highs every day except Monday.

… This week’s gains were driven by the confluence of several gold-friendly developments, said George Gero, a senior metals analyst at RBC Wealth Management. “This is the perfect storm,” he said.

Top of the list is inflation, which has been rising sharply in emerging economies and is becoming more of an issue in Europe. … In an effort to “anchor” rising consumer prices, the European Central Bank announced a widely anticipated interest rate hike Thursday. And China has been gradually tightening its monetary policy this year as prices for food and energy surge. While investors are nervous about inflation in the United States, the Federal Reserve is split on whether prices risk getting out of control.

… As if that weren’t enough, a host of geopolitical concerns continue to boost demand for gold as a safe haven.

Turmoil in the Middle East has roiled the markets this year and the bloody stalemate in Libya threatens to draw Western powers into a quagmire. Japan, reeling from last month’s natural disasters and ensuing nuclear crisis, was hit by another major earthquake Thursday. At home, investors are worried about a looming government shutdown if Washington is unable to resolve a budget impasse Friday.

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by Andrew Wilkinson
April 8, 2011 (Forbes) — A growing wariness has crept up behind bond traders to cause rising yield curves to steepen along the way. The dollar has broken to its weakest since December 2009, broadening the appeal of inflation hedges found in commodities and elevating demand when supply is already short.

… Dollar weakness is exacerbating the debate at the Federal Reserve over whether policy stimulus remains justified while bloating the prospects for inflation down the road. Investors are starting to sense this is not a good menu for fixed income.

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April 08, 2011 (FoxNews.com) — A fight over a fiscal 2011 budget, when the government has been operating without a budget for six months. Medicare and Social Security reform that is so far on the back burner, it’s not even on the stove. That is what you’ve awakened to this morning, D.C. dysfunction now in high definition.

And a Federal Reserve that has journeyed on its magical bus tour so far to the outer limits of monetary policy, that it’s left a growing number of its own board members behind in disagreement.

The back-and-forth over the budget bodes ill for what many believe is the far more important fight: raising the U.S. debt ceiling.

… The 111th Congress added more to the U.S. national debt than the first 100 U.S. Congresses combined.

… If the U.S. debt ceiling is not raised, the Congressional Research Service [CRS] says: “Under current estimates, the federal government will have to issue an additional $738 billion in debt above the current statutory limit to finance obligations for the remainder of FY2011.”

… However, during debt limit fights in 1985, 1995-1996, 2002, and 2003, Treasury raised cash by redeeming securities held in government pension plans, and delayed funding these plans by shoving off into the future bond auctions, so as to meet the federal government’s other obligations…. In the first fight, in 1985, the Treasury cashed out of government pension funds to make its payments. It redeemed “earlier than usual fund securities” in Social Security, the Civil Service Retirement and Disability trust fund, and several smaller trust funds, CRS says. It also essentially stopped funding these government retirement plans, too, in order to raise cash.

… The Treasury made similar moves during the debt ceiling impasses in 2002 and 2003, and during the government shutdown under the Clinton Administration in 1995 and 1996, CRS says, with some restrictions on the use of the Social Security fund.

Treasury’s trust funds moves got Congress mad. In 1996, says CRS, Congress passed a bill to increase the debt limit noting its anger, but it didn’t do anything to stop Treasury’s raids. … And so Treasury once again raided the trust funds from April to June of 2002 and from February to May 2003…

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RS View: Take heed, all would-be retirees — a pension is merely a promise, and bankrupt institutions are lousy at keeping promises. For more reliable savings, choose physical gold. It delivers.

April 8, 2011 (Reuters) — Gold hit record highs on Friday and silver its strongest since early 1980 as the dollar slid on the prospect of a US government shutdown, with euro zone debt concerns and unrest in North Africa further supporting buying.

Spot gold rose as high as $1,472.96 an ounce and was bid at $1,469.40 an ounce at 1335 GMT…

Friday’s slide in the dollar added fuel to a rally that has already taken gold to a series of record highs this year.

“The US budget at an impasse and the ECB rate hike have meant the dollar dropping to the lowest level since Dec. 2009 on the index,” said Saxo Bank senior manager Ole Hansen. “This is undoubtedly a very important ingredient for the rally we have seen.”

… “Inflationary concerns and sovereign debt worries in Europe (are) heightening demand for value store and safe haven investments,” Fairfax analyst John Meyer said in a note.

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By Simon Hobbs
Friday, 8 Apr 2011 (CNBC) — Traders are warning of a dramatic change in dollar selling. … In 10 months, the Dollar Index has lost 14% because the world keeps accumulating dollars it doesn’t want and sells them. … When they sell dollars they often buy euros.

“China and Taiwan have tried looking further afield in their diversification, to the Australian and South Korean bond markets” says Mellyor. “But there are only two places that are deep enough to absorb reserves of this magnitude: the Euro Zone and the US. When ever you see emerging markets perform well you will see the euro perform well.”

… Euro/Dollar is now up 19% in 10 months. In fact there’s a growing realization that the ascent of the euro more to do with Asian bank diversification than anything happening within the Euro Zone.

“Euro/Dollar is trading without reference to the underlying debt markets” says Mellor. “In fact it’s our contention at BNY Mellon that the entire move in the Euro since 2001 have been driven by the Asian central banks need to diversify.”

… “They have been working bids below the market, relying on the market to come to them, as Europe’s sovereign debt fears and interest rate differentials trigger bouts of temporary dollar strength,” says Douglas Borthwick at Faros Trading. But Borthwick says the Asians may be forced to abandon that because of fresh, aggressive dollar selling from the Middle East.

… “The Middle Eastern players seem to be willing to chasing the market higher,” says Borthwick. “When the EUR/USD rallies 30 pips on air you can be assured this is a Middle Eastern reserve manager diversifying out of Dollars they have received from the higher price of oil.”

If the Arabs keeps “front running” their orders the Asians may be forced to abandon their passive approach…

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RS View: Passivity will only serve you up to a point in the context of a “currency war”, beyond which it behooves you to firm up your position with golden reinforcements — even if it must be done in the full light of day.