By Myra P. Saefong and Deborah Levine
April 15, 2011 (MarketWatch) — Gold futures climbed Friday to close at a record $1,486 an ounce, up 0.8% for the week, with silver hitting its highest level in over three decades, as inflation concerns buoyed investment demand for the precious metals.

“Gold prices remain supported on the back of its appeal as a hedge against inflation, amidst emerging inflationary concerns in the U.S., Europe and China,” analysts at ICICI Bank wrote in a note to clients.

Gold futures for June delivery rose $13.60, or 0.9%, to close at $1,486 an ounce on the Comex division of the New York Mercantile Exchange. It ended the week with a gain of 0.8%. The day’s settlement price beat out the previous record close of $1,474.10 an ounce seen a week ago. In electronic trading on Globex shortly after the close of regular trading, June gold tacked on another $3 to $1,489.

… “We view upside inflation risks as more likely than positive growth shocks in the U.S.,” analysts at Deutsche Bank wrote in a weekly report issued Friday. “This should mean that when the [Federal Reserve] eventually tightens monetary policy, it will not derail the rally in precious metals.”

Gold thrives on inflation fears, as it is considered the ultimate store of wealth.

… Meanwhile, the dollar index, which measures the greenback against a basket of six currencies, recovered to 74.847 from 74.683 late Thursday, when it had dipped as far as 74.617 — the lowest since December 2009.

A weaker dollar supports gold, which is usually priced in the U.S. currency. “Ongoing weakness in the U.S. dollar should sustain the uptrend in precious metal prices,” analysts at Deutsche Bank said.

[source]

By Simon Kennedy and Rebecca Christie
Apr 15, 2011 (Bloomberg) — Group of 20 finance chiefs moved closer to establishing an early-warning system designed to highlight and rectify flaws in the world economy to ensure more balanced growth.

… The G-20 wants to smooth uneven trade and investment flows that helped spark the credit crisis by being faster to spot flaws in individual economies and prescribing policies to fix them before they roil the global economy. China’s concern that it’s being bullied into letting its currency appreciate faster is slowing discussions, and the final agreement may still suffer from the lack of an enforcement tool.

… Officials are trying to avoid a repeat of the last expansion when trade imbalances opened, which then helped spark the deepest global recession in seven decades. China and other Asian nations recycled the dollars from their trade surpluses into U.S. bonds, depressing global yields, while U.S. consumers relied on the low interest rates to drive an unsustainable global spending spree and record trade deficit.

… At talks in Paris in February, officials agreed to monitor indicators, including budget deficits, the external imbalance and private savings rates. In a sign of the discord that still simmered today, the Chinese obtained omission of foreign exchange reserves and diluted the final language so that it mentioned the current account’s components and not its title.

… Today’s agreement will outline how G-7 economies will be assessed using four gauges, one focused on the specific economy and three forms of comparison to other countries, the official from a G-20 country said on condition of anonymity. Countries breaching two of the four benchmarks will be identified and subjected to more monitoring, the official said.

[source]

RS View: Bureaucrats are proficient at cluttering up what a simple, internationally open physical gold market can do efficiently and automatically. Don’t worry, they’ll eventually stumble onto it at the trail broadens into a highway through evolutionary effects — perhaps characterized as a natural human migration at this time of the economic season.

Friday, April 15 (The Associated Press) — Failure by Congress to raise the U.S. debt limit “could plunge the world economy back into recession,” President Barack Obama declared Friday, and he acknowledged that he must compromise on spending with Republicans who control the House to avoid such a crisis.

… Obama urged swift action, saying he doesn’t want the United States to get close to a deadline that would destabilize financial markets. He said he was confident Congress ultimately would raise the limit.

“We always have. We will do it again,” said Obama, who voted against raising the debt limit as a freshman senator from Illinois.

… He warned of dire consequences if the debt ceiling is not raised before it hits its limit of $14.3 trillion; the administration says the latest Congress could possibly act is by early July. But Obama said some longer-term questions about where the government trims its operations will have to be left until after the 2012 presidential election.

… The 2012 presidential race is the first in which the tea party coalition, which rails against the growth of government, excessive spending and Obama’s presidency, will play a major role.

Obama said his views differ from the tea party in terms of the proper role of the government in society, but he also said “anytime the American people are actively engaged in the political process, it’s good.”

[source]

More Record Highs for Gold Amid Inflation Fears

Gold extended to new all-time highs going into the end of the week, spurred by risk aversion in the face of a myriad of concerns, but inflation seems to once again be in the spotlight. Silver continues to charge ahead as well, setting new 31-year highs, within striking distance of $43.

CPI data out of both the US and China, highlights persistent price risks. China’s CPI came in at a hot 5.38% y/y, a new 32-month high. This raises expectations that the PBoC will continue to ramp up measures to reign in inflation. Meanwhile, US CPI rose 0.5% in March. While in line with market expectations, it remains a disturbingly brisk annual pace. Energy prices were up 3.5% in the month and food prices rose 0.8%. You strip out those components and core CPI barely moved the needle, up just 0.1%.

The data fit the Fed’s narrative that ‘core’ inflation is essentially nonexistent and is therefore not a concern. It has been chairman Bernanke’s position that the recent food and energy inflation is “transitory”, again he professes to be unconcerned. Bernanke is more worried about inflation expectations and according to him they remain “anchored”. However, as PIMCO’s Richard Clarida pointed out, “We really don’t know if longer-term inflation expectations are well anchored. We just know they tend to adjust slowly to actual inflation.” The recent acceleration in the uptrend might suggest that the anchor-line is becoming increasingly taught and may be in jeopardy of breaking. Nonetheless, the core CPI print further eroded expectations of an impending Fed rate hike. That translates to further dollar weakness, which in turn underpins the precious metals.

Just as a matter of perspective, whenever I post a graph of the “official” inflation rate, I also like to post the inflation rate according to John Williams. His firm, Shadow Government Statistics, calculates CPI based on methodologies in place in 1980. As Mr. Williams points out, “methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.”

With even more ferocious political battles on the horizon over the FY2012 budget and a hike in the debt ceiling, we face legislative gridlock once again. In the absence of any real courage in Washington that might put America on the path toward fiscal solvency, we risk leaving our collective fate in the hands of our central bank. Without any meaningful direction from our Representatives within the beltway, the Fed will attempt to execute its dual mandate via monetary policy, unfettered by fiscal policy. They will keep interest rates near 0% and may well continue to print and pump liquidity with abandon. That does not bode well for the dollar at all.

By Anthony Mirhaydari
4/13/2011 (MSN Money) — With turmoil overseas and energy prices on the rise, investors are worried. They’re worried about geopolitical risk. They’re worried about a falling dollar. And they’re worried about inflation becoming entrenched as the Federal Reserve continues to administer its cheap-money medicine despite signs of inflation.

As a result, gold is on the move again… So how high can it go?

Believe it or not, some analysts are calling for prices to move close to $5,000 — not immediately, but sooner than you may think.

… It’s all about supply and demand. The driver is increased wealth in Asia. The evidence shows a strong relationship between rising incomes in places like China and India and increased gold demand. Much of this is cultural…

David Davis, an old-hand mining engineer in South Africa who tracks precious metals for SBG Securities, notes that even poor peasant farmers in India, if the monsoons are good and the crops are bountiful, will splurge on a grab of gold. These people may not understand the value of interest rate compounding or portfolio diversification, but they know that gold is an ancient and universally accepted store of value.

… After peaking in the early 1970s, South African gold production is dropping off. In 1966, the country produced 78% of the world’s gold. Now, the figure is around 10%. The high-quality ores that came out of the Witwatersrand and Free State fields are gone. All that’s left is of lower quality and deeper down, forcing costs higher. … Also, engineers just are not finding as many rich new seams of ore in the Earth’s crust… total discoveries have been in a steady downtrend since 1980, despite a massive increase in exploration budgets during the same period.

… All of this is pushing up the cost of production — which will act as a hard floor to gold prices going forward and crimp the availability of supply just as Asian consumers get heavy pockets. Over the next few years, Davis is looking for the industry’s global all-in costs associated with mining — including equipment and exploration expenditures — to move toward $1,600 an ounce. And as production drops off past 2014, costs will only accelerate to the upside.

That brings us back to the big question: How high will gold go?

For an extreme upside forecast, Société Générale strategist Dylan Grice notes that if America, out of frustration with the Fed’s failures, were to return to the gold standard and restore the dollar’s convertibility into gold, prices would surge to nearly $8,000 an ounce. This is the price at which the U.S. monetary base, which has jumped from around $800 billion before the financial crisis to more than $2.4 trillion now, would be fully backed by available gold.

[source]

By Pham-Duy Nguyen
April 15, 2011 (Bloomberg) — Gold rose to a record in New York on speculation that the sovereign-debt crisis in Europe will worsen, boosting the appeal of the precious metal as an alternative to currencies.

The price of gold reached an all-time high of $1,486.40 an ounce after Moody’s cut Ireland’s credit rating by two levels to the lowest investment grade, eroding the value of the euro. The dollar, while up today, is headed for the third straight weekly decline against a basket of currencies as Congress debates measures to reduce a record government deficit.

“Gold has become the currency of choice,” said Lannie Cohen, the president of Capitol Commodity Services Inc. in Indianapolis. “The debt crises in Portugal and Ireland are getting worse. The U.S. has its own deficit problems. There’s just so much debt that the U.S. will have to continue quantitative easing to carry the deficit.”

… The precious metal may rise to $1,750 this year in anticipation of “the dollar getting ready to fall off the face of the earth,” Cohen said.

[source]

By Vincent Del Giudice
April 15, 2011 (Bloomberg) — Global demand for U.S. stocks, bonds and other financial assets fell in February from a month earlier, the Treasury Department said today.

Net buying of long-term equities, notes and bonds totaled $26.9 billion during the month, compared with net buying of $51.1 billion in January, according to a report issued in Washington.

… The economy relies on foreign investment to finance its budget and trade deficits, and the Treasury’s reporting on long- term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by government agencies.

… The government is forecast to report a record annual budget deficit for fiscal 2011. The White House and Congress last week reached agreement on a spending plan for the current fiscal year, which started Oct. 1, and are now working on a plan extend the statutory debt limit by next month.

“Purchases of U.S. securities likely jumped in March with the Japan earthquake,” Rupkey said. “We need to continue to monitor purchases here, especially of U.S. Treasuries, as the inability of U.S. politicians to come up with a credible long- term plan to reign in deficit spending could eventually make global savings fund managers look elsewhere for a new safe home,” he said.

[source]

By Jan Harvey
April 15, 2011 (Reuters) — Gold hit record highs on Friday as euro zone sovereign debt concerns, worries over inflation and expectations US monetary policy will stay accommodative all conspired to lift the precious metal.

Silver is also holding near its earlier 31-year high at $42.68. The metals retreated from highs as the euro slipped in mid-afternoon trade, but regained traction after US consumer confidence data pulled the dollar from highs.

… “Gold is still in a healthy upward trend,” said LGT Capital Management analyst Bayram Dincer. “You have so much uncertainty over whether the US economy will recover, what the next monetary policy step will be.”

“I don’t think real interest rates will be (a drag) in the short term or medium term for the gold price,” he added. “As long as the opportunity cost for gold holding is low, we will see higher prices.”

… While in the short run gold is sensitive to any move lower in the euro, in the longer term these fears are set to support the precious metal.

“The market has been reacting to (the credit issues in peripheral Europe) by looking for ways to protect themselves from these types of risks, and gold is seen as a way to do that,” said Deutsche Bank analyst Daniel Brebner.

[source]

Gold remains generally well bid, having established a new record high at 1479.39 in overseas trading. Silver continues to set new 31-year highs, presently 42.69. Persistent dollar weakness, inflation concerns, geopolitical turmoil and war in MENA, an ongoing nuclear crisis in Japan and a worsening debt crisis in Europe are all factors that have conspired to bolster the precious metals.

US CPI +0.5% in Mar, in line with expectations. Core +0.1%, below median.

US Empire State index rose to 21.7 in Apr, above market expectations, vs 17.5 in Mar.

US industrial production +0.8% in Mar, beating expectations. Cap use 77.4%.

by Shivom Seth
Thursday, 14 Apr 2011 (Mineweb) — Interest in gold from individual investors, particularly in India and China has risen significantly in the last few years. …… Part of the reason for this is continued concern about the global economy and, in particular the massive debt burden being borne by the US, Japan and Europe.

… Zhou Ming, deputy head of ICBC’s precious metals department was quoted as saying that China’s largest bank had sold nearly 250,000 ounces of physical gold in January 2011, which was equivalent of 50% of all the bullion ICBC [the world's largest bank by market value] sold last year.

… That is not to say that India is lagging behind. … Paul Walker, chief executive officer of GFMS reportedly said that in India, a huge amount of demand is a cultural and social imperative. In China, on the other hand, the imperative around weddings is not that strong, he said.

India’s total demand exceeded China’s by 383.5 tonnes last year, narrowing from 496.5 tonnes in 2001, the GMFS data has shown. The report has also noted a growing shift toward physical gold by small investors, all of which will ensure that investment in the precious metal will be more solid in the coming months and less prone to short-term selloffs.

[source]

By Myra P. Saefong and Claudia Assis
April 14, 2011 (MarketWatch) — Gold futures on Thursday closed in on a record, advancing more than 1% Thursday as weakness in the U.S. dollar, concerns about Greece’s post-bailout finances and fears of inflation boosted investment demand for the metal.

Gold for June delivery added $16.80, or 1.2%, to $1,472.40 an ounce on the Comex division of the New York Mercantile Exchange, less than $2 from its April 8 settlement record.

“For the time being, the traditional inverse relationship between the dollar and bullion is back in play with the prospect of wider [U.S./European Union] rate differentials set to provide further upside momentum to gold and silver,” analysts at TheBullionDesk.com said in a note to clients.

… A weaker dollar is beneficial for commodities in general, but greenback weakness plays an even more significant part in gold trading, as the metal often trades on concerns about currency debasement.

[source]

4/15/2011 (Reuters) SANYA, CHINA — The BRICS group of emerging-market powers kept up the pressure on Thursday for a revamped global monetary system that relies less on the dollar and for a louder voice in international financial institutions.

The leaders of Brazil, Russia, India, China and South Africa also called for stronger regulation of commodity derivatives to dampen excessive volatility in food and energy prices, which they said posed new risks for the recovery of the world economy.

Meeting on the southern Chinese island of Hainan, they said the recent financial crisis had exposed the inadequacies of the current monetary order, which has the dollar as its linchpin.

What was needed, they said in a statement, was “a broad-based international reserve currency system providing stability and certainty” — thinly veiled criticism of what the BRICS see as Washington’s neglect of its global monetary responsibilities.

… “The world economy is undergoing profound and complex changes,” Chinese President Hu Jintao said. “The era demands that the BRICS countries strengthen dialogue and cooperation.”

In another dig at the dollar, the development banks of the five BRICS nations agreed to establish mutual credit lines denominated in their local currencies, not the US currency.

[source]

RS View: If you’ve been reading my comments through the years, none of this comes as any surprise to you, and you will also already have a good feel for exactly where it is heading. Good for you!

by Michael Patterson, Zhang Shidong and Allen Wan
April 14, 2011 (Bloomberg) — China’s biggest investment bank is turning “cautious” on the country’s stocks, just as six of its overseas rivals and the manager of the largest mutual fund say it’s time to buy.

China International Capital Corp. predicts slowing economic and earnings growth will limit equity gains…. “We’re turning cautious,” Hao Hong, the global equity strategist at CICC, said in an April 13 interview in Shanghai. “Economic growth is going to slow down in the coming months.”

CICC’s reduced outlook follows recommendations to boost Chinese stock holdings in the past month from Goldman Sachs Group Inc., JPMorgan Chase & Co., Macquarie Group Ltd. and HSBC Holdings Plc, along with forecasts for further gains of at least 14 percent by Credit Suisse Group AG and Deutsche Bank AG. Pacific Investment Management Co. [Pimco], which oversees $1.2 trillion, said this week it has a “large overweight” position in China.

… Besides monetary tools, the government has deployed subsidies, state-food reserves and the threat of price controls to counter inflation, which Premier Wen Jiabao has described as a potential threat to social stability in the nation of 1.3 billion people.

“It’s time to turn defensive,” Hong said.

[source]

By Kevin Yao and Langi Chiang
Thu Apr 14 (Reuters) — China’s foreign exchange reserves soared to a record of more than $3 trillion by end-March, while its money supply growth blew past forecasts, threatening to aggravate the nation’s inflation woes and trigger more policy tightening.

Chinese banks extended 679.4 billion yuan ($104 billion) in new local currency loans in March, while the broad M2 measure of money supply rose 16.6 percent from a year earlier, both above market expectations.

Tapping the brakes on money and lending growth has been a crucial part of Beijing’s campaign to rein in inflation, which probably hit a 32-month high of 5.4 percent in the year to March, according to local media reports. After making progress at the start of the year in mopping up excess cash, the People’s Bank of China appeared to lose some ground in March.

… the dollar’s broad weakening against major currencies in recent months meant that the value of China’s existing reserves, which is expressed in dollars, was bound to increase. The dollar hit a fresh 16-month low against a basket of currencies on Thursday as expectations grew that the Federal Reserve would keep monetary policy loose for some time.

China’s vast forex reserves are often seen as a sign of the strength of its economy, stemming in large part from its vast trade surplus, but the rapid growth translates into money creation and additional inflationary pressures at home.

“There have been stronger expectations of yuan appreciation and faster hot money inflows in the first quarter,” said Li Jie, head of China forex reserves research center at the Central Universify of Finance and Economics in Beijing.

[source]

by Sergei Balashov
April 14, 2011 (ProactiveInvestors) LONDON — Gold prices rose in late afternoon as safe haven demand strengthened following the jobless claims report from the US Department of Energy. The number of initial applications for unemployment benefits unexpectedly rose 27,000 to 412,000, crossing the 400,000 threshold for the first time in five weeks to suggest a slowdown in the recovery in the job market.

In addition to that, today’s update on the US producer price index (PPI) showed that core PPI growth accelerated from 0.2 percent in February to 0.3 percent in March. The data boosted gold’s appeal as an inflation hedge.

Traders are now looking to tomorrow’s update on consumer prices.

[source]

Gold futures rally triggered by weaker dollar
Thu, Apr 14 2011
(FXstreet.com) — The yellow metal is on the rise in early trading over North America, as the recently worse-than-expected US jobs report helps to weaken the dollar against its major rivals. The most active gold contract for June delivery reached a fresh daily high of $1468.80/oz recently before setttling just underneath at time of writing.

Broad uncertainty due to the debt troubles in both Europe and the US remain the main driver of gold futures, while the spector of inflation in key markets helps support safe-haven demand.

[source]

Gold Underpinned by Rising Debt Worries

It has been barely a week since Portugal finally asked for its bailout, after the government of PM Socrates collapsed in the wake of Parliament’s rejection of further austerity measures. This puts Portugal on the bailout path of Greece and Ireland before it, and yet the market is signaling this morning that at least Greece is going to need further aid. This could mean further money transferred from more fiscally responsible members of the EU, further austerity for Greece and/or debt restructuring. Keep in mind that ‘debt restructuring’ is just a more polite way of saying ‘default’. Greece will default on the terms of its debt and that debt will be restructured with new terms that may or may not allow Greece to eventually repay it.

German Finance Minister Wolfgang Schaeuble told the German daily Die Welt that Greece may have to seek debt restructuring. While Greece itself and the IMF continue to maintain that a debt restructuring will not be necessary, the market has heard this kind of talk before and is understandably skeptical. Greek bonds got hammered today, driving the 2-year yield above 17% and the 10-year yield above 13%.

Adding insult to injury, Greece released unemployment data today, which showed that the jobless rate climbed to 15.1% in January, up from 14.8% in Dec-10. As the Greek government contemplates additional budget cuts in the hopes of meeting their deficit reduction targets, many analysts expect the number of unemployed to continue to grow. Clearly austerity translates into pain for the average person. If Greece does indeed require further aid or debt restructuring, that will come with strings attached — in the form of even more austerity. There is only so much pain the Greek voters will endure. That can be said of the Portuguese as well, hence the need for a snap-election there in June.

A resurgence of the Greek crisis comes at an inconvenient moment as the EU negotiates the terms of Portugal’s bailout. The core members of the EU, that are primarily footing the bill for the past excesses of the periphery, are already worried that they are throwing good money after bad. The erosion of the situation in Greece drives that point home. If we’re going to provide hundreds of billions of euros to bailout countries and they are going to end of needing to restructure their debt anyway, why not cut out that costly preliminary step and go right to restructuring?

The answer of course lies in the ‘kicking the can down the road’ analogy. Some officials within the the EU and IMF would suggest that allowing Greece to default a year ago would have cost far more than the €110 bln in bailout funds. They probably thought they’d have more than a year, but it was a calculation that the additional time bought was worth €110 bln. The fear was that allowing Greece to default would have set the dominoes toppling across southern Europe, calling into question the tenability of the Union itself. So what do you do about Greece, Portugal and Ireland in the face of anti-bailout political push-back from Germany and France? Do you ‘kick the can’ again? What do you do if the fourth and third largest economies in Europe — Spain and Italy — ultimately need a bailout too. I’m not sure that can can even be kicked. At that point, massive printing of euros to ‘save’ the EU may become necessary in some people’s view, but it seems unlikely that Germany would allow that path to be taken.

President Obama laid out his plan on Wednesday to put the United States on a more sustainable fiscal path, saying, “Our debt has grown so large that we could do real damage to our economy if we don’t begin a process now to get our fiscal house in order.” His proposal also looks to cut $4 trillion from the deficit over time, but the path is in stark contrast to the plan being forwarded by House Republicans. The battle-lines have been drawn and the debate over the competing budget proposals and a hike in the debt ceiling is likely to make the recent contentious fight over the remainder of FY2011 — that nearly shut down the government — look like child’s-play. There seems to be little common-ground, so in the likely absence of any meaningful compromise, it’s worth remembering that America has a long history of trying to print (inflate) its way out of debt.

Gold is consolidative this morning as renewed debt troubles in Greece weighed on the euro, lifting the dollar off its recent lows.

Greece unemployment rose to a record high 15.1% in Jan (nice lag). The bond market got hammered today, driving 2-year yields above 17% and 10-year yields above 13%, after German FinMin Schaeuble said Greece may have to seek debt restructuring.

US initial jobless claims +27k to 412k in the week ended 09-Apr, above market expectations. Previous week revised higher.

US PPI +0.7% in Mar, below expectations around +1.0%. Core +0.3%, just above expectations.

By Myra P. Saefong and Sarah Turner
April 13, 2011 (MarketWatch) — Gold futures closed higher for the first time in three sessions Wednesday, snapping back from a quick dip in late trading, as a steep decline in prices over the past two trading sessions lured buyers.

Gold for June delivery climbed $2, or 0.1%, to close at $1,455.60 an ounce on the Comex division of the New York Mercantile Exchange. The contract had tallied a loss of $20.50 in the past two sessions.

In the final hour of trading Wednesday, gold briefly touched a low of $1,452. Analysts blamed the move on a spike in the U.S. dollar…. “Look at the dollar — it’s rallying and breaking away from the 75 mark,” said Charles Nedoss, a senior market strategist at Olympus Futures, referring to 75 as a “critical level” for the dollar.

… Even though gold prices have declined recently, the market has held on to Tuesday’s 10-day moving average of $1,449.30, said Nedoss. A close above that 10-day moving average Wednesday is “very positive and bodes well for higher prices,” he said.

… “We do not expect heavy losses here given continuing economic uncertainty, the ongoing unrest in the [Middle East and North Africa] region, renewed euro-zone debt fears and, most importantly, short-term inflation pressures due to high food and energy prices,” Andrey Kryuchenkov, an analyst at VTB Capital, said in a note to clients.

[source]

(Money and Markets) — In July of 1944, 730 financial bigwigs from 44 nations met at the Mount Washington Hotel in Bretton Woods, New Hampshire for a conference in which they recreated the economic world… They established the U.S. dollar as the world’s reserve currency.

… Now, 67 years later, another conference has just concluded that gives several observers flashbacks to Bretton Woods. Like Bretton Woods, it was held at the Mount Washington Hotel. Also like the original, many of the financial world’s movers and shakers were invited.

The guest list is said to have included former Fed Chairman Paul Volcker, former British Prime Minister Gordon Brown, and former chair of President Clinton’s Council of Economic Advisors, Joseph Stiglitz.

The conference organizer? None other than George Soros — the internationalist and mega-investor who, in his own words, sees a pressing need to “rearrange the entire financial order.”

Soros said that the U.S. dollar is already losing its status as the world’s dominant currency, increasingly being replaced by the euro, gold, oil and other commodities.

… This is precisely why tangible asset and tangible asset stocks are on a rampage. More than that: This is why you can expect this huge, historic rally in oil, gold, silver, food and basic materials to not only continue but to accelerate in the weeks and months to come.

[source]

by Gary North
April 13, 2011 (MarketOracle) — If you did what Bill Bonner and I have been recommending for a decade, you own gold. Bonner began promoting the purchase of gold in the year 2000. I strongly promoted this for my subscribers after September 11, 2001, when the Federal Reserve began pumping up the monetary base in earnest. Neither of us has ever stopped recommending holding money in gold.

… I am writing this for those readers who did what I recommended, have quadrupled their money (on paper and in digits), but who may be getting cold feet.

… Mark Faber, who recommends owning gold as a hedge against a declining dollar, recently wrote this: “In my opinion the Fed funds rate should be at 5% . . . That will provide real interest rates. I don’t think the Fed will increase interest rates to a positive real rate. So, I’d say to an investor, he should have at least 20 to 30 percent of his money in precious metals.”

… WHY GOLD COINS?

The problem with today’s economy is that it is built on promises and trust. It is therefore built on debt. In the United States, the financial promises always come back to these:

1) The Federal Reserve System will remain the lender of last resort.
2) The Federal Deposit Insurance Corporation (FDIC) will pay off all bank accounts up to $250,000.
3) The U.S government stands behind the FDIC’s promise with a $600 billion line of credit.
4) The government can get this money from the Federal Reserve System, if necessary.

The problem with these promises is this: the ultimate insurer – the FED – can fulfill its obligations in a deflationary crisis only by hyperinflation. That means that the only sure guarantee against the systemic failure of the American banking system is the destruction of the dollar.

If we get the latter, do you want promises to pay gold, which can be settled legally by the payment of digital dollars? Or do you want coins where you can get your hands on them? Read more at…

[source]

By Claudia Assis
April 13, 2011 (MarketWatch) — Gold is likely to break through $1,600 an ounce before the end of the year as investors continue to be concerned about inflation and loose monetary policy, metals consultancy GFMS said Wednesday.

“The prospects for gold prices this year remains bright,” said Philip Klapwijk, GFMS chairman, in a news release. “Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly.”

[source]

AND…
April 13, 2011 (IB Times) — … In addition, with the spotlight also shining on the state of government finances, there is every reason to believe that investors will remain focused on the gold market, Klapwijk said. As a result, Klapwijk noted that he would not be surprised to see if gold breaks through $1600 a troy ounce before the end of the year.

The research firm also expressed concerns that the market may be approaching a turning point are “still premature,” with growing evidence that buyers are adjusting to higher prices.

[source]

AND…
by Javier Blas
April 13, 2011 (Financial Times) — … The official sector, a group that includes central banks and sovereign wealth funds, bought 73 tonnes of gold on a net basis, a “remarkable change of direction for a market that has been used to absorbing substantial volumes of gold sold by central banks over the last two decades,” the consultancy said.

GFMS estimated that central banks had not been net buyers of gold since 1988. It said the official sector’s sales accounted for about 16 per cent of global supply per year from 1989 to 2009. The consultancy expected another strong year of official sector buying, potentially rising to 100 tonnes and setting a new 22-year peak.

[source]

by Clifford Alvares, interviewing Jim Rogers
April (Outlook Money Magazine) — In an interview with Clifford Alvares, the revered investment guru shares his wisdom as he talks about the future direction of gold prices, some cardinal rules to go by, and his very own profit-booking strategy. Excerpts:

Is there enough upside in gold if you invest now?

I am not a great timer of the market, but I certainly expect gold to go higher over the next decade, in excess of $2,000.

How much gold should one own in his portfolio?

That’s impossible to answer. People should have owned 100 per cent of their portfolio in gold in the last decade. It depends on what’s going to happen. If you don’t know anything about gold, you probably shouldn’t own any. If you know a lot, your portfolio will reflect your view of gold. I own few stocks. I mainly own commodities. But I think I know a little bit about commodities. People who cannot spell commodities shouldn’t own any.

Do you have a target for gold?

I will own gold till the mania sets in. I hope I am smart enough to recognise it when it comes and sell it then. I will see when it’s a bubble, wait a while for the bubble to burst, and then I will sell. I hope I am smart enough not to sell it until the bubble occurs. But, who knows that price? It could be any absurd price.

How much of your portfolio is in gold?

I don’t know. I don’t know how big my portfolio is. I don’t have a committee I have to report to. Anybody who knows how much money he has does not have enough money.

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Gold Firms as Market Awaits President’s Deficit Cutting Plan

Gold is higher this morning amid persistent dollar weakness as the market eagerly awaits the details of the President’s plan to deal with America’s long-term fiscal issues. President Obama will deliver a speech at 13:35 ET today to lay out his proposals that will reportedly focus on “shared prosperity and shared responsibility,” (ie spending cuts & tax hikes). In the wake of the recent budget battle and in anticipation of the pending fight over the debt ceiling, speculation is that Obama will largely endorse the recommendations of the Simpson-Bowles commission. However, some are guessing that the speech will be more about “what won’t pass through his White House“, basically the Paul Ryan plan that was unveiled about a week ago. Once the battle lines are clearly drawn (or not), the fight over the FY2012 and the debt ceiling will begin in earnest, and is likely to make the just-ended FY2011 battle look like a little playground skirmish.

The IMF released their half-yearly Financial Stability Report today, concluding that the global financial system remains fragile. The IMF pointed out that, “Nearly four years after the start of the global crisis, confidence in the banking system has yet to be fully restored,” and suggested that it is time to start fixing the causes of that crisis. The IMF recommends: Increased transparency through more credible, rigorous stress tests. Higher capital buffers. And concrete plans to restructure or resolve failing banks, where necessary.

The IMF warned that the policies put in place over the past four years to treat the symptoms of the crisis have resulted in a $3.6 trillion “wall of maturing debt” that comes due over the next two years. This is the net result of trying to borrow and spend our way out of a debt crisis. You end up with a bigger pile of debt and all you can hope for is that you’re in a better fiscal place to start paying that debt down. Arguably the world is not in a materially better place, but the proverbial ‘piper’ still must be paid…unless of course governments want to start having a serious conversation about debt restructuring and haircuts.

The IMF seems particularly worried about the debt situation in Europe, which has taken a decided turn for the worse in the wake of the collapse of the Portuguese government and their much anticipated request for a bailout. Reuters reported today that delays in recapitalising Spain’s ailing savings banks — the cajas — have overshadowed EU efforts to convince markets Spain will not be the next in line for a bailout. If Spain ultimately does need a bailout, it is doubtful that the EU and IMF will be able to come up with the necessary funds.

Amid intensifying global pressure to reign in inflation with tighter monetary policy, the aforementioned ‘wall of debt’ is likely to get refinanced at ever-higher interest rates, further intensifying the drag on the global economy. Faced with the price risks versus growth risks dilemma once again, I would fear that governments and central banks maintain, or revert back to, über-easy policy. Another kick of the can down the road that will only make the ‘wall of debt’ higher when the next round of maturities roll around. This would be bad for global currencies, increasing the demand for hard assets like gold and silver.

A newly released survey of central bank reserve managers is reflective of this very reality. It indicates that central banks are increasingly viewing gold as a “safe” alternative “at a time when rising sovereign debt levels and super-loose monetary policy from the world’s major central banks sapped confidence in more traditional reserve currencies.” Central banks became net buyers of gold in 2010 and 70% of respondents to the survey said “central banks were likely to remain net buyers of gold given the level of uncertainty about sovereign debt.”

by James Moore
April 13, 2011 (Fastmarkets) — Trade in the precious metals, as with the broader markets, proved volatile yesterday as traders and investors reacted to a mixed bag of economic data plus the ongoing issues of Eurozone debt, inflation and unrest in the MENA region.

… Dip buying has again supported the precious metals overnight with gold finding further support around $1450 and silver the $40 mark; platinum is currently up 0.4% and palladium 0.5%. Short-term the complex; particularly silver, remain over-extended and would benefit from further long liquidation. But, it is more likely we will see the metal consolidate rather than correct lower with the mix of MENA, Eurozone debt and inflation drawing further dip-buying interest while bearish dollar sentiment continues to signal a challenge towards $1500 by gold $45 in silver.

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Gold and silver are better this morning, underpinned by persistent weakness in the dollar. Expectations of tighter Fed policy that emerged in the wake of the robust Mar nonfarm payrolls number has all-but evaporated, weighing on the greenback and bolstering the precious metals.

US Treasury reported a budget deficit of $188.2 bln in Mar, near expectations, up dramatically from -$65.4 bln a year-ago.

US retail sales +0.4% in Mar, below market expectations. Ex-auto +0.8%.

An annual survey of central bank reserve managers showed they are increasingly turning to gold as a “safe” reserve asset at a time when rising sovereign debt levels and super-loose monetary policy from the world’s major central banks sapped confidence in more traditional reserve currencies. More than 70% of respondents believe central banks will remain net buyers of gold.

China’s official Xinhua news agency reported that there will likely be at least two more interest rate hikes in Q2 and another increase in banks reserve requirements is being considered as well, as the government continues its efforts to counter persistent inflation.

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.”

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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.

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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.

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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.

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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.

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