April 18 (Bloomberg) — John Hathaway, senior managing director of Tocqueville Asset Management and manager of the Tocqueville Gold Fund, talks about the gold market, investment in gold-mining companies and the decision by University of Texas Investment Management Co. to convert the endowment fund’s gold investments into bullion. Hathaway speaks with Pimm Fox on Bloomberg Television’s “Surveillance Midday.” — [source]

By Claudia Assis
April 18, 2011 (MarketWatch) — Gold futures settled at a record Monday, shooting higher after ratings agency Standard & Poor’s revised its outlook for U.S. debt to negative from stable, casting a pall over the finances of the world’s largest economy.

Gold for June delivery added $6.90, or 0.5%, to $1,492.90 an ounce on the Comex division of the New York Mercantile Exchange. It’s the latest in a string of records for gold, which last reached a record Friday when it settled at $1,486 an ounce.

Early Monday, the precious metal had slipped in electronic trading, but reversed that loss after the ratings announcement.

“U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures” more than two years after the beginning of the financial crisis, credit analyst Nikola Swann said.

… With lawmakers wrangling about the U.S. budget and debt levels, S&P’s move was expected, said Carlos Sanchez, a director at CPM Group in New York.

“That hasn’t provided a great deal of confidence for investors,” he said. If the political showdown continues, “I wouldn’t be surprised to see gold moving above $1,500 this week or even higher in early May.”

[source]

By Paul R. La Monica
April 18, 2011 (CNN|Money) — Gold and silver shot up Monday after the credit rating agency spooked Wall Street by revising its outlook for the United States’ debt to “negative.”

… “The S&P report is one more reminder that the problems just don’t stop with this worldwide economic dilemma. It is one thing after another,” said Terry Hanlon, president of Dillon Gage Metals, a precious metals trading firm based in Dallas.

… “Lowering the outlook on the U.S. to negative may be a wake up call for politicians to get their act together, raise the debt ceiling and address longer-term spending,” said Eric Viloria, senior currency strategist with FOREX.com, a trading firm based in Bedminster, N.J.

… Debt issues aside, some said that as long as the Fed keeps interest rates near zero — a scenario that’s likely to persist for the remainder of the year and possibly well into 2012 — the dollar will continue to be weak. And that’s good for gold and silver bulls.

“I would only take profits in precious metals when there’s stability in the currency markets,” said Jeffrey Sica, President and Chief Investment Officer of SICA Wealth Management in Morristown, N.J. “But the dollar remains in trouble. It’s still very vulnerable as long as the Fed is not going to raise rates.”

… “The metals trade is all about a loss of confidence in the government,” Sica said. “To me, it’s the perfect environment for precious metals to keep reaching new highs.”

[source]

Gold Nears $1500

Gold moved within striking distance of $1500 in early NY trading on Monday, establishing a new record high at $1497.23. The latest upside extension came in the wake of S&P’s surprise move to downgrade the US sovereign debt outlook to “negative”. While the ratings agency affirmed the current debt rating at AAA, they warned US debt was vulnerable to a downgrade due to “material risk” that policy makers won’t be able to reach a compromise on “medium- and long-term budgetary challenges.” Given the contentious fight over a paltry $38 billion for the remainder of FY2011, that seems like a pretty safe assumption. Whether a major ratings agency would actually downgrade America remains to be seen.

The White House and the Treasury Department were quick to hit back. White House economic adviser Austan Goolsbee called the S&P downgrade a “political judgement.” Meanwhile a Treasury Department spokesperson said, “We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation.” Again, only time will tell, but the divide between the Obama plan to cut the deficit and the one being forwarded by House Republicans is a wide one with seemingly little common ground.

Despite the S&P downgrade, the dollar is being supported by renewed weakness in the euro. The single currency has been weighed upon by an intensifying of the sovereign debt crises in the eurozone periphery. With yields surging higher, it is looking more and more like a restructuring of Greek debt is going to be necessary, less than a year after the country received a €110 bln euro bailout. A well-connected market source in Germany confirmed for me on Friday that the EU and IMF were merely looking to buy time with that bailout, although I suspect they were expecting to get a little more than a year’s worth of time for €110 bln. That sentiment was echoed by an unnamed Greek minister in the German daily Die Welt, calling a Greek restructuring “inevitable.” German government officials seem to be conceding that Greece will seek to restructure its debt (i.e. default) over the summer.

Funds the flowed into the euro in anticipation of the recent ECB rate hike, and because of rising expectations that the Fed is not going to tighten anytime soon, are now just as quickly flowing out of the single currency. Interestingly, despite and even greater likelihood that the Fed will maintain its uber-easy policy stance and now a negative outlook on US sovereign debt from a major ratings agency, the dollar index has jumped to a 2-week high. However, not surprisingly gold has pushed to new record highs as a percentage of flows back and forth between various fiat currencies continue to peel off with each shift in the FX wind to a store of value that is a little more reliable.

by Deborah Zabarenko
Monday, 18 Apr 2011 Reuters) — The 1872 Mining Law, signed by President Ulysses S. Grant, allows mining companies — including foreign-owned ones — to take about $1 billion a year in gold and other metals from public lands without paying a royalty, according to a report by the nonprofit Pew Environment Group.

“The law was enacted … to encourage the development of the West and … rewarded those people who trekked across the frontier and gave them the right to mine gold, silver, whatever other valuable metals they could find on public land in unlimited amounts for free,” said Pew’s Jane Danowitz.

While the law has remained largely unchanged, the mining industry has expanded so that now multinational corporations still enjoy “basically free access to a majority of public lands,” Danowitz said in a telephone interview.

She said the government estimates these companies legally take at least $1 billion a year worth of gold, uranium and other metals from public lands without compensating U.S. taxpayers.

[source]

RS View: As gold takes on a higher public profile, the mining operations will surely become the top of the politicians’ and the tax man’s hit parade.

April 18, 2011 (IBTimes) — Gold stayed above $1480 per ounce in Asian and European trading, and then experienced a sudden spike $15 upwards to new record prices yet again at the beginning of the New York trading session. Prices take support from worries over euro zone debt and inflation in Asia after China opted to raise reserve requirements again.

[source]

Gold hits record after S&P cuts US outlook
April 18, 2011
LONDON (Reuters) — Gold prices hit a record $1,496.09 an ounce on Monday after rating agency Standard & Poor’s revised its outlook on the United States to negative.

Spot gold was bid at $1,494.70 an ounce at 1313 GMT, against US$1,483.75 late in New York on Friday.

[source]

ETFs allow investors to buy a share of the market in gold or wheat or any commodity without buying the product itself

by Phillip Inman
17 April 2011 (Guardian.co.uk) — … The Financial Stability Board, which was created in the aftermath of the financial crisis to monitor financial transactions, said the rapid growth of exchange traded funds (ETFs) into a $1,200bn business was unnervingly like the derivatives market in sub-prime mortgages before the credit crunch in 2007.

Mario Draghi, the chairman of the FSB, said ETFs had all the hallmarks of a bubble waiting to burst and needed close monitoring by international regulators. “ETFs are reminiscent of what happened in the securitisation market before the crisis,” he told an audience at the IMF Spring conference in Washington at the weekend.

… ETFs and index funds have taken about a fifth of the US fund market, attracting investors with lower costs than actively managed mutual funds. They also offers tax advantages and easy access to markets and industries usually reserved for institutional investors, offering exposure to markets without the necessity of buying the product itself.

This is especially attractive in commodities markets, allowing investors to buy a share of the market in gold or wheat without buying the product itself.

Draghi’s comments follow mutterings by the UK City watchdog, the Financial Services Authority, that ETFs pose risks to the financial system.

Critics of the products … fear ETFs will follow the same path as mortgage-backed securities, with major investment firms mimicking the creation of derivatives from derivatives in the form of collatoralised debt obligations (CDOs).

[source]

RS View: The takeaway is that investors ought to either avoid the ETF vehicle, or else go to a straightforward/outright purchase of the physical item.

Getting the message clearly and correctly is the University of Texas Investment Management Co. as seen in this Bloomberg article. [i.e., "Dallas hedge-fund manager J. Kyle Bass helped advise UTIMCO on taking delivery of 6,643 gold bars, worth $987 million on April 15, now stored in a bank warehouse in New York. ... The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass."]

Ah, this will get the dollar/budget/goldbug world yapping. Standard & Poor’s said this morning it reaffirmed the U.S.A.’s AAA sovereign credit rating, but placed the rating on outlook with negative implications.

“We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

[source]

PG VIew: S&P puts America’s sovereign debt on negative outlook.  This seems like such a glaringly obvious move, given the severity of our fiscal mess, yet it caught the market off-guard.  S&P warns of a possible downgrade in our future, citing the wide ideological chasm and lack of common ground in the solutions being proposed by our two major political parties.  See Friday’s Morning Gold Report, specifically the last paragraph.

Gold, silver and oil began the week modestly lower, weighed upon by a firmer dollar.  The greenback has been boosted by weakness in the euro, precipitated by further deterioration in periphery bond markets within the eurozone.

Finland’s election results pose considerable risk to the EU’s permanent bailout mechanism.  Support for the euro-skeptic True Finns surged dramatically, which is likely to result in renegotiation of Finnish participation in eurozone bailouts, and perhaps complete blockage.

However, the metals quickly turned around when S&P reaffirmed the US AAA sovereign debt rating, but shocked the market by putting America on negative outlook.  Gold has moved within striking distance of $1500 and silver traded above 43.50.

Goldman Sachs cut its Q1 GDP forecast from +3.5% to +2.5% late on Friday, and warned of downside risk to its H2 outlook.

The PBoC raised bank reserve requirements another 50 bps to 20.5% in an ongoing effort to reign in inflation.

The University of Texas Investment Management Co. has reportedly taken delivery of 6,643 gold bars, worth nearly $1 billion.  This is just the latest incident of an institution opting for physical rather than paper representations of gold.

“The decision to turn the fund’s investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment’s board,” Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. ‘I look at gold as just another currency that they can’t print any more of.’”

(Link)

USAGOLD: True believers led the first wave; big private money globally the second. Then came the hedge funds who led the third wave — the dominant player at present. Each of these early waves propelled the price to higher levels. Major institutions and mega-funds, of which the University of Texas is merely the first, will lead the fourth wave. Nation states, in my view, will constitute the fifth and final wave in this bull market — a small wave now gathering at sea, but one that likely will end in the restructuring of the monetary system around a new role for gold. Even as each group appears, previous wave riders still add to their holdings. All the waves — all momentum — remain at sea yet to reach a beachhead.

Please note that in each instance, as each new group entered the gold market, the primary participants voiced similar reasoning for their gold ownership to that of Mr. Bass — as a hedge against currency debasement and systemic risks. I recall the great quote from Mr. Churchill, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” MK

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.

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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.

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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.

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(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.

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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…

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