By Claudia Assis, Sue Chang, Polya Lesova and Virginia Harrison
April 20, 2011 (MarketWatch) — Gold futures settled at a record Wednesday as the U.S. dollar fell sharply and investors bought it as a hedge against inflation and economic uncertainty.

Gold for June delivery rose $3.80, or 0.3%, to end at $1,498.90 an ounce on the Comex division of the New York Mercantile Exchange. It traded as high as $1,506.20 an ounce, according to CME Group, which owns Comex. That is an intraday record for the metal.

… Fears of inflation as crude-oil prices rallied Wednesday also aided gold’s record run. Gold is considered the ultimate storer of wealth and as such gains when investors fear price increases and U.S. dollar debasement.

The International Monetary Fund on Wednesday piled in on the U.S. misfortunes. The French newspaper Le Monde quoted Olivier Blanchard, the fund’s chief economist, as saying there was reason to be concerned about the U.S. deficit, because the country has no credible to cut it.

The IMF issued a warning on Tuesday about the danger of overheating emerging economies, “with explicit reference to mounting inflationary pressure in these countries,” analysts at Commerzbank wrote in a note to clients. “It hardly comes as a surprise, but does reinforce the general concern about inflation, and makes gold increasingly attractive as a store of value.”

The precious metal is likely to continue to gain ground in the short term with technical resistance expected around $1,600, said Jay Feuerstein, chief executive of 2100 Xenon Group.

[source]

by Jason Dean and Tom Orlik
April 20, 2011 (Wall Street Journal) — In official comments that have fueled speculation about faster appreciation of the yuan, senior Chinese leaders seem to be acknowledging an argument long made by Washington and others that a stronger yuan may be helpful in taming the country’s rising inflation.

… Premier Wen Jiabao, at a meeting last week of the State Council, China’s equivalent of a cabinet, listed “strengthening the flexibility” of the yuan’s exchange rate as one of several tools the government should better use to control prices. Less senior officials have made that argument before, but Mr. Wen’s remarks were unusual for a top leader.

… On Monday, People’s Bank of China Governor Zhou Xiaochuan said the government is working to reduce the accumulation of foreign-exchange reserves. They have soared to more than $3 trillion largely as a consequence of China’s currency policy, which forces the central bank to buy dollars from exporters and foreign investors. Mr. Zhou said the reserves pump excess cash into the economy and “exceed our reasonable requirements.”

… Top political leaders in China like Mr. Wen—the ones who ultimately decide key issues like exchange-rate policy—in the past didn’t typically view the currency as a monetary-policy tool, analysts say. But that may be changing.

“There may be a shift under way from thinking about the exchange rate mainly as a variable that affects the competitiveness of exporters to a macroeconomic variable that is part of the management of growth and inflation,” said Louis Kuijs, economist at the World Bank in Beijing.

… “We will further increase the [yuan's] flexibility according to the market,” Mr. Wen said last month. “But we must also keep in mind that this kind of reform is gradual, because it affects companies and employment.”

A hazard of the steady, gradual approach to appreciation is that it invites speculators to pump capital into China to profit on what they see as a one-way bet. Authorities revile such “hot money,” in part because it can further fuel inflation.

… Some economists argue that the general approach to measuring the yuan’s exchange rate is misguided, because it overemphasizes the dollar. While the yuan has gained 4.6% against the U.S. currency since June, its “real effective exchange rate”—taking account of price changes and the yuan’s value against other currencies like the euro—is little changed.

[source]

RS View: Regarding these points… I would be the first to agree that the focus on the dollar must be set aside. Let the yuan be measured and shown to be a consistent and chronic laggard against gold as a reference point. Out of self interest the managers of hot money will be less inclined to harry the demurring yuan, choosing instead to vent their passions through an economically mature and resilient gold market. A happy ending for all parties concerned.

by Gennine Kelly
20 Apr 2011 (CNBC) — In an undisclosed location underground in New York City sit 6,643 gold bars, worth $987 million, recently acquired by the University of Texas Investment Management Corporation, one of the largest college endowments.

“We began buying gold in September of ’09 at about $950 dollars an ounce, our average price is about $1,150, we’ve invested around $750 million dollars in gold over that twelve months and now it has a market value of around a billion dollars,” Bruce Zimmerman, chief investment officer for UTIMCO, told CNBC Wednesday.

… “But rather than continuously roll the futures contracts, it just became easier and more economically for us to take possession of the bullion,” he explained.

Gold represents 5 percent of UTIMCO’s portfolio. “The role gold plays in our portfolio is as a hedge against currencies,” Zimmerman said.

[source]

by Julian Phillips
Wednesday, 20 Apr 2011 (Mineweb) — The attention of the gold world was grabbed by the action of a the University of Texas Investment Management Co. that switched their gold investments to bullion and actually took delivery of around 20 tonnes of gold in the form of 6,643 gold bars, then worth $987 million. It is now stored in a bank warehouse in New York.

This event was treated as remarkable in the United States. In Europe and nations east of Europe, the concept of holding gold bullion is more than normal, it is good sense. So, in a nation that is used to investing in gold derivatives, why has a leading U.S. investment fund turned to physical gold bullion registered in its name?

… The reason given was that the fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply.

In a nutshell the advisor to the fund gave his reasons for buying gold in the first place. … “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. He said, “I look at gold as just another currency that they can’t print any more of.” With that in mind it becomes obvious that gold held in a *derivative* form is not really holding gold at all.

… the reality that there is far less gold available than the sum total of derivatives imply is becoming a market factor.

Overall the concept of the profit motive in gold markets is giving way to the concept of preserving wealth with physical gold bullion, a concept almost foreign to U.S. investors until now.

[source]

A cross section of reactions to gold’s extended, record-breaking run that pushed prices of the yellow metal through the psychological $1,500 level…

by R. Shen, N. Trevethan, C. Mogi, L. Pardomuan and S. Mayanker
Wednesday, 20 Apr 2011 (Reuters) —

Tetsu Emori, Astmax Co.: “Investors are focussing on gold’s nature as a safe asset and its universality, that it can be cashed anywhere at any time.

“Given that few countries in the world appear to be in a sound fiscal state nowadays, the focus is all the more put on safety, as reflected in the strength in gold not only in dollar but non-dollar currencies.

“Market price levels are less relevant now than in the past as investors are looking for what asset is relatively better than others, rather than looking at absolute levels and assessing whether their value is appropriate or not. The market has been rising steadily at a very good pace, neither overshooting nor plunging.

“Speculative positions are not as significant a factor as before, as ETFs are playing a much greater role, reflecting market consensus. Gold has further scope for an upside.”

Li Ning, Shanghai Cifco Futures: “We’ve seen gold rally rapidly in the short term, and may see some small correction coming. But the 10-day moving average around $1,480 should be a strong support level. Investors are still very worried about rising inflation globally, even as some governments have taken various measures to fight rising prices.

“Concerns about debt problems in developed economies heightened after Standard & Poor’s threatened to downgrade the U.S. credit rating. As a result, gold will remain well supported in the medium term as investors seek a safe haven to park their value.”

Yingxi Yu, Barclays Capital: “The environment does seem to have changed to a more gold-positive one, on the back of S&P threatening to downgrade the U.S. credit rating.

“Already we see increasing investor interest in gold, backed by a lot of uncertainties in what’s happening in the North Africa and Middle East region, Japan’s earthquake and its ultimate impact on the Japanese economy as well as increased risk to global economy arising from policy decisions as well as high oil prices.

“The investment sentiment will remain favourable.”

[source]

By Shayne Heffernan
April 20, 2011 (IBTimes) — Gold prices are up 5 percent in April and look set to extend gains as the metal’s appeal as a haven from risk was boosted by talk that Greece may have to restructure its debt and Standard & Poor’s threat to downgrade America’s triple-A credit rating.

HCM research has calculated that an inflation adjusted high for Gold should be $US2500 an ounce in 2012, that amount would be equivalent to the 1980 prices that resulted from global instability and inflation.

Worries about inflation had spurred steady physical demand from China, where the government has vowed to use all tools at its disposal, including bank reserve requirements, interest rates and the yuan’s exchange rate, to wrestle inflation under control.

Gold’s rise to record high only attracted light selling from Thailand and Indonesia, suggesting that investors remained bullish on the outlook.

[source]

Gold Clears $1,500 as Dollar Tumbles

Gold pushed decisively above the $1500 psychological barrier in overseas trading and silver has traded with a 45-handle for the first time in 31-years. Given the pace of recent gains, silver is arguably within striking distance of its all-time nominal high around $50. The metals have been bolstered by renewed weakness in the dollar, which tumbled to fresh 16-month lows.

Dollar losses are attributable to the recent shift in the S&P outlook for US debt from “stable” to “negative” and a growing expectation that nothing meaningful is going to be done about long-term deficit reduction until after the 2012 Presidential election. Arguably there is reason to be skeptical that anything will get done even after the election. Prospects of impending Fed tightening have essentially been dashed, which has prompted an unwind of long dollar positions that were premised on higher rates.

The worsening of the European debt crisis is having a counter-intuitively positive influence on the euro, which rebounded to a 15-month high against the dollar. This is reminiscent of the 2008 dollar rally that was driven by flight to the perceived safety of cash, at the expense of more traditional asset classes likes stocks and bonds. In Europe, it has primarily been flight out of periphery debt and banking shares amid rising concerns of a sovereign default for Greece and likely haircuts for bond holders, along with the realization that Ireland and Portugal may well be on the same path. There were rumors circulating earlier today that the now widely anticipated Greek default could come as early as this weekend.

EU investors are also worried that the gains of the True Finn party in this week’s election could endanger adoption of a permanent bailout facility. Recent electoral losses in Germany and France by are suggestive of populist rebukes of the pro-bailout stances of Chancellor Merkel and President Sarkozy. German Deputy Economy Minister Bernhard Heitzer has demanded that his ministry be included in crafting the details of the European Stability Mechanism (ESM), saying in a letter to the Finance Ministry; “The political and financial ramifications of the planned treaty make an early and comprehensive participation of the Economy Ministry both in the drafting of the ESM treaty as well as the planned increase in the lending volume of the EFSF absolutely essential.” In essence, the ESM is likely to have a negative impact on the German economy, so the Economic Ministry should have a say in what that ESM looks like.

One has to wonder what the more fiscally responsible members of the EU will be demanding from Portugal in return for a bailout, now that the Greek situation has made it glaringly obvious that a bailout is just a kick of the can down the road…and perhaps a surprisingly short kick at that. You may recall that Greece took a €110 bln EU/IMF bailout less than a year ago. With that in mind, it’s no wonder that anti-bailout sentiment is on the rise across core-Europe.

By Andrei Makhovsky

MINSK, April 20 (Reuters) – The Belarussian rouble lost more than a third of its value against the dollar on Wednesday after the central bank introduced a free floating exchange rate for trade between banks.

… Coming nine days after a bomb blast at a Minsk metro station that killed 13 people, the rouble’s fall against the dollar piled on the misery for the average Belarussian citizen who was promised better times ahead when Lukashenko was re-elected for a fourth term last December.

Bankers said the rouble on Wednesday plunged in value to 4,800 to 5,300 per dollar in trading on the interbank market. This compared with the official exchange rate of 3,074 roubles per dollar.

Dealers said demand for dollars on the market had surged after Belarus dropped restrictions on the rate used by banks and companies on Tuesday, opening the door to a partial devaluation of the currency.

“There is a lot of delayed demand (for dollars),” one trader said.

… While ordinary citizens in theory can exchange roubles at the official rate, the reality is that supply of dollars from official exchange points has dried up…… Belarus has lost a quarter of its foreign currency reserves this year, trying to support the rouble as its current account deficit soared, partly under the impact of high pre-election spending late last year.

… In past weeks, as the supply of dollars has run out, Belarussians have been queuing for hours at exchange points to acquire whatever foreign currency was available.

[source]

RS View: In the short term, the people’s migration from Belarus rubles into U.S. dollars may feel like a successful hop out of the frying pan and into the relative safety of the woodpile, but that, too, is descending into flames. The would-be saver must stay very light on his toes until such time as he settles safely into the cool comfort of gold.

by Jan Harvey and Nick Trevethan
April 20, 2011 (Reuters) — Gold has long been seen as the ultimate haven from risk. During the financial crisis that rattled markets in 2009 and 2010 it was heavily bought on that basis, but its rally has since taken on a momentum of its own.

While gold investors in Western markets have been motivated chiefly by risk aversion in recent years, the precious metal is a much more deeply established asset in Asia. India and China are by far the world’s biggest bullion consumers.

While buying of largely Western-based bullion-backed exchange-traded funds has tailed off this year, the slack in demand has been picked up by investors in bullion bars and coins, particularly in the Indian and Chinese markets.

Buying in those countries is being fuelled by rising consumer incomes and higher inflation, against which gold is traditionally seen as a hedge. Both China and India reported higher than expected inflation last week.

… “Although in the developed world signs of inflation are preliminary, expectations of rising prices are increasing,” said Ben Westmore, an analyst at National Australia Bank. “Buying physical commodities, which traditionally are a good store of value, would be wise if you are in the camp that believes expanded monetary policy is likely to fuel inflation.”

[source]

April 20, 2011 (IBTimes) — [Spot] Gold shot above $1,500 an ounce on Wednesday for the first time ever as worries over the outlook for the U.S. economy boosted the metal as a safe haven, while rising inflation lifted Asian demand. Spot gold hit a high of $1,505.40 an ounce and was bid at $1,502.96 an ounce at 1224 GMT, against $1,493.90 late in New York on Tuesday.

Silver hit a 31-year high at $44.79 an ounce … The gold:silver ratio — the number of silver ounces needed to buy an ounce of gold — meanwhile fell to its lowest since 1983 at 33.8. “The last time silver was this expensive in relation to gold was almost 28 years ago,” said Commerzbank in a note.

… “Gold has been acting as a currency in its own right, and that is why we are up at $1,500,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia. … While investors in the United States and Europe are seeing the metal chiefly as a safe store of value and a hedge against currency devaluation, stronger inflation and rising consumer incomes in China and India are also boosting demand there.

“The theme of longer term higher inflation than we have seen in the last 10 years in China is a pretty solid view, so gold is going to be an asset class that is probably going to be more in favor in China than it has been in the past,” said Macquarie analyst Hayden Atkins.

… In the short term, losses in the dollar on Wednesday are supporting the precious metal above $1,500 an ounce. The euro surged to its highest in 15 months against a weaker dollar on Wednesday, boosted by better risk appetite and after a bond auction from Spain was well received by investors.

[source]

Gold has pushed convincingly above the $1500 level, establishing a new record high at 1505.34. Silver continues to charge ahead with a new 31-year high set at 44.79. The metals have been boosted by a collapse in the dollar to new 16-month lows.

Investors continue to dismiss the debt threat in the eurozone periphery, and all of the recent losses in the euro stemming from expectations that Greece will have to default have been retraced.

The highest fix yet in the Chinese yuan is also weighing on the dollar. PBOC deputy governor Hu Xiaolin said China needs to strengthen the flexibility of the yuan to help ease the pressure of imported inflation. This and other yuan supportive rhetoric has prompted speculation of a revaluation.

by David Levenstein
Tuesday, 19 Apr 2011 (Mineweb) — As gold continues to make new record highs, there are many analysts scratching their temples trying to understand what is going on. And, as I have mentioned many times in the past, many of these analysts are stock brokers, financial advisors, accountants and other geniuses. Some of them even have a string of academic qualifications behind their name. But, what has this got to with the gold. The answer is absolutely nothing. And, this is one of the problems facing individuals who are interested in investing in precious metals, in particular gold and silver. … While many of these analysts are brilliant when it comes to evaluating stocks, most of them have no knowledge about the actual physical markets for gold…

… in their confused state, these analysts have failed to make the important distinction between gold mining shares and the reason why someone would want to buy physical gold. And, the majority of these advisors are only familiar with the modern day fiat currency system with some vague understanding of gold. Yet, it is these individuals who proffer advice on investing in gold. If you break your leg, do you go to the nearest library and ask the librarian on duty to help you by looking up the relevant procedure from some medical journal? Or do you go to your doctor? The same applies with investing in precious metals. If you want to know more, go the people who are the experts in this field and not someone who has no idea of what is going on. When it comes to understanding gold it is important to have a knowledge and understanding of money…

[source]

By Claudia Assis and Sue Chang
April 19, 2011 (MarketWatch) — Gold futures closed at a record Tuesday after bouncing off $1,500 an ounce, getting a lift from a weaker dollar and longer-running worries about debt-strapped developed markets.

… Gold for June delivery ended up $2.20 an ounce, or 0.2%, at $1,495.10 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, gold rallied as high as $1,500.50 an ounce, according to the CME Group website, an intraday record for the metal.

Prices had dipped in and out of the red before floor trading began and continued to waver early in the session. But investors, particularly long-term buyers, have shown a tendency to take advantage of short-term pullbacks, noted Bill O’Neill, managing partner at Logic Advisors. “On every dip, trade is consistently buying on weakness,” said O’Neill.

… For some buyers, a main reason to invest in gold is the fear that government debt is spinning out of control, lowering the value of the dollar or other major reserve currencies, such as the euro.

… Silver continued to rally to 31-year highs, with the May contract adding 96 cents, or 2.2%, to $43.91 an ounce.
… Palladium and platinum closed lower, with July platinum off $11.50, or 0.7%, to $1,771.30 an ounce.
… Palladium for June delivery retreated $8, or 1.1%, to $731.10 an ounce.

[source]

By Pham-Duy Nguyen
April 19 (Bloomberg) — Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. Silver surged to a 1980 high.

… “The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets,” said Lim Chae Myung, a Seoul-based trader with Hyundai Futures Co.

Read more: http://www.theage.com.au/business/markets/gold-touches-record-as-debt-worries-drag-on-us-dollar-20110420-1dnr1.html#ixzz1K0ZORywy

The greenback dropped against the euro on speculation that the European Central Bank will continue to raise borrowing costs as some nations struggle to contain sovereign debt. … The ECB this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation.

The U.S. Treasury Department projected that the government may reach the $14.3 trillion debt-ceiling limit as soon as mid-May and run out of options for avoiding default by early July.

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and has pledged to buy $600 billion in Treasuries through June to stimulate growth.

… “There certainly has always been that lingering concern over U.S. debt and the S&P people are finally identifying the threat,” said Stephen Platt, an analyst at Archer Financial in Chicago. “The world is awash in liquidity. Gold’s slow, grinding action upward shows the deterioration in the dollar, excess liquidity and deficit problems are still in force.”

[source]

Yesterday’s big news wasn’t really news at all. Standard and Poor’s finally found the nerve to state openly what the rest of the world already knew: the Emperor is naked.

The esteemed ratings service announced that America risks losing its triple-A credit rating. “We believe,” said S&P, “there is at least a one-in-three likelihood that we could lower our long-term rating on the US within two years.”

Officially, America remains the world’s preeminent triple-A credit. Unofficially, America’s triple-A credit is a financial Potemkin Village. It is all façade. The US lost its triple-A credentials years ago, but the rating keeps hanging around – a function of tradition, decorum, politics and complacency.

Behind America’s triple-A façade, its creditworthiness steadily deteriorates.

[source]

PG View: The author of this Christian Science Monitor piece makes the comparison between the US’s AAA rating and Greece’s junk status, noting one critical difference: “The Greeks cannot print the euros they need to repay their debts, but Americans can, and do, print the dollars they need to repay their debts.” That’s the same critical difference I pointed out in this morning’s Daily Market Report.

By Shanthi Bharatwaj
04/19/11 – 12:44 PM EDT (TheStreet ) — Gold prices hit the psychological mark of $1,500 an ounce — an all-time high — in Tuesday afternoon trading, helped by a weaker dollar.

The gold contract for June delivery was last trading up $3.8 at $1496.70 an ounce, off its high of $1,500.50 an ounce.

Silver prices for June delivery were surging 68 cents to $43.65.

[source]

by Debra Borchardt
Tue 04/19/11 (TheStreet) – - Mihir Dange, gold options trader for Arbitrage LLC is seeing thousands of calls being bought in the $1800 to $2000 region.

[source

Forget the US Debt Rating, The Greater Risk is to Our Currency

Gold has edged closer to the psychologically important $1500 level today. The new all-time high in the yellow metal now stands at 1499.15. The most recent upside extension was largely associated with S&P’s downgrade to its outlook on US debt to negative. While the long-term US sovereign debt rating remains at a “risk free” AAA, by changing its outlook from “stable” to “negative,” S&P indicated “there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years.” S&P credit analyst Nikola Swann went on to add that, “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”

While there is a slight chance that the S&P outlook may prove to be a much needed wake-up call to our policy makers in Washington, I too find myself doubtful that the wide ideological chasm between the two competing budget/defict-reduction proposals can be overcome with the 2012 Presidential campaign already starting to ramp-up. I do however think the uptick in chatter about a potential US default is misplaced. Paul Donovan of UBS appropriately dismissed the notion of a US default, saying, “The US can print its own money, and the cost of printing is less than the cost of default.” Why would we default when we can simply print dollars to meet any obligation? The ability to create an unlimited amount of dollars ex nihilo technically means our creditworthiness is unassailable, worthy of a AAA rating.

However, make no mistake, reckless expansion of the money supply to service the ongoing reckless expansion of our debt has its own terrible implications. Yet — as I’ve expressed in past reports — this is the path of least resistance, allowing the government to confiscate wealth across the entire socioeconomic spectrum without Congress having to make any hard or unpopular choices. In fact they don’t have to legislate anything. They don’t have to raise taxes, impose austerity or reform entitlements. They simply have to stealthily allow the dollar to continue on its long-term trajectory and let inflation do the dirty work. Recent hints that the Fed will not only maintain its zero interest rate policy (ZIRP), but may also continue with quantitative easing beyond June — despite rising inflation pressures — is reflective of this reality.

One need look no further than the long-term dollar chart to see that America has a long history of racing down this path. Arguably this has contributed to a host of social ills, as Americans struggled to maintain their lifestyles in the face of rising prices and stagnating wages. However, as a recent Time – The Curious Capitalist piece points out, there are broader global implications in terms of widening imbalances and destabilization of the world’s financial system.

The long-term uptrend in gold is also reflective of the dollar realities. As the greenback — and other fiat currencies for that matter — come under increased pressure in a world of competitive devaluations, ZIRP and QE, the need for a reliable store of value is only going to intensify. Gold has been that store of value for thousands of years and may well continue to serve that role for thousands more.

by Yuras Karmanau
Tuesday, April 19, 2011 (Associated Press) — Cash-strapped Belarus announced Tuesday that it would allow its beleaguered national currency to float, effectively permitting its devaluation in a bid to ease a spiraling currency crisis.

… The government’s hard currency reserves plunged 20 percent in the first two months of the year to less than $4 billion, and staples such as vegetable oil and sugar started vanishing from stores as people started to hoard.

Starting next week, banks will be able to buy and sell the Belarusian ruble at a rate determine in open trading, Central Bank deputy chief Nikolay Luzgin said, adding that the government will “take extra steps to balance the situation on the domestic currency market” after next week’s trading.

The U.S. dollar stood at 3,074 Belarusian rubles on Tuesday. Stanislav Bogdankevich, former chief of the Belarusian central bank, told The Associated Press that he expects the ruble to drop by one-third after the float.

… Even before the announcement, frightened citizens had been lining up for hours in the past few weeks to exchange their rubles for euros and dollars.

… “Belarus was living beyond its means…”

[source]

RS View: Given the international hodgepodge of currency management regimes, necessary realignments (usually devaluations) of national currencies can crush the misplaced hopes of citizens in any corner of the world who took inadequate measures to consolidate their life savings safely in the form of physical wealth such as gold and other tangibles which abide outside of the etherial monetary system’s realm of broken promises.

By Shanthi Bharatwaj
April 19, 2011 (TheStreet) — Gold prices were little changed Tuesday after rising to a new record on Monday. Better economic and earnings reports were checking the metal’s advance to the psychological mark of $1,500 an ounce. The gold contract for June delivery was up by $1.1 at $1,494 an ounce, after trading as high as $1,498.90 an ounce earlier.

Gold prices settled at a record high on Monday after rating agency S&P reaffirmed its AAA rating on U.S. debt but cut its outlook to negative from stable, signaling that a ratings downgrade could come in the next two years.

… Treasury Secretary Timothy Geithner attempted to calm concerns about America’s fiscal health. Geithner said on CNBC that the U.S. was better placed than other countries to overcome its debt challenges. –[source]

(IBTimes) — “Most of the trends out there — whether that’s worries about the euro, worries about coming inflation, worries about U.S. debt, Chinese buying seeming relatively strong — suggest the price ought to be going higher,” said David Jollie, an analyst at Mitsui Precious Metals.

… The CBOE Volatility Index, Wall Street’s favorite barometer of investor anxiety known as the VIX, jumped as much as 24.5 percent on Monday after S&P warned about the towering U.S. budget deficit. Risky assets were hit by a double-whammy on Monday after fears mounted that Greece will have to restructure its debt, maybe as early as this summer, and S&P threatened to cut the United States’ AAA credit rating.

“The agency’s comment that ‘there is at least a one in three likelihood that it could lower its long-term rating on the US within two years’ was interpreted by the gold community as reflecting the seriousness of U.S. fiscal challenges and hence provided a catalyst for higher prices,” said UBS in a note.

“That the fiscal spotlight is now on the U.S. is gold-positive,” it added. –[source]

Gold remains generally well bid as S&P’s downgrade to the US debt outlook continues to reverberate and the dollar has retraced much of yesterday’s gains. Additionally, a Greek default has now largely become a story about when, rather than if, as spreads continue to widen throughout the eurozone periphery.

The Fed has started dropping hints that they may at least continue reinvesting maturing debt into Treasuries when QE2 winds down at the end of June. That’s still QE3 in my book.

Libyan government forces are pressing their attack on the port city of Misurata amid rising calls for the commitment of NATO ground forces to the conflict.

Canada CPI surged to 3.3% y/y, well above market expectations. Core +1.7%, also above expectations.

US housing starts +7.2% to 549k in Mar, above market expectations, vs 512k in Feb.

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.