By Myra P. Saefong
April 27, 2011 (MarketWatch) — Gold futures climbed as much as $13 an ounce in electronic trading on Globex Wednesday after ending the New York session at a record, as the Federal Reserve’s decision to continue to keep its key interest rate at an historic low range fueled concerns about inflation.

Gold for June delivery was last up $10 at $1,527.10 an ounce in electronic trading on Globex after trading as high as $1,530.70 as of 4 p.m. Eastern. Earlier Wednesday, the contract had added $13.60, or 0.9%, to close at $1,517.10 an ounce in regular trading on the Comex division of the New York Mercantile Exchange.

… At a news conference after the Fed’s policy statement, Federal Reserve Chairman Ben Bernanke said he didn’t know when the Fed would tighten interest rates.

… “The continued wording of exceptionally low rates for an extended period says it all,” Keith Springer, president of Springer Financial Advisors in Sacramento, Calif., said in emailed comments. “They are more worried about recession and deflation, and will keep rates low.”

“All of this will move gold and silver higher as it will increase inflationary pressures and lower the dollar further,” he said.

… the dollar index, which measures the U.S. currency against a basket of six rivals, traded at 73.330, down from 73.789 in late North American trading Tuesday. It was trading higher before the Fed decision.

[source]

by Heather Struck
April 27, 2011 (Forbes) — avid Loesser, president of the Estate Planners Group, said he has no questions anymore about the effects quantitative easing has had on markets. Just look at the charts for gold and silver today, and compare it with FX charts for the U.S. dollar.

“There is a negative correlation rate for the dollar versus gold and silver,” Loesser said. Today the dollar began to fall further today after Ben Bernanke’s press conference to 1.47 against the euro and 1.66 against the British pound. Gold and silver both continued to soar upwards, rising 1.4% and 5.6% respectively after the conference commenced.

“Inflation is the big game that the Fed has to deal with,” Loesser said….

With a slow recovery in unemployment on the horizon, Loesser is advising his clients to short the dollar. When it comes to the future for gold and silver, “I wouldn’t be surprised to see them double to $3,000 and over $100 an ounce.”

[source]

by Tom Jennemann
Wed, Apr 27 2011 (Fastmarkets) — Gold on the Comex division of the New York Mercantile Exchange raced to a fresh all-time record Wednesday soon after the Federal Reserve said that it will not soon raise interest rates or prematurely end its monetary easing policies despite rising inflation.

… “The Fed admits that inflation is going up but at the same time they don’t seem to be in a big hurry to do much about it. [The central bank] is willing to error on the side of higher inflation and isn’t ready to end it’s accommodative money policies,” a US-based gold trader said.

Also, the fact that vote was unanimous is a sign that the Fed could continue with its dovish policies longer than previously expected, the trader added.

“The rest of the world is already taking mild to aggressive steps to combat inflation. The farther the US falls behind (in this regard) the more the purchasing power of the dollar will decline over time. That’s going to lead to higher commodity prices,” the trader said.

[source]

By Pham-Duy Nguyen
April 27 (Bloomberg) — Gold futures rose to a record $1,524.20 an ounce on speculation that the Federal Reserve will be slow to raise U.S. borrowing costs, weakening the dollar and boosting the appeal of the precious metal as an alternative asset.

[source]

Gold, Silver ETFs Surge Before Bernanke Speaks
April 27th (ETF Trends) — Exchange traded funds (ETFs) tracking gold and silver rallied in afternoon trading Wednesday following the Federal Reserve’s statement promising to hold its key interest rate close to zero.

[source]

Dollar dips after Fed holds rates
27 April, 2011 (AFP) — The dollar’s decline against the euro picked up momentum Wednesday after the Federal Reserve announced it would keep ultra-low interest rates to support a fragile economic recovery.

The euro was trading at $1.4706 around 1730 GMT, up from $1.4666 an hour earlier, just before the Fed’s policy-setting panel announced its decision to hold its key interest rate at 0-0.25 percent, as widely expected on financial markets.

… The Fed’s ultra-low rates and accommodating support of the recovery have weighed on the dollar as it faces other key currencies with higher returns, such as the euro which is underpinned by the European Central Bank’s tightening monetary policy.

… All eyes in the financial markets were turned toward the upcoming historic news conference by Fed chairman Ben Bernanke at 1815 GMT, the first for him or for any Fed chief after an FOMC meeting.

[source]

April 27, 2011

(Federal Reserve Press Release) — Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

April 27, 2011 (The Economist) — The creditworthiness of a country used to be judged by the level of its gold reserves. Under the gold standard, a fall in reserves would lead to the central bank taking crisis measures. The country with the biggest reserves in the world is, not surprisingly, America, with 8,134 tonnes. But expressed in terms of reserves per person, the picture looks very different.

It is no surprise to see Switzerland at the top of the list, but why is Lebanon in second place?

Its reserves were purchased when the country was the Middle East’s financial centre in the 1960s and 1970s and safeguarded through the civil war years by legal restrictions and by central-bank governor Edmond Naim, who according to legend slept in the bank to protect the hoard…

[source]

Gold Consolidates Ahead of FOMC

Gold has adopted a consolidative tone ahead of today’s FOMC statement and Chairman Bernanke’s first presser. The Fed is widely expected to hold steady on rates, maintaining the extraordinarily low/extended period verbiage and reaffirm its commitment to QE2. The market is hopeful that the follow-on press conference will allow them to glean some greater insight on future policy expectations by questioning Mr. Bernanke directly, rather than picking apart the written statement word by word and trying to decipher the FedSpeak.

Gold remains underpinned by persistent weakness in the dollar and concerns about inflation. The dollar fell to new all time lows against the Swiss franc yesterday, reaching a new 16-month low against the euro today. The British pound rebounded today after preliminary UK Q1 GDP at least met expectations, adding further weight to the greenback. The FX market is understandably concerned that the gridlock in Washington on budgets and debt ceilings, amid rising expectations that Fed may start removing accommodations soon, will have dire consequences for the US economy and how our debt is perceived by the rest of the world. I find it difficult to envision the Fed chairman definitively committing to the removal of accommodations in this environment.

In the wake of yet another wide miss on Greece’s budget deficit projection yesterday, yields on Greek bonds have surged. Yields on 10-year Greek government debt have approached 16%, and the 2-year yield is over 24%. Ongoing speculation about a Greek default have spurred rising rates in other EU periphery countries as well, most notably Ireland and Portugal. I think investors are increasingly seeing the writing on the wall: If Greece is on the verge of default less than a year after receiving a €110 bln bailout, why would anyone believe the end result of Ireland for example would be any different. As bond holders cut their losses by fleeing the market, they drive up those yields and the move into cash is driving the euro higher.

As is usually the case, as markets gyrate, driven by investors’ quest for appropriate yield relative to risk, a portion of those flows peels off into the metals market. I think the pullback this week is primarily associated with profit taking. That is particularly true with silver, given the magnitude of the recent gains and the market’s proximity early in the week to the all-time nominal high of $50. Yet none of the fundamentals that have driven the metals higher in recent months — and years for that matter — have changed. Not surprisingly, there has been solid physical buying interest on dips.

By Pham-Duy Nguyen
April 27 (Bloomberg) — Gold futures resumed a rally on speculation that the Federal Reserve will be slow to raise U.S. borrowing costs, weakening the dollar and boosting the appeal of the precious metal as an alternative asset.

The dollar fell to the lowest since August 2008 against a currency basket before a press conference with Federal Reserve Chairman Ben S. Bernanke. The Fed has kept its benchmark interest rate at a record low to stimulate the economy, while the European Central Bank this month began raising rates to stem inflation.

… “There’s not a lot the Fed can do to ease the dollar’s suffering,” said Matthew Zeman, a strategist at Kingsview Financial in Chicago. “The U.S. will be behind in the tightening cycle, and that’s a green light to buy gold.”

… Fed policy makers will leave the bank’s target rate at zero percent to 0.25 percent, according to all economists surveyed by Bloomberg News. The central bank may also say it plans to complete $600 billion in Treasury purchases in June. The Fed is due to release a statement at about 12:30 p.m. in Washington, and Bernanke is set to speak to reporters at 2:15 p.m.

[source]

by Angelos Damaskos
27 Apr 2011 (InvestmentWeek) — Gold recently reached a high of above $1,500 per ounce for the first time in history and it is not unlikely that we may see an ounce of gold selling for over $1,600 before the year end. Putting inflation-adjusted pricing and long-term history aside, it is worthwhile looking at the current situation and the drivers of gold prices today. The world economy is still suffering from the excesses of the last decade and the large debts accumulated at both a government and private level in the developed economies.

The massive rescue and stimuli packages thrown into the system by the governments of the US, the eurozone and the UK have not only increased debt levels to dangerous levels but have also stoked inflation. This printing of new money has resulted in the dollar, euro and pound becoming devalued against stronger currencies for the last two years.

… Gold prices could continue rising for as long as global debt is a problem and inflation keeps rising out of control. How long this will be, only history will tell. In the meantime, inv estors in gold are securing the purchasing power of their wealth.

[source]

By Bengt Saelensminde
Apr 27, 2011 (MoneyWeek) — I had [a fascinating discussion] with Simon Caufield in Paris recently. We talked about the City. And we talked about the best ways that you, as a private investor, can exploit the City’s greatest flaws. Today I want to talk about gold. Both Simon and I are big fans of the yellow metal. Both of us have big holdings. But Simon stumped me with his rationale for buying gold. It came as quite a shock.

If you’re a gold bug, what he said should go a long way to confirming the importance of gold right now. And if you aren’t, let me just explain how you could be leaving yourself exposed.

… The beauty of gold is that it can provide the sort of insurance against financial disaster that simply isn’t available from most other investment classes. And we may be a lot closer to financial disaster than you think. … Simon gets a little punchier on the subject. He reckons something is brewing that will hasten the demise of the dollar.

Simon tells me he’s been doing some research into the world’s third largest bank. He says that it is very close to collapse. And that could have very grave implications for the dollar. Why? Because this bank is the Federal Reserve Bank of the USA.

According to Simon’s research, it has reached a point where its liabilities far outweigh its assets. “A 2% fall in the value of those assets would wipe out every last dollar of capital. It may already be insolvent…”

… Quantitative easing (QE) amounts to the Fed printing new money and using it to buy debt mainly issued by government. By doing so, it creates a liability (the amount of money it prints) and it gains an asset (the government bonds). But now that this government debt is falling in value, the Fed’s balance sheet is shot. “If the Fed isn’t already insolvent, it soon will be.”

[source]

RS View: That suggests that the Fed must carry these bonds to maturity while holding them at historic (acquisition) value so as not to register a loss, or else… if they employed mark-to-market accounting and took a bath on falling bond valuation during a period of rising interest rates, they would do well to request the ruling Treasury allows likewise for mark-to-market valuation on U.S. gold reserves in order to compensate the Fed’s balance sheet with the requisite golden gains.

Paul Ryan’s plan won’t succeed without legislation to prevent the Federal Reserve from monetizing the national debt.

The problem is simple. Because of the official reserve currency status of the dollar, combined with discretionary new Federal Reserve and foreign central bank credit, the federal government is always able to finance the Treasury deficit, even though net national savings are insufficient for the purpose.

What persistent debtor could resist permanent credit financing? For a government, an individual or an enterprise, “a deficit without tears” leads to the corrupt euphoria of limitless spending. For example, with new credit, the Fed will have bought $600 billion of U.S. Treasurys between November 2010 and June 2011, a rate of purchase that approximates the annualized budget deficit. Commodity, equity and emerging-market inflation are only a few of the volatile consequences of this Fed credit policy.

The solution to the problem is equally simple. First, in order to limit Fed discretion, the dollar must be made convertible to a weight unit of gold by congressional statute—at a price that preserves the level of nominal wages in order to avoid the threat of deflation. Second, the government must at the same time be prohibited from financing its deficit at the Fed or in the banks—both at home or abroad. Third, only in the free market for true savings—undisguised by inflationary new Federal Reserve money and banking system credit—will interest rates signal to voters the consequences of growing federal government deficits.

[source]

PG View: Another case for the return to a gold standard. I especially like the cartoon than accompanies this op-ed.

Gold is consolidating and silver is corrective ahead of today’s FOMC policy statement and Fed chairman Bernanke’s inaugural press conference. The Fed is widely expected to hold steady on rates and confirm its commitment to see QE2 through to its scheduled completion at the end of June. It will be interesting to see if the press can rest any hints about likely policy beyond the end of H1.

Japan retail sales plunged 7.8% in Mar due to disaster, -8.5% y/y, sharpest decline in 13-years.

Eurozone orders +0.9% in Feb, Jan revised sharply higher to +1.2% m/m from just +0.1% m/m previously.

Ongoing restructuring speculation has elevated Greek 10-yr yields to near 16% as 2-year yields approach 24%. This has put upward pressure on Irish and Portuguese yields as well.

UK prelim Q1 GDP +0.5% q/q, +1.8% y/y, near consensus. Stats office says underlying picture in Q1 as broadly flat. Sterling rebounded because market had guarded against a disappointing number in lite of the Q4 contraction, adding to pressure on the dollar.

By Myra P. Saefong and Chris Oliver
April 26, 2011 (MarketWatch) — Gold futures fell Tuesday to end an eight-session winning streak as a climb in consumer confidence and upbeat earnings reports helped feed gains in the U.S. stock market. Prices, however, staged a partial recovery to finish above $1,500 an ounce. … Gold for June delivery closed down $5.60, or 0.4%, at $1,503.50 an ounce on the Comex division of the New York Mercantile Exchange. Prices had traded as low as $1,492 after the U.S. Conference Board reported a climb in the consumer confidence index.

In Monday’s session, June gold closed at a record $1,509.10. That was gold’s sixth consecutive high-water mark and its eighth straight day of gains. During the winning streak, prices gained $55.50 from the April 12 closing level of $1,453.60.

In a review of last week’s trading, which saw strong gains for both gold and silver, analysts at GoldForecaster.com said, “it is clear that gold is neither spiking nor raging. It is being ‘re-evaluated’ in a dramatically changing market.”

“Add burgeoning Asian demand that buys to hold, central bank demand that ‘buys the dips’ and you are seeing a runaway price with only short sharp corrections,” they said.

Strategists remained mostly upbeat over the prospects for gold and silver going forward. … But July platinum ended down $22.70 at $1,805.40 an ounce and June palladium lost $5.10 at $755.70 an ounce. “Platinum has been the forgotten metal during the run-up in precious metals prices, as investors have instead focused on gold and silver,” said Rob Kurzatkowski, senior commodity analyst at OptionsXpress. “That is understandable, as investors do not see the metal as a pure currency like gold.”

[source]

by Frank Holmes
Tuesday, 26 Apr 2011 (Mineweb) — … we emphatically believe the bull cycle for gold still has a long way to run. Last week, one of my fellow presenters at the Denver Gold Group’s European Gold Forum was Dr. Martin Murenbeeld from Dundee Wealth who put the notion of a “gold bubble” in context with the following chart.

If you compare the current bull cycle for gold against gold’s run from the 1970s and 1980s, you can see that today’s run has been slow and steady. It’s also missing the sharp spikes typical of a bubble.

… One of the things we recently pointed out was the effect money supply growth can have on gold. Dr. Murenbeeld also presented this fascinating chart showing how much gold would need to increase in order to cover the amount of money that has been printed since gold was revalued at $35 in 1934. Using that as the cover ratio, gold would need to climb all the way to $3,675 an ounce to cover all paper currency and coins. If you use a broader-and more common-measure of money (M2), gold would need to rise all the way to $7,931 in order to cover the outstanding amount of U.S. money supply.

[source]

By Paul R. La Monica
April 26, 2011 (CNN|Money) — McDonald’s, Hershey and Coca-Cola all announced new price hikes or reiterated previous increases in their latest quarterly earnings reports over the past few days. The reason is obvious. Commodities are running amok.

It’s costing restaurants and food makers a lot more money to produce or buy food as the price of cattle, wheat, sugar, corn and just about every other agricultural commodity has surged in the past year. And even though the Federal Reserve may think that higher commodity costs are “transitory” — which is the econobabble way of saying “Don’t worry about it!” — companies aren’t so sure. That could be bad news for consumers, who are already coping with soaring gasoline prices.

Along those lines, airlines are also boosting prices to deal with surging energy costs. Delta, which reported a quarterly loss Tuesday, was still able to post an increase in sales thanks to “domestic fare increases and international fare surcharges as a means of passing through fuel costs to its customers.”

… But higher prices may not help the Cokes, Mickey D’s and Delta of the world that much longer. If consumers get scared off by rising prices, the fact that profit margins may remain stable may be small consolation to investors if demand starts to wane.

“It’s impossible for corporations to pass on all their input costs to consumers,” said John Norris, managing director with Oakworth Capital Bank in Birmingham, Ala . “If they could, nobody would ever go out of business.”

[source]

By Jeremy Grantham
April 26, 2011 (InvestmentNews) — The purpose of this, my second (and much longer) piece on resource limitations, is to persuade investors with an interest in the long term to change their whole frame of reference: to recognize that we now live in a different, more constrained, world in which prices of raw materials will rise and shortages will be common.

Accelerated demand from developing countries, especially China, has caused an unprecedented shift in the price structure of resources: after 100 hundred years or more of price declines, they are now rising, and in the last 8 years have undone, remarkably, the effects of the last 100-year decline! Statistically, also, the level of price rises makes it extremely unlikely that the old trend is still in place. If I am right, we are now entering a period in which, like it or not, we must finally follow President Carter’s advice to develop a thoughtful energy policy and give up our carefree and careless ways with resources.

[source]

RS View: One of the most egregious examples of such carelessness has been the prevalent use of derivative-influenced pricing within the resource markets. As I’ve previously made the larger point here, a quick summary may suffice: A basic review of economics and market principles reminds us that free price movements are the necessary swing point upon which physical supply and demand can be balanced. A mere discounting of the price/value of commodity derivatives amounts to little more than a cheap parlor trick — a trick which, although creating a nice illusion of cheap prices, completely disregards the physical supply/demand pricing balance and thus sets the stage for shortages and other dire dislocations of the physical supply/demand dynamic.

26 April, 2011 (FinExtra) — The US Treasury is embarking on a publicity campaign ahead of its upcoming move to switch off paper cheques as a payment method for social security and other federal benefits in favour of electronic methods.

Beginning on 1 May, anyone newly applying for Social Security or other federal benefits will need to choose an electronic payment method. People currently receiving their federal benefits by cheque will have to switch to direct deposit by 1 March, 2013.

… Speaking at an event where she ceremonially ‘signed’ a $1 billion cheque to taxpayers, Treasurer Rosie Rios, said: “It costs 92 cents more to issue a payment by paper check than by direct deposit. We are retiring the Social Security paper check option in favor of electronic payments because it is the right thing to do for benefit recipients and American taxpayers alike.”

[source]

April 26, 2011 (China Daily) — The central bank is planning new investment funds to diversify holdings in the nation’s $3 trillion foreign exchange reserves, to hedge against depreciation and inflation risks, according to a news report.

The proposed funds will invest some of the foreign reserves in energy and precious metal markets, the New Century Weekly said on Monday, citing unnamed sources close to the People’s Bank of China. However, the report did not disclose the size of the proposed funds, their operation methods or the timing of their possible launch. The central bank was not available for comment.

… “This is a positive way to diversify investment risk, especially as China holds such large amounts of US debt,” Xu Hongcai, a finance professor at the China Center for International Economic Exchanges, told China Daily.

While China has been slashing its US debt holdings since October, it still remains the largest creditor. At the end of February, China held $1.15 trillion of US debt, down $600 million from the previous month. US debt, once considered gilt-edged, is becoming increasingly risky.

… Earlier this month, Zhou Xiaochuan, the central bank governor, said China’s foreign exchange reserves had exceeded a “reasonable” level and the management and diversification of the holdings should be improved.

[source]

Corrective Dips Attract Physical Buying Interest

Gold is maintaining a mildly corrective tone after establishing a new all-time high at 1518.00 on Monday. Silver nearly reached its all-time nominal high of $50 before succumbing to corrective pressures that drove the market down more than 10%. There has been strong physical buying interest on this pullback. Monday was probably the busiest day here since right before the Greek bailout, about a year ago. Buyers are increasingly keen on precious metals as portfolio diversification, a hedge and a store of wealth amid worsening debt situations both in Europe and here in the States.

I saw the headline this morning ‘Greece budget deficit worse than thought‘ and I thought, ‘now there’s a headline that seems to appear with some regularity.’ Greece’s 2010 budget deficit was revised to 10.5% of GDP, well above the 8% target and significantly higher than the previous estimate of 9.6% of GDP. How does this surprise anyone any more? Obviously this latest revision further intensifies talk that a Greek default and restructuring is in the offing. The euro sold-off modestly, but quickly recovered as this inevitability seems largely priced into the market. Even German Chancellor Merkel now seems to be conceding that Greek debt must be restructured. One of her aides told Bloomberg today that “Greece should restructure sooner than later.”

Persistent strength in the euro continues to weigh on the dollar, despite assurances by Treasury Secretary Tim Geithner this morning that, “Our policy has been and will always be, as long as I will be in office, that a strong dollar is in the interest of the country.” Strong against what Mr. Geithner? The dollar just hit a new all-time low against the Swiss franc today and the dollar index recently fell to new 32-month lows, just 4.5% off its all-time low. Geither told a conference organized by the Council of Foreign Relations, “We will never embrace a strategy to weaken the dollar.” You don’t have to “embrace” a weak dollar to appreciate how effectively it can inflate away debt, stealthily confiscating wealth from rich and poor alike without Congress having to legislate neither tax hikes nor austerity.

That leaves the fate of the economy largely in the hands of the Fed, whose Federal Open Market Committee will meet beginning today to determine Fed policy going forward. The Fed is widely expected to hold steady on interest rates near 0% and restate its commitment to see QE2 through until the end of June. However, confirmation of the double dip in housing courtesy of today’s Case-Shiller home price data provides a conundrum for the Fed. Home prices for both the 20 and 10 cities indexes fell 1.1% in Feb, leaving prices near their 2009 lows. If the Fed starts removing accommodations at the end of June, it is likely to result in upward pressure on mortgage rates, which will further erode already tepid demand. Home prices will have to then fall even further to find willing buyers.

Gold is modestly lower, on the mend from a deeper correction overseas. The correction in silver was a full 10%, from yesterday’s high at 49.77 to the overnight low at 44.62. Silver has since probed back above 46.00. There continues to be strong physical buying interest on dips.

The dollar remains under pressure as policy-makers in Washington dig in their heals and gird for battle on the debt ceiling. In this high stakes game of chicken, the parties will seek to gain budgetary concessions from the other, using our sovereign debt rating as leverage.

FOMC meeting begins today, with the policy statement and Chairman Bernanke’s first presser slated for tomorrow.

The situation in Syria is deteriorating, as UK Foreign Secretary Hague warmed that Britain and its allies must prepare for the “long haul” in Libya.

Greece’s 2010 budget deficit has been revised to 10.5% of GDP, well above their 8% target and worse than the previous estimate of 9.6% of GDP. The euro is recovering from earlier losses, despite rising expectations that a Greek default is in the offing.

By Claudia Assis and Chris Oliver, MarketWatch
April 25, 2011 (MarketWatch) — Gold settled at a record and silver rallied 2.4% Monday as inflation fears kept investors attracted to precious metals, which were also helped by a weaker dollar.

Gold for June delivery added $5.30, or 0.4%, to end at $1,509.10 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, it hit an intraday record of $1,519.20 an ounce. That was gold’s sixth consecutive high-water mark and its eighth straight day of gains.

May silver rallied $1.09, or 2.4%, to $47.149 an ounce. It had traded as high as $49.82 an ounce.

… Investors booked some profits in both metals Monday, said Bart Melek with TD Securities in Toronto. For silver, “the trajectory might be too steep,” bringing to some investors’ minds an asset bubble, Melek added.

… Meanwhile, news reports in China said Beijing is considering the setup of an investment fund targeting sectors such as energy and precious metals, as well as a special fund geared toward foreign-exchange stabilization…. The fund would be structured to intervene in the foreign-exchange market and buy foreign-currency notes without the government having to print new yuan-denominated currency notes, the report said.

The reports said the central bank’s balance sheet would also be extended to support investment in precious metals and other commodities.

[source]

by Jim Cramer
April 25, 2011 (TheStreet) — I think gold has to be an integral part of every portfolio. I have been saying that for about five years now, and I mean it. You have to have it. It has to be part of your diversification, because it is both a currency and a commodity.

Here’s the problem, and it is a real high-quality problem: If you have been listening to me, you are struggling right now with the size of your gold position. I think it should be up to 20% of your portfolio. But for some of us — like in my retirement plan — gold is now 30%. It has just moved up. It is too big. It is now the swing factor. Now I don’t mind that it is so big. There are plenty of places that are worse than gold.

… gold has outperformed all assets in the last decade — all of them — in both high and low interest rates, so don’t expect too big a downturn. Way too many people want in, and way too many have too little exposure. No wonder it keeps going higher!

[source]

By Paul R. La Monica
April 25, 2011 (CNN|Money) — The dollar is getting weaker by the day, and while that may be a plus for the earnings of multinational firms like IBM, Coca-Cola and Procter & Gamble, that’s not good news for many consumers.

The greenback is now trading around $1.46 versus the euro. To put that into context, the once-mighty U.S. currency is now only about 9% above the all-time low it hit against the euro back in July 2008.

… “It is plausible that the dollar will hit another all-time low against the euro. Conditions do not appear to be very encouraging for the U.S. currency,” said Vassili Serebriakov, currency strategist with Wells Fargo in New York.

… “There is no greater indicator of the health of a nation’s economy than its currency,” said Anthony Welch, co-manager of The Currency Strategies Fund, a mutual fund in Sarasota, Fla. specializing in foreign exchange investments. “Fed policies are keeping the dollar down and the world is growing increasingly worried about the debt situation in the U.S. That’s all there is to it,” Welch added.

… It’s a bit odd that one of the primary reasons cited for dollar weakness is the concern about how bad the debt problems could get in the U.S. At the same time, the euro has rallied despite many current problems across the pond.

… James Dailey, manager of the TEAM Asset Strategy Fund added that the problem with currencies — as opposed to stocks and bonds — is that it’s almost impossible to put a hard value on them. That’s another reason why precious metals, a tangible currency alternative, have been rallying.

“…currencies are not normal markets. They are, for the most part, purely faith-based.” And while Dailey said that there is a good chance the dollar could soon enjoy a sharp rally, it’s not hard to envision the exact opposite scenario unfolding.

“As weak as the dollar has been, it’s been an orderly decline,” he said. “We need stabilization soon or there could be growing concerns that the sell-off will turn into a full-blown crisis.”

[source]

by Julian Phillips
Monday, 25 Apr 2011 (Mineweb) — Some months back we pointed out that in their present form, banks had become the arteries and veins of the financial worlds with central banks the heart. Unfortunately, banks are driven solely by the profit motive. As they grew into every aspect of people’s financial lives, they failed to take on the corresponding social responsibilities that came with it.

The result is that when their greed went too far and the banking system was threatened with collapse, they had to be bailed out by their customers at the retail level, the taxpayers. Since then, they have recovered but are not vibrantly underpinning the economies in which their customers are based to promote a recovery.

Still, their total thrust is for profits, meaning that there is just not enough banking support to invigorate developed world economies. Worse still, the public perception of bankers has been eroded so far, it’s common to hear them described as ‘banksters.’

… We are of the opinion that there is little chance of bankers moving away from the profit motive or of lawmakers enforcing social responsibility on bankers.

What is remarkable in the last few years has been the increasing visibility of the actions of bankers and the very public loss of reputation. How long will it take for developed world investors to turn away from their financial systems as Indian investors have done for so many decades and use cash and gold and property in an ‘alternative’ financial system?

… Most importantly, gold and silver bullion, by itself, are places to escape dishonesty and all the common, unethical, core practices of the financial system. Precious metals don’t lie, cannot be unethical, do not have conflicts of interest but are respected by all their investors, whatever the state of these investor’s own morality. So long as this situation persists in the banking world, gold and silver will be bought as long-term money and honest investments.

[source]

25 April, 2011 (RT) — … Bank of Moscow analyst, Yuri Volov, believes investors will remain bullish for gold with confidence in the regulatory framework of the global financial system weakened, and says the price will go higher:

– “Gold is the only attractive alternative to protect investor’s money from depreciation. In the current economic situation the gold prices are rising, reflecting economic volatility and instability. Gold is more or less independent from currency fluctuations which gives it advantages. Lest you forget, all developed economies have at least part of their reserves in gold for protection. All regulatory measures and decisions pushed by the governments look uncertain….”

Dmitry Balkovsky, Head of Goldenfront.ru, said that the economic value of money is decreasing and gold could become a more significant reserve currency globally. He sees gold continuing to firm until well into next year with the world still lacking clear signs that a global economic rebound is sustainable:

– “The Price of gold is a mirror of macroeconomic stability and the price increase shows a lack of confidence in money and governments that print it. …… Gold is a tremendously attractive by all means. It has been used for decades in the past as a robust regulatory instrument maintaining all economic relations. Today this precious metal economic value can be successfully applied to regulation policy and revitalize our economy. Unless major developed economies get rid of gold reserves gold will continue to grow in value and the price can reach $1800 in he 1Q 2012.”

[source]

by Alix Steel
4/25/2011 (TheStreet) — Gold and silver prices were in for a bumpy ride Monday as profit taking and a recovering U.S. dollar capped recent highs. Gold for June delivery was adding 80 cents to $1,504 an ounce at the Comex division of the New York Mercantile Exchange. Gold was backing off from its recent record of $1,518.

… Silver prices had been close to conquering their record high of $50 an ounce Monday, adding as much as $3.03 to $49.10 an ounce. This 6% daily move for silver was sizable, and silver couldn’t hold it, currently trading down 12 cents to $45.93 an ounce.

As the metal approached $50, buy orders were triggered where traders automatically bought silver at a pre-determined price, but the steep move, also ignited profit taking. Also putting pressure on silver were traders betting against the metal’s recent rally.

… Although technical trading was playing a big factor Monday, a weaker U.S. dollar has been the most recent catalyst. The U.S dollar index is 0.04% lower at $74.08, recovering from a deeper selloff earlier this morning which added to volatility in the metals. Low volume was also exaggerating price swings as the London market was closed.

The dollar has been suffering recently as investors worry the U.S. government won’t be able to control rising debt and that the currency will continue to lose value.

… The dollar’s recent slide has also prompted China to hint at diversifying its reserve holdings away from the dollar. The state owned newspaper, Xinhuanet.com, reported that the chairman of China Everbright Group, Tang Shuangning, said “the amount of foreign exchange reserves should be restricted to between $800 billion to $1.3 trillion US dollars.” As of February 2011, China lent $1.2 trillion to the U.S. alone.

If China reduced its foreign exchange reserves, gold and silver would be leading candidates to take their place.

[source]

By Rujun Shen
Mon Apr 25, 2011 (Reuters) SINGAPORE — Spot silver surged more than 5 percent to above $49 ounce on Monday, buoyed by a weak dollar and strong physical demand in Asia that also propelled gold to a record high for a seventh consecutive session.

… Spot silver broke through resistance at $48 per ounce. That triggered some automatic buying, analysts said.

“As the market edged higher, a series of stop-loss buying was triggered, especially after silver rose above $48,” said Yuichi Ikemizu, Tokyo branch manager of Standard Bank. Technical analysis showed silver could be headed towards $54.78 per ounce, said Wang Tao, a Reuters market analyst. Buying interest in physical silver has jumped in markets from China, India to the Middle East.

“Everyone wants a piece of silver, right from a cab driver to a professional,” said Harshad Ajmera, proprietor of Kolkata-based JJ Gold House in India, “It looks like the whole of one billion population is chasing silver.”

For retail consumers, silver at near $50 an ounce is still a lot cheaper than $1,500 gold, but for investors, silver is more expensive relative to gold than it has been for more than three decades.

[source]

By Pham-Duy Nguyen
April 25, 2011 (Bloomberg) — Silver and gold surged to records in London on speculation that China will buy precious metals to diversify its foreign-exchange reserves.

China, with more than $3 trillion in reserves, plans set up new funds to invest in energy and precious metals, Century Weekly magazine reported, citing unidentified people. Silver for immediate delivery surged to a record $49.79 an ounce, and [spot] gold reached $1,518.32 an ounce. … Gold futures for June delivery rose $7.60, or 0.5 percent, to $1,511.40. Earlier, the metal climbed to a record $1,519.20.

“People are expecting China to be a major buyer of precious metals,” said Adam Klopfenstein, a senior strategist at Lind-Waldock in Chicago. “Gold is piggybacking on silver. You’re seeing a blowoff rally in silver, but we don’t know when the bubble gets popped.”

… Before today, spot silver more than doubled in the past year, while gold increased 32 percent.

“Silver in the long run really will end up in a bloodbath, but in the short term, the market loves it,” Dominic Schnider, a Singapore based director of wealth-management research for UBS AG, said today in a Bloomberg Television interview. The commodity’s relative-strength index, which may signal a decline above 70, was over 89.

… “Silver is definitely benefiting from spillover demand from gold as a haven investment,” said Li Ning, an analyst at China International Futures (Shanghai) Co.

[source]

4/26/2011 (Korea JoongAng Daily) — An increasing number of Korean bank depositors are putting their money into foreign-currency denominated deposits or gold-buying deposits this month, data showed yesterday, pointing to a growing appetite for safe assets. … The rise came as customers try to put their money into such deposits when the value of the dollar remains weak.

The Korean currency, which hit a 32-month high to the dollar last week, has risen about 5 percent against the dollar since the start of this year. The won is widely expected to rise further against the dollar, aided by robust exports and sustained inflows of foreign capital.

… As the dollar has slid against major currencies amid the U.S. Federal Reserve’s soft monetary policy, gold has extended its rally, sending the price of the precious metal above $1,500 per ounce.

The risks of global inflation are raising expectations that the price of gold might rise as an instrument to hedge inflation risks, market experts say.

Demand for gold-buying deposits in Korea has risen, reflecting the popularity of gold as a form of investment, industry watchers said.

[source]

Gold Marches Higher as Fed Prepares to Meet…and Speak

Gold established a new record high at 1518.00 in thin overseas trading, led higher once again by silver, which moved within 25¢ of its all-time nominal high of $50.00. Silver has since come under corrective pressure, driven by profit taking ahead of Tuesday’s options expiration. A mix of expectations over the outcome of this week’s FOMC meeting and Fed chairman Bernanke’s first post-FOMC presser on Wednesday has heightened uncertainty.

While it is widely believed that the Fed will hold interest rates steady near 0% — and is likely maintain its ‘extraordinary/extended’ language — there is mounting expectations that Bernanke will indicate QE2 will be allowed to terminate on schedule at the end of June. I would anticipate that Bernanke will leave his options open though, couching with “as economic conditions warrant,” or something to that effect. It is unlikely that the Fed will initiate any action to start draining liquidity from the system and I would argue that there is a good chance that the Fed will at least be reinvesting the proceeds of maturing debt — a new QE-lite campaign — before all is said and done.

Since the Fed has a new unofficial third mandate of supporting the stock market, many believe equities will be the barometer the Fed uses to determine what liquidity measures will look like in H2. If interest rates surge and stocks tank upon the removal of Fed accommodations, it is unlikely that the Fed will sit idly by and allow it to happen. So far, the reviews of Fed efforts have been less than flattering, yet given that legislative gridlock is expected to impede any meaningful fiscal reform, it seems unlikely that the Fed will be completely throwing in the towel on monetary policy any time soon.

The most interesting aspect of this week’s FOMC meeting is that Chairman Bernanke will be holding his first press conference to address media questions about the policy statement. The ECB has been doing it this way for years and much more is divulged in the presser than is revealed in the written policy statement. Bernanke has been grilled by members of the House and Senate, so I wouldn’t expect him to have any problem with the financial press. What will be telling though, is the caliber of the questions posed by the press and how evasive or forthcoming Bernanke is with his answers.