27-Apr (Financial Times) — When Mariano Rajoy was elected prime minister of Spain last autumn, it looked like a silver lining had appeared in the dark clouds over the eurozone. Despite his repeated support for austerity, Mr Rajoy had sent the people of Spain a message of hope for the future. His big election win suggested significant popular support for his reform agenda.

Five months on, this sense of hopefulness has all but disappeared in Madrid. With unemployment approaching 25 per cent and yields on 10-year bond rates stuck near 6 per cent, politicians’ rhetoric has changed too. Speaking on the radio this week, the foreign minister, José Manuel García-Margallo, admitted the government’s near-despair when he said that “Spain is undergoing a crisis of enormous proportions”.

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François Hollande is predicted to win France’s presidential election, but his victory could endanger the euro zone’s carefully negotiated fiscal pact. He also wants to water down the European Central Bank’s statutes, forcing it to lend more to promote economic growth. But his plans would do little more than borrow time — and they could be very dangerous for Germany.

The whole ghastly process is now set in motion. Not just for Chancellor Angela Merkel, but also for anyone who still had a modicum of hope that the worst of Europe’s debt crisis had already been overcome.

The opinion pollsters were right — François Hollande won the first round of the French presidential election last Sunday. According to all the polls, he will also win the runoff vote on May 6. If he wins, he would become the second Socialist president of the Fifth Republic, following in the footsteps of François Mitterrand.

For France’s neighbors and the fight against the sovereign debt crisis in Europe, that will set everything back to square one.

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26-Apr (Reuters) – Standard & Poor’s on Thursday cut its credit rating on Spain by two notches, citing expectations the government finances will deteriorate even more than previously thought as a result of a contracting economy and an ailing banking sector.

The ratings agency, which downgraded Spain to BBB-plus from A, also put a negative outlook on the credit and said Spain’s situation could deteriorate further unless ambitious measures were taken at European level.

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27-Apr (USAGOLD) — Gold has pushed to new highs on the week, buoyed by the BoJ’s pledge of an additional ¥10 trillion in asset purchases and another uptick in QE3 expectations here in the States as well. While the yellow metal remains narrowly confined within the recent range, upside pressures seem to be mounting.

Fed chairman Bernanke very clearly indicated earlier in the week that the Fed stands ready to initiate “additional balance sheet actions if necessary”. The central bank has maintained of late that the launching of additional quantitative measures is data dependent; well if the Fed’s finger is hovering over the switch to the printing press, today’s weaker than expected Q1 GDP print likely made them flinch. Taken in conjunction with recent misses on durable goods orders, housing data, employment data, among others, arguably the odds of QE3 have risen significantly in recent weeks; the Fed’s own rosier outlook on the economy not withstanding.

While ¥10 trillion ($124.3 bln) is not exactly chump change, the market was quick to realize this was no big bazooka. With inflation currently around 0.2%, it’s going to take a lot more than ¥10 trillion to get inflation up to the 1.0% target. In his press conference, BoJ Governor Shirakawa acknowledged that the central bank was taking a gradual approach to raising prices amid worries of a destabilizing overshoot saying, “Recklessly easing without taking into account that lag effect would destabilize price moves.”

With the Japanese economy contracting, the UK back in recession, moribund growth in the US, persistent worries of a hard-landing in China and Europe back on the brink of turmoil, I’m not sure global markets will have much tolerance for monetary prudence. In fact, I would expect calls for reckless abandon on the monetary policy front to grow louder and louder as oppressive and growing debt loads continue to weigh on growth.

The markets and economies of the world are addicted to cheap and easy money, withholding that now is going to result in a fierce case of the DTs world wide. As with an addict, withdrawal is a necessary process that must be endured if there is any hope of resuming with a more normal and worthwhile existence. But in the worse case scenarios, if the addiction is so great, the withdrawal process can kill the patient.

I don’t believe we’ve reached that point yet, but the continuation of über-easy monetary policy, liquidity measures and other accommodations certainly push us ever-closer to that point.

• University of Michigan sentiment (final) revised higher to 76.4 in Apr, above market expectations of 75.7, vs 75.7 initially.
• US Q1 ECI +0.4%, below market expectations of 0.5%, vs 0.5% in Q4-11.
• US Q1 GDP +2.2%, below market expectations of +2.5%, down from 3.0% in Q4-11.
• Germany GfK consumer confidence fell to 5.6 for May, below expectations of 5.9, vs 5.9 in Apr.
• Germany import price index +0.7% m/m in Mar, below expectations of 1.0%, vs 1.0% in Feb; +3.1% y/y.
• Switzerland KOF Leading Indicator rose to 0.40 in Apr, above expectations of 0.13, vs upward revised 0.09 in Mar.
• France PPI +0.5% m/m in Mar, below expecations of +0.6%, vs negative revised 0.7% on Feb; +3.7% y/y.
• Italy retail sales (sa) +0.6% m/m in Mar, vs positive revised +1.1% in Feb; +0.1% y/y.
• Japan housing starts +5.0% y/y in Mar, vs +7.5% y/y in Feb.
• Japan construction orders -0.3% y/y in Mar, vs -1.8% y/y in Feb.
• BoJ holds steady on Target Overnight Call Rate at 0.10% max. Increases asset purchases by ¥10 trillion.
• Taiwan Leading Economic Index +1.2% m/m in Mar, vs upward revised +1.2% m/m in Feb.
• Malaysia M3 +15.0% y/y in Mar, vs +15.9% y/y in Feb.

27-Apr (Reuters) — The Bank of Japan boosted its asset-buying scheme by a further 10 trillion yen ($124 billion) on Friday and pledged to buy longer-term government bonds in a move seen aimed at convincing both impatient politicians and investors of its resolve to pull the economy out of deflation.

The central bank also kept expectations of more stimulus alive as it pledged to “pursue powerful monetary easing” to reach its 1 percent inflation target, even as it nudged up its growth and price forecasts for the coming years.

The policy easing came at the top of an expected 5-10 trillion yen range and initially impressed markets, pushing the yen lower. The central bank’s decision to buy more exchange-traded funds (ETFs) and real-estate linked funds also helped lift Tokyo shares.

But the yen later crept back up and stocks slipped as some market players saw the BOJ’s decision to give itself more time to hit the bond-buying goal as a sign that central bankers themselves had doubts about how much good their action would do for the struggling economy.

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PG View: While the new asset purchase announcement came in at the high end of expectations, I think there is a general acknowledgement being reflected in the market that ¥10 trillion is simply not enough.

26-Apr (MNI) — After France and the Netherlands, is it Greece’s turn to raise an angry fist toward Brussels?

Greek voters go to the polls on May 6 to choose a government to succeed that of the technocrat Lucas Papademos. Opinion polls suggest the vote could be another cry of protest — after the surge in the extreme right in the first round of French presidential elections and the collapse of the Dutch government — against the austerity-dominated policies that have driven most of the Eurozone in recession.

But the Greek election poses a much greater danger, most of all for Greece itself. If voters see it as a chance to take revenge on the governing parties who accepted the austerity measures in return for two successive bailouts, then Athens could well be pushed out of the euro.

“For the first time in Greece, the main divisions in this election have nothing do with left and right,” said Costas Panagopoulos, of the Athens-based polling agency ALCO. “The major divisions have to do with the loan agreement, those that are for it and those who are against.”

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26-Apr (Bloomberg) — Ireland’s economy will grow this year at about half the pace forecast by the government in December, Finance Minister Michael Noonan said.

Irish growth may be about 0.75 percent this year, Noonan said in an interview with Dublin-based broadcaster RTE today, down from a December estimate of 1.3 percent. In its sixth review of Ireland’s bailout program, European and international authorities said that while the country is on track to reach its fiscal deficit target, “considerable challenges” remain.

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26-Apr (Bloomberg) — Consumer confidence in the U.S. dropped last week by the most in more than a year as perceptions of personal finances and the buying climate dimmed.

The Bloomberg Consumer Comfort Index fell to minus 35.8 in the period to April 22 from minus 31.4 the previous week, the biggest decline since March 2011. A gauge of the buying climate decreased to a two-month low, and a measure of household financial wherewithal fell by the most since September.

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PG View: Weaker than expected KC Fed index today too, seems to fly a bit in the face of Bernanke’s rosier outlook from yesterday.

26-Apr (Bloomberg) — Any failure by the Bank of Japan to expand its asset-purchase program at tomorrow’s board meeting would sow confusion over its policy, a former policy maker said.

Inaction “would be a disaster for communication,” Atsushi Mizuno, who served on the Bank of Japan board from 2004 to 2009, said in an interview yesterday in Tokyo. All 14 economists surveyed by Bloomberg News before tomorrow’s gathering predict Governor Masaaki Shirakawa and his colleagues will boost asset purchases amid forecasts for growth to slow through the year.

Mizuno, now a managing director at Credit Suisse, said more important than the size of added stimulus tomorrow will be greater clarity on its policy objectives. Even as the BOJ has pledged to keep monetary stimulus until price stability is achieved, Shirakawa has warned in speeches in recent weeks that keeping excess stimulus in place too long raises the danger of financial imbalances.

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26-Apr (USAGOLD) — Gold has jumped to a new high for the week, but remains narrowly confined in the wake of yesterday’s FOMC policy statement. The fact that the Fed held pat on monetary policy came as no surprise to anyone, and although the verbiage in the actual policy statement seemed slightly less optimistic on the economy, the Fed bumped its GDP and employment forecasts modestly higher. However, less markets longing for more QE become discouraged, Fed chairman Bernanke was quick to reiterate that the Fed remains “entirely prepared to take additional balance sheet actions if necessary.”

Another high initial jobless claims number today may have lifted QE expectations somewhat, but the generally static Fed tone suggests the jury is still out on additional quantitative measures here in the US. However, one thing is all-but assured on the global QE front: Japan is widely expected to announce an expanded asset purchase program on Friday. New long-term economic forecasts from the BoJ tomorrow are expected to show that the central bank is falling well shy of its goal to manufacture 1% inflation. The solution? Print more and buy JGBs of course.

Although the economic turmoil in Spain has been stealing the headlines of late, and may well be doomed, let us not forget about Greece. The Bank of Greece just negatively revised its GDP forecast for this year to -5.0%. That’s worse than the -4.5% forecast they came up with just a couple weeks ago. It will be the fifth consecutive annual contraction. Perhaps more significantly though, Johns Hopkins economist Steve H. Hanke has noted that Greek money supply (M3) is contracting at a stunning — and accelerating — annual pace of -19%.

I trust that nobody thought for even a second that the Greek crisis was behind us. The latest €130 bln bailout of Greece, which was signed-off on just six weeks ago, did nothing but buy a little time. A very little time… Spain and Italy are under renewed pressure today and are admittedly much bigger problems than little ol’ Greece. However, further disruptions emanating from the end of the Balkan Peninsula have the potential to expose the harsh reality that bailouts are becoming increasingly ineffective; buying less and less time with each iteration. I think that growing realization is reflected in today’s much weaker than expected confidence numbers out of the eurozone.

• US NAR pending home sales index +4.1% to 101.4 in Mar, well above market expectations, vs upward revised 97.4 in Feb.
• US initial jobless claims -1k to 388k for week ended 21-Apr, well above market expectations of 375k, vs upward revised 389k in previous week.
• Canada average weekly earnings +0.2% m/m in Feb, vs negative revised +0.1% m/m in Jan.
• Eurozone economic confidence fell to 92.8 in Apr, below market expectations of 94.2, vs 94.4 in Mar; consumer confidence lower at -19.9.
• Eurozone industrial confidence falls to -9.0 on expectations of -7.2. Services -2.4 on expectations of -0.3. Business climate off at -0.52
• Italy business confidence falls to 89.5 in Apr, below expectations of 92.7, vs negative revised 91.1 in Mar.
• Germany CPI – Preliminary +0.1% m/m in Apr, in-line with expectations, vs +0.3% m/m in Mar; +2.0% y/y.
• New Zealand RBNZ holds official cash rate steady at 2.50%, in-line with expectations.
• South Korea Q1 GDP – advance 2.8% y/y, vs 3.4% in Q4-11.
• Japan trade balance 1st 10 (nsa) -¥455.2 bln in Apr, vs ¥53.8 bln in Mar.
• Japan All-Industry Index (sa) -0.1% m/m in Feb, vs -1.0% m/m in Jan.

26-Apr (ReutersTV) — A return to the gold standard is inevitable, perhaps as early as next year. And gold prices could hit $10,000/oz, says a new book by Amphora CIO John Butler.

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24-Apr (The Wall Street Journal) — Hundreds of small banks can’t afford to repay federal bailout loans, a top watchdog will warn Wednesday in a report that challenges the government’s upbeat assessment of its financial-system rescue.

Christy Romero, special inspector general for the Troubled Asset Relief Program, said 351 small banks with some $15 billion in outstanding TARP loans face a “significant challenge” in raising new funds to repay the government.
Markets Pulse: Live Coverage

Ms. Romero made the comments in her quarterly report to Congress, the first since the Senate approved her appointment in March as special inspector general for the program. She urged the government and regulators to find a way to help banks raise funds to repay the loans.

“The status of those banks is one of the major issues facing TARP nearly four years after the financial crisis,” the report says.

…”Overall, the government is now expected to at least break even on its financial stability programs and may realize a positive return,” Treasury said in a report last week.

But Ms. Romero questioned that statement, noting that taxpayers are still owed $118 billion, a figure she said included investments in AIG, GM, Allly Financial and other smaller programs under the TARP umbrella in addition to the outstanding loans to smaller banks. She also counted $4.2 billion Treasury had written off and realized losses of $9.8 billion “that taxpayers will never get back.”

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25-Apr (The Wall Street Journal) — Indian investments in gold exchange-traded funds surged 44% Tuesday on the auspicious buying occasion of Akshaya Tritiya, even as fewer customers walked into gold jewelry shops.

The trade value of gold ETFs, or paper gold, on India’s National Stock Exchange rose to 6.08 billion rupees ($115.8 million) from 4.23 billion rupees a year earlier, while the total number of units traded on the bourse grew 10% to 2.2 million.

Though sales of gold in physical form, such as jewelry, coins or bullion bars, account for more than 90% of the business in the world’s largest consumer, the jump in ETF trade marks a shift in buying patterns.

…”The young generation now prefers to invest online rather than go to jewelers, which is increasing the demand for paper gold,” said Harish Galipelli, head of research at commodity brokerage firm JRG Wealth Management.

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PG View: Silly younger generation… If there is another financial crisis, they may be left holding nothing more than an account statement, while their elders will be holding the real thing.

25-Apr (MSNBC) — Even as the economy shows signs of slowing and the unemployment rate remains stuck at painfully high levels, Federal Reserve Chairman Ben Bernanke spent much of a news conference Wednesday explaining why central bankers have decided — for now — to do nothing.

Earlier in the day, the central bank’s policy-making Open Market Committee repeated its promise to leave interest rates on hold at current rock-bottom levels until at least late 2014. But it gave little guidance on whether it might take additional steps later this year to try to boost growth.

“We remain entirely prepared to take additional balance sheet actions if necessary to achieve our objectives,” Bernanke told reporters. “So those tools remain very much on the table, and we would not hesitate to use them should the economy require that additional support.”

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25-Apr (Forbes) — The Bernanke Fed decided to keep the monetary levers unchanged on Wednesday, as they acknowledged the slight improvement in labor markets and general economic activity. While QE3 appears to be off the table, the Fed’s FOMC statement made it clear that downside risks abound, particularly in “global financial markets,” signaling that the European sovereign debt crisis could still bring the U.S. economy down. Inflation, on the back of food and energy prices, has risen, but the Fed considers it temporary.

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PG View: Gold sold-off initially in the wake of the FOMC statement, but has since recovered and is again trading higher on the day; nearly $20 off the intraday low.

24-Apr (NY Times) — By any measure, the Spanish real estate boom was one of the headiest ever. Spurred by record-low interest rates, Spaniards piled into holiday villas along the Costa Blanca, gaudy apartments in Madrid and millions of starter homes throughout the country.

But since the frenzy drove Spanish home prices to a peak in 2007, they have fallen by at least one-fourth, and the bottom seems nowhere in sight. As Spain endures its second recession in three years and unemployment nears 25 percent, an increasing number of debt-heavy Spaniards can no longer meet monthly payments on the mortgages that their banks were all too eager to give.

With a rising portion of Spain’s 663 billion euros, or $876 billion, in home mortgages at risk of default, many economists say it is only a matter of time before some of Spain’s biggest banks will need a bailout. And the Spanish government, staggering under its own debt and budget deficit burdens, may not have the money to come to the rescue.

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24-Apr (The Wall Street Journal) — U.S. billionaire investor George Soros compared the euro-zone crisis with factors that led to the Soviet Union’s collapse in the early 1990s.

“Europe is similar to the Soviet Union in the way that the euro crisis has the potential of destroying, undermining the European Union,” he said in a debate on public policy education Tuesday. “With the profound social, economic and moral crisis that Europe is in, we can see a similar process of disintegration.”

…“The euro is undermining the political cohesion of the European Union, and, if it continues like that, could even destroy the European Union,” he said in comments carried by Reuters. “You can grow out of excessive debt, you cannot shrink out of excessive debt.”

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PG View: Soros is right, “you cannot shrink out of excessive debt,” but printing your way out of excessive debt certainly remains an option…

Buy Gold In Times of Relative Calm

24-Apr (USAGOLD) — Gold is firmer, but still within the recent range as the FOMC commences their two-day meeting. Despite some pretty discouraging US economic data, particularly on the housing front, consensus suggests that much like the March meeting, policy will remain steady without any overt hints of further QE. We’ll find out tomorrow at 16:30GMT.

As the Fed ponders monetary policy, the ECB seems to be maintaining the position that they’ve done enough and that salvation of the eurozone lies in the hands of the politicians. However, those very politicians are already paying a heavy price for the fiscal policies being foisted upon them. In just the last couple of days we saw a rather stunning electoral upset in France and two governments fail; one in the Netherlands and one in the Czech Republic. Have no doubt that the governments in the other periphery countries under severe economic duress are taking note.

One might reasonably argue that countries that implement severe austerity measures to reign in deficits risk being ousted by voters. Yet, failure to implement such measures risks the withholding of critical troika financial life-lines. There is no easy solution to the debt inspired woes that are plaguing Europe, which have resulted in renewed risk aversion. Investors are seeking shelter in German bunds and US Treasurys, even though their yields are below the rate of inflation.

Despite the hardline being taken by the ECB — and in particular the German contingent — shorter-term bund yields dipped once again below those of their Japanese counterparts yesterday. This is rather interesting in light of the uptick in hawkish sentiment in Europe and the widely held expectations that the BoJ’s next move will be to ease further. When this initially happened last week, for the first time in more than 20-years, the FT reported that the Eurozone is starting to look Japanese.

‘Risk-off’ sentiment is also underpinning the dollar, which has conspired to keep gold fairly well contained. The gold market is teetering on the edge of backwardation, and even out to the October contract on COMEX there’s only about $5 in time premium. On the surface this would suggest that further consolidation is in the offing for the yellow metal, but on the other hand — and particularly given the robust physical demand we’ve been seeing — one might deduce that pressures are building.

The latest IMF data show that Mexico, Russia and Turkey were all big buyers of gold in March, perpetuating the central bank gold buying spree. We view the shift in central banks from net gold sellers to net buyers over the last couple years as an extremely important paradigm shift. See the headline article in the latest USAGOLD Newsletter entitled, Surging central bank gold demand adds new dimension to bull market.

It was suggested yesterday on the ZeroHedge blog that gold might be the cheapest event-risk hedge going. I think that is in fact a practical way to look at gold, sort of beyond what is frequently sited as is primary roll as an inflation hedge. In the eyes of our firm and the vast majority of our clients, gold is above all else long-term wealth preservation, whether the risk dejour is inflation, deflation, systemic or event driven.

Speaking from experience – both as a gold owner and as a gold broker – waiting until black swans wing over the horizon to secure wealth preservation assets can be both expensive and stressful. Not only does buying in times of price stability and relative quiet, much like we have seen over the past few weeks, allow you to rest easier, it has in the past proven to be a very financially rewarding strategy.

• US consumer confidence fell to 69.2 in Apr, below market expectations of 70.0, vs negative revised 69.5 in Mar.
• US new home sales plunged 7.1% in Mar to 328k, above market expectations of 318k, vs positive revised 353k in Feb.
• US S&P Case-Shiller home price index for 20-cities -0.8% to 134.2 (nsa) in Feb, vs negative revised 135.2 in Jan; -3.5% y/y.
• Switzerland trade balance CHF1.7 bln in Mar, on expectations of CHF1.4 bln, vs negative revised CHF2.6 bln in Feb.
• Australia Q1 CPI +0.1% q/q, vs unch in Q4-11.
• Hong Kong trade balance -HKD43.9 bln in Mar, vs -HKD45.8 bln in Feb.

24-Apr (Bloomberg) — Mexico added 16.8 metric tons of gold valued at about $906.4 million to its reserves in March as nations including Turkey, Russia and Kazakhstan increased their holdings of the metal, International Monetary Fund data show.

Mexico raised its reserves to 122.6 tons last month when gold averaged $1,676.67 an ounce, data on the IMF’s website showed. Turkey added 11.5 tons, Kazakhstan 4.3 tons, Ukraine 1.2 tons, Tajikistan 0.4 ton, and Belarus 0.1 ton, according to the IMF. The data shows Russia boosted gold reserves by about 16.5 tons after its central bank said on April 20 they were higher. The Czech Republic reduced bullion reserves by 0.1 ton.

Central banks are expanding reserves after the metal climbed the past 11 years and holdings in exchange-traded products are about 0.7 percent below last month’s all-time high. The banks added 439.7 tons last year, the most in almost five decades, and may buy a similar amount in 2012, the London-based World Gold Council estimates. Gold reached a record $1,921.15 in September.

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PG View: As our own Michael Kosares pointed out in the most recent USAGOLD Newsletter, the shift to net central bank gold buying is likely to prove the biggest shift in the supply/demand dynamic since the Central Bank Gold Agreement.

24-Apr (AP) — Home prices dropped in February in most major U.S. cities for a sixth straight month, a sign that modest sales gains haven’t been enough to boost prices.

The Standard & Poor’s/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks.

The steepest declines were in Atlanta, Chicago and Cleveland. Prices rose in Phoenix, San Diego and Miami. They were unchanged in Dallas.

The declines partly reflect typical offseason sales. The month-to-month prices aren’t adjusted for seasonal factors.

Still, prices fell in 15 of the 20 cities in February compared with the same month in 2011. That indicates that the housing market remains far from healthy despite the best winter for sales in five years.

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