By Kyoungwha Kim
Apr 28, 2011 (Bloomberg) — Gold for immediate delivery advanced as much as 0.3 percent to an all-time high of $1,540.45 an ounce in Singapore today.

[source]

By Chris Oliver
April 28, 2011 (MarketWatch) — Hong Kong is on track to kick off a new gold-futures trading platform with settlement in the physical metal next month, marking the emergence of a second exchange in the city offering leveraged bets on the metal’s rise.

The Hong Kong Mercantile Exchange, known as HKMEx, said it received regulatory clearance to launch gold-futures trading on May 18, according to a statement by the exchange Wednesday.

Debut trade will include one-kilogram gold contracts denominated in U.S. dollars.

Upon maturity of HKMEx’s contracts investors can take physical delivery at a government-operated gold depository located at the city’s main airport.

Actual delivery would be helpful for some investors who have specific uses for the metal, while it’s also in keeping with the city’s growing role as a precious-metals hub, according to HKMEx spokeswoman Aubrey Ho.

Trading volumes in Hong Kong should keep pace with growing demand from across the border, since China lags behind only India in terms of global consumption, the spokeswoman said.

… Meanwhile, Hong Kong also supports the trade via a subsidiary of Hong Kong Exchanges & Clearing, operator of the city’s stock and futures markets. Both Hong Kong and Singapore denominate their gold contracts in U.S. dollars and provide settlement in cash.

The new platform will host trade over a 15-hour window starting at 8 a.m. Hong Kong time, serving as a bridge for markets in the U.S. and Europe. Hong Kong’s current gold-futures trading platform, introduced in 2008, operates over a nine-hour window starting at 8 a.m.

… The China Gold & Silver Exchange Society, also in Hong Kong, supports trade in physical gold but doesn’t offer futures trading services.

[source]

By Claudia Assis and Nick Godt
April 28, 2011 (MarketWatch) — Gold futures settled at a record Thursday as the dollar fell further on a jump in weekly jobless claims and data showing the U.S. economy grew at a slower pace in the first quarter. … Thursday’s macroeconomic reports reinforced the view that loose monetary policy is still needed to prop up the economy.

A weaker dollar lifts gold’s value as a safe-haven alternative to currencies. It also sent gold to an intraday record, and silver futures rallying.

Gold for June delivery rose $14.10 or 0.9%, to $1,531.20 an ounce on the Comex division of the New York Mercantile Exchange. The contract traded as high as $1,538.80 an ounce, according to a preliminary tally on CME Group’s website. CME owns Comex.

… The dollar had already been hit after Federal Reserve Chairman Ben Bernanke said Wednesday he would hold the central bank’s stimulative stance indefinitely…. “Bernanke basically said, ‘hey, we are going to let the U.S. dollar just get crushed,’” said Michael K. Smith, with T & K Futures and Options Inc. in Florida.

[source]

Gold Rises to Record for Second Day as Fed Maintains Rate, Dollar Slumps
by Maria Kolesnikova and Yi Tian
Apr 28, 2011 (Bloomberg) — The gold market is “not a bubble,” and prices will continue to climb in the long term because global monetary policy is “out of sync” with the real economy, John Hathaway, the senior managing director of Tocqueville Asset Management LP, said today at the Bloomberg Link Precious Metals Conference in New York.

[source]

Thursday, 28 Apr 2011 (Rueters) — Central banks in Brazil, Chile and Thailand fretted on Thursday that high consumer prices could eat into economic gains, underscoring emerging markets’ struggles to contain surging inflation. Different policy approaches in Thailand, South Korea, Chile and Brazil have so far yielded all-too similar results: stubbornly strong inflation rates that threaten to soar above policymakers’ comfort zones.

… What makes this episode of inflation particularly tricky is that much of the pressure is coming from abroad, in the form of rising oil and food prices. Monetary policy has its limitations when it comes to cooling imported inflation. Raising rates in Thailand won’t calm unrest in Libya, which is one of the biggest drivers of therecent rise in the price of oil.

“Since the source of higher prices is, for the most part, external to Thailand, the standard medicine for inflation — higher interest rates — may not be that effective in slowing down price increases,” World Bank economist Frederico Gil Sander wrote in a report published on Wednesday.

South Korea has tried another approach, with the central bank leaving interest rates unchanged at its April meeting while authorities are letting the won rise sharply, which can help absorb inflationary pressure.

But that can create another set of headaches. The strong won has fueled sharp gains in short-term foreign borrowing, and South Korea warned on Thursday it may impose new controls to try to prevent a destabilizing flood of foreign capital.

[source]

by Rebecca Patterson, Managing Director & Chief Markets Strategist, J.P. Morgan Asset Management
Thursday, 28 Apr 2011 (CNBC) — While the dollar appears increasingly “cheap” on a backward-looking basis, structural changes in the global economy – mainly outside the U.S. – could pull the dollar down further, potentially significantly.

The US remains by far the world’s largest economy, accounting for 27% of global GDP in 2009. The US dollar, meanwhile, continues to enjoy its place as the most traded currency in the world: The Bank for International Settlements (BIS) latest survey showed that a dollar was used in nearly 87% of all currency transactions as of 2010.

Given this, it’s all the more surprising what is happening in currency markets today. … We believe this could result in a resetting – lower – for the dollar’s long-term fair value, even though the trade-weighted dollar is already close to its weakest point since the early 1970s.

… Structural changes in underlying economies which impact variables such as terms of trade, inflation or interest rates can raise or lower a currency’s fair value. We believe such a shift may be happening today for the U.S. dollar. … Further, US policy officials have been unusually silent during these last two years of the dollar’s decline.

… While central banks are not yet taking big steps into emerging market currencies, a lot of other investors are. Those investors include Americans, who are selling dollars to increase their EM exposures. At the same time, emerging-market central banks are intervening – in size – to control local FX appreciation. In the first quarter of 2011 alone, JPMS LLC estimated that central banks spent $60 billion intervening, accumulating dollars in the process. With diversification programs in place, generally more than a third of those dollars are then sold to buy other currencies…

[source]

RS View: In her commentary Rebb has focused on FX, but the real game-changer is the shift toward the paramount centralization of physical gold reserves within the central bankers’ cosmos of international currency and reserve management. For over ten years at these pages I’ve been detailing this subtle yet steady shift so that you would have the right context in which to proactively understand the upwardly floating gold meme that is gathering pace, and to do so without getting yourself entangled in all the foreseeable distractions yet to be offered by ill-informed bubble-visionaries and in the form of the frozen monetary standards of ideologically arrested gold bugs. Gold shall continue to float higher against national currencies and against other real assets, and in the course of this process the footing of the international monetary system will become surer and better balanced than at any time prior in all of human history. As a productive being you will like it; and as a physical gold owner/saver even more so.

Bernanke Speaks – Dollar Tumbles, Gold Surges

The Fed released its latest policy statement, which was pretty much in line with expectations. While paying modestly more homage to inflation risks the Fed concluded once again that economic conditions “are likely to warrant exceptionally low levels for the federal funds rate for an extended period.” Typical boring FOMC statement. The real fun began when Chairman Bernanke stepped up to the microphone to take questions from the press for the first time. At that point, the dollar slumped, gold surged to new record highs and silver retraced most of its recent corrective move. While the level of questioning was not what I’d call terribly probing, there were at least a couple gems that we would have never been able to glean from the written statement.

A transcript of the press conference is available here.

First the boilerplate: Rates will remain near 0% for an extended period. The Fed wont be tightening any time soon. This confirmation intensified dollar selling interest as those that bet the Fed would adopted at least a modestly more hawkish tone were quick to cover those bets.

Bernanke then reiterated the Fed’s commitment to seeing QE2 through to its scheduled completion at the end of June. However, at that point the Fed’s balance sheet will not begin shrinking, as they will continue to reinvest the proceeds of maturing debt. Such measures were dubbed QE-lite in the period between QE1 and QE2. Treasury pays the Fed on that maturing debt and the Fed turns around and buys more Treasuries with the proceeds. Given the additional $600 bln in Treasuries that will have been purchased over the course of QE2, arguably QE-lite wont be so “lite” any more, but the main take away is that quantitative easing will continue into H2. You could call it QE3 if you were inclined or QE-lite2…but a rose by any other name…

When queried about rising gasoline and food prices and whether the Fed could or should do anything about that, Bernanke confirmed that “the Fed can’t create more oil.” Bernanke continues to dismiss the notion that Fed policy is having any influence on rising commodity prices. As for oil, he added, “We don’t control the growth rates of emerging market economies.” He continues to view food and energy price inflation as “transitory.” What I found interesting though is that he chose to use the phrase “the Fed can’t create more oil,” when so many are understandably worried about what the Fed can create…dollars, which in turn, drives up the price oil in terms of dollars.

Mr. Bernanke reiterated the Treasury Department’s ‘strong dollar’ mantra, saying, ” a strong and stable dollar is both in American interests and in the interest of the global economy.” While he said the Secretary of the Treasury is the spokesperson for dollar policy, everyone knows that interest rates — which are determined by the Fed — arguably have the biggest influence on dollar exchange rates. While that was a complete punt on Bernanke’s part, there is at least still an illusory line between the Fed and Treasury and I understand why he danced along it. Yet it still begs the question that I posed when Secretary Geither recently restated that Treasury maintains a strong dollar policy: Strong (and stable) against what?

This was the most interesting question of the entire presser:

In the past, there have been times when fiscal policy has tightened and the Federal Reserve has chosen to ease its policy and response partly to that, given whatever the circumstances the economy were at the time. Congress appears intent at this point on cutting spending significantly; might restrain the economy, as it appears to be doing in Britain where they’re following a similar path. Is there anything the Fed can or should do if indeed there are large budget cuts sometime in the next 18 months?

Bernanke conceded that the long-term deficit is “unsustainable” and is a top-priority, adding that the budget cuts seen thus far don’t seem to be having “very significant consequences for short-term economic activity.” That’s because the scope of the spending cuts thus far have been inconsequential in relation to trillion dollar plus budget deficits. Bernanke went on to say that the Fed takes a long-term perspective on the long-term deficit problem, but acknowledged that if fiscal policy does have a negative consequence for growth, the Fed is “going to try to set monetary policy to meet our mandate.”

Ezra Klein of the Washington Post interpreted that exchange thusly: “So if Congress tightens too much in the short-term, that’ll hurt economy and Fed will loosen in response. That’s important.” That is important, given the spending cuts that have been proposed in the competing budget proposals. It’s also important when you consider the more likely scenario, that neither of those budget proposals advance ahead of the 2012 Presidential election, in which case the Fed may be forced to ease as well. Given that rates remain at 0%, the easing is likely to be of the quantitative nature. The uptick in QE expectations explains why the dollar tanked and gold surged on Mr. Beranke’s comments.

By James McKeigue
Apr 28, 2011 (MoneyWeek) — Commodities bull Jim Rogers has admitted he is worried that silver might go “parabolic” and crash later this year. The 69-year-old investor remains confident that gold will continue to rise but says that if silver continues to rise at its recent rate, “you’ve got a bubble”.

Rogers is well known for attracting press attention, famously moving his family to Singapore because Asia is “how Europe used to be”. However, investors will particularly interested in his view on silver as he has made several well-timed calls on commodities in the past. Rogers made his name by co-founding the Quantum Fund with George Soros in the ’70s…

Speaking to a US radio station, Rogers acknowledged that “people are starting to notice gold” but remains confident that gold has plenty [headroom] to rise. … He denied that recent purchases by institutional investors, such as Texas University, marked the top of the market. “Gold’s been going up for ten years in a row. I’d hardly call this a tipping point.”

Rogers, however, was a little more cautious on silver. … On the one hand, “maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver.” But if silver “goes parabolic” this year without an accompanying currency collapse, “I would be very worried.”

[source]

April 28 2011
(Reuters) — Gold hit record highs on Thursday as the dollar’s three-year low against a basket of major currencies attracted non-U.S. investors, after the United States signalled it would retain accommodative monetary policy.

Spot gold ascended to a lifetime high of $1,535.90 an ounce, breaking records for a second straight session.

… U.S. gold futures also hit an all-time high at $1,535.10 an ounce and then trimmed gains to $1,532.

… The weakening dollar has been a key driver behind gold’s rally in recent weeks, alongside concerns over civil disruption in the Middle East and North Africa, sovereign debt problems in the euro zone and rising inflation worldwide.

“Everything is dollar-related and safe-haven buying,” said MKS Finance head of trading Afshin Nabavi. “The Fed decision was not really a surprise. Nothing has changed, but the tone of the statement from Bernanke left the impression that it is going to be awhile before any rate hikes will be considered.”

… Physical gold buying was seen active in Asia, while scrap selling was limited as market participants remained bullish even after gold struck record highs in nine out of the past ten sessions, dealers said.

Spot silver, which has rocketed more than 50 percent so far this year, rose to $49.16 an ounce against $47.76 an ounce late in New York on Wednesday. … Gold and silver may both see more upside, but the risk of a pullback in silver is larger than in gold due to the more speculative nature of the silver market, traders said.

[source]

By Jeannine Aversa
April 28, 2011 (Associated Press) — The economy slowed sharply in the first three months of the year as high gas prices cut into consumer spending, bad weather delayed construction projects and the federal government slashed defense spending by the most in six years.

The Commerce Department said Thursday that the economy grew at a 1.8 percent annual rate in the January-March quarter. That was weaker than the 3.1 percent growth rate for the October-December quarter. And it was the worst showing since last spring when the European debt crisis slowed growth to a 1.7 percent pace.

… But gas prices are still going up. The national average on Thursday was $3.88 a gallon, an increase of 30 cents from a month ago when the first quarter ended.

An inflation gauge in the report showed consumer prices rose last quarter at the fastest pace in nearly three years, with most of the increase coming from higher fuel costs. Rising gas prices are draining most of the extra money that Americans are receiving this year from a Social Security payroll tax cut.

… Economists in a new Associated Press survey predict the economy is growing at a 3.2 percent pace this quarter and that growth will steadily improve over the remainder of the year. An inflation gauge tied to the report showed that consumer prices rose sharply last quarter.

Prices rose at an annual rate of 3.8 percent, the most since the summer of 2008, when gasoline prices hit a record high of $4.11 a gallon nationwide. But stripping out energy and food prices, inflation rose at a rate of 1.5 percent. That’s at the low end of the range of inflation the Federal Reserve believes is needed for a healthy economy.

[source]

by Jim Cramer & Alix Steel
Thu 04/28/11 (TheStreet) –

by Alix Steel
04/28/11 (TheStreet ) — Gold prices were hitting highs while silver prices were moving higher Thursday as investors bought the metals against a weak dollar and higher inflation expectations.

… Thursday’s rally was carry over from Wednesday, when gold and silver popped 1% and 2%, respectively and rose even higher in after-hours trading. Federal Reserve chairman, Ben Bernanke, can be thanked for the rally. The unanimous decision by the Fed to keep interest rates at 0-0.25% until at least the fall as well as keeping its balance sheet the same size after quantitative easing ends in June meant more cheap money for longer.

… This is “adding quite a bit of pressure to the dollar index and investors are going to be searching for those hard assets to protect themselves,” says Phil Streible, senior market strategist at Lind-Waldock. … Streible says the rally was even stronger because speculators who were washed out in the recent selloff could get back into the market as well as those who missed the rally the first time. His forecast for 2011 is $1,650 for gold and $60 for silver.

… Monday on the Comex, trading of silver futures popped to a record 319,204 contracts. Adding to potential volatility is the end of April, where traders must either roll over their existing contracts or let them expire. This could also account for the price discrepancy between the futures market and spot (physical) market.

[source]

Gold extended to fresh all-time highs overseas on follow-through momentum provided by Fed chairman Bernanke’s press conference. The indication from the Fed that US interest rates will remain extraordinarily low for an extended period, despite rising inflation risks, pushed the dollar to new 32-month lows. Bernanke hinted that the Fed might act if actions (or perhaps inaction) from Congress resulted in short-term negative consequences on growth. With interest rates already near 0%, that likely means further quantitative easing.

US Q1 GDP (advance) slows to +1.8%, below market expectations, vs +3.1% in Q4-10.

US initial jobless claims surge 25k to 429k, for the week ended 23-Apr, well above market expectations.

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) — David 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.

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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.”

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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.

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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.”

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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.

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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.”

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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.

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