by Jim Willie
April 6, 2011 (MarketOracle) — … since the emergency G-7 Meeting held two weeks ago, the central banks have joined forces in a Global QE movement that will propel the Gold & Silver price much higher and render deep further damage to the USDollar. The Deflationists paid no notice, or did not notice, or did not comprehend the importance. They are a laughing stock crew of half blind shamans.

… My main ongoing criticism of the Deflation camp has been their blind eye to the human response to asset deflation. Obvious home prices fell and continue to fall, and related asset backed bonds have fallen progressively into ruin. That is not the point. Their camp has consistently ignored the central bank response with multi-$trillion monetary expansion. In round #1, the excesses were tucked away in the Federal Reserve interest bearing account for the big banks. They were essentially Loan Loss Reserves of those banks, which were removed from the big bank balance sheets only to be relocated on the USFed books. In round #2, the excesses went global with the entire commodity complex exploding upward in price. Purchase of USTreasury Bonds in the hundreds of $billions cannot be contained anymore than herding tiger cats. Most noticeable among commodity price rises was in food & energy. With most food items up 15% to 20% in price in a single year, and gasoline up 25% in several months, the pinch is on with powerful price inflation. But it appears on the cost side, as my analysis has mentioned numerous times. …… They never mention multi-$trillion central bank expansion of the money supply, which debases the value of money, even making a total mockery of money, thereby adding to the cost structure in a massive way, pressuring prices and wages. The rising stock indexes serve as evidence of the monetary inflation, which they do not recognize.

My point made consistently is that wages will not keep pace with rising costs, even made a national priority to halt the secondary inflation effects on wages. In that sense, my analysis has joined the Deflationists, but only with one foot in their shallow pond of constructs, hardly qualifying as a School of Thought.

[source]

Portugal admitted that it will need aid from the European Union to overcome its financial troubles, as the country’s crisis intensified.

Fernando Teixeira dos Santos, the finance minister, said: “In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework.”

[source]

PG View: The bailout of the eurozone periphery continues, despite months of assurances that Portugal was no Ireland…and Ireland we were told was no Greece. The market’s attention will now turn to Spain, and while there will be assurances that Spain is no Portugal, the charade is getting progressively hard to pull off.

By Claudia Assis and Myra P. Saefong
April 6, 2011 (MarketWatch) — Gold and silver futures made history Wednesday, landing top marks as investors flocked to the safe haven of precious metals, with a weaker dollar speeding up the run. Gold notched a settlement and an intraday record high and set its sights on $1,500 an ounce. Silver stopped just pennies short of the psychologically important $40-an-ounce level, hitting a 31-year high on its way.

Gold for June delivery rose $6, or 0.4%, to settle at $1,458.50 an ounce on the Comex division of the New York Mercantile Exchange.

The contract climbed as high as $1,463.70 an ounce earlier, according to a preliminary tally available at the CME Group’s website. CME owns and operates Comex. The settlement and the intraday nominal records supplanted the previous milestones reached just the previous day.

“The geopolitical situation is going from bad to worse,” said Afshin Nabavi, head of trading at MKS Finance in Geneva. “Everybody is talking about gold at $1,500 [an ounce].” … Gold at $1,500 is certainly possible in the short term, although a more orderly, slower rise over the next month or two would be more desirable, he said.

… “Prices are likely to remain buoyant as risk aversion increased on the back of Moody’s downgrade of Portugal’s credit rating,” analysts at ICICI Bank wrote to clients. … The focus on Portugal intensified as the country had to pay hefty yields to sell short-term bonds on Wednesday. Investors are concerned that a rescue for Portugal will also rock Spain, an economy bigger than Portugal, Ireland and Greece combined.

[source]

(Reuters) – The United States should include in its budget the cost of mortgage loan guarantees and other housing supports, the International Monetary Fund said on Wednesday in a rare criticism of its biggest shareholder.

The IMF’s findings may land it squarely in the middle of a hot political debate over what to do about Fannie Mae and Freddie Mac, the mortgage finance giants that back most new housing loans.

The IMF also faulted the Obama administration for failing to address the tax deduction for mortgage interest, which it called “both expensive and regressive.”

[source]

PG View: I find myself wondering why the IMF has chosen to focus on just Fannie and Freddie. There are a whole host of liabilities that aren’t included on the Federal balance sheet. As we’ve discussed in posts this week, our total debt is probably closer to $75 trillion, or nearly 500% of GDP.

by Kelley Holland
Wednesday, 6 Apr 2011 (CNBC) — A federal government shutdown might not dent the dollar too badly, especially if it’s short. But when the debt-ceiling debate rolls around, watch out.

Congress and the President aren’t sharing their sandbox very well. A government shutdown is looking increasingly likely this Friday, with all the attendant uncertainties.

… “Markets have gotten used to stopgap spending measures and have gotten a bit tired of these political games,” said Paresh Upadhyaya, head of Americas G10 FX strategy at Bank of America Merrill Lynch. “If we get a government shutdown and it lasts beyond the last time, I think the markets may start becoming concerned. But for now, I’m not all that bothered by it,” he told me.

… If there is a shutdown, investors could actually watch it for clues to how Washington will handle the looming debate on raising the debt ceiling. Any turmoil around government debt limits could have a marked effect on the dollar, said Steven Englander, head of G10 currency strategy at Citigroup. “You can shut down the government without defaulting. That just leaves you in despair about the process,” he told me. But “If you do anything that looks like a default, that’s really terrible for the dollar.”

Shutdown or no, Englander sees few reasons to be holding the dollar now, short of a global catastrophe that would lead investors to rush to safe havens.

[source]

April 6, 2011 (CNBC) —
“Fixed income securities are not going to do very well over the next five years or so and cash is not going to do very well either, I suspect commodities and common stocks are going to continue to outperform fixed income securities by a long shot,” Puru Saxena, Chief Executive at Puru Saxena Wealth Mangement told CNBC Wednesday.

Recommends 10% of portfolios be in physical bullion.

[source video]

Gold Surges to Record Highs

Gold remains well bid, having pushed to new all-time highs over the past two sessions. Silver continues to lead the charge, rapidly approaching $40, both being driven by rising inflation expectations and the simultaneous erosion of tighter Fed policy expectations. Political uncertainty in the US, a weak dollar, mounting debt worries in Europe, geopolitical tensions in MENA and the ongoing nuclear crisis in Japan are all adding to a broad-based sense of uncertainty and risk aversion that have underpinned the precious metals.

Tuesday’s initial push to new highs in gold was likely triggered by a Reuters story that quoted former Saudi oil minister Sheikh Zaki Yamani saying that oil could hit $200-$300 a barrel if Saudi efforts to squelch anti-government unrest are unsuccessful. This is something we warned about early in the year; If regional geopolitical turmoil spreads to Saudi Arabia, the price of oil could soar, derailing nascent economic recoveries in the US and Europe. Obviously, higher energy prices would not bode well for the hobbled Japanese economy either.

With that in mind, and in the wake of Goldman Sachs’ recent slashing of their Q1 GDP forecast from +3.5% to +2.5%, along with yesterday’s rather disappointing US ISM data, the optimism that developed in the wake of last week’s nonfarm payrolls report for March quickly evaporated. Investors that developed some appetite for risk based on the perception that the job market was improving, decided that they weren’t so hungry after all and began unwinding those risk trades, tempering their expectations that the Fed was not only likely to end QE2 on schedule, but would actually hike rates.

Additionally, there has been no movement on a US budget deal, despite intervention on the part of the President. There is apparently another CR on the table, but it comes with steep cuts attached. Both parties have dug in their heels, suggesting that a government shutdown this weekend is looking increasingly likely.

by Fiona Bond
April 6, 2011 (MoneyObserver) — Gold soared to a fresh record high today, as geopolitical unrest, a weaker dollar and rising inflation sent investors flocking.

Turbulence in the Middle East has showed no signs of abating as civil war in Libya persists, and skirmishes in Syria, Yemen and Bahrain have been reported.

Furthermore, the sharp spike in oil prices to a two and a half year high of $122.5 per barrel have sparked concerns that global inflation could continue to rise.

‘Very high inflation rates are particularly good for gold for short periods, as investors seek out hard assets, as concerns about the outlook intensify and safe-haven buying picks up,’ Standard Chartered analysts said in a research note.

[source]

April 6, 2011 (Morningstar) — Paul Justice, director of North American ETF research at Morningstar, talks to Tony Rochte, Senior Managing Director at State Street, and Abraham Bailin, a Morningstar commodities ETF analyst….

Justice:
So, we’re looking at $14 billion in assets, so roughly we are looking at a new source of storage or a new source of demand for silver that really didn’t exist five years ago. Could you give us an idea of how much silver was actually stored five years ago versus where it is today?

Bailin:
Well, it really depends on what context you are looking at–certainly there were a host of jewellery applications and silverware applications, but as far as vaulting went, really there wasn’t too much to speak of it at all, and there has been a bit of a paradigm shift in that respect now with the proliferation of funds like SLV that actually do vault silver in order to back their shares. Reason for that is that they are actually drawing down supplies that would have gone to physical uses beforehand.

Justice:
So, you’ve got industrial consumers who are competing against these people who want to hoard the metal and put it in the vault. They can’t really shut off production of their end used goods very quickly, so that marginal cost can really shoot up on that.

Bailin:
Sure. You get a bit of feedback, right? Because not only is there the entrance of a new demand with investment demand driven by these exchange-traded funds and the close-ended funds, but at the same time you are drawing down those supplies.

[source]

By Pham-Duy Nguyen
April 6 (Bloomberg) — Gold rose to a record for a second day in New York on demand for the precious metal as a hedge against inflation. Silver advanced to a 31-year high.

Gold rose as high as $1,463.70 an ounce on speculation that the U.S. will struggle to contain inflation. Federal Reserve Chairman Ben S. Bernanke this week said inflation must be watched “extremely closely.” Minutes from the Fed’s March 15 meeting, released yesterday, show dissent on maintaining programs intended to stimulate growth. The U.S. has kept its benchmark interest rate at a record low since December 2008.

“People are very concerned about inflation, especially with our central bank holding rates so low for so long,” said Matt Zeman, a market strategist at Kingsview Financial in Chicago. “In the eyes of the investing public, Bernanke’s reputation as an inflation fighter is questionable, and you’re seeing people continue to buy precious metals.”

“People don’t have much faith in the dollar,” Zeman said.

[source]

Gold has extended to establish more new record highs (currently 1460.78) as silver continues its march to $40. The latest surge in the metals and oil came on the heels of yesterday’s weak US ISM data. The hint of a faltering recovery reinvigorated the camp that believes the Fed will not be removing extraordinary accommodations any time soon. It simultaneously rattled the camp that had viewed the recent improvements in US payrolls data as a harbinger of tighter monetary policy.

About the same time that the ISM data were released, a Reuters story came out in which former Saudi oil minister Sheikh Zaki Yamani suggested that oil could hit $200-$300 if Saudi Arabia fails to prevent contagion of the regional geopolitical unrest.

China Securities Journal warns inflation may top 6% in the coming months, preventing any relaxation of monetary tightening.

Swiss CPI unexpectedly jumped 0.6% in Mar, accelerating the annual rate to 1.0% from 0.5%. Well above market expectations.

By Claudia Assis
April 5, 2011 (MarketWatch) — Gold futures rose to a record high Tuesday, shaking off early weakness to find firmer footing in fears of a potential U.S. government shutdown, conflict in the Middle East and North Africa, and Europe’s sovereign debt crisis.

Gold for June delivery rose $19.50, or 1.4%, to $1,452.50 an ounce on the Comex division of the New York Mercantile Exchange.

… In addition to all the overseas reasons to seek safety in gold, investors also flocked to the metal on fears that the U.S. government may run out of money by Friday if parties don’t reach an agreement about the federal budget, said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.

“A lot of people are uncomfortable with going into that without some safety net,” he said. “People want some protection” and traditionally gold is seen as both a storer of wealth and a safe haven from turmoil, he added.

Moody’s Investors Service pegging Portugal’s bailout as “inevitable” fueled the rally in both gold and silver, said Jeffrey Clark, an analyst with Casey Research.

“That’s a strong statement, but there’s no denying it’s Portugal’s turn. … We’ve seen this movie before, and gold is up because there’s probably not a happy ending here. Sovereign debt issues continue playing across Europe, and the bigger concern is that these debt issues will spread outside of Europe, including to the elephant in the room, the U.S.,” Clark said in an e-mail interview.

[source]

Gold Surges to Record on Hedge Against ‘Chaos;’ Silver Tops $39
by Pham-Duy Nguyen
April 5 (Bloomberg) — Gold futures surged to a[n intraday] record of $1,458.60 an ounce as sovereign-debt concerns boosted demand for the precious metal as an alternative asset. Silver prices topped $39 an ounce. Gold futures for June delivery … extended its rally to a record after the end of regular trading. Gold for immediate delivery rose as much as 1.6 percent to an all-time high of $1,457.45.

… “Once a central bank goes down the expansionary path to fight recession, it is much easier to keep pumping money than to reverse course when inflation starts to bite into purchasing power,” said Michael Pento, a senior economist at Euro Pacific Capital Inc. in New York.

The Fed has kept its benchmark rate at zero percent to 0.25 percent since December 2008 to stimulate the economy. President Barack Obama is negotiating with congressional leaders to prevent a government closure as the budget deficit soars.

“What’s looming ahead is the fear that if there is a shutdown in government, who’s going to want to own paper currency?” Klopfenstein of Lind-Waldock said.

Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, told clients to sell Japanese equities and buy gold. Japanese stocks fell the most in three weeks after Tokyo Electric Power Co. began dumping radioactive water from its Fukushima Dai-Ichi nuclear station into the sea.

[source]

by Neil Charnock
April 5, 2011 (MarketOracle) — … Considering that gold’s role in the monetary system was so understated a few years back it is no surprise that mainstream investors are taking time to correctly weight it back into their investment modelling. We are at a critical point in history, things are changing rapidly.

… I do not believe the sky is on fire or that civilization as we know it is about to end unless you are one of the unfortunate who lose everything. Currencies, banks, governments and corporations will come and go – the question is; are you prepared?

… One of the things that bother me about some of the data I have seen on the internet is the notion that banks create money out of thin air. Hear me out please as this is very important. Many investors in the UK, Europe and the US lost everything and are living in cars for the want of facts. FACT: there is a big difference between your local bank and a Central Bank. Unfortunately there is no differentiation from some analysis on this division and yet it is critical when we try to work out how this current financial mess we find ourselves in will pan out.

… This is a simplified outline and therefore there are some minor points not fully explained. A complete explanation that covers further detail is beyond the scope of this essay. Trading banks are both dealers and producers. They are not just a business where you keep your savings and borrow money as most of the public think. This system is rigged in their favour it is true. For a start, when you deposit money, it becomes their asset (as far as they are concerned – by an accounting measure) on their own balance sheet becoming part of their reserve requirements. If this does not disturb you I don’t know why – it is the essence of the rigged nature of the game.

They are dealers; they provide the shop front that facilitates lending and borrowing. You deposit and they lend against it. You provide the asset (your savings) that gives them some of their ability to produce their stock in trade, which are loans. These have to be repaid at interest. Your deposits are not enough in this day and age. Trading banks also go to the wholesale money markets and buy (borrow) money themselves which they then loan out at a profit, a higher interest rate…

They are also producers in effect as they transform cash issued by the government (via Central Banks) into more convenient checks and digital deposits or demand deposits, which are supposed to have greater security than cash. They also transform short-term deposits into longer-term loans. In the process, it can be said that they do the financial intermediation and maintain liquidity in the system at a very basic level. The Central Banks are there as the back stop lender to the banking system amongst other activities.

… The banking crisis is forcing governments to act with injections of capital and new red tape which makes the situation worse.

Perversely a part of this action has included offerings of our money to banks that have misappropriated these bail outs in part via bonuses to higher level employees. Governments are also trying to stop a repeat of the GFC without the full understanding of the root cause, only the symptoms seem visible to them.

[source]

Politics and Gold

Gold has surged to new record highs above 1450.00 as the political circus over the budget and debt limit ramps-up ahead of a potential government shutdown on Friday. The President has summoned leaders from both political parties to the White House this morning with the hope of nudging them toward some kind of compromise that will allow the government to continue functioning after the end of the week. While Mr. Obama has expressed optimism that something can be worked out, it seems that the parties have dug in their heels.

FY2011

The first order of business is to come to a decision on budgetary matters for the remainder of FY2011. A patchwork of CRs is no way to run the world’s largest economy, particularly during a time of economic duress. Arguably the uncertainty is hindering the recovery as our Representatives squabble over ‘chump change’. As I pointed out in yesterday’s report, (citing PIMCO’s Bill Gross) when unfunded entitlements are factored into the equation, we’re already facing a “$75 trillion total debt burden“. So, whether you’re talking about cutting $30 billion or $100 billion from current spending levels, in the long-run it’s all rather pointless. It’s theater for those who still think $100 billion is a lot of money.

FY2012

When Paul Ryan, Chairman of the House Committee on the Budget, offers up a plan for the FY2012 budget that he claims will reduce the deficit by $4 trillion, it certainly sounds more serious. The “T” word still has some impact. However, $4 trillion is still just over 5% of that $75 trillion total debt burden and the plan calls for that reduction over a 10-year period, or $400 billion per year. More serious? Yes. Serious enough? Doubtful.

Rep Ryan’s plan is called the The Path to Prosperity: Restoring America’s Promise — catchy — and is being pitched as a choice for two futures. According to Ryan (who cites the CBO), on the current borrow-and-spend path, the US economy will reach a critical debt-induced tipping-point by 2037. In looking at the above chart, no rational American would choose the “current path”. Yet American’s are deeply divided on how a more sustainable path might be achieved, how the burden should be shared, or whether it should be shared at all. Even ardent supporters of drastic budget cuts and deficit reduction, when polled on specific programs tend to favor continued funding for most of those programs. The job of actually cutting is not going to be an easy one and the backlash against Ryan’s proposal has already begun in earnest.

March Madness

In March alone, the Federal government spent eight-times the amount of revenue that it took in. The difference was of course borrowed. I think everyone would acknowledge that something must be done in order to prevent a full-fledged debt crisis in America. Sadly, I think Bill Gross’ guess on what that ‘something’ might be is closest to the truth. In PIMCO’s Investment Outlook for April, Gross said, “Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates.”

Early in the month of March, Erskine Bowles, the co-chair of President Barack Obama’s National Commission on Fiscal Responsibility, told the Senate:

“I think we face the most predictable economic crisis in history. A lot of us sitting in this room didn’t see this last crisis as it came upon us. But this one is really easy to see. The fiscal path we are on today is simply not sustainable.

“This debt and these deficits that we are incurring on an annual basis are like a cancer and they are truly going to destroy this country from within unless we have the common sense to do something about it,” said Bowles.

Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, has been saying for nearly a year now that the greatest threat to America is not a military one. In Mullen’s opinion, “The biggest threat to our national security is our debt.”

The $14.29 Trillion Debt Ceiling

Yesterday Treasury Secretary Geithner sent a letter to Senate Majority Leader Harry Reid, predicting that ” the debt limit will be reached no later than May 16, 2011″ and that there would be dire consequences if that were allowed to happen. Geithner acknowledged that his options for delaying reaching the debt ceiling have become increasingly limited as the debt has grown. He dispelled the notion that further delay could be achieved by, for example, selling the Nation’s gold reserves. Geithner warned that such a move “would undercut confidence in the United States both here and abroad.” Hardly what one might expect if you view gold as a useless relic.

Geithner attempts to provide some comfort by reminding us that “increasing the limit does not increase the obligations we have as a Nation; it simply permits the Treasury to fund those obligations that Congress has already established.” What he doesn’t say, is something I’ve been saying for years; the US government has never met a debt ceiling it couldn’t meet and ultimately exceed. According to the Treasury Secretary there is simply no option, the debt ceiling must be raised or the US faces a default. However, in doing so, it pushes us toward that same end result.

The recent collapses of the governments in Portugal and Canada, along with the geopolitical unrest throughout the Middle East and North Africa remind us of just how quickly governments can become destabilized. I don’t think America is anywhere close to that point yet, but faced with a possible shut-down of the government and the inability of the government to finance the debt going forward, Geithner warns that “government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.” One would have to acknowledge that we seem to be hurdling ever-closer to the precipice.

Gold has served as a store of wealth for thousands of years, through wars, economic calamity an of course political uncertainty. Gold is a physical asset that is not simultaneously someone else’s liability. It tends to be non-correlated with more traditional asset classes like stocks and bonds. Perhaps most importantly, given Mr. Gross’ warnings, it tends to have an inverse correlation with the dollar. The appeal of gold as a shelter for stormy-times is likely to continue to grow, even as supplies become tighter, offering further support to the price.

Apr 5, 2011 (CBC News) — Gold prices rose to a record Tuesday as investors looked for safe havens amid worries about risks ranging from political turmoil in Libya and the nuclear crisis in Japan to the threat of sovereign debt default in Europe.

June gold was trading up $18.70, or 1.3 per cent, at $1,451.70 US an ounce in New York early in the afternoon after climbing to a record $1,455.50 an ounce earlier.

[source]

by Vanessa Miemis
4/4/2011 (Forbes) — There has been much speculation recently about the role Facebook Credits could play in becoming a global virtual currency, and even the possibility of Facebook becoming a bank. In many ways, it already is becoming a bank – just not in the traditional sense. Facebook is harnessing the power of the social graph, and has certainly adopted an expanded definition of what ‘currency’ means.

… As I’ve been conducting research for The Future of Facebook Project, the experts and thought leaders interviewed shared some compelling views about the evolution of virtual currencies, and Facebook’s potential role in their development. A big takeaway is that while we typically associate currency directly with money, the rise of the social web and quantification is shifting that reality to become more inclusive of kinds of capital that were formerly intangible.

Money is a tool we use for arms-length transactions, where there isn’t an assumption of any kind of relationship or trust between parties. But as data is being mapped at an accelerating rate – from self-quantifiation, to the contextual and relational data about our location and interactions, to our preferences and opinions, to our exchanges and transactions – we are being granted access to a much richer base of information in our decision-making toolkit.

… Trust networks are able to be tapped for recommendations and referrals, while predictive analysis algorhithms can suggest the kinds of people, products, services, or events that would resonate with our personalities or value set. … These contextual clues around data become currencies in themselves, as they give us more information in order to make a choice or decide who to trust.

… Facebook Credits are a virtual currency used within Facebook for the purchase of virtual goods related to applications managed on the Facebook platform. … What happens when individuals and companies become more comfortable with the idea of accepting virtual currencies in exchange for various types of interactions, goods or services?

“Increasingly as we move later into the decade, physical currency will be harder to differentiate from virtual currencies like Facebook Credits,” said Brett King, author of Bank 2.0. …… In the longer term, Facebook Credits could become truly disruptive by becoming a currency for peer to peer lending, microtransactions, and for usage by the unbanked in emerging markets around the world.

… As venture capitalist Eghosa Omoigui posited, “I suspect that Facebook may eventually have to create a trading platform that allows them to constantly mark-to-market what those Credits look like.”

[Further] … “the ability to move any form of asset between the virtual world and the physical world needs a commonality of understanding of identity,” said JP Rangaswami, Chief Scientist for salesforce.com.

[source]

RS View: See also my March 31st post. Increasingly, as an economic necessity to facilitate a functional benchmark of comparative value, any and all private and national currencies (be they virtual and/or tangible) will each float on trading platforms by which they are individually marked-to-market against a single, universal standard of savings — gold.

Tue, Apr 05 2011
(FXstreet.com) — Gold futures are rallying in morning trade over North America, reaching a fresh record high directly ahead of the anticipated FOMC minutes release. The most active contract for June delivery has peaked at $1452.0/ounce where it runs into technical resistance.

[source]

Gold, Silver Prices Pop Higher
by Alix Steel
April 5, 2011 (TheStreet) — Gold and silver prices were reversing earlier losses Tuesday as U.S. data disappointed. Gold for June delivery was up $17.90 to $1,450.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,452, a record, and as low as $1,431

Silver prices were up 45 cents at $38.94 an ounce.

Gold and silver were soaring after the U.S. reported that activity in the services sector slowed in March. The Institute for Supply Management’s non-manufacturing report fell to a reading of 57.3 from 59.7 in February. The dip was larger than expected.

… The SPDR Gold Shares exchange-traded fund hasn’t added tons since March 17 before the U.N. declared a no-fly zone over Libya. Tonnage has decreased 15 tons to 1,211.22.

[source]

By Katrina vanden Heuvel
Tuesday, April 5 (WashingtonPost) — There’s a janitor who lives in a studio apartment just outside of Stevens Point, Wis. He works cleaning the math and science buildings at a state university, a job he’s been doing for about 18 months, after a year of unemployment. He’s 43 and last year made $24,622. He doesn’t have kids, so he doesn’t qualify for a child care tax credit. He doesn’t own a home or a hybrid car — those credits don’t apply to him either. He hasn’t been enrolled in school since the 10th grade, so he definitely doesn’t qualify for any education credits or deductions. He just learned that Gov. Scott Walker’s new budget has slashed his benefits and that next year he’ll be bringing in about 16 percent less per month. And when he sits down to do his taxes next week, he’ll find that he paid the federal government around $1,400 in 2010.

About a thousand miles to the east, in Fairfield, Conn., General Electric, one of the world’s largest multinational corporations, posted a $14.2 billion profit for 2010. When its accountants were finished working their magic, the company didn’t owe a single dollar in federal taxes.

“People can think what they think,” said Jeff Immelt, GE’s CEO, in response to a growing anger to this story, first reported last week by the New York Times. What else is there to think, one wonders, but that with the muscle and money of lobbyists and lawyers, with the access and influence built over generations, GE has done not just the audacious but the outrageous. And it is not alone.

Exxon Mobil, for example, made $19 billion in profits in 2009 but paid no federal income taxes. In fact, it received a $156 million rebate from the IRS. Bank of America received a $1.9 billion tax refund from the IRS last year, even though it made $4.4 billion in profits and was handed a nearly $1 trillion bailout by taxpayers. The list, inconceivably, goes on.

And yet the conversation in Washington hasn’t turned to aggressively closing the loopholes that GE’s lobbyists created for its accountants to exploit. It hasn’t turned toward ending the ridiculous tax breaks on corporate dividends and capital gains that allow hedge fund managers and the very wealthy to pay the government a lower percentage than their middle class employees. Instead, Congress is debating whether $33 billion in cuts to the social safety net is enough to make the Tea Party happy.

[source]

by Sergei Balashov
April 5 (ProactiveInvestors) — Gold prices rallied today as safe haven demand strengthened amid the civil war in Libya and concerns over Europe’s debt crisis.

Moody’s today further cuts Portugal’s sovereign rating by one notch from A3 to Baa1, while indicating that further downgrades are possible. This is the credit rating agency’s second downgrade of Portugal in three weeks.

The civil war in Libya keeps driving up oil prices with Brent crude having topped US$120/lb in London, boosting gold’s appeal as an inflation hedge.

[source]

by John Nyaradi
Tuesday, April 5, 2011 (MarketWatch) — In recent weeks, uber investors Bill Gross and Warren Buffett made headlines with their negative views on the U.S. Treasury bond markets.

… Pimco founder Bill Gross lambasted our elected representatives in his April Investment Outlooks for letting the U.S. debt situation get so far out of hand and said that he has been “selling Treasuries because they have little value within the context of a $75 trillion total debt burden.”

In fact, last month it was widely reported in the general media that Mr. Gross took his government related debt to zero in his $230 billion Total Return Fund, the first time it has held no government debt in more than two years. And he has also been quick to point out that investors in U.S. debt are being “under rewarded.” All of this is startling, considering that Pimco is traditionally a major holder of U.S. debt and one of the biggest players in the global bond market.

However, Mr. Gross is not alone in his bleak assessment of the situation and the likelihood that the 30 year rally in the bond market could be nearing its end.

Famed investor Warren Buffett joined the chorus against U.S. Treasuries recently when he said in a speech in New Delhi that investors should stay away from long term fixed-dollar investments because of his forecast for weakness in the U.S. dollar. Apparently Mr. Buffett is also reducing his long exposure to the long bond market and focusing on what he seems to love to do best, which is buying companies around the world.

It’s difficult to argue with this kind of brain power.

[source]

By Soo Ai Peng and Tony Zhou
Tuesday April 5, 2011 (Reuters) – China’s central bank increased interest rates on Tuesday for the fourth time since October, raising suspicions that data next week may show inflation rose more than expected in March.

The tightening of monetary policy adds to six official increases in bank reserves over the same period and follows a declaration by China’s top leaders that controlling inflation was their most important task this year.

Benchmark one-year deposit rates will be lifted by 25 basis points to 3.25 percent and one-year lending rates will be raised by 25 basis points to 6.31 percent, the People’s Bank of China said in a statement on its website. The rises take effect from April 6.

“The March inflation figures must be very high,” said Xu Biao, economist with China Merchants Bank in Shenzhen.

… Inflation worries are increasing globally. Most central banks in emerging markets in Asia have raised interest rates as the region emerged strongly from the global financial crisis. The European Central Bank is expected to raise interest rates on Thursday for the first time since the crisis…

[source]

by Randy Fabi
Tue Apr 5, 2011 (Reuters) — Oil is a good short-term bet for another five months due to upcoming peak U.S. summer driving season, while prices in the long-term are likely to double along with gold in five years, said a leading fund manager.

Crude oil prices, which surged to a 2-½ year high above $121 for Brent on Monday, will continue to climb until at least September when the Atlantic hurricane season typically begins, said Frank Holmes, chief executive and chief investment officer of U.S. Global Investors.

… He believes that economic growth in emerging markets, especially China and India, will boost the countries’ middle class and translate into purchases of cars and homes which will drive oil and commodities demand. “In the next five years, oil can double and I think gold can double because 50 percent of the world’s population is growing their money supply by more than 15 percent a year,” Holmes said.

… He expected gold , which hit a record of $1,447.40 an ounce last month, to rally in the second half of the year.

[source]

April 5 2011 (Bloomberg) — Platinum and palladium prices might advance because new mines might be delayed after Zimbabwe’s government ordered Anglo Platinum and other mining companies based outside the country to cede majority stakes to Zimbabweans, TD Securities said on Friday.

Palladium’s shortage might widen while platinum might move into deficit earlier than forecast in 2013 if there was a reduction in new capacity in Zimbabwe, TD Securities said in a report.

“Resource nationalism has become an increasingly important issue in recent years,” Bart Melek, an analyst at TD Securities in Toronto, said.

… Zimbabwe said in a March 25 decree that overseas mining companies had to explain within 45 days how they would cede 51 percent of their local assets to “indigenous” Zimbabweans. The move comes at a time when Australia, Canada, Chile, Venezuela, Peru and the Democratic Republic of Congo had considered raising taxes or taking stakes in mining companies to boost budget revenues, TD Securities said.

… The investment climate in South Africa, which accounts for about 74 percent of the global mined platinum supply, might worsen after Zimbabwe’s move because it might embolden ANC youth leader Julius Malema to again make calls for the nationalisation of its mines, Melek said. Most of the 215 000-ounce global platinum output growth by 2013 would be in South Africa, which would also account for about two-thirds of the palladium production rise.

“Less production growth due to uncertainty in South Africa’s business climate would no doubt send this market into a chronic deficit and prices surging in fairly quick order,” Melek wrote.

[source]

RS View: Another timely reminder — as a gold-minded investor, choose the metal, not the mine.

Gold is slightly easier this morning as silver pulls back from an unsuccessful challenge of 39.00. The metals markets seem to be largely ignoring Fed Chairman Bernanke’s assertion that “the increase in inflation will be transitory.” PIMCO’s Bill Gross deemed Beranke’s comment “pollyannish,” warning that the inflation risk remains high.

The PBoC raised rates by 25 bp for the second time this year as it continues to battle inflation. The 1-year lending rate now stands at 6.31%.

Moody’s cut #Portugal’s sovereign debt rating by another notch to Baa1, citing uncertainty.

President Obama has called House leaders from both parties to the While House this morning with the hope of hammering out a budget compromise that will avert a government shutdown on Friday.

by Terrence P. Jeffrey

(CNSNews.com) – The U.S. Treasury has released a final statement for the month of March that demonstrates that financial madness has gripped the federal government.

Link

The Honorable Harry Reid
Democratic Leader
United States Senate
Washington, DC 20510

Dear Mr. Leader:

I am writing to update you on the Treasury Department’s projections regarding when the statutory debt limit will be reached and to inform you about the limits of the available measures at our disposal to delay that date temporarily.

In our previous communications to Congress, we provided regular estimates of the likely time period in which the debt limit could be reached. We can now make that projection with more precision. The Treasury Department now projects that the debt limit will be reached no later than May 16, 2011. This is a projection based on the expected level of tax receipts, the timing of our commitments and obligations over the next several weeks, and our judgment concerning the level of cash balances we need to operate. Although these projections could change, we do not believe they are likely to change in a way that would give Congress more time in which to act. Treasury will provide an update of this projection in early May.

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PG View: The very first “available measure” Geither addresses is the sale of the Nation’s gold. Of course, it’s not a viable measure because it “would undercut confidence in the United States both here and abroad.” No mention of the eroding confidence that stems from the ever-larger debt burden.

Geithner reminds us that “Increasing the limit does not increase the obligations we have as a Nation; it simply permits the Treasury to fund those obligations that Congress has already established.” What he doesn’t say, is that the US has never met a debt ceiling it couldn’t meet and ultimately exceed.

According to the Treasury Secretary there is simply no option, the debt ceiling must be raised or the US faces a default. However, there is reason to believe that raising that debt ceiling, pushes us irrevocably closer to that same end result. At best, we may be buying some time.

by Rachelle Younglai
April 4, 2011 (Reuters) — The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, ramping up the pressure on Congress to act to avoid a default.

Previously, the Treasury had warned that the country could hit the $14.294 trillion statutory debt limit between April 15 and May 31.

… If the debt ceiling is not increased by May 16, Geithner said the Treasury has authority to take certain extraordinary measures to temporarily postpone the date the United States would default on its obligations.

[source]

April 04, 2011 (Xinhua) — South Korea’s foreign reserves rose to 298.6 billion U.S. dollars in March mainly due to increased conversion value of non-dollar denominated assets, the country’s central bank said on Monday.

… The March reading marked the record high of reserves and the fourth consecutive month of growth.

The increase was attributable to rising investment profits and growing conversion value [i.e., exchange rate] of non-dollar denominated assets caused by weaker dollar, according to the BOK.

The nation’s foreign reserves consisted of
271.71 billion dollars of securities,
21.93 billion dollars of deposits,
3.7 billion dollars of special drawing rights (SDR),
1.19 dollars of International Monetary Fund (IMF) reserve positions and
0.08 billion dollars of gold bullion.

[source]

RS View: A rationally structured portfolio of reserves, in light of the withering dollar, argues for significantly fewer dollar-denominated items (i.e., fewer U.S. securities and deposits) and significantly more of that universally translatable asset which, at the present time, occupies a space so unjustifiably neglected and underrepresented as a part of the BoK balance sheet.

By Myra P. Saefong
April 4, 2011 (MarketWatch) — Gold futures edged higher and silver soared 2% Monday as oil prices at 30-month highs stoked fears of inflation and helped fuel investment demand for the precious metals.

Gold for June delivery added $4.10, or 0.3%, to $1,433 an ounce on the Comex division of the New York Mercantile Exchange.

Silver for May delivery climbed 76 cents to settle at $38.49 an ounce, the latest in a string of 31-year highs. The metal had bounced off $38 an ounce in recent weeks. As it broke through that ceiling, more investors came to the market in hopes of $40 an ounce in the short term, said Jeffrey Christian, managing director of commodities consulting firm CPM Group in New York.

Silver past $38 is “very expensive,” he added. The average cost of metal at primary silver mines was $5.06 an ounce last year, four times what silver futures averaged in 2010, Christian said. Production costs for most of silver being sold are even lower as the majority of the metal in the market comes as a byproduct of gold and copper mining, he added.

…[Gold] prices are well supported all the way down to a range of $1,410-$1,415 an ounce, said Andrey Kryuchenkov, an analyst at VTB Capital in London. … At current prices, however, physical buyers are sitting out, he said. Their buying on the dips, however, will continue to sustain the uptrend for gold, Kryuchenkov said.

[source]

by Lesley Wroughton
Mon Apr 4, 2011 (Reuters) – A global coalition of development groups on Monday urged the International Monetary Fund to use windfalls from the sale of 403.3 tonnes of IMF gold to write off the debts of poor countries. … the windfall [was estimated] at $2.8 billion. The IMF declined to confirm the number.

… IMF would consider in the meeting on Wednesday three ways to use the gold profits: absorbing the funds into an endowment; placing the money into a reserve fund; and using it to assist poor countries hit by financial and other crises.

An IMF spokesman confirmed that discussions on the matter would begin shortly, ahead of meetings of global finance chiefs in Washington starting next week.

“The executive board will have a preliminary discussion on the use of excess gold profits soon,” IMF spokesman Alistair Thomson told Reuters. “We expect the Board will consider a range of possible options,” he added.

[source]

RS View: Unlike the economically unsound and withering “strong dollar policy”, policy makers are waking up to the bright realization that there is no downside to strong gold…