By Claudia Assis and Virginia Harrison
May 10, 2011 (MarketWatch) — Gold and silver futures on Tuesday settled higher for a second day, extending a relief rally on concerns about Greece’s debt woes and the wrangling over the U.S.’s debt ceiling.

Gold for June delivery added $13.70, or 0.9%, to $1,516.90 an ounce on the Comex division of the New York Mercantile Exchange. Silver also extended its rebound, with the July contract gaining $1.37…

“With Greece back in the gun sights people are becoming once again worried about euro-zone issues … A Greek restructuring of some type is inevitable at this point,” said Matt Zeman, head trader and strategist at Kingsview Financial in Chicago…

Meanwhile, Republicans in the U.S. Congress set their terms for raising the U.S. government borrowing limit, demanding cuts and rejecting increases in taxes.

Gold and to a lesser extent other precious metals often get a boost from debt worries and concerns about currency debasement, as they are seen as the ultimate storers of wealth.

[source]

Talk of a new rescue package for debt-laden Greece is “premature”, according to European Union economic affairs commissioner Olli Rehn.

“It is precisely the task of our EU mission now in Athens to specify… the needs for next year,” he said, with a decision following in the coming weeks.

Speculation has risen that Greece will need new rescue loans even before the current ones expire in 2012-13.

[source]

PG View: “Playing for time” seems to be the modus operandi of governments around the world these days. It would seem that Greece’s initial €110 bln bailout in May of 2010 was nothing more than a “play” for another year of time. Apparently its time for another kick of the can. One of these times, some government is going to find that can is now filled with lead…or gold.

“With the national debt growing to about $1.6 trillion a year, the U.S. government would be flooding the world’s capital market with too many bonds but for the Federal Reserve’s recent policy of quantitative easing — purchasing Treasurys to keep down long-term interest rates. With that program scheduled to end in June, rates on long-term Treasurys will likely rise and the value of existing long-term Treasury securities would fall.”

“A permanent decline in the value of existing long-term Treasurys would be nothing less than a partial default on U.S. debt. No surprise, investors are hedging positions by adding gold.”

“A significant devaluation of the dollar against the yuan seems inevitable and it will cause a wholesale downward adjustment for the dollar against other Asian currencies, too. With so much of what the world consumes coming from China and other Asian economies, the dollar will be worth a lot less to gold miners in South Africa or Russia and Asian currencies would be worth more. The yuan or rupee price of gold might not rise, and could even fall, but the dollar price of gold would increase, a lot.”

[source]

May 10, 2011 (IBTimes) — Mexico’s Central Bank has been Buying Gold as a means of reducing its exposure to currency depreciation risks, say analysts.

The Banco de Mexico bought 93.3 tonnes of Gold Bullion in February and March, according to data released by the International Monetary Fund. It had previously held 6.9 tonnes.

The central banks of Russia and Thailand also made significant gold purchases over the same period, of 18.8 tonnes and 9.3 tonnes respectively.

“Gold is seen as one way in which to diversify away from the Dollar- or Euro-denominated assets,” said Matthew Turner, precious metals strategist at Mitsubishi, the Japanese trading house.

Bayram Dincer, Pfaeffikon, Switzerland-based analyst at LGT Capital Management, which has $100 billion under administration, agrees. “Mexico’s gold accumulation confirms the demand of emerging market central banks to diversify their reserves,” he said. “They will be the big buyers for years to come.”

Mexico’s reserves of foreign currency have grown rapidly over the last two years. In August 2009 its international reserve was valued at $72.6 billion. That had risen to $125.8 billion by the end of last week.

[source]

RS View: The Mexican central bank shows the rest of its peers how easy it is to walk the path of the new international monetary reserve paradigm, boldly doing so even on the very doorstep of the tired and irritable old grouch, King Dollar.

By Rodrigo Orihuela
May 10, 2011 (Bloomberg) — Gold, which reached a record on May 2, may surge a further 30 percent by January as investors seek to protect themselves from “economic uncertainty,” according to Deutsche Bank AG.

“I’m bullish on gold despite its current levels,” Hal Lehr, Deutsche Bank’s managing director for cross-commodity trading, said in an interview in Buenos Aires. “It could reach $2,000 an ounce in the next eight months.”

… Gold fell 1.6 percent on May 4 after the Wall Street Journal reported that Soros Fund Management LLC sold precious- metal assets. Soros’ fund held shares in the SPDR Gold Trust, the biggest exchange-traded product backed by gold, and the iShares Gold Trust at the end of 2010, U.S. Securities and Exchange Commission filings show.

… Lehr’s so-called cross-commodity team was created by Deutsche last year to handle large investments in commodities without distorting prices with sudden inflows of cash, he said. The team focuses on investment opportunities in a portfolio of commodities, as opposed to looking at individual commodities.

Lehr declined to offer a breakdown of all the commodities that form his portfolio, though he said he’s also bullish on corn, which has risen 92 percent in the past 12 months.

[source]

By Jeff Kleintop
05/10/11 (TheStreet) –

… 4. Not just a defensive asset: Normally a beneficiary of a pullback in riskier investments, investors have often embraced gold as a perceived insurance policy against a return to recession. However, rather than act purely as a defensive investment, gold rose last year along side stocks and bonds.

… 5. Supply has been constrained: The supply-demand equation continues to provide a favorable tailwind for gold prices. After averaging growth of 4% annually since 1980, world production growth of gold has slowed considerably since 2001, averaging -1% annually over the past 10 years. To meet the gradual rise in demand, a steady increase in scrap supply has been needed. But scrap is falling short. It is getting more expensive to mine gold as the most accessible areas have been mined out and new mines are in increasingly remote or hard-to-mine locations. To meet the demand the major producers are pursuing digs formerly thought to not be economically viable at costs over $1,000 per ounce.

Finally, with gold supported by multiple fundamental forces, one of our pre-conditions for a bubble is the asset has to be “over-owned.” All the gold produced around the world over the past 110 years (which accounts for more than 80% of all gold ever mined) at today’s prices is equivalent to only about 3.9% of the combined total value of stocks, bonds and cash around the world. While up from the 1.3% in 2000 when gold prices were depressed, it is similar to the 3.5% in 1990 and well below the whopping 12.1% in 1980 when gold traded near its last peak. While gold’s popularity is returning, it does not seem “over-owned.”

[source]

by Josh Lipton
May. 10 2011 (Forbes) — from 2000 to 2010, it took an average of 60 ounces of silver to buy one ounce of gold. But, when silver made its recent high just over a week ago, the ratio of gold to silver shrunk from close to 70 a year ago all the way down to 32!

Now, even after the recent shellacking that silver has suffered, Bespoke [Investment Group] says it still only takes about 40 ounces of silver to buy one ounce of the barbarous relic, which remains extremely low by historical standards.

“All this seems to imply that unless some new demand for silver materializes from a previously non-existent source, either silver is still overvalued or gold is undervalued,” the analysts at Bespoke argue.

[source]

by Michael Kahn
Tuesday, May 10, 2011 (Barron’s) — Despite their drop in the wake of silver’s debacle, the uptrend in crude oil and gasoline prices is intact.

Whether you run a hedge fund or have to fill up a thirsty SUV, last week’s 14.7% decline in the price of crude oil grabbed your attention. For the latter, there seems no relief in sight from the pain at the pump. To the relief of speculators on the long side of these markets, their uptrend remains intact despite last week’s downdraft.

… Last week’s lows landed on the rising trendline from August, meaning that the 8.5% sell-off in this market was actually rather ordinary in the context of the bull market that preceded it. After all, it was up over 80% from August 2010 through April 2011.

Given that crude oil continues to respect its long-term bull-market trendline and remains above its breakout level, the bulls remain in control of this market. And with gasoline in quite good technical shape heading into the seasonally strong summer driving season, there is no reason to expect that energy prices have topped yet.

[source]

May 10, 2011 (Reuters) LONDON — Gold was set for a third daily rise on Tuesday, after a retreat in the dollar helped reverse earlier losses, while concern about Greece’s debt crisis was expected to insulate the price from any severe declines.

A sharp rise in margins on US oil futures dented the broader commodities complex but with so much investor focus on Greece and other indebted euro zone member states, gold was able to rally for a third day.

The oil margin hike came on the heels of consecutive margin increases on the Comex silver futures in the past two weeks, which knocked silver prices down more than 25 per cent last week and triggered a broad sell-off in commodities. … Gold fell by more than 4.5 per cent last week in its largest weekly slide in two years, caught up in a storm of selling that battered the entire commodity complex.

… But the fragility of Greece’s finances as well as the impact of more potential bailouts for other indebted euro zone members was expected to support gold, in spite of a continued decline in global holdings of the metal in exchange-traded funds.

Spot gold recovered from a session low of $1,505.69 an ounce to be quoted 0.1 per cent higher at $1,514.60 by 1110 GMT

… Euro-denominated gold rose by nearly 40 per cent last year, when investors fled euro-priced assets as the region’s debt crisis unfolded.

[source]

Gold Underpinned Has Housing Double-Dips

The real-estate information company Zillow reported this week that housing prices are now falling faster than anytime since the collapse of Lehman Brothers in 2008. There has been plenty of evidence in recent weeks and months indicating that the housing market is indeed double-dipping, but the grim data from Zillow arguably removes any doubt. Average home prices are down 8% from a year ago, 3% over the quarter, and are falling at about 1% every month. Housing prices declined in the vast majority of markets over the past 12 months, with nearly 75% of all homes in the United States losing value from Q1-10 to Q1-11.

Declining prices pushed the number of properties with negative equity to a new high of 28.4% in Q1, up from 27.0% in Q4-10. A record 37.7% of all homes sold in March were sold for a loss. In a guest post at the ZeroHedge blog today, Charles Hugh Smith points out that American homeowners have lost $6.5 trillion in equity in the past 57 months. Homeowners’ equity stood at $12.8 trillion in 2006 and now stands at $6.3 trillion, a decline of more than 50%. Smith points out that prices have retreated to 2003 levels nationally, “but that masks the reality that in many locales, prices have returned to 1998 or even lower.”

Calling these losses “catastrophic” may actually be an understatement. Fed chairman Ben Bernanke can attempt to create a “wealth effect” by driving up the stock market, but at best he’s offsetting the negative wealth effect of declining real estate values for those that have a stock portfolio along with a home. As I’ve said in past reports, the housing market remains the biggest argument for ongoing easy monetary policy and could very well be the impetus for QE3. In allowing rates to rise, it will put upward pressure on mortgage rates as well, effectively killing what little demand for housing there is.

It has become abundantly clear that the tax breaks offered to home buyers in 2009 and 2010 only temporarily overrode market forces, stealing demand from the future. Many of those buyers are probably now part of the 28.4% of home owners that have underwater mortgages. Yet, I’d be worried that tepid demand for homes this Spring will only lead the government to try tax credits again; although why they would expect different results is beyond me. Trying to override the law of supply and demand is a fools game and throwing good money after bad makes things even worse.

If the Fed is indeed hamstrung by the housing market they are likely to leave interest rates near 0% — and perhaps offers additional accommodations after the expiration of QE2 at the end June — even at the risk of inflation. At that point, the long-term downtrend in the dollar would re-exert itself, driving the price of gold higher yet.

by J.D. Roth
Tuesday, 10th May 2011 (GRS) –

The Permanent Portfolio . . .

One investment strategy that I find appealing uses a lot of gold. This is the permanent portfolio, as developed by Harry Browne. The permanent portfolio calls for a fixed asset allocation:

– 25% in U.S. stocks, to provide a strong return during times of prosperity
– 25% in long-term U.S. Treasury bonds, which do well during prosperity and deflation
– 25% in cash (a money-market fund) to hedge against recession
– 25% in gold to provide protection during periods of inflation

If I were to choose any other investment plan than the one I have, it’d be this one. I find the arguments compelling, and wouldn’t be surprised if five years from now, I’d adopted this strategy.

[source]

Gold has now retraced slightly more than 50% of the recent correction, returning additional credence to the underlying uptrend. Silver remains below the 38.2% retracement level, with investors unnerved by the recent volatility.

The euro has caught a bit of a bid on rising expectations that another bailout deal is in the offing for Greece. The Wall Street Journal reported this morning that “Greece expects a new package of nearly €60 billion ($86.11 billion) in financial aid to cover its financial needs stretching into 2013 as early as next month.”

The dollar retreated back into the recent range on the euro’s uptick, but the greenback’s move was muted somewhat by weakness in the Swiss franc. The swissy fell after benign Apr CPI of 0.1% m/m and 0.3% y/y diminished expectations of an impending rate hike.

Meanwhile, US import prices surged 2.2% in Apr, above market expectations of +1.8% and export prices rose 1.1%. Price risks remain a very real concern, just a week after commodity prices tumbled on rising concerns about economic growth.

Oil prices remain surprisingly buoyant, despite yesterday’s CME margin hike on crude futures.

China’s trade surplus jumps to $11.4 billion in Apr, well above market expectations. This is likely to intensify US calls for a stronger yuan, which in turn means a weaker dollar relative to the yuan. That will make the yellow metal more affordable to a population that already has a strong desire for gold.

By Myra P. Saefong and V. Phani Kumar
May 9, 2011 (MarketWatch) — Silver futures closed more than 5% higher Monday, leading a recovery in the precious-metals sector, and gold topped $1,500 an ounce, rebounding from last week’s decline as some weakness in the U.S. dollar and concerns over European debt woes lured investors back to metals.

Silver futures for July delivery rose $1.83, or 5.2%, to settle at $37.12 an ounce on the Comex division of the New York Mercantile Exchange after tapping a high of $37.98 overnight.

June gold futures, meanwhile, rose $11.60, or 0.8%, to settle at $1,503.20 an ounce, extending Friday’s $10.20, or 0.7%, increase. Prices are still more than 3% lower in May.

“The gold success today is a nice reflection — a mirror image almost — of the dollar index failure today along the 75 fault line,” said Richard Hastings, a macro strategist at Global Hunter Securities.

… Paul Mladjenovic, author of “Precious Metals Investing for Dummies,” said gold looks “very strong” and any pullback will be minor, as the market expects some dollar strength and some euro weakness.

… The precious-metals complex may have seen some support Monday from political unrest over the weekend in Syria, Egypt and Bahrain, according to Ben Potter, markets strategist at IG Markets in Melbourne.

Several protesters were reportedly killed in Syria over the weekend in clashes with government forces, while the Los Angeles Times reported 12 deaths in Egypt in the wake of violent riots between Muslims and Christians.

[source]

By Michael Lombardi
May 9, 2011 (WallStreetPit) — There’s quite a story going on between China and United States in respect to what each country believes the other should be doing with its interest rates, debt, and currency. U.S. Treasury Secretary Timothy Geithner will be meeting this week with Chinese Vice Premier Wang Qishan.

… Yes, by keeping interest rates so low, running huge deficits and keeping the printing press running overtime, the U.S. has been able to emerge from the worst recession since the Great Depression.

However, the Chinese are right in that the existing U.S. monetary policy is causing inflationary pressures to rise worldwide. According to the Food and Agriculture Organization, a United Nations entity based in Rome, Italy, world food prices rose to a near record in April on soaring grain costs.

The U.S. is the winner today in the fight against the Chinese over currency valuation, but, as I say above, it will be the loser in the long term, as those short-term interest rates that are artificially low, huge deficits, and overtime money printing come back to haunt us in the form of a devalued currency and the rapid inflation that the Chinese are complaining about.

China sat on $1.15 trillion in U.S. Treasuries at end of February. A devaluing greenback and inflation are already paying havoc with the real return of U.S. Treasuries.

Speaking of the “real return” of an investment, it has been months now that U.S. Treasuries have been delivering negative real rate returns. A typical investor looking to park cash buys a U.S. Treasury yielding 1.86%. If we take an inflation rate of 2.7%, the investor is losing 84 basis points over a one-year period in inflation adjusted terms. If he or she held that T-bill for the full five-year maturity, the investor would lose 4.2% in the purchasing power of his or her money. But we all know the inflation rate is much higher than the “official” rate we are given by the Commerce Department….

[source]

May 9 (Bloomberg) — John Burbank, founder and chief investment officer of hedge fund Passport Capital LLC, talks about the outlook for the gold market and his investment strategy. Burbank, speaking on Bloomberg Television’s “InBusiness with Margaret Brennan,” said commodities including gold are seeing a “temporary correction” as markets anticipate the end of large-scale asset purchases by the U.S. Federal Reserve.

[source]

by Josh Lipton
May 9 2011 (Forbes) — It was silver that dominated the headlines last week with an unnerving 27.4% free-fall, but gold also suffered a setback as the yellow metal dropped 4%. For analysis on the barbarous relic, and where gurus see the price of the metal headed from here, we checked in with a couple of market pros who basically argued the following: the decline represented a setback, but not the beginning of some bear reversal.

Curt Hesler, the longtime editor of the Professional Timing Service newsletter … says that a correction might not prove as long or deep as some might suspect. The broader story remains the same: there is a lot of interest among both retail investors as well as central bankers in gold as a hedge against falling fiat currencies.

“Weak currency holders – as well as typical dollar-phobic gold buyers like the Chinese and Russians – are all in the market to hedge their paper assets,” says Hesler, adding that investors are best advised to buy on weakness and not when the metal makes new highs or when gold hits $1800, which he thinks is likely by year-end.

[source]

Gold Recovers Some of Last Week’s Losses

Gold has regained the $1500 level, with more than 38.2%, but less than 50% of the corrective retreat from 1574.66 already retraced. Silver’s hook reversal on Friday is seen as technically constructive, although recent volatility is likely to leave buyers timid in the near term. Not surprisingly, the gold/silver ratio has moved back above 40 and may remain elevated above the recent lows.

Greece remains a member of the EU, despite rumors late last week that they were contemplating an exit from the EMU. That story may have simply been floated to wrest more favorable terms for the next bailout, amid the recent claims from Portugal that they had negotiated a better deal than both Greece and Ireland before them. Greece has indeed requested additional aid to cover €22 bln in debt repayments that are due next year and not covered by the original bailout deal. That prompted S&P to a downgrade Greek sovereign debt once again from BB- to B with a negative outlook. S&P went further, warning that the “burden sharing” being considered for Greece would constitute a “distressed exchange,” resulting in a rating of SD (Selective Default). Moody’s has put Greece’s ratings on review for a possible downgrade as well. Greek CDS premiums responded by surging to new record highs and the euro extended its recent losses.

While the dollar remains underpinned by the latest bout of euro weakness, there have been no fundamental changes that can be remotely construed as positive for the greenback. The dollar is just slightly less ugly at the moment, when compared to the single currency. In fact, Morgan Stanley has followed Goldman Sachs’ lead and downgraded their US economic forecast for 2011. Morgan Stanley lowered their GDP outlook for the third time this year to an anemic 3.3% for 2011, down from 3.6% last month. Goldman Sachs cut their forecasted range for US 2011 GDP by a full 50bps to 3-3.5% from 3.5-4%. The dimming outlook on growth has Goldman believing the Fed is unlikely to tighten until sometime in 2013. This is all dollar negative.

Meanwhile the prospect of another ECB rate hike seems increasingly unlikely any time soon in the current environment. It makes little sense to be providing periphery countries bordering on insolvency below market rates, while raising rates on everyone else. Not to say they wouldn’t try to justify such measures, particularly if inflation expectations come roaring back, but it really does make little sense. The mixed messages currently coming out of the eurozone in the midst of the recent chaos risks undermining confidence in not just the ECB, but the EU as a whole. This all translates to rising systemic risks. A German government adviser suggested today that without a comprehensive solution to the eurozone sovereign debt crisis, the union may not remain intact over next 12 months.

by Jan Harvey
May 9, 2011 (Reuters) — Gold climbed back above $1500 an ounce on Monday and silver rallied more than 6% as a retreating dollar and rising concerns of euro zone debt helped the metals recover some ground after last week’s hefty losses. Worries over the health of some smaller euro zone economies was brought back into the spotlight after ratings agency Standard & Poor’s downgraded Greece’s credit rating.

… Gold was supported by a rebound in the euro after some investors viewed its sell-off last week as overdone, given the fact interest rate differentials between the euro zone and the United States remain favourable.

Prices briefly eased below $1500 an ounce as the euro pared gains after the S&P cut, which dragged Greece’s rating further into junk territory. However, they quickly recovered as traders digested the news.

“The big confusion in the whole picture is what people are going to do with the US dollar,” said Macquarie analyst Hayden Atkins. “You have competing concerns, with a change in policy rhetoric in the US and mounting concerns over the euro.”

“It is too hard to have a lot of conviction. That will probably weigh on pricing (for commodities), though maybe gold will outperform in that sort of environment.”

… From a technical perspective, silver is also looking more vulnerable than gold after last week’s rout, analysts said. “Gold did not break any significant levels on the downside, so long-term investors were not forced out like in silver, where it was pure carnage,” said Saxo Bank senior manager Ole Hansen.

[source]

by Brett Arends
Monday, May 9, 2011 (MarketWatch) — If you thought the housing crisis was bad, think again. It’s worse.

New data just out from Zillow, the real-estate information company, show house prices are falling at their fastest rate since the Lehman collapse.

Average home prices are down 8% from a year ago, 3% over the quarter, and are falling at about 1% every month, according to Zillow. And the percentage of homeowners in negative-equity positions — with a home worth less than its mortgage — has rocketed to 28%, a new crisis high.

Zillow now predicts prices will fall about 8% this year and says it no longer expects the market to bottom before 2012. “There’s no way we can get to flat, from these depreciation levels, in the last nine months of the year,” says Zillow economist Stan Humphries. “Demand is a lot more anemic than we had previously thought.”

… Falling real-estate prices mean spiraling hidden losses throughout the economy, from banks to homeowners.

Remember Japan’s “zombie banks”? These were the financial institutions that haunted that country’s economic recovery after the 1990 crash. They staggered on with huge losses they could never repay — the walking dead. Here in America we have “zombie homeowners.” Millions of them. According to Zillow, a record 16.3 million families are upside-down on their home loans. Sixteen million! And many are a long way upside-down. Their homes may never be worth as much as their mortgage.

[source]

by Geoff Candy
9 May 2011 (Mineweb) — When gold first pushed through $1,500 dollars on April 20, 2011, two opposing choruses rose up, one proclaiming, this must surely be the end of gold’s massive rise and another, deriding the first chorus as myopic, claiming the breach through the round number as the next rung on the ladder toward $5,000 per ounce gold.

In the wake of last week’s spectacular, drop in silver prices and gold’s fall below $1,500, both choruses were once more in full voice, the first proclaiming the start of the long forecast “return to sanity” and the other, viewing it as a little bit of profit taking and a good buying opportunity.

But, as a more sedate pace of trade settled in on Monday, and gold flirts once more with levels above $1,500… “What has actually changed”.

… The state of the US economy remains uncertain, especially as the deadline looms for Congress’s vote on whether or not to raise its debt ceiling above $14.3 trillion. And, have not been helped by rather dovish comments from Fed chairman Ben Bernanke, confirmation of its decision to continue with its policy of exceptionally loose monetary policy and, most recently, rather contradictory jobs data.

… it is also worth bearing in mind that while gold is once more above $1,500 an ounce, in euro-denominated terms it is still below its highs. That said, prices across the board did benefit from the announcement out of Mexico that it bought some 93 tonnes of gold – a clear indication that central bank buying, particularly in emerging markets remains strong and looks set to get stronger still.

[source]

By TIMO SOINI
When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.

The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders.

To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let’s follow the money.

Already under this scheme, Greece, Ireland and Portugal are ruined. They will never be able to save and grow fast enough to pay back the debts with which Brussels has saddled them in the name of saving them.

People feel betrayed. In Ireland, the incoming parties to the new government promised to hold senior bondholders responsible, but under pressure, they succumbed, leaving their voters with a sense of democratic disenfranchisement. The elites in Brussels have said that Finland must honor its commitments to its European partners, but Brussels is silent on whether national politicians should honor their commitments to their own voters. In a democracy, where we govern under the consent of the people, power is on loan.

[source]

PG View: Timo Soini of the True Finn Party notes a disturbing expectation within the eurozone: Political commitments to the EU trump political commitments to voters.

by Lawrence Williams
Monday, 09 May 2011 (Mineweb) — In a sign that much of the market feels that perhaps the sharp fall-off in the gold price – and also that of silver in particular – may have been overdone, the prices picked up a little on Friday to well above their low points, and carried on moving upwards Monday morning in Asian and European trade. Gold moved back above the psychological $1500 level….

As we have pointed out before here, virtually all the politico-economic factors which have moved the gold price higher and higher remain just as strongly in place – if not more so given the seeming escalation of the financial crisis in Greece, while one has a strong feeling that defaults in U.S. cities and States are not far away now, which could give another boost to the upwards spiral.

Despite the Eurozone problems, the U.S. dollar still looks weak against other major currencies as other Central Banks are seen as more likely to raise interest rates than the U.S. and some of the recovery so far today has been due to the dollar resuming a downwards path after a very minor recovery last week. Mexico’s gold purchases in February and March (we don’t know yet if the country continued purchases in April) should help underpin the price revival – while Asian buying seems to be continuing apace.

[source]

by The AP
Monday, May 9 BASEL, Switzerland — Rich countries like the U.S., Japan and Britain need to move quickly to get their deficits under control, the head of the European Central Bank said Monday. Speaking on behalf of the world’s major central banks, Jean-Claude Trichet said governments’ financial situation in the developed world “has to be aggressively improved.”

… “The fiscal situation, particularly in the advanced economies, is an issue which is important as far as the global economy is concerned,” Trichet said. “That is true for all of us, including of course in Europe,” he added.

The top central bankers meeting at the Bank for International Settlements in Basel, Switzerland, agreed that the global recovery is solidly under way despite “ups and downs,” said Trichet, who chairs the group.

… He said all central bankers were “concentrating on solidly anchoring inflation expectations.”

[source]

ECB bond-buying programme remains in hibernation
by Paul Carrel
FRANKFURT, May 9 (Reuters) – The European Central Bank extended its abstinence from government bond purchases to six weeks last week, giving further weight to the theory it has put the controversial buying programme into hibernation.

It is the 11th time in 15 weeks the ECB has bought no bonds. No bonds bought previously under the programme matured last week, leaving the overall value of the programme at 76 billion euros…

ECB policymaker Ewald Nowotny said on Friday the central bank would keep the programme for the time being “but with the intention of using it as little as possible”.

Under the rules of the programme, the ECB can buy government and corporate bonds from banks and other investors under the facility but not direct from governments. While it does not break down its purchases, bond market traders and analysts say buying has been limited to Greek, Irish and Portuguese bonds.

[source]

By John O’Donnell and Stephen Brown
BRUSSELS/BERLIN, May 9 (Reuters) – The European Union is looking to lower interest rates on bailout loans to Greece and Ireland and is working on a second rescue for Athens in a chaotic effort to prevent a disorderly debt restructuring.

The executive European Commission said on Monday it hoped to see a decision within weeks on reducing the rate charged to Ireland to make Dublin’s debt more sustainable. [ID:nBRU011475]

“The Commission is clearly in favour of a rate cut,” a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said. “The Commission is against debt restructuring.”

[source]

PG View: In the EU saying their is no mechanism for Greece to leave the EMU, nor are they in favor of of a debt restructuring, the message seems to be that Greece will remain in indentured servitude in perpetuity. Ah, but the EU is apparently prepared to override what was once the normal risk/reward process of price discovery of the bond market to get lower interest rates. What could go wrong? Oh wait, wasn’t mispriced priced risk arguably the root cause of the global financial crisis?

Gold continues to recoup the recent corrective losses, regaining the $1500 level. Silver is on the mend as well, but recent volatility may be curtailing buying interest.

While EU officials continue to deny last week’s Der Spiegel story that Greece was contemplating an exit of the EMU, a ‘select group of top eurozone policymakers’ did indeed meet in Luxembourg on Friday to discuss the worsening sovereign debt crises. Lower interest rates are being considered for Greece and Ireland.

Greece has asked for more aid to cover €22 bln in debt repayments due next year that are not covered by the original bailout deal. This prompted yet another downgrade of Greece by S&P from BB- to B, with a negative outlook. S&P warned that the “burden sharing” being considered for Greece would constitute a “distressed exchange,” possibly resulting in a rating of SD (Selective Default). Meanwhile, Greek CDS hit a new record high of 1440.

While renewed weakness in the euro may keep the dollar underpinned in the short/near term, the fundamentals that recently pushed the dollar index within 3% of its all-time low have not changed. As FX market flows continue to move back and forth between the dollar and euro, a percentage is going to keep peeling off into gold.

by David Cottle
(The Wall Street Journal) — Why shouldn’t cash-strapped European countries be forced to liquidate their gold holdings, German politicians have been asking.

Prices, after all, are close to historic highs. Moreover, bullion is the ultimate hedge against an economic rainy day, and it’s certainly pouring down in Greece, Portugal and Ireland.

… Portugal’s holding would be worth $18 billion at current market rates, which would be a handy offset to the €78 billion ($108 billion) bailout it has just accepted from the European Union. On the face of it, there is an absurdity here. How many of us would toss a dime to a beggar if we knew he had an ingot or two stashed under his sleeping dog?

… Unfortunately for the pair, market economics are never quite as simple as they look, even when considering arguably the simplest asset of all. …… Moreover, as one gold dealer said: “Selling reserves has a finality about it; you never get them back. Governments can tell their people that there is some benefit at the end of austerity and reform, but not at the end of selling gold to plug a debt hole.”

… Monument Securities strategist Marc Ostwald is one analyst who doubts a straight gold sale is likely from either nation… But there is no reason, he said, why the gold of debtor states shouldn’t be used as collateral in repurchase agreements, lent out and bought back later at a small premium, which would represent the interest on the cash paid.

“I think some sort of repo deal using gold might make sense,” he said, “although of course this would really be no more a long-term solution to these countries debt problems than the bailouts are.”

[source]

RS View: For a better context, Ostwald’s rough suggestion should be read in conjunction with today’s news item (and following comment) regarding the use of gold as earmarked collateral. To the extent that Greece (or Portugal or Ireland) has gold with some remaining valuation headroom (that is to say, an excess of Mark-to-Market value of the gold reserves against which specific monetary liabilities (i.e. euros) of the Eurosystem have not been issued), then there is precious little standing in the way of a exploring the utility of properly secured gold-collateralized repos through an agent (specifically the Bank for International Settlements) that would be harmonious with the normal course of affairs in the pro-expansive forex market and equally harmonious (i.e., non-derivative, non-expansive in terms of supply) with the rational gold market.

By Claudia Assis and Sarah Turner, MarketWatch
May 6, 2011 (MarketWatch) — Midsession gains for silver were short-lived on Friday, with the metal extending this week’s rout in its worst five-day period since 1980. Gold futures settled higher, but under $1,500 an ounce.

The thinly traded front-month silver contract had its worst week since late March 1980. Silver for May delivery dropped 27% in the five-day period — its largest percent drop since that date.

… Data from recent Commitment of Traders reports suggest that hedge funds and other large managed funds had left the silver trade long before the week’s rout.

Gold for June delivery rose $10.20, or 0.7%, to $1,491.60 an ounce. Gold lost 4.2% on the week, as it had settled [last] Friday at a record $1,556.40 an ounce.

The yellow metal failed to settle above $1,500, but its ending just in the black gave investors some hope gains could resume next week, according to Adam Klopfenstein, a senior market strategist with Lind-Waldock in Chicago. “It gave investors hope we’re near the bottom for the near term,” he said.

… The earlier leg up for precious metals was mainly due to “oversold” conditions and expectations a mixed jobs report on Friday would cause federal officials to keep loose monetary policy going, said Tom Pawlicki, a metal analysts with MF Global in Chicago.

[source]

By Wallace Witkowski
SAN FRANCISCO (MarketWatch) — Greece’s Ministry of Finance said late Friday a news article saying that Greece was considering an exit from the euro zone was “completely untrue.” On Friday, Germany’s Spiegel Online reported that Greece was considering the move and officials were holding secret talks with representatives of the European Commission and other euro zone countries in Luxembourg. “Such articles are not only provocative but also highly irresponsible as they undermine Greece’s efforts and those of the Eurozone and serve only the interests of speculators,” the ministry said in a statement.

[source]

PG View: I wouldn’t be surprised to find that the Greece story that has dominated the financial press today was floated to rest more favorable terms from the EU for a potential restructuring of Greek debt. However, it’s also worth noting that recent euro strength was likely to have a negative impact and German manufacturing, so they benefit as well from the shellacking the euro took this week.

May 6, 2011 (IBTimes) — PIMCO’s Bill Gross, who runs the world’s largest bond fund, said on Friday the only way he would reverse his “short” position on U.S. government-related bonds is if the United States heads into another recession.

… Asked Friday Gross told Reuters: “Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations.”

[source]

NEW YORK — The double-header may be an endangered species in baseball, but a double-header of a different sort last night swept Manhattan, where nearly 1,000 people swarmed into an auditorium on the Upper West Side to hear luminaries debate the question of the gold standard and across town a packed auditorium heard a billionaire investor liken fiat paper currencies, including America’s, to toilet paper.

“The gold standard wouldn’t have allowed forty years of deficits . . . Nations were compelled to live within their means. . . . The gold standard was an honest regulator of Wall Street greed . . . nor did we [in upholding a gold standard] punish people who invested in savings accounts.”

He called the current monetary system a “collectivist top-down tyranny . . . The clever and the nimble play this system for what it is worth.” Gold he referred to as “the people’s money” and the dollar as “America’s credit card.” Said Mr. Grant: “We need a debit card not a credit card.”

[A] return to a gold standard and that a return to a gold standard would translate into $9,421 an-ounce gold based on world reserves and $3,500-an-ounce gold based just on existing currency supply.

“All paper currency,” said Mr. Kaplan, is “toilet paper currency”; the dollar is, on occasion, “double-ply.”

Said Mr. Hathaway, “When someone says to me, ‘I’m trying to make money [in investing in gold], I say, ‘You’re trying to protect your money.’. . . Gold is the best defense . . . That’s the reason to be in metals.”

[source]