By Claudia Assis and Polya Lesova
May 12, 2011 (MarketWatch) — Precious metals pared their losses Thursday, with gold ending higher and silver trimming its slide as the U.S. dollar turned lower against other major currencies.

Silver for July delivery retreated 72 cents to $34.80 an ounce on the Comex division of the New York Mercantile Exchange. The metal had tumbled 7.7% in the previous session.

Gold for June delivery added $5.40, or 0.4%, to end at $1,506.80 an ounce.

… The declines in metals futures came as the U.S. dollar gained against its major rivals, extending Wednesday’s run. But later in the day the dollar index turned lower.

Meanwhile, U.S. stocks and oil also shook off initial weakness. Oil’s June contract added 73 cents to $99.95 a barrel, turning higher about midway through floor trading.

[source]

By Tetsushi Kajimoto and Suvashree Dey Choudhury
Thursday May 12, 2011 TOKYO/MUMBAI (Reuters) – Asia’s reserve-rich nations see no viable option but to keep on purchasing U.S. government debt despite their uneasiness about Washington’s fraught political battle over public spending.

Interviews with policymakers from several Asian countries — including Japan and China, the two largest foreign holders of U.S. debt — showed officials were concerned that U.S. lawmakers would fail to authorize additional government borrowing before a $14.3 trillion debt limit is reached. But they still considered U.S. Treasury debt the safest bet, particularly with so much uncertainty surrounding Europe’s sovereign debt situation.

None of the officials said investment plans would change right away, even if Congress does not raise the debt ceiling this week. The debt limit will probably be reached on Monday, and the Obama administration has warned of “catastrophic” consequences if the government cannot pay its bills.

“Our stance remains unchanged on foreign reserves management,” Japan’s Deputy Finance Minister, Fumihiko Igarashi, told Reuters.

“The U.S. is making the most of having the dollar as key reserve currency and such a situation would not change immediately.

“But nothing will last forever, as with any political and economic conditions,” he added. “We will closely watch developments” in Congress.

… Igarashi said Japan should aim to diversify its reserves to reduce Treasuries exposure, perhaps by increasing gold holdings or raising the percentage invested in euro assets. But he acknowledged that a portfolio shift would be “quite difficult… because selling Treasuries would hurt our own assets.”

… Reuters spoke with about a dozen senior policymakers across Asia, many of whom insisted on anonymity in order to speak more candidly about sensitive fiscal policies.

[source]

By Pedro Nicolaci da Costa
Thursday May 12, 2011 (Reuters) – When the Federal Reserve finally decides to begin draining cash from a flush U.S. banking system, policymakers may find themselves armed with more tools than they know what to do with.

In an effort to ensure its unprecedented monetary stimulus during the financial crisis would not create the risk of future inflation, the Fed has developed a broad range of measures to ensure an orderly retreat. The Fed’s exit toolkit is jam-packed with awkwardly-dubbed concoctions like reverse repurchase agreements and term deposits, along with more straightforward companions like asset sales and conventional interest rate hikes.

Even rate increases are more complex than before, since the Fed now has authority to pay interest on bank reserves parked at the central bank. That rate looks to supplant the overnight federal funds rate for a time as the one to watch.

… “We haven’t really settled on a roadmap,” Richmond Federal Reserve Bank President Jeffrey Lacker told Reuters in an interview. “The permutations are many. It’s probably less important the exact sequencing we pursue than to make a smooth and clear transition.”

For investors, the multitude of possible tightening combinations could make for a disorienting ride when the Fed does decide it is time to tighten monetary policy. Market volatility, particularly in stock, bond and currency markets, could spike significantly, potentially crimping economic activity in a way that intensifies the effects of a monetary contraction.

Not that higher official rates appear imminent.

… With each move further into unconventional easing territory, the central bank added new potential layers to its exit strategy. … “They definitely don’t have a roadmap or even a strategy,” said Keith Springer, president of Springer Financial Advisors in Sacramento, California. “This is all experimental and it contains more hope and prayer than experience that it works.”

[source]

by Jennifer Liberto
Thursday May 12, 2011 (CNN|Money) — Federal Reserve chief Ben Bernanke reinforced his call on Thursday for Congress to raise the cap on U.S. borrowing, saying a failure to do so could lead down the same risky path that the failure of Lehman Brothers did.

During a Senate Banking Committeee hearing, Bernanke reiterated catastrophic consequences should Congress either fail to raise the limit on borrowing or edge too close to that limit.

“The worst outcome would be one in which the financial system would be again destabilized, which we saw in Lehman, which would have extremely dire consequences for the rest of the economy,” Bernanke said, referring to the period following the failure of the Wall Street bank Lehman Brothers at the height of the financial crisis in 2008.

Bernanke also said that “using the debt limit as a bargaining chip is quite risky,” reiterating a worry he expressed in a February press conference.

[source]

By David Patten, Henry J. Reske, and Ashley Martella

“I think America is going to go the way of other great nations historically,” says author and syndicated columnist Walter E. Williams after carefully observing the political games being played over the deficit. “And that is down the tubes. That’s my prediction.”

Pataki, in an exclusive Newsmax.TV interview, says America is facing “an enormous crisis that looms above everything else.”

GOP budget guru Rep. Paul Ryan has warned that America is “on a path of economic ruin.”

And in an interview that Human Events published Wednesday, magazine publisher Forbes called for a return to the gold standard to shore up the dollar and stave off financial ruin.

“People know that something is wrong with the dollar,” said Forbes, who believes the gold standard would rein in federal spending. “You cannot trash your money without repercussions.”

[source]

By Jason Lange – Reuters

Mexico bought over $4 billion of bullion in the first three months of the year as emerging economies move away from the ailing U.S. dollar.

Bank of Mexico chief Agustin Carstens, asked in a radio interview if the price of gold would rise by year-end, said: “It’s likely.”

At the same time, Carstens said Mexico’s recent gold purchases were made as a longer term investment.

[source]

Silver Losses Weigh Briefly on Gold

Silver fell to a new 11-week low at 32.30 in overseas trading on Thursday, undermined by another hike to Chinese bank reserve requirements and another margin hike on silver. China’s largest banks must now hold a record high 21% of capital in reserve. It was the eight increase in the reserve requirement since October. The Shanghai Gold Exchange raised margin requirements to 19% of a contract’s value and was the third increase in less than a month. These are on top of the dramatic rise in margin requirements on COMEX silver futures in recent weeks.

While the losses in the white metal have weighed on gold, last week’s corrective low at 1462.25 remains well protected thus far. The gold/silver ratio has rebounded back to 45 from the recent low of 31. UBS precious metals strategist Edel Tully has taken notice of gold’s resilience in the face of dramatic losses in silver, saying that she favors gold for the remainder of the year. Tully added that “a gold price above $1,600 this year is very, very possible.”

A much weaker than expected eurozone industrial production print for Mar, further eroded ECB rate hike expectations and pushed the euro to a new 6-week lows, bolstering the dollar in the process. Further dollar strength added additional weight to the metals, although eroding expectations of a Fed rate hike as well can hardly be construed as positive for the greenback. At the beginning of the US session, higher than expected initial jobless claims, weaker than expected retail sales and an upside miss on PPI all conspired to take some of the wind out of the dollar’s sails and gold dutifully regained $1,500.

Eurogroup chief Jean-Claude Juncker said today that “with certainty” Greece won’t be able to tap credit markets in 2012. The implications of course are that the EU — with perhaps additional assistance from the IMF — will indeed have to provide further aid. Juncker acknowledged that EU finance ministers will meet next week to discuss Greece, while justifying his lie from last week about Friday’s meeting of select EU officials in Luxembourg. You may recall that Juncker denied that any such meeting was taking place. Juncker’s defense was that in lying he “helped avoid many speculations,” and specifically speculation about Greece exiting the EMU.

First of all, that’s just silly; speculation on Greece was, and continues to run rampant. Second, and more importantly, under no circumstances should a government official — whether elected or appointed — lie, regardless of the perceived justification. A “no comment” may be entirely appropriate, but lying should be an actionable offense.

In thinking back to Treasury Secretary Tim Geithner’s assurances in 2008 that Lehman Brothers and Bear Stearns were well capitalized — when clearly they weren’t — and other such offenses, it becomes apparent that lying and misrepresentation by government officials has been pretty much institutionalized. While Geithner’s lies may have forestalled the inevitable ever so briefly, it makes the people (whom these officials work for) increasingly skeptical of the government. The speculators may be kept somewhat off balance, but undoubtedly there are little old pensioners out there too that rode Lehman stock all the way to zero based on assurances from their government that all was well.

by Tom Jennemann
Thu, May 12 2011 (Fastmarkets) — Gold and silver on the Comex division of the New York Mercantile Exchange have bounced off the morning’s low but the risk going forward remains firmly to the downside as the dollar touched a five-week high against the euro and as crude oil remains deep in negative territory.

Silver futures for July delivery were down $1.66, or 4.8 percent, at $33.855 an ounce and earlier hit $32.30 – a 10-week low. The grey metal has lost about 33 percent from its April highs. Gold has pulled back also but not nearly as dramatically. The yellow metal was recently down $4.80, or 0.3 percent, at $1,496.60 an ounce, on a June basis, but previously fell to an intraday low of $1,477.60.

The brunt of the downward pressure is coming from the stronger dollar, which has rallied to 1.4119 against the euro earlier before curbing gains to 1.4186. The forex market finds itself “massively, violently, enormously, egregiously and frighteningly short of the dollar and now is scrambling to find its way out of a archly spring trap,” explained Dennis Gartman, author of the Gartman Letter.

… “Even the most ardent metal’s bull has to stand back, take a deep breath and worry about margin liquidation,” Gartman said.

Commerzbank AG said in a note that investors are taking profits with gold to compensate for losses with other assets. “However, the firmer dollar is allowing gold prices in euros to remain above 1,050 euro an ounce. Gold should be well supported overall in the current market climate and sharp price losses should be prevented by a greater interest in physical buying at the lower price levels,” the bank analysts said.

[source]

By Mina Kimes
May 12, 2011 (CNN|Money) — Money-management powerhouse Pimco has long been renowned for its expertise in bonds. Equities, not so much. So when the firm announced in late 2009 that it was moving into stock picking, it scoured the globe for talent. Its first draft choices were Anne Gudefin, a veteran value investor, and Charles Lahr, partners who jointly ran the $16 billion Mutual Global Discovery mutual fund. During the five years Gudefin was at the helm, the fund averaged a 7% return, beating the MSCI world stock index by more than four percentage points annually and topping 98% of its peers during the 2008 meltdown. …… She discussed the holdings in her new $1.2 billion fund, Pimco EqS Pathfinder.

Q. How do you decide a stock is cheap?

A. I’m really attracted to good business models. We’ve seen over the years that quality pays, and I’m always looking for companies with high barriers to entry and strong free cash flow generation. I also want to see things that aren’t operating perfectly at the moment, so there’s a margin for improvement. I look for there to be a number of catalysts for value to be unlocked…

Q. A large chunk of your portfolio is in consumer staples. Why?

… they benefit from growth in emerging markets. We like Pernod Ricard, which is the No. 2 spirits company in the world. The Chinese consumer is crazy about cognac and, to a lesser extent, Scotch. Some bottles — not even the most expensive ones — go for a few thousand euros, so you can imagine the margins. It’s insane! But good for the investor. A growing portion of the luxury goods produced in the world are sold in China these days…

Q. Pimco’s leadership has backed away from U.S. Treasuries, citing factors such as inflation. Has that affected your investing strategy?

It’s always something we keep in mind, especially when we’re investing in consumer staples, because there will be higher raw material prices.

… Q. Other than value stocks, what do you like?

The largest position in the fund is gold, which we think is a very good form of protection against what can go wrong. We were encouraged by the fact that a lot of the central banks, especially in Asia, are big buyers. We think that’s an underlying trend that’s very favorable for gold.

[source]

by Jan Harvey
May 12, 2011 (Retuers) — Gold and silver prices slid on Thursday, with silver tumbling more than 7%, as renewed strength in the dollar and concerns over the outlook for economic growth sparked broad-based selling of commodities.

Silver also came under heavy selling pressure after the Shanghai Gold Exchange lifted its margin requirements for silver again, traders said.

Spot gold was bid at $1,482.10 an ounce at 1100 GMT against $1,499.75 late in New York on Wednesday, having earlier hit a low of $1,478.05. Silver fell as low as $32.52…. Gold dropped more than 1% on Wednesday and silver nearly 9% as hefty gains in the dollar prompted selling across commodities.

… “External factors are playing the most important role here — the firmer dollar, and secondly somewhat weaker equity markets which reflect higher risk aversion among market players at the moment,” said Commerzbank analyst Daniel Briesemann. “Given that commodities still show quite good price performance over the last 12 months and are still in positive territory, some market players are taking profits to cover losses elsewhere,” he added.

… Gold prices have dropped more than 5% and silver by around a third from the record highs they hit in recent weeks.

… Increases in the amount of money exchanges require to trade silver have rattled futures markets. Speculators have liquidated long positions in silver in both New York and on the Shanghai Gold Exchange in recent weeks, pressuring the metal. “While the long silver trade is a lot less crowded than it was earlier this month, news that the SGE will raise initial margins on the metal to 19%, from 18%, and widen the allowed daily range to 13% — both effective tomorrow – may spook those investors who are still long that further margin hikes will follow,” said UBS in a note. “The only thing we can be certain of in silver right now is that the roller coaster journey is going to continue for some time.”

The gold:silver ratio — the number of ounces of silver needed to buy an ounce of gold — rose towards 44 on Thursday, having slipped to 31.7 in late April.

[source]

Yet another hike to China’s bank reserve requirements and a margin increase for silver on the Shanghai exchange conspired to keep the precious metals, and commodities in general on the ropes. China hiked reserve requirements another 50 bps to a record high 21% for its largest banks. This is designed to fight inflation by slowing the economy and reducing demand for commodities.

Additionally, eurozone industrial production came in much weaker than expected, further curtailing ECB rate hike expectations. The euro fell to a 6-week low, lifting the dollar in the process and adding further weight to gold.

However, a flight of bad US data this morning, particularly a larger than expected rise in Apr PPI, seems to have resulted in at least a slightly more constructive intraday bias.

By Claudia Assis and Virginia Harrison, MarketWatch
May 11, 2011 (MarketWatch) — Silver futures on Wednesday led yet another commodities selloff , down 8% as traders judged a default for Greece unavoidable, a sentiment that weighed down the euro and sent the dollar higher.

Gold for June delivery declined $15.50, or 1%, to settle at $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange.

July silver retreated $2.97, or 7.7%, to settle at $35.52 an ounce.

Greece’s debt restructuring seems “inevitable,” said Bill O’Neill, a principal at Logic Advisors in New Jersey. “That’s a real threat to the banking system.”

In a restructuring, investors holding Greek debt will likely be offered less than face value for the bonds they hold. The stark possibility was enough to drag down the euro and prop the dollar up against most major currencies.

… For gold, and to a lesser extent for silver, dollar movements add another layer of complexity as dollar weakness and its twin fear of currency devaluation often spark precious metals buying.

Gold held up better than silver because it got some flight-to-quality support, said Adam Klopfenstein, a senior market strategist at Lind Waldock in Chicago. “At the first sign of weakness, people dump” silver, he added.

[source]

By Charles Riley
May 11, 2011 (CNNMoney) — This just in from the Treasury Department: The United States will not be unloading its nearly $400 billion stash of gold to delay hitting the debt ceiling. At least not if Treasury Secretary Tim Geithner gets his way.

As the government approaches the legal borrowing limit currently set at $14.294 trillion, some have suggested the government could sell its gold reserves, as well as other assets such as mortgage-backed securities or student loan portfolio. … That would buy politicians a little extra time to negotiate, chest-thump, and whatever else the debt ceiling debate will bring.

But Treasury is already warning lawmakers that holding a giant yard sale of government assets isn’t a responsible move.

In a letter sent to Congress last month, Geithner said any “fire sale” of assets would be “damaging to financial markets and the economy” and would “undermine confidence in the United States.”

… Uncle Sam is sitting on $396 billion worth of the shiny stuff. According to the World Gold Council, the United States holds more than twice as much gold as runner-up gold hoarder Germany. Treasury, however, plans to keep it in the vault.

“A ‘fire sale’ of the nation’s gold to meet payment obligations would undercut confidence in the United States both here and abroad,” Mary Miller, assistant secretary of the Treasury, wrote in a blog post last week.

… Even if the gold was successfully brought to market, the federal government’s massive borrowing appetite would mean only a brief reprieve. The United States borrows roughly $125 billion a month, a pace that would quickly erase the sale’s proceeds.

[source]

by Geoff Candy
May 11, 2011 (Mineweb) — Gold’s performance last week, in the face of a drop of around 30% in the price of silver was rather impressive and, could be an indicator of things to come. According to UBS precious metals strategist, Edel Tully, the bank prefers gold to silver over the course of the rest of this year even though silver offers perhaps more opportunities for short term gain, albeit with a heightened risk profile.

Speaking on Mineweb.com’s Gold Weekly podcast, Tully said, “Gold, purely from a precious metals and a safe haven angle, is our preferred method…. Obviously silver has come back quite impressively, it is up over $5 from the lows of last week so you could have made some big gains but, I would prefer to see silver try to stabilise somewhat, see it consolidate for a little while. … Gold, on the other hand, is likely to be a less volatile play, to which the movements of last week attest but, it also expected to continue on its upward trajectory.

… Inflation concerns in China, which Tully acknowledges is a very important market for gold, have further boosted demand for the metal. “Whenever I go to China, the actual view on inflation appears to be much higher on the ground than what the official statistics would reveal. So, I think the Chinese population will remain friendly toward gold so long, really as inflation is a problem.”

Remaining in Asia, Tully adds that the current level of demand out of India is surprisingly strong and does not have the same level of seasonality as it has in previous years. “While you are not going to have the wedding-type buying that happens in the beginning of the year, there certainly seems to be an appetite for gold in India that is not going to disappear over the summer,” she says.

… The final major factor that is likely to play an increased role in underpinning gold prices over the course of the year is the continued presence of central bank buyers in the market. … “I think the biggest take-away we can grab from [Mexico] is that another region of the world, another central bank region is buying gold. So, it is not just concentrated in Asia, that it is now in the Americas. So, the potential for another central bank in South America perhaps could be quite high going forward.”

[source]

HSBC has raised its forecast for the 2011 gold price to $1,525/oz from $1,450/oz and for 2012 to $1,500/oz from $1,300/oz. It also introduced a 2013 prediction of $1,450/oz, according to a research note late Tuesday.

“Investor demand now is the main driver for gold pricing, while traditionally important physical supply and demand components, such as jewelry demand and mine supply, have recently exerted little influence on day-to-day moves in the gold price,” analyst James Steel said in the note.

Central banks, including Russia, Thailand, Mexico and Vietnam had also played a hand in supporting the market in recent months as buyers.

“After many years as a contributor to supply, central banks have swung to being net buyers. We believe this is an important development that will support prices going forward.”

[source]

By Grant McCool and Basil Katz
Wednesday May 11, 2011 NEW YORK (Reuters) — Galleon Group hedge fund founder Raj Rajaratnam was found guilty of 14 securities fraud and conspiracy charges on Wednesday, in a vindication for the government’s use of aggressive tactics in prosecuting insider trading on Wall Street.

Rajaratnam, a one-time billionaire, will remain free on bail under house arrest with electronic surveillance until his sentencing on July 29, U.S. District Judge Richard Holwell ruled after the jury delivered its verdict.

… His chief lawyer, John Dowd, said inside and outside of the courtroom on Wednesday that he would appeal the prosecution’s use of secretly-recorded phone calls. After a four-day mini-trial called a Franks hearing last October, the judge denied defense efforts to suppress the phone tap evidence.

… “Wiretaps are a game changer on Wall Street,” said Chicago securities lawyer Andrew Stoltmann. “That is the reason Raj Rajaratnam will spend a very long time in prison.”

Rajaratnam is the only one out of 26 people charged in the broad Galleon case to go on trial so far. Twenty-one pleaded guilty and one defendant is at large.

[source]

ALSO . . .

Rajaratnam Conviction an Unwanted Sign of Arrival
by Daniel Gross
Wednesday May 11, 2011 (Yahoo! Finance) — The conviction of hedge fund manager Raj Rajaratnam on 14 counts of insider trading essentially brings to a close one of the largest criminal case of financial misdeeds in recent years….

The Rajaratnam insider-trading ring was a sideshow to the larger financial scandals of recent years. Its impact on the economy pales in comparison to the Lehman Brothers debacle. The sums of money and institutional failures involved were much less dramatic than in the Bernard Madoff affair. Yet the trial inspired interest in large measure because of its cast of characters. This wasn’t a boiler room operation, or a bunch of mob-connected guys in New Jersey manipulating micro-caps. No, this was a conspiracy involving an investor who was able to tap into the nervous system of the financial system and extract valuable, profitable information.

… Rajaratnam’s crimes weren’t those of a marginal outsider motivated by desperation or poverty. When the ring started, he was already a wealthy man many times over. The management fees he would have reaped from running Galleon for a single year would be enough to last most people a lifetime. Rather, his crimes stem from an impulse that has deep roots in America’s financial system: the desire by those on the inside to game the system for further gain.

[source]

Rising Stagflation Threat Underpins Gold

Gold has retreated back below the $1,500 level, as recent gains stalled just shy of the 61.8% Fibonacci retracement at 1531.72. Dollar strength associated with the worsening sovereign debt situation in Europe have weighed on the precious metals. As has today’s drop in oil prices resulting from a larger than expected inventory build. Nonetheless, there remains a whole host of fundamental factors conspiring to limit downside potential in the yellow metal.

While commodities retreated off their highs in recent weeks, inflationary signals — primarily associated with still high energy and food prices — continue to roll in. China reported April CPI of 5.3% y/y today. While that’s down a tick from 5.4% in March, it remains disturbingly high, putting additional pressure on the PBoC to tighten further. Germany revised Apirl HICP higher to 2.7% y/y, well above target, which will increase the pressure on the ECB to raise rates further. In the UK, the Bank of England simultaneously revised its growth forecast lower and revised its inflation outlook higher. This developing trend in the UK and economic data from elsewhere in the world has prompted market whispers of stagflation.

Nomura Securities analyst Joe Mezrich said yesterday that “Inflation expectations in bonds are now priced higher than before the Lehman bankruptcy, while long-term earnings growth is now priced in equities as negligible. The current divergence of higher inflation pricing and lower earnings growth pricing is not a good sign. The market currently seems to be pricing in stagflation.”

In China for example — where inflation has recently been viewed as the biggest threat — a top government economist now expects the PBoC to actually ease rather than tighten further in H2, despite persistent price risks. Wang Jian of the National Development and Reform Commission said, “The central bank will be very cautious about raising interest rates. In fact, I believe it may stop raising interest rates but cut interest rates in the second half of this year.”

At Seeking Alpha, contributor Brian Wills nicely sums up the situation in the US: [W]e have seen our GDP drop from 3.1% in the 4th Quarter of 2010 to 1.8% in the first Quarter of this year. All inflation measures are on the rise —PPI over 5% ,import prices over 9% and the CPI is approaching 3%.

Stagflation is essentially the perfect storm for gold as governments and central banks the world over tend to view risks to growth as far more serious than inflation. Those risks to growth will be fought with ongoing easy monetary policies, stimulus, bailouts and various forms of liquidity measures…such as QE3. Wills reminds us that during the last serious bout of stagflation in the 1970s, “gold increased in value by almost 25 fold.” New York Time’s economist Paul Krugman says, “I would be doing a QE3 that would be both larger and broader-based than QE2.” While I don’t agree that additional quantitative easing is a good thing, I do agree that this is eventually the course the Fed follows; and that is very positive for gold.

By Amanda Cooper
Wed May 11, 2011 LONDON (Reuters) — Gold broke a three-day rally to fall on Wednesday, under pressure from a rebound in the dollar and a broad decline in other commodities, although potential demand growth from China was expected to stem any severe slides.

Data from China, a major consumer of silver and the second-largest consumer of gold, showed inflation picked up more than expected in April, while industrial output slowed.

… Earlier, gold benefitted after data showed high inflation and slowing growth in the world’s second-largest economy, which could increase demand for bullion in its capacity as a hedge against rising price pressures. “Inflation remains above the government’s desired target. Although it’s not accelerating, it’s nevertheless above target,” said Standard Chartered analyst Daniel Smith.

… Real interest rates, with the rate of inflation factored into a central bank’s benchmark rate, are at about 1 percent in China, compared with -2.45 percent in the United States, -1.55 percent in the euro zone and an average of -0.4 percent across the G20.

… “Gold is generally benefiting from the return of confidence from investors,” said Darren Heathcote, head of trading at Investec Australia. “They are very happy buying on the dip, as we see the same old problems hanging around.”

… Spot gold fell 0.4 percent to $1,508.54 an ounce by 1338 GMT, leaving the price on course for a 1 percent rise this week, while COMEX gold futures for June delivery were down 0.5 percent at $1,509.60.

…Spot silver reversed course and fell 3.1 percent to $37.26, having risen earlier by as much as 2.7 percent to $39.48, falling after three straight days of gains. COMEX silver fell 3.4 percent to $37.17.

The gold/silver ratio — the number of ounces of silver needed to buy one ounce of gold — has risen for four consecutive days, indicating gold’s outperformance over silver.

[source]

by Alix Steel
May 11, 2011 (The Street) — Gold and silver prices were unable to hang onto their gains Wednesday, as a stronger U.S. dollar and profit taking weighed on the metals. Gold for June delivery was losing $10.10 to $1,506.80 at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,526.80 and as low as $1,504.60.

Gold and silver were giving up earlier gains as the U.S. dollar index rose 0.58% to $74.99. Silver has also risen for two trading days and gold for three, so investors might be booking profits.

Some traders were looking to bet against higher prices, especially in silver. Scott Redler, chief strategic officer at T3Live.com, said he initiated some short positions yesterday as did other traders.

[source]

by Sergei Balashov
May 11, 2011 (ProactiveInvestors) — Gold pulled back as traders were taking profits following a surge early in the week after Standard & Poor’s downgraded Greece’s sovereign rating from BB- to B, while indicating that further downward revisions were possible.

The yellow metal got some support from weakness in the US dollar, which dropped after the US government reported that the country’s trade deficit expanded from $45.4 billion in February to $48.2 billion in March, which was attributed to the recent surge in oil prices. The price of oil imported into the US during the month hit the highest level since September 2008 at $93.76/barrel.

… Gold last traded at $1,506/oz. … Mining stocks were in decline today.

[source]

A return to the gold standard by the United States within the next five years now seems likely, since that move would help the nation to solve a variety of economic, fiscal and monetary ills, Steve Forbes predicted during an exclusive interview Monday with Human Events.

Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds and discourage reckless federal spending, the media mogul and former presidential candidate said. The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the United States is suffering now, Forbes added.

[source]

PG View: Forbes is spot on when he says, “You cannot trash your money without repercussions.” However, this article fails to address where gold would have to be valued to cover all the dollars in circulation in the event of a return to the gold standard. Hint: It’s a lot higher than $1,500. It’s probably not quite the simple solution that Forbes seems to be suggesting, as adding another $4,000 or so to the gold price over the next 5-years would likely be quite disruptive to global markets.

Gold has turned mildly corrective after the dollar shrugged off the larger than expected US trade deficit. The trade deficit widened 6.0% to $48.2 bln in March, worse than expected, versus -$45.8 bln in February. Oddly, the US says its trade deficit with China was $18.1 bln in March, while China reported a $13 bln trade surplus with the US in March. That’s a pretty big discrepancy.

China’s April CPI slipped to 5.3% y/y, vs 5.4% in Mar. With inflation still a concern and with still robust April output and retail sales, more PBoC tightening may well be in the offing.

German April HICP revised up to 2.7% y/y, boosted by late Easter and rising energy prices. This will add to rate hike pressures, despite the meltdown in the eurozone periphery.

BoE forecasts slower growth and higher inflation for UK over the 2-year horizon.

By Paul Eckert and Doug Palmer
Tuesday May 10, 2011 (Reuters) – China on Tuesday pledged easier access for U.S. companies to key sectors of its economy by removing barriers to its huge market in government contracts and offering a foothold to U.S. mutual funds.

The pledges were made in two days of talks between the world’s two biggest economies which ended with both sides hailing progress in their often tense relationship.

… A U.S. official said there had been detailed talks on China’s yuan currency and a recognition by China that a stronger yuan was needed to tamp down surging inflation.

However, Geithner made clear the United States was not yet satisfied with the speed at which Beijing was letting its currency appreciate and the U.S. Treasury said the yuan “remains substantially undervalued.”

… Vice Finance Minister Zhu Guangyao said that while the two sides agree the yuan needs to strengthen, Beijing will move at its own speed.

[source]

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.

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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.

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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.”

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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.

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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.

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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.”

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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.

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