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Gold to reach $2,000 an ounce(?)
May 19th, 2011 16:02 by News

by Tyler McKee
May 19, 2011 (Forbes) — I recently checked in with Curtis Hesler, editor of Professional Timing Service, for his thoughts on gold:

Gold has finally decided to back off, and there should be a bit more selling before this correction is over. Gold posted three highs at the $1,430 level during November and December last year, which were finally exceeded this spring. Normally, when triple highs are broken, prices will surge short term and then correct briefly before resuming the rally. This is the correction that is unfolding now. Once it is completed, I look for gold to advance to $1,800 later this year and to above $2,000 in 2012.

[source]

Gold, silver end lower as rebound fizzles
May 19th, 2011 15:25 by News

By Claudia Assis and Sarah Turner
May 19, 2011 (MarketWatch) — Gold and silver edged lower Thursday, unable to hold on to gains after a rash of disappointing macroeconomic data once again called the recovery into question, hurting prospects for silver’s industrial demand.

Gold for June delivery declined $3.40, or 0.2%, to $1,492.40 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, it had traded as high as $1,499.60 an ounce, but couldn’t top $1,500. On Wednesday, gold for June delivery surged 1.1%, but also remained below the $1,500 level.

Every failed attempt meant investors had a fresh reason to sell, said Carlos Sanchez with CPM Group in New York.

… Among the day’s economic data, April leading economic indicators fell 0.3%, the Conference Board said. Manufacturing conditions in the Philadelphia area disappointed in May, and existing-home sales declined 0.8% in April, surprising economists who had expected a rise.

Separately, gold demand rose in the first quarter by 11% year on year, the World Gold Council trade group said Thursday, with China and India accounting for 63% of total demand.

“Given the huge rise of China’s demand, which surged by 32% in a year, the WGC’s earlier forecast that China’s gold demand would double in 10 years could be proven too conservative,” analysts at Commerzbank said. “Consequently, we expect the price of gold to pick up to $1,600 a troy ounce by year-end after a temporary weakness in the summer.”

[source]

Chinese set new standard in buying gold
May 19th, 2011 14:58 by News

by Jack Farchy
May 19, 2011 (FT) — China overtook India to become the largest market for gold bars and coins in the first quarter of this year, as rising inflation inspired a surge in bullion investment.

Chinese investors bought 93.5 tonnes of gold between January and March in the form of coins, bars and medallions, a 55 per cent increase from the previous quarter and more than double the level of a year earlier, according to data released by the World Gold Council on Thursday.

… The surge in Chinese buying has supported prices, even as some investors in the west were cutting exposure…. George Soros’s hedge fund sold almost all its holdings in the largest gold exchange-traded fund, SPDR Gold Shares, in the first quarter, according to a regulatory filing this week.

“You’re seeing eastern demand picking up any of the gold coming out of the hands of western investors,” said Marcus Grubb, managing director for investment at the World Gold Council, a lobby group backed by the gold mining industry.

… The rise in Chinese gold consumption has been stimulated by the deregulation of the country’s gold market, which has led to an increase in the number of banks importing gold and the number of specialist shops that sell it.

[source]

RS View: As a worthwhile reminder, deregulation of the gold market in China has been deliberately unfolding over the whole of the past decade, coincident and harmonious with the pro-gold structure and launch of the euro project.

Double bottom for gold?
May 19th, 2011 14:41 by News

by Mark Hulbert
CHAPEL HILL, N.C. (MarketWatch) — Evidence is growing that gold has formed at least a short-term bottom around $1,480. Tuesday’s close at that level, for example, now appears to have been the second half of a double bottom, with the first half having been formed by May 5’s close of $1,481.50 an ounce. (Both prices reflect the June gold contract on the COMEX.)

This area therefore represents support, according to technical analysts, since there evidently are buyers on the sidelines ready to buy whenever gold drops to this area.

Sentiment data provide confirmation: The gold timers on balance have remained almost completely out of the market, despite gold’s successful test of the $1,480 bottom. … In other words, while gold is patiently doing the technical work to form a bottom, the average gold timer is building a wall of worry that bullion will be able to climb.

[source]

Spaniards defy ban to protest economic crisis
May 19th, 2011 14:18 by News

May 19, 2011 (CBC News) — Hundreds of Spaniards defied a ban on their makeshift protest camp in the heart of Madrid for a fourth straight day Thursday, denouncing the country’s two main political parties as selfish and useless in dealing with the country’s economic crisis.

… Miguel Arrastia, 26, said protesters are angry that spending cuts and other austerity measures imposed to deal with Spain’s deficit and other problems are making people suffer even more. He is an unemployed surveyor.

“This protest is a spontaneous thing, and I think it is happening at the right time because it is right before the elections and we are showing that no party is capable of dealing with this crisis,” he said.

Arrastia said that recent pro-democracy uprisings in North Africa and the Middle East served as an inspiration — a reminder of what people working together can achieve. “They were an influence because they gave us strength. Those people were able to stand up to dictators, so why cannot we” take on a stagnant political system at home, Arrastia said.

… Ramon Cotarelo, a political science professor at Complutense University in Madrid, said the protests, which began over the weekend, are the culmination of a mix of woes and other factors.

He cited the economic crisis, contagion from the Arab countries, rapid-fire communications over the Internet, people being fed up with ineffective and sometimes corrupt politicians, and elections in which some candidates are in fact under formal investigation for corruption.

“Suddenly there is a spark and everything explodes,” Cotarelo said.

… The demonstrations, initially organized by students and unemployed and disaffected youths, are a spillover from countrywide demonstrations Sunday. They have triggered a lively debate throughout the country on how the crisis has been handled by the politicians and financial institutions.

[source]

China, India to boost gold demand this year
May 19th, 2011 11:47 by News

LONDON (TheEconomicTimes) — Gold, fresh from striking record highs at the start of this month, will enjoy buoyant demand this year, particularly from China and India, the World Gold Council said in a report on Thursday.

“The resilience of gold during recent volatility in the commodities market exemplifies the strength of the global gold market and its unique demand drivers,” said Marcus Grubb, Managing Director of Investment at the WGC.

“High levels of investment demand across the world, strong demand in India and China, the continued strength of the technology sector together with central bank purchasing demonstrates gold’s diverse demand drivers.

“We anticipate continued strong demand during the rest of 2011,” Grubb said.

… “Prevailing global socio-economic conditions will continue to drive investment demand for gold,” the WGC said in its quarterly report.

At the same time, the WGC predicted that more central banks would buy gold as they seek to diversify reserves into assets that are deemed to be less risky.

[source]

Are gold and silver poised for another take-off?
May 19th, 2011 11:39 by News

by: Lawrence Williams

“The pattern of price movements we are seeing currently, with strong upwards and downwards fluctuations for both metals, but particularly for the more volatile silver, suggest to this observer that, although there may be some more short term shocks in store, the volume of buying for physical metal which has been flowing in at the lower prices suggests both gold and silver are in a consolidation phase and are likely to see another very sharp upwards movement again, if not now perhaps at the end of August when the usual summer price doldrums are past us.”

“But what is apparent here is that there is, at the moment, considerable resistance to gold falling below $1480 and silver below $33 – both levels which only a few short months ago would have seemed to many to be out of reach on the upside! This looks like a strong consolidation phase and once the aftershock tremors die down there could be a very sharp move upwards again which could probably take gold to new highs and silver up to above $50…”

[source]

Disasters send Japanese economy into recession
May 19th, 2011 11:37 by News

By Tomoko A. Hosaka
05/19/2011 (Associated Press) — Japan’s economy shrank in the first quarter, veering back into recession as factory production and consumer spending wilted in the aftermath of March 11 earthquake and tsunami.

… The result marks the second straight quarter that the world’s No. 3 economy has lost steam…. While there is no universally accepted definition of a recession, many economists define it as two consecutive quarters of GDP contraction.

… Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said there is “no doubt” that recession has returned. More surprising is just how quickly the economy crumpled, he said. The latest GDP report includes just 20 days following the disaster, but “the impact is huge,” said Schulz, who had expected to see most of the economic fallout in the second quarter.

The magnitude-9.0 earthquake and tsunami left more than 24,000 people dead or missing, and wiped out entire towns in the hardest-hit areas. Damage is estimated at $300 billion, making it the most expensive natural disaster in history. It damaged factories in the region, causing severe shortages of parts and components for manufacturers across Japan, especially automakers. A crippled nuclear power plant caused widespread power shortages that added to the headaches faced by businesses and households.

… The recent events have deeply unnerved households, who are likely to remain cautious for the coming months, Schulz said. “The nuclear disaster showed just how much is wrong in Japan actually,” he said. “And many things that seemed so stable and sure like electricity supply … are looking not safe at all.”

[source]

Gold eases as dollar edges higher
May 19th, 2011 11:04 by News

by Amanda Cooper
May 19, 2011 (Reuters) — [Spot] Gold is trading at $1,492.09 in late trade on Thursday as traders eye strong dollar.

… “There is probably some consolidation around where we are, perhaps to test $1 500. I think the dollar will continue to play an important role,” said RBS analyst Daniel Major. “We’ve had some very choppy price action today but we have seen a small turnaround in what has been a strengthening trend in the dollar that we’ve seen throughout May.”

Gold usually moves in the opposite direction to the dollar, as strength in the US currency makes dollar-priced assets pricier for non-US buyers, and this inverse correlation is trading close to its lowest levels since mid-January. The dollar’s 3% rise against a basket of currencies this month has diminished some investor appetite for gold, which is now about $80 off early May’s record high at $1,575.79.

… The World Gold Council said in a report on Thursday that investors turned away from gold-backed exchange-traded funds in the first quarter in favour of coins and bars. Gold coin and bar investment rose in most geographical areas in the first quarter, the WGC data showed, more than doubling in China to 90.9 tons, rising 54% in the United States to 22.5 tons and almost doubling in Europe to 78.1 tons.

“It is very interesting that we continue to see a high level of enthusiasm from European investors,” said the WGC’s Research Manager Eily Ong. “We still see a very slow global economic recovery, and ongoing sovereign debt issue in the euro area.”

[source]

Gold investors favour bars and coins
May 19th, 2011 10:56 by News

May 19, 2011 (euronews) — The World Gold Council has said there was an increase in the purchase of gold bars and coins in the first three months of this year helping lift overall demand for bullion by 11 percent.

Total coin and bar demand rose by 52 percent. Gold investment increased by 26 percent in tonnage terms.

There was a decline in the sale of gold exchange traded funds – which issue securities backed by physical gold.

… Central banks were also major gold buyers, reversing a previous trend.

… Gold supply was down by four percent in the first quarter.

[source]

Gold, silver prices fall on jobs data
May 19th, 2011 10:52 by News

by Alix Steel
May 19, 2011 (TheStreet) — Gold and silver prices were falling on a choppy dollar after a stronger than expected reading on jobless claims. … The gold price almost hit $1,500 today and has hit a low of $1,487.40.

Gold prices had been giving up recent gains as investors booked profits and the move accelerated after the Labor Department said 29,000 fewer people filed for unemployment claims for the first time last week. After recent weak economic data has highlighted slowing manufacturing activity and industrial output, the better jobs data is cheering markets and weighing on precious metals.

“Dips continue to draw bargain hunter interest, both physical and investment,” says James Moore, research analyst at FastMarkets, “and could indicate a period of wide range trade until economic optimism improves.”

But it might not be U.S. investors that gold and silver will take their cue from. The World Gold Council released its first quarter 2011 Gold Demand Trend report Thursday. Not surprisingly, China is showing significant demand growth, growing an average rate of 14% per year since 2001. … “We believe that Chinese gold demand could double within the next decade,” the WGC said, “we would not be surprised to see this result achieved in a shorter time frame.”

The report highlights rising incomes in China, the country’s proclivity to buy gold as gifts and high inflation as three reasons why gold demand will stay strong. As China also seeks to tame its real estate bubble investors need another place to invest and gold looks to be the winner.

[source]

The Daily Market Report
May 19th, 2011 10:45 by News

Gold Consolidates as Inflation Percolates


When the FOMC met back in April, inflation was a hot topic because…well…inflation in the real world is ‘hot.’ The Fed noted that “Headline consumer price inflation was boosted by large increases in food and energy prices, but measures of underlying inflation were still subdued and longer-run inflation expectations remained stable.” The minutes of that meeting suggest the Fed is prepared to pull back on accommodations if the economy continues to grow, in order to prevent consumer prices from getting out of control; or perhaps more accurately to prevent inflation expectations from becoming un-anchored.

The minutes go on to say:

Maintaining well-anchored inflation expectations would depend on the credibility of the Committee’s commitment to deliver on the price stability part of its mandate. A few participants suggested that clearer communication about the Committee’s inflation outlook, such as explaining the measures it uses to gauge medium-term trends in general price inflation and announcing an explicit numerical inflation objective, would be helpful in this regard.

I am going to guess that the St. Louis Fed’s James Bullard was involved in that discussion. In fact he gave a speech at NYU yesterday entitled, “Measuring Inflation: Why the Core is Rotten” [PDF]. Bullard systematically dismantles the old arguments that have favored a focus on core inflation, suggesting they “have become rotten over the years.” He believes, “It is time to drop the emphasis on core inflation as a “meaningful way to interpret the inflation process in the U.S.”

The most prevalent argument for avoiding the headline number is that food and energy prices are too volatile. While this is true, rather than ignoring the prices of of products that pretty much everyone in the country consume on a daily basis, there are methods to smooth those data. Bullard sums up by saying, “To the extent that the volatility of headline inflation is a problem, there are better methods of addressing that than to simply dismiss troublesome prices.”

Jerome Idaszak, Associate Editor of The Kiplinger Letter pointed out the reality of those “troublesome prices” in an article earlier in the week:

Some prices are, in fact, surging: In the past 12 months, airfares, for example, have climbed by nearly 12%. The average cost of used cars is up 15%. Hospital bills have climbed by 5.4%. And shoppers are paying an average of 9% more to put beef on the family dinner table and a whopping 16% more for pork.

The cost of many raw materials — including chemicals, rubber, iron ore, grains and more — is also soaring.

In addition, our own Mike Kosares, in the June/July issue of USAGOLD News, Commentary and Analysis clearly illustrates that the reality of actual prices “contradicts the nearly constant prattle in the mainstream press that inflation is under control.”

Kiplinger’s Idaszak goes on to suggest that the “cost of money” — interest rates — must soon rise as well. However, knowing that the Fed views risks to growth as far more serious than price risks, I find myself not necessarily convinced. Given the recent downgrades to US growth expectations, frustratingly high unemployment and the increasingly obvious double-dip in the housing market; not to mention today’s troubling plunge in the May Philly Fed index and below expectations Apr leading indicators. All these factors conspire to give the Fed pause when they consider tightening, even knowing that 10 out of 11 post-World War II recessions [PDF] in the United States were preceded by a sharp increase in the price of oil. Perhaps not surprisingly, it seems threading the policy needle when you have a dual-mandate of full employment and stable prices is no small task.

The Bernanke Fed has also made it quite clear that they will do whatever is necessary to combat deflation, viewing it as a far greater threat than the alternative; going so far as to arguably manufacture inflation in recent years to stimulate the economy in the hope of creating jobs. Amid signs that the already tepid economic recovery may be faltering, it is far more likely in my opinion that the Fed will once again cede inflation in its quest for growth. This has many increasingly worried about hyperinflation and stagflation. In a recent interview, John Williams of Shadow Government Statistics differentiated between healthy inflation, driven by economic growth and unhealthy inflation spurred by fiat currency devaluation.

There is absolute lack of direction from Washington on fiscal matters right now, leaving the Fed to do all the heavy lifting. Due to the limited tools at its disposal, the Fed is more likely than not to resort to the “unhealthy” brand of inflation. As the Fed’s James Bullard noted yesterday, “when [the US debt crisis] does blow up, it will be too late…when the markets lose confidence in the U.S., rates will skyrocket.” And therein lies a critical risk: That the Fed’s hand will be forced by the market, supplanting any well thought out and executed exit strategy. That’s when things could really get away from us.

Philly Fed business index plunges to 3.9 in May
May 19th, 2011 08:26 by News

By Jeffry Bartash
WASHINGTON (MarketWatch) – Business activity at manufacturing firms in the Philadelphia region grew in May but at a much slower pace compared to a few months ago, according to the survey issued Thursday by the Federal Reserve Bank of Philadelphia. The Philly Fed index sank to 3.9 in May from 18.5 in April, well below expectations of an increase to 20.1. Any reading over zero in the diffusion index indicates growth. Higher readings mean that more firms are reporting better conditions instead of worse conditions.

[source]

China PBOC: New IMF Leadership Should Reflect New World Order
May 19th, 2011 07:47 by News

BEIJING (MNI) – The new IMF leadership needs to reflect changes in the world economic order and be more representative of emerging market economies, Chinese central bank governor Zhou Xiaochuan said Thursday in his first public comments since the arrest of Dominique Strauss-Kahn.

“The senior management team of the IMF should better reflect changes in world economic patterns and should be more representative of emerging market economies,” he said.

Zhou also said he regretted Strauss-Kahn’s decision to resign as the Managing Director of IMF.

“The current world economy is recovering slowly from the financial crisis and the European sovereign debt crisis is at a key stage. A powerful IMF support is needed to overcome current difficulties facing Europe and ensure world economic developments are on a robust, sustainable and balanced track,” Zhou added.

German Chancellor Angela Merkel reiterated earlier today that the next head of the International Monetary Fund should be a European again.

[source]

Morning Snapshot
May 19th, 2011 07:40 by News

Gold pressured the $1500 level overseas, but a softer intraday tone has emerged in the wake of a better than expected US initial jobless claims. Claims fell 29k to 409k in the week ended 14-May, while expectations were running around 420k. The dollar caught a little bid as expectations of when the Fed might tighten may have moved ever so slightly closer on the time-line.

Japan 1st preliminary Q1 GDP contracted -0.9% q/q SA (-3.7% SAAR) on earthquake/tsunami disruptions, below market expectations.

Taiwan Q1 GDP revised higher to +6.55% y/y from 6.19%. Singapore Q1 GDP revised lower to +8.3% y/y from advance number of +8.5%.

Dominique Strauss-Kahn has resigned as head of the IMF so that he can focus on fighting the criminal charges against him. As replacements are discussed, most of the serious contenders are from Europe, but emerging Asia is looking for a greater say in IMF matters. PBoC governor Zhou said, “The senior management team of the IMF should better reflect changes in world economic patterns and should be more representative of emerging market economies.”

Flooding takes vast economic toll, and it’s hardly done
May 18th, 2011 15:48 by News

by Christine Hauser
Wednesday, 18 May 2011 (The New York Times) — The swollen Mississippi River, already spilling over into wide areas of the Mississippi Delta, has dealt the South a heavy economic blow that is seeping into every possible corner of the region’s commercial and agricultural life.

… Like the very nature of water, the trickle-down effects of the historic flooding are leaving no corner untouched. Retail gasoline prices, already at two-year highs, and food prices could rise in the region because of supply disruptions. Tens of thousands of people are unemployed, shut out of jobs at establishments that are literally under water. State and local government coffers, strained because of the economic downturn, may lose many millions of dollars in revenue from tourism and taxes.

In about a dozen interviews, economists, farmers and industry officials said they expected hundreds of millions of dollars in damages including crop and infrastructure destruction in communities along the 740 miles of river that meanders from Memphis to New Orleans. But while the final bill has yet to be determined, the costs are already being felt.

… Economists are only just beginning to assess the potential headwinds of the Mississippi River flooding. … Michael J. Hicks, the director of the Center for Business and Economic Research at Ball State University, said there were losses to the region’s consumer base and trade disruptions in a region that connects the manufacturing heartland of the Midwest with routes traveling between the East and the West. “I am going to estimate in the $6 billion to $9 billion range for total damages from Memphis southward to the gulf,” Mr. Hicks said.

[source]

Riposte to Warren Buffet’s views on gold
May 18th, 2011 15:25 by News

by Bill Bonner
18 May 2011 (TheDailyReckoning) — Here’s the world’s most successful investor talking about our favourite metal. Warren Buffett had this to say about gold: “You can fondle it, you can polish it, you can stare at it. But it isn’t going to do anything.”

“Gold really doesn’t have utility,” the 80-year old told shareholders at Berkshire Hathaway’s annual general meeting. “I’d bet on a good producing business to outperform something that doesn’t do anything.”

Yes, so would we. And we’d usually rather have a jacket from Ralph Lauren… or Brooks Brothers… than a Life Jacket. And we’d usually like to see a pick-up truck or a delivery truck in our driveway, rather than a fire truck. And we’d much rather spend the night with Julia Roberts stark naked than with a heart surgeon in full medical regalia.

But hey… guess what? There’s a time and a place for everything.

… while most of the time it is useless, occasionally it is indispensable. Most of the time, gold is as dumb and lifeless as a joint session of Congress. Buffett is right; most of the time, it’s as useless as a seat belt. But there are times when a common lifeboat has greater utility than a luxury sailboat. Could this be one of them?

Well, something is going on that is turning this do-nothing metal into an investment champ. The price of gold is up 10% already this year. It’s gone up every year for the last decade. You don’t have to look too far to see what it is.

How about $4.5 trillion in deficits over the last 3 years? How about tripling the Fed’s balance sheet holdings since the end of ‘08? How about TARP, TALF, QE1, QE2… and zero interest rates?

Oh, and lest you think it is all just an emergency response to the crisis of ‘07-‘09, soon to be history…

[source]

FTC, CFTC file for closure of, restitution by American Precious Metals
May 18th, 2011 15:16 by News

by Dorothy Kosich
Wednesday, 18 May 2011 (Mineweb) — Both the Federal Trade Commission (FTC) and the Commodity Futures Trading Commission (CFTC) Tuesday filed charges against Florida-based American Precious Metals and its principals, accused of bilking more than $37 million from customers for physical bullion sales, including $23 million through its leveraged precious metals program.

A federal judge has shut down American Precious Metals at the FTC’s request. Many of its customers, including many senior citizens, came from around the United States.

… The CFTC has charged Harry Tanner, the managing member of APM, and Samuel Goldman, who managed the day-to-day operations and directed financial transactions, with fraud in connection “with offering, purchasing, selling or delivering gold, silver, platinum and palladium to U.S. retail customers on a leveraged basis.”

APM’s websites describe the leverage program as allowing customers to buy precious metals with as little as $5,000 down and finance up to 80% of their purchases.

In a filing with the U.S. District Court for the Southern District of Florida, the CFTC said APM did not purchase or sell physical precious metals on behalf of its leverage program customers, nor were any physical precious metals stored in any independent depository.

… Instead, after charging a 40% commission of customers’ fund, APM sent the customers’ money to a second company named Global Asset Management (GAM), which allegedly pooled the money received from APM “with funds received from similar boiler room telemarketing firms, takes a portion of the funds as its own profit, and deposits the rest in margin accounts held in GAM’s name with various United Kingdom-based funds were GAM trades over-the-counter (OTC) precious metals derivatives.”

“The scope of APM’s fraud is significant,” the CFTC said, adding that as of Jan. 7, 2010, APM’s 396 leverage program customers “purportedly owned gold, silver, platinum, and palladium with a total value of $23,834,108.”

“In fact neither APM, GAM nor any secure deposit held any precious metals for those customers,” the agency claimed.

… This is the third case in the past seven weeks filed by the CFTC against companies and company owners who purport to offer retail investors the opportunity to purchase physical precious metals on a leveraged basis.

… The FTC alleged that telemarketers working for the defendants “led consumers to believe that they were offering low-risk investments that would double or triple in value in a short time.” However, the defendants did not use consumers’ money to buy precious metals.

“Instead, after taking fees and commissions that were not clearly disclosed to consumers, they deposited the consumers’ money in the account of a clearinghouse that recorded but did not buy or handle metals.”

[source]

RS View: This is a hot mess. In the realm of gold it is 1) business integrity, 2) payment in full, and 3) as specified delivery that are the three items that matter most, and to be sure, they count for everything.

ECB official blasts ‘vested interests’ in US, UK
May 18th, 2011 14:55 by News

by Derek Gatopoulous
May 18, 2011 (AP) — The European Central Bank’s chief economist said a Greek debt restructuring would be a “recipe for catastrophe” as he blamed “vested interests” in Britain and the United States for fueling market pressure on the country.

Juergen Stark told a financial conference in Greece Wednesday that the struggling eurozone country’s “debt sustainability is insured” if it fully complies with its internationally monitored austerity program.

Asked about the markets’ hostility to Greek efforts, Stark said: “This is not the view of all market participants, to be very clear. This is a discussion triggered from London and New York. I don’t know what is behind it — vested interests, people topping their books and so on. So it’s more complicated than just (saying) what markets expect.”

[source]

Gold, silver rally on inflation fears; gains for oil, grains futures feed concerns of higher prices
May 18th, 2011 14:14 by News

By Claudia Assis and Simon Kennedy
May 18, 2011 (MarketWatch) — Gold and silver futures rallied on Wednesday, with investors back into precious metals after a recent selloff and as higher prices for other commodities highlighted lingering fears of inflation.

Gold for June delivery rose $15.80, or 1.1%, to $1,495.80 an ounce on the Comex division of the New York Mercantile Exchange. Silver for July delivery advanced $1.61, or 4.8%, to $35.10 an ounce. In the previous session, silver dropped to its lowest close since Feb. 25.

A rally for oil futures, back at more than $100 a barrel, and corn and wheat futures brought back fears of inflation… Oil for June delivery topped $100 a barrel after a government supplies report showed unchanged inventories, contrary to analyst expectations of a rise.

Corn for July delivery rallied 3.8% to $7.48 a bushel on the Chicago Board of Trade as weather concerns have dominated the trade. Wheat soared 7.2%.

The dollar also declined against major currencies, providing an extra boost to commodities, which gained across the board.

[source]

The Coming Great Inflation
May 18th, 2011 13:55 by USAGOLD

The latest USAGOLD News, Commentary and Analysis by Michael J. Kosares is now available.

“The table displayed immediately below is likely to surprise even our most-jaded readers. It shows the astronomical increase in cash prices for well-known food commodities over the past 12 months. With inarguable exactness, it contradicts the nearly constant prattle in the mainstream press that inflation is under control, or that it is peaking and likely to come under control sometime soon.”

We welcome your interest.

Inflation concerns dominate April Fed meeting
May 18th, 2011 13:01 by News

by Jeannine Aversa
May 18, 2011 (AP) — The Federal Reserve last month debated whether it should start reversing policies to prevent inflation from taking off and some members said the Fed might need to start boosting interest rates this year.

Some members thought the Fed would need to start signaling that record-low interest rates would need to rise. A few members believed the Fed might need to boost its key interest rate or start to sell some of the assets in its portfolio later this year. Either move would lead to tighter credit and higher rates on consumer loans.

[source]

How big is the risk of inflation?
May 18th, 2011 10:36 by News

By Jerome Idaszak
(Kiplinger Letter) — Despite the plodding pace of the economy, price increases are starting to spread, raising alarms about inflation. … Some prices are, in fact, surging: In the past 12 months, airfares, for example, have climbed by nearly 12%. The average cost of used cars is up 15%. Hospital bills have climbed by 5.4%. And shoppers are paying an average of 9% more to put beef on the family dinner table and a whopping 16% more for pork.

The cost of many raw materials — including chemicals, rubber, iron ore, grains and more — is also soaring.

Soon, the cost of money will rise as well, as the Federal Reserve moves from a policy of easing the money supply to neutral and then to tightening. The odds are, Chairman Bernanke and his colleagues will raise the benchmark federal funds rate in early 2012, triggering a hike in banks’ lending rates.

Landlords have their eye on sweeter returns; rents have likely bottomed out. Rents on top-quality offices are already on the rise. Next year, the uptrend will spread to warehouses, storefronts and other office space, as well as to apartments.

Any company than can is trying to pass on their higher operating costs. From detergent makers to pizza peddlers, manufacturers are adding pennies to price tags or reducing the size of their packages, while holding the prices for them steady. A standard grocery-store box of macaroni still sells for the same price it did last year, but now it’s only 13 ounces instead of a full pound…

As economic growth begins to pick up speed, unemployment declines and prices start to climb more swiftly, the risk of rising inflation will increase. Whether a damaging upward spiral can be avoided will depend on the skill of the monetary tightrope walkers at the Federal Reserve. They’ll need to successfully balance the need to encourage growth with the desire to stifle price hikes.

[source]

Comex gold up 1.2 pct as bargain hunters swoop in, prepare for FOMC minutes
May 18th, 2011 10:21 by News

by Tom Jenneman
May 18, 2011 (Fastmarkets) — Gold on the Comex division of the New York Mercantile Exchange found support on Wednesday morning, with physical demand strong ahead of the release of the Fed’s April minutes.

Gold futures for June delivery were recently up $17.70 or 1.2 percent at $1,497.70 per ounce in New York.

“Despite the recent pullback, the medium- and long-term trend [for gold] is still positive,” a US-based fund manager said. “The market views any dip below $1,500 as a buying opportunity. That’s why the price hasn’t fallen much below $1,480 during this correction.”

The precious metals also rallied despite the dollar being about a half a cent stronger against the euro at 1.4227.

“The stronger dollar/lower gold trade broke down a little bit this morning, but that’s to be expected considering what’s happening with Greece’s debt,” the fund manager added. “The uncertainty surrounding that situation far outweighs a modestly stronger dollar, especially as it relates to safe-haven assets like gold.”

… Later this afternoon, the Federal Reserve will release the minutes from April meeting of the Federal Open Market Committee (FOMC). There is some speculation that the FOMC might have discussed the possibility of reducing the size of its balance sheet.

[source]

Gold, silver prices ride commodities rally
May 18th, 2011 10:14 by News

by Alix Steel
MAy 18, 2011 (TheStreet) — Gold and silver were popping Wednesday on a broad commodity rally. Gold for June delivery was adding $16.30 to $1,496.30 at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,499.60 and as low as $1,484.60.

Some view the rally in the metals as a delayed reaction to Tuesday’s higher-than-expected inflation reading out of the U.K., which came in hot at 4.5%.

“Hopefully this is a bit of stability in the market,” says Will Rhind, head of U.S. operations for ETF Securities.” Rhind also thinks that the gold market has priced in the eventual end of the Federal Reserve’s $600 billion bond buying program and that speculators are out of the market.

… While investors may enjoy a period of stability, there are several potentially disruptive issues waiting in the wings, such as a possible Greece restructuring, a possible U.S. default come August 2nd if Congress doesn’t raise the debt ceiling and worries over central banks tightening their monetary policies.

[source]

Gold futures jump most this month on inflation concerns
May 18th, 2011 10:07 by News

By Nicholas Larkin and Pham-Duy Nguyen
May 18, 2011 (Bloomberg) — Gold rose the most this month as commodities rebounded, boosting the appeal of the precious metal as a hedge against inflation.

… The Thomson Reuters/Jefferies CRB Index of 19 raw materials rose as much as 2 percent, ending a three-session slump, as grain and energy prices surged. Analysts surveyed by Germany’s Ifo research institute raised their global inflation forecast for this year to 3.8 percent from 3.4 percent, a report showed today.

“The risk appetite is coming back to commodities across the board,” said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago. “There are still a lot of strong economies that want to buy commodities. Anytime you see a pullback, people will come in and buy gold to hedge against inflation and diversify away from the dollar.”

Gold futures for June delivery rose $16, or 1.1 percent, to $1,496 an ounce at 11:20 a.m. on the Comex in New York. A close at that price would mark the biggest gain for a most-active contract since April 29.

[source]

Morning Snapshot
May 18th, 2011 08:21 by News

Gold is edging back toward $1500, after yesterday’s downticks stalled well shy of the recent corrective low at 1462.25. As we suggested yesterday, ongoing uncertainty over the worsening sovereign debt situation in Europe and our own dire fiscal situation right here in America, which is at least for the time being centered on a fight over the terms of a debt ceiling hike.

While a bill to cut tax breaks for the largest oil companies was shot down in the Senate yesterday, Democrats have vowed to make such a tax hike contingent on them voting to raise the debt ceiling. Sen. Jay Rockefeller (D-W.Va.) said, “Without a willingness to stare down sacred cows like corporate subsidies, we won’t ever be able to make progress eliminating the massive federal deficit, which is staring us in the face.” I would agree that you have to start cutting somewhere, and every little bit helps, but this is a very little bit. The tax subsidies in question are worth around $2 bln per year, or about one-tenth of one percent of our $14.3 trillion debt.

Japan tertiary index plunged 6.0% m/m SA in Mar, on earthquake/tsunami disruptions.

Portugal’s first trip to the debt market in the wake of their bailout deal was a disappointment. Portugal sold €1 bln in 2-month bills, and while the bid cover rose to 2.1, versus 1.9 at the 3-month auction in April, yields crept higher as well to 4.657%, versus 4.652%. A small amount, yes, but it’s reflective of the market’s realization that bailouts buy nothing…but time. And if Greece is any example…very little time at that.

St. Louis Fed’s Bullard will speak this afternoon at NYU on “Measuring Inflation: Why the Core is Rotten.” It’s a winning title. I wonder if he will cite John Williams’ Shadow Stats.

Faster inflation, financial repression in store: Pimco
May 17th, 2011 15:07 by News

May 18, 2011
LONDON (Bloomberg) — Pacific Investment Management Co, which runs the world’s largest bond fund, said ‘deteriorating debt dynamics’ will stoke faster inflation and financial repression in the US as well as at least one sovereign-debt restructuring in Europe. In a report aimed at establishing a worldview for investors in the next three to five years, Pimco chief executive Mohamed El-Erian raised the prospect of US policy makers trying to force savers to accept returns below the rate of inflation as the government grapples with a budget deficit the White House reckons will reach US$1.6 trillion this year.

‘It is a world where several governments in advanced economies, and the US in particular, opt for financial repression and mild inflation as the major way to accommodate their deteriorating debt dynamics,’ Newport Beach, California-based Mr El-Erian wrote in a report published Monday on the firm’s website. ‘It is a world that heals slowly and unevenly and remains structurally impaired.’ … Mr El-Erian, whose firm promulgated the term ‘new normal’ to describe an economy characterised by slow growth in developed countries and rapid expansion in emerging markets, made clear that Pimco is sticking with that outlook.

Advanced economies will face growth of about 2 per cent and persistently high unemployment, while emerging markets will enjoy expansion of about 6 per cent, with their income levels converging to those of rich nations, he said. Inflation will settle at ‘levels that are higher than currently anticipated’ as headline rates mesh with so-called core rates which exclude energy and food prices, he said.

… To cope with the growing uncertainties, Pimco will pursue an approach of ‘constructive paranoia’ in managing its more than US$1.3 trillion in assets. … Mr El-Erian added that commodities in short supply or that provide a store of value should also do well.

… almost four years since the start of the financial crisis, ‘the world has seen little meaningful reduction in the size of the excess liabilities accumulated’ beforehand, Mr El-Erian said. ‘Rather than be addressed in a convincing manner, most of the excess liabilities have simply been shifted around the system, and importantly to public balance sheets and taxpayers.’

[source]

Don’t be fooled, this gold cycle is not the same as 1980
May 17th, 2011 14:34 by News

by David Levenstein
Tuesday, 17 May 2011 (Mineweb) — … Now that the price of gold has dropped by around $85 an ounce, many market participants are suggesting that gold was in a bubble just as it was in 1980 – and is headed much lower.

… Getting back to my point about the gold price now and in 1980, let me say categorically that as far as I am concerned there are no comparisons and therefore we should not expect the same conclusion.

For most of 1979 the price of gold was trading below $300 an ounce. The price of the yellow metal traded between $240 an ounce and $280 an ounce for the first five months of the year. Then, during the month of June it broke through the key resistance of $280 and by mid-July prices had hit $315 an ounce. Then, after pulling back to $280 an ounce the price had a parabolic move from $280 an ounce all the way up t0 $875 five months later. The price of gold had moved more than three times in less than 6 months. This is a parabolic move. Since 2000 when the current bull market began we have not seen one parabolic move. In fact the rises have been very gradual but consistent. This is one major difference…

… In those years, currency trading was not what it was today and the euro had not been conceived. The way people communicated in those years was completely different. There was no internet, and, in fact, the fax machine had not been invented. All communications were done telephonically and or by telex, something that today’s generation have probably never heard of. And, not many people knew anything about China.

In the current bull market, things are completely different. The price of gold has been driven higher mainly due to the declining values of the major currencies in particular the US dollar. But, the other major currencies such as the euro, the Yen and sterling don’t look all that healthy either. Budget deficits are spiralling out of control and government debit is simply exploding. As governments continue with their loose monetary policies they simply continue to debase their currencies. This is not the first time they have done this, but this time around, the size of debt is just unimaginable. And, gold is simply fulfilling one of its traditional roles as a hedge against the declining values of fiat currencies.

… If you think the gold price is a bubble and headed lower, then you obviously believe that the dollar as well as the other major currencies are going to strengthen and that there are no monetary problems in the world. And, you believe that global government debt as well as burgeoning budget deficits are completely overstated. You also do not see the value of gold in such times and will probably invest in US Treasuries as a safe haven asset. I say good luck to you.

[source]

Comex gold closes down on broadly higher dollar, unwinding of QE2 trade
May 17th, 2011 14:09 by News

by Tom Jennemann
17/05/2011 (Fastmarkets) — Gold on the Comex division of the New York Mercantile Exchange wobbled downwards Tuesday as dollar sentiment improved and as market participants reassess the future of quantitative easing in the United States.

Gold futures for June delivery closed down $10.60, or 0.7 percent, at $1,480.00 per ounce in New York. Trade ranged from $1,471.10 to $1,497.50.

“The dollar’s stubborn strength and the general commodity malaise kept gold constrained today,” Sterling Smith, an analyst with Country Hedging, said.

… “Traders — many of whom are highly leveraged — are now in the process of adjusting their risk models. They’re worried about additional margin hikes and are taking steps to protect their assets. The margin clerks are breathing down their necks,” a US-based gold trader said.

Investors are also looking ahead to June 30. That’s the date when the Federal Reserve’s second round of quantitative easing (QE2) ends. In November, the Fed announced that it would buy an additional $600 billion in Treasuries at a pace of $75 million per month. “The folks who made the QE2 trade are now unwinding those positions. That’s another reason we’ve seen this steep fall in speculative longs,” the trader said.

… “The market is pricing in its expectation that QE3 won’t happen,” he concluded.

… The net speculative position for gold now stands at 684.7 tonnes, off 37.8 tonnes since the beginning of the year. This includes a 71.7 tonne decrease in speculative longs and a 3.9 tonnes increase in speculative shorts, according to the US Commodity Futures Trading Commission (CFTC).

[source]

RS View: It is precisely absurd to report these speculative contract positions in terms of tonnage. Instead, reported figures might at least rise to the level of trivial interest if they were provided in terms of total margin posted on those contract wagers one direction or the other.


Author key: MK - Michael J. Kosares; GC - George Cooper; PG - Peter A. Grant; JK - Jonathan Kosares; RS - Randal Strauss. [see also 12 yrs of Discussion Archives]


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