By Claudia Assis and Virginia Harrison
May 23, 2011 (MarketWatch) — Gold futures gained Monday as concerns about the euro zone tempered earlier losses on the back of a stronger dollar.

Gold for June delivery added $6.50, or 0.4%, to $1,515.40 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s highest settlement since May 10, and the second in a row above $1,500 an ounce.

Silver for July delivery, which had wavered between small gains and losses, finished 18 cents lower, down 0.5%, at $34.90 an ounce.

Fears of a European sovereign-debt debacle “were overriding strength in the dollar,” said James Cordier, a portfolio manager at Optionsellers.com in Florida. “Investors are going to safe havens.”

Traders also fretted about more signs global growth is cooling, pulling down metals more closely related to industrial activities, such as copper.

“The global economy bull run of 2009-10, it really appears to be slowing down,” Cordier said.

… Copper, heavily imported by China and used in construction, led losses for the broader complex on Monday. The July contract fell 13 cents, or 3.2%, to $3.99 a pound. That was the lowest settlement for a most-active copper contract in a week.

Platinum for July delivery dropped $13.50, or 0.8%, to $1,755.90 an ounce.

June palladium declined $3.70, or 0.5%, to $731.80 an ounce.

[source]

by Daniel Indiviglio
May 23, 2011 (TheAtlantic) — ince the financial crisis, two dominant topics in financial news have been the rise in gold prices and the increasing U.S. debt burden. The price of gold is up 94% since November 2008. The amount of U.S. debt outstanding is up 34% over the same period. Today’s chart of the day unites these two popular topics.

… In fact, it now takes much less gold to pay off the U.S. debt than it did a decade ago. At first, this might seem surprising, since the debt has grown so much. But the price of gold has jumped even higher.

One takeaway from this exercise is to show how little impact the U.S.’s gold reserves would make in paying down the debt. The U.S. government has around 21.7 million pounds (12 troy ounces to a troy pound) of gold. That might sound like a lot, but it would take 808.0 million pounds of gold to pay off the debt. Even if the U.S. government put every once of its gold towards paying down the debt, it would pay down less than 3%.

[source]

RS View: Just a paltry 3%… hmmmmm… perhaps the market would do well to consider, as a rule of thumb, that our existing gold reserves must therefore be valued somewhere along the lines of 30 times higher than current levels — especially since Uncle Sam does not have viable recourse offering our in-place infrastructure (buildings, bridges, etc.) as a means of international settlement.

by Karl Smith
May 23, 2011 (SeekingAlpha) — … There will be a couple of strands of thought here. As usual, you are getting undigested (but, thankfully, not unedited) musings and analysis.

[Read All -- source]

HEADLINE: Belarus devalues rouble by a third
23 May 2011 (BBC) — Belarus has cut the official value of its currency against the dollar by 36%.

The rouble is not freely convertible, with currency transactions controlled by the country’s central bank. The dollar now buys 4,930 roubles at the official rate, up from 3,155 – but still well below the freely-traded interbank rate of about 7,000 roubles.

The country faces a severe financial crisis, thanks to a large trade deficit and rapidly falling hard currency reserves.

Many shops have been emptied of goods, as importers lack hard currency to purchase foreign goods.

… The trade deficit stood at $9.3bn (£5.6bn) last year, according to an estimate of the International Monetary Fund, or 17% of economic output – one of the highest levels in the world.

Loss of competitiveness is only one reason for the deficit, which has risen steadily over the past five years.

The Belarus government directed banks to lend heavily to boost the economy in recent years.

… With hard currency rapidly draining from the country’s reserves, the president, Alexander Lukashenko, secured a $3bn bail-out loan from Russia last week.

[source]

ALSO . . .

HEADLINE: Swaziland currency may be devalued, World Bank warns
May 32, 2011 (Business Report) — Swaziland might be forced to devalue its currency unless the crisis-hit kingdom urgently cut government spending, a World Bank economist said yesterday.

“It is getting to the point of reckoning – when Swaziland will no longer be able to sustain its deficit,” World Bank economist Jean van Houtte warned ahead of a meeting today organised by the bank. “We have said if you need a little time to get your house in order you can re-peg at a different level.” Swaziland’s currency, the lilangeni, is pegged at parity with the rand.

But pressure to devalue is growing as the country faces a financial crisis brought on by a 60 percent drop last year in revenues from the Southern African Customs Union, the government’s main source of income.

Finance Minister Majozi Sithole warned on state radio last week that it would be “difficult” for the government to pay May salaries, adding: “I do not even want to mention June” – a bombshell he later retracted, promising the government would find a way.

… The World Bank has agreed to lend Swaziland $20 million (R138.3m), but the money will only be available in September. Even coupled with a potential $150m loan from the African Development Bank, Van Houtte warned, “they are not even close to closing their financial gap”.

[source]

May 23, 2011 (IBTimes) — South Africa’s National Union of Mineworkers (NUM) said on Monday it would seek a 14 percent rise in salaries from gold and coal miners in upcoming wage talks.

“We are asking for a 14 percent (increase) across the board for companies in gold mining and coal mining,” said spokesman Lesiba Seshoka, adding that the demand is for one year. “For the next year we will cross that bridge when we come to it,” Seshoka said.

The gold miners usually reach two-year wage agreements with the union and the current contract expires June 30. There is no date yet for the talks but the current deal expires at the end of June.

… South Africa’s chamber of mines, an industry body, said it was concerned by the demands for an above-inflation rise in salaries.

… Elize Strydom, the negotiator for the chamber… added that the union’s demands will only serve to further erode the companies’ already tight margins and alienate investors.

[source]

by Tom Jennemann
May 23, 2011 (Fastmarkets) — Gold on the Comex division of the New York Mercantile Exchange outperformed most other commodity classes Monday as investors looked for safe haven given the escalation the sovereign-debt crisis in Europe and the prospects of slower growth rates in China.

… “Gold is behaving more like an alternative currency than a commodity, which is why it can move higher while the other more industrial metals, like copper and even silver, struggle,” a US-based gold trader said. “Paper currencies are engaged in a race to the bottom. There’s a lack of confidence in governments and their ability to control their debts levels,” the trader added.

Over the weekend, Standard & Poor’s ratings agency revised Italy’s sovereign debt outlook from “stable” to “negative.” Meanwhile, the Spain’s ruling Socialist party got trounced in local elections by the centre-right Popular Party (PP). Voters expressed anger over the country’s soaring debt and 21.3 percent unemployment rate.

[source]

by Jack Farchy
May 23, 2011 (FT) — The price of gold jumped to a record in euros as renewed fear about the eurozone debt crisis drove investors to move money out of the single currency and into the precious metal.

On the spot market, gold bullion rose to a peak of €1,080.04 a troy ounce, surpassing the previous euro-denominated record set in December last year.

The rise was aided by a sharp drop in the value of the euro, which slid as much as 1.3 per cent against the dollar to a low of $1.3968.

… The jump in euro-denominated gold prices was spurred by a combination of negative economic and political news that put peripheral eurozone bond markets under renewed pressure.

… “While we believe gold would move higher in dollar terms, we expect gold denominated in euros to outperform,” said Walter de Wet, head of commodities research at Standard Bank.

[source]

by Carl Richards
May 23, 2011 (The New York Times) — Gold is not an investment. It’s a speculation.

Investments are made by evaluating underlying value. Speculative bets are made by looking at the price of something and simply hoping the price goes up. Investing is about value; gambling is about price.

Gold has no real underlying value. I know there is a market for it. I know it is real, just like real estate was real in 2007.

But what is the value of a bar of gold?

It has no value except the one assigned by a herd of speculators…

[source]

RS View: … and so on ad nauseam. Why does The New York Times allot space so that vacuous contributors may air their simpletonian view of the universe? Are we to conclude from this that it is not politically correct to consolidate any significant portion of one’s wealth of income, and rather than taking chips off the table it must all be continuously put back into play in an ethereal realm with a hope that stocks, bonds and derivatives will keep pace with the devaluation of the non-dimensional currency while suffering no setbacks of their own? Gimme a break.

Gold Sets Record High Against Euro

Gold pushed to a new all-time high against the euro at €1080.76 as the debt situation on the Continent continues to devolve. The EUR-USD fell to new 10-week lows and the comparative strength in the dollar has resulted in a consolidative tone in the yellow metal above $1500. The euro set new record lows against the Swiss franc.

Yield spreads widened dramatically across Europe today — led by Greece — as talk of a sovereign default, couched as a “soft restructure” continues to swirl. S&P downgraded its outlook on Italy’s debt to negative from stable and Spain’s ruling party suffered defeats in local voting. All of this has translated into less optimism about EU growth prospects, which has weighed on stocks, and that weakness has carried over to US markets.

The Greek government met today to put together its fifth austerity plan, focusing on further spending cuts and state-asset sales. Clearly the €110 bln bailout that was approved just over a year ago has done little to resolve Greece’s debt crisis and yet the foisting of further austerity measures on the Greek people is probably not going to go over so well either. The country has already be roiled by a string of protests. Amid ongoing chatter from EU officials that restructuring is not an option for Greece — even as they simultaneously talk about a “soft restructure” — the prospect of a Greek exit from the EMU may well gather further traction.

Uncertainty about the situation in Europe, along with our own dire long-term fiscal outlook here in the US, is likely to keep gold underpinned both in terms of euros and in terms of dollars. While the relative stability of the Swiss franc and the yen may continue to garner safe-haven flows, the inherent weaknesses of fiat currencies, even the ones that are looking pretty decent right now, are becoming more readily apparent. That will continue to drive interest in gold.

by Robert McTeer
May 23, 2011 (Forbes) — Someone recently asked me whether I thought the taxpayers would be willing to pay to clean up our fiscal mess.

From a political perspective, I doubt that they will be willing to pay enough to convert the fiscal deficits into surpluses, which is necessary to reduce the level of debt. Since public awareness is probably at an all time high, they probably will tolerate a reduction in the deficit, perhaps enough to avert a financial panic if we have enough time for that. Hopefully, it would be sufficient to reduce the ratio of the deficit and the debt to the economy.

… One political problem is that we’ve had warnings about the dangers of deficits and debt for decades without the sky falling and we will be hard to convince that it will fall this time. We must realize that the magnitude of the problem now is sufficiently larger than in the past to constitute a difference in kind rather than merely a difference in degree. Another political problem is that our politicians are addicted to making promises today that someone else will have to keep tomorrow.

… The post WWII status of the dollar as a reserve currency had its advantages, especially in the 1950s and the 1960s but also since then to a lesser degree. … That means that we have covered our excess of imports over exports in value terms by increasing our foreign debt, broadly defined to include equity ownership as well as traditional debt in the form of bonds, bank balances, and the like. In short, we’ve been living on debt and were able to do so more than most countries because of the special status of the dollar.

… When the time comes to reverse that process, your favorable credit rating in the past looks more like a curse than an advantage. More discipline all along would have made the day of reckoning less traumatic. We should have recognized that there was something perverse about the richest, most productive country in the world borrowing year after year from poorer countries.

[source]

RS Note: The author, Robert McTeer, is no mere doom and gloomer pandering from a home made soapbox to an appreciative audience of surly tea partiers. Bob served well over a decade as president at the Federal Reserve Bank of Dallas.

by Matt Day
MAy 23, 2011 (DowJones) — Gold futures edged higher Monday as worries about economic growth in Europe and China sent traders seeking a safe place to park cash, but with buying limited by strength in the dollar.

The most actively traded contract, for June delivery was recently up $2.30, or 0.2%, at $1,511.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

Fresh concerns about the ability of Europe to manage its sovereign debt load sent investors seeking gold as a refuge, traders said. Gold, which isn’t as closely tied to industrial activity as some other commodities, is sometimes viewed by traders as an attractive investment amid turmoil in other markets.

Standard & Poor’s over the weekend cut its outlook on Italy’s credit rating to negative from stable, and Spain’s ruling Socialist party faced setbacks in regional elections. Both developments pressured global equities markets lower Monday.

Also weighing on investor sentiment was a survey showing Chinese manufacturing activity this month expanding at its slowest pace in 10 months. The report added to worries that efforts to curb inflation in the world’s second-largest economy were stifling growth.

[source]

By CHRISTINA D. ROMER
AT a recent news conference, Ben S. Bernanke, the Federal Reserve chairman, was asked about the falling dollar. He parried the question, saying that the Treasury secretary was the government’s spokesman on the exchange rate — and, of course, that the United States favors a strong dollar.

Listening to that statement, I flashed back to one of my first experiences as an adviser to Barack Obama. In November 2008, I was sharing a cab in Chicago with Larry Summers, the former Treasury secretary and a fellow economic adviser to the president-elect. To help prepare me for the interviews and the hearings to come, Larry graciously asked me questions and critiqued my answers.

When he asked about the exchange rate for the dollar, I began: “The exchange rate is a price much like any other price, and is determined by market forces.”

“Wrong!” Larry boomed. “The exchange rate is the purview of the Treasury. The United States is in favor of a strong dollar.”

[source]

PG View: Basically, the former chairwoman of President Obama’s Council of Economic Advisers is confirming that the consistent prattle from US policymakers about “strong dollar policy” is simply nonsense. Romer is also correct when she says the exchange rates have fluctuated over the years and are for the most part determined by market forces. Primarily FX flows chase yield.

However, what is conveniently glossed over is that the periods of dollar strength that she cites — relative to other fiat currencies — were generally short-lived respites within a rather disturbing long-term downtrend that dates all the way back to the late-1800s. When put in the context of “real” things, be it corn flakes or gold, the dominant trend in the dollar is even more readily apparent.

Romer says, “on net we are almost surely better off with a weaker dollar for a while.” The Treasury Department with the help of the Fed have indeed been orchestrating just such a decline. However, the United States isn’t the only country on the face of the planet desirous of a weaker currency. That leads to a nasty cycle of beggar-thy-neighbor policy moves, which drives a race to the bottom.

The euro and stock markets across Europe have fallen, with the eurozone debt crisis showing no sign of abating.

Borrowing costs for heavily indebted governments also rose further, with Italy and Spain suffering.

Market worries focus on a possible debt restructuring by Greece that could hit Europe’s banks and other governments.

Latest bad news included weak eurozone economic data, a local election defeat for Spain’s government and a negative credit rating outlook for Italy.

[source]

PG View: If Greece is forced to default, it would threaten to drag the larger economies of Spain and Italy — already reeling from higher borrowing costs — into the vortex. This is exactly what the EU sought to avoid, by providing bailouts to Greece, Ireland and Portugal.

The European debt crisis continues to deepen, prompting a sell-off in global stocks and yield spreads to widen sharply. The euro has tumble to 10-week lows, pushing gold to a new all-time high against the single currency above €1080. Euro weakness has provided a boost to the dollar, which has weighed modestly on gold in terms of the greenback.

Focus remains on Greece as EU officials continue to dismiss the possibility of debt restructuring, while simultaneously talking about a “soft-restructuring.” Of course “restructuring” is just a polite way of saying “default,” making “soft-restructuring” just a polite and spun way of saying “default.” Most importantly, the ratings agency would likely view a restructuring of Greek debt — soft or not — as a default. It would also be predicated on Greece agreeing to even more harsh austerity measures.

Adding insult to injury: S&P cut its rating outlook for Italy over the weekend to negative from stable saying, “in our view Italy’s current growth prospects are weak, and the political commitment for productivity-enhancing reforms appears to be faltering.”

Eurozone PMIs miss expectations in May: Manufacturing fell to 54.8 vs 58.0 in April. Services slid to 55.4 from 56.7. This resulted in a weaker composite reading of 55.4 vs 57.8 in April.

By SETH LIPSKY
It’s been 25 years since I found myself sitting in the office of Karl Otto Poehl, the president of the West German Bundesbank. I was then a young editorial writer at The Wall Street Journal intent on asking Europe’s most powerful central banker how he felt about the monetary crisis of the hour.

If people are getting nervous about the dollar, he said, “they shift into . . .” His voice trailed off. I noted that at the moment they were shifting into gold. “Into gold, to a certain extent,” he said. “But, but, but it’s not so relevant, actually.”

I observed that central banks were certainly “holding an awful lot of it.”

“We are the second biggest gold holder in the world, you know,” Mr. Poehl exclaimed.

“You must think it has some relevance,” I replied.

[source]

PG View: Lipsky thinks “America should hang onto its gold while it pursues a return to sound money of a kind envisioned by the Founders.” While Lipsky doesn’t say where he’d put the odds of a return to sound money, author Edwin Vieira “maintains little hope of the government moving to sound money.” Yep, given that I don’t think anyone in Washington even knows what sound money is anymore…I’d make the odds pretty long myself.

By Laura Mandaro
May 20 (MarketWatch) — U.S. stocks closed near their session lows Friday, cementing the third straight week of losses for the S&P 500 and Dow Jones Industrial Average, as worries about European government debt added to concerns about a U.S. slowdown.

For the week, the Dow lost 0.7%, the S&P 500 fell 0.3%, and the Nasdaq Composite dropped 0.9%.

[source]

By Claudia Assis and Sarah Turner
May 20, 2011 (MarketWatch) — Gold futures surpassed the $1,500-an-ounce mark on Friday, as euro-zone debt fears resurfaced and trumped a rising dollar ahead of regional elections in Spain.

Gold for June delivery added $16.50, or 1.1%, to $1,508.90 an ounce on the Comex division of the New York Mercantile Exchange. That marked gold’s first settlement above $1,500 since May 12, and the highest for a most-active gold contract since May 10. Gold finished the week up 1%. … Silver gained 0.3% on the week.

“It’s flight to safety,” said Frank Lesh, a broker and futures analyst with FuturePath Trading in Chicago. “If you are holding euros … you’d like to have something else.”

The single currency lost against the dollar as concerns surfaced that potential new regional governments in Spain could unearth more debt problems and change the political landscape in the key euro-zone periphery country. Spaniards go to the polls this weekend, with the ruling Socialist Party expected to suffer some setbacks.

… Although both gold and silver posted gains this week, the path to higher ground has been by no means smooth. “There is still a tug-of-war taking place between those who believe the commodity trade has peaked in front of the end of [the U.S. Federal Reserve’s] quantitative easing 2, and those who believe it is just a correction,” said metal analysts at MF Global.

[source]

By Jack Farchy and James Mackintosh
May 20 2011 (FT) — The ultimate asset bubble is gold . . .

Gold has shown tendencies to go parabolic and usually bubbles tend to end in that parabolic rise before the collapse.

George Soros – who made the statements above at various points last year – has been one of gold’s most strident critics and also one of its largest investors. But now the billionaire financier has dumped a large portion of his gold investments, according to regulatory filings released this week and people with knowledge of the fund’s activities.

Mr Soros is not alone in cutting his exposure to the yellow metal. Investors sold 2.5m ounces of gold through exchange traded funds in January and February as prices slid 8 per cent, and bankers say several hedge funds were also selling gold on the physical market.

“There was a fairly major exodus at the beginning of the year,” says Philip Klapwijk, executive chairman of GFMS, a precious metals consultancy. “There may have been a bit of an echo of that following the recent peak.”

However, the majority of longer-term investors in gold, such as the macro hedge funds that went long during the financial crisis, are sticking with their positions, bankers and traders say. Most prominent among them is John Paulson, the hedge fund manager who shot to fame with his bets against the subprime housing market, whose position in the SPDR Gold Shares exchange-traded funds alone is $4.4bn, according to the latest regulatory filings.

… Tom Kendall, precious metals analyst at Credit Suisse, says investors such as Soros who have exited gold positions “are still the exception”.

… Troy Asset Management, which manages the family money of the late Lord Weinstock and several public funds ,has close to 20 per cent of some funds in gold and gold shares. “The key thing is where real interest rates are moving,” says Sebastian Lyon, chief executive. “We are quite a long way still from having an honest money policy where real interest rates actually protect the value of money.”

by Ezra Klein
It almost goes without saying, but Brian Beutler of Talking Points Memo got Standard & Poor’s to say it anyway. “A sovereign’s failure to service its debt as payments come due is a default according to S&P’s sovereign rating criteria,” according John Piecuch, spokesman for Standard & Poors. “In that case, the rating would be lowered to ‘SD’ (Selective Default).”

A few months ago, S&P revised our credit outlook to negative: that meant they thought there was a slightly higher chance we’d lose our credit rating in the future. That was a bit of a shock to the political system, but this would be the real thing. So it’s worth being clear: when you hear Paul Ryan say the market would accept a default “for a day or two or three or four,” or Devin Nunes say that “by defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions,” you’re not hearing about some alternative to default. To S&P, that’d be a default.

[source]

By Pham-Duy Nguyen
May 20, 2011 (Bloomberg) — Gold futures rose the most this month after Fitch Ratings cut Greece’s credit rating, boosting the appeal of the precious metal as a haven asset. The euro tumbled as much as 1.2 percent against the dollar after Fitch said a “soft” restructuring of Greece’s debt by European Union policy makers would be considered a default.

… “Gold is screaming higher,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “People are buying gold as a hedge against the uncertainty in Europe. There’s a lot of focus again on the euro zone debt crisis.”

Gold futures for June delivery rose $20.60, or 1.4 percent, to $1,513 at 12:26 p.m. on the Comex in New York, heading for the biggest gain since April 29.

“There’s a gravitation toward investments that are paperless,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.

… Bundesbank President Jens Weidmann, a member of the European Central Bank Governing Council, said the central bank may not be able to accept Greek sovereign debt as collateral if the bond maturities are extended.

Gold also gained on signs that demand is increasing in China, where inflation is exceeding government targets. … “When you hear that a large population source like China wants to own gold, that bodes well for the metal,” said Klopfenstein of Lind-Waldock.

[source]

by Bernard Condon
May 20, 2011 (AP) — … As stocks were falling last week, Grant visited The Associated Press in New York to talk about why it’s not just stock investors who should be worried. Below are excerpts, edited for clarity, from a wide-ranging conversation in which he lit into the Federal Reserve for our current troubles, warned of 10 percent inflation and waxed nostalgic for a time when Washington had the courage to let prices fall in crises rather than goose them up and prolong our agony.

Q: What’s your view of the stock market?
A: The Federal Reserve has unilaterally taken it upon itself to levitate asset prices. It is suppressing interest rates. When you’re not getting anything on your savings, you are inclined to go out and buy something, anything, to generate either income or the expectation of capital gains. So the things that we take as prices freely determined are in fact manipulated.

A few months ago, (Fed Chairman) Ben S. Bernanke, Ph.D., the former chairman of the Princeton economics department, stood before the cameras of CNBC and said that the Russell 2000 is making new highs. The Russell! He sounded like another stock jockey. He was taking credit for new highs in the small cap equities index. The Fed, as never before, or rarely before, is now the steward of this bull market. One wonders what it will do if stocks pull back significantly.

Q: What would you have done in the financial crisis if you had been in Bernanke’s position?
A: Resign. I don’t know. I have great faith in the price mechanism, in the mechanics of markets. I think there should have been much less intervention and we should have let some chips fall, many chips fall…

Q: Let’s talk about the dollar. Washington says it wants a strong dollar.
A: It’s disingenuous when (Treasury Secretary) Tim Geithner says he’s for a strong dollar. What he means to say is the economy stinks and we need even greater oomph from our exports and for that we would like a much lower dollar in a measured, managed kind of decline. That’s what he wants, and he wants it by November 2012.

… [But] If the world were to lose confidence in (the dollar) we would suddenly be in a much less advantageous financial position. The U.S. is uniquely privileged in that we alone may pay our bills in the currency that only we may lawfully print. That’s our prerogative as the reserve-currency country.

Q: If investors lose their faith in the dollar, what would replace it?
A: I think there will be a gold standard again in your lifetime, if not mine. It’s the only answer to the question, if not the dollar, then what?

Q: Where should people put their money now?
A: The trouble with the present is that nothing is actually cheap. My big thought is that our crises are becoming ever closer in time. … The cycles are becoming compressed. The temptation to become invested at peaks of these shorter cycles is ever greater.

Q: Any last thoughts?
A: Because the Fed has coaxed or cajoled people into stocks, including many financial non-professionals, I think it has moral ownership of the market in a way that no recent Fed has had. Either the stock market owns the Fed, or vice versa but they are too intertwined now. If stocks pull back by 20 percent, how can Bernanke just sit there and say, `I want a bear market?’ I think he has some moral responsibility for the finances of the non-professionals who bought.

Q: Does this mean the Fed might announce QE 3, a third round of quantitative easing to lower rates and raise stock prices?
A: Yeah, it means QE 3 through QE N.

[source]

By Melanie Burton
Fri May 20, 2011 LONDON (Reuters) — Gold rose on Friday, helped by a soft dollar after poor U.S. economic data this week raised prospects the Federal Reserve will keep monetary policy loose for some time to come.

Data on Thursday showed a slowdown in manufacturing growth in the U.S. Mid-Atlantic region and an unexpected fall in existing home sales in April. That strengthened the view that if economic data continues to disappoint, it could delay Fed tightening until well into 2012 or later.

The dollar kept up a softening trend this week against the euro, which was also adding support to gold. “U.S. dollar weakness and uncertainty surrounding Greece’s debt situation continued to be supportive,” said ANZ in a note.

… The European Central Bank wants Greece to drop debt re-profiling ideas and focus on implementing economic reforms to fix its finances, its former vice president Lucas Papademos told Athens, daily Ta Nea reported on Friday.

… On the charts, gold appears to be breaking out to the upside, said fund manager Dennis Gartman of industry newsletter TheGartmanLetter in a note. “Gold’s been given every opportunity to break this week, and it has refused to do so, and now it appears in the process of breaking out to the upside instead. We are much impressed … enough so to add to our gold positions,” he said.

[source]

The consolidative tone in gold persists, with activity centered just below the $1500 level. The yellow metal continues to be underpinned by the sovereign debt crisis in Europe and the fiscal crisis here in America, which continues to defy resolution.

The $14.294 trillion debt ceiling was hit on Monday and the US is now — quite literally — on borrowed time. Treasury has said they can delay default until early-August with a series of accounting gimmicks, but as we get closer to that date without a deal, markets are likely to get increasingly skittish.

Earlier in the week, Tom Coburn pulled out of the Gang of Six Senators tasked with finding a bipartisan solution to the nation’s deficit woes. Coburn said, “We’re at an impasse. There’s no reason to talk about the same things over and over and not getting any movement.”

There’s a high-stakes game of chicken going on in Washington these days, and while I don’t think anyone really believes we’ll default on our obligations, I hope all of our Representatives within the beltway appreciate just how high the stakes are. I suppose if push indeed comes to shove…there’s always the printing press.

The following are the key factors from the WGC’s Gold Demand Trends first quarter 2011:

Prevailing global socio-economic conditions will continue to drive investment demand for gold. These include: continued uncertainty over the US economy and the dollar, ongoing European sovereign debt concerns, global inflationary pressures and continued tensions in the Middle East and North Africa.

Sustained momentum in Chinese and Indian jewellery demand will underpin growth in the jewellery sector throughout 2011. Strong demand in India during the recent Akshaya Tritiya festival and the beginning of the wedding season, alongside extensive purchasing on dips in the gold price, underlines the strength of the Indian market.

Net purchasing by the official sector is expected to continue in 2011 as central banks turn to gold as a means of diversifying their reserves into an asset with no credit or counterparty risk.

Japan all-industry index contracted -6.3% m/m in Mar on earthquake/tsunami disruption.

BoJ held o/n call rate steady at 0.0-0.1%, as was widely expected. Maintaining expanded fund pool for buying assets in wake of earthquake.

German April PPI unexpectedly accelerated to 6.4% y/y, above market expectations, vs 6.2% in Mar.

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]

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.”

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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.

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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.

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.

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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.

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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.

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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…”

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