23-May (The Wall Street Journal) — Is Europe going to disrupt the U.S. economic recovery again? Can the mighty U.S. economy really be vulnerable to Greece, an economy roughly the size of Massachusetts’?

Just a few months ago, it seemed Europe had found a way to keep Greece in the euro. But Greek voter resistance to austerity prescribed by Germany ups the odds that Greece, which already has reneged on its debts, will leave the currency union. If that happens, Spain and Italy could be next in line for bank runs, bond-market skepticism, skyrocketing borrowing rates and deep recessions.

…”A sharp pullback by Euro area banks…would impede credit creation around the world, with the most acute pain felt in emerging economies,” J.P. Morgan Chase economists say.

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PG View: If nothing else, European disruptions to global growth prospects may prove to be a catalyst for QE3 here in America.

23-May (DailyFinance) — The price of gold and the number of reasons to own it are moving in opposite directions.

Gold continues to seek support after dipping beneath $1,550 per ounce recently, while current global developments and increasingly visible macroeconomic scenarios underlying the bullish long-term outlook for the monetary metal have only increased in number and scale. Given the most attractive entry prices that investors have seen in some time, let’s have an updated look at the bullish fundamental landscape for gold and the array of seasoned professionals who have recently accumulated gold exposure.

…Economist Marc Faber has likewise pegged $1,500 as “significant support.” Legendary commodity investor Jim Rogers has said he will buy more gold at $1,600 per ounce and step up his buying if it dips to $1,500. Ultimately, I maintain, $1,500 gold is just the beginning.

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23-May (Washington Post) — For Congress, the outlines of the pending fiscal crisis are clear: Don’t do a thing, and watch the economy slip into a double-dip recession early next year. Or cancel the looming tax increases and spending cuts, watch the deficit rise, and push the government ever closer to a European-style debt crisis.

That decision was put in stark terms Tuesday by the Congressional Budget Office, which in a new analysis said the economy will plunge into a recession early next year if Congress lets taxes rise and spending be cut, as called for under the law.

But if Congress changes the law to keep taxes low and spending high, it could add more than half a trillion dollars to the deficit in 2013, marking a fifth straight year of trillion-dollar deficits and risking the patience of the country’s creditors.

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23-May (USAGOLD) — Gold is retreating back toward the low end of its well defined range as continued deterioration of the situation in Europe further erodes risk appetite. The EUR-USD has plunged below 1.2600 for the first time since July 2010, taking the yellow metals and stocks along for the ride.

Just hours before the latest EU summit commenced in Brussels, Reuters revealed that the Eurogroup Working Group (EWG) had agreed on Monday that each eurozone country “should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro.” Investors seemed to read such contingency planning as a considerable escalation in the risk of a ‘Grexit’. Periphery yields spiked, bund and US Treasury yields fell, the euro tumbled and risk assets in general came under pressure.

Eurobonds are likely to be the hot topic at the EU summit today. One has to wonder, if in the face of a complete implosion in Europe, Germany will soften its objections to eurobonds simply to buy a little more time. Here’s the thing though…at some point, time simply runs out and the necessary and painful changes will have to be made.

UBS estimates that if Greece leaves the EMU, that a new drachma would have to be devalued by 75% against the single currency. While it may make Greeks feel good to push back against austerity measures that they feel are being foisted upon them by the troika, they pain of a severely devalued drachma is likely to prove every-bit as intense…if not worse. With a new election coming up in just a few weeks, the Greeks should be careful what they wish/vote for.

• US new home sales +3.3% to 343k in Apr, well above market expectations of 335k, vs upward revised 332k in Mar.
• Canada retail sales +0.4% in Mar, above expectations of +0.3%; ex-autos +0.1%, below expectations of +0.5%.
• Canada leading indicator +0.3% in Apr, in-line with expectations, vs +0.3% in Mar.
• Eurozone current account (sa) €9.1 bln in Mar, vs -€1.2 bln in Feb.
• Italy Consumer Confidence (sa) fell to 86.5 in May, vs negative revised 88.8 in Apr.
• UK Retail Sales -2.3% m/m in Apr, below expectations of -1.0%, vs positive revised +2.0% in Mar; -1.1% y/y.
• BoJ holds steady on rates, no new asset purchases at this time.
• Japan Trade Balance-CC (nsa) -¥520.3 bln in Apr, vs -¥82.6 bln in Mar.
• Singapore CPI rises to 5.4% y/y in Apr, vs 5.2% in Mar.
• Taiwan industrial output -2.3% y/y in Apr, vs -3.4% in Mar.

23-May (Reuters) — Euro zone officials have told members of the currency area to prepare contingency plans in case Greece decides to quit the bloc, an eventuality which Germany’s central bank said would be “manageable”.

Three officials told Reuters that the instruction was agreed on Monday by a teleconference of the Eurogroup Working Group (EWG) – experts who work on behalf of the bloc’s finance ministers.

“The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro,” said one euro zone official familiar with what was discussed.

The news comes at a highly sensitive time, just hours before EU leaders gather to try to breathe life into their struggling economies at a summit over dinner on Wednesday.

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PG View: Rise in risk aversion associated with Grexit boosts dollar, weighs on gold.

22-May (BusinessInsider) — Frank Holmes the CEO and CIO of US Global Investors is one of the more vocal and articulate gold bulls out there. And his position is rather thoughtful.

Holmes recently hosted a Hard Assets Investment Conference where he gave this monster gold presentation.

Basically, he poses the question of whether you should be bullish or really bullish.

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PG View: The PowerPoint slides used by Holmes build a pretty compelling case for gold ownership.

22-May (HousingWire) — Economic activity remains relatively stable in emerging markets and the United States, but Europe remains a fiscal threat to the entire global recovery, economists with the Organization for Economic Co-operation and Development said Tuesday.

“The crisis in the euro zone remains the single biggest downside risk facing the global outlook,” said OECD chief economist Pier Carlo Padoan.

The international organization, which advises governments, said slow growth, high unemployment and limited room for further expansion into macroeconomic policies is fostering concern about Europe’s fate.

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22-May (USAGOLD) — Gold retreated deeper into the range as the dollar was boosted by renewed weakness in the yen and sterling. While the inability of the yellow metal to regain 1600.00 is disappointing, the market may just be consolidating the gains from late last week, in advance of another challenge of the upside.

The yen fell sharply after Fitch downgraded Japan by two-notches to A+ amid concerns that the current political divide will inhibit the country’s ability to get a handle on its mounting debt problem. The implication of course is that in the absence of any political compromise on the fiscal side, the BoJ will have to step in with additional monetary measures (does this sound at all familiar?). In other words; the BoJ will print more yen. The resulting drop in the yen lifted the dollar.

Meanwhile the IMF increased pressure on both the UK government and the BoE to do more to stimulate growth. The IMF’s position is that the moderating pace of inflation, which fell to 3.0% y/y (EU-harmonized) in Apr, gives the BoE room to cut rates and ramp up its QE measures. Such prospects weighed on Sterling, providing an additional boost to the greenback.

Alexis Tsirpas continues his tough talk, threatening to stop the ongoing austerity programs if his Syriza party wins next month’s elections. It’s all well and good to sling such campaign rhetoric around with abandon to secure votes, but he better also be prepared to answer the following question: If we renege on our austerity promises, where’s the money going to come from? One might imagine that being cut off from bailout funds and global finance markets might just lead to greater austerity than is currently being required.

• Richmond Fed Index falls to 4 in May, below expectations of 11, vs 14 in Apr.
• US existing home sales +3.4% to 4.62M in Apr, above market expectations of 4.61M, vs negative revised 4.47M in Mar.
• Norway Q1 GDP (sa) +1.4% q/q, vs upward revised +0.6% in Q4-11; +4.3% y/y (nsa).
• UK CPI – EU Harmonized +0.6% m/m in Apr, in-line with expectations, vs +0.3% m/m in Mar; +3.0% y/y, vs 3.5% y/y in Mar.
• UK core CPI 2.1% y/y in Apr, vs 2.5% y/y in Mar.
• Hong Kong composite CPI +4.7% y/y in Apr, vs +4.9% y/y in Mar.

21-May (Financial Times) — There has been no official announcement. No terms or conditions have been disclosed. But Greece’s banking system is being propped up by an estimated €100bn or so of emergency liquidity provided by the country’s central bank – approved secretly by the European Central Bank in Frankfurt. If Greece were to leave the eurozone, the immediate cause might be an ECB decision to pull the plug.

Extensive use of “emergency liquidity assistance” (ELA) to help banks in the weakest economies has been one of the less-noticed features of the eurozone crisis. Separate from normal supplies of liquidity and meant originally as a temporary facility for national authorities to use when banks hit problems, ELA proved a lifesaver for the financial system Ireland and is now even more so in Greece. As such, it has given the ECB – which has ultimate control over the facility – considerable power to determine countries’ fates.

…“You don’t say when you are in an emergency situation, because then you make the situation worse. So I really don’t see the usefulness of being more transparent,” Luc Coene, Belgium’s central bank governor, explained in a Financial Times interview this month.

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22-May (Reuters) — Fitch cut Japan’s sovereign credit status on Tuesday to the lowest level among global ratings agencies as a political stalemate dims the chance that the country can curb its snowballing debt.

Fitch Ratings cut Japan’s long-term foreign currency rating by two levels from AA to A plus, the fifth highest investment grade. It cut the more important local currency rating by one notch from AA minus to A plus. Both were given a negative outlook.

Fitch warned further downgrades were possible unless the government takes new fiscal policy measures to stabilize public finances and its ratio of debt to gross domestic product.

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PG View: The yen tumbled as more BoJ printing is looking increasingly likely.

21-May (Reuters) — China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

The relationship means the People’s Bank of China buys U.S. debt using a different method than any other central bank in the world.

The other central banks, including the Bank of Japan, which has a large appetite for Treasuries, place orders for U.S. debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions.

China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn’t been necessary.

The documents viewed by Reuters show the U.S. Treasury Department has given the People’s Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.

China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.

The change was not announced publicly or in any message to primary dealers.

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The Gold Bullion Market
by Alasdair Macleod

In the following lecture, economist Alasdair Macleod begins with this: “[F]iat currencies always die. They die because governments always take the process to destruction. Always. And that is true today. That is why gold is so important.” And he ends with this: “With this knowledge, anyone who does not take steps to protect him or herself from the increasingly certain event, a collapse in paper money, a fundamental change in our whole economic paradigm, is nuts.” In between, you will find one of the best structured and convincing rationales for gold ownership and future price appreciation I have read in awhile. As such, “The Gold Bullion Market” by Mr. Alasdair Macleod is a fitting and timely addition to our Gilded Opinion page.

—The U.K. government and the Bank of England should do more to encourage recovery in the country’s economy, the International Monetary Fund said Tuesday, as it warned chaos in the euro zone may require finance chief George Osborne to slow the pace of his aggressive austerity drive.

The IMF said in a regular report on the U.K. that it expects economic growth to resume in the second half of the year after official figures showed the economy slipped back into recession in the first quarter.

But the fund urged the government and the central bank to provide more support for the economy to prevent lasting damage from persistent unemployment and lost capacity.

…The IMF told the Bank of England that “further monetary easing is required.”

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20-May (The Wall Street Journal) — Investors in U.S. Treasurys stand a good chance of losing money over time. And yet they can’t seem to get enough of Uncle Sam’s paper.

Many money managers aren’t thinking about Treasurys’ low yields or long-term performance. They are rushing in because Treasurys are a safe place to stash cash in the short term. Above, the U.S. Treasury building in Washington.

With the European crisis heating up and concerns about economic growth in the U.S. and China, money once again is pouring into safe U.S. government debt, sending Treasury prices higher and yields, which move in the opposite direction, to near-record lows.

…Over the long term, however, Treasurys pose risks of their own.

The biggest risk, experts say, is a prolonged rise in interest rates, which would reduce prices of existing bonds and produce losses for investors holding Treasurys.

…Treasurys pose another big risk: With yields this low, investors could well lose money over time in inflation-adjusted terms.

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PG View: Longer-term yields are already well below the rate of inflation, netting a negative return in real terms.

21-May (The Telegraph) — France and Germany reiterated that they will to “do everything to keep Greece in the euro” on Monday, as French finance minister Pierre Moscovici said the country would push for the introduction of eurobonds at a special EU summit this week.

Following his first meeting with German counterpart Wolfgang Schaeuble in Berlin, Mr Moscovici said, “We both believe that Greece has its place in the eurozone [...] Europe has to send signs to bolster investment and growth in Greece at a time when it is going through a violent recession.”

Mr Schaeuble said that Germany “would participate in all constructive ideas to strengthen sustainable growth,” but added that tough austerity measures were “a necessary precondition” for bolstering this growth.

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21-May (USAGOLD) — Gold is a little easier, but generally well bid in the wake of last week’s rebound from in front of the low end of the range at 1522.40. A short term move back above 1600.00 would offer additional encouragement. Keep an eye on the 1627.95 retracement level.

A slightly calmer tone was evident in Europe today with the G8 throwing at least some verbal support behind keeping Greece in the monetary union. Yeah, everyone is for it, but is it practical or even possible. Certainly there will be a cost: How much will it be? And who will pay? The new French Finance Minister, Pierre Moscovici, said that he will push for eurobonds at the EU summit in Brussels later in the week. This would suggest that France at least wants all of Europe to pay the price. One can reasonably anticipate that Germany will remain a vociferous objector to the notion of eurobonds.

With new Greek elections queued up for June 16, Alexis Tsirpas, leader of the anti-austerity Syriza party is already on the offensive, saying that German Chancellor Angela Merkel “must understand she can’t act as if there are protectorates at the service of their creditors”. Such antagonistic rhetoric is likely to keep markets on edge in advance of the elections.

• Canadian Markets closed for Victoria Day
• Switzerland Q2 SECO Consumer Confidence improved to -8, vs -19 for Q1.
• UK Rightmove House Prices (nsa) unch in May m/m, vs +2.9% in Apr; +2.0% y/y, vs +3.4% y/y in Apr.
• Thailand Q1 GDP +0.3% y/y, vs upward revised -8.9% y/y in Q4-11.
• Japan Leading Index (revised) +0.3% m/m in Mar, vs +1.7% in Feb.
• Japan Coincident Index (revised) +1.5% mm in Mar, vs +0.9% in Feb.
• Taiwan export orders -3.5% y/y in Apr, vs -1.6% y/y in Mar.
• Taiwan Current Account $10.93 bln in Q1, vs $12.30 bln in Q4-12.

Europe-based clients wishing to open accounts in our precious metals trading program enjoy the benefit of allocated/insured storage in a U.S. storage facility. The program features tight trading spreads and the ability to include all four precious metals in your account. Delivery option available.

You will need to establish an account at our storage facility prior to your order. We will help you with this. Call at your convenience.

Over the years, we have worked with our clients in Europe who wish to take delivery. Now we can offer this new service and look forward to working with you.

For details (English only):

1-800-869-5115 (US)
00-800-8720-8720 (EU)

Extension # 100

– or –

[email protected]

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(303)393-0322 (Local, if you are having trouble with the toll free number)

The anatomy of the eurozone bank run/Gavin Davies/Financial Times,5/21/12

USAGOLD’s Precious Metals Trading Program

20-May (Reuters) — A pledge by leaders of industrialized nations to help the troubled world economy is unlikely to herald quick new action by Europe on its debt crisis, meaning more uncertainty for nervous financial markets.

The Group of Eight economies stressed on Saturday that their “imperative is to promote growth and jobs”, as they also recognized problems among European banks and gave verbal backing for Greece to stay in the euro.

Still, despite U.S. calls for immediate moves to boost growth, no sign emerged that Germany would soften its stance on austerity as the cure for Europe’s debt problems.

With no consensus from Europe, markets will remain in a state of alert about the risk of a chaotic Greek exit from the euro, which would hit the region’s banking system and possibly the global economy.

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18-May (The Wall Street Journal) — Jittery U.K. customers of one of Spain’s biggest lenders pulled out funds on Friday, and bad debts held by Spanish banks rose to a 17-year high, underscoring the continuing challenges facing the country’s financial sector.

Lenders have been struggling with the country’s five-year property slump, and the rapid deterioration of the loan books was one of four reasons cited by Moody’s Investors Service for its downgrade of the credit ratings of Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and 14 other banks in the country late Thursday.

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