by Tim Kiladze
May 26, 2011 (Globe and Mail) — Everyone knows that gold stocks are lagging far behind the metal price. Yet no one seems to know why. The confusion has spread to the gold producers themselves. “CEOs are scratching their heads as to what else can be done other than deliver on record results,” noted CIBC World Markets analyst Barry Cooper.

Amazed at what has transpired, the producers are scrambling to generate any sort of interest in their stocks. “We are seeing ever increasing inclusion of ounces into mine plans where the degree of confidence associated with their location and existence is lower than previous consideration,” Mr. Cooper noted. “In many cases, the mine plans are now incorporating ounces that have not even made it to an inferred category let alone the usual required measured and indicated classification.”

For that reason, Mr. Cooper worries that net asset value could become less useful as a valuation metric, because no one can really trust the number.

[source]

by Claudia Assis
May 26, 2011 (MarketWatch) — Gold futures settled modestly lower on Thursday, giving back some of the gains amassed over the past four sessions and unable to get much traction from disappointing economic news and a weaker dollar.

Gold for August delivery, the contract with the most open interest, declined $4.10, or 0.3%, to $1,523.70 an ounce in the Comex division of the New York Mercantile Exchange.

Volumes were low ahead of the three-day weekend in the U.S., said Matt Zeman, head trader and strategist at Kingsview Financial in Chicago.

Gold remains very well supported amid simmering concerns about Greek debt and its impact on the euro zone, he said. People are still seeking gold as “they lose faith in currencies … and hedge against inflation,” Zeman said. He added he wouldn’t be surprised if gold tested highs around $1,570 in the next few weeks.

The outlook is bleaker for silver.

“We still believe that the latest overheating of silver prices has not been reduced completely and the slump in price will continue,” analysts at Commerzbank said in a note to clients Thursday.

Gold is more stable, and on Thursday the market was also reacting to news China boosted its first-quarter gold production by 4.6% year-on-year, the analysts said. China still has to import “huge quantities” of the precious metal, and the higher gold production is being met by rising demand in China. Rising production won’t be “an obstacle for a further rise of the gold price,” the analysts said.

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by Jonathan Hoenig
May 26, 2011 (SmartMoney) — My idea of an economic nightmare isn’t a stock market crash, but a currency crisis which destroys the value of an entire country’s wealth. … This horrific scenario is unfolding this week in Belarus, where the government was forced to devalue the currency by 36% on Monday as confidence in the nation’s economy evaporated.

Terms like “inflation” or “devaluation” can seem irrelevant to Americans busy with work and family, but watching those seemingly esoteric concepts play out in Belarus should serve as a terrifying warning — as panicked citizens empty their bank accounts to buy air conditioners, sugar, stereo equipment, anything of actual value instead of the increasingly worthless pieces of paper in which they’ve put their life savings.

… From Germany in the 1920s to Argentina in early 2000 to Zimbabwe just a few years back, the scene is always the same: prices skyrocket as personal savings are destroyed.

… Over the past few months many Americans have, for the first time in modern memory, experienced noticeable price inflation for everyday items like groceries and gasoline as the dollar dropped and the Consumer Price Index jumped to 3.2%. Although it’s been acutely felt by the poor and those on a fixed income, inflation has mostly been an added expense and annoyance but not a national calamity. At least not yet.

For those who think the U.S. is headed towards a similar horror, or simply want to hedge against the possibility, the purest protection is simply swapping the dollar for another currency, just as so many Belarussians are desperately attempting to. The Belarussian government has set limits on currency transfers, shuttered internet-currency trading sites and has arrested private dealers.

… while there many differences between the U.S. and Belarus, some of the despair emanating from the former Soviet Republic sounds eerily similar. “The whole world tells [the government] you have economic problems, you should do something, and all they did was live off getting more and more loans,” one young worker told Bloomberg.

It’s a quote could have just as easily come from a Tea Party rally in the U.S. instead of one of the most economically distressed countries in the world.

[source]

by Lawrence Williams
Thursday, 26 May 2011 (Mineweb) — [T]he latest agreement by the European Parliament’s Committee on Economic and Monetary Affairs to allow central counterparties to accept gold as collateral is further recognition of the yellow metal’s growing relevance as a high quality liquid asset.

In a press release today, the World Gold Council’s Natalie Dempster, is quoted as saying”It is very significant that the European Parliament is putting its weight behind the argument that the unique characteristics of gold make it an ideal form of high quality liquid collateral.

“We now look forward to the European Parliament and Council of the European Union upholding the inclusion of gold in the next stage of negotiations around EMIR which will now take place after the July plenary vote. The ratification would mark a significant step forward in redefining what constitutes a highly liquid asset under the Capital Requirements IV Directive, due in the coming month, from the European Commission.”

… As the WGC points out, market demand for gold to be used as a high quality liquid asset and as collateral has been building for some time. In late 2010, ICE Clear Europe, a leading European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral. In February 2011, JP Morgan became the first bank to accept gold bullion as collateral via its tri-party collateral management arm.

Exchanges across the world, such as Chicago Mercantile Exchange, are now accepting gold as collateral for certain trades and London-based clearing house LCH Clearnet has said that it also plans to start accepting gold as collateral later this year, subject to regulatory approval.

“As regulators, from G20 countries, demand that more OTC trading is cleared on exchanges and with the ongoing world economic difficulties further eroding the credit worthiness of other forms of collateral, we expect to see increasing demand by clearing houses, exchanges and investment banks to use gold as collateral,” says Natalie Dempster.

… But the latest moves – including the well publicised Bank for International Settlements (BIS) (the central bank’s banker) gold swap for US dollars last year – suggest that even the Central Banks are now officially accepting the effective monetisation of gold. Indeed, to an extent, those Central Banks which have held on to their gold reserves, and those now buying, have been tacitly accepting this principle for some time.

[source]

by Alix Steel
Thursday May 26, 2011 (The Street) — Jon Nadler, senior analyst at Kitco.com, outlines what gold and silver prices can expect from a typically slow summer buying period — says we might have some summer surprises.

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Thursday
May 26, 2011 (Reuters) LONDON — Gold eased on Thursday after a sharp sell-off in the silver market, but still remained within sight of three-week highs, supported by investors seeking perceived havens from the worsening euro zone debt crisis.
Europe’s policy options to avert a Greek debt default appeared to be dwindling, sparking fears of a chain reaction affecting other heavily indebted countries in the 17-nation currency bloc.

The euro rose to one-week highs against the dollar after a report that China was interested in buying “bailout bonds” for Portugal, although ongoing concern about the lasting impact of the crisis pulled the currency off session highs.

This in turn helped the dollar pare gains and stripped as much as 4 percent off the silver price, denting gold.

“This is a major intraday reversal of some 8 percent, the potential right now is that we see one step forward and two steps back in silver and I think it can continue,” said Commerzbank analyst Eugen Weinberg.

“The real problem is the price increase before was overdone and the market was overheated… speculative investors have not yet exited (their positions),” he said, adding: “This is a situation where the tail is wagging the dog.”

[source]

Thu, May 26 2011 (FXstreet.com) — The precious metal struck a fresh record high around $1575 on May 2 at the same time that the greenback was sinking against the Euro.

… “Looking at the technical charts, we see gold trading inside a wide range between $1,480 and $1,520, forming an ascending triangle, so the upside is favored for the precious metal”, said the FXstreet.com team. “Therefore any close above $1,520 will push prices higher, setting the market to test all time highs”.

[source]

By Margo D. Beller
May 26, 2011 (Christian Science Monitor) — Republican presidential candidate Ron Paul is worried about the falling value of the U.S. dollar and doesn’t want the debt ceiling raised, he told CNBC Wednesday.

But he also doesn’t want to default on payments to U.S. bond holders.

Rather than raise the debt ceiling, he wants to see cuts in military spending and sales of some American assets — such as gold reserves.

… He wants to see cuts in a lot of entitlement programs beyond Medicare and Social Security.

“Let’s start with the military industrial complex and these useless, very damaging wars” in Iraq and Afghanistan, he said. “Why are we bailing out rich farmers? Why do we even have those programs?”

[source]

by Fayen Wong
May 26, 2011 (Reuters) — Chinese demand for gold bars and coins as private investments could push bullion imports above 400 tonnes in 2011, leading global consultancy GFMS said on Friday.

… The Chinese government does not publish official statistics on gold imports but the World Gold Council said China produced 340 tonnes of gold in 2010.

Total consumption was about 700 tonnes, leaving a gap of around 300 tonnes made up by either imports or sales of existing stocks last year.

The surge in imports, which jumped fivefold last year, has turned China, already the largest bullion miner, into a major overseas buyer. GFMS’ forecasts imply imports will continue to grow at a robust pace despite high gold prices.

The explosive demand has been stoked by concerns about inflation and poor returns in the stocks and property sectors. It also been aided by Beijing’s encouragement to retail consumption, such as expanding the number of banks allowed to import bullion.

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May 26, 2011 (China Daily) — HSBC Holdings PLC, Europe’s biggest bank, said on Wednesday that it’s bullish about the gold market despite price fluctuations earlier this month. The bank predicts concerns over geopolitical risks, loose monetary policy and a fiscal deficit in the United States, are likely to rekindle a rally in gold price.

“We are bullish on the gold market going forward. We believe that gold will remain at elevated levels for several years,” said James Steel, HSBC’s precious metals analyst.

Steel said the pullback in early May, which cut $110 off the record high price, was triggered by a correction in commodity prices, notably oil, a bounce in the US dollar, and heavy liquidation by investors. But the pullback, though steep, only “dented” rather than “reversed” the 10-year gold rally, which started three months before the 9/11 attacks in the United States, he added.

Steel’s bullish sentiment on gold is echoed by Goldman Sachs, one of the world’s biggest commodity-trading companies.

On a long-term view, Steel expects the gold rally will only come to an end after the US curbs its heavy deficit spending and loose monetary policies.

[source]

The euro rose to a one-week high against the dollar on Thursday on news of support from Asia for eurozone rescue plans.

An FT report said Asian investors including the Chinese government were expected to represent a “strong proportion” of the buyers of Portuguese bail-out bonds when the eurozone’s €440bn rescue fund begins auctioning them next month.

Klaus Regling, chief executive of the European financial stability facility (EFSF), told reporters on Wednesday that Beijing was “clearly interested” in the Portuguese auctions and that he expected China to participate.

[source]

Gold Softens Modestly as China Rides to the Rescue Again

The euro has benefited from short covering as China is apparently prepared to don the armor once again, resurrecting its role as Europe’s white-knight. The FT reported yesterday that “Asian investors including the Chinese government” are expected to be significant buyers of Portuguese bail-out bonds when they come up for auction next month. This has somewhat diminished safe-haven bids in both the dollar and gold.

While this may purely be a diversification play on the part of the Chinese, participating in rescue efforts also builds good will with the EU. It might for instance open up markets in Europe for Chinese goods and even lessen pressure for yuan to appreciation. The Chinese may be taking a page from the playbook of former White House chief of staff Rahm Emanuel (now mayor of Chicago), in not letting a perfectly good crisis go to waste.

Greece remains front-and-center in the European sovereign debt crisis. Eurogroup chief Jean-Claude Junker has said that the IMF may not release the next tranche of Greek bailout funds, unless they can be assured that the country will be able to rollover its debt for the next 12-months. Without the guarantee, the IMF would look to the EU to bailout Greece…again. Meanwhile, Deutsche Bank CEO Joseph Ackermann has said that their exposure to Greek sovereign debt has largely been written off.

A heretofore unknown — or at least unreported — Fed facility called single-tranche open-market operations (ST OMO) is being lambasted as a “pure subsidy.” The NY Fed apparently made 28-day loans from March through December 2008 at rates as low as 0.01% to both domestic and foreign banks. Deutsche Bank, Barclays and UBS all borrowed more than $15 bln each from the Fed, while totals for Credit Suisse, Goldman Sachs and Royal Bank of Scotland were all in excess of $30 bln.

However, the details of these transactions were “not revealed to shareholders, members of Congress or the public” according to a Bloomberg article. Barney Frank, who was chairman of the House Financial Services Committee at the time this facility was in operation and an author of the Dodd-Frank financial reform legislation said yesterday, “I wasn’t aware of this program until now.” Well that strikes me as troubling…

As the wranglings on Capital Hill continue over budgets and the debt ceiling, the market has taken notice of a disturbing rise in shorter-term credit default swap spreads on US debt; the amount it costs to insure US debt against default. Markit analyst Lisa Pollock noted that 1-year US CDS spreads have more than tripled since S&P revised its outlook on US sovereign debt to negative back in April. While the debt ceiling brewhaha seemed to get moved to the back-burner once Treasury Secretary Geithner delayed the day of reckoning until 02-Aug with a little accounting magic, clearly the market has not been placated. One could reasonably expect increased market volatility as August approaches without a deal being struck.

The second revision for US Q1 GDP came in unchanged this morning at +1.8%, below market expectations. Particularly concerning was the downward revision in the consumption component. The bad GDP news comes on the heels of Tuesday’s report that durable goods orders declined sharply in April, adding to the impetus of recent negative revisions to growth forecasts. Additionally, there was a surprise uptick in initial jobless claims last week. All of this is fuel for the fire that is speculation about a QE3.

by S. Murlidharan
May 26, 2011 (BusinessLine) — The issue of international reserve currency has been agitating the minds of economists and governments alike for several decades now, especially after the 2008 financial crisis that rocked the world and called into question more than ever before the wisdom of setting store by and large by a single currency, the US dollar which ironically held its own even as the US economy went into a tailspin.

How the US hooked the world to its currency in 1944 on the back of the formation of the Breton Wood twins, the World Bank and the IMF, after the Second World War is sufficiently well-known and does not bear a repetition. It dangled the bait of an ounce of gold for every $35 in what was arguably the best but deceptive manifestation of gold exchange standard.

The offer was too good to last and the US predictably reneged on it in 1971 when the first oil shock shook the world and made gold the safest haven even as the IMF members grudgingly marvelled starry-eyed at its gumption. The international financial community hooked to the US dollar has been willy-nilly persisting with it, thanks to its first mover advantage and the TINA (there is no other alternative) factor.

The TINA factor which is a sad admission of helplessness is in evidence in many walks of life, including politics where failed parties continue to win for want of emergence of a credible alternative. Much the same is happening in the more rarefied and less decipherable world of currencies.

… There are quite a few economists and policy wonks that are pining for the return of the gold standard this time round on a fuller and all-encompassing scale to address the problem of a true international reserve currency.

… Accounts, it is said, must speak in a single language and should not be held hostage to and clouded by the practices and laws of different countries. Accounting standards facilitate comparison of accounts. But it is one thing to standardise accounts, but quite another to standardise currencies.

… Standardisation should not introduce newer and greater rigidities, uncertainties and inequities. … The point is each country has it own unique advantage and it would be wrong to straightjacket the currency issue into a gold case. But then this is not to rubbish the case for providing a solid backing for a currency. Let each country be made accountable for its currency through the backing of whatever it can offer by way of exchange – let it be gold, copper, oil or coal.

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RS View: Regarding the author’s final note, looking into that future with good sense would have one soon see that the various chips of copper, of oil, and of coal would inevitably be pulled from the scorekeeping role and recast into employment to function at their highest industrial/economic capacity (either domestically, or abroad through international trade), ultimately leaving gold alone to reign supreme atop this hit parade of tangible would-be reserve assets as the superior alternative to any given national treasury bonds.

By Claudia Assis and Sarah Turner
May 25, 2011 (MarketWatch) — Gold futures traded higher on Wednesday, shaking off early weakness as the dollar came off its highs, and silver futures rallied more than 4%.

Gold for June delivery added $3.40, or 0.2%, to $1,526.70 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s best settlement since May 3. August gold, the contract with the most open interest but less volume, added $3.50 to settle at $1,527.80 an ounce.

“Gold continues to have a safety bid,” said Frank Lesh, a broker and futures analyst with FuturePath Trading in Chicago.

Silver was more of a speculator market, Lesh said. It was getting a push from smaller investors priced out of gold above $1,500 an ounce, particularly after its recent selloff, he added.

“Silver continues to function as the poor man’s gold,” Lesh said.

Investors on Wednesday grappled with news U.S. durable-good orders were sharply lower in April, rekindling worries of an economic slowdown and providing another leg of support for gold.

Meanwhile, the Bombay Bullion Association said it expects India’s gold imports to reach a record level of 1,000 metric tons this year if the monsoon season is good, analysts at Commerzbank wrote in a note to clients.

“Strong monsoon rainfall increases the income of the rural population, who are major buyers of gold jewelry in the world’s largest gold consumer country,” they said. Gold imports are likely to be 40-50 tons in May, but that’s 30% lower than the previous month, the analysts added.

[source]

By Bloomberg
May 25, 2011 — Gold may advance to a record $1,600 an ounce this year as investors seek to protect their wealth from Europe’s sovereign-debt crisis, boosting demand, according to Scotia Capital. “The investment community found it’s a great investment metal,” Sunil Kashyap, regional head of Asia-Pacific, global capital markets, said in an interview in Bangkok on May 24. Platinum also has “room to grow,” and may outperform other metals when there’s an industrial recovery, said Kashyap.

Immediate-delivery gold, which touched a record $1,577.57 an ounce earlier this month, is set for an 11th year of gains with interest fuelled by Europe’s debt crisis and quickening inflation. Global gold demand rose 11 percent to 981.3 metric tons in the first quarter, the World Gold Council said May 19.

People realized that both gold and silver have dual functions, not only as industrial metals but also as financial assets that preserve their value, said Kashyap.

[source]

By The Associated Press
Wednesday, May 25 MINSK, Belarus — A sharp devaluation of the Belarusian ruble has spread panic across the country, with people rushing on Wednesday to buy dollars, euros, toasters and canned goods — anything that will not lose its value as quickly as the national currency.

Belarusians swept store shelves and queued for entire days at currency exchange offices in a desperate attempt to protect their savings from the country’s sinking fortunes.

… President Alexander Lukashenko promised that the national currency will remain stable following the devaluation ordered a day earlier, but experts warned it will continue its nosedive if Russia doesn’t provide a quick bailout.

Confidence in the ruble, whose value is fixed in Belarus, has dropped for weeks amid fears over the country’s finances and the country’s lack of support from its neighbors, both the EU and Russia.

… To make matters worse, there is a physical shortage in the country of dollars and euros, which companies and households desperately want to own to protect themselves from a worse devaluation in the future.

The government’s own reserves are badly depleted and exchange offices have run out of foreign currency because they are allowed only to sell what they buy from clients.

Andrei Krylevich, 42, has spent a week in lines outside an exchange booth in downtown Minsk without a chance to buy a single dollar. The computer company he works at has sent its employees on an unpaid leave, and he urgently needs to pay back a $9,000 loan to a bank.

“In just one month, I have virtually turned bankrupt, the entire country has gone bankrupt,” Krylevich said. “Even during the Soviet collapse we didn’t go through such nightmare.”

… “I fought my bank to close my account and get 5 million rubles ($1,000) in cash, and I want to buy at least something before my money turns into dust,” said Dmitry Malishevsky, a 48-year old tractor factory worker who showed up at Minsk’s main department store only to see empty shelves. “I feel scared when I think of the future,” he said. “We are struggling to survive instead of living a normal life, and Lukashenko is to blame.”

[source]

By Associated Press
May 25, 2011 — U.S. food-price inflation may top the government’s forecast as higher crop, meat, dairy and energy costs lead companies including Nestle SA, McDonald’s Corp. and Whole Foods Market Inc. to boost prices.

Retail-food prices will jump more than the U.S. Department of Agriculture’s estimate of 3 percent to 4 percent this year, said Chad E. Hart, an economist at Iowa State University in Ames. Companies will pass along more of their higher costs through year-end, said Bill Lapp, a former ConAgra Foods Inc. chief economist. The USDA will update its forecast today.

Groceries and restaurant meals rose 2.4 percent in the four months through April, the most to start a year since 1990, government data show. During the period, rice, wheat and milk futures touched the highest levels since 2008, and retail beef reached a record. Yesterday, J.M. Smucker Co. announced an 11 percent price increase for Folgers coffee, the best-selling U.S. brand, after the cost of beans almost doubled in a year.

“It’s going to be a tough year” for U.S. shoppers, said Lapp, who is president of Advanced Economic Solutions, an agriculture consultant in Omaha, Nebraska. “You’re looking at an economy where a lot of consumers are under some serious pressure from food and fuel costs.”

… The United Nations Food and Agriculture Organization said May 23 that price swings will persist in coming years because of mismatches between supply and demand. The FAO said May 5 that global food costs rose in April for the ninth time in 10 months

[source]

by Michael Babad
May 25, 2011 (Globe and Mail) — Gold may be “overbought,” but it’s nothing like a bubble, Dennis Gartman says. Indeed, the publisher of The Gartman Letter said today, gold has become more than a “mere commodity” and is now a “reservable currency” during Europe’s debt crisis. Bullion, he said, has become the “preferred coin of the realm” as the continent’s debt troubles mount by the day.

“That is as it should be, for in the present environment what investor/saver would not wish to have some of his/her savings in gold rather than in [euros] whose value is wasting each day,” Mr. Gartman said.

“Dollars are a reasonable alternative, and increasingly the Swiss franc is one also. But the ‘trump card’ currency of choice is gold and in all likelihood it shall become even more readily embraced, not less so in the days and weeks ahead as Europe’s problems worsen rather than turn for the better.”

Gold is “certainly” overbought, but it’s far from a bubble “and this may become rather astoundingly more overbought in the days and weeks ahead.”

[source]

by Pratima Desai
May 25, 2011 (Reuters) — Gold hit a three-week high on Wednesday, boosted by fears about the debt crisis in euro zone countries such as Greece while the resulting stronger dollar against the euro undermined sentiment.

Spot gold hit $1,528.40 a troy ounce, its highest since May 4.

Euro-priced gold hit a record 1,087.84 euros an ounce, according to Reuters data. Gold priced in sterling was at 942.60 pounds per ounce, near a lifetime high of 944.87 struck on Tuesday.

… Spot silver saw $37.36 an ounce, its highest since May 11. It was last at $37.13 an ounce from $36.53 late on Tuesday. The industrial precious metal is down 35 percent since touching a record peak of $49.51 an ounce on April 28.

“We think silver’s prospects are less positive given the fundamental overvaluation and the market’s heavy dependence on investor appetite,” Credit Suisse said. “Physical (platinum and palladium) markets have remained tight.”

[source]

by Alix Steel
May 25, 2011 (TheStreet) — Gold and silver prices were clawing higher Wednesday on modest safe haven buying. Gold for June delivery was adding $3.20 to $1,526.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,529.50 and as low as $1,521.30.

… “If we settle above this $1,525 level I think we can challenge $1,550 over the next couple of days,” says Anthony Neglia, president of Tower Trading. Today is options expirations for gold and silver, which will cloud the real direction of the metals, but Neglia thinks it will only take a day or two for metals to regain their footing.

… George Gero, senior vice president at RBC Capital Markets, says that gold is benefiting as a safe haven and is “a currency in a class by itself.”

Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research, says “I don’t think [gold's rally] is just a dead cat bounce. People are very much concerned about a deflationary environment.” Stovall also says that despite the end of the Federal Reserve’s $600 billion bond buying program at the end of June, the world is continually worried about paper currencies and the possibility of more bailouts for European nations, which creates a positive environment for gold.

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by Amy Williams
May 25, 2011 (CityWire) — Frustrated by being consistently overlooked for the IMF top job, representatives from Brazil, Russia, India, China and South Africa have joined forces and called on the institution to abandon the ‘obsolete unwritten convention’ that requires its head to be from Europe.

… The FT’s Martin Wolf wrote on Wednesday: ‘The time has come for the incumbent powers to recognise that they cannot continue to dominate the global scene. If they persist in running these institutions, the rising powers will, inevitably, turn away from them altogether, to create replacements they can control. This would Balkanise management of the global economy, to no one’s true long-term advantage.’

The BRICS alliance argues the IMF is in need of a person that is ‘committed to continuing the process of change and reform of the institution so as to adapt it to the new realities of the world economy.’

[source]

By Lori Montgomery and Peyton M. Craighill
The debate over whether to raise the legal limit on government borrowing has riveted Americans, with a large majority worried about the potential consequences regardless of whether Congress votes to allow the national debt to keep increasing.

But when pressed to name their biggest concern, nearly half of respondents say they are alarmed by the prospect that the debt could grow beyond its current limit of $14.3 trillion, according to a new Washington Post-Pew Research Center poll. Only 35 percent say they are more worried about the risk of default and economic destabilization if Congress does not raise the debt limit.

The poll vividly illustrates the dilemma facing lawmakers as they approach an Aug. 2 deadline on the debt ceiling. While congressional leaders in both parties have acknowledged that the Treasury needs to keep borrowing to pay the government’s bills, lawmakers are likely to face voters’ wrath if they can’t prove that they are also working to rein in the spiraling debt.

[source]

PG View: I would hardly say that the country has been “riveted” by the debt ceiling debate, but clearly those that are paying attention know that there has never been a debt ceiling that the government couldn’t eventually blow through.

By Chen Yixin and Kazunori Takada
SHANGHAI, May 25 (Reuters) – The yuan rose against the dollar on Wednesday after the People’s Bank of China set the mid-point only a pip away from a record high, reflecting its intention to start a new round of appreciation, traders said.

The Chinese central bank set the daily yuan mid-point at 6.4949, just off the fixing’s record high of 6.4948 set on May 11 and higher than Tuesday’s 6.5038, although the dollar index hovered around a near-eight-week high.

[source]

PG View: Ahhhh, a higher yuan. Just what the doctor ordered. It is however, quite unlikely that a rising yuan (weakening dollar) will prove to be the panacea it has been billed to be.

Gold remains generally well bid against the dollar, having once again set new record highs versus the euro and sterling. Ongoing turmoil surrounding debt issues both in Europe and the US are likely to continue underpinning the yellow metal for some time to come.

Reuters ran the following two headlines this morning that were picked up by the zerohedge blog:

* EU Commissioner Damanaki says Greece’s Eurozone membership is at risk
* EU Commissioner Damanaki says Greece must agree on tough measures or return to Drachma, according to state news agency

But while a Greek exit from the EMU may solve some problems, it creates others, and one glaring issue remains; all those GGBs on the books of the ECB and other banks around the world. To think that Greece would exit the EMU under duress, return to a severely devalued drachma and then honor the existing obligations from the previous regime is just silly.

The PBoC set the mid-point for the yuan just a pip off the record high versus the dollar, suggesting that a new round of yuan appreciation is commencing.

UK Q1 GDP (second estimate) confirmed at +0.5% q/q and +1.8% y/y, near expectations. Despite this anemic growth, the OECD thinks the BoE should tighten due to above target inflation and the risk that inflation expectations become embedded. Quite the conundrum.

US durable goods fell 3.6% in Apr, well below market expectations, vs +4.4% in Mar. Ex-trans came in at -1.5%, also well below expectations. This is a terrible number that will likely lead to further negative revisions to US GDP forecasts. Yet, the OECD is also calling on the Fed to hike rates, noting that there are “some signs that long-term inflation expectations have edged up.” In reality, today’s data more likely increase the odds of a QE3.

by Ram Sahgal
May 25, 2011 (EconomicTimes) MUMBAI — A fall in retail demand for silver has brought down physical market premiums sharply over the past few days. Premiums in the spot market have fallen to 500 a kilo as opposed to 2,000-2,500 above the bank rate over the past few days as craze for silver bars among retail investors dies down.

Silver has fallen by 28% over the past month, from a record high of 75,770 on April 25 to 54,196 a kilo on Monday on profit-booking and a stronger dollar. The fall has scared retail investors.

“The premium has normalised to 500 a kilo above the bank rate after retail investors moved out of the market,” said Bhargav Vaidya, director of Bombay Bullion Association, the country’s largest bullion wholesale market. “Retail investors should stay away even at the cur-rent rates because there could still be downward pressure on prices.”… more

[source]

By Claudia Assis and Virginia Harrison
May 24, 2011 (MarketWatch) — Gold futures gained Tuesday, helped by a weaker U.S. dollar and as ongoing worries about euro-zone debt spurred investors to the perceived safety of the metal.

Gold for June delivery added $7.90, or 0.5%, to $1,523.30 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s best settlement since May 3 and the third time above $1,500 an ounce.

The lingering debt concerns have pushed investors toward “a paperless currency,” said Adam Klopfenstein, a senior market strategist with Lind Waldock in Chicago.

With the recent “whipsaw” between the dollar and the euro, “investors are looking for something more stable and not tied to any one currency,” he added.

Gold is still profiting from uncertainty, analysts at Commerzbank wrote to clients. … But investors appeared to be more “skeptical” of silver, the Commerzbank analysts added…

Bank of America Merrill Lynch said in a research note Tuesday industrial metals have reached a “soft patch.”

[source]

by David Levenstein
Tuesday, 24 May 2011 (Mineweb) — During the last few weeks the price of gold has been consolidating between $1475 an ounce and $1525 an ounce. Yet, with all the current turmoil in the financial markets, it seems totally undervalued.

On Monday May 16, the United States hit its $14.3 trillion borrowing limit. Treasury Secretary Timothy Geithner told Congress that issuing $72 billion in bonds and notes would push the deficit to its legal cap and he would have to suspend deposits into federal pension funds to free up room for more borrowing. The government now has until about Aug. 2 before it begins to default on its loans, which have ballooned as the country spends more than it takes in.

… The crisis regarding Greece remains unresolved and now new phrases such as “reprofiling” or “soft restructuring” of Greece debt are being used to describe a possible solution. But, no matter the new phrases, the meaning is the same; the European Central Bank has threatened to stop lending to banks using Greek government bonds as collateral if Athens changes the terms of the debt, a move which could bring down the country’s banking system.

… S&P cut its outlook on Italian government debt to negative from stable over the weekend. As the concerns about contagion continue, some market participants are watching whether Belgium may become the next to be downgraded. However, as I have often stated, I believe that Spain poses a much bigger threat than people like to suggest.

… Japan’s economy shrank by almost double the margin economists had expected in the first three months of 2011, as the March disaster pushed the country back into recession.

… it does not take a financial genius to see that this current rally [of the dollar] is due to the weak euro. There are problems with the US dollar, Euro and Yen, three of the most heavily traded currencies in the world, and I expect these currencies to continue their race down the slippery slope of burgeoning debt. For this reason it is important to accumulate precious metals in particular gold and silver and I strongly suggest building a core holding of the physical metal in bullion form, and stay away from limited edition medallions which I maintain do not offer any investment value whatsoever.

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By Alex Dumortier
May 24, 2011 (TMF) — When it sets interest rates, the Federal Reserve naturally looks at trends in inflation, among other things. However, instead of focusing on headline CPI, which includes all items in the economy, the central bank looks at core CPI instead — a measurement that excludes food and energy. With gas and food prices galloping ahead of other items’ costs, is the Fed making monetary policy based on the wrong set of data — one that understates the loss in the dollar’s purchasing power due to inflation?

… Leading blue-chip companies provide plenty more anecdotal evidence regarding the impact of commodity price increases:

Last week, the CFO of the world’s largest retailer, Wal-Mart, said the company was raising prices on a number of grocery items, including meat and dairy. Higher gas prices also reduce the foot traffic in Walmart stores. In April, the CFO of Starbucks said higher milk prices would continue to pressure the company’s margins. Also in April, Procter & Gamble and PepsiCo joined Coca-Cola in announcing that, in the face of rising commodities prices, it would shrink some package sizes, rather than raise prices, in an effort to protect gross margins.

Is core CPI really a better predictor of future inflation?
Daniel L. Thornton — a vice-president and economic advisor to the Federal Reserve Bank of St. Louis — found that the existing research on this question is inadequate, and doesn’t establish the superiority of core CPI.

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May 24, 2011 (Reuters) — The [South African] Reserve Bank announced on Tuesday the inflation outlook had deteriorated markedly and it would not hesitate to act to quell price pressures, although gave no clues as to when it might start raising rates.

… It said there were no discernable signs of pressures from the demand side of the economy at this stage, with the main upward pressures coming from higher food and oil prices.

… Finance Minister Pravin Gordhan has said the strong rand was fortunate given the high oil and food prices and the government was not going to take further steps — over and above accumulating foreign exchange reserves — to weaken it.

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by Christopher Barker
May 24, 2011 (TheMotleyFool) — For every investor in the Western world who sells an ounce of gold, picture a multitude of eager buyers in the East who are thrilled by the long-term investment opportunity. Though not a particularly technical means of understanding the complex dynamics of global supply and demand for gold, that image does illustrate an important aspect of the bullish trend for gold demand that continues to play out on the world’s stage.

Much has been made recently of the decision by George Soros to sell the vast majority of his fund’s stake in the SPDR Gold Trust during the first quarter of 2011, emboldening the predictable chorus of bubble babble that plays incessantly in the background behind gold’s symphony of sustained upward momentum. But while Soros and several other fund managers were busy locking in impressive gains from gold, an incredible surge in gold demand from Asia continues to pave a rising concrete floor beneath long-term gold prices.

… The persistence of massive budget deficits, loose monetary policy, an unrepentant degree of leverage and derivative exposures within Western financial behemoths, and the U.S. dollar’s uncertain future as the world’s primary reserve currency … all of these factors and more combine to ensure that economic developments in the Western world will continue to command the spotlight as fundamental drivers behind gold’s ongoing secular bull market.

But to examine the outlook for gold exclusively in those terms is to ignore the central role that Eastern culture, economic trends, and prevailing demographics are each likely to play in subsequent phases of gold’s multiyear advance…

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