By Robin Harding
May 27 2011 (FT) — China is not a currency manipulator but its real exchange rate “remains substantially undervalued”, the US Treasury said on Friday in its semi-annual currency report to Congress.

… The measured tone of the report and its low key release just before a holiday weekend show how the heat has gone out of the US dispute over China’s currency policy.

… it argued that letting the renminbi rise is now in China’s self-interest. “By trying to limit the pace of appreciation, China is not allowing the exchange rate to serve as a tool to counter inflation in its own economy,” the Treasury said.

The rise in the renminbi against the dollar – and a belief that China will allow that rise to continue for domestic economic reasons – underlie the fall in tensions over what had become the leading bilateral issue between the world’s two largest economies.

[source]

ALSO . . .

China Must Let Yuan Rise Faster, Treasury Tells Congress
By Ian Katz
May 27 (Bloomberg) — The U.S. said China has made “insufficient” progress on letting the yuan rise and urged quicker appreciation, without branding the world’s fastest- growing major economy a currency manipulator.

The U.S. “believes that progress thus far is insufficient and that more rapid progress is needed,” the Treasury Department said today in a report to Congress on foreign- exchange markets. The yuan’s real exchange rate remains “substantially undervalued” and the department “will continue to closely monitor the pace” of appreciation.

… “We have differences on the degree of appreciation,” Deputy Finance Minister Zhu Guangyao said May 10 in Washington. China’s economy will expand 9.6 percent in 2011 and 9.5 percent next year, according to International Monetary Fund projections released last month.

The Treasury Department backed away from the “nuclear option” of calling China a currency manipulator, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. The Group of 20 nations “is going to have something to say on the global imbalances later this year, so it is better to decide these matters in a world forum rather than for the U.S. to take unilateral action.”

… Rupkey said in e-mailed comments the “late afternoon release before Memorial Day weekend appears well timed in order to miss congressional criticism. Nice timing, as a war of words helps no one.” The report was released at 4 p.m.

Today’s report said “no major trading partner” of the U.S. met the legal standard of improperly manipulating its currency.

… If China fails to let its currency rise, it faces the risk of higher inflation, an “excessively rapid expansion of domestic credit, and upward pressure on property and equity prices, all of which could threaten future economic growth,” according to the report.

[source]

Currency Collapse

Early in the week, Belarus devalued their currency. Headlines in the financial press stated the devaluation was 36%, but the zerohedge blog, citing The National Bank of Belarus‘ own website showed the Belarus ruble (BYR) had been devalued in dollar terms from 3155 to 4930. That’s a startling 56.3% devaluation! Devaluations similar in scope were reported against the euro and the Russian ruble.

Imagine for a moment, waking up one morning to find that more than half (or even a third) of your savings had been wiped out in one fell-swoop. Amid worries that the Belarus ruble would devalue further, citizens rushed out to buy things, anything, before more purchasing power was eroded. There were reports of store shelves being swept bare and many citizens stood in line for days at currency exchanges hoping to swap their rubles for some other currency — any other currency; dollars, euros, Russian rubles — anything to protect what little they had left. Of course, governments that devalue generally have the foresight to implement capital controls to impeded flight from the currency being devalued. Not surprisingly, other currencies were in short supply across the country, further fueling the desire to trade currency for goods.

Of course the world has seen devaluations before: Germany, Russia, Venezuela, Argentina, Mexico, Great Britain…um the United States, among many others. Devaluation is generally used as a means of inflating away debt. While savers in Belarus rubles may have seen their savings evaporate dramatically, those that had debt valued in BYR saw more than half of that debt disappear. It is in every way a transfer of wealth from savers to debtors. It is punishment for saving and a moral hazard, as such measures reward indebtedness. That reality should give everyone with a dime in the bank pause.

The time honored tradition of alleviating sovereign debt burdens via currency devaluation is the primary reason there is an element in Greece that would love nothing more that to exit the EMU and revert back to the drachma. As the sovereign debt crisis in Greece continues to deteriorate, savers are keen to get their money out of Greece. There has been significant erosion of the household savings rate in Greece over recent weeks. The wealthy have the means and the knowledge to protect themselves, so it is the working class savers that invariably end up baring the brunt of the burden. Greek officials continue to assure the people that their savings are secure, just as I’m sure Belarus officials did…

Certainly our very own government and the Fed have been actively discouraging saving right here in America. By driving interest rates to near 0% and offering tax incentives for home, automobile and other durable goods, the message is clear: In an economy that is primarily driven by consumption, ‘we want you to spend your money, not save it.’ In sending that message though, consumers must be reasonably sure that the government will take care of them if they dutifully spend all of their income. That is why any proposed changes to entitlement programs like Social Security and Medicare are so contentious.

Recently, Zimbabwe’s central bank chief, Dr. Gideon Gono talked about backing their currency with gold, adding that “the inflationary effects of United States’ deficit financing of its budget was likely to impact other countries, leading to a resistance of the greenback as a base currency.” That’s Zimbabwe –a country that experienced the worst hyper-inflationary period in recent history — busting on us for our fiscal and monetary policy. Okay, he’s spot-on correct, but he’s the head of the Reserve Bank of Zimbabwe for cryin’ out loud!

While the US and Europe are arguably a far cry from Belarus or Zimbabwe, as our own debt loads grow increasingly oppressive, so grows the temptation to devalue. The take away here is that you save exclusively in fiat currency at your own peril. And while there are some currencies that are arguably safer than others, there is one that has stood the test of time, for thousands of years in fact. There is an ever-growing number of people across the globe that are increasingly looking to physical gold as an alternative means of saving.

By Claudia Assis and Sarah Turner
May 27, 2011 (MarketWatch) — Gold and silver futures climbed Friday, helped by a weaker dollar and renewed concerns about unrest in the Middle East and North Africa as well as about euro-zone sovereign debt.

Gold for August delivery, the most-active contract, advanced $13.60, or 0.9%, to $1,537.30 an ounce on the Comex division of the New York Mercantile Exchange. For the week, gold gained 1.8%.

…The dollar index, which measures the greenback against a basket of six currencies, fell to 74.936, compared with 75.598 late Thursday.

Traders also focused on unrest in the Middle East and North Africa, with Yemen on the brink of civil war and with world leaders reiterating calls for the ouster of Libya’s Col. Moammar Gadhafi.

In addition, leaders at the Group of Eight meeting “have not reported any progress on any fronts” regarding euro-zone debt concerns, said George Gero, a vice president with RBC Wealth Management, in emailed comments. “No one wants to be short for the extended holiday,” he added.

— U.S. markets will be closed Monday in observance of Memorial Day. U.K. markets will also be closed Monday.

[source]

by Robert Powell
May 27, 2011 (MarketWatch) — As someone whose family was affected personally by the Bernie Madoff scheme, and as someone who knew Brad Bleidt, a Boston-based scam artist who misdeeds preceded Madoff’s, I’m deeply concerned about the issue of investment fraud.

So, too, is John Gannon, the president of the Education Foundation at the Financial Industry Regulatory Authority… among those who spoke this week at Boston University’s Future of Lifecycle Saving & Investing Conference to talk about the state of financial literacy in the U.S.

Gannon didn’t come to talk specifically about financial education, but rather the state of investment fraud in the U.S., who’s at risk of being defrauded, the tactics being used to separate honest hard-working American investors from their money, and what individuals can do to prevent themselves from being fleeced by the likes of a Madoff or Bleidt.

Not surprisingly, the research shows that the people most at risk of being separated from their money are males, ages 55-65, who are largely self-directed or do-it-yourself investors, and who are risk-takers. What’s more, those at risk have a tendency to be overly optimistic about their knowledge of all things finance and investing.

… It can be especially hard for those who are at risk of being defrauded because these folks tend to “make emotional rather than logical decisions,” Gannon said.

[more...]

by Ned Schmidt
May 27, 2011 (MarketOracle) — Recent firing of a football coach in my hometown was cause for considerable reflection. Why does someone fire a winning coach? A few years ago the college I attended for graduate work fired their football coach, one with a winning record. In fact, it was a winning record such that most only dream of achieving.

… While we might ponder why a winning coach is abruptly dispatched, even greater wonder is why a losing coach is retained. Why would any team persist with a coach that cannot win games? Who wants to be managed by a loser? For the answer to that question we need look no further that the United States, and their losing monetary coach. Money coach Bernanke’s record is portrayed in the graph below.
…
Thus far, one would have to grade the Bernanke Federal Reserve at no higher than D-. Grade could be lower, but he has made Gold investors much richer. Since we have been recommending for more than a decade investors shed paper equities in order to invest in Gold, we do appreciate the losing record of the U.S. Federal Reserve. Since we see no hope of enlightenment at this bastion of Keynesian ideology, retaining Gold seems like a wise move.

… That the value of the U.S. dollar has suffered during the era of QE-2 is unarguable, as shown in chart below. But like all undesirable experiences created by bad policy, it too may come to an end. Only the Federal Reserve has been able to discover imaginary benefits from QE-2. In reality, all QE-2 accomplished was a distortion of asset values all around the world.

… If the demise of QE-2 does bring about a reversal in the course of the dollar… $Gold may complete the consolidation in which it now trades. Great Silver Collapse of 2011 should continue due to the implosion of the bubble, over valuation and collapsing fundamentals.

[source]

by Alex Richardson
Friday May 27, 2011 (Reuters) – Ratings agency Fitch on Friday cut its outlook on Japan’s sovereign debt to negative from stable, warning that the massive cost of a March earthquake and tsunami would put added strain on the country’s already shaky public finances.

… “Japan’s sovereign credit-worthiness is under negative pressure from rising government indebtedness,” said Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team in a statement.

“A stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population aging.”

Japan’s public debt, already twice the size of the $5 trillion economy, is set to swell as the country faces reconstruction costs following the March 11 earthquake and tsunami… However, the country’s deepest crisis since World War Two has not healed rifts between the government and the opposition, whose majority in the upper house stands in the way of fiscal reform.

Fitch said Japan’s public indebtedness was also rising sharply, at a pace trailing only Ireland and Iceland, “both of which have experienced systemic banking crises.”

[source]

by David Galland
May 27 2011 (MarketOracle) — While there are many reasons that gold and silver are going to keep moving higher as the fiat currencies trend lower, at our recent Casey Research Summit in Boca Raton, faculty member Mike Maloney pointed out a fact that, while obvious in hindsight, I had never heard mentioned previously.

Namely that during the last major precious metals bull market in the 1970s, only about 10% of the world could own gold – either due to legal restrictions or a lack of liquid capital.

Today, few countries prohibit gold ownership, and a far higher percentage of the world’s population has transitioned out of poverty.

China provides the most germane example, having legalized gold and silver ownership for private citizens in 2004, and through the explosive growth in national GDP that has caused Chinese gold purchases to skyrocket.

… “I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue,” said Eily Ong, an investment research manager at the gold council.

Notoriously active savers, stashing away on the order of 50% of their income, the Chinese are increasingly opting for gold over the renminbi to stash their wealth.

… India is no longer the only elephant in the gold vault. And they are not alone – investors around the world are now able, and willing, to buy gold as a way of protecting their wealth from the inevitable decline of the fading fiat currencies.

[source]

By Omar Alvi
May 27, 2011 (IBTimes) — Since negotiations between Republicans and Democrats about bringing the budget into balance are at a standstill, there have been suggestions that the US could temporarily default on its debt payments while negotiations continue.

Gross said that would send a “disastrous signal to the world credit markets” but would impact the dollar more than bonds, with investors turning to the euro and Chinese Yuan instead.

“The dollar’s the world’s reserve currency. It’s what we transact in,” he said. “If the dollar is defaulted on for any period of time, what type of signal does that send to the rest of the world?”

As a result of this uncertainty, Gross said Pimco is investing in debt from emerging markets such as Brazil and is in Canada, Germany and Mexico bonds as well.

[source]

By Claudia Assis and V. Phani Kumar, MarketWatch
SAN FRANCISCO (MarketWatch) — U.S. crude-oil futures rose as dollar weakness and heightened concerns about the Middle East and North Africa pushed prices above the psychologically key $100-a-barrel level.

[source]

by Randall W. Forsyth
Friday, May 27, 2011 (Barron’s) — The Holy Grail of investing has been found: get elected to the U.S. Congress.

According to an academic study published Wednesday in the journal “Business and Politics,” members of the House of Representatives outperform the average stock-market investor by 55 basis points a month…. Extrapolated over a full year, that figures to an extra 6.8% per annum after compounding — better than hedge-fund superstars.

… The authors of the study — Alan J. Ziobrowski of Georgia State University, James W. Boyd of Lindenwood University, Ping Cheng of Florida Atlantic University and Brigitte J. Ziobrowski of August State University — found that House members generated those excess returns in the stock market during 1985 to 2001, great bull market years, and not by accident. “We find strong evidence that Members of the House have some type of non-public information which they use for personal gain,” the authors concluded.

But, they add, House members’ excess equity returns trail those of Senators during the same time period, according to their previous study of investment return of the upper house — some 85 basis points a month. Annualized, that figures to 10.7% per year after compounding.

The smaller returns of Congresspersons compared to Senators “are due presumably to less influence and power held by the individual Members.” It’s simple math; there are 435 House Members compared to just 100 Senators, so power is more concentrated in the upper house.

…The data strongly imply the information and influence House members and especially Senators accrue is translated into personal gain in the stock market.

Let me translate from the proper academic usage. Members of Congress used inside information gleaned from their positions of power to enrich themselves in the stock market. The more powerful Senators enriched themselves more than members of the House.

Like Captain Renault in Casablanca, I’m shocked, shocked!

[source]

by Sergei Balashov
May 27 (ProactiveInvestors) — Safe haven demand propelled a rally in gold prices amid fears that Greece will default on its debt, triggering a wave of debt rating downgrades in the euro zone. Traders were going for gold for wealth protection, while shunning the US dollar, which eased against the euro today.

The American currency has an inverse relationship with gold, which is seen as an alternative asset.

Concerns over Europe’s fiscal problems intensified after emergency talks between political leaders in Greece fell through, failing to work out a plan to tackle the economic crisis. The government is looking to implement another round of austerity measures to cut budget deficit and comply with the terms of the bailout it received last year to avoid restructuring its debt.

[source]

RELATED . . .

Greece holds emergency economic meeting
May 27, 2011 (BusinessReport) — Greek President Carolos Papoulias was holding emergency talks with political party leaders on Friday as the EU warned that the country would get no further aid unless there was a consensus on measures to reduce its massive deficit.

Ignoring one of the main conditions for additional aid, opposition parties have rejected the new package of austerity measures, saying they will have negative repercussions on the economy.

… Greece secured a 100 billion euro ($155 billion) rescue package from the European Union and International Monetary Fund (IMF) last year. The fifth 12 billion euro tranche is due to be paid out in June, with the IMF to contribute 3.3 billion euros.

But the IMF may not be willing to provide its share of the next instalment.

Luxembourg Prime Minister Jean-Claude Juncker, who also chairs the Eurogroup panel of eurozone finance ministers, on Thursday pointed out an IMF rule that would prevent it from acting if Greece cannot guarantee that it will be able to make ends meet within 12 months.

Despite the bailout, Greece is on the brink of insolvency as efforts to meet tough deficit reduction targets are being hampered by a deep recession, high unemployment and weak revenues – leading to questions over whether it will be able to return to bond markets as planned in 2012.

[source]

May 27 2011 (Reuters) — Gold hit its highest in more than three weeks on Friday as worries about Greece’s debt crisis triggered buying by investors looking for a safe place to park assets, while the softer dollar also helped underpin sentiment.

Gold’s appeal has been boosted in recent weeks by worries about contagion from Greece to Ireland, Portugal and Spain.

The dollar fell to session lows against the euro after European Central Bank Governing Council member George Provopoulos said Greece can handle its debt if it sticks to its aid programme.

In the latest development on the Greek crisis, the head of euro zone finance ministers Jean-Claude Juncker said the International Monetary Fund could withhold the next slice of aid to Greece due next month.

“The chances of debt default by Greece are rising,” a trader said, adding higher oil prices were also helping gold.

[source]

Fri, May 27 2011 (FXstreet.com) — The yellow metal has been moving north on Friday on a weaker US dollar and as gold continues to attract investors seeking for refuge amid Greece debt woes.

The precious metal rose more than $16 or 1.06% since opening and hit a fresh 3-week peak a few cents below $1535 an ounce in recent trade.

Gold has quickly reverted back to its traditional inverse correlation to the dollar. While the yellow metal and the greenback have been recently rising in tandem, and both were under modest pressure on Thursday, further weakness in the dollar today has pushed gold to new 3-week highs. The euro benefited late in the week on indications that China and other Asian countries may have an interest in EU bailout bonds.

Eurozone May Economic Sentiment slipped to 105.5, just below expectations, vs negatively revised 106.1 in Apr.

Swiss May KOF leading indicators rose to 2.30, above expectations, vs upward revised 2.30 in Apr.

Swedish Q1 GDP +6.4% y/y, below market expectations, vs upward revised +7.7% y/y in Q4.

US personal income +0.4% in Apr, about what the market expected. PCE +0.4%, below expectations.

University of Michigan sentiment for May (final) was revised up to 74.3 from a preliminary print of 72.4, beating market expectations.

NAR US pending home sales index plunged 11.6% m/m to 81.9 in Apr, vs negative revised 92.6 in Mar. Off 26.5% from a year ago. Makes me wonder how quickly we’ll hear renewed calls for a resurrection of the home-buyers tax credit…

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.

[source]

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.

[source]

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.

[source]

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.

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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.

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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.”

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