13-Jun (Financial Times) — The easy money drug has been administered several times now and the markets are yet again hoping for more.

[video]

"Gold-investment demand in China may gain more than 10 percent this year as buyers seek a haven from Europe’s debt crisis and the prospect of weakening currencies, according to the country’s largest bullion bank."

MK Comment: When it comes to the gold market, China remains the dragon in the room.

Link

13-Jun (Der Spiegel) — The EU is signalling that it may be willing to renegotiate the austerity measures it imposed in return for aid to Greece, a German daily reported on Wednesday. The move is aimed at keeping Greece in the euro by boosting support for pro-austerity parties in the June 17 election.

The European Union is planning to discuss softening the terms of its international bailout for Greece, regardless of the outcome of the June 17 election, German business daily Financial Times Deutschland reported on Wednesday.

The paper cited unnamed EU sources saying that there was no way around a renegotiation if Greece was to remain in the euro zone. It is unclear how many concessions the EU is prepared to make. “We will do our utmost to keep Greece in the euro zone while it is respecting its commitments,” European Council President Herman Van Rompuy said on Tuesday.

[source]

PG View: I rest my case. So which came first, the alleged plan to renegotiate Greek austerity, or Alexis Tsipras’ FT op-ed vowing to keep Greece in the eurozone?

By Alexis Tsipras
13-Jun (Financial Times) — Lest there be any doubt, my movement – Syriza – is committed to keeping Greece in the eurozone.

President Barack Obama was right when he said last Friday: “Let’s do everything we can to grow now, even as we lock in a long-term plan to stabilise our debt and our deficits, and start bringing them down in a steady, sensible way.” That applies to my country, too. The need for giving Greece a chance for real growth and a new future is now more widely accepted than ever.

I strongly believe we will get a clear democratic mandate from the people of the Hellenic Republic on Sunday.

[source]

PG View: These words boosted the euro back to the 1.2600 area and the softer dollar is helping to keep gold underpinned. But make no mistake, Tsipras will continue to demand concessions from the troika on Greek austerity as a price for keeping Greece in the eurozone.

13-Jun (Reuters) — Kazakhstan’s central bank plans to boost the share of gold in its gold and foreign currency reserves to 20 percent from 14-15 percent, deputy bank chairman Bisengali Tadzhiyakov said on Wednesday.

Tadzhiyakov, who gave no time frame for the move, said last week Kazakhstan planned to buy 22 tonnes of gold from local producers, which at that time he estimated would boost the share of the metal to 15 percent from about 12 percent.

“We will buy from Kazzinc corporation 20 tonnes (of gold) in 2012, and a further 4.5 tonnes from Kazakhmys,” he told journalists on Wednesday, reading out updated figures from his report prepared for presentation in parliament.

“The total volume is 24.5 tonnes.”

[source]

PG View: The 24.5 tonnes to be bought from “local producers” is 24.5 tonnes of supply that will never make it to the global market. This is further confirmation of an already familiar trend…

See The most important gold market event since 1999.

13-Jun (CNBC) — Greeks pulled their cash out of the banks and stocked up with food ahead of a cliffhanger election on Sunday that many fear will result in the country being forced out of the euro.

Bankers said up to 800 million euros ($1 billion) were leaving major banks daily and retailers said some of the money was being used to buy pasta and canned goods, as fears of returning to the drachma were fanned by rumors that a radical leftist leader may win the election.

The last published opinion polls showed the conservative New Democracy party, which backs the 130 billion euro ($160 billion) bailout that is keeping Greece afloat, running neck and neck with the leftist Syriza party, which wants to cancel the rescue deal.

As the election approaches, publishing polls is now legally banned and in the ensuing information vacuum, party officials have been leaking contradictory “secret polls”.

[source]

13-Jun (Reuters) — Many more years of money printing from the world’s big four central banks now looks destined to add to the $6 trillion already created since 2008 and may transform the relationship between the once fiercely-independent banks and governments.

As rich economies sink deeper into a slough of debt after yet another wave of euro financial and banking stress and U.S. hiring hesitancy, everyone is looking back to the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan to stabilize the situation once more.

What’s for sure is that quantitative easing, whereby the “Big Four” central banks have for four years effectively created new money by expanding their balance sheets and buying mostly government bonds from their banks, is back on the agenda for all their upcoming policy meetings.

…Global investors appear convinced more QE is in the pipe.

[source]

PG View: $6 trillion?! Is anyone else scared by that number? If not, you should certainly be afraid of the prediction that more QE is likely on the way. If global investors truly are “convinced more QE is in the pipe” then gold is a bargain at these prices…and absolutely necessary portfolio diversification.

13-Jun (Bloomberg) — Retail sales in the U.S. fell in May for a second month as slower employment and subdued wage gains damped demand, a sign the world’s largest economy is cooling.

The 0.2 percent decrease followed a similar decline in April that was previously reported as a gain, Commerce Department figures showed today in Washington.

…Limited gains in payrolls and unemployment exceeding 8 percent signal it’ll be tough for consumer spending, the biggest part of the economy, to accelerate from a first-quarter advance that was the biggest in a year.

[source]

PG View: Gold has been spurred to new highs for the week on renewed hopes for QE3 in the wake of weak retail sales and the perception of diminished inflation risks reflected in the m/m decline in PPI.

13-Jun (Reuters) – Gold perched above $1,600 an ounce on Wednesday, retaining most of its gains from the previous session as prices were supported by persistent worries over Spain’s surging borrowing costs.

Gold has attracted occasional safe-haven flow in the past few weeks, after moving in tandem with riskier assets since late last year as the euro zone debt crisis squeezed liquidity and rattled financial markets.

[source]

Plunge in Median Family Net Worth During Recession Suggestive of Misallocated Portfolios

12-Jun (USAGOLD) — Gold has surged back above $1600 amid ever-rising eurozone worries. Despite the weekend announcement of a €100 bln Spanish bank bailout, yields on Spanish government bonds pushed ahead to new euro-era highs above 6.8%. The 7% threshold is widely viewed as a critical tipping point, and with the ECB seemingly adverse to further periphery bond purchases since Mario Draghi took the reigns, Spain itself may just need a bailout right along with the banks.

Data from the Fed’s Survey of Consumer Finances shows that the Great Recession wiped out nearly 39% of the typical American family’s net worth.

Data from the 2007 and 2010 SCF show that median income fell substantially and that
mean income fell somewhat faster, an indication that income losses, at least in terms of levels,
were larger for families in the uppermost part of the distribution. Overall, both median
and mean net worth also fell dramatically over this period—38.8 percent and 14.7 percent,
respectively. Changes in housing wealth and business equity were key drivers in those
wealth changes. The preceding three years had seen only small changes in median and mean
income and in median net worth, but a sizable gain in mean net worth.

Median family net worth plunged from $126,400 in 2007 to $77,300, a level last seen in 1992. A Washington Post article summed it up thusly: “Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate.”

The median, as the Los Angeles Times points out is “the point smack in the middle of those richer and poorer.” The middle class bore — and continues to bear — the brunt of the great recession, largely because the vast majority of middle class wealth was wrapped up in the family home and the stock market. Sadly, that remains the case.

What these headlines said to me was that the portfolios of US families — and particularly those of middle class families — were improperly allocated. From the beginning of 2007 until the end of 2010, the price of gold rose 122%. Even a relatively small allocation to physical gold (we recommend 10% to 30% of net assets) could have significantly mitigated the devastating impact of the great recession on the family balance sheet. Yet, physical gold remains a grossly under-owned asset.

Egon von Greyerz, the managing director of Matterhorn Asset Management AG in Zurich says “Less than 1% of investors own gold.” The most recent Erste Group study puts a finer point on it:

The global equity markets are currently valued at USD 56 trillion according to
Bloomberg, while the fixed income segment amounts to USD 91 trillion according to
BIS. If we assume that only 20% of the gold reserves are investable (i.e. come in the form of
bullions, ETFs, or coins), this would translate into a value of USD 1.4 trillion (at USD
1,500/ounce) and into an allocation of close to 1%. In comparison with bonds, gold holdings
are small: bond holdings worldwide amount to almost USD 14,000 per capita, whereas gold
reserves per capita are less than USD 1,180.

Europe remains on the verge of meltdown and conceivably a disintegration of the EU, the United States, Japan and the UK move ever nearer their fiscal cliffs and fears of a hard-landing in China are mounting. With the storm clouds building on the horizon once again, individual investors in all of the income quartiles would be well served to reevaluate their investment allocations.

11-Jun (Reuters) — European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro.

EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen – no one Reuters has spoken to expects Greece to leave the single currency area.

But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.

[source]

Spain’s Bailout: More Questions Than Answers

“One key unknown is where the bailout money will come from. Will it be from the old euro-zone bailout fund, the European Financial Stability Facility, or the new European Stabilization Mechanism, due to come into existence in July? If it comes from the ESM, existing government bondholders will be subordinated—no small concern given €100 billion is more than 10% of Spanish government debt outstanding.”

MK comment: So. . . Italy, Greece, France and Spain are borrowing money from Italy, Greece, France and Spain to keep the banks from collapsing. Nothing wrong with this picture.

“The Great Recession took such a heavy toll on the economy that the typical American family lost nearly 40% of its wealth from 2007 to 2010, shaving the median net worth to a level not seen since the early 1990s.”

Link

MK comment: 40% reduction in the national net worth?

Top Customer: Under Obama, Fed’s Holdings of U.S. Debt Have Jumped 452%

“Since President Barack Obama was inaugurated in January 2009, the Federal Reserve’s holdings of U.S. government debt have quintupled, according to the Fed’s official monthly balance sheet. On Jan. 28, 2009, a week after Obama’s nomination, the Fed owned $302 billion in U.S. Treasury securities. On April 25, 2012, the latest date reported, the Fed owned five and a half time that much in U.S. Treasury securities–$1.668 trillion.”

MK comment: $302 billion then (2009). $1.668 trillion now. Nothing to see here. Please move on.

Link

11-Jun (Reuters) —  The European Central Bank bought no government bonds for the 13th week running last week, ECB data showed on Monday as the bank judges the controversial programme of diminishing benefit in the face of the deepening euro zone debt crisis.

The ECB has bought hardly any bonds from euro zone countries since Mario Draghi took over as president in November as policymakers have become increasingly wary of the risks piling up on the balance sheet and the lack of incentives for reforms.

The programme’s effectiveness has also been put into question after the ECB took immunity status in the Greek debt restructuring while private bondholders booked losses – a scenario investors are worried could be repeated elsewhere.

[source]

Spanish Bailout Relief is Short-lived

11-Jun (USAGOLD) — The market initially reacted favorably to the weekend agreement on a €100 bln bailout of the Spanish banking system. However, the relief rally in equities and the euro proved short-lived as the devil is apparently in the proverbial details.

By mid-morning in NY, the euro had given back all of its gains and was probing back below 1.2500. The Spanish IBEX index, which earlier had been up more than 6% turned negative on the day and and Spanish yields were back on the rise. It would seem that €100 bln bailout buys about half a day of relief…

I think there was broad acknowledgement that the bailout of the Spanish banks did nothing to solve the long-term problems of Spain or the eurozone as a whole. Focus was already shifting to next weekend’s Greek elections. However, when the debate started about where the funds for the bailout would come due to issues about subordination, the euphoria evaporated.

It seems that if the funds came from the new European Stability Mechanism (ESM) — as was the original plan — private bondholders would be immediately subordinated. That sparked a debate about whether the funds could come from the existing — but winding down — European Financial Stability Fund (EFSF), which doesn’t require subordination of the private bondholders. I think the market flashed-back to earlier in the year when there was a lengthy drawn-out process to get private Greek bondholders to “volunteer” for haircuts.

There have also been comparisons to the US TARP program, but as PIMCO’s Bill Gross pointed out via Twitter this morning: U.S. TARP bought [preferred] stock. EU buys senior Spanish debt. Big difference.

…well as it turns out, some in the EU are trying to ensure that it’s not even senior debt.

So why should Spain’s private bondholders be protected? Because I think there is a fear that the private bondholders throughout the periphery would stampede to liquidate their exposures if they got the sense that they were about to be subordinated to the ESM. Yields would rise further and the crisis would deepen.

While gold was unable to sustain overseas tests back above $1600, it remains comparatively buoyant, well above the low end of the range at 1527.45/1522.40. In attempting to paper over the Spanish banking crisis — with not nearly enough wallpaper — it didn’t take long for the market to realize that it’s going to take a lot more than €100 bln to provide even a short-term solution. Meanwhile, the broader eurozone debt crisis continues to fester, as do the fiscal crises in the US, the UK and Japan, amid ongoing risks of a hard-landing in China.

There quite frankly isn’t enough fiat on the planet to paper-over all of it…but that likely wont stop global policy makers from trying. And that’s exactly why many central banks, sovereign wealth funds, pensions, hedge funds and individual investors are clamoring for the protection of physical gold. Do you have enough gold in your portfolio?

08-Jun (Globe & Mail) — Gold is back in the news, big time, and not just because the price may be on the verge of another upswing or that Peter Munk is turning Barrick, the world’s biggest gold company, into a CEO meat grinder. It’s because Germany, it appears, wants to make gold the effective currency of the euro zone before the region plunges to the bottom of the seas like a concrete U-boat.

The weakest euro zone countries are tapped out financially and economically. But a few of them are brimming with gold reserves. Take Italy, the euro zone’s third-largest economy. The Italians love gold and it’s stashed everywhere, in their central bank and in their jewellery and safe deposit boxes. (I once saw a religious-festival parade of children in a mountain town, with each child groaning under the weight of heavy gold necklaces and other baubles). At last count, the central bank had 2,451 tonnes of gold, valued at close to €100-billion ($128-billion). That’s not a fortune compared to Italy’s €1.9-trillion national debt, but it’s not bad when Rome is raiding the pantry to pay its ever-rising debt.

Germany’s idea is coyly named the European Redemption Pact and it is nothing if not creative. While details are scant, here is roughly how this gilded baby would work. Countries with debts greater than 60 per cent of gross domestic product – the (ignored) limit under the European Union’s Maastricht Treaty – would transfer those debts into a redemption fund, which would be covered by joint bonds. The scheme has been called “euro bonds lite.”

[source]

PG View: Quite frankly, I don’t think the ERP is really a viable plan, but it’s worth noting that gold is increasingly a part of the ongoing conversation…

11-Jun (Wall Street Journal) — A mooted rescue package worth up to EUR100 billion for Spain’s beleaguered banks failed to restore confidence in the country’s creditworthiness as concerns mounted that the deal will load more debt onto the Spanish state and threaten to subordinate bondholders behind official creditors.

An early rally in Spanish and Italian debt quickly reversed with yields on both Spanish and Italian 10-year government bonds climbing more than 20 basis points.

“The proposed bailout strengthens rather than weakens Spain’s pernicious sovereign-bank nexus and threatens to accelerate the ongoing rapid decamping of foreign investors. The feel-good vibe looks to be dissipating more quickly than we expected,” said interest rate strategists at Rabobank International.

Following weeks of speculation, the Spanish government on Saturday confirmed it will seek outside assistance for its troubled banks, while European finance ministers said the euro zone stands ready to provide the funds, if requested.

[source]

10-Jun (RTE News) — After a 2.5-hour conference call of the 17 finance ministers, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.

“The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to €100bn in total,” a Eurogroup statement said.

Spain said it wanted aid for its banks but would not specify the precise amount until two independent consultancies – Oliver Wyman and Roland Berger – deliver their assessment of the banking sector’s capital needs some time before 21 June.

[source]