June 24 (Dow Jones) – Gold futures settled a breath above $1,500 as fresh concerns about Europe triggered steep declines in equities and commodities and forced some traders to sell the safe-haven asset to meet margin calls.

Gold is considered a refuge from financial risk, but prices can tumble amid a market-wide sell-off as traders sell profitable holdings like gold to raise cash and cover losses elsewhere.

…However, gold’s declines are unlikely to breach far below $1,500 as it becomes too attractive for bargain hunters to stay on the sidelines.

“It would be a short-lived trade through $1,500, it would present buying opportunities and (investors) will come in,” said Haberkorn.

Moody’s warning about Italy comes as fellow euro-zone member Greece struggles to avoid defaulting on its government debt. In the latest steps to qualify for a second bailout, Greece agreed on a five-year austerity plan with the International Monetary Fund and European Union. The widely-expected accord must still pass a Greek parliament vote, however, and many market watchers question whether the plan will prevent a Greek default.

[source]

PG View: So who thinks “cash” is where they’re going to stay? We’ve seen these deleveraging breaks in gold before and the market always seems to come right back. I’m inclined to echo the sentiments of those that believe losses below $1500 will be short-lived. If you need further incentive to pick-up the phone and talk to your broker, go back and reread our Summer Doldrums piece.

June 24 (China Daily) – Gold’s luster is continuing to attract rising domestic demand and China will continue to “outperform” other countries in private consumption of the precious metal, with sales growth remaining above 20 percent over the next two years, an industry expert said.

The amount individual buyers purchase as an investment is expected to surge two-fold annually, Zhang Bingnan, secretary-general of the China Gold Association, said.

And the government’s gold reserves are “far from enough”, and should be increased to fend off global financial risks, he said.

…”Demand for gold, mostly driven by investment, will grow at least 20 percent this year,” he said.

…”China’s reserves are small. They need to be increased appropriately,” Zhang said.

…China had more than $2.84 trillion in foreign exchange reserves by 2010, but only 1.7 percent were invested in gold.

…”The government needs to expand its share of gold in the foreign exchange reserves to reduce vulnerability to dollar depreciation. The reserve should be at least 5,000 tons,” Zhong said.

[source]

PG View: We fully expect China to remain a reliable and substantial source of gold demand for years to come.

June 24 (Reuters) – European banks and finance officials are discussing a proposal to replace existing Greek debt with a different type of bond to get around ratings agencies’ reservations about a planned rollover, two senior European banking sources said on Friday.

The proposal foresees a voluntary rollover of debt into securities of a different and not comparable credit composition to avoid agencies moving Greece to default status, the sources told Reuters on Friday.

“Only by a completely different composition of the bonds would the rating agencies see the restructuring as voluntary and not declare Greece insolvent,” said one senior banker.

[source]

PG View: The fact that Greece and the troika are going through such contortions to arrive at some “solution” that wont be viewed as a default by the rating agencies should have everyone worried…very worried. Especially when you consider that such a rollover is at best just another kick of the can down the road. You don’t claw your way out of a debt crisis with more debt; be that in the form of GGBs or some new miracle security contrived by the troika to skirt rating agencies interpretations of a credit event.

June 24 (MSNBC) – The breakdown of talks between the White House and congressional Republicans has intensified worries about the financial bomb known as the national debt. Without serious budget reforms, that bomb will almost certainly explode — with widespread collateral damage to the U.S. economy and the global financial system.

But no one can say for certain just when the bomb will go off. The fuse may be longer than many people assume.

Debt-reduction talks came grinding to a halt Thursday when Republicans pulled out, blaming Democrats for demanding tax increases rather than accepting cuts in federal services.

The clock is ticking. The Congressional Budget Office said this week that the national debt is on pace to equal the gross domestic product within a decade, and warned of a European-style crisis unless Congress moves to realign the budget.

[source]

June 23 (Bloomberg) – Oil producers tumbled the most in more than a year after the U.S. government announced plans to pour as much as 1 million barrels of stockpiled crude a day into an already-glutted market.

The U.S. and 27 other nations pledged today to tap government-controlled oil inventories after civil war in Libya disrupted crude shipments and Saudi Arabia failed to persuade fellow members of the Organization of Petroleum Exporting Countries to plug the gap with increased output. Crude futures plunged more than $5 a barrel in New York trading.

The U.S. plans to make 30 million barrels available from the Strategic Petroleum Reserve over the next 30 days as part of a coordinated effort by International Energy Agency member states, according to the Energy Department in Washington. The other 27 IEA countries will collectively release an equal amount of crude during the same period.

The supply addition comes at a time when refiners in the world’s biggest economy have more crude on hand and are importing less as demand for fuels such as gasoline and diesel is slipping, according to Energy Department figures.

…“This is kind of a head-scratcher because we’re just not in a situation in the U.S. where we physically need more barrels to meet demand,” Blake Fernandez, an energy analyst at Howard Weil in New Orleans, said in a telephone interview. “This looks more like a perception move by the U.S. government and the Europeans to alleviate high crude prices.”

[source]

June 24 (BBC) – EU leaders have urged all Greek politicians to support new spending cuts and tax hikes, saying there is no alternative if debt-laden Athens is to qualify for a second massive bail-out.

The second rescue is being negotiated in Brussels. It is expected to be about 120bn euros (£107bn; $171bn).

“There will be a new programme for Greece, on which the Greek parliament will have to vote next week,” said Germany’s Chancellor Angela Merkel.

The UK says it will not contribute.

[source]

PG View: The UK has plenty of their own problems to contend with…but then again, so does much of Europe.

By Deborah Levine
June 24 (MarketWatch) — Gold futures went back to losses Friday as metals traders eyed the dollar and stock markets for hints about how much investors are worried about the outlook for global economic growth.

Gold for August delivery /quotes/zigman/700181 GC1Q -0.80% declined $14.60, or 1%, to trade at $1,505.80 an ounce on the Comex division of the New York Mercantile Exchange, around its session lows.

Gold prices dropped more than 2% on Thursday as commodities sold off after news that the U.S. and other International Energy Agency members will make oil available from strategic reserves to counter loss of Libya’s oil.

[source]

Gold has slipped to a new 5-week low, after having set new 7-week highs on Wednesday. Global uncertainty on a number of fronts is contributing to volatility, but pressure yesterday and today has resulted from deleveraging and mitigated inflation worries stemming from global growth concerns and the IEA’s decision to dump oil reserves on the market.

As the EU/ECB/IMF troika continues to wrangle with the details of a second Greek bailout that wont trigger a credit event in the eyes of the rating agencies, it’s worth noting that it all becomes moot if the Greek parliament is unable to pass the additional austerity measures on Tuesday. Fresh doubts arose today on that front with ruling party lawmaker Thomas Rombopoulos saying he hasn’t decided if he will support the fiscal plan. This sparked rumors that Rombopoulos would join the opposition and vote against the latest round of austerity measures. Such a move would bring the expected votes down to just 153 out of 300, raising the risk of an early election.

Late on Thursday, Moody’s put 16 Italian banks and two government institutions on review for possible downgrades. This has pushed the spread between Italian and German 10-year yields to a new euro-era record wide 212 bps.

In the US; Republicans walked out of budget talks yesterday being led by Vice President Joe Biden over the sticking point of tax hikes. Republicans have called on President Obama to intervene and abandon calls for tax increases, something that is unlikely to happen, at least not until the 11th hour. With just over a month to go until a potential default, markets are likely to get increasingly jittery as the 02-Aug deadline approaches without some sort of deal.

• US final Q1 GDP revised up to 1.9% from 1.8% preliminary figure, but below market expectations of 2.0%.
• US durable goods orders +1.9% in May, about what the market was expecting, vs -2.7% in Apr.
• German Ifo rose to 123.3 in Jun, above market expectations, vs 121.5 in May.
• Chinese Premier Wen says efforts to control inflation are working.
• RBA’s Lowe said interest rates will probably have to be higher in the future.

Gold Tumbles on Sharp Dive in Oil, Amid Mounting Growth Fears

Gold came under intense selling pressure this morning as the IEA announced its members would release 60 million barrels of stockpiled oil over a 30-day period that is slated to begin around the end of next week. Fully half of that total dump will come from the US strategic petroleum reserve. The stated rationale for the drastic move is to offset MENA supply disruptions. I assume they’re talking about Libya’s approximate average of 1.8 mln bbl/day in recent years.

Put another way; 2 mln bbl/day is about 2.2% of the IEA’s estimated global consumption rate of 89.3 mln bbl/day for this year. The supply dump essentially offsets the daily consumption of Mexico. Or perhaps more relevant; for a US family driving 1,000 miles for a family vacation this summer — if the IEA action optimistically drops prices at the pump by 50¢ — they’ll save about $25.00. That won’t even cover half the price of a daily ticket to SeaWorld. If as Christopher Helman of Forbes suggests, this is the Administration’s feeble attempt at QE3, it’s a pretty weak effort.

As for the real QE3; Fed Chairman Bernanke left the door open yesterday, saying that the Fed would be “prepared to take additional action, obviously, if conditions warranted,” including the purchase of more Treasury securities. While Fed purchases of new Treasuries through QE2 will apparently indeed terminate at the end of the month, the NY Fed announced yesterday that it will conduct 7 POMOs beginning 01-Jul as part of ongoing reinvestment operations (QE-lite).

The FOMC and Bernanke expressed heightened concerns about the pace of the recovery. The Fed scaled back their GDP forecast for 2011, while raising their expectations for both inflation and unemployment. Stocks fell on this news and have extended sharply lower today, turning up the pressure on the Fed to provide further accommodations. Perhaps tapping IEA and US strategic petroleum reserves is simply a feeble attempt to bridge the accommodation gap between the end of QE2 and the needed justification for QE3.

Evidence of faltering economic growth from both China and the eurozone played in to the double-dip scenario today, adding further weight to gold on moderating inflation worries. A very weak June UK CBI distributive sales survey added insult to injury. The July expected sales component was particularly troubling, suggesting UK consumers are tightening their belts. The BoE has already been discussing the potential need for additional QE.

Gold has tumbled after weaker economic data out of China, the eurozone and the UK. IEA plan to release 60 million barrels of oil reserves, along with rising global growth fears hit oil prices particularly hard These losses arguably reduce short term inflationary pressures, and thus, the need for gold as a hedge. Another weak US initial jobless claims number hasn’t helped the cause.

IEA announced that member countries would release of 60 million barrels of stockpiled oil. Half of that will come from US strategic petroleum reserve. The oil will reportedly be released around the end of next week at the rate of 2 million b/d for 30 days.

Still no deal on Greece and the euro has tumbles back below 1.4200. Losses gained impetus on market chatter about a €3.5 bln hole in Greece’s €28.6 bln medium term austerity plan and weak eurozone PMIs. Euro weakness has bolstered the dollar within its recent range, but the main beneficiary has been the Swiss franc. The EUR-CHF cross plunged to a new record low below 1.1900.

• US May New home sales out at 10:00ET. Expectations are for a drop to around a 310k pace.
• US Chicago Fed national activity index rose to -0.37 in May, below market expectations, vs revised -0.56 in Apr.
• US initial jobless claims +9k to 429k in the week ended 18-Jun, above market expectations. Previous week revised up to 420k from 414k.
• Terrible results from June UK CBI distributive sales survey. July expected sales component was particularly troubling. UK consumers hunkering down.
• Preliminary eurozone PMIs showed a sharp drop-off in manufacturing. Services PMI were also weaker than market expectations.
• China flash PMI (HSBC) fell to an 11-month low of just 50.1 in Jun, that’s barely-expansionary, vs 51.6 in May.

June 22 (Commodity Online) – Sales of gold bars and coins are zooming in Chinese market, where people’s investment in the yellow metal has been growing at an exponential rate in the last few years.

China is one of the largest gold consuming and importing countries in the world. China is also the largest producer of gold in the world.

According to the World Gold Council (WGC), China is the fastest growing gold consuming nation in the world, after India. “Gold demand in China is still extremely strong” Marcus Grubb, the World Gold Council’s managing director for investment, said recently.

Grubb feels that the main driver for gold demand in China is inflation fears.

[source]

By Erik Wasson
June 22 (The Hill) – New figures released Wednesday by the Congressional Budget Office (CBO) show debt rising to 190 percent of the gross domestic product by 2035.

The annual long-term budget outlook forecasts a surge in public debt this year that will rise to 70 percent of GDP by the end of fiscal 2011, compared to 62 percent by the end of 2010.

The figures are much worse than those released by the CBO a year ago.

[source]

“We’ve always wondered who will buy Treasurys” after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, [Pimco's Bill]Gross said. “It’s certainly not Pimco and it’s probably not the bond funds of the world.”

Nor will it be China which has reportedly sold off 97% its short-term Treasuries’ position and is in the process of selling long-term Treasuries as well. In fact, according to recent reports, China has begun to buy other countries’ paper.

Nor will it be Japan which dropped hints of selling some of its Treasuries to shore up it sagging economy following the devastating earthquake and tsunami.

Fully 80% of the debt issued by the Treasury was purchased by the Federal Reserve in 2009, the first year of the quantitative easing program. Over the past twelve months, 70% of federal government debt was financed by the Fed, according to estimates by Pimco (as reported by Puru Saxena at Gold Eagle.). Given the reality reflected in these numbers, how can the Fed, as it announced today, no longer think quantitative easing necessary? The federal government is addicted to debt and the Federal Reserve, if Bernanke is to be believed, is cutting it off.

Returning to Bill Gross, it is interesting to note that long about the time today’s FMOC minutes were released, Reuters ran an article with the following headline:

PIMCO’S Gross says Fed to unveil QE3 at Jackson Hole

In my view, the day the Federal Reserve cuts off the U.S. government is the day the United States falls into line right behind Greece — austerity, rapidly rising interest rates and a crisis in government. It is interesting to note that the U.S. Postal Service announced today that it is no longer making contributions to its employees’ pension plan. . .To those who have followed the situation in Greece closely, that announcement carries a ring of familiarity.

We should keep in mind that what has elevated gold over the past several years is not the threat of inflation per se, but the threat of systemic breakdown. Nothing drives the gold market like a destabilized financial system. One need look no further than Greece now where gold demand among the citizenry is skyrocketing.

Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated. The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate. Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee will monitor the economic outlook and financial developments and will act as needed to best foster maximum employment and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

June 22 (MarketWatch) — A little-known form of gold investing used by some retail currency traders is disappearing, ahead of tighter regulations scheduled to go into effect next month.

Forex.com, a large retail foreign-exchange operation, on Friday told clients it will discontinue its gold and silver over-the-counter products marketed to retail investors who are U.S. residents. It asked investors to close their positions by July 15. Read a related blog post on Forex’s move and brokerage’s reaction.

“It is our interpretation that we just can’t offer it legally” in response to regulatory provisions in the 2010 Dodd-Frank Act that kick in after July 15, said Alicia Brown, a spokeswoman for Gain Capital, the parent company of Forex.com. Get full coverage of Dodd-Frank.

The allure of gold as an alternative to paper currencies has helped propel the precious metal to record highs, alongside a surge in retail currency trading.

…Trading gold and silver over the counter — bypassing a futures exchange — offered investors a chance to enter a highly speculative, leveraged market that also left many investors at risk of fraud, according to one trade group.

“In order to trade, it needs to be done in a exchange, or it can’t be done at all,” said Dan Driscoll, a vice president with the National Futures Association.

The industry group asked Congress for such changes, due to numerous cases of fraud in such contracts. Doing business with a futures exchange offers retail investors more protections and transparency, he said.

[source]

PG View: Just avoid the hassles and risks: Buy physical gold and silver for delivery from a reputable dealer.

June 20 (ZeroHedge) – Some very disturbing revelations from CLSA’s Chris Wood who in his latest Greed and Fear note discusses an event that may be all to prevalent within the central banking community: the less than overt lending out of central bank gold to “other entities” in return for picking up nickels in front of a steamroller. In this case, the central bank of governmentless Belgium, which had 41% of its gold out at the end of 2010 on loan. Naturally, the lent out gold is being used by some other key entity, potentially to mask its own inventory deficit, in exchange for the paltry sum of 0.3% on the total loan. Wood’s conclusion: “This is a reminder that the paper gold market is significantly larger than the physical market. Just like a run on a bank in a fractional banking system, GREED & fear suspects it will be very hard to settle all the paper claims to gold physically in a real scramble for the metal. This is why in a parabolic spike physical gold is likely to trade at a significant premium to paper claims.” We couldn’t have said it better ourselves.

[source]

June 22 (Housing Wire) The Federal Open Market Committee once again kept the federal funds rate at next to nothing and said the economic recovery is progressing slower than members expected.

The central bank said investment in nonresidential properties remains weak and persistent depression permeates the housing market.

The FOMC admitted inflation has increased recently due to higher commodities and import prices, as well as supply-chain disruptions.

“However, longer-term inflation expectations have remained stable,” according to the committee.

The Federal Reserve’s quantitative easing program to buy up to $600 billion in Treasury securities ends June 30. The Fed “will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

[source]

PG View: The FOMC’s more negative view of the recovery, along with with the open-ended nature of balance sheet “adjustments” going forward, has likely played a role in today’s elevated gold price.

PG View: James Rickards suggests that the next round of liquidity will come from the international level — the G20 and the IMF — in the form of Special Drawing Rights (SDR). Essentially its more money printing that’s even “Less accountable. Less transparent.”

This salient exchange that begins around the 4-minute mark says it all:

Quick: You make up the money, it’s monopoly money that you’re playing with. Who gets burn in the end? Is it taxpayers around the globe that get left holding the bag?

Rickards: It’s a form of inflation, savers, pensioners, people in annuities, average people. … We don’t need hyperinflation. 4% a year for 15 years is enough to cut the value of savings in half. Cut the value of debt in half.

Quick: So the people who have been doing the right things by saving money and making sure they haven’t been ridiculous with throwing their money around and buying stupid things, they will be the ones who suffer the most.

Rickards: Yes. That’s how governments get out of this.

If the governments of the world do in fact attempt to orchestrate 4% inflation a year for the next 15-years, in an effort to inflate away their massive debts, it strikes me as incredibly prudent to have a portion of ones savings safely tucked away in gold.

June 22 (FT) – Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks.

Pledges by socialist prime minister George Papandreou that his government would “save the country” have been widely discounted by the public. However, parliament gave him a vote of confidence late on Tuesday night. The socialists have a six-seat majority in the 300-member house.

Sales of gold coins have soared as savers seek a safer and fungible source of value.

…“We can’t trust the politicians to get us out of this mess [and] have to protect our families.”

[source]

PG View: When the chips are down, savers continue to turn to gold for protection.

We already know from its fiscal mismanagement that the Greek government has trouble with basic math. So someone needs to explain to Prime Minister George Papandreou that a 12-vote victory is not an overwhelming show of confidence.

Perhaps the markets are doing just that, and that’s why the euro hasn’t moved much and investors are taking last night’s confidence vote in stride.

Mr. Papandreou’s government survived – note how everyone uses the term “survive” – what had been billed as a crucial parliamentary vote that will allow Athens to push forward with a fresh round of cuts tied to the terms of its bailout.

It survived because the 155 politicians in his party voted to support him, against the 143 opponents who wanted him gone. That’s in a parliament of 300 seats, and, really, that vote has changed little.

[source]

Gold remains underpinned by ongoing worries about Greece, even though embattled PM George Papandreou survived a confidence vote yesterday by a narrow 12-vote margin. With Papandreou safe — at least for the time being — now he and Parliament must somehow convince the people of Greece to swallow the bitter-pill of even more austerity in exchange for a second lifeline from the EU. Of course that second lifeline may trigger a credit event anyway, leading to a technical default, at least in the eyes of the rating agencies.

• Norges Bank held rates steady at 2.25%. A pause after the May hike was widely expected.
• Eurozone industrial orders +0.7% m/m in Apr, below market expectations, vs positively revised -1.5% m/m in Mar.
• China’s NDRC said inflation will top May’s 5.5% in June before heading lower.

June 21 (Reuters) – Dealers are expected to suspend U.S. retail trading of over-the-counter precious metals due to the U.S. futures regulator’s delay in making new rules based on Dodd-Frank Wall Street reform law.

Online dealer Forex.com, owned by GAIN Capital Holdings Inc, told clients in a letter that it must discontinue metals trading for U.S. residents by July 15, and all open metal positions must be closed by that date.

A spokeswoman of Forex.com cited a specific section of the Dodd-Frank law regarding CFTC’s oversight over off-exchange commodity transactions with retail customers.

That section of the Dodd-Frank law, passed nearly a year ago, only applies to non-eligible contract participants — dealers which offer trading services to retail customers.

[source]

PG View: Just to be clear; our firm deals in physicals, delivered directly to our clients and our business will not be affected. Truth be told, most of our clientele don’t consider digital blips on a trading screen that purport to represent gold to be gold at all. They much prefer the real thing. Interesting though that these online dealers can continue to offer digital representations of currencies — pieces of paper that purport to represent value simply because some government says so — to retail customers.