Gold Eases as Dollar Firms

26-Jun (USAGOLD) — Gold has retreated into the range on renewed worries after German Chancellor Merkel was quoted as saying, “I don’t see total debt liability as long as I live.” This should not have come as any surprise to anyone as Germany’s objections to shared debt is pretty well documented at this point. Nonetheless, it sets a pretty adversarial tone for the EU summit and the euro fell to match the 3-week low at 1.2442. The corresponding rise in the dollar, put the yellow metal back on the defensive.

Spanish borrowing costs rose sharply on speculation that Moody’s plans to downgrade the country to junk status. Meanwhile the subordination issue related to the Spanish banking bailout continues to be debated and pressure is on Germany to forgo the senior status of any ESM loan to Spain because of the impact it would have on private bondholders and future attempts to sell bonds.

In the UK, pubic sector net borrowing was much higher than expectations in May, due to a drop in income tax receipts. BoE Governor Mervyn King was quick to blame the worsening of the UK economy on the eurozone crisis.

Any optimism associated with the first monthly rise in the Case-Shiller home price index in 8-months was offset by misses in the Richmond Fed index and consumer confident in June. As the US economy continues to founder, and the Obama administration continues to deflect by criticizing Europe, German Finance Minister Wolfgang Schäuble struck back saying, “Herr Obama should above all deal with the reduction of the American deficit. That is higher than that in the euro zone.”

Schäuble is understandably agitated by US kibitzing. While the US maintains the ‘exorbitant privilege’ of being able to print an endless numbers of dollars, the EMU was designed to have much tighter monetary controls. Europe can’t simply print its way out of debt as the US can.

• US Consumer Confidence falls to 62.0 in Jun, below market expectations of 63.2, vs negative revised 64.4 in May.
• Richmond Fed Index tumbles to -3 in Jun, below market expectations, vs 4 in May.
• US S&P Case-Shiller home prices index for 20-cities (nsa) +1.3% in Apr to 135.8, vs 134.1 in Mar.
• Germany GfK Consumer Confidence ticked higher to 5.8 for Jul, above expectations of 5.6, vs 5.7 in Jun.
• Italy retail sales (sa) -1.6% m/m in Apr, vs negative revised -0.8% in Mar; -6.8% y/y.
• UK Public Sector Net Borrowing rose to -£15.6 bln in May, vs downward revised -£19.9 bln in Apr.
• Singapore Manufacturing Production +6.6% y/y in May, vs positive revised -0.2% in Apr.
• Hong Kong Trade Balance -HK$35.6 bln in May, vs -HK$42.9 bln in Apr.

Yesterday we launched our Summer Special, “Angels & Kings”, featuring five different hard-to-find Pre-1900 European gold coins. Coins are offered in both Circulated Extra Fine and Brilliant Uncirculated options, in very limited quantities. Product is discounted well below normal pricing, and coupled with gold’s pullback to the lower end of its current trading range, makes for a nice buying opportunity. Several products are already sold out, so call our trading desk if you have an interest.

Click here

$100,000 income: No big deal anymore

By Craig Guillot | Bankrate.com – Mon, Jun 25, 2012

According to Labor Department statistics, the average inflation rate for 2011 was the worst since 2008, with consumer prices rising 3.1 percent, compared to an average of 1.6 percent in 2010. Much of this was fueled by energy costs (up 15.2 percent for the year) and food costs (up 3.7 percent for the year). Just to keep up with standard inflation, a $100,000 salary in 1990 would have to be $172,103.29 in 2011.

“What would have cost you $100,000 in 1976 would cost you $381,000 today. That’s just the inflation, and there are so many other things that have grown very expensive,” says Mari Adam, Certified Financial Planner and president of Adam Financial Associates in Boca Raton, Fla.

[Source]

JK View: No inflation? HA! Great article in terms of putting income vs. cost of living into perspective. This article points to the disconcerting trend that if you do happen to be an earner of more than $100K, its almost impossible to make meaningful contributions to savings. And what money you do manage to save can’t earn anything sitting in a bank. The stock market remains volatile, yet range-bound. And all the while, asset allocations to gold remain overwhelmingly small in terms of overall holdings of the general population. All told, not only are the majority of us losing ground in terms of what our income will buy, we’re losing ground over time in terms of what our savings will buy. So long as this paradigm remains in place, gold needs to be considered as a savings alternative. In the example above, if $100,000 was saved in gold in 1990, it would be worth just shy of $400,000 today, far outpacing standard inflation.

25-Jun (Bloomberg) — India boosted the amount of government bonds foreign investors can purchase by $5 billion, seeking to bolster demand for the rupee after it tumbled to a record low against the dollar.

Foreign institutional investors can now purchase $20 billion worth of government securities, up from $15 billion, the Reserve Bank of India said in a statement today. Long-term overseas buyers such as sovereign wealth funds, central banks and pension funds will be allowed to invest in the debt directly to broaden the base of investors, the Reserve Bank also said.

…The rupee is Asia’s worst performer of the past year, having tumbled 21 percent versus the dollar, and its decline has contributed to an inflation rate that the central bank deemed last week too high to allow an interest-rate cut.

[source]

20-Jun (Reuters) — Conservative leader Antonis Samaras was formally sworn in as Greek prime minister on Wednesday after centre-left rivals agreed to back a government led by his New Democracy party.

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19-Jun (The Wall Street Journal) — The U.S. recovery is hobbled by an economic divide that separates Americans not by income or wealth but by their access to credit.

The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve to spur the economy and remedy the aftereffects of the borrowing boom.

Millions with good credit, meanwhile, are taking advantage of the easy money, a windfall in many cases for people who don’t especially need it.

…”If you don’t need the money, you can get it all day long,” he said. “Thank you, Ben Bernanke.”

…Mr. Hordan, for example, is spending his mortgage savings on such investments as gold, emerging markets, U.S. stocks and European banks.

[source]

PG View: Only a central banker in the midst of a debt crisis would find logic in forcing credit to people with a questionable ability to repay.

Low risk begets lower rates, higher risk begets higher rates. That’s the way a credit market is suppose to work.

Plunge in Median Family Net Worth Suggest Portfolios Could Benefit From Gold Diversification

The Fed’s triennial Survey of Consumer Finances (SCF) came out last week and the results were nothing short of astounding. The data show that the Great Recession wiped out nearly 40% 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.”

Median family net worth plunged from $126,400 in 2007 to $77,300 in 2010, close to levels not seen since the 1992 survey. The median, as the Los Angeles Times pointed out is “the point smack in the middle of those richer and poorer.” In other words, 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; either through direct investment in shares or through retirement plans.

According to the Fed, another key contributor to the erosion of wealth over the period, was the marked decline in “business equity”. This may be of particular interest to the business owners and profession practitioners that comprise a very large percentage of our client base.

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 promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross..”

Certainly some are no-longer among the ranks of homeowners, and some have unquestionably reduced exposure to equities, either as a strategic move or out of necessity. However, perhaps unsurprisingly, investors remain dominantly allocated to the traditional asset classes.

Case in point: A recent article featured on the website of the American Association of Individual Investors (AAII) on the topic of asset allocation suggested “the three most important asset classes for individuals are stocks, bonds and cash.” Talk of diversification focused on sub-asset allocation; “diversifying among growth and value, large cap and small cap, U.S. and international, and so on.”

While the piece concedes that institutional portfolios “have a range of up to 12 asset classes,” all-too often (beyond real-estate in the form of the family home) stocks, bonds and cash are presented as the only options for individual investors.

Despite a myriad of extraordinary measures on the part of Congress and the Fed, a true US economic recovery remains elusive to this day. Yet, the Fed’s über-easy monetary policy has contributed to a rebound in the stock market, commencing with the announcement of QE1 in 2009. Such policies lured investors right back into one of the asset class that had just bitten them badly, by pushing yields on bonds and cash below the rate of inflation.

In fostering a negative real interest rates environment, the Fed has succeeded in discouraging saving, and pushed investors out along the risk curve. Rather than losing money in real terms with cash deposits and bonds, investors seem willing to take their chances with equities once again.

What the Fed survey data said to me was that the portfolios of US families — and particularly those of middle class families — were improperly allocated and could have benefited from diversification into an alternative asset such as gold. From the beginning of 2007 until the end of 2010, the price of gold rose 122%. Over the longer period noted in the chart below (1989 to 2010) gold is up 243%. 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.”

In the May issue of our newsletter, USAGOLD president Michael J. Kosares wrote an excellent article in which he suggested, “just as we inoculate our bodies against disease, we should inoculate our portfolios.” The devastating plunge in the net worth of American families in recent years clearly indicates that families would be well served to heed that advice. With gold trading near the midpoint of the 6-month range, arguably the medicine for beleaguered portfolios is pretty reasonably priced right now.

18-Jun (Financial Times) — Greece’s centre-right New Democracy (ND) party has begun talks to build a coalition government after pushing the leftwing Syriza coalition into second place in the country’s second general election in six weeks.

Antonis Samaras, its leader, received a mandate to form a government from president Karolos Papoulias on Monday. His challenge is to try to rebuild credibility with Greece’s European partners and revive the country’s flagging bailout programme after an election seen as a referendum on Greece’s membership of the eurozone.

His proposal for an inclusive government of “national salvation” was rejected out of hand by Alexis Tsipras, the Syriza leader, saying his party would play the role of “an honourable opposition”. The two men were due to meet on Monday.

[source]