June 29 (Bloomberg) — Oil rose in New York, extending the biggest gain in six weeks, amid concern OPEC may reduce output in response to the International Energy Agency’s move to release oil stockpiles.

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PG View: Brent spot has already retraced all of the losses that resulted from the IEA announcement last week. OPEC has far more ammo to retaliate with than the West has to flood the market with reserves.

PG View: Treasury pretty much went 0 for 3 this week — the last auctions before the end of QE2.

June 28 (NY Sun) — Here’s a hypothetical situation. Suppose you had $1.5 million. At today’s gold price that would buy approximately 1,000 ounces of gold. Suppose now that President Obama, the Congress, and the Federal Reserve began managing the American economy in such a way that by the end of President Obama’s second term, the dollar was back to where it was when President George W. Bush began his first term. Were that to happen, your $1.5 million could purchase 5,660 ounces of gold.

So, do you think you should have to pay taxes on the increase in the value of your money?

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Gold Firms as Greek Parliament Agrees to Further Austerity

Embattled Greek PM George Papandreou secured the necessary parliamentary votes to condemn the people of Greece to at least five additional years of even more austerity in exchange for a second bailout, even as violent protests rages outside Parliament. The vote passed by a vote of 155 to 138; with 5 abstentions and 2 MPs apparently AWOL. The results were loudly booed by the protesters and there were reports that a fire broke out in the building that houses the Greek Finance Ministry. Coincidence? I think not. Many Greeks are clearly not pleased.

The vote is at best a kick of the can down the road — and perhaps a very short one. The Greek government is now likely to have to contend with escalating strikes and civil unrest, which is going to adversely impact tax revenue and of course the all-important tourist trade. Simultaneously, Greece along with the EU/IMF/ECB troika must find a way to roll Greek debt without triggering a credit event. The latest French plan of a “Off Balance Sheet MLEC-Style Debt Rollover” may prove to be an effective end-run around the rating agencies.

Even if Greece finds a way to extend the payment terms for its massive debt, you’d be hard pressed to find anyone who seriously believes that Greece will be able to grow its way out of the current crisis even with the estimated €100 bln in additional aid. Like the initial €110 bln bailout, this is simply a means of buying time. The first bailout was approved in May of 2010, so €110 bln bought Greece and Europe a little more than a year. My guess is that any new bailout now buys even less time because the severity of the crisis has grown. Many believe that Greece will be right back in the very same position in the not too distant future. If that does indeed happen, you can be assured that the taxpayers in solvent-Europe will be considerably less accommodating than they already are.

Additionally, once the second bailout for Greece has been approved, it sets a very dangerous precedent: If you acknowledge Greece must be bailed out again to save the global financial system, it is a tacit acknowledgment that Portugal, Ireland and Spain et al must too be bailed-out when/if the time comes.

June 29 (Wall Street Journal) — Greece’s Parliament has passed a controversial five-year austerity plan that the country promised its international creditors.

Passage of the additional €28.4 billion ($40.81 billion) in spending cuts and new taxes was set as a condition for another international bailout to keep Greece from defaulting on its debt.

Thousands of protestors outside parliament loudly booed the outcome as police tried to drive them away with batons and tear gas. Running battles with police continued after the bill passed.

[source]

PG View: Passage of the austerity vote is just another kick of the can — and perhaps a very short one — for Greece.

Gold is trading higher this morning, buoyed by a weaker dollar which was initially weighed by a firmer euro ahead of — and through — the Greek Parliament vote on additional austerity measures. That vote passed with a vote tally of 155 to 138, with 5 abstentions and apparently 2 MPs AWOL. However, in classic ‘sell the fact’ form, the euro has come under pressure in the wake of the vote, lifting the dollar and moving gold off its intraday highs.

• US calendar has May NAR pending home sales and Treasury will auction $29 bln in 7-year notes.
• Rumor circulating that US ADP payrolls survey was leaked a week early and it’s just +7k jobs in Jun. That would be well below +60k consensus.
• Canada CPI jumped to a 3.7% y/y pace in May, above market expectations, vs 3.3% y/y in Apr. Core rose to 1.8% y/y, also above consensus.
• Swiss KOF leading indicator slipped to 2.23 in Jun, below market expectations, vs 2.30 in May.
• Eurozone ESI economic sentiment eased to 105.1 in Jun, about what the market was expecting, vs 105.5 in May.
• Japan industrial production rebounded 5.7% m/m in May as recovery from earthquake/tsunami continues. That’s the biggest jump in nearly 60-years.

By LUCA DI LEO
June 29 (Wall Street Journal) — The Federal Reserve, amid persistent worries about Europe’s sovereign debt crisis, last week quietly approved the extension of a crisis-lending program that allows the European Central Bank to tap the U.S. for dollars, Federal Reserve Bank of St. Louis President James Bullard said.

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PG View: An important reminder that the Fed remains the lender of last resort to the world.

Vote tally was 155 for and 138 against.

June 29 (Irish Independent) – Anti-austerity protests turned violent in Athens last night as the EU warned Greek lawmakers that the country faces immediate default unless they back an unpopular economic plan this week.

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June 28 (CNBC) – France’s new plan to rescue Greece and forestall the looming global financial crisis has one important thing in common with all the previous efforts: It won’t work.

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June 28 (CNNMoney) – QE2 is just about done. But the Federal Reserve will still be buying massive amounts of long-term Treasuries.

In fact, the Fed’s purchases over the next year will likely be at least $300 billion. That’s half the size of QE2 — even if QE3 never takes place.

Think of it as QE2.5.

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PG View: Don’t think for a second that the Fed’s asset purchases are coming to an end in two-days.

June 28 (Washington Post) – The International Monetary Fund on Tuesday chose French finance minister Christine Lagarde to be its next managing director, maintaining Europe’s long-standing hold on the agency’s top job and appointing the first woman to take over the global financial powerhouse.

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June 27 (Der Spiegel) – In a SPIEGEL interview, leading German economist Stefan Homburg argues that euro-zone members should not bail out Greece, discusses who is making a profit from the crisis and explains why he himself is buying Greek bonds. “I believe in the boundless stupidity of the German government,” he says.

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PG View: Homburg sides with the rating agencies on the “voluntary rollover” of Greek debt and he is spot-on regarding the moral hazards of bailouts in gerneral. I would quibble with one point though, I think there is at least one additional level of bailout for Europe and thy name is Fed. Click here for another possibility. It would seem that “boundless stupidity”…well, abounds.

UPDATE 29-Jun: Fed Extends Lending Program for Central Banks

June 27 (zerohedge) - It has been a long time since we had seen a 5 Year auction as ugly as today’s: printing at a 1.615% high yield, the 5 Year had a 3.5 bps tail off the bat to the 1.58% WI where it was trading before. The internals were just as ugly, with the Bid To Cover coming at 2.59 a plunge from May’s 3.20, and the lowest since June 2010. Not surprisingly, Indirect interest evaporated once again, tumbling from 47.1% to just 37.6%, with Primary Dealers having to take up more than half, or 52.1%, once again, the remainder going to Direct Bidders. Too bad they will have no more opportunities to flip these back to the Fed. Which as expected starts to confirm Bill Gross’ thesis that in the absence of the Fed monetizing, rates are about to go higher.

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PG View: Today’s auction harkens back to the question posed last week by our own Michael J. Kosares: Who will finance the U.S. government post quantitative easing?

Gold Consolidates Around $1500

Gold remains defensive, straddling the $1500 level. The yellow metal was lifted off of yesterday’s low by renewed weakness in the dollar as the euro remains buoyed by hopes that a resolution (or at least a short-term band-aid) for the Greek crisis will be forthcoming. The Greek Parliament is debating further austerity measures that are likely to be voted on tomorrow and Thursday. Such measures must pass in order for Greece to receive additional EU/IMF bailout funds and avoid default.

However, there are some doubts that embattled Prime Minister George Papandreou has the necessary votes to heap additional austerity on the Greek people. Those people continue to make it quite evident how they feel about further austerity: A two-day general strike commenced today and the accompanying protests have already turned violent.

Even if the new austerity measures pass, it remains unclear if the debt rollover plan being advanced would result in a technical default anyway. Fitch Rating reiterated today that it would likely view such a rollover as a “credit event.”

“Fitch would very likely view such a ‘scenario’ as a sovereign default event and place the Greek sovereign rating into ‘Restricted Default’ (RD),” wrote David Riley, Fitch’s head of sovereign ratings, in a letter to the Financial Times.

Market activity by a large US name and a Swiss account generally associated with sovereign activity has resulted in market chatter that European sovereigns are liquidating gold for euros to raise funds for the second Greek bailout. If true, I’ll give you a couple guesses as to who might be on the other side of such a trade. China has been ingratiating itself with Europe throughout the past couple months of uncertainty. If Europe needs a ready buyer for whatever gold it might be interested in selling, it probably need look no further than their Chinese friends. Further transfer of gold from West to East.

BoE dove Alan Posen said yesterday’s BIS call for higher global rates was “nonsense.” He went on, saying that, “In the UK and the west more broadly, there is little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations, and oil prices are not — yet — a one way bet.” Surely Posen must get the connection between persistent easy monetary policy and the asset bubbles that sparked the global financial crisis, but policymakers all too often can’t see beyond the immediate crisis; hence the temptation to keep rates low and re-inflate. Posen favors keeping rates near the record low 0.5% and implementing additional quantitative easing measures.

Posen’s comments are tantamount to the Fed’s “exceptionally/extended” mantra, suggesting that despite the BIS warning that low interest rates pose a threat to world financial stability, yields at least in the US and UK are unlikely to rise meaningfully anytime soon. Meanwhile, final UK Q1 GDP was revised lower to 1.6% y/y from 1.8% even as inflation continues to run well above target. Similarly, the US has experienced a cavalcade of negative growth revisions, the most recent coming from the Fed itself. The Fed also acknowledged last week that inflation has increased recently due to higher commodities and import prices, as well as supply-chain disruptions.

While Posen believes stagflation in the UK and perhaps “more broadly the west” is unlikely, the realities of weaker growth and rising prices are hard to ignore. Yet so too is the seemingly rising impotence of monetary policy. Therefore, I think it is reasonable to expect additional one-off government actions like the IEA oil dump as more traditional fiscal and monetary tools become increasingly limited. This is likely to result in heightened market uncertainty and instability.

• US consumer confidence slipped to 58.5 in Jun, below marked expectations, vs upward revised 61.7 in May.
• US S&P/Case Shiller home prices +0.7% (NSA) in Apr for 20-cities index.
• UK final Q1 GDP unchanged at 0.5% q/q. Y/y outlook lowered to 1.6% from 1.8%.
• German Gfk consumer confidence unexpectedly improved to 5.7 in Jul, above market expectations, vs 5.6 in Jun.
• German import price inflation eased to 8.1% y/y in May, vs 9.4% y/y in Apr. Jun HICP rose to 2.4% y/y.

June 28 (AP) – Riot police fired tear gas at youths hurling rocks near the Greek finance ministry Tuesday, trying to quell the anger unleashed by a general strike as parliament debated new cost-cutting measures.

The latest austerity measures must pass in two parliamentary votes Wednesday and Thursday if Greece is to receive bailout funds from the EU and the IMF to stave off a possible default in July. If the votes don’t pass, Greece could become the first eurozone nation to default on its debts, sending shock waves through the global economy.

[source]

By Tom Jennemann
June 27 (Fast Markets) – Gold on the Comex division of the New York Mercantile closed under $1,500 per ounce Monday as investors continue to liquidate commodity positions and lower inflation expectations.

Gold futures for August delivery settled down $4.50, or 0.3 percent, at $1,496.40 an ounce, which marks a five-week low. Trade ranged from $1,490.80 to $1506.10.

The market nervously awaits Wednesday’s vote on a 28 billion-euro ($40 billion) package of Greek tax increases and spending cuts in a parliamentary ballot.

“When gold was up around $1,550 it was clear that the market had priced in at least a technical default of Greece’s debt obligations as well as some degree of contagion, likely to Ireland and Portugal,” a US-based metal trader said.

“While I’m still of the belief that a default is inevitable, this little dog-and-pony show with the austerity vote and aid package has pushed that date down the road a bit. If the measures do pass parliament, gold could move somewhat lower but that’ll be short-lived as Europe’s structural debt problems remain unsolved,” he added.

Additionally, some market participants have lowered their global inflation expectations as several major economies have shown signs of hitting a slow patch. Gold generally benefits from higher inflation rates as the metal is often bought as a currency and inflation hedge.

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June 27 (The Globe and Mail) – Europe’s debt crisis has brought the region to the brink of an “economic collapse,” George Soros warns, and it’s likely the monetary union will at some point agree to a plan by which some of its members can leave.

“We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread,” the renowned investor said at a panel discussion in Vienna yesterday, according to Bloomberg News. “The financial system remains extremely vulnerable.”

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PG View: When the story broke in May that Soros had sold most of his sizable positions in the gold ETFs in Q1, it was definitely a contributing factor in the yellow metal’s sharp drop from 1574.60 to 1492.25. While Soros was simultaneously buying mining shares, there was speculation at the time that he wasn’t so much exiting gold, as exiting paper representations of gold. His comments in Vienna over the weekend will likely add fuel to that speculation. Why would a savvy investor leave the gold market on such a scale if he truly believes we’re on the “verge of an economic collapse?”

The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn.

More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.

That marks a departure from previous years, when the central bank reserve managers have said the dollar would retain its status as the sole reserve currency.

…Robert Zoellick, president of the World Bank, last year proposed a new monetary system involving a number of major global currencies, including the dollar, euro, yen, pound and renminbi.

The system should also make use of gold, Mr Zoellick added. The results of the UBS poll also point to a growing role for bullion, with 6 per cent of reserve managers surveyed saying the biggest change in their reserves over the next decade would be the addition of more gold. In contrast to previous years, none of the managers surveyed was intending to make significant sales of gold in the next decade.

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PG View: The writing seems to be increasingly on the wall. As the dollar’s reserve status continues to erode over time, it will have an increasingly negative impact on the greenback. That should in turn continue to have a positive influence on the price of gold relative to those dollars, particularly if gold plays a significant role in any basket of currencies.

By Jennifer Thompson in Paris and Guy Dinmore in Rome
June 27 (FT) – French banks have agreed on a plan to a Greek debt rollover, which would see them reinvest in Greek sovereign bonds with longer maturities, Nicolas Sarkozy, French president, confirmed on Monday.

…The deal agreed with the French banks proposes that banks reinvest 70 per cent of the proceeds from bonds that fall due between 2011 and 2013. Fifty per cent would be rolled over into 30 year bonds. The remaining 20 per cent would be reinvested in triple-A rated investments and put into a special purpose vehicle, to act as a built-in guarantee for the repayment of the 30 year Greek bonds.

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PG View: Understandably the French banks are seeking to protect themselves from a haircut if Greek defaults. However, this plan still smells like a distressed debt swap. If the rating agencies see it as such, it is likely to be deemed a credit event and worthy of further downgrades.