Here is an exclusive interview with James G. Rickards, a leading practitioner in the realm of capital markets, national security and geopolitics, on inter alia “quantative easing as a success,“ the currency wars of the past and the present, and the question why you are fighting every central bank in the world in case you own gold.

with Lars Schall

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Snippets:

….Well, I gave you two metrics to explain why gold is not in a bubble. I would watch them also when we get closer to a bubble territory. For example, gold at $7000 an ounce with the current money supply and the current supply of gold, then we would be back where we were in 1980, and that might indicate a bubble. But we have plenty of room between $1500 and $7000. And remember also: a bubble can always overshoot.

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JK Comment: I could have literally cut and paste this entire interview and not had an irrelevant word to both current and prospective gold owners. If you own gold, or are considering gold diversification, you won’t want miss this interesting and enlightening read. Enjoy!!

Ratings Agencies Disinclined to Play Along with Governments’ Games

Eurozone stake-holders have been trying to spin a palatable restructuring of Greece’s debt for months now, but the ratings agencies simply wont play ball. Whether you call it a soft-restructuring, a re-profiling or a Vienna-style rollover, the ratings agencies are pretty adamant that it will be a credit event tantamount to a default. A technical default is exactly what all the recent machinations within the eurozone were hoping to avoid, for a default creates a whole host of problems for the EU, the IMF and the ECB…not to mention Greece.

The most recent tact that the troika is attempting to advance is a Vienna-style “voluntary” rollover by private sector Greek bondholders. In this scenario, rather than taking a cash payout when their GGB’s mature, the investors immediately roll them into new Greek debt. Yet, given the deterioration of Greece’s fiscal situation, why would a private bondholder voluntarily choose to not be compensated for the additional risk? One might argue that the alternative is a haircut, but that would unquestionably qualify as a default. Greece and the troika seem to be trying to bluff their way through this with a weak hand, and S&P/Moody’s/Fitch seem inclined to call. Greece and the EU have painted themselves into a corner.

Where the ratings agencies understandably get hung-up is: How do you incent the private sector to take on additional risk without a corresponding additional reward? The reward is obviously a higher yield, which of course Greece can ill-afford. Now the ECB in particular holds a fair amount of sway over the private banking sector, which holds a great deal of Greek debt. There is certainly a trade-off for the banks to consider between a rollover and a haircut, but the banks are obliged to make decisions that are in the best interest of their shareholders. It would seem that a “voluntary” rollover without fair compensation — which Greece can’t afford anyway — is not in the best interest of shareholders.

However, if the ECB for example attempts to coerce the private sector into taking that less than favorable deal, the ratings agencies have said they would indeed view that as a credit event:

S&P: “In situations where investors consider a default to be possible and where the rating has fallen, it becomes more difficult to conclude that investors are exchanging securities voluntarily.”

Moody’s: “If we concluded that there was an element of compulsion, we would very likely class this as a default.” They added that they would define compulsion “very broadly.”

Fitch: “If [investors] agreed to a rollover on existing terms, given that clearly the market would demand different terms for any new lending, that would be problematic in terms of being considered genuinely voluntary and not a distressed debt exchange.”

The market is getting increasingly skittish as the parties continue to thrash about for a solution. If that eventual solution for Greece is deemed a default, it will become obvious that the troika doesn’t have a solution for unsustainable debt that isn’t a credit event. At that point, there is considerable risk that the dominoes that are the other PIIGS nations start to tumble.

Even with the ECB smack in the middle of the debate on Greece, they further complicated matters by indicated today that a rate hike in July is likely, amid still rising inflation concerns. The prospect of rising benchmark yields in the eurozone is going to put additional upward pressure on yields in the periphery, including Greek yields. With one more plate spinning, it increases the chances that they all come crashing down. That probably at least partially explains why the euro fell today and gold rose, even as rates appear to be poised to rise in the EU.

The Agriculture Department said Thursday that rain delayed planting schedules and will likely diminish crops by harvest time in September. This followed a more optimistic forecast in May, which predicted a drop in corn exports that could have replenished U.S. food supplies and eased prices.

More expensive grain has led to food price increases this year. That could ultimately make everything from beef to cereal to soft drinks more expensive at the supermarket. For all of 2011, the USDA predicts food prices will rise 3 percent to 4 percent.

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JK Comment: Just about the only statistic not showing inflation these days is the CPI.

Gold has a good intraday bid, despite similar strength in the dollar.

By Claudia Assis
SAN FRANCISCO (MarketWatch) — Gold futures on Thursday shook off early weakness to inch up after European leaders signaled another rate increase on the way due to worries about inflation.

Gold for August delivery added $1.90, or 0.1%, to trade $1,540.40 an ounce on the Comex division of the New York Mercantile Exchange. A close in the black would break a two-day losing streak for the metal.

The European Central Bank kept interest rates unchanged on Thursday, as widely expected. But bank president Jean-Claude Trichet said “strong vigilance” is needed against inflation.

The term is widely interpreted as signaling an interest-rate increase at the ECB’s next meeting in July.

Inflation fears are one of the pillars of gold investing, as the metal is seen as the ultimate store of wealth.

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Market was looking for a rise of 1.9%.

Inventories +0.8%.

The European Central Bank (ECB) has signalled that it will raise interest rates next month, from 1.25%.

Earlier on Thursday, the ECB kept rates unchanged for the second month in a row, after increasing them in April for the first time in almost two years.

The central bank wants to raise rates again in July to curb inflation in some of the eurozone’s 17 member states.

But it has to balance that against the need to leave rates low to boost growth in nations such as Greece and Portugal.

In his press conference, ECB president Jean-Claude Trichet pledged to exert “strong vigilance” on inflation, a signal to the markets that rates will be raised at the next meeting.

“I would say… that it means that we are in a mode where there might be in the next meeting an increase of rates,” he said. “But we are never pre-committed,” he added.

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PG View: The euro has tumbled more than a big-figure since Trichet’s presser began, so the FX market is not necessarily convinced, or they simply didn’t like the doubt raised by the “we are never pre-committed” comment.

Gold remains narrowly confined within the recent range. The market’s focus remains pretty narrowly confined as well and with no new news on the handful of fronts, gold will bide its time. However, in the face of early-summer seasonal pressures, the yellow metal continues to be quite resilient.

The euro is under pressure, despite ECB President Trichet’s call for “strong vigilance” on price risks. Apparently this verbiage was not overt enough to suggest another rate hike is imminent.

While euro losses are bolstering the dollar, gold is on the rise intraday as well. Trichet also said the ECB is not in favor of any restructuring or haircuts on Greek debt. That seems to suggest he is in favor of a Vienna-style rollover, but then added that the ECB has no intention of rolling its holdings of Greek debt. I wonder if the ECB will participate in the coercion of other bondholders to rollover…

Japan 2nd prelim Q1 GDP slightly revised to -0.9% q/q SA (-3.5% SAAR), vs 1st prelim -0.9% q/q SA (-3.7% SAAR).

Japan consumer confidence ticked higher to 34.2 in May, below market expectations of 34.5, vs 33.1 in Apr.

BoE and ECB hold steady on rates.

US initial jobless claims +1k to 427k for the week ended 04-Jun, above market expectations of 419k.

US trade deficit unexpectedly narrowed to $43.68 bln in Apr, vs $46.8 bln in Mar.

The market was expecting the deficit to widen modestly.

Jobless claims remain stubbornly elevated.

BoE left repo rate at 0.5%, asset purchases unchanged. No statement. Minutes due Jun-22.

ECB left refi rate unchanged at 1.25%. Trichet may lay the groundwork for a rate hike at his press conference, which begins at 12:30GMT.

A default would have severe reverberations in global markets, a top Federal Reserve official said just hours after Fitch Ratings warned it could slash credit ratings if the government misses bond payments.

St. Louis Federal Reserve Bank President James Bullard told Reuters on Wednesday “the U.S. fiscal situation, if not handled correctly, could turn into a global macro shock.

“The idea that the U.S. could threaten to default is a dangerous one,” he said in an interview.

“The reverberations in those global markets would be very severe. That’s where the real risk comes in,” Bullard warned.

The White House said Fitch’s warning makes it clear that “there is no alternative to raising the debt ceiling.”

Moody’s and Standard and Poor’s have issued similar warnings. But Fitch was the first among the big-three rating agencies to say Treasury securities could be downgraded, even for a short period, to a non-investment grade.

The agency said even a short-lived default, also called a technical default, “would suggest a crisis of governance from a sovereign credit and rating perspective.”

But the real deadline comes on August 15, when $27 billion in Treasury notes and $25 billion in coupon payments come due. If the government misses those, Fitch would downgrade the sovereign issuer ratings to “restricted default” and lower all Treasuries securities to B-plus.

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JK Comment: Couple of thoughts….If we raise the debt ceiling yet again, as we always have, won’t we just be asking these exact same questions, facing these exact same consequences, at some point in the not-too-distant future? What interest rate would we/will we have to offer to attract buyers of our debt if we are aggressively downgraded? With the US debt already expected to exceed GDP this year, what would the impact be on our financial system of higher and higher costs of maintaining that debt as interest rates are effectively forced higher?

A rock and a hard place might be a nicer place to be than in the situation unfolding before our eyes.

Homburg, 8 June 2011 – The Bad Homburg €uro Feri Rating & Research AG downgraded the first credit rating agency’s credit rating for the United States from AAA to AA. Feri analysts justify the downgrade by the continuing deterioration of the creditworthiness of the country due to high public debt, inadequate fiscal measures, and weaker growth prospects.

“The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see thank that there is sufficient attention being paid to other measures, “said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG €. “Our rating system shows a deterioration in economic health, so the downgrading of the credit ratings of U.S. is warranted.”

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PG View: Feri is not S&P, Moody’s or Fitch, but their downgrade of US sovereign debt is certainly a piece of the developing trend centered on rising concern over America’s creditworthiness.

A recent Treasury report noted that national debt will exceed the size of the economy this year — a first since World War II. A year ago, the Treasury had estimated that notorious record wouldn’t be hit until 2014.

Now the expectation is that total debt to GDP will top 102 percet this year, up from the earlier estimate of 96.4 percent.

Why the change?

Two factors are likely the biggest cause.

First, the White House’s 2011 GDP estimate is $219 billion lower today than it was a year ago. So debt as percentage of a lower number will always look higher.

Second, the debt grew larger because of a tax cut deal brokered by President Obama and Republicans last December. That deal will add an estimated $858 billion to the deficits over a decade — $410 billion of it in 2011 alone, according to the Congressional Budget Office.

The tax cut package extended all the 2001 and 2003 tax cuts for another two years, enacted a one-year Social Security tax holiday and reduced the estate tax.

Democrats and Republicans disagree on a lot, but both sides have indicated a desire to make the 2001 and 2003 tax cuts permanent for at least the majority of Americans — a costly proposition.

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PG View: Keep in mind that all this doesn’t take into consideration the dramatic rise in entitlement obligations. In 2010, Social Security added $1.4 trillion and Medicare took on $1.8 trillion in new obligations. That’s on top of the national debt. Entitlement spending is only expected to accelerate as the baby boom generation ages.

St. Louis Fed’s Bullard doesn’t think the economy is weak enough to warrant further stimulus after QE2 terminates at the end of the month. Of course that very thing could provide the additional weakness the Fed needs to potentially spring back into action.

Reports from the twelve Federal Reserve Districts indicated that economic activity generally continued to expand since the last report, though a few Districts indicated some deceleration. Some slowing in the pace of growth was noted in the New York, Philadelphia, Atlanta, and Chicago Districts. In contrast, Dallas characterized that region’s economy as accelerating. Other Districts indicated that growth continued at a steady pace. Manufacturing activity continued to expand in most parts of the country, though a number of Districts noted some slowing in the pace of growth. Activity in the non-financial service sectors expanded at a steady pace, led by industries related to information technology and business and professional services.

Consumer spending was mixed, with most Districts indicating steady to modestly increasing activity. Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were said to be weighing on consumers’ propensity to spend. Auto sales were mixed but fairly robust in most of the country, though some slowing was noted in the Northeastern regions. Widespread supply disruptions–primarily related to the disaster in Japan–were reported to have substantially reduced the flow of new automobiles into dealers’ inventories, which in turn held down sales in some Districts. Widespread shortages of used cars were also reported to be driving up prices. Tourism activity improved in most Districts.

Residential construction and real estate continued to show widespread weakness, except in the rental segment, where market conditions have strengthened and construction activity and development have picked up. Non-residential real estate leasing markets have been generally stable, while construction activity has remained very subdued. Loan demand was steady to stronger in most Districts, especially in the commercial and industrial sector, and widespread improvement was reported in credit quality.

Agricultural conditions were unfavorable across much of the nation, largely reflecting unseasonably cool and wet weather; widespread flooding along the Mississippi River hampered agricultural production in the Atlanta and St. Louis Districts. In the Dallas District, in contrast, drought conditions hurt the wheat crop and led to broader damage from wildfires. The energy industry showed continued strength, with robust expansion in oil drilling and extraction activity.

Labor market conditions continued to improve gradually across most of the nation, with a number of Districts noting a short supply of workers with specialized technical skills. Wage growth generally remained modest, though there were scattered reports of steeper increases for highly skilled workers in certain occupations. Most Districts continued to report widespread increases in commodity prices; manufacturers are said to be passing along a portion of the higher costs in the form of price hikes and fuel surcharges.

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The ECB/IMF/EU troika is desperately in search of a solution for the Greek problem that doesn’t trigger a “credit event,” but the ratings agencies are not playing ball. That is weighing on the single currency.

Traditionally, gold tends to take a bit of a breather during the Northern Hemisphere summer. But, there are some, like Sprott Asset Management chief investment strategist, John Embry, who believe this year might be a little different.

“I don’t like putting numbers and dates in the same sentence because you always make yourself look bad – but I would be very surprised if it doesn’t take out $1,650 this summer and maybe headed towards $1,800 over the next three months,” he said.

“People forget,” Embry said, “that the gold market is changing fairly significantly from traditional sources of demand into investment demand as an alternative to currencies… investment demand doesn’t know seasons – it buys gold because it is fearful of other assets.”

Fear is a dominant theme in another of this summer’s big economic events – the end of quantitative easing in the U.S and worries about the country reaching its constitutionally mandated debt ceiling.

In my opinion we have reached the point of no return. We are either going to take a collapse in the dollar or a collapse in the economy depending on which direction they take. The idea that they can return to normalcy in my opinion is out of the question at this point. They are way too far off line.”

But having said that, for you to say that the bull market in gold is over is essentially by saying that we are going to re-establish paper currency as viable and I don’t think that’s going to happen – I am of the mind that before this whole mess is ended we are going to have a new monetary system and as we make our way towards that, gold and silver will be refuges.”

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Pressure Mounts on US to Strike Deal to Raise Debt Ceiling

Fitch Ratings has joined the chorus begun by S&P back in late-April, warning that the US risks losing its AAA credit rating if the stalemate in Congress over the debt ceiling hike persists. The head of Fitch’s sovereign-ratings division said, “Failure to raise the debt ceiling in a timely manner would imply a crisis of governance that could imperil the US ‘AAA’ status.” He went on to say “More importantly, default by the world’s largest borrower and issuer of the pre-eminent reserve currency would be extraordinary and threaten the still-fragile financial stability in the U.S. and the world as a whole, especially against the backdrop of the European sovereign-debt crisis.”

S&P did in fact put the US on negative watch in April and Moody’s indicated it might review America’s sovereign debt rating as soon as July. Treasury Secretary Geithner has marked 02-Aug as the date when he’ll run out of accounting gimmicks that have allowed the Federal government to continue borrowing, despite the debt ceiling being hit on May 16.

The CBO reported yesterday that the US budget deficit was $929 bln through the first 8-months of FY2011. That’s a big number to be sure, but it’s actually a $6 bln improvement from the same period last year. However, USA Today pointed out that beyond the budget deficit, “The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.” They further quantified that astronomical figure as being “$534,000 per household.” And its worth noting that those unfunded obligations aren’t accounted for until the Federal government writes the checks.

Not surprisingly, the United State’s largest creditor is concerned about the games being played in Washington. Li Daokui, an adviser to the People’s Bank of China, expressed concerns about a technical US, warning that it could undermine the dollar and negatively impact China’s substantial holdings of US Treasuries. Li told reporters at a forum in Beijing that the implications of a US default, “will be very serious and I really hope that they would stop playing with fire.”

Seemingly, China is increasingly disinclined to incur the risk of dollar denominated reserve holdings. CNS News reported late last week that China has now reduced its exposure to US Treasury Bills by 97%, from $210.4 bln in May 2009 to just $5.69 bln in March 2011. The article points out that China also began reducing exposure to longer-term US bonds back in October of last year. Given this action on the part of China and the scheduled end of QE2 at the end of the month, it begs the question: Who is going to step-up to fill the demand void for US debt, assuming the debt ceiling does get raised?

Secretary General Abdullah El-Badri said the effective decision was no change in policy and that OPEC hoped to meet again in three months time to assess the situation.

Saudi Arabia and other Gulf producers had been seeking to push through an increase to help the economies of consumer nations, but price hawks such as Iran, Venezuela and Algeria refused to consider a hike.

Oil prices, jumped more then $2 a barrel, pushing U.S. crude above $100 a barrel, after the news.

“They can’t even coordinate their statements to the press. The Saudis must be angry. This decision was not relevant to physical output anyway — it was symbolic. I suppose the Venezuelans and Iranians are already producing as much as they can; the only way they get extra revenue is from a higher price. And they aren’t going to get any gold stars from the U.S. or Western powers that be anyway. The Saudis would have liked the gold star for political good behavior.”

One factor is a diverging market view. Another is politics. At times of heated politics/ideological debate, Saudi struggled to dominate as much as it could have given its size vis-a-vis others in OPEC. Radicals — in the political sense — could push Saudi ahead of themselves to some extent and punch above their weight, although only to a certain degree. Gaddafi in the 70s is a good example, Venezuela in the early 70s another.

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Sterling fell to a one-month low against the euro and slid against the dollar on Wednesday after a media report quoting a Moody’s analyst saying the UK was at risk of losing its top-notch rating.

According to the report, the analyst said the UK could lose its AAA rating if growth remained weak and the government failed to meet its fiscal consolidation targets.

The fragility of Britain’s economy is holding the BoE back from raising rates even as inflation risks remain stubbornly high.

Adding to concerns about a slowing recovery in the British economy, a survey on Wednesday showed recruiters filled permanent and temporary vacancies at the slowest pace in seven months in May

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Gold is under pressure this morning, weighed by declining commodity prices, amid concerns about the health of the US economy. Despite signs that the economic recovery is faltering, Fed chairman Ben Bernanke gave no clear indication in a speech on Tuesday that fresh accommodations would be forthcoming. The absence of any remark about the possibility of a QE3 has prompted some unwinding of long positions in stocks, commodities and gold, but everyone knows the Fed still has the QE arrow in its quiver and has proven that it isn’t afraid to use it.

The dollar has gotten a bit of a bid as the euro backs off from recent highs and sterling is weighed by a Moody’s warning that the UK’s AAA debt rating may be in jeopardy if economic growth continues to slow.

Oil prices rebounded after OPEC Secretary General Badri announced that members were unable to reach consensus on output, offering some support for gold.

China’s NDRC said inflation pressures remain elevated, citing higher prices for imported goods. Risk of tighter PBoC policy.

UK KPMG/Rec employment survey saw permanent placements fall to 7-mo low of 55.1 in May, vs 60.6 in April.

UK BRC shop prices decelerated in May to 2.3% y/y, vs 2.5% in Apr, led by non-food prices at 0.8%, vs1.2%. Food prices 4.9%, vs 4.7%.

Eurozone Q1 GDP confirmed at 0.8% q/q, 2.5% y/y.

German industrial production unexpectedly declined 0.6% m/m in Apr, below market expectations of +0.1%.

If the nation is to have a healthy economic future, policymakers urgently need to put the federal government’s finances on a sustainable trajectory. But, on the other hand, a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery.

Slow growth in the United States and a persistent trade deficit are additional, more fundamental sources of recent declines in the dollar’s value; in particular, as the United States is a major oil importer, any geopolitical or other shock that increases the global price of oil will worsen our trade balance and economic outlook, which tends to depress the dollar.

Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.

As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term.

U.S. economic growth so far this year looks to have been somewhat slower than expected. Aggregate output increased at only 1.8 percent at an annual rate in the first quarter, and supply chain disruptions associated with the earthquake and tsunami in Japan are hampering economic activity this quarter. A number of indicators also suggest some loss of momentum in the labor market in recent weeks. We are, of course, monitoring these developments.

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By Simon Rabinovitch in Hong Kong
China is running a major risk in holding so many dollars because the US may deliberately devalue its currency, a senior Chinese official has warned.

The comments by Guan Tao, head of the international payments department in the State Administration of Foreign Exchange, knocked the dollar on Tuesday, adding to fears about the struggling US economy. The dollar fell to a one-month low against a basket of six leading currencies.

…“The United States may find it hard to resist the policy temptation of weakening the dollar abroad and pushing up inflation at home,” he added.

…The article was removed from the Chinese website after financial markets took notice and the dollar fell.

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By Andrew Ackerman
WASHINGTON (Dow Jones)–The federal government was running a budget deficit of $929 billion through eight months of fiscal year 2011, $6 billion less than at the same point in fiscal 2010, the Congressional Budget Office said Tuesday in its monthly analysis of the government’s finances.

CBO projected a May deficit of $59 billion, compared with a deficit of $136 billion in May 2010. It also reported the deficit in April was $40 billion, about $1 billion less than an earlier estimate.

The CBO said May’s decrease in the deficit was mostly attributable to “shifts in the timing of certain payments” and a reduction in the overall estimated cost of the Troubled Asset Relief Program.

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By Martin Wolf
The eurozone, as designed, has failed. It was based on a set of principles that have proved unworkable at the first contact with a financial and fiscal crisis. It has only two options: to go forwards towards a closer union or backwards towards at least partial dissolution. This is what is at stake.

The eurozone was supposed to be an updated version of the classical gold standard. Countries in external deficit receive private financing from abroad. If such financing dries up, economic activity shrinks. Unemployment then drives down wages and prices, causing an “internal devaluation”.

…At last month’s Munich economic summit, Hans-Werner Sinn, president of the Ifo Institute for Economic Research, brilliantly elucidated the implications of the response to this threat of the European System of Central Banks (ESCB). The latter has acted as lender of last resort to troubled banks. But, because these banks belonged to countries with external deficits, the ESCB has been indirectly financing those deficits, too. Moreover, because national central banks have lent against discounted public debt, they have been financing their governments. Let us call a spade a spade: this is central bank finance of the state.

…Debt restructuring looks inevitable. Yet it is also easy to see why it would be a nightmare, particularly if, as Mr Bini Smaghi insists, the ECB would refuse to lend against the debt of defaulting states. In the absence of ECB support, banks would collapse. Governments would surely have to freeze bank accounts and redenominate debt in a new currency. A run from the public and private debts of every other fragile country would ensue. That would drive these countries towards a similar catastrophe. The eurozone would then unravel. The alternative would be a politically explosive operation to recycle fleeing outflows via public sector inflows.

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PG View: As Wolf points out, some national central banks are financing their states and it’s worth noting that the ECB is prohibited by its charter from financing government deficits. Yet the ECB seems to be turning itself inside out these days to find a way to ensure solvency of certain states without violating their charter.

Federal Reserve Chairman Ben S. Bernanke is scheduled to speak today at the International Monetary Conference in Atlanta as the bank’s second round of bond buying, called quantitative easing or QE2, ends this month.

“The market’s still very sensitive to what’s happening in Greece and Europe, and at the same time sensitive to U.S. data,” Darren Heathcote, head of trading at Investec Bank (Australia) Ltd., said by phone. “There doesn’t seem to be many reasons to be selling gold at this present moment.”

China Universal Asset Management Co. received approval from the nation’s financial-market regulator to start a fund that will invest holdings in overseas exchange-traded products backed by precious metals. Liu Ming, a spokesperson for China Universal, didn’t give details of when the fund would start raising money, nor how the extent of the holdings in each metal will be set.

“All the market participants we met with in China last week expect a slowdown in physical demand before buying picks up again in September,” Edel Tully, a London-based analyst at UBS AG said today in a report. While there may be “summer headwinds” for gold, “this would be viewed by most as a short- term correction within a bullish market. It’s very difficult to leave Asia, and in particular China, without feeling bullish about gold.”

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The federal government’s financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

…The $61.6 trillion in unfunded obligations amounts to $534,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

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PG View: While Greece continues to steal the headlines with its debt problems, the US is in a heap of trouble as well. The debt is mounting in large part to surging entitlement spending, made worse by a dramatic shift in the nation’s demographics. Yet those very entitlements have proven to be a political third-rail. While many people are adamantly opposed to entitlement reform, one need look no further than the numbers to see how necessary the conversation is.

Gold remains generally well bid, supported by dollar weakness. The euro extended to a new 5-week high as previous hard-line stances on Greece continue to erode.

The EU’s Olli Rehn has conceded that the eurozone debt crisis has moved into a critical stage, saying that Greece is facing default and that a solution must be found by 20-Jun. As to that solution, the IMF is pushing for rapid asset sales. The ECB on the other hand seems to have warmed further to the idea of coerced rollover of Greek debt.

ECB President Trichet said of such a rollover: “That is not a default.” Ratings agencies however have already warned to the contrary.

Austan Goolsbee, the Chairman of the Council of Economic Advisers to President Obama, has announced that he will resign his post this summer to return to teaching. His tenure has been less than a year, having replaced Christina Romer in September of last year. Romer also left to return to teaching.

Fed chairman Bernanke will speak to a banking conference in Atlanta today. This will be his first opportunity to comment on last week’s grim economic data. While Bernanke is likely to stick to his “transitory” meme, the financial press will be looking for hints about the possibility of QE3 if the current ‘slow patch’ ends up being longer in duration than expected.

Japan’s leading composite index -3.7 m/m in Apr, below expectations, vs -3.9 m/m in Mar as earthquake/tsunami continues to weigh.

Eurozone retail sales better than expected at +0.9% m/m in Apr.

German Apr manufacturing orders beat expectations at +2.8% m/m.

Swiss CPI was in line with expectations at 0.4% y/y in May, vs 0.3% y/y in Apr.

UK BRC retail sales unexpectedly fell 2.1% y/y, market was looking for +2.0%, vs +5.2% in Apr. Apr gain was likely one-off event associated with late Easter and royal wedding.