July 12 (The Atlantic) — The Federal Reserve just isn’t sure what’s going on. Although the minutes from its June meeting make some broad assertions about the U.S. economy, the economists appear to be squinting at a future clouded by uncertainty. Rather than dwell on any one thing the Fed concludes, here are ten takeaways from the discussion notes released Tuesday afternoon.

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PG View: I think they should have included the word “yet” at the end of the headline.

July 12 (CNNMoney) — Gold jumped to a record high Tuesday after the minutes from the Federal Reserve’s June policy meeting indicated the central bank might be open to more monetary stimulus.

Gold futures for August delivery climbed $13.10, or 0.9%, to a record high of $1,562.30 an ounce. In after-market electronic trading, gold rose as high as $1,574.30 an ounce.

The late-afternoon surge came after the minutes from the Federal Reserve’s June meeting said “a few members” of the bank’s Federal Open Market Committee said the bank “might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run.”

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July 12 (MarketWatch) — Gold futures crowned a six-session winning streak with a nominal record Tuesday, overcoming a wobbly start with support from ongoing worries about the euro-zone debt crisis.

Gold for August delivery added $13.10, or 0.9%, to settle at $1,562.30 an ounce on the Comex division of the New York Mercantile Exchange.

That handily supplanted a previous settlement record of $1,557.10 an ounce on May 2.

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Excerpt from June 21-22, 2011 Minutes of the Federal Open Market Committee Meeting

Participants also discussed the medium-term outlook for monetary policy. Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation.

PG View: Stocks like the notion of more debt monetization too.

The information reviewed at the June 21-22 meeting indicated that the pace of the economic recovery slowed in recent months and that conditions in the labor market had softened. Measures of inflation picked up this year, reflecting in part higher prices for some commodities and imported goods. Longer-run inflation expectations, however, remained stable.

The expansion of private nonfarm payroll employment in May was markedly below the average pace of job gains in the previous months of this year. Initial claims for unemployment insurance rose, on net, between the first half of April and the first half of June. The unemployment rate moved up in April and then rose further to 9.1 percent in May, while the labor force participation rate remained unchanged. Both long-duration unemployment and the share of workers employed part time for economic reasons continued to be elevated.

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The Street – Alix Steel – (July 12)

Mihir Dange, co-founder of Arbitrage, says he is flat right now and is sideways bullish on the gold market. “We’re still waiting on a lot of events,” says Dange referring to Washington’s failed attempt over the weekend to resolve the debt ceiling as well as Europe’s inability to help Greece or prevent contagion. These events “could push the market one way or another,” says Dange. “It will probably be choppy between $1,560 and $1,575 and look for a breakout above $1,577″ an ounce, the metals intra-day record.

Dange isn’t concerned that gold prices haven’t hit new records given the spate of negative headlines pounding markets, but says the fact that gold has held up while other assets saw mass liquidation is very bullish.

Silver, on the other hand, typically a go-to metal like gold, has been suffering from the industrial metal blues. As investors worry about a global slowdown, flat or negative demand from Europe and the U.S., and credit tightening in emerging market countries — typically voracious consumers of industrial metals — silver has become less appealing.

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JK Comment: Our clients often ask why gold and silver don’t always move in the same direction…this article has good coverage of this topic.

July 12 (MarketWatch) — Gold futures rose Tuesday, supported by ongoing worries about the euro-zone debt crisis and poised to extend gains into a sixth session.

Gold for August delivery added $4.10, or 0.3%, to $1,553.40 an ounce on the Comex division of the New York Mercantile Exchange. It had earlier wavered between small gains and losses.

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PG View: The yellow metal is now just a dollar off of yesterday’s high at 1556.41, less than $20 off the all-time high.

By COREY BOLES
July 12 (The Wall Street Journal) — A “real solution” to U.S. fiscal problems isn’t possible as long as President Barack Obama remains in office, Senate Minority Leader Mitch McConnell said Tuesday, heightening the rhetoric surrounding the debt-ceiling debate.

Mr. McConnell, the Senate’s top Republican, and House Speaker John Boehner (R., Ohio), both blamed President Obama for the stalemate in the debt-ceiling and deficit-reduction talks, and urged the White House to break the impasse. Negotiations were to resume for a third-straight day Tuesday afternoon.

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PG View: Rhetoric suggests that a wide ideological divide remains in debt ceiling negotiations as deadline looms.

July 12 (Forbes) — As contagion sends ripple effects through the European periphery, with Italy in the eye of the storm amid rumors that the European Central Bank (ECB) has intervened and bought Italian sovereign bonds on the secondary market, analysts are coming to the conclusion that Italy is too big to bail given massive funding requirements and total debt outstanding of €1.6 trillion ($2.2 trillion).

…While funding requirements for 2012 the three PIIGs that have already been bailed out totals €91 billion ($127 billion), Italy’s funding requirements reach a massive €250 billion ($350 billion).

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This looks like a good time to buy physical.

The speculators are confused and that confusion is reflected in a restrained paper market price. Lately, I’ve entertained the notion that high-frequency traders in the gold market have their algorithms set so their buys/sells respond to the euro. This results from the old notion that gold goes contrary to the dollar. Thus, when the euro drops, it acts as a trigger for a flood of auto-sells despite the fact the dollar isn’t a significantly better safe haven than the euro. Similarly, when the euro rises, a flood of trades comes in on the buy side. This creates a false impression and a false trade that might come back to haunt the hft’s at some point in the future.

The hft’s (and other traders using the euro as a stalking horse), if my analysis proves accurate, have effectively kept the the market in relative calm when it should be soaring, simply because they are following the wrong pied piper (the euro). Once they wake up to the reality that real gold demand is essentially a safe haven strategy being adhered to on both sides of the Atlantic (and against both currencies), they will reset their algorithms which could translate to turbocharging for the gold market.

The safest way to take advantage of this situation is not to play the futures or options where you could be run out of the market before the adjustment arrives. It is to buy the physical metal itself where you won’t be buffeted by the trading winds. Ultimately, as I have said many times over the years, gold is not really an investment at all, but an insurance policy taken out against a failing economic system. Over the past few days, gold has begun to act like a safe haven play rather than a speculation, as it separates from the other metals and commodities in general. That reality will likely register in the right places as time goes on.

This, of course, is all speculation. I have no way of knowing for certain how the hft’s set their algorithms. The thought occurred to me as I tried to understand just why gold might be hampered by a weaker euro in light of what’s going on in the EU, and thought I would pass it along.

July 12 (Reuters) — The euro zone’s debt crisis has taken a dangerous turn. Contagion is singeing the currency bloc’s third biggest economy Italy, which would be too big to save with existing EU financial fire-fighting tools.

The cheapest way for Europe to build a firewall to shield Italy would be to take decisive action this month on a second bailout for Greece, market participants and EU officials say.

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PG View: Or perhaps they allow a selective default on some Greek debt to serve as a pressure valve.

July 12 (MSNBC) — President Barack Obama has painted a bleak picture of what could happen to the economy if lawmakers do not agree on a pact to cut the deficit in time to avoid a U.S. default. He warned the economy could slip back into recession and lose millions more jobs.

The reality is that economists don’t know exactly what would happen. What they do know is that we would stray into territory marked “Here Be Dragons” on the economy’s map.

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July 12 (Commodity Online) — Imports of Gold and Silver by India are soaring thanks to an unabated demand for the bullion commodities. While India’s import of gold has risen were up by 76% and 160% in April and May respectively, silver import was up by 22% in the same period compared to last year.

According to UBS, India continues to be a robust centre of attraction for gold bullion sales. UBS said that gold and silver imports are set to soar in India in 2011 thanks to an unprecedented consumer demand for these commodities.

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Gold has rebounded from overseas corrective downticks amid FX market volatility as Europe continues to unravel. The EUR-USD broke out of its recent range to the downside, falling to a 4-month low of 1.3838 as contagion worries centered on Italy and Spain mounted. Talk of ECB intervention in Italian and Spanish debt markets has provided a reprieve, as has the first acknowledgement from EU leaders that Greece may have to default in order to stem the contagion to the larger European economies. This has apparently sparked rumors of a potential downgrade to France; likely because of their exposure to Greek debt.

Meanwhile, here in America, there is no substantive progress on the debt ceiling negotiations; so the countdown to a US downgrade continues.

• US trade deficit widened to $50.2 bln in May, above market expectations, vs $43.6 bln Apr.
• Canada trade deficit dipped to -C$800 mln in May, above market expectations of -C$1.0 bln; exports +1.2%
• UK trade deficit unexpectedly widened to £8.5 bln in May; Jun CPI unexpectedly declined to 4.2%.
• French HICP inflation accelerated to 2.3% y/y in June, vs 2.2% y/y in May.
• German June CPI confirmed at 2.3% y/y. HICP steady at 2.4% y/y, in line with market expectations.
• BoJ held o/n call rate steady as was widely expected. Positive revision to economic assessment.
• China FX Reserves rose to $3.198 trillion in Jun, +$153 bln q/q in Q2; reflective of continued intervention to suppress CNY.

July 12 (Reuters) — European Union leaders are poised to hold an emergency summit after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens’ debts and stop contagion to Italy and Spain.

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PG View: Looks like the EU is suddenly prepared to throw little ‘ol Greece under the bus now that the big fish are in jeopardy. Yet another ‘emergency meeting’ planned for Friday.

Ambrose Evans-Pritchard – The Telegraph (July 11)

“We’ve painted ourselves into a corner. At this point, either someone – Germany, the European Central Bank – has to fundamentally shift position, or everything blows up,” an EU official told Reuters.

Gary Jenkins at Evolution Securities said the EU cannot keep stalling. Italy’s borrowing costs are ratcheting towards the fatal line of 7pc. “It is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10-year yields. What would keep me awake at night if I was a European finance minister is that we are only about 2pc from potential disaster,” he said.

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July 8 (Reuters) — “The U.S. government has its work cut out for it,” said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut. “U.S. fiscal problems have been put off for so long that the government has to cut spending at a time when the economy is unable to absorb it.”

As a share of output, the $1.4 trillion budget gap expected for the fiscal year ending in September is one of the largest since World War Two.

“We really are in a bind here,” Cliggott said, “We have to start addressing the deficit, and if it means a rough stretch for corporate profits and the equity market, then they go through a rough stretch. Putting it off is not the answer.”

David Semmens, U.S. economist at Standard Chartered, said the 2012 election may clip even the biggest deficit hawks’ wings, as lawmakers won’t want to lose votes. A rising jobless rate is an impediment for Obama’s reelection chances.

“I think any spending cuts will be aimed at 2013,” he said.

“It shows the tightrope that has to be walked,” said Greg McBride, senior financial analyst at Bankrate.com. “We’ve got to rein in the government red ink so we don’t in coming years face a day of reckoning. But it’s a balancing act, because if you rein it in too much, it will plunge us into recession.”

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JK Comment: Good explanation of the current state of a “rock and hard place” for the US economy…I was especially drawn to what I think is an important consideration for our clientele…will anything meaningful really happen in terms of deficit reduction over the next year and a half as we move toward another presidential election? We’ve often talked about the political will to do what’s “necessary” in our Video RoundTable Series. With the motivation to be re-elected amongst all politicians, democrat and republican alike (and the ability to do so being largely dependent on positive economic performance), it is unlikely there will be any meaningful change to the policies that have been implemented over the past two and a half years. In short, more debt is more palatable for the voting public as it has a more broadly socialized impact, making it the “safer” choice for our elected officials. Economic retraction through spending cuts and higher taxes won’t be well received as it has a more localized and personal impact, even though it is arguably much better for all of us in the long run. In the end, all signs point to more of the same (at least for another year and a half, though perhaps much longer)….an environment that has seen gold increase 78% since January 2009.

Gold Jumps as EU Contagion Worries Mount

July 11 (USAGOLD) — Eurozone contagion worries have intensified as yields in the periphery moved higher once again and spreads in both Italy and Spain advanced to new euro-era highs as well. “We believe the European sovereign crisis might be entering a new phase with contagion reaching the larger economies,” said Jacques Cailloux, chief Europe economist at RBS in a Telegraph article.

If the core of Europe is infected by the sovereign debt crises that have been for the most part successfully contained to the periphery, there is little hope that the EU/IMF/ECB troika has the means to orchestrate a bailout of that magnitude. The combined public and private debt of Italy and Spain alone is reported to be about €6.3 trillion. It therefore becomes very obvious why the troika has expended such political and monetary capital in bailing out Greece, Ireland and Portugal. They simply can’t afford contagion to the core.

What’s the troika’s solution? Well, for the time being they seemed to be focused on attacking the credibility of the ratings agencies; as if without the agencies the fundamental problems wouldn’t exist. Even if there were no ratings agencies at all, analysts at the big investment banks and other sovereigns would be digging into the data to discern the counter-party risks and acting accordingly. The net results in the bond markets of the world would be the same — if perhaps a little delayed — but delay does seem to be the name of the game these days. The focus of these seemingly unending ‘emergency meetings’ appears to be delaying the inevitable. They never seem to make any true progress on the underlying fundamentals that resulted in the crisis in the first place.

Again, the ratings agencies do indeed have credibility problems in the wake of their misread of the initial financial crisis, but seeking to silence them may actually be doing more harm than good. Suspending ratings on sovereign debt may actually incent investors to dump that debt. That pretty clearly has been the case with Portugal recently.

Even as the situation in Europe continues to deteriorate, markets continue to reel from Friday’s terrible US nonfarm payrolls report for June. In the face of a slowing economy the jobs picture is worsening, which in turn has a negative impact on the economy and the already moribund housing market. All of these factors negatively impact tax revenues, even as the President himself now seems to be focusing much more intently on the spending side of the balance sheet. Nonetheless, hopes of a ‘grand bargain’ to raise the debt ceiling that blossomed ahead of this past weekend seem to have been dashed with just about 3-weeks to go before Treasury Secretary Geithner says we’ll have to start selectively defaulting.

July 11 (USAGOLD) — EUR-USD extends losses below 1.4000. The corresponding rise in the dollar leaves resistance marked by the June high in gold at 1558.09 intact for now. EUR-CHF intraday low now stands at 1.1672.

July 11 (MarketWatch) — Gold futures gained Monday on continuing concerns about Europe’s sovereign-debt crisis and as investors eschewed investments considered riskier, such as U.S. stocks.

Gold for August delivery added $13.20, or 0.9%, to $1,554.80 an ounce on the Comex division of the New York Mercantile Exchange, gaining momentum as U.S. equities opened lower.

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July 10 (Reuters) — European Council President Herman Van Rompuy has called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, reflecting concern that the crisis could spread to Italy, the region’s third largest economy.

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PG View: Europe moves from one emergency meeting to the next and yet the sovereign debt crisis seems to be getting away from them once again. Perhaps it’s because these meetings are always about delaying the day of reckoning, while never making inroads with the core fundamental issues that inevitably led to crisis. In the respect, Europe is very much like America.

July 10 (The Telegraph) — Once again Europe’s debt crisis has metastasized, and once again the financial authorities face systemic contagion unless they take immediate and dramatic action.

If the ECB’s Jean-Claude Trichet is right in claiming that Europe was on the brink of a 1930s financial cataclysm a year ago – and I think he is – it is hard see how the threat is any less serious right now.

Fall-out from Greece flattened Portugal and Ireland last week. It is engulfing Spain and Italy, countries with €6.3 trillion of public and private debt between them.

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July 11 (USAGOLD) — Gold has set new record highs against the euro above €1105.00, amid heightened contagion fears in Europe. Italian and Spanish spreads have widened to euro-era records, and the threat to ‘core-Europe’ has pushed the single currency within striking distance of its 2-month range low. Meanwhile, the euro plunged to new record lows against the Swiss franc below 1.1700. While the worsening situation in the eurozone has also lifted the dollar, the yellow metal doesn’t seem to care, with gold pressuring the June high at $1558.09, the final tier of significant resistance ahead of the 1574.60 all-time high.

• Japan Consumer Confidence continues to rebound, firming to 35.3 in Jun, vs 34.2 in May.
• China CPI +0.3% m/m in Jun to +6.4% y/y pace (a 3-year high), above market expectations, vs 5.5% in May.
• China export +17.9% y/y in Jun, below expectations, vs +19.4% y/y in May; imports fell to +19.3% y/y, vs 28.4% y/y in May.