19-Jul (USAGOLD) — Gold is well bid today, underpinned by heightened Mideast tensions and a corresponding rise in oil prices. Additionally, another round of disappointing US economic data has once again revived hopes of additional Fed measures to support the languishing economy. Nonetheless, the yellow metal continues to struggle ahead of $1600.

Initial jobless claims, existing home sales, LEI and the Philly Fed index all missed expectations, prompting at least Goldman Sachs (but likely others) to revise their GDP forecast lower once again. Amid continued Fed opaqueness on the prospect of QE3, even the slightest hint of a weaker economy reinvigorates the QE3 crowd; essentially turning a negative into a positive, in the sense that bad data can cause stocks to rise as expectations of Fed action is heightened. Today’s data where significantly more than a ‘slight hint’…

Probes above the 20- and 50-day moving averages this week are somewhat encouraging to the technical picture, but a convincing move back above $1600 is likely needed to prompt short-covering. More significant resistance is marked by the early-July highs at 1623.54/1624.64, which corresponds closely with the 100-day moving average.

• US Philly Fed index improved to -12.9 in Jul, but was below expectations of -8.0, vs -16.6 in Jun.
• US leading indicators -0.3% in Jun, on expectations of -0.1%, vs upward revised +0.4% in May.
• US existing home sales tumbled 5.4% to 4.37 mln in Jun, below market expectations of 4.62 mln, vs upward revised 4.62 mln in May.
• US initial jobless claims +34k to 386k for the week ended 14-Jul, above expectations of 365k, vs upward revised 352k in the previous week.
• Canada wholesale trade +0.9% in May, on expectations of +0.2%, vs +1.2% in Apr.
• Switzerland trade balance CHF2.25 bln in Jun, vs CHF2.52 bln in May.
• Eurozone current account (sa) €10.9 bln in May, vs upward revised €5.5 bln in Apr.
• Italy industrial orders (sa) +1.7% m/m in May, vs positive revised -1.8% in Apr; -9.4% y/y.
• UK retail sales +0.1% m/m in Jun, vs positive revised +1.5% in May; 1.6% y/y, down from negative revised 2.1% y/y in May.
• Japan All-Industry Index (sa) -0.3% m/m in May, vs +0.1% in Apr.
• Japan Leading Index (revised) -0.4% in May, vs +0.3% previously. Coincident index (revised) unchanged at -1.2%.
• Hong Kong unemployment rate (sa) steady at 3.2% in Jun.

Gold Consolidates Amid Reluctance on More QE

18-Jul (USAGOLD) — Gold fell again and then rebounded after Fed chairman Bernanke regurgitated yesterday’s Senate testimony before the House Financial Services Committee today. During questioning, Bernanke reiterated that, “It is certainly possible that we will take additional action if we conclude we’re not making progress toward higher levels of employment.” However, hints of additional Fed accommodations remain quite opaque as Bernanke seems rather dedicated to the notion that Congress needs to act to rectify the fiscal train-wreck that is coming, rather than simply relying on the Fed to bailout the Federal government.

Now the Federal Reserve is not supposed to be a political body, but Bernanke seems to be playing a little politics nonetheless. Surely he must know that Congress isn’t going to do anything meaningful on the fiscal side before the November elections. And unless one party or the other takes control of both chambers of Congress and the Presidency, nothing meaningful is likely to be done even after the election. Treasury Secretary Geithner also made note of this political disfunction in the US, warning that the impending fiscal cliff and the drag resulting from the European crisis are likely to have a devastating impact on the US economy.

As for Europe, the IMF further escalated pressure on the ECB to act because the “euro area crisis has reached a new and critical stage.” After negatively revising its growth projections yesterday, the IMF is now expressing heightened concern about deflation in Europe and is encouraging the ECB to both cut rates and embark on the quantitative easing path blazed by the BoJ, Fed and BoE.

While über-accommodative monetary policies have done little to relieve global debt crises, the latest IMF urgings to do more of the same are reflective of just how limited a toolbox the central banks have at this juncture. Yet, given the reluctance of politicians around the world to inflict fiscal pain on their constituents — for fear that said constituents will oust them at the next opportunity — the central banks will likely be forced to act ultimately. When that happens, or perhaps more accurately when the market acknowledges this is the likely outcome, gold will resume its long-term uptrend.

by Richard Duncan

“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression. . .If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”

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