August 19 (BusinessInsider) — When priced in gold stocks have now returned to where they were at the market’s low-point, back in 2009. Actually, we’re even worse now.

[source]

August 19 (The New York Sun) — Governor Perry’s remarks on Chairman Bernanke’s debasement of the dollar were greeted with widespread complaints owing to the governor’s raucous tone. So how could he have better made his case? For an example, we commend none other than Charles De Gaulle. We comprehend that the general-turned-president of Free France is renowned for his haughtiness and, for that matter, his mixed view, to put it mildly, of America. Let’s lay that aside for the moment and feature the prophetic remarks he made in February 1965, warning of the incipient monetary crisis that would, absent a return to gold-backed money, engulf the world. When these columns speak of our hope that some leader of our time will address this issue, this is the kind of talk for which we are hankering.

PG View: In 1965 De Gaulle called for a return to an “indisputable monetary base,” one that “does not bear the mark of any particular country.” He of course was referring to gold. As was pointed out in a Forbes article early in the week on the 40th anniversary of President Nixon closing the gold window, “over the last four thousand years, the only period in which humanity has not consistently based its currency in metal, specifically gold, is the last forty.” And look what that has wrought…

August 19 (Financial Times) — The big question for many investors these days is one that could scarcely have been thought about a few years ago: is the west turning into Japan?

The response to that will determine the future direction of western economies as well as of shares and bonds. To date, the tentative answer has been that the developed world is heading Japan’s way as government bonds have far outperformed equities.

“This is looking like a Japan-style scenario. I am more nervous than I have ever been before about it,” says Sushil Wadhwani, founder of the eponymous hedge fund and a former member of the Bank of England’s rate-setting monetary policy committee.

…Since Japanese yields breached the 2 per cent barrier in 1996, they have never risen above it for any sustained period.

[source]

August 19 (The Wall Street Journal) — U.S. stocks closed down Friday, ending another choppy week lower as investors continued worrying about a potential global recession and the health of the European banking system.

The Dow Jones Industrial Average closed down 172.93 points, or 1.57%, to 10817.65. The index swung 284.99 points from its session highs to the lows in another volatile session. The zigzag action comes after the blue-chip index tumbled 419.63 points on Thursday.

[source]

By David Wessel
August 19 (The Wall Street Journal) — There are 13.9 million unemployed people in the U.S. – and that just counts those looking for work. That works out to 9.1% of the labor force, the widely publicized unemployed rate.

But here are a few more ways to look at it.

There are more unemployed people in the U.S. than there are people in the state of Illinois, the fifth largest state.

In fact there, there are more unemployed people in the U.S. than there are people in 46 of the 50 states, all but Florida, New York, Texas and California.

There are more unemployed than the combined populations of Wyoming, Vermont, North Dakota, Alaska, South Dakota, Delaware, Montana, Rhode Island, Hawaii, Maine, New Hampshire, Idaho and the District of Columbia.

If they were a country, the 13.9 million unemployed Americans would be the 68th largest country in the world, bigger than the population of Greece or Portugal (each of which has 10.8 million people) and more than twice the population of Norway (4.7 million.)

[source]

Venezuela’s Repatriation Demand Adds to Gold’s Bid

August 19 (USAGOLD) — Gold extended to yet another new all-time high in European trading on Friday at 1876.81, before pulling back into the range. At its high point, the yellow metal was just $123.19 away from $2000 per ounce as rising global growth headwinds continue to wreak havoc on worldwide shares, increasing the appeal of hard assets like gold as a safe-haven. Continued uncertainty that measures to mitigate the sovereign debt crisis in Europe will be successful are also underpinning the market. However, this week’s demand by President Hugo Chávez that Venezuela’s gold reserves held overseas be returned to the country is the latest wild-card that seems to be having a predominantly positive impact on gold.

Venezuela is the 15th largest holder of gold in the world with 365.8 metric tonnes, the majority of which is held in London. For exactly the same reasons that individual investors/savers prefer to have their gold close at hand, it would seem that Venezuela now wants their gold back. They are troubled by the counterparty risks; worried that as the global financial system unravels under the wait of massive debt burdens, that if they don’t get their gold now, they might never be able to get it back. Chávez went so far as to volunteer the basement of the presidential palace if additional storage space were needed.

It’s certainly not beyond Chávez to take a poke at the West purely for the sake of getting everyone all worked up. He’s done it before and he will likely continue to do so as long as he holds power. With such a mindset, he perhaps has a legitimate concern that Venezuela’s assets — including their gold holdings — might be frozen at some point; as we have seen time and time again with other rogue-states. However, in also announcing plans to nationalize Venezuela’s gold production and processing, Chávez clearly is expecting gold prices to continue climbing.

The Bank of England reportedly holds 99.2 metric tonnes of Venezuelan gold. There is some speculation that an initial “official channel” request for a return of their gold may have been met with some resistance, which prompted Chávez to go very public with his demand. All eyes are now on the BoE and arguably they are under a fair amount of pressure to deliver in a timely manor. Failure to do so will rattle the confidence of other sovereigns with gold held outside their borders…and there are a lot of them. If the BoE or any of the other holders of Venezuelan gold proved unable to deliver, it could trigger similar requests for repatriation from other nations, setting off a mad scramble for physical gold.

Based on yesterday’s FT article on the topic, it would seem that the BoE is indeed making preparations to return Venezuela’s gold. Logistics experts have said that they’ve never heard of a physical gold transfer of this size before, but I’d hazard that this wont be the last major transfer of of the yellow metal given the rising price and the rising global uncertainty.

August 18 (Financial Times) — Bullion traders are preparing for one of the largest transfers of physical gold in recent history after Hugo Chávez, Venezuela’s president, ordered the country’s gold reserves to be returned to Caracas.

Venezuela’s central bank is the world’s 15th largest holder of gold, with 365.8 tonnes, of which some 211 tonnes, worth $12.3bn, are held overseas, according to a proposal for the transfer from the Venezuelan central bank and finance ministry.

…“There is a growing preference among many different communities in the gold market to have their physical gold at home,” said Edel Tully, precious metals strategist at UBS.

[source]

August 19 (Financial Times) — Gold has powered to a fresh record, revelling in investors’ fears of a sharp global economic slowdown that have laid waste to equities over recent weeks.

Traders’ wariness is being reflected in the yen’s move to a record versus the US dollar, falling below Y76 for the first time and now on offer at Y76.94, stronger by 0.2 per cent on the day. The Japanese unit has long been considered by some investors as a refuge in turbulent times.

[source]

August 19 (Reuters) — Some European banks were forced to pay more for short-term loans on Friday as anxiety about a rapidly spreading debt crisis in Europe stayed high.

The benchmark for unsecured dollar loans between banks, three-month Libor, rose above 30 basis points for the first time since early April. It fixed at 0.30300 percent.

[source]

by Lianna Brinded
EuroMoney (August 19) — Gold prices are not a bubble, strategists tell Euromoney. Rather, they point to a loss of confidence in quantitative easing; fears of another recession; and the crisis in central banks’ abilities to manage the

“Given the scale of capital destruction that has yet to be acknowledged and which quantitative easing with its fiat money has in effect tried to cover up, the distrust of western paper money continues to run high. This is not only a financial sector crisis, but also a crisis of overall governance in the eurozone, the US and the UK,” says Marc Ostwald, financial markets strategist at Monument Securities. “It is difficult to argue that gold is in a bubble, even if the one-way charge into gold has bubble-like qualities. It would require a sharp rise in money rates and bond yields to attract money away from gold, as the opportunity costs of holding an asset that does not pay interest or a dividend is very low at the moment; a sharp rally in equities and/or real economy commodities would also prompt some profit-taking.”

Joshua Raymond, chief market strategist at City Index, says: “Gold continues to be the safe-haven asset class of choice among investors; the precious metal has bullish momentum at present with long-term support levels holding and resistance levels quickly being broken. While its fantastic rise in price is something one would attribute to a bubble, continued economic uncertainty is only likely to support gold prices further.”

The long-term sustainability of gold prices is compounded by fears of recession, say the analysts.

“I’m bearish on the economy and I don’t think the gold price is tied to debt,” says Roger Nightingale, strategist at Agency Partners. “Debt is irrelevant. It is more because the economy is in desperate trouble and investors are realising this. Investors are also realising that the central banks’ abilities to manage money supply and to direct it into the stock market is not happening and their investments need to be directed in the safest options – gold and bonds. While some people say they hate bonds and gold because they are over-valued, they are by far safer options to invest in, compared to stocks. With the rush of money going into these asset classes, it will push up the price and keep it at that level for as long as the economy is in the situation it is now.”

“The health of the financial system and government finances, interest rates and inflation are thus paramount to the outlook,” says Wills. “Will governments be able to sustainably serve the debt hangover from post-credit crisis stimulus? Do banks have sufficient capital to withstand any downgrade in government finances? Is QEIII back on the table in the US, with further acceleration in money supply even as inflation remains elevated? How fast will interest rates and yields on risk assets rise should growth recover? These are among key questions investors need to ask when considering the sustainability of the recent vault higher in gold prices.”

[Source]

New record high in gold established in earlier European trading at 1876.81.

August 18 (Bloomberg) — Stocks plunged while Treasuries rallied, pushing yields to record lows, amid growing signs the economy is slowing and speculation that European banks lack sufficient capital. Gold climbed to a record, while oil led commodities lower.

The Standard & Poor’s 500 Index tumbled 4.5 percent to 1,140.74 at 4 p.m. in New York. The Stoxx Europe 600 Index lost 4.8 percent in its worst plunge since March 2009 and Germany’s DAX Index slid 5.8 percent, the most since 2008. Ten-year Treasury yields fell as much as 19 basis points to 1.97 percent as rates on similar-maturity Canadian and British debt also reached all-time lows. The dollar gained versus 15 of 16 major peers, strengthening 0.6 percent to $1.4336 per euro. Gold futures rallied as much as 2.1 percent to $1,832 an ounce, while oil slid 5.9 percent.

[source]

August 18 (CNBC) — European equities suffered their biggest daily fall in two and a half years on Thursday, as a slew of data cast further doubt on the strength of the recovery in the world’s biggest economy.

German shares lost most, with traders citing the effects of a short-selling ban on financial stocks in other parts of Europe and intensifying worries about politicians’ lack of a plan to address the euro zone sovereign debt crisis.

The European banking sector, exposed to the euro zone debt crisis, fell 6.6 percent and is down 29.7 percent this year.

[source]

Richard W. Fisher
President and Chief Executive Officer
Federal Reserve Bank of Dallas
Remarks at the Midland Community Forum
Midland, Texas
August 17, 2011

FOMC Decision
Now to the second matter I wish to discuss with you today: my decision to dissent from the commitment of the majority of my colleagues on the FOMC in their decision to hold the base interest rate for interbank lending―the fed funds rate, the anchor of the yield curve―at its current level well into 2013.

I have posited both within the FOMC and publicly for some time that there is abundant liquidity available to finance economic expansion and job creation in America. The banking system is awash with liquidity. It is a rare day when the discount windows―the lending facilities of the 12 Federal Reserve banks―experience significant activity. Domestic banks are flush; they have on deposit at the 12 Federal Reserve banks some $1.6 trillion in excess reserves, earning a mere 25 basis points―a quarter of 1 percent per annum―rather than earning significantly higher interest rates from making loans to operating businesses. These excess bank reserves are waiting on the sidelines to be lent to businesses. Nondepository financial firms—private equity funds and the like―have substantial amounts of investable cash at their disposal. U.S. corporations are sitting on an abundance of cash―some estimate excess working capital on publicly traded corporations’ books exceeds $1 trillion―well above their working capital needs. Nonpublicly held businesses that are creditworthy have increasing access to bank credit at historically low nominal rates.

I have said many times that through the initiatives we took to counter the crisis of 2008–09, and the dramatic extension of the balance sheet that ensued, the Fed has refilled the tanks needed to fuel economic expansion and domestic job creation. Though I questioned the efficacy of the expansion of our balance sheet through the purchase of Treasury securities known as “QE2,” I have come to expect that the Federal Open Market Committee would continue to anchor the base lending rate at current levels and also maintain our abnormally large balance sheet, now with footings of almost $2.9 trillion, for “an extended period.”

I do not believe it wise to commit to more than that, or to signal further accommodation, when the cheap and abundant liquidity we have made available is presently lying fallow, and when the velocity of money remains so subdued as to be practically comatose. At the FOMC meeting, the committee announced that it “currently anticipates that economic conditions … are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.” In monetary parlance, that is language designed to signal that we are on hold until then.

I voted against that commitment-cum-signal. In the press’ reporting of my dissenting vote and those of the other two members of the FOMC who voted against that commitment―Mr. Kocherlakota, my counterpart from the Minneapolis Fed, and Mr. Plosser, my counterpart from Philadelphia―there was substantial speculation as to the reasons for our dissent. I will let my other two colleagues speak for themselves; I can only speak for myself. Let me make clear why I was opposed to freezing the fed funds rate for two years.

…In the interest of full disclosure, I should add that I was also concerned that just by tweaking the language the way the committee did, our action might be interpreted as encouraging the view that there is an FOMC so-called “Bernanke put” that would be too easily activated in response to a reversal in the financial markets. For those of you unfamiliar with the expression “Bernanke put,” or more generally, a “central bank put,” this term refers to the concept that a central bank will allow the stock market to rise significantly without tightening monetary policy, but will ease monetary policy whenever there is a stock market “correction.” Given the extent of the drop in the stock market leading up to and following Standard & Poor’s downgrade of U.S. debt, combined with the FOMC’s commitment to hold short-term rates near zero until mid-year 2013, some cynical observers might interpret such a policy action as a “Bernanke put.” My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors. I believe my FOMC colleagues share this view.

[full speech]

August 18 (Bloomberg) — Venezuelan President Hugo Chavez ordered the central bank to repatriate $11 billion of gold reserves held in developed nations’ institutions such as the Bank of England as prices for the metal rise to a record.

Venezuela, which holds 211 tons of its 365 tons of gold reserves in U.S., European, Canadian and Swiss banks, will progressively return the bars to its central bank’s vault, Chavez said yesterday. JPMorgan Chase & Co. (JPM), Barclays Plc (BARC), and Standard Chartered Plc (STAN) also hold Venezuelan gold, he said.

“We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Chavez said yesterday on state television. “It’s a healthy decision.”

[source]

PG View: I wonder if private requests for a return of their gold met resistance; and that’s why Venezuela has gone public?

August 18 (The Wall Street Journal) — .S. stocks tumbled as further concerns rose about flagging global economic activity, as investors digested a grim mix of weak U.S. economic data and fresh concerns about the health of Europe’s banks.

The Dow Jones Industrial Average fell 434 points, or 3.8%, to 10978. The Standard & Poor’s 500-stock index dropped 51 points, or 4.3%, to 1143, while the Nasdaq Composite lost 116 points, or 4.6%, to 2397.
Market Data Center

Gold jumped to above $1,820 per troy ounce, while Treasurys the yield on the benchmark 10-year note briefly dipped below 2.00% in intraday trading, for the first time since at least 1954.

[source]

August 18 (CNBC) — Morgan Stanley slashed its global growth forecast for 2011 and 2012, saying the U.S. and the euro zone were “dangerously close to a recession”, and criticized policymakers in Washington and Europe for not acting more decisively to contain the sovereign debt crisis.

The bank cut its global gross domestic product growth forecast to 3.9 percent from 4.2 percent for 2011, and to 3.8 percent from 4.5 percent for 2012.

“Our revised forecasts show the US and the euro area hovering dangerously close to a recession — defined as two consecutive quarters of contraction — over the next 6-12 months,” Joachim Fels, who co-heads Morgan Stanley’s global economics team, said in a research note dated Wednesday.

[source]

August 17 (MarketWatch) — It’s apparently wrong to believe that growth in emerging markets will benefit developed nations.

While emerging markets should continue to grow rapidly over the next few years – by an average of 6% annually — they also will keep running a large current account surplus, said Neal Shearing, senior emerging markets economist at Capital Economics, in a note to clients issued Wednesday. So “far from helping the developed world out of its rut, emerging economies are becoming an increasing drag on demand in the rest of the world.”

There needs to be a “significant expansion in import demand from the likes of China and the oil producers” if rapid growth in the emerging world is to benefit the developed world, he said.

[source]

August 17 (Reuters) — Venezuelan President Hugo Chavez said on Wednesday he plans to nationalize the gold sector — including extraction and processing — and use the production to pad the country’s international reserves.

Chavez, speaking on state television, said he would carry out the nationalization through a decree in coming days.

[source]

PG View: Okay, right back to questioning Chavéz’s sanity…

August 17 (The Wall Street Journal) — Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.

Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.

[source]

PG View: There have been plenty of reasons to question President Chávez’s sanity in recent years, but seeking to lessen Venezuela’s dependence on the dollar and removing assets, particularly their gold, from Western banks is actually pretty prudent. It will be interesting to see how forthcoming those Western banks will be in facilitating the repatriation of Venezuela’s gold.

Dollar Drops, Putting Renewed Upward Pressure on Gold

Gold has rebounded to move back within $10 of the 1800 handle as the dollar comes under renewed selling pressure. Despite recent BoJ intervention, the USD-JPY rate is right back plumming its record lows. While the SNB intervened again today with a big expansion of sight deposits, the impact on the franc was muted because a currency peg is now seen as the central bank’s ‘big stick.’ Anything short of a peg to the euro may now be viewed as a half-measure — a delaying action — and the market will be prone to fade the action.

The euro remains underpinned even after yesterday’s meeting between German Chancellor Merkel and French President Sarkozy proved to be a general disappointment. The leaders of the EU’s two largest economies stressed that further integration of Europe was necessary; Mr. Sarkozy saying that the status quo is “impossible.” However, they ruled out creation of eurobonds and expansion of the ESFS bailout fund…at least for now. Given the dire situation in the eurozone, the market was hopeful for some measures with immediate impact. Apparently such measures will not be forthcoming and policymakers within the EU will stumble along from emergency meeting to emergency meeting trying to contain the crisis with rhetoric and half-measures.

Yields on the US 10-year note have fallen back below 2.25% this week as investors scramble to find a safe-haven amid rising global uncertainty and growth risks. However, when you factor in the dollar risk to that pittance of a yield, it’s hard to imagine a profitable outcome if you were take such an investment to term. While the odds of further Fed accommodations in the near term are generally still pretty good, today’s higher than expected PPI data for Jul may hamstring the Fed to some degree. Nonetheless, the S&P downgrade seems to have had little impact on demand for Treasuries at this point.

The real shift in appetite for bonds came from our overseas creditors in the early stages of the debt ceiling debate. TIC data released Monday revealed there were $18.3 bln in total non-central bank Treasury sales in June. The net sale was $4.5 bln; the first net sale since May 2009. We’ll have to see if recent Treasury buying was purely associated with flight from the stock market volatility. If the allocations prove not to be sticky — perhaps because of the attendant dollar risks — there may in fact be flight from Treasuries to the safer-haven of gold.

August 17 (MarketWatch) — Gold futures rose on Wednesday, vying for another record close as investors remain nervous about the euro zone’s sovereign-debt crisis and weak global growth.

Gold for December delivery gained $8.40, or 0.5%, to $1,794.30 an ounce on the Comex division of the New York Mercantile Exchange.

[source]