August 31 (Reuters) — Colombia joined the ranks of official sector gold buyers in July for the first time in 13 years, along with Russia, mirroring the trend among emerging central banks to diversify their currency portfolios.

International Monetary Fund data released on Wednesday showed Russia, which is already the world’s eighth largest official holder of bullion, raised its reserves by 4.42 tonnes in July to 841.131 tonnes, while Colombia added 2.3 tonnes to bring its reserves to 9.14 tonnes, its first increase since March 1998.

[source]

By Mark Gongloff
August 31 (The Wall Street Journal) — Roll up your sleeve, it’s time for a syringe full of fact! Gold has just blown the triple whistle on its best month since November 2009.

The Barbarous Relic gained $200.20 this month, or 12.3%, to finish at $1828.50. That’s the biggest percentage gain since November 2009.

It’s up nearly 29% for the year and 47% from a year ago. It’s just 3% away from its record high.

In accepting this award, gold would like to thank Europe for continuing to not get its act together and the Federal Reserve for keeping interest rates low until the sun goes supernova.

[source]

by Sen. Jim DeMint
August 31 (Politico) — In the run-up to the financial crisis, the Federal Reserve fueled the housing bubble with its easy money policy. Now, we know that after the crisis struck, the Fed secretly propped up elite bankers all the way from Wall Street to Brussels to the Central Bank of Libya.

A Bloomberg news investigation found that while the Treasury Department was pumping $700 billion into banks under the Troubled Asset Relief Program, the Fed was covertly operating its own bailout program – the biggest in American history. The Fed’s Shadow TARP issued $1.2 trillion in loans to domestic and foreign banks from 2007 to 2010, far more than Congress authorized Treasury to spend under TARP.

…Congress eventually approved a partial audit that showed the Fed extended an incredible $16 trillion – more than the entire U.S. economy – in aggregate lending authority to foreign and domestic banks from the end of 2007 to the middle of 2010.

…After the second round of quantitative easing was announced, Chinese Vice Finance Minister Zhu Guangyao said America “does not recognize, as a country that issues one of the world’s major reserve currencies, its obligation to stabilize capital markets.”

German Finance Minister Wolfgang Schaeuble was more blunt, calling the Fed “clueless.”

[source]

August 30 (CNBC) — Global recession in 2012 is “65 to 75 percent certain” and could deteriorate into a lengthy depression, Roger Nightingale, economist and strategist at RDN Associates, told CNBC.

The peak rate of growth for the world’s economy occurred more than 12 months ago and “it carries on going down,” Nightingale said. “We are probably going into negative territory around spring of next year; it is not for certain, but that is the most likely scenario. I would say the recession is 65 percent, 75 percent certain.”

The economist warned that should recession kick in, the global economy might be too weak to generate any GDP growth for years, or even decades.

[source]

August 31 (USAGOLD) — Gold is modestly lower this morning, but still generally well bid amid rising expectations that the Fed is preparing to ease once again. The St. Louis Fed’s Bullard was hinted in the Japanese press that the Fed may indeed embark on QE3, depending on upcoming data. Bullard added a caveat, saying that it should be confirmed that inflation has eased first. These comments come on the heals of very dovish Fedspeak by Chicago Fed’s Evans on Tuesday.

Today’s weaker that expected ADP employment index may further temper expectations for Friday’s August nonfarm payrolls report. Consensus is running around +93k, following the +117k print for Jul. The unemployment rate is expected to remain unchanged at 9.1%.

• US ADP employment index rose 91k in Aug, below market expectations of 100k, vs negative revised 109k in Jul.
• Canada Q2 GDP -0.4%, below market expectations of +0.1%, vs +3.6% in Q1. GDP +0.2% in Jun, vs -0.3% in May.
• UK GfK consumer confidence fell to -31 in Aug, above market expectations of -33, vs -30 in Jul.
• Italy CPI – EU Harmonized (prelim) rose to 2.2% y/y in Aug; +0.3% m/m.
• Italy PPI rose to 4.7% y/y in Jul, vs 4.3% in Jun; +0.3% m/m.
• German retail sales unch m/m in Jul, better than market expectations of -2.0%, vs big downward revision to 4.5% in Jun; -1.6% y/y.
• German unemployment rate unchanged at 7.0% (sa) in Aug, in-line with expectations.
• Eurozone unemployment rate unchanged in Jul at 10.0%, above market expectations, vs upward revised 10.0% in Jun.
• South Korea industrial production +3.8% y/y in Jul, vs 6.5% in Jun.
• Japan industrial production (prelim) +0.6% m/m (sa) in Jul, well below market expectations, vs 3.8% in Jun.
• Japan Markit/JMMA PMI falls to 51.9 in Aug, vs 52.1 in Jul.
• Japan construction orders +5.7% y/y in Jul, vs +6.0% in Jun.

President Obama is nominating Alan Krueger for chairman of the Council of Economic Advisers. He is more than qualified based on his resume, but the question is whether is the right man for the job right now.

By Daryl G. Jones
August 30 (CNN) — President Obama has been fairly predictable in his selections for key cabinet and personnel decisions. Generally, the key members of the Obama team have two criteria: they have served in government before and they served in the Clinton administration.

…A review of Krueger’s writings has also revealed that he is about as Keynesian as economists come.

[source]

A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, August 9, 2011, at 8:00 a.m.

[source]

PG View: Some members “considered conditioning the outlook for the level of the federal funds rate on explicit numerical values for the unemployment rate or the inflation rate.” Further asset purchases and ‘curve-flattening’ were considered, which has added to gold’s bid today on rising expectations of such measures come 21-Sep.

August 30 (Gallup) — Thirty-four percent of Americans say gold is the best long-term investment, more than say so about four other types of investments. Real estate (19%) and stocks (17%) are distant second choices.

…Traditionally, gold — like the U.S. dollar — has been a safe haven in times of economic and political turmoil. It is a globally accepted store of value and one of the most highly desired precious metals.

The demand for gold has soared in recent years, as the financial crisis engulfed the global banking industry. More recently, the efforts of nations around the world and their monetary authorities to stimulate the global economy and avoid a repeat of the 1930s have made gold even more attractive. Current sovereign debt problems have only added to the demand for gold.

[source]

PG View: Then why pray-tell is global allocations to gold such a miniscule percentage of total financial assets (less than 1%)?

The answer of course is that Americans — like much of the rest of the world — have just recently begun to realize that the more traditional asset classes that they have been force-fed for decades aren’t all they are cracked up to be. They are perhaps just beginning to protect some of their wealth with hard assets such as gold. Imagine the likely price reaction in the yellow metal if allocations simply climbed back to 2% of global financial assets!

This reality is also a pretty convincing dismissal of Gallup’s suggestion that one in three American’s viewing gold as a good investment may be indicative of a bubble. While one in three may indeed believe gold is a sound long-term investment, there’s no-way that one in three Americans actually own any gold yet. I’d be surprised if it’s even close to one in one-hundred!

(August 30) Bloomberg — Gold rose in New York on speculation that the Federal Reserve will ease monetary policy further to stimulate the economy, boosting the appeal of the precious metal as an alternative asset.

“We need to do more,” Chicago Fed President Charles Evans said today in a CNBC interview. The Standard & Poor’s 500 Index fell after a report showed confidence among U.S. consumers plunged in August to the lowest in almost two years. Gold has rallied 12 percent this month, touching a record $1,917.90 an ounce on Aug. 23.

“Classic flight-to-safety instruments are getting a bid today,” Adam Klopfenstein, a senior market strategist at MF Global in Chicago, said today in a telephone interview. “The inverse correlation between equities and gold will persist. Liquidity measures put the inflationary card in the picture. It’s the perfect storm to be long gold.”

[Source]

August 30 (MarketWatch) — Gold futures regained the $1,800-an-ounce mark Tuesday, surging more than 2% as investors questioned the rebound for U.S. equities and had lingering concerns about the state of the global economy.

Gold for December delivery rose $41.70, or 2.3%, to $1,833.20 an ounce on the Comex division of the New York Mercantile Exchange.

[source]

Push For QE3 Commences in Earnest

Just days after Fed chairman Bernanke left the door slightly ajar for QE3 in his Jackson Hole speech, the market is already attempting to kick that door wide-open. Bernanke claimed that the central bank has pretty much done all it can do and asked for lawmakers to do more on the fiscal side. However, in the wake of the contentious debt ceiling debate, investors rightfully are assuming there will be no political compromises on fiscal stimulus until after the 2012 Presidential election. And even then, unless one party holds the Oval Office and both Houses of Congress, it would be doubtful.

Therefore the ball is squarely in the Fed’s court. If there is to be any stimulus at all, it will have to be the monetary kind. The market is already looking forward to the September FOMC meeting in 3-weeks, anticipating that the punchbowl will inevitably be refilled and the party can continue. Today’s terrible consumer confidence print for August will add further impetus to the cup-banging for ‘more punch.’

Consumer confidence plunged to 44.5 in August, a level not seen since the worst days of the financial crisis in April 2009. The decline from the negatively revised 59.2 reading in July was the biggest point drop since October 2008, just after the collapse of Lehman Brothers.

ZeroHedge cited a Goldman Sachs report today that states that they believe further monetary easing is indeed in the offing. They do suggest that inflation, which continues to be at the high end of expectations, and last week’s better than expected PCE data are potential mitigating factors. Although I would argue that today’s big confidence miss pretty much offsets the latter, and perhaps the former as well.

Goldman suggests some “radical” measures that the Fed might employ that may garner some more favorable results than the QE measures of the past. If the Fed does indeed go “radical,” so too would the gold market in all likelihood. As the pseudonymously named Tyler Durden of ZeroHedge quipped, “we hope readers have their gold $3000 calls firmly in place.”

August 30 (Bloomberg) — Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured.

The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month.

[source]

August 30 (USAGOLD) — Gold has rebounded in early NY trading to exceed Friday’s high at 1828.85, following dovish comments from the Chicago Fed’s Evans on CNBC. Evans acknowledged that the economy has not reached “escape velocity” and that current weak labor conditions were consistent with a recession. Evans went on to say that he “definitely favors strong accommodation at this point.”

Grim confidence readings out of the eurozone have weighed on the single currency, adding to the bid in gold. Gold continues to retrace recent corrective losses against the euro amid speculation over further ECB bond buying, despite German objections. Weak Italian debt auction.

• US S&P Case-Shiller home prices +1.1% nsa in Jun for 20-cities; -4.5% y/y.
• Canada current account deficit widened to -C$15.3 bln in Q2.
• Eurozone economic confidence fell to 98.3 in Aug, below market expectations, vs 103.2 in Jul. Consumer, industrial and services confidence all fall.
• Eurozone business climate falls to 0.07 in Aug, vs 0.45 in Jul.
• Japan unemployment rate 4.7% in Jul, a tick higher than expectations, vs 4.6% in Jun.
• Japan personal income rose to 1.6% y/y in Jul, vs upward revised -6.0% in Jun; PCE -2.1% y/y, vs upward revised -3.5% in Jun.
• Japan total retail Sales +0.7% y/y in Jul, below market expectations, vs 1.1% in Jun.

August 29 (The Wall Street Journal) — “Delay and pray” is not a viable fix for the household sector’s woes. Indeed, it may only be making things worse.

In a marked shift from their borrow-and-spend behavior during the boom, U.S. households are now by and large prioritizing saving and debt reduction. On Monday, the Commerce Department is to release July figures likely to show the personal saving rate, or proportion of after-tax monthly income unspent, in the 5% to 5.5% range it has maintained for roughly the past 18 months.

Though that remains below the 7% to 8% average of prior decades, this recent upswing is a welcome turn from the near-zero saving rates of years past.

[source]

PG View: While personal consumption expenditures (PCE) rose 0.8% in July, the recent rise in the personal savings rate is certainly not welcomed by retailers, nor the Federal government. They don’t want you to save. They want you to spend. Nothing would please them more than to see the saving rate drop back to zero or even lower. The Fed recently made it clear that they would continue to disincentivize saving by keeping short-term rates near 0% for at least another two-years. This allows banks to pay a negative yield in real-terms, below the rate of inflation. It therefore makes perfect sense to hold some of your savings in gold.

How did a Philadelphia family get hold of $40 million in gold coins, and why has the Secret Service been chasing them for 70 years?

by Susan Berfield
August 25 (Business Week) — The story of a Philadelphia coin dealer, and his family, and how they came to possess 10 1933 $20 St. Gaudens, found unexpectedly in their safe deposit box…only to lose their battle to retain ownership in a Philadelphia courthouse.

[Story]

August 29 (Bloomberg) — Central bankers gathered at an annual retreat in Jackson Hole, Wyoming, this weekend had a message for political leaders: monetary policy alone can’t keep the global expansion going.

Federal Reserve Chairman Ben S. Bernanke urged adoption of “good, proactive housing policies” to reverse the depressed U.S. real estate market and warned lawmakers to avoid steps that may hurt short-term growth. Ewald Nowotny of the European Central Bank Governing Council said euro-area governments should expand the powers of their regional bailout fund.

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Bernanke said at the annual conference of policy makers and economists, sponsored by the Kansas City Fed.

[source]

August 29 (Reuters) — Record gold prices, rather than denting China’s enthusiasm for bullion, have emboldened investors to plough more money into gold bars and riskier bullion-based derivatives.

August is traditionally a slow month for Chinese jewelers, but many shops in Shanghai visited by Reuters reported surprisingly solid gold sales over the last few weeks, with shoppers unfazed by gold’s stellar price gains over the past few months.

[source]

German Chancellor Angela Merkel no longer has enough coalition votes in the Bundestag to secure backing for Europe’s revamped rescue machinery, threatening a consitutional crisis in Germany and a fresh eruption of the euro debt saga.

By Ambrose Evans-Pritchard
August 28 (The Telegraph) — Mrs Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country’s constitutional court rules on the legality of the EU’s bail-out machinery.

If the court rules that the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty, it risks setting off an instant brushfire across monetary union.

The seething discontent in Germany over Europe’s debt crisis has spread to all the key institutions of the state. “Hysteria is sweeping Germany ” said Klaus Regling, the EFSF’s director.

German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel’s own coalition plan to vote against the package, including twelve of the 44 members of Bavaria’s Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.

[source]

Dregs in the Punchbowl…For Now

Fed chairman Bernanke didn’t refill the punchbowl today as some had expected, choosing instead to reiterate the message from the FOMC statement earlier in the month, that “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.” While perhaps not as overt as the signal of QE2 at last year’s Jackson Hole meeting, the market seemed to think that the Fed stands ready to offer further accommodations, perhaps as soon as the September FOMC meeting. That meeting was expanded to a two-day meeting (Sep 20/21), to “allow a fuller discussion.” In the interim, the market is going to have to get by with the dregs provided by ongoing reinvestment of maturing assets.

Stocks originally sold off on Bernanke’s speech, then rebounded as the chairman’s words were evaluated by seasoned Fed watchers, familiar with the nuances of Fedspeak. Gold down-ticked modestly early on, then continued to retrace the sharp correction that commenced after the yellow metal set a new all-time high at 1911.69 on Monday. Gold closed on its highs for the day, with nearly 61.8% (an important Fibonacci retracement) of the entire correction from 1911.69 to 1702.95 recouped. Despite the volatility this week, gold ended up down just 1.3%.

If more Fed “juice” is indeed forthcoming, as the market clearly seems to expect, gold will likely continue it’s march higher. However, what do we really stand to gain? US Q2 GDP was revised lower on Friday to a paltry 1.0%, and that anemic growth was during the midst of the Fed’s QE2 campaign. I’m not sure that we can expect much better results if additional asset purchases are in the offing, and Bernanke himself has expressed concerns about further expansion of the Fed’s balance sheet.

There was an interesting article on the Project Syndicate website this week by Stephen Roach, entitled One Number Says it All. The number to which Roach refers is 0.2%, “the average annualized growth of US consumer spending over the past 14 quarters – calculated in inflation-adjusted terms from the first quarter of 2008 to the second quarter of 2011.” Roach goes on to say, “Never before in the post-World War II era have American consumers been so weak for so long.”

That is indeed a terrible number, perhaps even downright devastating for an economy that is 70% driven by consumption. It also drives home a point that I’ve been making for some time about deficit and debt projections being based on a wildly optimistic growth outlook. Roach concurs, saying, “persistent weakness in consumption and GDP growth puts the US economy on a much weaker growth trajectory than that which is built into the government’s long-term budget estimates.” The CBO just upped their estimate of the FY2011 deficit to $1.3 trillion, and that too is likely to be revised higher over time. Meanwhile, Congress compromised on the debt ceiling hike by promising to cut $917 bln in spending…over the next 10-years! The first rule for getting out of a hole: Stop digging!

As the US is saddled with an ever greater debt burden, the Fed may indeed be obliged to offer further accommodations ‘to infinity and beyond’ (to borrow a phrase from Buzz Lightyear), lest debt servicing costs become such an oppressive percentage of GDP that all-hope of recovery is dashed. But even with more easing, it is unlikely to end our consumption malaise. That won’t happen until household debt has been deleveraged and Americans are once again feeling secure in their jobs. Bernanke must be aware of this reality; and perhaps that figured into his decision today to keep his remaining powder dry and chastise Congress for its ineptness in crafting any kind of meaningful fiscal policy response. Getting out of the debt hole can not be simply left on the Fed’s doorstep as a matter of political expediency.

Monetary policy is a blunt instrument. The Fed does us no favors by printing money and artificially suppressing yields indefinitely through asset purchases, but our elected officials have done neither the Fed nor us any favors by shirking their responsibilities on the fiscal side.

Given the realities within the beltway, it is likely that we have years of slow growth and high unemployment ahead of us, with severe bouts of systemic risks to boot. If by some miracle, our lawmakers put their partisan ways aside and America takes her bitter medicine, its going to burn like hell going down, but we just might come out of this stronger on the other side. Arguably the former is far more likely; but however this ultimately shakes out, gold will continue to serve as a critical hedge and means of wealth preservation.
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