CNBC coverage of gold hitting another record high today, with projections of $1800-$2000…..

Video: 3.5 min

We’re pleased to present our latest RoundTable video discussion with our staff experts George Cooper, Peter Grant and Jonathan Kosares

Immediate access here

Excerpt: Now that the debt ceiling debate is over, and the dust is settling, the market is beginning to get a picture of what, if anything, was accomplished, and can be expected moving forward. The $2 trillion in cuts over ten years amounts to a small dent in our annual deficit, suggesting that the U.S. will continue to increase its debt to GDP ratio over the coming decade. The cuts suggested will merely slow, not reverse, this trend. In the end, this debt deal is nothing more than a giant kick of the can down the road, and a short road at that. The hike to the debt ceiling looks to only buy about six months, so this issue is set to be revisited next year. The market has digested this “resolution” as such, and gold has responded sharply higher, rising $60 in two days. The DOW meanwhile has come under significant pressure, shedding over 800 points in a week. Things across the pond are not looking any better. The credit facility set up by the ECB is insufficient at best, and contagion remains an enormous risk. Spreads on sovereign debt in Italy, Spain, Greece, Portugal and Ireland are at or near all time highs. As talks of dramatically expanding the credit facility heat up, we’re left to wonder if its even possible for Europe to “go big enough” to calm market jitters. With Peter Grant, George Cooper, and Jonathan Kosares. (24 min)

August 03 (Bloomberg) — Gold futures rose to a record $1,675.90 an ounce on signs that the U.S. economy is faltering amid debt woes, boosting demand for the precious metal as an investment haven.

Moody’s Investors Service said the U.S. credit rating may be downgraded and yesterday placed the country on negative outlook after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending. Gold priced in euros also reached a record on concern that slowing growth will hamper efforts by Spain and Italy to trim debt.

“People want gold for safety,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “People are running away from currency volatility, economic weakness and political instability. Gold is an international currency, and no government can print any of it.”

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Anticipated Correction in Gold Fails to Materialize

It was widely expected that a deal to raise the debt ceiling would prompt an unwinding of safe-haven positions. Nothing could have been further from the truth; for as we had suggested in recent weeks, whatever happened, there was some form of economic peril to contend with. Despite the compromise announced Sunday evening, that was eventually signed into law by President Obama yesterday, gold, the Swiss franc and yen all extended into record territory. While the Swiss franc corrected after the SNB unexpectedly cut the Libor target to 0% and the yen moved off its high on concerns that the BoJ may act as well, the yellow metal remains well bid.

It’s worth noting that the impact of the SNB’s action was short-lived and the franc has retraced nearly all of its intraday losses against the dollar; and most of its losses against the euro. As a general rule, interventions are at best delaying actions. Very rarely are they successful in reversing trends. Nonetheless, the threat of further measures against both the Swiss franc and the yen may actually end up increasing the appeal of gold as the safe-haven of choice.

The debt deal does nothing more than slow the amassing of debt in the US, and there are some serious doubts as to whether it actually will do that. Meanwhile, evidence is mounting that the one thing that is certainly slowing is economic growth. The spending cuts that are part of the deal will not help with reinvigorating growth and may in fact prove to be an impediment. Name your poison: If you think that the focus should be on deficit reduction, the economy is likely to suffer as a result. If you think the government should borrow and spend to fill the void left by private capital during a recession, you get a bigger debt.

Arguably it is decades of government efforts to circumvent normal business cycles that has gotten us to this point. It is the accumulation of that debt over time that is the problem. As debt servicing costs become an ever-larger percentage of GDP our choices become increasingly limited and none of those choices are particularly appealing to large swaths of the voting public: A smaller government and reduced government services. Or higher taxes.

Ah, but there is a third option, one that is perhaps most appealing to our Representatives in Washington because it requires no action on their part: Further devaluation of the dollar. The lack of any meaningful fiscal action by Congress may well prompt the Fed to act, essentially printing money to pay down our massive debts. It is essentially the stealthy confiscation of wealth through inflation on the entirety of the US population, without cutting anything or raising taxes on anyone.

Make no mistake though, there are consequences of such action. The continued erosion of the American standard of living for one thing. As consumers focus more on necessities as they try to stretch their paychecks, nonessential consumer goods are likely to be cut from family budgets. In a consumer-driven economy such as ours, that will result in further economic contraction and even higher unemployment, which may then prompt deflation to rear its ugly head.

It is well documented that the Fed views deflation as a far greater evil that inflation, so the Fed would likely react to the threat of the former by further increasing the money supply. The cycle could repeat time and time again for decades, as evidenced by Japan. Recent lowered expectations of US economic growth have indeed resulted in renewed talk about QE3. If the Fed signals there willingness to launch further accommodations, either at next week’s FOMC meeting or at the upcoming Jackson Hole summit (26-Aug), the latest leg higher in the gold market may have a way to run.

August 03 (USAGOLD) — Gold extended to yet another new record high at 1672.94 in overseas trading and remains well bid thus far during the US session. The US debt deal did little to alleviate market worries; consequently, the correction that everyone seemed to be anticipating failed to materialize and sellers remain an endangered species.

The SNB slashed rates today in an effort to take the wind out safe-haven demand for the “massively overvalued” Swiss franc. The relief they got was short-lived. The franc is back near record high territory versus the dollar and a majority of the retreat against the euro has been retraced as well. Direct FX market intervention would be their next step.

Japan continues to express concern over the high-flying yen as well. With their interest rates already at zero, direct intervention is about their only option. There has also been heightened talk about more quantitative easing.

If intervention — or the threat thereof — makes these two safe-havens less “safe,” it may well end up making gold even more desirable.

• US ISM services index fell to 52.7 in Jul, below market expectations, vs 53.3 in Jun.
• US factory goods orders -0.8% in Jun, about what the market was expecting, vs negative revised +0.6% May.
• US ADP payrolls survey +114k in Jul, above market expectations of 100k, vs negative revised 145k in Jun.
• Eurozone Reuters Composite PMI (final) 51.1 in Jul, below market expectations, vs 50.8 preliminary print.
• Eurozone Reuters Services PMI (final) 51.6 in Jul, above market expectations, vs 51.4 preliminary print.
• Eurozone Jun retail sales -0.4% in Jun, above market expectations, vs negative revised -2.3% in May.
• Swiss Nation Bank unexpectedly cut the Libor target to “as close to zero as possible.”
• UK CIPS Services PMI 55.4 in Jul, above market expectations, vs 53.9 in Jun.

August 03 (Reuters) — Central banks of emerging market countries such as Korea and Thailand have added more than $10 billion of gold to their reserves this year in a sign of waning faith in the West’s benchmark bonds and currencies like the dollar and the euro.

International Monetary Fund data for June on Wednesday showed Thailand bought gold for the second time this year, raising its reserves by nearly 19 tonnes to over 127 tonnes, while Russia bought another 5.85 tonnes, bringing its reserves to 836.7 tonnes, the world’s eighth largest official stash of the metal.

So far in 2011, emerging market central banks have bought nearly 180 tonnes of gold, more than double the roughly 73 tonnes purchased by central banks globally in the whole of 2010.

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August 03 (MarketWatch) — Gold futures kept their rally Wednesday, touching an intraday record on their way to a settlement high mark as the metal’s safe-haven appeal pulled in investors amid a decline for equities worldwide.

Gold futures for December delivery climbed $28.30, or 1.7%, to $1,673.40 an ounce on the Comex division of the New York Mercantile Exchange.

It traded as high as $1,675.90, an intraday record for the metal.

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August 02 (Bloomberg) — Federal Reserve policy makers may start weighing additional steps to prop up the recovery after growth fell below 1 percent in the first half of this year and economists began cutting second-half growth forecasts.

“At a minimum, the FOMC will have a serious debate about the policy options — what they should do, and what they expect to get from it,” said Roberto Perli, a former associate director in the Fed’s Division of Monetary Affairs, referring to the Federal Open Market Committee. “Growth in the first half was dangerously close to zero,” said Perli, director of policy research at International Strategy & Investment Group.

The FOMC will meet Aug. 9 in Washington after the government marked down its measure of economic growth to annual rates of 0.4 percent in the first quarter and 1.3 percent in the second, casting doubt on the Fed’s June outlook of 2.7 percent to 2.9 percent growth for this year.

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PG View: Expectations of more Fed juice equals higher gold prices (see today’s action). Actual Fed juice equals much higher gold prices.

August 02 (CNNMoney) — U.S. stocks plunged on Tuesday as fears about a weak U.S. economy were enflamed after investors got another disappointing economic report – this time on consumer spending.

The selloff was so broad and so deep it pushed the S&P 500 into negative territory for the year and bond yields to their lowest levels in nine months.

…The Dow Jones industrial average plunged 266 points, or 2.2%, to close at 11,867.

…This was the eighth-straight day of declines for the Dow — a losing streak not seen since October 2008, when the financial system was in the depths of the crisis. The Dow has fallen roughly 6.7% since the sell-off began on July 22.

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PG View: Meanwhile, gold was up more than $40 — nearly 2.6% — establishing a new record high at 1660.55.

August 02 (Financial Times) — The spectre of an imminent US default on its debt disappeared as legislation to increase America’s borrowing authority cleared its last remaining hurdle in the Senate and was signed by President Barack Obama.

The last-minute congressional approval of an increase in the debt ceiling came after weeks of aggressive political rhetoric and fraught negotiations over fiscal policy that carried the country to the brink of a potential economic calamity, threatening its triple A credit rating and the status of Treasury bonds as a safe harbour for global investors.

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PG View: Oh, but the saga is far from over. Far, far from over.

August 02 (Politico) — Treasury won an immediate reprieve of $400 billion in new borrowing authority Tuesday, as the Senate gave final approval to a hotly contested debt and deficit-reduction agreement hammered out with the White House Sunday night.

The bipartisan 74-26 roll call followed a 269-161 vote in the House Monday evening and the bill was quickly signed by President Barack Obama, ending an unprecedented, hard-edged political struggle that pushed the nation to the brink of default.

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August 02 (MarketWatch) — Gold futures traded at a record high Tuesday, gathering steam after U.S. government data showed consumers held on to their wallets in June and investors grew more concerned about a double-dip recession in the U.S.

Gold for December delivery added $21.60, or 1.3%, to $1,643.40 an ounce on the Comex division of the New York Mercantile Exchange.

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August 02 (Bloomberg) — Gold futures surged to a record $1,645.80 an ounce as escalating concern that the global economy is losing momentum spurred demand for the precious metal as an investment haven.

U.S. equities headed for the longest slump since 2008 after a report showed that consumer spending unexpectedly dropped in June for the first time in almost two years. Manufacturing indexes in the U.S., Europe and China declined in July. Gold climbed to all-time highs in euros, pounds and Canadian dollars.

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August 02 (Reuters) — Maybe Washington can start paying invoices with $3 bills — because the “dramatic” agreement to “reduce the national debt” is as phony as a three dollar bill.

Weeks of nearly round-the-clock negotiations among the White House, House and Senate have led to an “historic” debt deal that consists almost entirely of fluff, doublespeak and empty promises.

The politicians involved get to claim victory, and presumably will be rewarded with votes and campaign donations from the special-interest groups that, pretty much across the board, were spared any pain. Young people of the United States once again are hammered. If the deal becomes law, the national debt will rise again dramatically, while there’s no guarantee any cut will materialize — and the bill for this recklessness will be passed along to those under age 30.

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• Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit.
• In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at “net present cost.”
• Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.

​“Over the years we’ve had some fun together – killin some ‘bars,’ drinkin moonshine – some even in these chambers. (Whiskey that is – the ‘bars’ I’ve seen once or twice, but only when I was plum drunk). But the time for funnin is over. They’ll be no jokes from David Crockett today.”
Davy Crockett Speech to Congress, 1830

Figurative coonskin cap on head, I echo the sentiments of Davy Crockett – Indian fighter, Alamo defender and Tennessee Congressman – not necessarily in that chronological order. The debt ceiling may have been raised and the palpable sighs of relief heard across global financial markets, but the fun times are over. They’ll be no jokes from Bill Gross today, nor across this land for years to come I suspect. Even though the U.S. has managed to avert a debt crisis and perhaps a ratings downgrade, there remains a stain on our reputation, a scarlet “A” for budgetary “Abuse,” that will not disappear. The whole world was watching, and what they saw was a dysfunctional government taking its country to the financial precipice and backing off at the very last moment. “Shades of a Banana Republic,” as former Reagan budget director David Stockman opined somewhat harshly last week. We may not be Greece just yet, but Mr. Stockman is looking in the right direction.

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PG View: As we’ve said all along — and Mr. Gross confirms in his outlook — there is no easy, pain free out from this morass that we have created over decades.

August 2 (Reuters) — The former chair of President Barack Obama’s Council of Economic Advisers tacitly agreed. “There is no way we can have persistent deficits of the size the Congressional Budget Office is predicting over the next 25 years and hope to remain the world’s preeminent economic superpower,” said Christina Romer, who left the CEA in September 2010. “If we don’t deal with these deficits there is no way we won’t eventually default and become a much weaker country.”

As a result, PIMCO’s El-Erian expected the debt-ceiling compromise to do “very little, if at all” to fix America’s underlying fiscal crisis. “Remember a sovereign debt burden is defined as total liabilities relative to a country’s ability to service them. So it is not just about the debt stock, the maturity profiles and interest rates. It is also critically about the ability to grow. And this crisis has undermined growth, investment and employment.”

Morgan Stanley’s Roach put it bluntly: “Make no mistake, we are not getting a major breakthrough in America’s fiscal dilemma out of this deal. Talk about kicking the can down the road – this is probably the biggest can that’s ever been kicked.”

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JK Comment: Given the prevailing sentiment of the article linked above, its not surprising to see gold sharply higher…despite many analysts “predictions” (or perhaps “hopes” would be the better word) that a debt compromise would prompt a sell-off in the yellow metal.

August 02 (USAGOLD) — The House passed the debt deal yesterday and the Senate is widely expected to do the same today. Expectations that gold would retreat on relief that a default had been averted seem to have been misplaced as the yellow metal surged to new record highs this morning (currently 1640.87). Investors have grasped that the deal to raise the debt ceiling was merely another kick of the can and that our debt burden will indeed continue to grow. The OMB has acknowledged that the package will reduce deficits by 0.5% at the most. Really? We went through all that for 0.5% at the most? Another $2.4 trillion in debt coming our way. Hurray! Now everyone out of sweltering Washington for a 5-week vacation…’our work is done here.’ Congress should go on vacation and not come back.

The likely passage of the deal, that will allow the US debt ceiling to be raised, has also allowed the market to re-focus on the debt turmoil in Europe; which continues to escalate. Spanish and Italian yield spreads hit euro-era record wides today and their CDS premiums hit record highs, as did those for France. Euro weakness is the only thing keeping the dollar afloat these days, with the USD-CHF and USD-JPY still near record low territory.

As global attention shifts from one crisis to the next, it seems the world is in a constant state of emergency and therefore relief in the relentless gold bull doesn’t quite seem to materialize when the proverbial can is kicked. Through it all, central banks continue to add to their gold reserves, with substantial summer purchases announced by South Korea and Thailand. The motivation of the central banks is primarily to reduce their dollar exposure. The individual investor would be well served to contemplate similar diversification amid all the global uncertainty.

• US personal income +0.1% in Jun, below market expectations of +0.2%; PCE -0.2%, biggest drop in nearly 2-years.
• Eurozone PPI decelerated to 5.9% y/y in Jun, below market expectations, vs 6.2% in May on lower energy prices.
• UK construction PMI eased to 53.5 in Jul, above market expectations, vs 53.6 in Jun.
• BoK bought 25 metric tons of gold between June and July to diversify dollar holdings.
• Thailand bought an additional 17.7 metric tons of gold in June as reserve diversification.
• Singapore Jul PMI 49.3, below market expectations, vs 50.4 in Jun.
• RBA held rates steady at 4.75%, citing financial market uncertainty. AUD drops.

August 02 (The Wall Street Journal) — The Bank of Korea said Tuesday it increased the amount of gold held as part of the country’s foreign exchange reserves for the first time in 13 years, diversifying its portfolio away from the dollar and toward an investment class widely considered a safer bet during crises.

The central bank bought 25 metric tons of gold from the global market between June and July, bringing its total gold reserves to 39.4 tons as of the end of July, the BOK said in a statement.
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“The gold purchase, as a safety net, will help us cope with volatile global financial markets and enhance investor confidence in Korea in times of crises,” Hong Taeg-ki, chief of the BOK’s reserve management group, told Dow Jones Newswires.

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PG View: The strategy of exchanging dollars for gold, in order to build a “safety net,” is one that serves the individual investor/saver just as well.

August 01 (The Wall Street Journal) — Even arguably the world’s most powerful man seems unable to dampen gold’s shine.

U.S. President Barack Obama said Sunday that the country’s sparring political parties have reached a tentative deal to raise the country’s debt ceiling, cut the federal deficit and avoid a credit default. The news has taken the wind out of gold’s sails, pushing prices some $25 a troy ounce down from their recent high, but the market’s longer-term prospects don’t appear to be significantly dented.

Gold has been widely viewed as a safe place to put money as an alternative to U.S. Treasuries and the dollar, which have suffered as the potential for systemic financial risk has increased. The market peaked at an all-time high of $1,632.74/oz Friday, aided by deteriorating confidence in the U.S. dollar and a euro zone ricocheting from one economic disaster to another.

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Relief? What Relief?

Late last night when party leaders and the President announced that they had reached a bipartisan deal that would allow the debt ceiling to be raised, gold dropped about 1%. Global stocks rallied in relief and briefly, ever so briefly, gold was out of favor. However, as the details were revealed, doubts were reignited: Doubts as to whether such legislation could actually make it to the President’s desk. Doubts that the deal would avert a downgrade of US sovereign debt.

While the CBO scores the package as accomplishing $2.1 trillion in spending cuts over the next 10-years, the CBO baseline also has the deficit rising $6.7 trillion over the same period. The premise apparently being that we’re working our way to actual cutting by cutting to slow the pace of the nation’s proliferate spending. In actuality — and as evidenced below — that CBO baseline may prove to be way too optimistic.

What really lit an intraday fire under gold today was the big miss on US July ISM, which plunged to 50.9. The market was expecting a modest downtick to 55.0 from 55.3 in June. On the heals of last week’s much weaker than expected quarterly GDP data, it has become abundantly apparent that the US economy has slowed to just above stall-speed. David Rosenberg, chief economist at Gluskin Sheff and Associates, noted last week that once the economy slows to a growth rate of 1.6% it has proven historically to be a “point of no return” and recession follows. With Q1 downgraded to just 0.36% and Q2 an anemic 1.3% — and likely subject to future negative revision as well — the writing may well be on the wall.

The debt deal is a short-term kick of the can that at least initially focuses on spending cuts. However, with no mitigation of the uncertainties that have kept private capital sidelined for the past two-years of the so-called recovery, there is little reason to think that a more robust economy is just around the corner. In fact, the opposite may be true. That realization, tipped in by the ISM data, has further escalated the QE3 talk, which prompted gold to retest the record high set Friday at 1632.39. Relief? What relief?

If we get another negative surprise on Friday when July nonfarm payrolls comes out, as the ISM employment index suggests we might, the QE3 talk will intensify ever more in the weeks ahead of the Fed’s Jackson Hole summit. Consensus on July payrolls are running around +100k, although we could see some tempering of those expectations in light of the ISM data.

Even with the announcement of the debt ceiling deal, the dollar remains on the ropes, falling to new record lows against the Swiss franc and the yen. If this deal makes it through both Houses of Congress and is signed by the President, it is just another kick of the can — and a very short one at that — down the road. And with the specter of yet another round of quantitative easing hanging over the market, there is little incentive to buy dollars. Now the BoJ is once again contemplating direct intervention in the market, as I suspect the SNB is. If there are concerted efforts to slow the rise of these currencies, it may make gold an even more alluring option.

August 01 (MarketWatch) — Debt deal? Check. America’s AAA debt rating intact? We’ll see.

The agreement reached by President Barack Obama and congressional leaders late Sunday would raise the government’s debt limit and cut spending by around $2.4 trillion. Read about the debt-ceiling agreement.

If the measure passes the House and Senate, the U.S. government will avoid a potentially disastrous default that the Treasury says could otherwise occur as early as Tuesday.

But economists said it remains uncertain that the major ratings firms — Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings — will see the deficit-reduction plans as sufficient to avoid downgrading the country’s AAA rating.

So far, the agencies have remained mostly quiet. But Standard & Poor’s had previously taken the hardest line and remains the most unlikely to give Washington a pass, economists said.

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August 01 (MarketWatch) — The central bank of Greece added further to its gold reserves in June, lifting its holdings by 1,000 troy ounces for a second consecutive month.

According to the International Monetary Fund, the country increased its reserves to 3.585 million ounces in June, from 3.584 million ounces in May and 3.583 million ounces in April.

The debt crisis in Greece and other euro-zone nations like Portugal had led to speculation among market participants and observers over whether Europe’s debt-laden countries may move to liquidate their gold holdings in order to raise cash.

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PG View: So where does the money come from to buy gold in a country that is broke? Take your bailout money and buy gold seems to be a pretty good strategy, unless your the one providing the bailout.