August 5 (CNBC) — U.S. government officials are bracing for the rating agency Standard & Poor’s to downgrade the country’s credit as early as this evening or take other possible action, according to someone familiar with the matter.

Throughout Friday, markets were rife with speculation that S&P, which has had a negative outlook on the U.S. since April 18, would downgrade the country’s credit from its current triple-A level.

[source]

August 05 (Bloomberg) — American voters’ calls for deficit reduction are colliding with their demand for job creation.

As governments at all levels face pressure to cut spending, thousands of public-sector workers are joining the ranks of the 13.9 million unemployed. In July, 37,000 government jobs were eliminated, marking the ninth straight month of reduction, a Labor Department report showed today.

[source]

Same As It Ever Was

August 05 (USAGOLD) — Early in the week, US lawmakers reached an agreement on a deal that allowed for the US debt ceiling to be raised, averting a default (for now). On the day that legislation was signed into law by President Obama, US debt surged $239 bln, the biggest one day rise ever recorded. Quite suddenly, 60% of the new clearance in the debt ceiling has already been used up. And what truly was accomplished after months of partisan bickering? Not much.

The graph above is the latest available from the St. Louis Fed and only goes through the end of last year, so let me fill in the blank for you. We quickly rose to the $14.34 trillion debt ceiling early this year, where we paused for several months as Congress hashed out their compromise, waiting of course until the 11th hour and the verge of default. Then, on Tuesday, there was a parabolic jump of $238 bln. The debt as of this writing now stands at $14.58 trillion, according to usdebtclock.org.

That compromise reportedly includes $2.1 trillion in spending cuts over the next decade, but the CBO concedes that the national debt is expected to rise $6.7 trillion over that same 10-year period. The Office of Management and Budget (OMB) says, at best deficits will be pared by 0.5%. Both projections seem perhaps wildly optimistic as they are based on at least 3% or better economic growth over the next several years. One displeased Representative called the compromise a “Satan sandwich.” If nothing else, I would concur that the deal was certainly yet another in a long line of deals with devil; as it again does nothing to meaningfully alter the disastrous fiscal path we’re on.

Global stocks took a beating in the past week as Europe continued to unravel, and even the US debt ceiling deal failed to allay mounting concerns about systemic and growth risks. This led to an orgy of central bank interventions: The Swiss National Bank intervened (to no avail) to stem the rise of the safe-haven Swiss franc. The Bank of Japan threw a record setting ¥4.46-¥4.66 tln ($56.6-$59.2 bln) at the FX market to try and staunch safe-haven demand for the yen. The ECB began buying Portuguese and Irish debt this week and hinted on Friday that it was prepared to do the same for Italian and Spanish bonds. The not so subtle underlying message is that the major Western central banks are prepared to buy anything from anybody in an effort to maintain market calm. One has to wonder if the Fed can be far behind with further accommodations of its own.

Certainly central banks — and perhaps specifically the Fed — has the ability to create an endless amount of currency and then use it to artificially buoy foundering asset prices. However, there is a cost in such currency devaluations. A cost largely born by average citizens, that because of lack of knowledge of lack of means, can’t protect themselves from a devalued currency and the inflation that results. Some certainly are seeking shelter, and that is reflected in new record highs in gold against most major currencies this week.

As investors — both individual and institutional — become increasingly skeptical of asset valuations distorted by artificial central bank buying, they will increasingly look for alternatives to the more traditional asset classes. That too will continue to have a positive influence on hard assets such as gold.

August 5 (Reuters) — The euro jumped against the dollar on Friday, hitting session highs, after sources said the European Central Bank said it is ready to buy Italian bonds if Italy commits to accelerate economic reforms to bring down the country’s debt.

On Thursday, traders were disappointed that the ECB were buying Portuguese and Irish bonds instead of Italian and Spanish debt.

[source]

PG View: Government interventions (and hints thereof) run amok this week. Can the Fed be far behind with another round of accommodations?

You may have heard that the Dow Jones Industrial Average dropped 512 points Thursday. Now the Web is a-buzz with talk of the gains being experienced by gold and silver — two go-to commodities in times of economic uncertainty.

…This type of long-term economic outlook requires a new way of thinking about how we save, how we spend and how we invest, not only as organizations but on an individual basis. With that in mind, we want to hear from you.

[source]

PG View: Go weigh in with the Washington Post!

By Myra P. Saefong
August 05 (MarketWatch) — Central banks in emerging markets have decided that it’s not too late to join gold’s party.

South Korea and Mexico are among the nations whose central banks have been ramping up gold holdings lately — and they’re willing to pay the highest-ever prices for an ounce of gold to do it, even though gold’s latest rally began more than a decade ago.

Admittedly, it’s not new trend for all central banks, but one that’s speeding up as the world loses faith in the U.S. dollar and global markets.

…And lately, most of the buying, though not all, is coming from emerging markets whose economic fortunes are very much tied to the West, said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.

“Many have accumulated large amounts of dollar-denominated assets in reserve and are rightfully worried about the mounting currency risk,” he said, so they can either choose to shift into assets denominated in some other fiat currency with a more reasonable risk profile, or choose to allocate into a hard asset without counter-party risk, such as gold.

“The prudent ones are increasingly opting for the latter,” Grant said.

[source]

PG View: The most interesting part of this article (besides my quote of course) is that small pie chart. A picture is truly worth a thousand words: The chart clearly illustrates how truly small global allocations to gold are in relation to total financial assets. If private and central bank holdings of gold are only 1.5% combined, clearly it’s not too late to buy gold. Additionally, it’s pretty compelling evidence that gold isn’t anywhere close to being in a bubble, as some have argued.

August 05, (CNBC) — Markets could rebound after Thursday’s global market sell-off, but investors should see any bounce as a selling opportunity, as the world economy rolls towards total collapse, Mark Faber, editor and publisher of the Boom, Doom and Gloom Report, told CNBC Friday.

A mooted third round of quantitative easing (QE3) in the U.S. and more money printing elsewhere is merely deferring a crisis that will be bigger and could end in war, Faber said.

…”You have a computer. Occasionally the computer will crash and you have to reboot it. That will happen to the global economy. Before this happens there will be much more money printing because basically the central banks are willing to do that,” he said. “By printing money, problems are not solved, but they can be postponed, and they become larger.”

[source]

August 05 (MarketWatch) — U.S. stocks fell Friday, with better-than-anticipated news on the beleaguered labor front offering only brief relief after one of the Wall Street’s ugliest routs in years.

The Labor Department said U.S. nonfarm payrolls climbed by 117,000 in July after an upwardly revised 46,000 addition in June.

The better-than-expected data initially helped the market recover some after the prior day’s battering, which had the Dow Jones Industrial Average DJIA +0.0093% losing 513 points — the largest point drop since late 2008.

But Friday’s cheer proved short-lived.

[source]

PG View: The Dow was up 171 pts following the better than expected NFP data, but has since tumbled back into negative territory.

August 05 (Wall Street Journal) — The U.S. economy added more jobs than expected in July and the unemployment rate edged down, a move that should help ease concerns that a new recession may be around the corner.

Nonfarm payrolls rose by 117,000 last month as private-sector employers added 154,000 jobs, the Labor Department said Friday. Payroll data for the previous two months were revised up by a total 56,000 to show increases of 46,000 jobs in June and 53,000 in May.

The unemployment rate, which is obtained from a separate household survey, dropped to 9.1% last month from 9.2% in June. That still leaves almost 14 million Americans who would like to work without a job.

[source]

August 05 (USAGOLD) — Gold is retreating into its range, but remains higher on the day, as stocks rebound after a pleasant upside surprise in the jobs report. Nonfarm payrolls rose 117k in July, beating estimates that were running around 90k, although there were whispers of a possible negative print. The unemployment rate ticked lower to 9.1%. Average hourly earnings rose 0.4%.

While a sense of relief washes over Wall Street in the wake of Thursday’s sharp market sell-off, there’s little cause for celebration. Payroll increases of around 125k per month are needed to keep the jobless rate steady. So at best in July, we were struggling to tread water, but as one analyst quipped, “it’s better than drowning.” The labor force participation rate continues to erode, falling to just 63.9%. While there were an additional 137,000 un/under-employed added to the broader U6 tally, that rate edged lower to 16.1%. The average work week held steady at 34.4 hours. Of the unemployed, 44.4% — 6.2 million would-be workers — have been jobless for 6-months or more.

While the NFP headline may provide some respite for the stock market, fundamentally nothing has changed. The economy remains on life-support amid broad-based global uncertainties and the weight of massive amounts of debt.

• US nonfarm payrolls +117k in Jul. Unemployment rate eases a tick to 9.1%. A pleasant upside surprise. Back-month positive revisions.
• Canada employment +7k in Jul, less than half of expectations, but jobless rate eased to 7.2%.
• US Monster jobs index fell 2 ponts to 144 in July; +4% y/y.
• EU policymakers call for quick implementation of new crisis plan to stem contagion.
• Swiss CPI -0.8% in Jul, below market expectations, as CHF strength takes its toll; +0.5% y/y.
• German industrial production -1.1% m/m in Jun, well below market expectations of +0.1%, vs negative revised +0.9% in May.
• UK Jul PPI 5.9%, above market expectations, vs 5.7% in Jun.
• Italian Q2 GDP +0.3% q/q. Weak, but better than the 0.1% growth in Q1.
• BoJ data reveals record intervention of intervention levels of ¥4.46-¥4.66 tln ($56.6-$59.2 bln).
• Japan leading index (prelim) continued to rebound, +3.8 m/m in Jun.
• Taiwan CPI +1.3% y/y in Jul, below market expectations, vs +1.93% in Jun.

August 04 (The Wall Street Journal) — Oh yeah — there’s a big jobs report tomorrow.

Andrew Johnson over at Dow Jones Newswires:

“Pressure has been sharply ratcheted up on Friday’s US jobs report, with a dismal reading likely to cause the market to crater even further.”

[source]

PG View: Consensus for July NFP is +90k. JPM’s forecast is the lowest at +45k, but there have been some whispers of a negative print. Any kind of significant miss could well pull what little support there is in the stock market.

August 04 (CBSMoneyWatch) — The stock market is finishing its worst day since the financial crisis.

The Dow Jones industrial average plunged more than 500 points Thursday. Investors are concerned that the U.S. economy will enter another recession and that Europe’s debt problems are not closed to being solved.

Major stock indexes fell more than 4 percent.

[source]

PG View: All of the Dow gains for the year have been erased. Gold retreated on deleveraging pressures, but these types of corrections tend to be short-lived.

by Allen Sykora
August 4 (KITCO news) —For the year to date, net purchases by the world’s central banks are 203.5 metric tons, which already is a 168% increase from 76 tons for all of 2010, said Natalie Dempster, director, government affairs, with the World Gold Council

“The central-bank buying is coming on top of speculative buying and creating a Perfect Storm for gold,” said Ross Norman, chief executive officer of Sharps Pixley.

“There is much more emphasis now on risk-management strategies, as opposed to yield enhancement,” Dempster said. “And obviously, if gold is anything, it’s a tool to manage risk.”

“They feel the sovereign-debt risk is high, therefore they’re buying gold even though the price is high,” Clark said. “They are viewing gold as a necessity now and not just one way to diversify, in my opinion.”

[Source]

JK Comment: With central banks now considering gold a “necessity”, it won’t be long for the sentiment to spread to larger and larger groups within the investment community. As sovereign debt risk spreads, and currency wars escalate (as seen by the recent Swiss and Japanese interventions), gold may prove to be the only refuge, a reality that will not only affect the price, but also the ability to acquire it at all.

By LIZ RAPPAPORT
August 04 (The Wall Street Journal) — Bank of New York Mellon Corp. is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets.

The big U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers that have vastly increased their deposit balances over the past month.

The bank cited the heavy dollar deposits it has received over recent weeks, as investors and corporations retreat from financial markets amid Europe’s debt crisis and the recent debate over U.S. government borrowing.

[source]

PG View: A fee for the privileged of earning a negative yield. Nice! So, big depositors are discouraged from holding dollars. The SNB is intervening against the Swiss franc. The BoJ is intervening against the yen. Where do you go if you’re looking for a haven amidst all this global turmoil? Gold of course.

By Frank Holmes
August 03 (EconMatters) — The ongoing debate in Washington prompted increased Fear Trade activity in gold this week. The issue over raising the federal borrowing limit caused the yellow metal to remain around its all-time high of $1,600 per ounce this week.

Gold has now increased for 124 months straight, says Deutsche Bank. The rally is in its 11th year, lasting nearly three times as long as other historical rallies going back to 1971. If the metal rose to $2,100 an ounce, it would represent the most powerful percentage increase in history, according to Deutsche Bank.

…More important to him is what he calls the “transfer of wealth from west to east” and the accumulation of wealth, particularly in China and India. This is what is driving the longer term strength in the gold price.

[source]

PG View: The positive seasonal influence we illustrate every year in our summer doldrums piece is about to kick-in, on top of the current safe-haven demand for gold.

August 03 (The Telegraph) — Last week’s events on Capitol Hill in the US were very damaging. After we abandoned the gold standard, the dollar is now the globe’s reserve currency – and US politicians decided to play a game of chicken with the debt ceiling. Their behaviour verged on the shameful.

The fact that an 11th hour deal was done and the ceiling was raised is a relief, but the process shattered trust and confidence in US politicians.

There is also an uncanny correlation between the gold price and the US debt ceiling. Over the past 30 years, the gold price has tracked the ceiling whenever it has been raised.

[source]

August 4 (Reuters) — “The geopolitical backdrop is inherently bullish for gold,” Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “As risk appetite wanes, people have been piling into gold and Treasuries. Yields are so low that the only alternative is gold.

“With currency wars escalating, people want to buy gold so they don’t have to worry about surprise interventions taking away their purchasing power,” Adam Klopfenstein, a senior strategist at MF Global Holding Ltd. in Chicago, said in a telephone interview.

Legislation passed Aug. 2 to increase the nation’s debt ceiling will “hasten the demise of the dollar as the world’s reserve currency and the desire of investors to own gold” Michael Pento, an economist at Euro Pacific Capital, said in a report.

[Source]

August 04 (Financial Times) — The European Central Bank on Thursday resumed buying government bonds and offering loans to the region’s banks in an attempt to relieve tensions in eurozone financial markets.

The announcement is the latest in a flurry of central bank activity as fears mount over the state of the global economy. Hours earlier, the Bank of Japan intervened in the currency markets to slow the yen’s rise and announced an expansion of its asset-purchase programme.

It also follows the Swiss central bank’s decision to drop its target rate close to zero and inject SFr50bn in liquidity to weaken the Swiss franc.

…While Mr Trichet was speaking, traders said that the ECB was buying Portuguese and Irish government debt.

[source]

PG View: Somewhat amusingly, ECB chief Trichet suggested in his press conference today that the central bank’s bond buying did not constitute quantitative easing.

August 04 (USAGOLD) — Gold is surging to new record highs this morning, despite the overnight BoJ inspired rebound in the dollar. The new all-time high presently stands at 1678.40.

The BoJ did indeed follow the path blazed by the SNB yesterday, intervening aggressively to temper the yen’s recent rise. The BoJ was reportedly engaged in direct buying of the USD-JPY pair and also announced liquidity expanding measures. This type of activity is meant to discourage safe-haven buying of yen (and Swiss francs), which narrows the field of safe-havens significantly, increasing the appeal of gold. The yellow metal surged to a new all-time high against the yen of ¥133,696.70.

The BoE and ECB held steady on rates, as was widely expected for both. ECB President Trichet’s press conference is is underway and everyone wants to know when/if the ECB will start buying peripheral bonds again. Trichets response to an early question in the topic was that he had never said SMP was dormant. I guess that means the door is open, which likely means the door will be used.

US initial jobless claims came in right at 400k. With last week’s upward revision to 401k, claims have been 400k or better for 18 consecutive weeks.

• US initial jobless claims -1k to 400k in week ended 30-Jul, below market expectations of 405k, vs upward revised 401k in previous week.
• ECB leaves rates unchanged as expected. Trichet presser underway.
• BoE left repo rate unchanged at 0.50%, as was widely expected. No statement. Minutes due 17-Jul.
• German manufacturing orders +1.8% m/m in Jun, well above market expectations of -0.5%, vs negative revised +1.5% in May.
• France cancels bond auction.
• The BoJ intervened aggressively to squelch the yen’s rise.
• New Zealand Q2 HLFS unemployment rate unch at 6.5%, vs downward revised 6.5% in Q1.

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.”

[source]

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.