August 08 (The Wall Street Journal) — JP Morgan (JPM) has become the latest bank to up its forecast for spot gold prices, hiking its estimates by a whopping 39% and predicting the precious metal to reach at least $2,500 a troy ounce by the end of the year.

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August 04 (BusinessWeek) — “Inauguration Day was cloudy, grim,” wrote Arthur Burns in his diary on Jan. 20, 1969. As he watched President-elect Richard Nixon, Burns—an immigrant from Galicia, the son of a housepainter who had risen to become the foremost expert on U.S. economic cycles and chief economist to Dwight Eisenhower—saw a man with “a look of exaltation about him.” It was not a feeling Burns shared. “I would have felt better if his head were bowed and his body trembled some.”

…By the time Nixon took office, officials knew they were sitting on a powder keg.

…First, America would stop converting dollars to gold. Second, to combat the potential inflationary effects, wages and prices would be frozen for 90 days. And third, the U.S. would impose an import surcharge of 10 percent. Connally’s idea was to use the surcharge as a cudgel, to pressure other countries to renegotiate their exchange rates.

…Connally brilliantly packaged the program not as America abandoning its commitment to the gold standard but as America taking charge. He turned the dollar’s collapse, which could have appeared shameful, into a moment of hubris.

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PG View: This article provides important historical context, as arguably it was the “hubris” of ending the dollar’s convertibility to gold that ultimately led to Friday’s downgrade of US sovereign debt.

August 08 (Reuters) — Gold and platinum prices approached parity on Monday for the first time since Dec. 2008 as a downgrade of the U.S. credit rating and deepening fears over euro zone debt prompted investors to buy so-called safe havens at the expense of assets seen as higher risk.

Spot gold prices held within $10 of those of spot platinum for much of the morning, with the two metals bid at $1,705.80 and $1,723.69 respectively at 1112 GMT. Its average ratio over the last 20 years has been around 0.7.

“At the moment we are in an environment where people are adopting more deflation trades, pricing in recession risk,” said Deutsche Bank analyst Michael Lewis. “The U.S. equity market has dropped more than 10 percent since its peak, which is the correction that normally occurs when you move into recession.”

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August 8 (HousingWire) —Standard & Poor’s lowered the ratings on Fannie Mae and Freddie Mac Monday after downgrading the U.S. government’s sovereign debt rating to double-A late last week.

Analysts also lowered the ratings on 10 of the 12 Federal Home Loan Banks and on senior debt held by FHLB banks as well. The outlook on all effected institutions is negative.

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August 8 (AP) — The price of gold streaked past $1,700 an ounce for the first time Monday. Investors, beset by worries about the U.S. debt downgrade, Europe’s financial crisis and slowing global growth, sought safety in the metal as stocks tumbled around the world.

Gold’s allure stems in part from fears that the world’s major economies are dangerously indebted. Its value, unlike that of a currency, doesn’t hinge on whether countries can make their bond payments.

Standard & Poor’s on Friday cut the long-term credit rating for the U.S. by one notch to AA+ from AAA, deepening investor fears about a weakening U.S. economy.

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August 08 (Reuters) — The credit ratings for the Depository Trust Co., National Securities Clearing Corp., Fixed Income Clearing Corp and the Options Clearing Corp. were cut one notch to AA-plus from AAA by Standard & Poor’s Ratings Services on Monday.

These institutions are the backbone of the U.S. financial systems.

S&P said the downgrades were due to its lowering of the U.S. sovereign credit rating.

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August 08 (Bloomberg) — European Central Bank President Jean- Claude Trichet started buying Italian and Spanish assets today in his riskiest attempt yet to tame the sovereign debt crisis.

Italian and Spanish bonds surged as the ECB entered the market, sending 10-year yields down more than 70 basis points. The euro rose to $1.4355 at 10:30 a.m. in Frankfurt from $1.4277 at the close of European trading on Friday.

With governments failing to act swiftly enough to stop contagion from Greece’s fiscal meltdown, it has fallen to the ECB to battle a crisis that’s now threatening the survival of the euro.

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August 08 (The Wall Street Journal) — The Obama administration and ratings firm Standard & Poor’s have embarked on a battle for credibility that could shape the ultimate impact of the U.S. debt downgrade—as well as their own reputations.

Within minutes of Friday’s bombshell announcement, both sides launched public fusillades against the other, which continued through the weekend.

…Neither side can easily claim the high ground. The downgrade laid bare a distrust of both the Washington political system and the independent firms tasked with standing in judgment of it. Ultimately, investors are likely to be responsible for deciding who has more credibility.

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PG View: If the Obama administration really wants to solidify the case that “the reliability of the United States debt is undiminished,” they should remind everyone in no uncertain terms that the US will never default because we maintain the ability to create as many dollars as is necessary to meet all of our obligations. Ahhh, but there is a price to be paid for unrestrained fiat currency creation, which will likely continue to drive the price of gold higher.

August 07 (USAGOLD) — The S&P downgrade puts the United States on a slippery slope. From here on out, the possibility of further downgrades will hang over global stock and bond markets like the sword of Damocles. We have entered uncharted waters.

Though this first downgrade may have been factored into the market, what about the next one?

Alan Greenspan noted this morning on Meet the Press that the downgrade is likely to have a negative effect on markets tomorrow. Asia opens in a few hours and we will get a sense of what Monday might bring.

Via Voice of America:

The Tel Aviv Stock Exchange delayed its open by 45 minutes to avoid panic but it did not help. The market plunged by seven percent in response to the downgrade of the debt rating in the United States.

“It is a powerful shock,” economist Yaakov Sheinin told Israel Radio. He said U.S. President Barack Obama and the Federal Reserve should do something to calm world markets.

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.

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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.

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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.

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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.

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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.

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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.”

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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.

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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.

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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.”

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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.

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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.”

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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.

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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.

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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.

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