Gold Awaits NFP

September 01 (USAGOLD) — Gold is confined to a narrow range within the broader 1911.69/1702.95 range that was established last week. The recent rebound into the upper half of last week’s range was driven largely by rising expectations that the Fed would offer up additional monetary accommodations, possibly as soon as this month’s FOMC meeting. If the Fed is continuing to “watch the data” as Bernanke suggested in Jackson Hole last week, the argument that further easing is needed has likely gained some traction. Nonetheless, Bernanke expanded the Sep FOMC meeting to two days so that he and the other doves on the committee have more time to arm-twist those troublesome and vociferous decenters.

Today’s weak construction spending data, and softer August ISM print are cases in point. While initial jobless claims fell in the week ended 27-Aug, there was yet another upward revision to the previous week’s data and claims have now come in above 400k for 20 out of the last 21 weeks. In the wake of yesterday’s negative miss on the ADP employment index, the whispers of a miss on tomorrow’s August nonfarm payrolls report are starting to roll in. Consensus had been running around +93k, with some trusted analysts already predicting a rise closer to 50k. Just today, Goldman Sachs lowered their forecast from an already weak +50k to just +25k, citing “the accumulation of evidence of weak hiring in late July and August: a sharp deterioration in perceptions of job availability in the latest Conference Board survey, a drop in today’s ISM manufacturing employment index, another drop in job advertising, and a soft ADP report.”

With the debt debate seemingly behind them — at least for the time being — focus within the beltway is decidedly on jobs. If NFP disappoints tomorrow and the President’s plan for job creation — to be revealed next week — shows little promise of advancing through our hyper-partisan Congress, it may well prove to be the deciding factor when it comes to the likelihood of QE3. The greater the likelihood of QE3, the greater positive influence on the price of gold.

September 01 (AFP) — The Greek finance ministry backpedalled on Thursday after a new budget watchdog released an internal report warning that debt was “out of control” just as officials held critical talks with creditors.

Finance Minister Evangelos Venizelos, who had enough troubles this week explaining Greece’s reform delays and target slippage to auditors from the EU, the IMF and the ECB, attributed the error to inexperience.

…”It is clear that the budget office still lacks this knowledge, experience and responsibility,” the minister said.

…[The State Budget Execution Monitoring Office] said that slippage on meeting deficit targets, exacerbated by a deep recession, threatened to cancel out the benefits of a new EU bailout.

“A significant debt increase, a high primary deficit and the deep recession have boosted to the extreme the debt dynamic, which is now out of control,” the newly-formed State Budget Execution Monitoring Office, staffed by independent analysts, said in a report.

“These developments seem to offset to a great extent the positive impact” of the latest EU loan package of 159 billion euros ($229 billion) agreed last month, it added.

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September 01 (USAGOLD) — Gold is modestly lower, but continues to trade in the upper half of the range that was established last week. The dollar is a little better within its range as the euro fell on weak data, a terrible Spanish 5-year auction and ongoing banking concerns. Eurozone worries sparked a rebound in safe-haven demand for the Swiss franc, spurred on after Swiss Economy Minister Johann Schneider-Ammann said, “We’ll have to keep living with the strong franc for some time.” Nonetheless, CHF remains well off its recent highs versus both the euro and the dollar.

A bit of a mixed bag of US data this morning, but nothing to invite much confidence; except perhaps about QE3.

• US ISM slipped to 50.6 in Aug, above market expectations of 48 (and weaker whisper), vs 50.9 in Jul.
• US construction spending tumbled 1.3% in Jul, well below market expectations of 0.1%, vs big upward revised 1.6% Jun.
• US initial jobless claims -12k to 409k in the week ended 27-Aug, above market expectations, vs upward revised 421k in the previous week.
• US Q2 productivity revised lower to -0.7% from -0.3% previously, below market expectations, vs -1.1% in Q1.
• Generally weak PMIs across Europe. Eurozone Aug manufacturing PMI revised down to just 49.0, lowest in 2-years. UK beats expectations, albeit modestly.
• Switzerland retail sales fell to 1.9% y/y pace in Jul, vs 7.4% y/y in Jun; CHF strength weighed.
• China PMI (CFLP) 50.9 in Aug, vs 50.7 in Jul.
• South Korea (HSBC) PMI fell to 49.7 in Aug, vs 51.3 in Jul; first sub-50 print in 10-months.
• South Korea CPI surged to +5.3% y/y Aug, above market expectations, vs 4.7% in Jul.
• South Korea exports +27.1% y/y in Aug; surplus falls to $0.8 bln.
• Thailand CPI rose in Aug to 4.3% y/y, vs 4.1% y/y in Jul.
• Australia retail trade +0.5% in Jul, above market expectations, vs -0.1% in Jun.

September 01 (Financial Times) — The global manufacturing recovery appeared to have come to a grinding halt in August, according to a raft of activity surveys across Asia and Europe released on Wednesday.

In many countries, the surveys of purchasing managers produced the lowest readings of manufacturing activity, orders and jobs since mid-2009, when the world economy was crawling out of recession.

The weakness came shortly after the crisis over the US debt ceiling threatened a default in the world’s largest economy and continuing turmoil in the eurozone led to a loss of confidence in the sovereign debt of Italy and Spain.

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September 01 (Reuters) — A debt crisis is still gripping the developed world, European Central Bank policymaker Juergen Stark said, adding there was no alternative but for countries to take painful steps to consolidate their public finances.

“The crisis is not over. Not just in Europe is it not over, it is also not over in other regions of the world,” he said, adding the United States had an “enormous” debt problem and lacked the structures to get the problem under control.

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PG View: Don’t look over here. Look over there!

September 1 (Bloomberg) — Bonds beat stocks and commodities in August after Standard & Poor’s decision to strip the U.S. government of its AAA credit rating roiled global markets and made Treasuries the world’s best-performing assets.

The combination of the downgrade to AA+, slowing U.S. growth and Europe’s debt crisis drove investors into the world’s biggest and most-liquid debt market. Treasuries returned 2.8 percent, while the global bond market gained 1.99 percent, according to Bank of America Merrill Lynch index data. The MSCI All-Country World Index of stocks fell 7 percent, the biggest slump since May 2010, and the Standard & Poor’s GSCI Total Return Index of commodities lost 1.8 percent.

Instead of eroding the value of U.S. government debt, the rating cut sparked financial market turmoil that made Treasuries and the world’s reserve currency favorites among investors, with 10-year note yields dropping to a record low 1.97 percent on Aug. 18.

…Gold futures gained 12 percent, the biggest monthly advance since November 2009. Bullion jumped to a record $1,917.90 an ounce in New York on Aug. 23 as investors sought to protect their wealth against financial turmoil.

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PG View: Bonds Beat All Investments?? And then we discover way down in the story that bonds did not beat gold or some ag commodities. I guess you could justify the headline if you didn’t think gold was an “investment.” Perhaps the Bloomberg reporter views the yellow metal as (gasp!) money.

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.

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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.

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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.”

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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.

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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.

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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.

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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.

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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.”

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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.

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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.

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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.