Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival

04-Sep (Bloomberg) — European Central Bank President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival.

Mounting his strongest case yet for ECB bond purchases, Draghi told lawmakers in a closed-door session at the European Parliament in Brussels yesterday that the bank has lost control of borrowing costs in the 17-nation monetary union. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI yesterday.

“We cannot pursue price stability now with a fragmented euro area because changes in interest rates affect only one country, or two countries at most,” Draghi said. “They have no importance whatsoever in the rest of the euro area.”

[source]

Posted in Economy |

Operation Twist (part 2): New York Fed purchases $4.643 billion in Treasury coupons.

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The Daily Market Report

Monetary Policy Expectations and Technicals Underpin Gold


04-Sep (USAGOLD) — Gold continues to edge higher, establishing new 25-week highs and threatening to regain the $1700 level for the first time since March. A weak US manufacturing ISM print for August in conjunction with a July construction spending miss have further amplified Fed easing expectations. Those expectations are already running quite high in the wake of last Friday’s speech by Fed chairman Bernanke at the Jackson Hole Symposium.

While some doubts remain as to what new measures might be employed by the ECB when they announce policy on Thursday, the general consensus seems to favor a resumption of their bond buying program. The Germans remain opposed to this approach, as the ECB is not suppose to be in the business of financing governments. The German Constitutional Court is slated to weigh in on this matter next week.

The technical picture as outlined in my commentary on 09-Aug and updated on 29-Aug remains broadly constructive with initial measuring objectives nearly attained, but the potential suggested by the larger symmetrical triangle shows the market may indeed have plenty of room to run.

Posted in Daily Market Report, Gold News, Gold Views, all posts |

Operation Twist: New York Fed purchases $1.810 billion in Treasury coupons.

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Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain

03-Sep (New York Times) — It is, Julio Vildosola concedes, a very big bet.

After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.

“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”

…“It’s sad,” he said. “But I just don’t think there is a future for me in Spain right now.”

[source]

Posted in European Debt Crisis |

US construction spending -0.9% in Jul, below expectations of +0.4%, vs +0.4% in Jun.

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US manufacturing ISM slipped to 49.6 in Aug, below market expectations of 50.0, vs 49.8 in Jul.

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Swiss bank vows to hold franc down

03-Sep (Financial Times) — The head of the Swiss National Bank has vowed to continue its policy of halting rises for the franc against the euro and has warned that a stronger currency would be a “substantial threat” to Switzerland’s export-dependent economy.

Thomas Jordan, in a speech in Zurich on the challenges for Switzerland as a financial centre, warned of the negative effect of the eurozone crisis and the damage to the Swiss economy that a stronger franc could create.

“In the current situation, a further appreciation of the Swiss franc would constitute a very substantial threat to the Swiss economy and would carry with it the risk of deflationary developments,” Mr Jordan said.

“With this in mind, we will continue to enforce the minimum exchange rate with the utmost determination.”

[source]

PG View: But when the SNB forces the franc lower, it is simultaneously forcing another currency (in this case the euro) higher. And there’s the rub; Europe’s collective economy is very dependent on exports as well and they would love a weaker currency too. This is how a currency war gets started. So, where’s the push to label the Swiss currency manipulators?

Posted in Economy |

Fed Moves Toward Open-Ended Bond Purchases to Satisfy Bernanke

02-Sep (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke says the U.S. economy is “far from satisfactory.” His colleagues are moving to embrace policies that will stay in place until he’s satisfied.

Four Fed presidents have come out in favor of an open-ended strategy for bond buying, with three calling for the program to begin now. Rather than specify a fixed amount of bonds to purchase by a certain date, such a strategy would leave the Fed able to announce a pace of purchases that it could adjust as the economy gets closer to Bernanke’s goals.

“You would be able to react to the incoming data in an incremental way and not be in a situation where you have to either drop the bomb or do nothing,” St. Louis Fed President James Bullard said in an interview last week during the Fed’s annual monetary policy symposium in Jackson Hole, Wyoming.

…Such a program would be more effective because it “would emphasize the unlimited nature of the Fed’s balance sheet and that they’re willing to do as much as necessary.”

[source]

Posted in Economy |

Gold set new 12-mo highs against the euro, negating important resistance at 1340.04/1344.40, and is now less than 2% off its all-time high of 1374.71.

Posted in Gold News, all posts |

Gold firm at 1694.31 (+2.03). Silver 32.16 (+0.026). Dollar better. Euro easier. Stocks called slightly higher. Treasurys mixed.

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Morning Snapshot


03-Sep (USAGOLD) — Gold remains well bid in the wake of last week’s solid gains. The yellow metal surged on heightened expectations in the wake of Ben Bernanke’s Jackson Hole speech, that the Fed is on the verge of additional accommodations. The move may come as soon as the next FOMC policy announcement on 13-Sep.

Early in August ECB chief Mario Draghi’s pledged that he was prepared to do “whatever it takes” to preserve the euro, assuring the world that whatever exceptional measures he had in mind would “be enough.” This assurance gave doubters just enough pause for policymakers across the eurozone to scatter for their normal three to four week August holidays. Ah, but holiday’s come to an end and while most of us return to way too many emails and voicemails that must be dealt with, EU policymakers return to a eurozone still teetering on the brink of economic calamity.

There are expectations that Draghi will announce a resumption of the ECB’s sovereign bond buying program on Thursday, as well as speculation as to whether the ECB will at some point use its new powers to grant the ESM bailout facility a bank license. Of course, Germany’s Constitutional Court must still rule on whether or not Germany can legally participate in the permanent bailout fund. That’s not supposed to happen until next week.

In a Reuters article, UniCredit’s chief economist said, “If they were to surprise us by striking down Germany’s participation, I would think it’d be an utter bloodbath in markets.” Such a move would indeed be a surprise, as few expect the court to outright reject the ESM.

It seems fairly certain though that any new ECB or bailout facility largesse to financially troubled member states will have many more strings attached. This may prevent these nations from asking for assistance in a timely manner, requiring even greater aide — and commitment to even greater conditions — as a result. Conceivably one might even wait until it’s too late, and they are un-savable.

Amid all of this political and policy uncertainty, there is an unmistakable bias that the central banks will do what they perceive is necessary to prevent broad-based market turmoil. This should help keep gold underpinned.

• US and Canadian markets closed in observance of Labor Day holidays.
• Switzerland retail sales (real) +3.2% y/y in Jul, vs negative revised +3.3% y/y in Jun.
• Switzerland SVME Manufacturing PMI fell to 46.7 in Aug, vs 48.6 in Jul.
• Eurozone Markit Manufacturing PMI revised to 45.1 for Aug, vs 45.3 previously; France and Germany revised lower as well.
• Italy Markit Manufacturing PMI fell to 43.6 in Aug, vs 44.3 in Jul.
• UK CIPS Manufacturing PMI rose to 49.5 in Aug, above expectations of 46.0, vs negative revised 45.2 in Jul.
• South Korea CPI +1.2% y/y in Aug, vs +1.5% in Jul.
• Australia TD-MI Inflation Gauge +0.6% in Aug, vs +0.2% in Jul.
• Australia retail trade -0.8% in Jul, vs positive revised +1.2% in Jun.
• China HSBC/Markit Manufacturing PMI fell to 47.6 in Aug, vs 49.3 in Jul.

Posted in Daily Market Report, Gold News, Gold Views |

Germans write off Greece, says poll

03-Sep (Financial Times) — Only a quarter of Germans think Greece should stay in the eurozone or get more help from other countries in the currency union, a Financial Times/Harris poll has found.

The overwhelming verdict highlights Angela Merkel’s domestic dilemma as she comes under pressure in Europe to agree more time or money for Greece to get its €174bn second bailout back on track.

[source]

Posted in European Debt Crisis |

Gold steady at 1689.63 (-1.55). Silver 31.806 (+0.18). Dollar soft. Euro firm. US markets closed for Labor Day holiday.

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The return of inflation to the West?

by Martin Feldstein

9/03/12

“Inflation is now low in every industrial country, and the combination of high unemployment and slow GDP growth removes the usual sources of upward pressure on prices. Nevertheless, financial investors are increasingly worried that inflation will eventually begin to rise, owing to the large expansion of commercial bank reserves engineered by the United States Federal Reserve and the European Central Bank (ECB). Some investors, at least, remember that rising inflation typically follows monetary expansion, and they fear that this time will be no different.

Investors have responded to these fears by buying gold, agricultural land, and other traditional inflation hedges. The price of gold recently reached a four-month high and is approaching $1,700 an ounce. Prices per acre of farmland in Iowa and Illinois rose more than 10 per cent over the past year. And the recent release of the US Federal Reserve Board’s minutes, which indicate support for another round of quantitative easing, caused sharp jumps in the prices of gold, silver, platinum and other metals.”

Link

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High gloom: Don’t expect the European Central Bank single-handedly to save the euro

01-Sep (Economist) — SOMEBODY must have put on the wrong film. In late July Mario Draghi, president of the European Central Bank, came out looking like a tough sheriff ready to take on bond-market speculators while others cringed. The euro was irreversible, he declared. “The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Yet instead of a great shoot-out, Mr Draghi later said he was mulling only a limited holding action. And now he has ducked out of sight, cancelling his appearance in cowboy country this weekend at the annual get-together of central bankers in Jackson Hole, Wyoming. Gary Cooper would never have cried off because of his “heavy workload”.

With the power to create money, Mr Draghi owns the biggest gun of all.

[source]

PG View: It’s a ‘big gun’ to be sure, but Germany seems inclined to withhold the ammo…

Posted in Economy, European Debt Crisis |

The Daily Market Report

Gold Surges on Heightened QE Expectations


31-Aug (USAGOLD) — Gold charged to 22-week highs on indications from Fed chairman Bernanke that fresh accommodations were in the offing. Bernanke’s Jackson Hole speech was widely expected to be less than revealing in advance of the September FOMC meeting, but the contents were broadly interpreted as saying further Fed measures were all-but assured.

Bernanke expressed particular concern about the unemployment rate, reiterating the Fed’s “mandated objectives of maximum employment and price stability.” With inflation seemingly in check, at least as measured by CPI, the implication was that the Fed would move in an effort to bring down the jobless rate. Bernanke went on to say that, “Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.” To fulfill their mandate, the Fed is obliged to try and do something to prevent that.

The chairman expressed some concern that a further ballooning of the Fed’s balance sheet would result in a loss of “public confidence” in the central bank’s ability to withdraw accommodations at the appropriate time, which sparked a brief intra-speech sell-off in gold. However, let’s be honest here, the Fed probably hasn’t seriously thought about exit strategies since the Obama administration declared “recovery summer” in 2010.

The yellow metal appears poised to confirm a monthly gain of more than 4.5% for August. Nearly 61.8% of the decline from 1790.64 (29-Feb high) to 1526.80 (16-May low) has now been retraced. A short-term break of this Fibonacci level at 1692.32 would offer further confirmation that the influence of the long-term secular bull market in gold are returning to the fore.

Posted in Daily Market Report, Gold News, Gold Views |

Time for eurozone to reach for the gold reserves?


30-Aug (Financial Times) — Is it time for some eurozone governments to start selling that metaphorical family silver? Or, more specifically look at their all-too-real gold reserves, to find a solution to Europe’s crisis?

That is a question which has recently been buzzing around in some policy making and investing circles. For as autumn looms, it is clear that the eurozone remains under profound stress. However, it is also unclear whether the European Central Bank – let alone the eurozone politicians – will really be able to do anything soon to ease market fears and lower those borrowing costs.

Thus, as unease builds, the World Gold Council – or the body that represents the gold industry – has recently lobbed a new idea into the fray: it thinks it is time for eurozone governments to start using gold in a creative manner, particularly in places such as Italy, to cut those interest rates.

[source]

PG View: While the WGC reminds us that “The gold holdings of the crisis-hit eurozone countries (Portugal, Spain, Greece, Ireland and Italy) represent only 3.3 per cent of the combined outstanding debt of their central governments,” I would stress that that is true at these prices.

Posted in Gold News |

Bernanke Speech Pretty Strongly Suggest More Accommodations Will be Forthcoming

31-Aug (USAGOLD) — Gold is well bid in the wake of Bernanke’s much anticipated Jackson Hole speech. While there was a modest intraday retreat when the Fed chairman expressed concerns “that substantial further expansions of the balance sheet could reduce public confidence in the Fed’s ability to exit smoothly from its accommodative policies,” the market quickly snapped-back to set new highs on the day amid a broad consensus that more accommodations are on the way.

Click here for the full text of Bernanke’s speech.

Posted in Economy |

US factory orders +2.8% in Jul, above expectations of +2.0%, vs positive revised -0.3% in Jun; inventories +0.5%.

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US Chicago ISM fell to 53.0 in Aug, below expectations of 53.5, vs 53.7 in Jul.

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EU Plan Said to Give ECB Sole Power to Grant Bank Licenses

31-Aug (USAGOLD) — The European Central Bank would have the sole power to grant banking licenses under proposals to give it supervisory powers and build a euro-area banking union, a European Union official said.

The ECB would have a monopoly on granting all bank licenses within the 17-nation euro area under the plan, due to be unveiled on Sept. 12, the official said, speaking on condition of anonymity because the plan isn’t final. Under the proposals, which are being drafted by the European Commission, the ECB would also gain discretion over which banks to supervise directly and when it will delegate day-to-day oversight responsibilities, the official said.

[source]

PG View: This could give the ECB the unilateral authority to grant the ESM bailout facility a bank license so that they could access ECB funds.

Posted in European Debt Crisis |

Bullard Wants to See More Data Before Taking ‘Big’ Action

31-Aug (Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said policy makers should wait for more data before deciding on “big action” to boost the economy.

“I would like to see some more data before taking really big action,” Bullard said in an interview today on Bloomberg Television from Jackson Hole, Wyoming. He said policy makers should consider changing their statement that interest rates are likely to stay low at least through late 2014 or reducing the interest the Fed pays banks’ on excess reserves.

[source]

PG View: When a moderate hawk like Bullard uses the phrase “really big action,” even in the context of data dependency, that’s significant.

Posted in Economy, all posts |

Bernanke’s Dilemma Over His Legacy


by Jon Hilsenrath
31-Aug (Wall Street Journal) — Fed Chairman Ben Bernanke wasn’t expecting he would have to make another speech like the one he will deliver here Friday.

A few months ago the Federal Reserve seemed to be on cruise control as the economy healed. Many officials at the central bank hoped they were done with launching complicated programs to spur a sluggish economy. But Mr. Bernanke and his colleagues, once again disappointed by slow growth and small employment gains this year, are formulating another new dose of monetary stimulus to be considered at their next policy meeting in mid-September.

So when the chairman speaks Friday morning at the central bank’s annual retreat here, he must once again address whether there is more the Fed can do to get the economy going and whether it is worth taking chances on controversial new programs. All along he has argued these efforts are worth it and appears likely to stick to that line in his speech.

[source]

PG View: Bernanke’s speech is scheduled to begin at 14:00GMT (10:00ET).

Posted in Economy |

Gold higher at 1660.84 (+5.84). Silver 30.65 (+0.251). Dollar falls. Euro above 1.26. Stocks called higher. Treasurys steady to lower.

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Should the U.S. Return to the Gold Standard?

Aug. 30 (Bloomberg) — Matthew O’Brien, associate editor at The Atlantic, and James Rickards, senior managing director at Tangent Capital Partners, debate whether the U.S. should return to the gold standard. Bloomberg’s Deirdre Bolton moderates.

[video]

Posted in Gold News, Gold Views |

Operation Twist: New York Fed purchases $1.833 billion in Treasury coupons.

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More Fed Easing ‘A Close Call’: Fed’s Lockhart

30-Aug (CNBC) — Tepid U.S. economic growth and stubbornly high unemployment makes more stimulus from the Federal Reserve “a close call,” a top Fed policymaker told CNBC in an interview Thursday.

Atlanta Fed President Dennis Lockhart, who has assembled with Fed Chairman Ben Bernanke and other global central bankers at a conference in Jackson Hole, Wyo., characterized growth in the world’s largest economy as “very modest.”

[source]

Posted in Economy |

Morning Snapshot


30-Aug (USAGOLD) — Gold remains consolidative to mildly corrective. While recent housing data took a little wind out of the sails of the QE3 advocates, the Atlanta Fed’s Lockhart seemed to suggest on CNBC today that additional measures were indeed going to be forthcoming…it was just a matter of timing.

Lockhart said that more easing in September was going to be a “close call,” reiterating that action was data dependent in saying, “If we were to see deterioration from this point, let’s say a persistence of job growth numbers that were well below 100,000 per month, or see signs of disinflation that could signal the onset of deflation, then there wouldn’t be much of a question about policy.” Those data have not been quite that bad of late, suggesting perhaps the Fed might indeed be looking to keep its powder dry for the time being.

Nonetheless, the market will be hanging on Bernanke’s every word when he speaks in Jackson Hole on Friday. They’ll be hoping to glean additional clues as to the likelihood of further Fed measures in September, or whether they should just start looking forward to the October FOMC meeting.

Our own Mike Kosares, wrote a couple really good posts on the Breaking News Page yesterday on the topic of QE3:

One man’s opinion on Bernanke’s QE3 quandary

Follow up question: How would the lack of QE3 affect the gold market?

As I’ve stated in the past, the direction gold ultimately takes is not wholly dependent on whether there is a QE3 or not. Mike apparently agrees, calling QE3 a “huge distraction and a short term consideration that takes away from the real reasons why the gold price might rise in the years to come.”

The speculation about additional ECB measures continues to rage as well. Both business and consumer confidence in the eurozone plunged to 3-year lows in August, upping the pressure on ECB chief Mario Draghi to find a way to provide additional stimulus without enraging core-Europe…and specifically the Germans.

• US initial jobless claims UNCH at 374k for the week ended 25-Aug, above expectations of 370k, vs upward revised 374k in the previous week.
• US personal income +0.3% in Jul, in-line with expectations, vs negative revised +0.3% (from +0.5%) in Jun.
• US PCE +0.4% in Jul, in-line with expectations, vs UNCH in Jun.
• German unemployment (sa) steady at 6.8% in Aug, in-line with expectations.
• Eurozone economic confidence fell to 86.1 in Aug, below expectations of 87.6, vs 87.9 in Jul.
• Eurozone consumer confidence confirmed at -24.6 in Aug.
• Eurozone industrial confidence fell to -15.3 in Aug, below expectations of -15.0, vs negative revised -15.1 in Jul.
• Eurozone business climate improved to -1.21 in Aug, on expectations of -1.30, vs -1.27 in Jul.
• Eurozone services confidence fell to -10.8 in Aug, below expectations of -9.0, vs -8.5 in Jul.
• Japan large retailer sales Y/Y JUL -4.4% y/y in Jul, vs -2.6% y/y in Jun; total retail sales -0.8% y/y.

Posted in Daily Market Report, Gold News, Gold Views |

US PCE +0.4% in Jul, in-line with expectations, vs UNCH in Jun.

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