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.

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.

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.