September 06 (CNBC) — Just as talk had begun to intensify about a gold bubble building, the metal got another boost Tuesday when the Swiss National Bank announced measures to decrease the value of the franc.

The SNB’s move was widely viewed as positive for gold because the metal will gain even more popularity as a safe-haven investment of choice.

[source]

September 06 (Bloomberg) — Brazilian inflation accelerated for the 12th straight month in August to its highest annual level since 2005, reinforcing economist views that the central bank may have cut borrowing costs prematurely.

Consumer prices, as measured by the IPCA index, rose 0.37 percent in August from the previous month, the national statistics agency said today. That was in line with analyst expectations for a 0.36 percent increase, according to the median estimate of 40 analysts surveyed by Bloomberg. Prices rose 7.23 percent from a year ago, the highest since June 2005.

[source]

September 06 (Guardian) — Germany’s highest court will this week deliver a ruling on the legality of last year’s multibillion euro rescue package for Greece and other troubled countries.

Theoretically judges could force Germany to demand the money back, putting the future of the euro at risk. Analysts believe they are more likely to impose restrictions on future bailouts.

[source]

PG View: Restricting German participation in future bailout could still spell big trouble for euroland.

Gold Surges Against Swiss Franc

Gold surged dramatically against the Swiss franc as the Swiss National Bank moved to discourage safe-haven interest by debasing the franc. Rumors began circulating several weeks ago that the SNB was considering pegging the franc to the troubled euro as a means of protecting its export market and valuable tourism industry. Today the SNB proved that those rumors were well-founded, capping the CHF at 1.20 against the EUR. The franc tumbled against the dollar as well…and of course against gold. Gold set a new record high of CHF1632.61.

The Swiss are claiming that their currency was “massively” overvalued, but in making that claim, they are essentially claiming that the euro and perhaps the dollar are massively undervalued. Such a claim is arguably pretty tough to substantiate given the ongoing EU sovereign debt crisis and the extraordinary fiscal crisis in America. However, by extension, they must too be arguing that gold is massively undervalued. It’s tough to argue with that veiled claim. Nonetheless, the SNB claims they are prepared to print as many Swiss francs as necessary, in order to buy foreign currency in unlimited quantities to maintain that 1.20 peg. Farewell safe-haven swissy.

Today’s move by the central bank is a dramatic escalation of the currency war as now even the Swiss are seeking to undermine their own currency. HSBC analysts David Bloom, Paul Mackel and Karen Ward wrote today that “central banks have shifted to exchange rate policy aiming to have the weakest currency in town. This is a game that everyone can’t win…but that doesn’t mean they won’t keep trying.” In fact, even if there were to be a winner in this race to the bottom, the people of the ‘winning nation’ lose as inflation is the inevitable result of a debased currency.

The HSBC analysts go on to say, “Those believing they don’t have to enter the war get sucked in via the actions of others. One currency that will benefit most from this is the one that will not complain …Gold.”

September 06 (Bloomberg) — Gold’s rally above $1,900 an ounce shows no signs of a “bubble” as central banks continue to boost money supply that has helped spur bullion to a record, according to investor Marc Faber.

“I don’t think that gold is in a bubble,” Faber, publisher of the Gloom, Boom and Doom report, said in a phone interview yesterday from Chiang Mai, Thailand. “When you buy gold, it’s an insurance against systematic failure and problems in the financial markets.”

…“I’d buy every month a little bit of gold,” Faber said.

[source]

September 03 (ZeroHedge) — Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar’s reserve status.

Excerpt from US embassy cable – 09BEIJING1134:

3. CHINA’S GOLD RESERVES

“China increases its gold reserves in order to kill two birds with
one stone”

The China Radio International sponsored newspaper World News Journal
(Shijie Xinwenbao)(04/28): “According to China’s National Foreign
Exchanges Administration China ‘s gold reserves have recently
increased. Currently, the majority of its gold reserves have been
located in the U.S. and European countries. The U.S. and Europe have
always suppressed the rising price of gold. They intend to weaken
gold’s function as an international reserve currency. They don’t
want to see other countries turning to gold reserves instead of the
U.S. dollar or Euro. Therefore, suppressing the price of gold is
very beneficial for the U.S. in maintaining the U.S. dollar’s role
as the international reserve currency. China’s increased gold
reserves will thus act as a model and lead other countries towards
reserving more gold. Large gold reserves are also beneficial in
promoting the internationalization of the RMB.”

Perhaps now is a good time to remind readers what will happen if and when America’s always behind the curve mutual and pension fund managers finally comprehend that they are massively underinvested in the one best performing asset class.

[source]

September 06 (USAGOLD) — Gold extended to a new all-time in overseas trading at 1919.94 after German Chancellor Angela Merkel’s CDU suffered its fourth consecutive state election defeat, calling into question the German commitment to EU bailouts. The euro fell sharply as did European shares, igniting fresh safe-haven demand. The renewed bid in the Swiss franc prompted the SNB to make good on the recent rumors and peg the franc at 1.20 versus the euro.

The SNB acknowledged that it is “aiming for a substantial and sustained weakening of the franc,” and “is prepared to buy foreign currency in unlimited quantities” to achieve that goal. In other words, they are prepared to create an unlimited amount of francs and use them to purchase other currencies. In hitching their currency to the troubled euro, the SNB has effectively removed one of just a handful of safe-havens from the global equation. While the yen remains elevated, the SNB action caused some holders of yen to pare-back positions. After all, if the Swiss can peg their currency, so too could the BoJ. It is also worth remembering that euroland and the United States want weaker currencies as well. The latest escalation of the currency wars — the race to the bottom — makes real safe-havens like gold even more attractive.

• Eurozone Q2 GDP (sa) – 2nd Release confirmed at 0.2% q/q; 1.6% y/y, down from 1.7% previously.
• Eurozone Q2 household consumption – 1st Release -0.2% q/q, vs negatively revised 0.2% in Q1.
• SNB sets EUR-CHF target of 1.20.
• Switzerland CPI +0.3% m/m in Aug, above market expectations of -0.1%, vs -0.8% in Jul.
• Germany BBK factory orders (preliminary) -2.8% m/m in Jul, below market expectations, vs +1.8 in Jun; annual pace falls to 8.7%.
• RBA holds the Official Cash Rate steady at 4.75%, in-line with expectations.
• Australia current account balance narrows to -A$7.4B in Q2, vs downward revised -$11.1B in Q1.
• Taiwan CPI 1.3% y/y in Aug.
• Indonesia CPI climbed to 4.79% y/y in August, vs 4.6% y/y in Jul.

September 06 (The Wall Street Journal) — An internal test vote among the parties of Angela Merkel’s coalition late Monday cast doubt on whether the German Chancellor would get a majority in the lower house of parliament without the help of the opposition at a crucial vote on changes to the euro zone’s rescue fund.

If Ms. Merkel fails to get a majority in the vote with coalition lawmakers alone, it could undermine her ability to lead Europe’s largest economy at a time when there is renewed market turbulence because of the currency bloc’s deepening sovereign-debt crisis.

[source]

September 06 (Der Spiegel) — Angela Merkel’s conservative Christian Democratic Union has suffered a setback in a state election which could see the beginning of a renaissance for the center-left Social Democrats (SPD).

With 35.7 percent of the vote, the SPD were the clear winners of Sunday’s state election in the northeastern German state of Mecklenburg-Western Pomerania.

…Observers put the poor showing of the CDU and FDP in the state partially down to the problems of the national coalition government, including growing discontent over Merkel’s handling of the euro crisis.

[source]

September 06 (Bloomberg) — The Swiss central bank imposed a ceiling on the franc’s exchange rate for the first time in more than three decades and pledged to defend the target with the “utmost determination.”

The Swiss National Bank is “aiming for a substantial and sustained weakening of the franc,” the Zurich-based bank said in an e-mailed statement today. “With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.”

[source]

September 06 (Reuters) — The Swiss National Bank said on Tuesday it would set a minimum exchange rate target of 1.20 francs to the euro and would enforce it by buying foreign currency in unlimited quantities.

[source]

PG View: They will be buying foreign currency in unlimited quantities with the unlimited power of the printing press. The debasement of the Swiss franc narrows the field of safe-havens and makes gold all the more appealing.

September 05 (USAGOLD) — Gold has traded with a $1900 handle in thin holiday trading, spurred by concerns that German support for various bailout facilities may be fading after German Chancellor Angela Merkel’s CDU party suffered yet another election defeat; this time in her own home state of Mecklenburg- Western Pomerania. The euro has fallen sharply, European stocks are under pressure and periphery debt spreads continue to blow out. Greek 2-year yields have pushed to record highs above 50%. Gold is being supported by solid safe-haven interest.

US markets are closed today for the Labor Day holiday.

By Adam Posen
September 02 (Reuters) — It is past time for monetary policy to be doing more to support recovery. The Jackson Hole conference has come and gone, and no shortage of excuses was provided for central banks to hold their fire — even though most economists acknowledged the grim outlook for the advanced economies.

Too much attention has been paid, however, to the failings of fiscal policies and to the shortfall from effects of earlier quantitative easing. Further asset purchases by the G7 central banks are needed to check not just a downturn, but the lasting erosion of productive capacity and of debt sustainability — especially when even justified fiscal and financial consolidation is undercutting short-term recovery. Easier monetary policy will increase the odds of other policies improving, and those policies’ effectiveness when they do.

It is also past time to stop fearing inflationary ghosts. There is no credible threat of sustained higher inflation in the advanced economies that should restrain central bank action.

[source]

PG View: While official data would indeed suggest that core inflation (excluding food and energy) remains in check, should the inflation genie be released, she may prove extremely hard to get back in the bottle. Clearly some are willing to take that risk.

September 02 (ZeroHedge) — Remember when one month ago the US, to much pomp and circumstance, not to mention one downgrade, announced a grand bargain raising the debt ceiling from $14.294 trillion to something much higher, with a stop gap intermediate ceiling of $14.694 trillion, or $400 billion more. Well, as of today, or less than a month since the expansion, total US debt is at $14.697 trillion. Yep – the total debt is again over the ceiling, which means the US debt increased by $400 billion in one month. Score one for fiscal prudence. And while the total debt subject to the limit is still slightly less, at $14.652, one week of Treasury auctions and will be time for Moody’s to justify again why the US is a quadruple A credit.

[source]

PG View: Yeah, $400 bln just doesn’t last as long as it used to.

September 02 (The Wall Street Journal) — Economists and others weigh in on the unchanged nonfarm payrolls number and steady 9.1% unemployment rate.

–It’s often said when it rains, it pours. That is an apt description of the August employment report and the likely path in the labor market later this year. Given slowing growth in the real economy there is little in the employment report to indicate a pickup in job creating heading into the final 16 weeks of 2011. –Joseph Brusuelas, Bloomberg

[source]

September 02 (NPR) — The unemployment rate didn’t budge in August, according to this morning’s jobs report. Net job growth was zero.

Also basically unchanged: The number of people who have been out of work and looking for a job for six months or more.

More than 6 million Americans are now among the long-term unemployed, up from about 1 million before the recession. The long-term unemployment rate is far higher than it’s been at any time since before War II.

That’s very bad news not just for the unemployed, but for the long-term health of the U.S. economy.

[source]

September 02 (Bloomberg) — Inflation? No, thank you.

We just endured and survived a major political crisis over the possibility that the U.S. government might default on its debts. Most people — other than a few high-stakes poker players on the right wing of the Republican Party — agreed that this would be a terrible thing. But now, a growing number of voices, mainly on the left wing of the Democratic Party but also in the Federal Reserve, are calling for what is in effect default in slow motion. It goes by the name of inflation.

…As it happens, a couple of years of 6 percent inflation is exactly what the leading economist advocating this approach — Kenneth Rogoff at Harvard — recommends. He is joined by Paul Krugman and by a growing number of economic journalists and commentators. Some of these people have been saying that inflation is no threat worth worrying about, because it has not appeared despite circumstances that ordinarily would have produced it. Now they say inflation is no threat because a little of it would actually be a good thing.

[source]

September 02 (USAGOLD) — Gold surged back within $20 of the $1900 level in early New York trading, following another disappointing US nonfarm payrolls report. Payrolls were unchanged in August, well below market expectations of +93k and even below Goldman Sachs’ negatively revised forecast of +25k. The unemployment rate remained at 9.1% as the US moves ironically into the long Labor Day weekend. Expectations of additional Fed measures to underpin the faltering economy have been on the rise since chairman Bernanke’s speech last week in Jackson Hole. Many investors believe today’s dismal jobs print has pretty much tipped that in. The President’s big speech on jobs to a joint session of Congress is scheduled for Thursday evening.

Gold was already elevated in advance of the US employment data, following a raft of bad news out of Europe; most notably the news that bailout talks between Greece and the troika have broken down. Additionally, Finland remains ready to bail on the bailout because its understandable demand for collateral is being rebuffed. EU President Trichet would not rule out the possibility that periphery gold reserves might be in play as collateral for eurobonds, even though the possibility of eurobonds has already been dismisses. That is of course unless a new EU treaty were to be ratified, making eurobonds possible. Something that is now being pushed by German Finance Minister Wolfgang Schäuble, likely because the options to save euroland are dwindling rapidly and global markets are already on tenterhooks.

Risk off. Everyone back into gold!

• US nonfarm payrolls UNCH in Aug, well below market expectations. Both Jul and Aug revised lower combined-58k. Unemployment UNCH at 9.1%.
• US hourly earnings -0.1% in Aug, below market expectations. Average workweek contracted to 34.2, from 34.3.
• UK CIPS construction PMI fell to 52.6 in Aug, vs 53.5 in Jul.
• Eurozone PPI +0.5% m/m in Jul, near consensus, vs 0.0% in Jun; 6.1% y/y, vs 5.9% y/y in Jun.

September 02 (Der Spiegel) — The debt crisis has been a tough test of endurance for Europe. To better face such challenges in the future, German Finance Minister Wolfgang Schäuble wants to forge a new European Union treaty, the mass-circulation daily Bild reported Friday.

According to the report, Schäuble clarified his plan during a closed-door meeting of leaders of his conservative Christian Democratic Union (CDU) and its Bavarian sister party the Christian Social Union (CSU) on Thursday evening. Shifting greater powers over economic and financial policy to Brussels is necessary, he said according to the paper, “even though we know how difficult a treaty change will be.”

Schäuble also acknowledged that such reforms would create a significant divide between the 17 European Union countries that use the euro and the remaining 10 that do not.

[source]

September 02 (The New York Times) — The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

[source]

PG View: I wonder if Warren Buffet was made aware this was coming down before he bailed out BofA last week.

September 02 (AP) — Employers stopped adding jobs in August, an alarming setback for an economy that has struggled to grow and might be at risk of another recession.

It was the weakest jobs report since September 2010. The unemployment rate remained at 9.1 percent.

[source]

September 02 (Financial Times) — Talks between Greece and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, it was announced on Friday, a day after Athens admitted it would miss its budget deficit targets this year.

The talks will resume in 10 days, Greece and the European Union/International Monetary Fund/ECB inspectors said. Greek officials had not previously suggested that there would be a pause in the negotiations with the inspectors, known as the troika.

Without its next tranche Greece could default.

[source]

Greece Denies Troika Talks Break Down

September 02 (The Wall Street Journal) — Finance Minister Evangelos Venizelos Friday said that Greece must avoid taking measures that would further worsen the country’s deepening recession but rejected reports of a break down with international inspectors after they suspended a visit in Athens.

[source]

By Jan Harvey
September 2 (Reuters) — Europe’s most indebted nations are under heavy pressure from their richer neighbours to sort out their finances, but they are unlikely to mimic the impoverished gentlefolk of old by selling off the family silver — or in their case, gold — to do so.

More than 750 tonnes of gold are currently sitting in the state coffers of Portugal, Greece and Spain alone, equal to about 17 percent of the 2010 annual supply of bullion from mining and sales of scrap.

Despite struggling with massive debt burdens and in some cases accepting multi-billion-euro bailout packages, the so-called PIIGS — the countries above, plus Ireland and Italy — have not dipped into their gold reserves to service that debt.

[source]

PG View: Why would they sell their gold in exchange for more paper and promises?

September 02 (GoldCore – via ZeroHedge) — Gold and the Swiss franc are higher today as risk aversion has returned with global stock markets falling on concerns the US employment figure later today will disappoint and confirm that the US economy continues to weaken.

…Today, the President of the ECB, Jean- Claude Trichet did not rule out a gold backed euro bond in an interview with ‘Il Sole 24 Ore’ published on the ECB’s website.

The comments were a response to former Italian Prime Minister Romano Prodi who proposed – in Italian national daily business newspaper ‘Il Sole 24 Ore’ last week – the creation of a euro bond backed by member states’ gold reserves.

[source]

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.