6-Sep (Bloomberg) — Gold futures rose to the highest since March as European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program to help stabilize the region, boosting demand for the metal as a store of value.

Draghi said the ECB will have a “fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.” U.S. jobless claims declined last week and companies added more workers than forecast in August, reports showed today before monthly payrolls data tomorrow. In August, gold jumped 4.5 percent, the most since January, on speculation that the Federal Reserve and the ECB will increase steps to bolster their economies.

“Expectations of inflation rising after Draghi’s statements are supporting gold,” Adam Klopfenstein, a market strategist at Archer Financial Services Inc. in Chicago, said in a telephone interview. “Tomorrow’s jobs data will be crucial as that will be one of the leading indicators about the health of the economy.”

Gold futures for December delivery gained 0.6 percent to $1,703.50 an ounce at 9:59 a.m. on the Comex in New York, after earlier jumping to $1,716.90, the highest for a most-active contract since March 12.

Gold will be at $1,840 by the end of 2012, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview today.

[Source]

Sep 6 (MarketWatch) — Gold futures added to gains Thursday after European Central Bank President Mario Draghi detailed a plan to buy bonds from struggling euro-zone countries.

Gold futures for December delivery GCZ2 +0.80% rose $10.50, or 0.6%, to trade at $1,704.50 an ounce on the Comex division of the New York Mercantile Exchange.

[Source]

6-Sep (MarketWatch) — European Central Bank President Mario Draghi on Thursday said the central bank is prepared to buy government bonds in unlimited quantities in order to eliminate harmful distortions in financial markets fueled by fears of a euro breakup, but reiterated that participating countries must promise to abide by strict conditions.

The new Outright Market Transactions, or OMT, program “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi told reporters at his monthly news conference.

The OMT will allow the central bank to buy government bonds with maturities of one to three years in unlimited quantities, though purchases will be “sterilized,” or offset by draining an equivalent amount of money from the financial system, in order to avoid a potential rise in the money supply.

“The ECB’s insistence to sterilize the bond purchases means the ECB can only buy bonds as long as demand for euro T-bills remains,” Zangana said in emailed comments. That’s because the ECB absorbs the extra liquidity put into the financial system by its bond purchases by selling T-bills.

“If demand dries up, as it did [under the ECB’s previous bond-buying program] at the start of the year, then the bond purchases would be halted,” Zangana said. “In that sense, Draghi may be overreaching when he said the ECB would ‘backstop’ the monetary union.”

Draghi also stressed that the ECB would withdraw bond-buying support for countries that fail to abide by terms of the conditions attached to help.

Unlike the previous bond-buying program, known as the Securities Market Program, the ECB will publish a detailed monthly breakdown of the duration of bonds purchased and what country they come from. Under the SMP, the ECB only published the total amount of bonds purchased.

[Source]

JK Comment: Here we go…….

Financial Post (Sept 5) — The price of gold is expected to increase over the next four months as investors demand a safe haven amid concerns over a euro-zone break up according to a new report from Capital Economics.

“We would continue to emphasize that our forecast of a rise in price to $2,000 per. oz by year-end does not rely on the launch of a third round of qualitative easing (QE3). Rather it is mainly based on an exception that a break up of the euro-zone will boost the demand,” said economist John Higgins.

[Source]

JK Comment: So if gold’s rise to $2000 doesn’t depend on QE3, what will happen to the price if Bernanke does press forward? The specter of combined European and US easing is certainly creating a bigger, perhaps even a ‘perfect’, storm for gold. Maybe it is the fact that gold doesn’t ‘need’ QE3 to get to $2000, yet QE3 seems like such a strong possibility, that is prompting a spike in $2000 price predictions/expectations:

Here’s a few…….
Merrill Lynch

Drakon Capital’s Guy Adami

Economist Shayne Heffernan

Afshin Nabavi, head of trading at MKS Finance

Marketwatch (Sept 4) — Wake up gold bugs, your time has arrived. Dust off your prospecting equipment because it is time to look for some investments.

You’ve survived naysayers. You’ve survived a sizeable rally in the U.S. dollar. And you even survived what should have been the final nail in the coffin when the market made a significant technical breakdown in May.

Kudos.

And late last month, things started to get exciting as gold moved above the top of the giant triangle pattern that contained it since September of last year. At the time of this writing in late August, it was not yet a significant breakout, but it was a breakout nonetheless.

[Source]

Marketwatch (Sept 5) — The euro erased a loss versus the U.S. dollar Wednesday after a news report said European Central Bank policy makers would consider buying distressed government bonds in unlimited quantities, but would sterilize the purchases in order to ease worries about boosting money supply.

Under a blueprint to be considered by the ECB at its Governing Council meeting on Thursday, the bank wouldn’t set a public cap on yields, but would pledge to buy unlimited amounts of government debt that would be sterilized, Bloomberg News reported Wednesday.

Sterilization refers to the practice of draining an equivalent amount of reserves from the financial system in order to prevent growth in the money supply.

[Source]

JK Comment: Just as the Federal Reserve is considering implementing its own version of ‘unlimited QE’, the ECB is now adding the ‘unlimited’ tag to its bond buying plans.

Silver ended the month of August up an impressive 13.2%, and follow-on gains early in September has put the white metal above $32 for the first time since April. Gold by comparison — the far larger, more liquid of the precious metals — posted a monthly gain of 4.8% for August.

The two markets tend to be pretty tightly correlated, but I often look to the gold/silver ratio for technical clues. Given the aforementioned August price action, the fact that the ratio has retreated from the upper 50s to the low 50s in recent weeks should come as no surprise. It now takes fewer ounces of silver to buy an ounce of gold. I view this as a generally positive harbinger for the precious metals complex as silver tends to lead when inflation expectations are on the rise. While both gold and silver have performed admirably in the recent deflationary environment, the precious metals really perk up when inflation expectations do.

The national average gasoline price hit a new Labor Day record of $3.83 a gallon on Monday, besting the old record of $3.69 a gallon from 2008. Meanwhile food commodity prices continue to soar as a result of the drought affecting much of the United States. On top of that, it appears that both the Fed and the ECB are on the verge of even more accommodative monetary policy, which is further stoking inflation expectations.

Please note: I am on vacation for the remainder of this week, and will return with new morning reports next Monday.

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.”

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