26-Sep (Reuters) — President Barack Obama said on Monday the debt crisis in Europe was “scaring the world” and that leaders in the euro zone were not dealing with the issue quickly enough.

The recovery of the U.S. economy suffered setbacks this year due to problems around the world, Obama said, including the Arab Spring uprisings that drove up energy prices and worries about the financial health of European nations.

…”So they are going through a financial crisis that is scaring the world and they are trying to take responsible actions but those actions haven’t been quite as quick as they need to be.”

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PG View: While we have our own massive debt problem here in America, and we’re on the verge of a government shut-down once again, there’s nothing “scary” going on here… It’s all Europe’s fault.

26-Sep (Der Spiegel) — The new Bundesbank president, Jens Weidmann, used to be one of Merkel’s closest advisers. Now, he is one of her staunchest critics over the euro rescue. He is strictly opposed to the European Central Bank’s policy of buying up bonds from debt-stricken countries — and is winning a growing number of allies for his cause.

…Weidmann has criticized decisions related to the euro bailout as “inconsistent” and “highly risky.” He has called on politicians in Berlin to change their course, and he has been advocating “the Bundesbank’s principles regarding stability.” All of those things put him at odds with top officials at the European Central Bank (ECB).

Behind the glass facade of ECB headquarters in Frankfurt, a fierce battle over fundamental beliefs has been smoldering for months. ECB President Jean-Claude Trichet and the majority of his colleagues are willing to rush to the aid of embattled EU finance ministers and to make major purchases of the sovereign bonds of debt-ridden euro-zone countries, such as Greece, Portugal and Italy.

For his part, Weidmann is strictly opposed to these measures. He believes they amount to an unacceptable means of financing states through effectively printing money. In fact, he has come to assume the mantle of the last staunch defender of monetary stability.

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26-Sep (The Wall Street Journal) — European officials are working on a scheme to build a special purpose vehicle that would lever up existing EFSF money 8 to 1 to buy up European sovereign debt and then issue bonds, CNBC is reporting.

Naturally, stocks are through the roof on this. Because what could possibly go wrong with an SPV? Or a CDO-squared, as Zero Hedge called it?

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PG View: Gearing up bailout funds to buy junk sovereign debt? Seriously…what could possibly go wrong?

26-Sep (Bloomberg) — Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said a central bank seeking to control inflation needs to find a balance between supporting a government’s debt issuance and allowing for sovereign default.

“It may turn out to be optimal for central banks to guarantee fiscal authority debts in some situations,” Kocherlakota said today in a panel discussion in Chicago. If so, economists may need to consider control of inflation as “something that is done jointly by the fiscal authority and the central bank.” He didn’t back such guarantees, saying a central bank furthers its independence by avoiding “interventions.”

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PG View: More junk in the balance sheets of central banks? They better be stocking up on paper and ink!

26-Sep (USAGOLD) – Gold extended lower in overseas trading, touching levels not seen since early-July, as global deleveraging continued. The important 200-day moving average (1529.00) successfully contained the downside, and the yellow metal subsequently rebounded more than $100. More recently, a consolidative intraday tone has emerged around the $1600 level.

There was apparently some progress on Greece at the weekend IMF meeting. Seems like we’ve heard that before. Nonetheless, Greece is now racing to secure the necessary Parliamentary approval of further austerity measures. Seems like we’ve heard that before too. That vote is likely to occur tomorrow. More strikes and protests are already queued up for the coming weeks.

The troika is expected to return to Greece this week to resume their fiscal audit. Even with assurances of further austerity, it seems that providing the next tranche of bailout funds has little real hope of a preventing a default. It is this expectation of default, and expected haircuts for Greek bondholders that has been a major contributing factor to the broad deleveraging sell-off across a wide swath of asset classes.

Gold continued its sell-off overnight, plunging over $100 from Friday’s close for the second straight day – but is now showing signs of bottoming. Over the past 10 years of this gold bull market, large scale corrections have frequently taken the price back to/or near the 200 day moving average. Only once has a correction breached the 200 day moving average – during the height of the financial crisis in 2008. Last night, gold reversed right at the 200 day moving average, touching it for only a moment, before rallying $50 in a few minutes, and is now trading almost $80+ over that level.

OPINION

With Europe on the brink of a full blown sovereign debt crisis, broad systemic failures are again front page news, with some talk of the Euro failing as a currency altogether. Those who participated in the gold market in late 2008 saw the price drop dramatically from $930 an ounce to $685 in two week’s time (a 35% drop). The drop in gold over the past two weeks is eerily similar in both pace and magnitude. The counter-intuitive nature of the drop in 2008 prompted massive physical shortages as investors flocked to the yellow metal as a safe haven. The price responded thereafter as well…nearly tripling in three years. Physical demand through this pullback has been just as vigorous. So while the latest move will test the conviction of even the most ardent believer, those who remain committed in their resolve may very well see this range as the best buying opportunity in the gold market since 2008.

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD – Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

23-Sep (Financial Times) — Time is running out to find a solution to the eurozone crisis and prevent another global recession, finance ministers warned on Friday, as they hinted that discussions were under way to boost the firepower of European rescue funds.

Financial markets experienced another day of intense volatility as investors struggled to interpret an emergency statement from the Group of 20 leading economies, which met on the sidelines of the International Monetary Fund and World Bank meetings in Washington.

…Gold continued to slide sharply and US oil prices traded below $80 a barrel, their lowest in more than a year. Shares rallied modestly in Europe and the US, accompanied by selling in government bonds and the dollar.

[http://www.ft.com/intl/cms/s/0/9bedaa82-e603-11e0-960c-00144feabdc0.html#axzz1YUm6X1iD]

23-Sep (MarketWatch) — The CME Group CME +0.00% , the parent company of the New York Mercantile Exchange, on Friday raised margin requirements for some gold, silver and copper futures contracts. Margins are money investors must put up to be able to trade and hold futures contracts. Initial requirements for gold’s benchmark contract rose 21% to $11,475 per contract, from $9,450 and maintenance margins climbed to $8,500 from $7,000 per contract. Initial requirements for silver’s benchmark contract rose 16% to $24,975 per contract, from $21,600 and maintenance margins climbed to $18,500 from $16,000 per contract.

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PG View: It is likely that expectations of this margin hike factored into today’s sell-off.

23-Sep (Bloomberg) — Gold fell, capping the biggest two- day plunge since 1983, on investor sales following routs in global equity and commodity markets.

More than $3.4 trillion has been erased from equity values this week, sending a global measure of shares into a bear market, on concern that governments are running out of tools to avert a recession. The Standard & Poor’s GSCI Index of 24 commodities fell to a nine-month low today. Gold has dropped 15 percent since reaching a record $1,923.70 an ounce on Sept. 6.

“Gold has become the source of liquidity for global margin calls,” said Michael A. Gayed, the chief investment strategist at Pension Partners LLC. “Also, deflationary pressures are acting on gold.”

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PG View: We’ve seen very strong physical buying interest on this retreat. Savvy investors know from experience that deleveraging breaks provide buying opportunity. The dollar and bonds may be up for now, but most realize that they aren’t the true safe-havens that they once were, and such allocations are therefore unlikely to prove sticky.

23-Sep (Wall Street Journal) — Fears of a possible Greek default and the U.S economy dipping back into recession pushed the Dow Jones Industrial Average to its worst weekly decline since the depths of the financial crisis.

Stocks edged slightly higher on Friday, as a pledge from global officials to maintain financial stability alleviated some investor anxiety. The slim gains, however, failed to overshadow the market’s poor weekly performance.

The Dow edged up 37.65 points, or 0.4%, to 10771.48. But the index, which plunged 675 points on Wednesday and Thursday, finished the week down 6.4%, its worst performance since the week ended Oct. 10, 2008.

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23-Sep (Financial Times) — The Group of 20 leading economies pledged a “strong and co-ordinated” effort to stabilise the global economy in an attempt to calm tumbling equities markets spooked by fears of recession in the eurozone and a gloomy economic outlook in the US.

Bowing to pressure from investors to take action, finance ministers from the G20 economies said in a communiqué issued late on Thursday that they would stop the European debt crisis from deluging banks and financial markets, and take the necessary steps to bolster the eurozone’s rescue fund and assist banks to boost capital reserves in line with new global regulations. The statement followed a day in which the equity markets suffered some of the biggest falls since the collapse of Lehman Brothers in 2008, as investors rushed to safety in a widespread sell-off.

“We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required,” the group said in a statement. “We will ensure that banks are adequately capitalised and have sufficient access to funding to deal with current risks and that they fully implement Basel III along the agreed timelines.”

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23-Sep (Financial Times) — Risk aversion in equity and commodities markets drove the dollar higher this week as hopes for economic recovery were dealt another blow by the Federal Reserve’s latest assessment of US growth.

The dollar climbed across the board on Thursday as investors sought safety and global equity markets tumbled with other risk assets, including industrial metals and oil. The latest catalyst for investors to flee for cover was the Fed’s statement on Wednesday that there were now “significant downside risks to the economic outlook”.

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PG View: Should more accurately say “perceived” or “relative” safety.

23-Sep (MarketWatch) — Gold futures slid below $1,700 an ounce on Friday, losing more than 4% as turmoil in global financial markets continued and investors rushed to sell metals positions to raise cash.

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23-Sep (USAGOLD) — Gold extended sharply lower in overseas trading, pushing below the $1700 level for the first time in 7-weeks, as the global asset rout continues. The dollar remains well bid, trading near 7-month highs, bolstered by flight out of stocks and out of the euro.

The G20 vowed “strong and co-ordinated” support in their communiqué late yesterday, saying “We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required.” However, the absence of specifics did little to reassure markets. The market now looks to weekend IMF and World Bank meetings for guidance.

Meanwhile, Congress is embroiled in yet another partisan battle, this time centered on a continuing spending resolution. The Republican controlled House passed a spending bill yesterday, but the Democrat controlled Senate has vowed to shoot it down. Failure to pass a resolution could result in a government shut-down next week. This is exactly the kind of behavior that promoted S&P to downgrade the US.

• France business confidence falls to 99 in Sep, below market expectations, vs 105 in Aug; production outlook tumbles to -29.
• Italy retail sales (sa) -0.1% m/m in Jul, below market expectations of +0.2%, vs negative revised -0.3% in Jun; -2.4% y/y.

22-Sep (Bloomberg) — The Federal Reserve’s effort to reduce borrowing costs with an unconventional policy tool may also be highlighting limits to its power to fix what ails the U.S. economy.

Investors sought safer assets for a second day after the Fed announced it would shift $400 billion of its Treasury securities holdings into longer-term debt. Treasury 30-year bonds rallied, sending yields to the lowest level in almost three years, while the Dow Jones Industrial Average suffered its biggest two-day loss since December 2008.

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22-Sep (HousingWire) — The Dow Jones Industrial Average plunged about 500 points Thursday before closing down 391 points, or 3.5%, as dim economic news from monetary policymakers and the growing European debt crisis spooked investors.

Global financial markets are reacting to a series of negative reports, including Treasury Secretary Timothy Geithner’s assertion that political instability and a debt crisis overseas are the greatest risks to the American economy, according to a Reuters report.

Fears of a European debt crisis hurting U.S. growth prompted the Senate Banking Committee to invite a panel of European economists and banking experts to discuss how their debt issues will impact the fledgling U.S. economy.

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22-Sep (The Wall Street Journal) — Investors staged a flight from risk in global markets that sent U.S. stocks plummeting and 10-year Treasury yields to 1940s levels, after a gloomy outlook by the Federal Reserve renewed fears of a global economic slowdown.

U.S. stocks hit successive lows throughout Thursday’s session as investors sold off assets perceived as “risky” and fled to the dollar and to government bonds. The selloff started Wednesday. The Fed moved to increase the share of longer-dated Treasurys within its portfolio by $400 billion by June 2012, while selling shorter-term paper. But the planned effort, which investors dubbed “Operation Twist,” was overshadowed by a gloomy statement from the central bank noting “significant downside risks” to the global economy. The Fed also noted “strains” in global financial markets, widely interpreted as a reference to Europe’s sovereign-debt crisis.

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PG View: Investors may be fleeing stocks in favor of the dollar and bonds, but they are unlikely to stay there. Growth risks that tanked stocks are just the catalyst for additional central bank measures that would be dollar negative. And the yields on US Treasuries simply don’t accurately reflect the true risks.

22-Sep (Financial Times) — European officials look set to speed up plans to recapitalise the 16 banks that came close to failing last summer’s pan-EU stress tests as part of a co-ordinated effort to reassure the markets about the strength of the 27-nation bloc’s banking sector.

A senior French official said the 16 banks regarded to be close to the threshold would now have to seek new funds immediately. Although there has been widespread speculation that French banks are seeking more capital, none is on the list. Other European officials said discussions were still under way.

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Gold Retreats as Global Growth Risks Mount

22-Sep (USAGOLD) — Weak PMI data out of China and the eurozone have weighed heavily on global shares and the commodity complex on Thursday, just a day after the Fed offered a pretty dire assessment of the US economy. Broad-based risk aversion has prompted flows out of stocks and commodities and into the perceived safety of dollars and low yielding sovereign debt. While this risk-off trade is also weighing on gold, because of its allocation to commodity pools and funds, the safe-haven aspects of the yellow metal suggests that downside potential may prove to be limited in the face of all the global uncertainty.

It would seem that Europe is on the verge of recession, on top of heavy stresses associated with the sovereign debt crises. Meanwhile, even the Chinese economy may be sputtering under the weight of carrying the water for the rest of the world. As for the US economy, leading indicators were up slightly in August, but initial jobless claims once again disappointed, remaining well above 400k.

The Fed moved on Wednesday to offer additional accommodations via an Operation Twist, hoping that in driving down longer term yields, it might spark some economic activity. While this move was widely anticipated, the market’s assessment seems to be that simply swapping $400 bln in maturities less than 3-years for $400 bln in maturities greater than 6-years, is unlikely to have any meaningful impact on growth. The Royal Bank of Canada summed it up thusly, “the economic impact will be low; the private sector is simply not responding to low yields and the housing market is languishing amid low confidence and demand while mortgage lending standards are tightening.” Arguably, the private sector is being prevented from responding to lower yields by those tighter lending standards.

The weaker growth outlook certainly mitigates inflation risks, and that may be factoring into gold’s return to the low end of the 5-week range as the dollar jumped on FX flows out of the euro and into something perhaps not quite as ugly. However, a return to recession also heightens systemic risks (just look at banking shares today), raising expectations that the central banks of the world will react in the only way they know how, with the blunt-instrument of ever-more accommodative monetary policy. The Fed and the BoE at least are very unlikely to sit idly by and allow for deflation. They will print and pump to maintain at least some inflation.

It appears that the BoE is very likely to launch additional QE measures, perhaps as early as next month. The ECB, due to hotly contested rate hikes earlier in the year, has some limited maneuvering room. The Fed, in opting for Operation Twist, has left the arrow of more full-on QE in the quiver, to perhaps be used at a later date. On top of all that, there are rumors circulating today that the Fed is planning to slash rates on the swap lines that were vastly expanded last week; a further indication of just how tight liquidity is getting.

If further expansion of the monetary base, here in the US and elsewhere in the industrialized world, is to be forthcoming — and given the well-established trend, it’s hard to believe that it won’t be — then gold’s pullback within the range is likely to be short-lived.

22-Sep (Financial Times) — The eurozone economy is on the brink of recession, according to a closely-watched survey showing private sector activity contracted this month for the first time in more than two years.

The worse-than-expected deterioration in eurozone purchasing managers’ indices adds to evidence that the region’s recovery has gone into reverse. It increases pressure on the European Central Bank to cut interest rates.

Economic prospects have been hit by sharp falls in consumer and business confidence amid the escalating eurozone debt crisis, as well as fiscal austerity measures across the continent and gloom about US growth.

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22-Sep (MarketWatch) — HSBC’s preliminary China Manufacturing Purchasing Managers’ Index, or “flash” PMI, fell to a two-month low in September, indicating a broadening slowdown in the Chinese economy, with industrial output swinging from a modest expansion to a deterioration.

The weak data were a factor in the broad equities sell-off in Hong Kong Thursday.

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22-Sep (The Economist) — BUY on the rumour, sell on the news. It is an old market adage that may explain why the the equity market has sold off so sharply in the wake of the Fed’s announcement of Operation Twist. But the scale of the sell-off (the FTSE 100 is off nearly 5% as I write and below the 5,000 mark, while the Dax is off more than 4%) suggests that something else is at work.

Perhaps the Fed’s downbeat assessment of the economy was to blame? That is possible and the mood will not have been helped by today’s European purchasing manager indices, which are below 50 on the composite measures (and around 50 in Germany), a level that indicates declining activity.

…That would suggest that, like Oliver Twist, the markets were hoping for something more, a commitment to (or at least a hint of) full-blown QE, in defiance of the Republican leadership.

…Broadly speaking, then, one can say that market reaction to the Fed shows either the fear that the central bank is running out of ammunition (at a time when fiscal policy is also constrained) or that the Fed will simply have to act more decisively (just as many believe the ECB will eventually have to buy a lot more Italian and Spanish bonds).

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22-Sep (USAGOLD) — Gold has extended losses back toward the low end of the 5-week range as a plethora of weak data fuels concerns over global growth risks. This has weighed heavily on stocks, as well as the commodity complex today. Most commodity funds and indexes have a gold component, so in exiting these instruments, investors are also selling gold; even if they believe gold is where they really want to be. As stocks fall, investors must frequently liquidate profitable positions (including those in gold) to cover margin calls.

The “risk-off” mindset has fueled flows into dollars and low yielding sovereign debt like US Treasuries, German bunds and JGBs. The dollar has gotten an additional boost to new 7-month highs as a result of persistent sovereign default woes in Europe, which have pushed the euro below 1.3400 for the first time since January. The general inverse correlation between the dollar and gold may also be fueling some speculative interest on the short side of the yellow metal, but as we’ve seen recently, these types of breaks have attracted strong buying interest in the physical market.

Finally, given dubious success of past quantitative easing measures, there seems to be a growing consensus that the Fed’s Operation Twist that was announced yesterday — the swapping of $400 bln in short-term Treasuries for an equal amount of longer-term Treasuries — has little chance of reinvigorating the moribund US economy.

• US initial claims -9k to 423k in the week ended 17-Sep, above market expectations, vs upward revised (again!) 432k in previous week.
• Canada retail sales -0.6% in Jul, below market expectations of -0.3%; ex-autos flat, also below expectations.
• UK CBI Industrial Trends Monthly – Total Orders -9 in Sep, below market expectations of -5, vs +1 in Aug; Export orders -12.
• Eurozone Reuters PMI – Composite (advance) fell to 49.2 in Sep, below market expectations, vs 50.7 in Aug; Mfg 48.4, Servs 49.1.
• Eurozone industrial orders (sa) -2.1% m/m in Jul, well below market expectations of -1.2%, vs negative revised -1.2% in Jun; 8.4% y/y pace.
• Eurozone Flash consumer confidence edged lower to -17.0 in Sep, below market expectations, vs -16.6 in Aug.
• New Zealand Q2 GDP weaker than expected at just 0.1% q/q.
• China HSBC/Markit Flash Manufacturing PMI 49.4 in Sep, below expectations, vs upward revised 49.9 in Aug.
• Taiwan unemployment rate (sa) ticks lower in Aug to 4.36%, vs 4.37% in Jul.

21-Sep (USAGOLD) — The Fed’s FOMC committee announced today that they would keep the target range for the federal funds rate at 0 to 1/4 percent, reiterating the guidance from last month that rates would likely remain exceptionally low at least through mid-2013.

They have added an Operation Twist on top of their current QE2.5 re-monitization program, with plans to sell $400 bln in Treasuries with remaining maturities of 3-years or less and buy an equal amount of Treasuries with remaining maturities of 6 to 30 years by the end of June 2012. This will in effect ‘twist’ of flatten the yield curve.

The Fed also said that they would reinvest principal payments from their holdings of agency debt and agency mortgage-backed securities to buy additional agency mortgage-backed securities in the hope that it will provide lower mortgage rates.

“Fuller discussion” provided by extra day added to FOMC meeting, failed to sway any of the dissenters; Fisher, Plosser, & Kocherlakota.

The QE hits keep coming…

[FOMC Statement]

21-Sep (Bloomberg) — Bank of America Corp. and Wells Fargo & Co. had their long-term credit ratings downgraded by Moody’s Investors Service, citing a decreasing probability that the U.S. would support the lenders in an emergency. Citigroup Inc.’s short-term rating also was cut.

The government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute,” Moody’s wrote in statements today on Bank of America and Wells Fargo. While Citigroup may lose backing as well, its stand-alone credit has shown improvement, Moody’s said, confirming the bank’s long-term rating.

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20-Sep (CNN) — Our government is utterly broke. There are signs everywhere one looks. Social Security can no longer afford to send us our annual benefit statements. The House can no longer afford its congressional pages. The Pentagon can no longer afford the pension and health care benefits of retired service members. NASA is no longer planning a manned mission to Mars.

We’re broke for a reason. We’ve spent six decades accumulating a huge official debt (U.S. Treasury bills and bonds) and vastly larger unofficial debts to pay for Social Security, Medicare, and Medicaid benefits to today’s and tomorrow’s 100 million-plus retirees.

The government’s total indebtedness — its fiscal gap — now stands at $211 trillion, by my arithmetic.

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