28-Feb (USAGOLD) — Gold is well bid this morning, underpinned by dollar weakness, firm oil and fresh 5-month highs in silver. The euro is surprisingly buoyant after S&P declared Greece to be in a “selective default’. Recent action by the credit rating agencies is making it increasingly difficult for policymakers to maintain their insistence that the bond swap is not a credit event, and therefore not a trigger for the credit default swaps.

Weaker than expected January durable goods orders and continued weakness in the US housing market through the end of last year has the stock market looking increasingly suspect up here in the vicinity of DJIA 13,000. Durable goods orders for January fell by 4.0%, on a larger than expected seasonal effect. The Case-Shiller 20-city composite home price index dropped 1.1% in December. While this was near expectations, the 4.0% y/y decline in 2011 suggests that recent talk of a housing market recovery is premature.

This grim economic news was tempered somewhat by a new 1-year high in consumer confidence in February. The negative wealth effect associated with persistent weakness in the housing market may ultimately lead to a reversal of the recent rise in consumer confidence.

Flows out of stocks, driven by heightened risk aversion, may well find their way into the metals market. Historically, there is an inverse correlation between gold and shares. It would be reassuring to see that more normal relationship reestablished.

• US consumer confidence jumped to 70.8 in Feb, above market expectations, vs upward revised 61.5 in Jan; highest level in a year.
• US Case-Shiller 20-city composite home price index (nsa) -1.1% to 136.7 in Dec, vs neg revised 138.2 in Nov; -3.99% y/y.
• US durable goods orders -4.0% in Jan, well below market expectations of -1.0%, vs positive revised +3.2% in Dec; -3.2% ex-trans.
• Germany GfK Consumer Confidence ticked higher to 6.0 for Mar, in-line with expectations, vs 5.9 in Feb.
• Germany CPI +0.7% in Feb, above market expectations of 0.5%, vs -0.4% in Jan; 2.3% y/y.
• Eurozone Economic Confidence higher at 94.4 in Feb, just above expectations of 94.0, vs 93.4 in Jan; consumer confidence weaker at -20.3.
• Japan Large Retailer Sales -1.0% y/y in Jan, vs positive revised -0.3% in Dec.
• Japan Total Retail Sales +1.9% y/y in Jan, vs +2.5% in Dec.

28-Feb (The Wall Street Journal) —The European Central Bank, responding to the latest rating agency downgrade of Greece, said it would no longer accept the country’s bonds as collateral for loans, but added the move was a temporary one that could be reversed once the new Greek bailout package goes into effect.

Until then, the ECB said it would be up to national central banks to decide whether to accept the bonds as collateral for their own emergency lending facilities. Greek banks, which would collapse without the support, would still be able to access loans directly from the Greek central bank’s lending window, albeit at a higher interest rate.

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PG View: Any bank that didn’t use their Greek bonds as collateral in the Dec LTRO is out of luck tomorrow…

28-Feb (BBC) — Rating agency Standard & Poor’s has classified Greek debt as in “selective default” following the deal it made with creditors to reduce its debts.

S&P says the terms of that deal triggered the latest downgrade. Greek debt already had a “junk” grade rating from the agency.

Separately, the European Central Bank said it was suspending the eligibility of Greek bonds as collateral for loans to commercial banks.

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28-Feb (The Wall Street Journal) U.S. home prices ended 2011 at the lowest levels since the housing crisis began in mid-2006, according to Standard & Poor’s Case-Shiller home-price indexes.

During the fourth quarter, home prices reached new lows, falling 3.8% from the pre and 4% year-to-year. Prices are down 33.8% from their peak in the second quarter of 2006.

“While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended,” said David Blitzer, chairman of S&P’s index committee. “After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized.”

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27-Feb (FX Street) — The Bundestag, Germany’s lower house of parliament, approved with a large majority the second bailout for Greece worth €130 billion which was agreed by euro zone finance ministers last week.

As widely expected and with a large majority, the Greek aid proposal was approved with 496 votes in favor, 90 against and 5 abstentions. An approval of the Bundesrat the upper house of parliament representing the 16 states is not necessary. On the other hand, the Euro has been hurt by the S&P downgraded of the EFSF outlook and the bullish movement of the last days has been undermined for this decision.

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27-Feb (Der Spiegel) — German Interior Minister Hans-Peter Friedrich has advised Greece to leave the euro zone — the first time a member of the German government has openly called for such a radical step.

“Greece’s chances to regenerate itself and become competitive are surely greater outside the monetary union than if it remains in the euro area,” Friedrich told SPIEGEL. He emphasized, however, that he did not support a forced exit. “I’m not talking about throwing Greece out, but rather about creating incentives for an exit that they can’t pass up.”

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27-Feb (USAGOLD) — Gold has snapped back from overseas losses and is now trading higher on the day. Last week’s high at 1782.82 now provides an intervening barrier ahead of important resistance defined by the November high at 1802.80.

Over the weekend the G20 ramped up pressure on Europe, and Germany in particular, to come up with more money as a condition of further IMF support. The G20 is reportedly attempting to compile nearly $2 trillion in resources as quickly as April, but they would like to see the firebreaks already in place bolstered. German Chancellor Merkel, facing intense political pressures at home, was quick to oppose an increase in the size of the EFSF/ESM.

The Eurogroup will meet again this week to discuss Greece amid rising expectations that the recently agreed to bond swap will be viewed by the rating agencies as a default. If that is the case, the swap will be considered a credit event, triggering CDS and potentially starting a chain reaction that may well put the global financial system under extreme duress once again.

On Wednesday, the ECB will have their second LTRO, once again offering up unlimited 3-year money to European banks. Their last LTRO back in December resulted in an astonishing €489 billion in take-up, this next one is expected to be bigger yet — and potentially much bigger — as the ECB has been hinting that they would like it to be their last. The as yet unknown counterparties that wrote the Greek CDSs could very well have an interest in boosting their cash holdings.

An additional boost to global liquidity in the range of €500-1,000 trillion is very likely to boost gold as well.

• US NAR pending home sales index +2.0% to 97.0 in Jan, vs negative revised 95.1 in Dec.
• France PPI +0.6% m/m in Jan, vs -0.1% in Dec; 4.2% y/y.
• Italy business confidence erodes to 91.5 in Feb, vs 92.1 in Jan.
• Eurozone M3 (sa) +2.5% y/y in Jan, well above market expectations of +1.7%, vs +1.6% in Dec.

26-Feb (LA Times) — A bit player only a decade ago, China has emerged as one of the most important forces in the global gold market, helping fuel the rising value of the precious metal.

Already the world’s largest producer — it overtook South Africa in 2007 — China is now bedecking itself in bling. It’s on track to become the globe’s largest consumer of gold as early as this year, knocking off India — whose elaborate wedding dowries kept it on top for years.

Some of China’s gold is going to its central bank as the government quietly boosts reserves. But the biggest driver is Chinese consumers. They’re snapping up jewelry, coins and bars as a hedge against inflation and to flaunt their rising wealth.

…Chinese demand reached nearly 770 metric tons last year, up 20% from the year before, according to the World Gold Council in London. Desire for the yellow metal is so strong that China is buying record amounts from abroad because its mines can’t keep pace. China imported more gold than India in the fourth quarter of 2011.

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26-Feb (Reuters) — Leading economies told Europe it must put up extra money to fight its debt crisis if it wants more help from the rest of the world, piling pressure on Germany to drop its opposition to a bigger European bailout.

Euro zone countries pledged on Sunday at a Group of 20 meetings of finance leaders to reassess the strength of their bailout fund in March, which could clear the way for other G20 countries to give more funds to the International Monetary Fund.

…Germany, as Europe’s largest economy, came under intense pressure to support enlarging the region’s war chest. But facing political hurdles at home, it has sent conflicting signals over whether it was ready to move.

…The G20 is racing to line up massive international resources worth nearly $2 trillion – including existing and new funds – possibly by late April.

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27-Feb (Bloomberg) — Sweden’s central bank gold reserves were unchanged at 125.7 metric tons in January, Joanna Gerwin, acting head of communication, said by phone today.

The International Monetary Fund earlier reported an 18.3 metric-ton increase in the bank’s reserves.

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Daily FX (Feb 24) — “Gold’s break higher shifts focus to the November high at 1813.30, the 61.8% extension of the 1527.30-1764 rally at 1853.85 and ultimately the September and all time high at 1932.60.” Near term structure remains bullish with the recent pullback probably composing a small 4th wave. 1773 is support.

Bottom Line – Higher

[Source]

Reuters (Feb 24) — Greece formally launched a bond swap offer to private holders of its bonds on Friday, setting in motion the largest-ever sovereign debt restructuring in the hope of getting its messy finances back on track.

The debt exchange and the new bailout also buy time to stabilize the 17-nation euro zone currency bloc and shield it against a Greek default, which remains a long-term threat.

Despite offering some relief to Greeks and policymakers fretting about an imminent bankruptcy, the deal has yet to quell doubts about the viability of Greek debt and whether the stricken nation can get back on its feet.

Greece said it was not obliged to carry out the swap unless it had 90 percent participation. If the participation was below 90 percent but above 75 percent, then Greece would consult with its public creditors.

If the rate was less than 75 percent and it did not receive required consents, it would not go through with the deal, it said.

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The AU Report (Feb 20) — “I think in the immediate term it’s very difficult to predict, but before year-end we’re going to run to the next new highs in gold and silver. I would expect gold to be well above the $2,100/oz level in this next run with silver pushing toward $70/oz. The driver for this will be QE3 and the stoppage of the manipulation game in New York on the Comex. That game has been played for a long time now, over 15 years in my opinion, but will soon be vacated by the shorts due to horrendous losses as other big players—Russia and China—fight against them.”

“In the longer term, the end game for all this debt and fiat currency insanity will take gold to a minimum of $6,500/oz. In reality, it will probably go much higher than that as governments topple and civil unrest unfolds. As an example, if you took all the current debts known to the world in the system right now and had to cover those debts with gold, it would take a price of $19,500/oz to do so! Of course, this is just one methodology of trying to figure out just how high gold could go, but I think you get the picture. What I am trying to say is that my $6,500/oz number is probably very conservative. How long is it going to take to get there? I don’t have a crystal ball. Those prices would happen as the world financial system hits systemic collapse.”

“In this next run higher for this year, gold could easily hit $2,500/oz to $3,000/oz, depending on how much QE3 is injected into the system. The more QE3 that is done, the higher the precious metals prices would go. Also, the vacating short situation on the Comex could be a big swing factor. Silver could easily see $70, $75, even $80/oz if these events occur this year as I expect. That’s also going to lift our junior mining shares and get them going once again.”

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IB Times (Feb 24) — GOLD PRICE NEWS – The gold price ­traded near unchanged Friday, hovering near $1,780 per ounce. The spot price of gold climbed to $1,789.10 – the highest level since November 11, 2011 – during yesterday’s session, but pared its gains as short-term traders took profits in the yellow metal. With its slight advance, the gold price extended its weekly and year-to-date gains to 3.4% and 13.8%, respectively.

While the gold price held near unchanged yesterday, silver continued its ascent. The price of silver jumped $0.94, or 2.7%, to $35.42 per ounce amid widespread strength in commodities and weakness in the U.S. dollar. Thus far in 2012, silver has now surged 27.8%, making it one of the best performing asset classes this year.

Another standout performer in the commodities complex was crude oil, which rallied to a nine-month high above $108 per barrel as geopolitical tensions in Iran provided a solid underpinning. Nikos Kavalis, a strategist at Royal Bank of Scotland, noted in a report that “The fact that we have Iran in the background is certainly helping through higher oil prices, which are a negative for most other industrial commodities. But for gold, it’s positive as it boosts inflation-hedging and boosts its safe-haven attributes.”

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Minyanville (Feb 24) by Helen Burnett-Nichols — Recently released World Gold Council numbers show that global gold demand exceeded more than $200 billion last year for the first time — but it is the WGC’s claim that China could possibly replace India as the world’s largest gold market in 2012 that seemed to grab the attention of many market watchers.

At the moment, India continues to boast the world’s biggest gold market, with demand of 933.4 tonnes in 2011, of which more than half was for gold jewelry, according to the latest data from the World Gold Council.

But in the second half of last year, the WGC notes that the rise and fall of the rupee and domestic swings in the gold price had an impact on both India’s jewelry and investment demand, which fell 33%.

As a result, China could be set to take over as the largest gold market in the world for the first time in 2012, the World Gold Council noted last week as it released gold demand trends and figures for 2011.

In 2011, China’s annual demand of 769.8 tonnes represented a 20% year-on-year gain, thanks to increases in both jewelry and investment. China is already the world’s top producer of gold.

”Looking particularly at Asia, there was a major boost to the overall figures from the increase in Chinese demand, which is a trend that we see continuing over the next year. It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” says Marcus Grubb, Managing Director, Investment at the World Gold Council. “What we do know is that production and to some extent estimated imports of gold are vastly more than estimated end-user demand. This implies that gold is being accumulated by private and, possibly, public entities,” he says.

Firman expects that China and other emerging markets are now an integral support to the gold price.

“The spending power of the growing middle classes and debased currencies does lend itself to stores of wealth, such as gold. The luxury markets – jewelry – also benefit,”

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23-Feb (The Weekly Standard) — The office of Senator Jeff Sessions, ranking member on the Senate Budget Committee, sends along this chart, showing that ‘America’s Per Capita Government Debt Worse Than Greece,’ as well as Ireland, Italy, France, Portugal, and Spain:

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Focus Returns to Inflation Risks

23-Feb (USAGOLD) — Gold has added to its recent gains, establishing new highs for the year and moving within $20 of the November high at 1802.80. With Greece moved at least temporarily from the front-burner, the market has turned its attention back to the preponderance of easy global monetary policy and liquidity measures…and the inflation that it may already be spurring.

And that’s a good thing right? After all, the major Western central banks are now targeting inflation. With inflation an explicit component of monetary policy, investors can be reasonably assured that inflation is exactly what will be achieved. While the Fed is targeting core-PCE, how can there not be a spillover effect into food and energy?

Rising gasoline prices have indeed muscled their way back into the headlines, amid rising expectations that gas will soon exceed $4 per gallon again and start weighing on the tepid economic recovery. White House Press Secretary Jay Carney said yesterday, “There are no magic solutions to rising oil prices and the pain that Americans feel at the pump,” and then proceeded to blame higher prices on rising demand from India and China. It wasn’t that long ago that the White House was blaming the greedy oil companies for rising prices. Undoubtedly, rising tensions with Iran are playing a role as well.

The ZeroHedge blog pointed out this morning that Brent crude hit a new all-time high in euro terms (+293% since its 2008 low). Under the weight of the ongoing sovereign debt crisis, the eurozone economy contracted by 0.3% in Q4. Growth in the whole of 2012 is expected to remain well below 1%. So what pray-tell is driving oil to record highs in terms of euro? Well it’s the weak euro of course. It’s inflation. Or maybe the European banks have been using part of their massive LTRO windfall from December (€489 bln) to buy Brent futures…

When the ECB launches their second LTRO next Wednesday, expectations are that the European banks will take an additional €1 trillion or so in cheap and unlimited 3-year money from the central bank. While the ECB will once again hope that the banks plow these funds into the periphery bond market, the temptation to seek a higher return in other markets — oil, gold and platinum leap immediately to mind — is going to be strong.

Yet as input prices rise, it tends to sap the life out of already moribund economies. And if history is any guide, the central banks are likely to react with further monetary easing and liquidity measures. Those with the least — those that spend the bulk of their income on food and energy — will suffer the most. Savers will continue to suffer as well; as the paltry yields on traditional savings vehicles are overwhelmed by the rising tide of inflation.

Prudent savers will turn (and already seem to be) to gold as a means of wealth preservation. That trend hasn’t truly ignited yet, but the pressures are building.

22-Feb (CBSNews) — The rapid rise in oil and gasoline prices in recent weeks not only threatens the nation’s economic recovery but also has become a political headache for the Obama administration.

Gas prices have surged since the beginning of the year to $3.58 a gallon nationally, according to AAA, and energy analysts expect the increases to continue. Most experts predict the national average will cross the $4 threshold in coming weeks, though drivers in some markets are paying that much already. Benchmark oil has been trading above $105 a barrel, up 5 percent in four days.

Energy analyst Stephen Schork said $4 a gallon gas is likely–and could shock the economy.

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PG View: Not to worry, rising gas prices is just a side-effect of targeted core-inflation. This is by design…

22-Feb (USAGOLD) — Gold is little changed on the day after yesterday’s gains faltered just shy of the high for the year at 1763.15. However, the yellow metals ability to rebound from overseas downticks suggest that further tests of the upside may well be in the offing.

The white metals are helping to underpin gold today, amid rising concerns about supply disruptions. An ongoing labor dispute at South Africa’s second largest producer, as well as power issues are at the center of the recent run ups in platinum and palladium.

Hopes surrounding the latest agreement on securing Greece its second bailout have quickly evaporated. I don’t know of anyone that believes another bailout is going to solve the Greek problem. Fitch downgraded Greece to C today, just one-notch above default.

In my humble opinion, either a new government in April will renege on the promises made by the current government, or the Greeks will be right back in the same position — looking for a third bailout — in a couple years when they run through the latest €130 bln that has been pledged. In fact, the FT reported yesterday that there was a “strictly confidential” memo circulating among eurozone finance ministers that says as much: [E]ven under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-out. (I think they meant to say $170bn there)

• US existing home sales +4.3% in Jan to 4.57 mln, below market expectations of 4.650 mln.
• Eurozone Markit composite PMI unexpectedly dropped to 49.7 in Feb; services fell to 49.4, manufacturing rise to 49.0 was less than expected.
• Germany Markit PMI – Manufacturing – 50.1 in Feb, below market expectations of 51.3, vs 51.0 in Jan; services slips to 52.6, also below expectations.
• France Markit PMI – Manufacturing 50.2 in Feb, above market expectations of 49.1, vs 48.5 in Jan; services better at 50.3.
• Eurozone Industrial Orders (sa) 1.9% in Dec, above market expectations of 1.3%, vs -1.1% preliminary print.
• France CPI 2.3% y/y in Jan, below expectations of 2.6%, vs 2.5% in Dec.
• Italy CPI – NIC (including tobacco) – Final 3.2% y/y in Jan, in-line with expectations, vs 3.2% preliminary read.

22-Feb (NYMagazine) — The largest question looming over Barack Obama’s presidency is what would have happened if he tried to push for a larger economic stimulus at the outset. Could he have gotten it passed? Did he think his plan was truly big enough, or just the biggest one he could pass?

In answer to that question, Noam Scheiber has acquired a major piece of the puzzle. While reporting his new book, The Escape Artists, which chronicles the administration’s response to the crisis, he got his hands on the fabled original version of Obama’s economic team’s 2008 memo, sort of the economic policy equivalent of the Blade Runner original cut. In the first version, Romer argues that a $1.8 trillion stimulus would be needed to fill in the anticipated output gap (which, in any case, turned out to be larger than anybody knew at the time.) But Larry Summers considered that figure unrealistically high — they would be laughed at by the political team — so the memo that reached Obama’s desk described an $850 billion stimulus as the largest possible option.

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22-Feb (Dow Jones) — Platinum futures marched higher Wednesday on continued supply disruptions in main producer South Africa, while gold edged lower as elation over the Greek bailout cooled.

The most actively traded platinum contract, for April delivery, was recently $29.70, or 1.8%, higher, at $1,714.60 a troy ounce on the New York Mercantile Exchange.

Platinum prices have swelled due to supply disruptions at Impala Platinum Holdings, the world’s second-largest producer of the metal. An ongoing labor dispute at Rustenburg, the company’s largest mine, has already resulted in two deaths and accounted for the loss of about 80,000 troy ounces of platinum output.

The production disruptions come as many South African platinum producers continue to struggle with a shortage of electrical power, which also curtails operations. South Africa is the world’s largest producer of the metal as a nation, which is most widely used in automotive catalysts.

“As long as there are labor issues [in South Africa] and as long as they have continuing power concerns, it’s going to be very bullish for platinum and, to a lesser extent, palladium,” said Graham Leighton, director of precious metals trading at Newedge.

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PG View: Gold has actually recouped overseas losses and is now steady on the day.