16-Mar (Politico) — The Congressional Budget Office said Friday that President Barack Obama’s tax and spending policies will yield $6.4 trillion in deficits over the next decade, more than double the shortfall in CBO’s own fiscal baseline — even after taking credit for reduced war costs.

[source]

16-Mar (USAGOLD) — Gold is rebounding from earlier tests of the downside and has recently ticked into positive territory on the day. The yellow metal is now more than $20 off the intraday low, after some disappointing US data sapped dollar strength. The lows in gold set earlier in the week at 1636.00/1634.20 were left well protected

Industrial production came in unchanged for Feb, below market expectations of +0.4%, although the back-month revision paints a more neutral picture. Additionally the University of Michigan consumer sentiment index fell in Mar, when the market was expecting a modest rise.

With inflation seemingly in check (at least as evidenced by the headline numbers), perhaps there has been a slight uptick in QE3 expectations. The Fed diminished hopes of additional impending quantitative measures by not really mentioning them at all in Tuesday’s FOMC statement. That, along with a modestly rosier economic assessment, prompted flows out of safe-haven assets and into the stock market. Maybe some are already starting to rethink that move.

• University of Michigan sentiment fell to 74.3 in Mar, below market expectations of 76.0, vs 75.3 in Feb.
• US industrial production unch in Feb, below market expectations of +0.4%, vs upward revised +0.4% in Jan; cap use 78.7%.
• US CPI +0.4% in Feb, in-line with expectations, 2.9% y/y; core +0.1%, on expectations of +0.2%, 2.2% y/y.
• Canada manufacturing shipments -0.9% in Jan, well below market expectations of +0.7%, ex-autos -1.6%.
• Eurozone trade balance (sa) €5.9 bln in Jan, vs negative revised €7.4 bln in Dec; -€7.6 bln nsa.
• Japan Leading Index (revised) 1.1% m/m in Jan, vs 0.3% in Dec.
• Japan Coincident Index (revised) -0.3 m/m in Jan, vs negative revised 2.9% in Dec.

16-Mar (CNBC) — The euro zone may raise the combined lending power of its bailout funds to close to 700 billion euros ($916 billion) from 500 billion in a trade-off between German opposition to committing more money and calming markets, euro zone officials said.

Euro zone finance ministers and central bankers will discuss the size of their bailout funds—the temporary European Financial Stability Facility (EFSF) [cnbc explains] and the permanent European Stability Mechanism (ESM) in Copenhagen on March 30-31.

…Markets have long been pushing for a higher capacity for euro zone lending to make sure the 17-nation bloc has enough money to bail out even its large members like Italy or Spain, should that be necessary, but Germany has been adamantly opposed to such an increase.

[source]

16-Mar (Bloomberg) — India, the world’s biggest bullion buyer, increased the tax on gold imports for the second time this year after record purchases widened the current-account deficit. Gold for immediately delivery fell.

The government will tax gold bars and coins and platinum at 4 percent, Pranab Mukherjee, finance minister, said in his budget speech for the year starting April 1. That’s up from 2 percent set in January. There was no change on the silver tax.

India doubled the tax on gold and silver on Jan. 17 by imposing a levy on imports as a percentage of the price, compared with the previous system of tax by weight. Global bullion prices rallied for an 11th year in 2011 as purchases by India peaked at 969 metric tons. Futures in India gained 32 percent last year, exceeding the 10 percent advance in global prices, as the currency slumped to a record low.

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PG View: Taxing gold at an ever higher rate is certainly a way to tamp down demand in the short-term, but as long as inflation (6.95%) is greater than the tax increases, buying gold still makes sense.

16-Mar (MNI) – The second Greek bailout approved this week may mark a turning point out of the debt crisis as some European leaders claim, but signals from financial markets still point to trouble ahead.

The yield on the new 30-year Greek bond issued as part of the private sector debt swap was quoted at 14.7% on Friday, up 130 basis points from Monday. The new Greek 11-year bond yielded around 18.2%.

Although its debt stock has been cut by more than E100 billion and its interest payments lowered substantially, few analysts or investors believe that Greece’s debt load, even if it reaches the targeted 120% of GDP, is sustainable.

…[A troika] report notes, for example, that the Greek government will have to identify spending cuts equal to 5.5% of GDP, or around E11 billion, in the next few months if it hopes to hit budget targets calling for a primary surplus of at least 1.8% of GDP in 2013 and 4.5% 2014.

[source]

PG View: So in order to hit their numbers, Greece is going to have to cut an additional €11 bln in spending in the midst of an already terrible recession. That’s not going to go over well with the Greek people.

Rising Interest Rates May Signal Oncoming Inflation

15-Mar (USAGOLD) — Gold is on the mend, having found support ahead of the 61.8% retracement level of the rally from 1522.40 to 1790.55. The yellow metal is now back above the midpoint of that range. Perhaps investors are reconsidering the implications in the wake of yesterday’s broad sell-off of safe-haven assets. In particular, the sharp drop in bonds just might be an early harbinger of inflationary things to come.

While gold is certainly a great asset to hold in times of general economic uncertainty and systemic risks, the yellow metal can really shine when inflation kicks in. And by the way, isn’t inflation exactly what the Fed wants? When you control both the nation’s money supply and the price of that money (interest rates), if inflation is what you want…inflation is what you will get.

As a result of the Fed’s zero percent interest rate policy (ZIRP) and various other accommodations, bondholders have been realizing a real negative interest rate for some time. In an environment where investors are quick to interpret Tuesday’s tepid FOMC statement as call for “risk on” — to flee the perceived safety of bonds to push out along the risk curve in a quest for yield, any yield — its worth questioning what else might be going on.

Stocks have risen of late largely based on expectations that there will be a QE3. Suddenly the most modest optimism on the part of the Fed, which has curtailed expectations of QE3, and risk assets are the place to be. In actuality, the big rally in stocks on Tuesday was likely more attributable to the Fed’s stress test results and resulting stock buy-backs and dividend increases in the banking sector. However, if the premise is that the economy is improving, one would also expect an increase in price risks.

Rumors today that the President plans to tap the strategic oil reserve to check the recent rise in crude and gasoline prices is further evidence of inflation worries. Even if they’re not inclined to count energy and food prices as inflation because they are “too volatile”, those prices (especially energy) eventually seep into the core numbers.

But on top of the inflation threat, economic uncertainty and systemic risks still abound. The national debt isn’t shrinking. We’ve actually seen some disturbing budget and trade deficit numbers recently. The Fed remains engaged in ongoing quantitative measures. Europe is on the verge of recession, if not already in one. Greece remains a mess, even with the hurdles to bailout-2 recently cleared.

Speculators in paper representations of gold may well be lightening their exposure, and perhaps even short-selling, on this week’s sentiment shift. However. physical buyers are either holding pat or are looking to add to their holdings at these attractive prices.

Investment bank Jefferies Group Inc.’s commodities arm has agreed to buy the gold, silver and other precious-metals assets from the trustee liquidating MF Global Holdings Ltd.’s brokerage business.

James Giddens, the trustee overseeing the liquidation of MF Global’s brokerage’s commodities business, said in a court filing Monday that an offer from Jefferies Bache Financial Services Inc. is the “best available opportunity” to sell the remaining physical property under his control.

Jefferies is buying the warehouse certificates—not the actual gold and silver bars—of MF Global’s former commodities customers.

…The sale therefore represents an “attractive opportunity” in a market environment in which other means of liquidating the certificates are unlikely or would be subject to a “far greater liquidation haircut,” Mr. Giddens said in court papers.

[source]

PG View: The trustee’s comments about the liquidity of these warehouse certificates sends a very clear message: Buy physical and take delivery.

An industry insider familiar with the deal tells me this is purely a play by Jefferies to acquire the former commodities clients of MF Global. Jefferies apparently has the connections with HSBC (the custodian of the actual metal) and is far more likely to be able to get the metal or sell the certificates than some lawyer handling the bankruptcy. What they want is these former MF clients to start trading with them.

15-Mar (MarketWatch) — Gold futures edged higher on Thursday, as recent sharp losses attracted bargain hunters and the dollar was weaker.

Gold for April delivery added $5.20, or 0.3%, to $1,647.90 an ounce on the Comex division of the New York Mercantile Exchange.

Gold sank 3% on Wednesday as reduced hopes of monetary stimulus dulled demand for the metal.

[source]

12-Mar (TheStreet) — Michael Green, co-author of In Gold We Trust?, explains why a currency crisis is unavoidable and investors need to protect themselves with gold.

13-Mar (MINEWEB) — South Africa, only a couple of decades ago the world’s largest producer of gold by a huge margin, but recently overtaken by China, Australia and the U.S., and in danger of being overtaken by Russia, has seen the decline continuing according to Statistics SA.

The state statistical body’s report on South Africa’s mine production in January this year sees an overall decline year on year for all metals and minerals of 2.5%, but in the gold sector the decline was a massive 11.3%, more than even that in December when gold output fell by 8.2%.

[source]

PG View: South African gold production hasn’t been this low in 90-years.

15-Mar (Reuters) — Greece’s jobless rate rose to a fresh quarterly record of 20.7 percent in the last three months of 2012, reflecting the country’s deep economic malaise, exacerbated by austerity to repair public finances and emerge from a debt crisis.

Greece secured a new 130 billion euro bailout from its euro zone partners and the IMF this week, after agreeing further painful budget cuts. But the labor market’s sharp deterioration is feeding public discontent and hurting consumer confidence.

On Thursday, statistics agency ELSTAT data showed jobs being shed at a fast pace as unemployment rose from 17.7 percent in the third quarter and 14.2 percent in the last quarter of 2010.

[source]

14-Mar (Bloomberg) — Gold is poised for a 21 percent gain in 2012, extending its bull market to 12 consecutive years, as investors hoard record amounts and central banks expand reserves for the first time in a generation.

Bullion may rise to $1,897 an ounce in New York by Dec. 31 from $1,566.80 at the end of 2011, based on the average of 14 respondents in a survey at the Bloomberg Link Precious Metals Conference yesterday in New York. The rally that began in 2001 is the longest since at least 1920 in London, including a 10 percent gain last year.

Demand has strengthened as Europe seeks to contain its debt crisis, China’s economic expansion slows, and governments from the U.S. to the U.K. keep interest rates at all-time lows to shore up growth. Central banks have been net buyers for three straight years, the longest stretch since 1973, World Gold Council data show. Holdings (.GLDTONS) in exchange-traded funds backed by the metal reached a record 2,410.2 metric tons yesterday, data compiled by Bloomberg show.

…“Gold has become an investment, an asset class, and over time, we are only going to be building it up. The central banks are holding gold because they are not sure if the euro will remain five years later.”

[source]

PG View: Outlook makes the current price look like a bargain…

14-Mar (MarketWatch) — Gold futures were on track for a third session of losses on Wednesday as risk appetite returned to markets and investors ploughed into equities.

Gold traders also continued to react negatively to Tuesday’s Federal Reserve policy statement and moderately positive views of the U.S. economy. That buried any hopes of more monetary easing in the short term and took away one of the main pillars of support for the metal.

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14-Mar (Bloomberg) — Citigroup Inc. (C), the lender that took the most government aid during the financial crisis, will try again to win approval for its capital plan after failing to meet minimum standards in U.S. stress tests.

The Federal Reserve objected yesterday to Citigroup’s plan — which may have included a request for a higher dividend — prompting the bank to say it will submit a revised version later this year. SunTrust Banks Inc. (STI), Ally Financial Inc. and MetLife Inc. (MET) also fell short in the Fed’s test of how 19 of the nation’s biggest lenders would fare in a severe economic slump.

[source]

14-Mar (Financial Times) — The new €174bn bailout of Greece cleared its last European hurdle on Wednesday after national and parliamentary approvals were completed in all eurozone countries, according to Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of eurozone finance ministers.

The approval releases the first €39.4bn in European Union aid disbursements to Athens, much of which will be used for a rapid recapitalisation of Greece’s banking sector, which saw a large portion of its capital base wiped out when the Greek sovereign bonds it held were slashed in value as part of Greece’s €206bn debt restructuring.

[source]

PG View: So the troika wipes out a large portion of the capital of the Greek banking sector as a prerequisite for a bailout to rebuild said capital? Okay, the value of those Greek bonds where going to be wiped out one way or another by a Greek default, but as John Mauldin said in his newsletter this week; “The taxpayers of Europe are in theory going to lend €130 billion to Greece to pay back €100 billion in Greek debt that is owed to private lenders.” They’re playing a shell game of hide the debt, with the taxpayers in Europe playing the patsies.

14-Mar (StraitsTimes) — Currently, only about 2 per cent of the world’s traded gold is imported into or exported out of Singapore.

But by the next decade, the Government hopes that this number will jump by at least fivefold.

Singapore is setting its sights on becoming an Asian trading hub for precious metals, and it hopes to achieve this aim by scrapping the goods and services tax (GST) on the import and supply of investment-grade gold.

[source]

14-Mar (ZeroHedge) — In an update of our post from a week ago, the ECB has increased its margin calls on European banks by EUR162 million this week to another record high of over EUR17.3 billion. While our pointing out of this huge jump from ‘average’ historical margin calls last week was met with – it’s temporary/transitory due to temporary/transitory ineligibility of defaulted (and since undefaulted) Greek bonds (which given the rise this week has now been proven incorrect) or the more prosaic “don’t worry, be happy”, we remain concerned at both the velocity and now sustained size of these margin calls (as clearly collateral quality has dropped rapidly and remained weak).

…And gold remains offered as the need to fund these margin calls means finding money under every mattress and selling whatever banks have to meet the central banks demands.

[source]

14-mar (USAGOLD) — Gold extended to fresh 8-week lows in the wake of yesterday’s FOMC statement. The economic assessment within that statement has been broadly characterized as ‘rosy’, which prompted the Fed to withhold any hints of additional quantitative measures that might be on the horizon.

As was widely anticipated, the Fed decided to hold steady on rates yesterday. They noted that the economy “has been expanding moderately”, that labor market conditions have “improved further” and that “strains in global financial markets have eased.” While the Fed also acknowledged some persistent headwinds, investors were generally encouraged. There may have been a brief moment of disappointment that there was no mention of QE3, but that was quickly offset by leaks that most banks fared well in the most recent Fed stress tests.

JPMorgan Chase announced a $15 bln stock buyback and higher than expected dividends before the Fed officially announced the stress test results. Other banks followed suit and the surge in financials bolstered the broader indexes. The DJIA closed up nearly 218 points.

The sense that the dollar wasn’t going to be further debased any time soon via additional quantitative easing underpinned the greenback. A firmer dollar and rising stocks individually tend to diminish the appeal of the yellow metal as a safe-haven. When the dollar is rising in conjunction with stocks, you get days like today.

While speculators may be lightening up on their gold positions to allocate more toward shares, the fundamental reasons to own physical metal as part of a well diversified portfolio haven’t changed one bit. In fact, these types of retreats into the range allow for such diversification to be accomplished more efficiently.

Another record high for ECB margin calls may also be weighing on gold.

• Norges Bank cuts benchmark interest rate 25 bps to 1.50% to knock down its currency.
• US import prices +0.4% in Feb, below expectations of +0.6%; exports +0.4%, above expectations of +0.2%.
• US current account deficit widened in Q4 to $124.1 bln, above market expectations of $114.2 bln, vs upward revised -$107.6 bln in Q3.
• Canada capacity utiliization rose to 80.5% in Q4, below market expectations of 81.5%, vs negative revised 80.0% in Q3.
• Canada vehicle sales +15.4% in Jan, below market expectations of +16.0%, vs negative revised -3.6% in Dec.
• UK ILO Unemployment Rate (3m) holds steady at 8.4%; average weekly earnings (including bonus) +1.4%.
• Eurozone CPI +0.5% m/m in Feb, in-line with expectations, vs -0.8% m/m in Jan; 2.7% y/y. Core 1.5% y/y.
• Eurozone industrial production (sa) +0.2% in Jan, below market expectations of +0.7%, vs -1.1% in Dec; -1.2% y/y.
• South Korea unemployment rate (sa) rises to 3.7% in Feb, vs 3.2% in Jan.