25-Mar (Bloomberg) — The Bank of Japan’s decision to expand bond purchases and set a 1 percent inflation goal was a step too far that leaves the monetary authority likely to finance government deficit spending, a former executive said.

“They looked like really desperate measures,” Eiji Hirano, 61, who was a BOJ executive director in charge of international affairs from 2002 to 2006, said in an interview last week in Nagoya, central Japan.
Enlarge image Bank of Japan Governor Masaaki Shirakawa

The yen weakened and stock prices rose in the world’s third-largest economy after Governor Masaaki Shirakawa and his policy board unexpectedly pledged on Feb. 14 to buy 10 trillion yen ($121 billion) in government debt and set the inflation target. That market reaction creates the “illusion” that monetary policy alone can cure Japan’s economic woes and may compel the BOJ to bolster bond purchases further and monetize public debt, Hirano said.

[source]

PG View: As long as stocks rise, it’s all good. Right?

25-Mar (City Press) — South Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.

Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.

This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.

The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.

[source]

26-Mar (USAGOLD) — Gold was underpinned in the wake of Friday’s decent close, but got an additional boost this morning from Fed Chairman Bernanke who spoke on Recent Developments in the Labor Market before the National Association for Business Economics in Washington, DC. Mr. Bernanke expressed concerns that labor market conditions remain “far from normal,” and suggested that accommodative policies on the part of the Fed were a means to improve the unemployment rate.

While Bernanke’s comments clearly support the Fed’s current ultra-accommodative stance, the implication is that if the recent improvements in the jobless rate prove unsustainable, further accommodations might be forthcoming. With the $400 bln Operation Twist scheduled to conclude in just three short months, the market is thinking that the prospects for a QE3 are once again ascendant.

This pushed the dollar to new 3-week lows and boosted stocks, oil and the broader commodities sector…along with gold of course. The yellow metal is attempting to regain the 200-day moving average once again, which stands at 1687.33 today.

Prior to Bernanke speaking in DC, Philly Fed hawk Charles Plosser warned in a speech at the Banque de France in Paris that “the Fed and other central banks have undertaken other actions that have blurred the distinction between monetary policy and fiscal policy.” Mr. Plosser went on to say that, “once a central bank ventures into fiscal policy, it is likely to find itself under increasing pressure from the private sector, financial markets, or the government to use its balance sheet to substitute for other fiscal decisions.”

In my opinion, that Rubicon has already been crossed. The inability of Congress to pass any kind of meaningful fiscal reform in recent years has foisted the responsibility onto the Fed, which only has monetary tools at its disposal. Every time there is a downtick in the stock market or an uptick in unemployment — or any other form economic-ill for that matter — pressure on the Fed to do something will intensify.

Another housing market data miss this morning is a prime example: The NAB’s existing home sales index fell 0.5% in February to 96.5, well below market expectations of +1.0%. On Tuesday the Case-Shiller Home Price Index for January is scheduled to be released; yet another monthly decline is widely anticipated. Some recent speculation about QE3 has centered on support for the moribund housing market in the form of additional MBS purchases. See once again the words of Charles Plosser that the Fed may be under increasing pressure “to use its balance sheet to substitute for other fiscal decisions.”

• Dallas Fed Index tumbled to 10.8 in Mar, below market expectations, vs 17.8 in Feb.
• US NAR pending home sales index – 0.5% to 96.5 in Feb, well below market expectations of +1.0%, vs 97.0 in Jan.
• Italy consumer confidence (sa) improved to 96.8 in Mar, above expectations of 94.0, vs 94.2 in Feb.
• Germany Ifo business climate ticked higher to 109.8 in Mar, above expectations of 109.6, vs revised 109.7 in Feb.
• Germany Ifo expectations rises to 102.7 in Mar, in-line with expectations, vs revised 102.4 in Feb; current assessment unch at 117.4.
• New Zealand merchandise trade balance NZ$161M in Feb, vs positive revised -NZ$159M in Jan.
• Singapore manufacturing production 12.1% y/y in Feb, vs negative revised -9.6% in Jan.
• Taiwan M2 moderates to +4.92% y/y in Feb, vs +5.22% in Jan.

26-Mar (MarketWatch) — Gold futures rose $15 an ounce Monday, gaining traction amid comments from Federal Reserve Chairman Ben Bernanke that positive recent trends in the U.S. labor market may not last.

Moving inversely to the U.S. dollar, gold for April delivery rose $15.70 to $1,677.50 an ounce in European trading hours.

Bernanke said in a speech to a gathering of business economists that the gains in the labor market since last fall could be due to large layoffs from earlier in the recession reversing and that faster economic growth may be the key to further improvements. “We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” Bernanke said.

[source]

26-Mar (The Wall Street Journal) — Arguing that high long-term unemployment is likely caused more by cyclical rather than structural factors, Federal Reserve Chairman Ben Bernanke said Monday that ultra-low interest rates should continue to bring down the jobless rate.

Mr. Bernanke pointed to a wide range of indicators indicating a “notable” drop in unemployment. But the Fed chief cautioned that conditions remain “far from normal,” with uncertainty lingering about whether the relatively rapid improvement over the past year is sustainable.

“Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” Mr. Bernanke said in prepared remarks to the annual conference of the National Association for Business Economics.

[source]

Fed Chairman Ben S. Bernanke
At the National Association for Business Economics Annual Conference, Washington, D.C.

26-Mar (FRB) — My remarks today will focus on recent and prospective developments in the labor market. We have seen some positive signs on the jobs front recently, including a pickup in monthly payroll gains and a notable decline in the unemployment rate. That is good news. At the same time, some key questions are unresolved. For example, the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion. What explains this apparent discrepancy and what implications does it have for the future course of the labor market and the economy?

…further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

I also discussed long-term unemployment today, arguing that cyclical rather than structural factors are likely the primary source of its substantial increase during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well.

[source]

23-Mar (MarketWatch) — Gains in U.S. stocks and oil futures Friday failed to reverse weekly losses, but still managed to soften the blow. Gold did recoup the whole week’s move in the final session of the week, while Treasury bonds gained for a fourth straight session but have only retraced a small portion of the big selloff that started two weeks ago.

The dollar added to the week’s losses, moving along with those Treasury yields.

U.S. stocks rose Friday as a jump in oil prices supported rising energy shares.

[source]

23-Mar (Reuters) — The Hong Kong Mercantile Exchange (HKMEx) plans to launch yuan-settled gold and copper futures by July, its president said on Friday, as it looks to tap growing interest in commodities from Chinese investors.

Albert Helmig also told reporters in Shanghai that the bourse would offer yuan-denominated contracts for other industrial metals in the next 12 months.

[source]

PG View: This is interesting because not only do we get yet another gold derivative product (paper gold), but the contract is settled in yuan, further diminishing the dollar as the global reserve currency.

23-Mar (ZeroHedge) — In part driven by the ‘regime uncertainty’ of “authorities having dispensed with the rulebook in trying to shore up the tottering edifice of Western finance” and in part “a defensive response” to the crushing liquidity suck out of the credit crisis, as Sean Corrigan notes this week, money is distinct by virtue of the fact that ‘it flows’ and this transmission mechanism is clearly broken. US non-financial corporates hoarding of a $630bn mountain of money in 2.5 years (or 85% of retained earnings) have retarded the most incendiary effects of the Fed’s extraordinary actions. The key issues will be whether these same corporates will begin to spend this cash, or whether they will simply rediscover an appetite for alternative, non-money assets (and the Fed should certainly take the opportunity to trim its swollen security portfolio by helping satisfy this reawakened urge, should it arise) and then, if they do, what those to whom they redirect the funds will do with them in their place. If the upshot is that there is a sizable remobilization of this money, things could quickly get very hot on the inflationary front if the transition is not managed well.

[source]

23-Mar (Reuters) — Investors keen on gold showed frustration at underperforming funds that invest in mining firms as liquidations extended for more than four straight months, while money flowed into funds that invest in the underlying metal, data from Lipper showed.

Gold mining stocks have underperformed the metal over the last several years as companies struggled with rising costs and operational problems in far-flung locations, but the figures show an accelerating trend.

…Over the past 12 months, precious metals equity funds shed 12.1 percent while underlying metal funds gained 6.8 percent.

[source]

PG View: The going price for an ounce of gold is just one of many factors that determine the price of a mining share. If exposure to the metal is what you want, buying that metal in its physical form is the most prudent path in most circumstances.

23-Mar (USAGOLD) — Gold is rebounding after slipping to a new 10-week low on Thursday, continuing the string of generally positive price action we’ve seen on recent Fridays. The yellow metal has traded within striking distance of the high for the week established Monday at 1669.45.

The return of the ECB to the eurozone periphery bond market after a 2-week hiatus seems to be inspiring risk appetite. The euro has rebounded modestly, weighing on the dollar. The softer dollar tone is offering support to the metals market.

While US stocks have rebounded from earlier losses, more disappointing housing market data adds general growth concerns. US new home sales fell by 1.6% in February to 313k, significantly below market expectations, versus a negative revised 318k in Jan. A lackluster housing market is seen as a considerable impediment to recovery and just may prove to be the eventual catalyst to additional Fed accommodations. Of course more easing raises the risk of inflation, which in turn would tend to support the gold market.

• US new home sales -1.6% to 313k in Feb, well below market expectations of 325k, vs negative revised 318k in Jan.
• Canada CPI ticked higher to +2.6% y/y in Feb, on expectations of +2.7%, vs +2.5% in Jan; core +2.3%, just above expectations of +2.2%.
• France business confidence improves to 96 in Mar, above expectations of 93, vs 92 in Feb.
• France Q4 Wages – Final confirmed at +0.3% q/q.
• Italy retail sales (sa) +0.7% m/m in Jan, vs positive revised -0.8% in Dec; -0.8% y/y.
• Singapore CPI moderates to 4.6% y/y in Feb, vs 4.8% in Jan.
• Taiwan industrial output rebounds to 8.4% y/y in Feb, vs negative revised -16.75% in Jan.
• Malaysia CPI moderates to 2.2% y/y in Feb, vs 2.7% in Jan.

23-Mar (Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said the U.S. and world economies risk elevated inflation that persists for years should developed nations mistime their exits from easy monetary policies.

“Once inflation gets out of control, it takes a long, long time to fix it,” Bullard said in a Bloomberg Television interview in Hong Kong today. “Ultra-easy” policies across the Group of Seven nations, which include the U.S. and Germany, may be retained for too long, he said.

…Over the decades, central banks are “known for overstaying their welcome on policies” and the hardest thing for policy makers is picking turning points, he said in the interview at a Credit Suisse Group AG investment conference. “There’s some risk that you lock in this policy for too long a period.” Bullard cited a protracted fight with inflation by Paul Volcker, Fed chairman from 1979 to 1987.

[source]

22-Mar (Bloomberg) — U.S. student-loan debt reached the $1 trillion mark, as young borrowers struggle to keep up with soaring tuition costs, according to the initial findings of a government study.

The figure, which is higher than the country’s credit-card debt, was probably reached “several months ago,” Rohit Chopra of the Consumer Financial Protection Bureau, said in a posting yesterday, excerpted from a speech he made at the Consumer Bankers Association meeting in Austin, Texas.

…The New York Fed also said this month about 10 percent of the outstanding student loan balance was delinquent in the third quarter.

[source]

PG View: More current data suggest the delinquency rate on student loans is now over 20%.

22-Mar (USAGOLD) — Gold fell to new 10-week lows following further troubling signs of an economic slowdown in China. HSBC/Markit Flash manufacturing PMI fell to a 4-month low of 48.1 in Mar, tempering expectations that China will experience a “soft landing”. Given China’s voracious appetite for commodities, heightened growth risks tend to weigh on the complex. While gold is unquestionably seen more as money in China, rather than a commodity, lower commodity prices diminish inflation expectations and therefore the yellow metal’s appeal as a hedge.

Recent PMI data also suggests Europe has fallen back into recession. Big misses in eurozone industrial orders and UK retail sales, lend additional weight to a broad retreat in commodity prices. However, at the same time, the greater risk of deflation increases the likelihood of further accommodative measures on the part of global central banks.

As we’ve discussed many times in the past, central banks — most certainly the Fed — view deflation as a far greater threat than inflation. Many central banks in the developed world have pledged to create inflation in order to keep deflation at bay. That means that they will pump additional liquidity into the system, likely via quantitative measures, to accomplish their goal. You may recall a couple weeks ago, the Fed restarted dropping hints about QE3 when the stock market fell by a mere 1.5% in a single day. Well, rising global growth worries are once again weighing on shares.

• US leading indicators +0.7% in Feb, above market expectations of +0.4%, vs negative revised +0.2% in Jan.
• US initial jobless claims -5k to 348k in the week ended 17-Mar, below expectations of 350k, vs upward revised 353k in previous week.
• Canada retail sales +0.5% in Jan, well below market expectations of +1.6%, vs upward revised unch in Dec; ex-autos -0.5%.
• Eurozone Markit PMI – Composite – Flash falls to 48.7 in Mar, below expectations of 49.5, vs 49.3 in Feb; manufacturing 47.7, services 48.7.
• UK retail sales -0.8% m/m in Feb, below expectations of -0.4%, vs negative revised 0.3% in Jan; 1.0% y/y, vs negative revised 1.4%.
• Eurozone industrial orders (sa) -2.3% m/m in Jan, vs positive revised 3.5% in Dec; -3.3% y/y, vs -0.4% in Dec.
• Eurozone flash consumer confidence -20 in Mar, in-line with expectations.
• China HSBC/Markit Flash Manufacturing PMI falls to 48.1 in Mar, vs 49.7 in Feb.
• Taiwan Central Bank holds discount rate steady at 1.875%, in-line with expectations.
• Taiwan unemployment rate (sa) eases to 4.15% in Feb, vs 4.19% in Jan.
• Hong Kong CPI (Composite) moderates to 4.7% y/y in Feb, vs 6.1% y/y in Jan.

22-Mar (The Wall Street Journal) — The Turkish government, facing a bloated current-account deficit that threatens to derail the country’s rapid expansion, is trying to persuade Turks to transfer their vast personal holdings of gold into the country’s banking system.

The push to tap into the individual gold reserves—the traditional form of savings here—is part of Ankara’s efforts to reduce a finance gap that is currently about 10% of gross domestic product.

Government officials say the banking regulator will soon publish a plan to boost incentives for consumers to park their household wealth inside the financial system. Banking executives said they are considering new interest-yielding gold-deposit accounts that would allow savers to withdraw gold bars from specially designed automated teller machines.

The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey’s gold hoarders to deposit their jewelry, coins or bullion at banks.

Economists say the policy shift is designed to change Turks’ historic preference for storing a high percentage of personal wealth outside the banking system as a way to protect themselves against the economic volatility that has periodically hit Turkey in recent decades.

[source]

PG View: If I were a Turk, I’d worry that I deposit my gold in the bank, my only withdrawal option at some point would be devalued Turkish lira.

22-Mar (Financial Times) — Weak economic activity this month across the eurozone has almost certainly pushed the 17-country bloc into a recession, according to a closely watched survey.

Eurozone purchasing managers’ indices showed private sector economic activity fell firmly back into contraction territory in March. The unexpected drop undermines hopes of a steady recovery after the weak end to 2011, when the eurozone crisis was its most intense.

[source]

PG View: Eurozone PMI is double-dipping without ever having regained expansionary levels.

22-Mar (News24) — Groundless rumours of a coup that have swept Beijing in recent days are a sign of nervousness after the sacking of political star Bo Xilai exposed rifts in China’s ruling Communist Party, analysts say.

Bo had been tipped to join an elite group of leaders who effectively run China later this year, and his downfall – announced last week in a brief official dispatch – is the biggest drama to hit the Communist Party in years.

…rumours – all of them unverifiable and most of them highly implausible – have emerged to fill the void of official information.

[source]

22-Mar (Dow Jones) — St. Louis Federal Reserve Bank President James Bullard said Thursday he sees further inflationary risks for the U.S. and the rest of the world this year, as key central banks in developed countries continue to pursue looser monetary policies.

Bullard noted that the U.S. and Europe have been running very loose monetary policies for some time, while Japan has embraced quantitative easing. “So that sounds like a very easy global monetary policy to me, and that’s why I think there’s a bit of upward inflation risk,” he told Dow Jones Newswires in an interview.

[source]

21-Mar (MarketWatch) — U.S. Federal Reserve Chairman Ben Bernanke’s rejection of a return to the gold standard this week got some analysts at Brown Brothers Harriman thinking.

They asked how much gold would have to rise to back up the U.S. money supply as well as supplies in the euro zone and Japan.

The answer? It would take “at least a 10-fold increase in gold prices,” the analysts said. “Less than that would risk triggering a depression and deflation,” they added.

[source]

21-Mar (Bloomberg) — Gold rose on speculation that demand will increase when jewelry shops end a five-day shutdown tomorrow in India, the world’s largest buyer, and as Federal Reserve Chairman said higher oil prices may stoke inflation.

Jewelers are protesting tax increases the government announced last week that may raise retail-gold prices by 6.3 percent. There may be pent-up demand from the closures, Edel Tully, an analyst at UBS AG in London, wrote today in a report. Rising fuel prices “create at least short-term inflation pressures,” Federal Reserve Chairman Ben S. Bernanke said today during congressional testimony.
Enlarge image Gold May Advance as a Weaker Dollar Prompts Demand

Bullion for immediate delivery gained 0.4 percent to $1,657.35 an ounce by 9:05 a.m. in London. Photographer: Chris Ratcliffe/Bloomberg

“We will see a rise in demand in the short term because of India coming back to the market,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “Bernanke’s statements were gold friendly.”

[source]

21-Mar (USAGOLD) — Gold is maintaining a generally consolidative tone at the low end of the recent range as ongoing strength in the stock market continues to diminish the appeal of the yellow metal as a safe-haven. However, the downside has been limited by persistent physical interest, which includes central bank interest.

UK Chancellor of the Exchequer George Osborne, in outlining a new budget said, “We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels. I can confirm our gold holdings have risen in value to 11 billion pounds.” Some immediately thought that Osborne intended to finally start undoing some of the damage done to Britain’s balance sheet when Gordon Brown famously sold more than half of the UK’s gold reserves below $300, just before the current decade-long bull market commenced. Alas, the UK Treasury quickly came out with a statement clarifying that Osborne’s comment on reserves was “not gold-specific”.

Osborne expects UK growth to be a mere 0.8% this year and climb to 2.0% in 2013. Hardly a booming economy, but he seems committed to debt reduction via austerity. I’m not quite sure how they start rebuilding reserves in such an environment, even if they’re only talking about fiat currency.

• US existing home sales -0.9% in Feb to 4.59M, below market expectations of 4.61M, vs upward revised 4.63M in Jan.
• US MBA mortgage applications -7.4% in the week ended 16-Mar, the sixth consecutive weekly decline; purchases -1.0%, refis -9.3%.
• Canada leading indicator +0.6% in Feb, on expectations of +0.7%, vs +0.4% in Jan.
• UK Public Sector Net Cash Requirement -£7.8 bln in Feb, vs -£32.0 bln in Jan.
• UK Public Sector Net Borrowing rebounds to £12.9 bln in Feb, vs upward revised -£10.2 bln in Jan.
• New Zealand Q4 Current Account Balance -NZ$2,763M, vs negative revised -NZ$4,751M in Q3.
• Japan All-Industry Index (sa) -1.0% m/m in Jan, vs upward revised 1.6% in Dec.
• Bank of Thailand holds overnight repo rate steady at 3.00%, in-line with expectations.