GDP numbers weigh on dollar, boost gold

The COMEX December gold futures contract closed up $12.70 Friday at $1183.90, trading between $1168.00 and $1185.80

July 30, p.m. excerpts:
(from Dow Jones)
Gold futures recouped much of the week’s losses as investors moved back into the metal, with the dollar softening after weaker-than-expected U.S. economic data. News of softer growth in the world’s largest economy prompted a return of some of the safe-haven buying that has ebbed in recent days, gold well off last month’s record high above $1,260. The gold market’s ability to not fall further than the $1,160 area, and indeed to bounce from there this week, encouraged participants…more
(from Reuters)
Gold investors also took heart when the dollar hit its lowest since November against the Japanese yen on Friday as data showed growth in the world’s largest economy is slowing, reinforcing expectations for low U.S. interest rates into 2011. Saxo Bank senior manager Ole Hansen noted that “the strength of the global recovery is still debatable as the yen, often viewed as a safe haven, strengthens against the dollar and the euro.”…more
(from Marketwatch)
Meanwhile, even though U.S. reports showed little sign of inflationary pressure — and a Federal Reserve official earlier this week even warned about the U.S. potentially facing a debilitating bout of Japan-style deflation — one on China lent some support to concerns about rising global prices. “Gold is rising because the same concerns that originally brought gold buyers into the market are still here,” said George Gero, vice president at RBC Capital Markets…more
(from Bloomberg)
Analysts at Deutsche Bank AG said that gold’s recent price decline “has been driven more by liquidation in net length among the investor community than a structural change in fundamentals.” December gold rose 1.1%, its biggest gain since July 13, to end the week down 0.3%. “Gold is beginning to catch some traction,” said Adam Klopfenstein, senior market strategist at Lind-Waldock. “The correction may have run its course and for longer-term holders, this may be a buying opportunity.”…more

see full news, 24-hr newswire…

July 30th’s audio MarketMinute

By Frank Tang
Fri Jul 30, 2010 (Reuters) — Asian investors are more likely to buy gold in the next six months than their North American and European counterparts, a global survey found.

Research company Ipsos said a quarter of the 18,594 investors interviewed for its inaugural monthly survey said they were “somewhat or very likely” to invest in gold as a security or physical metal as opposed to jewelry in the next six months.

… Among investors who said they would buy gold in the next six months, 47 percent said they would invest gold to protect their wealth, and 53 percent said they intended to profit from gold investments.

“When you have half of the people deciding to put forward their gold as speculation, and the other half deciding to put it in a defensive position, maybe that is just mirroring what’s going on out there,” said John Wright, Ipsos’ senior vice president who wrote the report.

About three-quarters of the respondents in India and Indonesia, the world’s second and fourth most populous countries, and more than half of those in China said they could invest in the yellow metal.

Only 11 percent of investors surveyed in North America and 7 percent in Europe said gold investment would be likely, Ipsos said.

The Hindu festival of Dhanteras and the Muslim holiday of Eid-al-Fitr, both scheduled in the second half of the year, are traditionally major gold-buying events.

About one in 10 respondents said that they had bought gold in the past six months.

[source]

RS View: What better evidence is needed that gold is nowhere close to topping out, not to mention anywhere near bubble territory? That is, of the 18,594 investors interviewed, only one in 10 respondents said that they had bought gold in the past 6 months. I other words, here we see gold reaching record high prices during the month of June despite the fact that 90% of investors hadn’t even been bidding on it during the entire first half of the year. With that so, I can’t even imagine what a very rational 50% participation rate in the market would look like…

By Pham-Duy Nguyen
Jul 30, 2010 (Bloomberg) — Gold rose on speculation that the biggest monthly drop since December will encourage investors to stock up on the precious metal as a haven.

Gold is down 5.5 percent in July, the first monthly decline since March, and has fallen 7 percent from its June 21 record of $1,266.50 an ounce.

… “Gold is beginning to catch some traction,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The correction may have run its course and for longer-term holders, this may be a buying opportunity.”

“We view the latest decline in the gold price as temporary,” analysts at Deutsche Bank AG said in a report today. “This weakness has been driven more by liquidation in net length among the investor community than a structural change in fundamentals.”

[source]

by Steve Matthews and Scott Lanman
07/29/10 (Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.

“The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released yesterday about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

Bullard’s stance increases the odds the Fed will make such a move and reject other options should the economy weaken further, former Fed Governor Lyle Gramley said. … “Having Jim Bullard on the side of doing that could, I think, be the straw that broke the camel’s back.”

… Bullard said he wrote the paper after private-sector economists reacted to the European debt crisis by assuming the Fed would extend its extended-period rate pledge further, raising a risk of deflation. An additional shock, such as a terrorist attack or weakness in Asia, would require a different policy, he said.

“The academics will tell you what you have to do is sort of dump interest-rate targeting and switch to something else,” he said. “In the policy debate, that is not really happening. So we need a sharper departure from interest-rate targeting if we are going to get out of this problem.”

[source]

July 30, 2010 (Reuters) — Gold prices rose to session highs above $1175 an ounce in Europe on Friday after US growth data disappointed investors, knocking stock markets lower and lifting bullion’s appeal as a haven from risk.

But the metal is still down nearly 6% so far in July, on track for its biggest monthly loss since December, having slipped as concern over euro zone sovereign debt levels, which sent the metal to a record $1264,90 an ounce in June, receded.

Spot gold hit a high of $1175.75 an ounce and was bid at $1171.30 an ounce at 1310 GMT, against $1168.05 late in New York on Thursday.

Data released by the US Commerce Department showed that economic growth slowed in the second quarter to 2.4%, after revised 3.7% growth rate in the first three months of the year. While the data is not weak enough to provoke deep concerns over the health of the US economy, it does point to another potentially supportive situation for gold, analysts said.

“The problems in the US had moved completely to the background, and they are starting to emerge now more and more,” said Bank of America-Merrill Lynch analyst Michael Widmer. “If you are getting into an environment where the Fed thinks more about how it can support the economy through monetary policy, for instance, you could see gold prices moving up.”

[source]

“Gold firms modestly, perhaps on short-covering as seasonal doldrums wind down.” Click here to listen.

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Gold firms as stocks and dollar weaken

The COMEX December gold futures contract closed up $8.80 Thursday at $1171.20, trading between $1161.60 and $1172.00

July 29, p.m. excerpts:
(from Marketwatch)
Gold futures ended higher, amassing more gains as the stock market turned lower, the dollar remained weaker, and gold’s lower prices enticed bargain hunters and Asian buyers of physical metal. But gold’s gains were limited by the lack of catalyst for investors to add to their bullion holdings. That’s a change from just over a month ago, when the potential breakdown of the European monetary union drove bullion to record highs…more
(from Dow Jones)
Generally stronger second-quarter corporate earnings have helped shift investor sentiment from gold–often considered a safe haven in times of economic uncertainty–to equities, which are generally viewed as riskier. Easing worries about European sovereign debt have also been behind this move. Last week’s news that European bank stress-test results were in line with expectations strengthened market sentiment…more
(from Bloomberg)
Jamie Sokalsky, the chief financial officer of Barrick Gold Corp., said the outlook for gold remains “positive,” even as investors are less concerned that European governments will struggle to reduce debt. “Sovereign-debt issues around the world aren’t likely to go away in the foreseeable future. The main drivers of investment demand, and hence, higher gold prices, are still in place.” The dollar fell to a three-month low after a report signaled the U.S. labor market will be slow to recover…more
(from Reuters)
On Thursday, St. Louis Fed President James Bullard said he is worried about the risks the United States could fall into a Japan-style quagmire of falling prices, sending Wall Street as much as 1% lower. Bullion also benefited from comments by Dallas Fed President Richard Fisher, who said any further monetary policy accommodation from the Fed would have as little effect boosting the economy as “pushing on a string.”…more
(from AP)
Stocks continued a now months-long pattern of erratic trading. Investors have been torn between buying on companies’ upbeat earnings and forecasts, and selling on economic reports that point to an uncertain recovery. That indecision was clear Thursday as stocks first rose on earnings reports which topped forecasts, but disappointment over what was just a slight drop in initial claims for unemployment benefits sent stocks falling…more
(from TheStreet)
The WGC said that in the second quarter, many assets, including global equities and commodities, experienced pronounced volatility, in some instances surpassing levels seen during the first quarter of 2009. Gold price volatility, however, remained much lower than many of these assets during the period, meaning that gold outperformed compared with the S&P 500 Total Return Index, the MSCI World ex US Index and S&P Goldman Sachs Commodities Index on a risk-adjusted basis…more

see full news, 24-hr newswire…

By Jack Farchy and Javier Blas
July 29 2010 (Financial Times) — Three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals that caused confusion in the gold market and left traders scratching their heads.

… The Financial Times has learnt that the swaps, which were initiated by the BIS, came as the so-called “central banks’ bank” sought to obtain a return on its huge US dollar-denominated holdings. The BIS asked the commercial banks to pledge a gold swap as guarantee for the dollar deposits they were taking from the Basel-based institution.

… But bankers and officials have described the transactions as “mutually beneficial”.

“The client approached us with the idea of buying some gold with the option to sell it back,” said one European banker, referring to the BIS.

Another banker said: “From time to time, central banks or the BIS want to optimise the return on their currency holdings.”

Nonetheless, two central bank officials said some of the commercial banks also needed the US dollar funding and were keen to act as a counterparty with the BIS. The gold swaps began in December and surged in January, when the Greek debt crisis erupted and European commercial banks were facing funding problems.

The gold swaps were, in effect, a form of collateral against the US-dollar deposits placed by the BIS with commercial banks. Gold is widely regarded as one of the safest assets, but has not been widely used as collateral in the past. Mr Caruana described the transactions as “loans with a guarantee”.

Investors have bought physical gold in record amounts during the past two years and deposited it in commercial banks. European financial institutions are awash with bullion and some are trying to pledge gold as a guarantee.

George Milling-Stanley, managing director for government affairs at the industry-backed World Gold Council, said: “The gold swaps commercial banks carried out with the BIS demonstrate the effectiveness of gold as an asset class, because even in the depths of the worst liquidity crisis in living memory, institutions with access to gold were able to make use of it to generate dollar liquidity.

“The issue also feeds right into the current debate among Asian central banks about the lack of assets suitable for use as cross-border collateral.”

[see full article at FT]

RS View: Here was the background, along with my alone-in-right-field comments. And here again I’m just nodding along, much like I did last Autumn when I said from the earliest day that a proposed sale of gold from Gokhran, the state repository, would go directly to the Russian central bank… which it did by year end. (Maybe someday somebody somewhere might begin the get the crazy idea that I just might know a little bit about what the heck I’m talking about. God save us.)

by TheGoldReport
Thursday, 29 Jul 2010 (Mineweb) —

The Gold Report: The price of gold has dipped this week; do you see this as a sign that the general economy is improving and that inflation is not on the horizon? Or perhaps it’s just a summer lull?

Victor Gonçalves: This is basically the traditional summer lull, so I’m not overly concerned. In fact, I talked about this very thing in one of our previous interviews. There are certainly other factors involved. Typically when we have mid-term elections with a democratic president and what could be a republican house, this will be good for gold and the markets, but until that happens, the markets and the price of gold will be at a standstill.

TGR: In terms of investing in gold, do you advise your readers to have a certain percentage of gold bullion along with gold equities?

VG: In terms of bullion, I always say to have some, but the definition of “some” is a little ambiguous. ….. For somebody who wants to buy it now, in the summer, I think they will strongly benefit as the price is probably at one of lowest points we will see going forward. So to answer the question, for conservative investors I recommend 10%-20%, and for aggressive traders, 0%, as they would have more opportunities with gold equities.

[source]

by Rhona O’Connell
29 Jul 2010 (Mineweb) LONDON — Over the past ten years gold’s annual return has been 14.3% in sterling terms, compared with 5.9% pa from bonds, 1.6% in cash and just 1.2% in real estate. Equity returns were negative.

Over the most recent ten year period, in UK terms gold has outperformed its nearest competitor (bonds) by over 240%. As investors have paid the penalty for increasing risk exposure over the period, the presence of gold in a portfolio matrix has boosted returns into positive territory.

… At a recent presentation the senior analyst at ETF Securities produced a series of analyses that underpin gold’s role as a hedge against risk and he was able to show that, not only has it been a hedge against risk in the recent – and medium term – past, it has for much of the time been the strongest performing asset class.

… Over the past ten years, gold has outperformed the next best asset class by a factor of just over two. Its outperformance against equities has been consistent over past one, three, five and ten years and for that matter gold has also been the least volatile asset class.

… One of the quotes that ETF Securities likes to use regularly is this from Federal Reserve Chairman Bernanke;

“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars it wishes at essentially no cost”.

This is seen as particularly relevant recently given the problems in the euro zone and the argument is given further strength by the fact that the official sector appears to be voting with its feet.

… Inventory rundown by developed economy central banks has slowed substantially, while there is a growing appetite from some emerging market central banks. Give the medium to longer term uncertainties over sovereign debt crises and potential inflationary pressures, this is unlikely to change much in the future and this is a fundamental shift in the dynamics of the market.

[source]

by Matt Day
July 29, 2010 (Dow Jones Newswires) — Gold edged higher today on bargain buying but showed little direction as demand for refuge assets remained low.

… Gold found some support today from buyers looking to enter a market at a discount from June’s highs, and some signs of physical demand.

But gold’s relative stability doesn’t suggest a new upward trend, analysts said.

“Gold seems to have stopped its fall, but nothing more than that at this point in time,” said Frank Lesh, broker and analyst with FuturePath Trading in Chicago. “We don’t have any real catalyst to force capital flight into gold at the moment.”

… Gold rose to record highs in May and June on worries about euro-zone sovereign debt and a slowdown in the economic recovery.

[source]

RS View: Worst month… that’s how and why this period of the year has earned its reputation as the Summer Doldrums.

As for a catalyst for the next leg higher, the budget woes of the 50 states aren’t poised to suddenly improve, so they’ll be passing the hat to Uncle Sam who, in turn, will look to Ben Bernanke to make it rain money in an attempt to wash away the economic drought. The world, witness to this unique fiat profligacy in regard to their reserve assets, will quickly be reminded why they began shifting their dollar/bond holdings into physical gold — to consolidate their savings with a superior scorekeeper. The 10-yr trend may pause now and again, but it will not likely reverse for any rationally imaginable reason.

By Jeannine Aversa
07/29/2010 (The Associated Press) WASHINGTON — The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire…

The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before. As a result, the economists think the Federal Reserve will keep interest rates near zero until at least next spring.

The AP survey compiles forecasts of leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation. Among their forecasts:

Economic growth the rest of this year and early next year will weaken, to less than 3 percent. From January through May, the economy grew at roughly a 3.5 percent pace.

… State budget shortfalls pose a “significant” or “severe” risk to the national economy. The loss of tax revenue has forced state and local governments to cut services and lay off workers.

… Nearly two-thirds of the economists view the states’ budget crises as a significant or severe threat to the rebound.

The economists have turned more pessimistic since the recovery hit turbulence in May. Europe’s debt crisis sent tremors through Wall Street, causing stocks to tumble and raising doubts about the durability of the rebound.

[source]

29 July 2010 (Reuters) LONDON — Gold firmed in Europe on Thursday as some buyers were tempted back to the market by the precious metal’s fall to three-month lows, while the weaker dollar also helped support prices.

… Spot gold was bid at $1,165.25 an ounce at 1131 GMT, against $1,162.55 late in New York on Wednesday, recovering from a three-month low of $1,156.90 reached that day.

… Traders reported good buying for a fourth day in major gold consumer India, as they stocked up ahead of festivals in the subcontinent.

… Investment demand for physical bullion in Europe has softened as concerns over the stability of the financial system recede. This is set to keep prices under pressure.

[source]

Gold price edges higher again on physical demand

The COMEX December gold futures contract closed up $0.60 Wednesday at $1162.40, trading between $1159.30 and $1168.80

July 28, p.m. excerpts:
(from TheStreet)
Gold prices reversed their losses Wednesday afternoon amid a spate of physical buying, and as bargain hunters jumped in to purchase the yellow metal after it hit three-month lows amid weak consumer confidence numbers that prompted a sell-off in equities, commodities and currencies…more
(from AP)
Investors have been trying in recent weeks to balance strong earnings and corporate outlooks with economic data that isn’t as encouraging. Stocks fell moderately after the Federal Reserve said the economic recovery is slowing in some parts of the country. The Fed assessment followed a disappointing Commerce Department durable goods orders report, with orders for durable goods falling 1% in June. Economists expected a 1% gain…more
(from Xinhua)
Gold received some support as the unexpected drop in durable goods orders dampened market optimism over the economic recovery, and let a few market players dial down their risk appetite. Traders noted that the strong demand from the largest gold jewelry market, India, was one of the main factors behind gold’s rally, while the weaker dollar also added upward pressure on gold’s price…more
(from Bloomberg)
UBS AG noted today that physical demand for gold from buyers in India, China and the wider Asian region was “very visible” as prices declined this week. Analyst Edel Tully said that yesterday and July 26 were the UBS sales desk’s strongest two days since January for selling to India by volume. “From a risk-reward perspective, this level presents a buying opportunity,” said Bayram Dincer, analyst at LGT Capital Management…more

see full news, 24-hr newswire…

July 28th’s audio MarketMinute

by Geoff Candy
Wednesday, 28 Jul 2010 (Mineweb) — Investment in the gold sector is likely to continue for at least the next five to seven years, says Pierre Lassonde, Chairman of Franco Nevada….

Speaking on Mineweb.com’s Gold Weekly podcast, Lassonde said, “We’re still early in the pick up phase of what it means for gold – the place of gold as an investment in the spectrum of asset class and when you look at the money in circulation, when you look at the bond market which is in the trillions – 40 to 50 trillion – when you look at the equity market, another 30 trillion and when you look at how much gold represents out of all of that, we are almost at an historic low compared to the 1970s and 1980s. So my view is that there’s still a lot of legroom left in terms of the size that the gold market will fulfil in the investment spectrum.

… “First and foremost because the investors of the world – people who have money – have figured out that most of the governments – whether it’s in the US or in Europe or in Japan – are going to debase their currencies because of the massive debt load that the countries have acquired over the last 20 years and that is translated into the purchasing of the gold ETFs, purchasing of gold jewellery but as investment in China and India.”

… “Demand is going up 15% per year and the Chinese Renminbi is going to continue to appreciate against the dollar and that is going to continue to drive the demand for gold in China and you’re also going to see the Indian rupee appreciate – and that too is going to continue to drive demand.

“My ultimate belief is that if we get a really crazy gold price, in part it’s going to be because of China and with all the deregulation we’ve seen in China and the Chinese gold market being so alive, it may just turn out to become a bit of a casino atmosphere over there – a gambling atmosphere and it could very well push the gold price beyond anything that we believe is reasonable.”

… “Long term I am very bullish. When I look at the amount of debt accumulated by the United States in particular because the gold price is quoted in US dollar, the US politicians have absolutely no guts for another depression and they will always allow the printing press to run to answer their problem and therefore when I look at the long term gold price – very bullish.”

[source]

by Lawrence Williams
Wednesday, 28 Jul 2010 (Mineweb) — … The northern summer months normally suggest a weak time for gold with holidays meaning that smaller trading volumes can have an undue influence on the overall market. And have we really exited the economic mire yet?

… Looking at gold’s bull run so far there have been other major fallbacks in its path to date – yet the overall trend has always remained upwards. Short term charts may suggest further falls, but the long term ones still look positive. In the process of the metal’s long rise we have seen 15% and 20% fallbacks on occasion…. At the time of writing the current fallback has only been around 8% from peak so there’s no doubt we could see a greater drop yet – or it could just bounce back on eastern buying which tends to come in, in strength, when the price falls and dry up when the price rises.

The steep fall yesterday looks as though it may have been precipitated by short selling on COMEX with a big growth in short selling ahead of August options expiry – although other observers put the drop down to the better U.S. housing figures. But, we have pointed out here before that short selling seems to accelerate ahead of option expiry dates….

There are still plenty of observers out there who believe gold will attain $1,500 an ounce this year or higher – and there are those who call for a fallback to $750. The economic fundamentals would seem to suggest the former is still more likely than the latter, but ultimately it is investor sentiment which will prevail. If you believe there is still bad economic news out there to come and that we’re not out of the recessionary woods yet then you may be better sticking with the precious metals – if only as insurance. This is the position being taken so far by some of the really big investors. If you are convinced that the recession is over and the only way is up for the economy in general, then there are probably better investments out there – but with recovery could come inflation, which could benefit precious metals again. It’s all a matter of choice and weighing the odds.

[source]

A bit whimsical, perhaps, but that’s the light mood that cheap gold puts me in.

Join me here as I retrace the past 15 years on a quest for the (elusive(!?!)) gold bubble that certain sour stock brokers on CNBC have been so vociferous over lately.

R.

Jeff Clark, Casey’s Gold & Resource Report

I don’t have a crystal ball, but I’ll bet I can tell you how much a house will cost in five years.

UBS released some interesting research last month on how much gold it takes to buy the average-priced home in the U.S. I put the data to a chart, and it’s quite revealing.

What’s interesting is that as much as house prices have fallen and as much as gold has risen, today’s ratio is still above the historical average. You can see we’re at the same number today as 1970, and yet look where it was 10 years later when gold peaked.

Here’s another interesting observation: the ratio was 100 during both high inflation (1980) and high deflation (1930). The connection between house prices and gold prices during economic extremes seems awfully compelling.

So, if gold peaks and real estate bottoms in about five years, then a house will cost you about 100 ounces of gold in 2015. Maybe it will take ten years, but the point is, I think we can count on the ratio moving lower this decade, and probably significantly so. Even for the modest budget, 100 ounces almost sounds manageable.

Think gold’s too volatile to use as a savings vehicle? Better reconsider that assumption, because we’re convinced a third dynamic will be at work: a falling dollar. Ergo, you can sock away lots of cash for your offspring, but if it’s denominated in dollars, it won’t buy them as much as gold will. Think about it: if gold doubles, that means your dollars will have lost a significant amount of purchasing power.

The fine print here, of course, is that you sell when the gold price is high, and that you pay the tax on the sale. But I would counter that argument by saying that gold is probably not stopping when it doubles from today’s levels.

If we’re right about the direction of real estate – down – and Doug Casey is correct in his projection for the gold price, then I think I’ve got a solid plan to buy my kids a house.

Source

Note: In light of this compelling argument, it is also worth remembering that gifts of gold to your children or grandchildren are non-taxable up to $13,000 per recipient per year, can be given to any number of people, and thereby provide a convenient and legal avenue to bypass the otherwise inevitable inheritance and/or estate taxes on the gifted portion of your wealth.

Gift-splitting provides even more power to transfer wealth. If you are married, you and your spouse can seperately give tax-free gifts up to $13,000 each to the same recipents, equating to a total annual non-taxable transfer of $26,000 per recipient.

For additional information on gifting, click here.

July 28, 2010 (Reuters) — Gold held near $1,160 an ounce in Europe on Wednesday, steadying after hitting three-month lows the day before, helped by a degree of investor nervousness over the US economy and by strong demand from top consumer India.

… “For now, the metal looks very bearish technically and to be honest, all these moves since yesterday are heavily technically driven,” said Standard Bank analyst Walter de Wet. “I think it is going to fall more, but longer term, we still see the bull market intact. Underlying, the same issues that have pushed gold higher still remain,” he added.

… Commerzbank analyst Daniel Briesemann said despite the metal’s slight recovery this morning, diversification into other assets, seasonal demand weakness and a tendency towards liquidation of long positions are all still pressuring prices.

“There has been a massive increase in risk appetite among market participants,” Briesemann said. “We see money shifting away from safe haven assets like gold to riskier assets like equities and oil.”

… While the risk of further losses remains, analysts said gold should be supported by re-emergent physical demand at lower prices. Traders in India, the world’s biggest gold consumer, said buying was picking up as the metal became more affordable.

UBS also said in a note that its gold sales to India on Tuesday matched the second highest this year.

“UBS sales to India in July are five times greater than June and with the expectation that physical demand will persist until the end of the month, July will post the best month for Indian physical demand this year,” it added.

[source]

July 28 (Reuters) — The International Monetary Fund has chosen not to call the yuan “substantially” undervalued, a move that recognises China’s efforts to free up its exchange rate and avoids friction with an increasingly influential shareholder.

The summary of an annual review of China’s policies omitted the contentious word, used by IMF Managing Director Dominique Strauss-Kahn as recently as June, which has long riled Beijing.

Several members of the IMF’s 24-member executive board believed the Chinese currency was too cheap, the fund said.

But others said a structural reduction in the balance of payments surplus was already unfolding thanks to past steps to boost consumption….

Beijing dropped the yuan’s 23-month-old peg to the dollar and reverted to a managed float on June 19. China’s trade surplus has also shrunk considerably as government efforts to pump up the economy have sucked in imports of commodities and capital goods.

… The yuan has risen 0.7 percent against the dollar since it was unshackled from the US currency.

Prasad said IMF economists reckoned the yuan was still between 5 percent and 27 percent undervalued depending on the methodologies used. A diplomat in Beijing confirmed the range.

[source]

By Jana Randow and Esteban Duarte
Jul 28, 2010 (Bloomberg) — The ECB today published a new set of so-called “haircuts” it will apply when accepting assets as security in its refinancing operations. The schedule shows the ECB will increase the haircuts applied to asset-backed securities to 16 percent from 12 percent and that it will apply specific [higher] haircuts on bonds rated BBB+ to BBB-. The changes will come into effect on Jan. 1, 2011.

… The new framework differentiates collateral according to factors such as maturity and credit quality. It was published after a study by the ECB on the risk exposure of its balance sheet.

The ECB is trying to reduce the risk it takes in lending to banks even as it provides them with as much cash as they want to see them through the financial and sovereign debt crises. A total 2.03 trillion euros ($2.64 trillion) of collateral was deposited with the ECB last year, a 28 percent increase from 2008, the central bank said on April 19.

“The ECB is trying to say: We don’t want to continue accepting low-quality assets as collateral, we can’t pull the plug on you right now, but were going to charge you higher haircuts,” said Peter Dixon, an economist at Commerzbank AG in London.

Higher haircuts make it more expensive for banks to borrow from the ECB. A 10 percent haircut on an asset means the central bank would lend commercial banks 90 percent of its value.

[source]

RS View: It is also fair to say that the deeper haircuts will tend to limit the amount of monetary expansion that is allowed to take place on the shoulders of dodgy assets. It’s a step in the right direction.

By Jonathan Spall, Barclays Capital
28 July 2010 (FinanceAsia) — Analysis of a commodity is a reasonably straightforward matter. Production is reviewed to see what changes have taken place, similarly with consumption. An adjustment is then made for global economic conditions and whether there is likely to be a shortfall/surplus in demand or supply compared with previous years. On that basis a forecast is delivered. A currency differs in that interest rates are taken into account and consideration of governmental policy is thrown into the mix. This is clearly a gross simplification of the process otherwise we could expect all estimates to be 100% correct — something that is rarely, if ever, achieved.

However, what do you do about a product that is a hybrid of the two? Where some investors focus on its commodity aspects and others on its currency features. That is the problem with gold.

… an investment that is trumpeted as being outside the financial system is irrelevant when there is trust in that system. Remove that, and in a period of uncertainty and financial stress this notion of being separate is key. So, as the world focused on expansionary monetary policies and quantitative easing (printing money) the fear was of inflation. However, with the idea starting to take hold that the world is no longer facing the threat of rapidly rising prices but of deflation, does this then negate the argument?

Gold … has in fact one very simple attribute — it is a hedge against financial uncertainty and dislocation. While investors remain unsure of the future and of the ability of their governments and monetary authorities to return to a time of steady growth and prices, then the attractions of gold will remain.

[source]

Gold futures slip on technical selling

The COMEX December gold futures contract closed down $25.20 Tuesday at $1161.80, trading between $1160.80 and $1190.20

July 27, p.m. excerpts:
(from Bloomberg)
Gold fell to the lowest price in three months as a rally in global equities eroded demand for the precious metal as an alternative investment. Stocks in Asia and Europe rose, while the fourth straight gain by the Dow Jones Industrial Average was enough to erase the index’s loss for the year. December gold fell 2.1%, still up 6% on the year. Losses accelerated after the price fell below the 100-day moving average around $1,181, a key area of resistance…more
(from Dow Jones)
The move came after data showed home prices rose in May from a year ago, beating expectations. While the second consecutive monthly rise is unlikely to signal a sustained recovery for the sector, it is enough to calm fears that economic conditions would deteriorate further. “It seems asset markets are stabilizing,” said Michael Gross, broker and analyst with OptionSellers.com. “That money that moved to gold for shelter” is flowing back into markets perceived as riskier…more
(from AP)
Gold prices had been rising steadily since late April as investors worried about Europe’s economy and financial sector sold euros and opted for safer alternatives. “There’s been a lot of selling with the recovery in the euro,” said James Steel, an analyst with HSBC. During the past three months, the euro fell from $1.3394 on April 26 to a four-year low of $1.1916 in early June before recovering in recent weeks. It hovered back near $1.30 throughout Tuesday…more
(from TheStreet)
At 10 a.m. Tuesday, The Conference Board said its Consumer Confidence Index, which had declined sharply in June, retreated further in July. It said that concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves. As expected, the broader equity markets fell in response to the readings; meanwhile gold prices remained in descent…more
(from Marketwatch)
Gold started out the session in the black, supported by a softer U.S. dollar. But selling momentum took over the gold market as the U.S. currency found firmer footing and two largely negative macroeconomic reports failed to spark safe-haven buying. The reports failed to spur safety buying because investors were zeroing in on gold’s technical position rather than macroeconomics, said Bill O’Neill, a principal at Logic Advisors…more
(from Reuters)
Traders said price volatility has spiked ahead of August’s first-notice day on Friday, as gold investors rolled their August futures into December contracts. Sean Lusk, market specialist at futures broker PFGBest, said that dealers sold heavily in an attempt to push gold futures prices lower as COMEX August gold options were expiring on Tuesday. Gold prices sometimes gravitate toward an option strike price as traders try to profit from their bets when options are about to expire…more

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by Bill Bonner
Tue 27 Jul, 2010 (Daily Reckoning) –

Well, if we were speculators, we might consider selling. But here at the Daily Reckoning, we’re not gamblers. We hold gold because it represents real wealth, not because we think it will go up in price.

We don’t really know what direction it is going. But that’s why we hold it. We don’t know what direction anything is going. The nice thing about gold is that it doesn’t matter. Gold doesn’t go anywhere. It just sits there.

If you buy a bond, for example, you have to worry about the credit quality of the issuer. If things get bad enough, he won’t be able to pay up. Your bond could be worthless.

Same for stocks. A stock is a share of a company. If the company goes out of business, your stock certificates (assuming you have them) are only good for decorations.

Real estate is more reliable. But there are taxes and upkeep to pay.

Gold is a better way to store wealth. You don’t pay property taxes on it. And the roof never leaks.

Besides, gold is especially valuable when other forms of money lose their appeal. The trend of debt destruction will probably not end soon. And the feds will probably sooner or later follow Paul Krugman’s advice to “raise [the Fed’s] long-term inflation target to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake.”

In the meantime, gold may go down. Which will make it a good time to buy it…

[source]

by Alan Zibel
July 27, 2010 (Associated Press) — The Obama administration, which has been under fire for not developing a concrete plan for mortgage giants Fannie Mae and Freddie Mac, says it will hold a conference in next month to discuss their future.

… Speaking on “Meet the Press” on Sunday on NBC, Treasury Secretary Geithner said the administration’s ultimate plan is likely to bring dramatic changes to the mortgage system.

“I think we’re not going to preserve Fannie and Freddie in anything like the current form,” Geithner said on “Meet the Press.” “We’re going to have to bring fundamental change to that market.”

However, he suggested that the government will not fully exit the market. He said the administration will consider “preserving or putting in place a carefully designed guarantee” in which the government would ensure that it’s possible for consumers to get mortgages – even in a severe recession.

[source]

(excerpts) — “If you have been researching investment options and studying about ways to grow your money, by now you must know that it is essential to have a diversified investment portfolio.

“It is best to categorize investments according to their risk and the returns they pay and invest your money in different categories as per your appetite for risk.

“A portion of your investments should be in Gold.

“Gold is a preferred type of investment amongst Indians…. around 10-30 per cent in Gold. The exact per cent depends upon an individual’s personal comfort.

“However, a minimum of 10 per cent of your savings in gold is always good to have.”

[source]

RS View: A quick no-nonsense ’slideshow’ from the Economic Times of India. On a semi-related note, where can I get myself a pet with the same skill set as the magical critter featured on page two?

27 July 2010 (LME Press Release) —

[Of note:] … Martin Abbott, Chief Executive of the LME said, “In the first six months of 2010 we have handled a record amount of business and at the same time we have been investing heavily in systems and IT infrastructure so that we are primed for future growth. We have introduced the world’s first exchange-traded derivatives for minor metals in our cobalt and molybdenum contracts and we are also due to create a global benchmark for steel in merging our steel billet contracts this month.

It has been a successful start to the year, but there is still much work to do. We are now looking forward to the introduction of OTC gold clearing later this year using the LMEsmart system as the gateway for trades from the OTC market into the LCH clearing system.”

[source]

RS View: I understand the target date is November 8th. The establishment of a central clearing house for many over-the-counter derivative arrangements which have to this point been private principal-to-principal transactions is one of the byproducts of the new financial recommendations and regulations that stemmed from the recent near-meltdown of the global financial system. Also, financial entities were encouraged to modify their OTC dealings so as to shift them onto standard exchange-traded contracts to the extent practical to do so. The clearing house, in theory, is intended to deal with a majority of the remaining odd OTC pegs that don’t fit into the round hole contracts of the world’s standard exchanges.

Good luck handling that tar ball on a hot day…

by Izabella Kaminska
Jul 27 (FT/alphaville) — Spot gold prices continued their recent sell-off on Tuesday… And in case there was any doubt, last week’s rumours of significant speculative liquidations appear to have been confirmed by CFTC futures data.

Barclays Capital offered a little more context on Monday:
Indeed, the weekly drop in [COMEX futures] exposure was the second-largest weekly drop since February while non-commercial positions as a percentage of open interest has dropped to 32%, its lowest level since December 2008. In contrast, physical gold ETP holdings remained unchanged at 2087.9 tonnes, less than 15 tonnes of the peak reached in mid-July. However, platinum ETP holdings dropped by 11koz from its peak.

As too did Société Générale’s analysts:
…recent patterns include very sharp drop off in net long speculative position on COMEX in the first week of July, and the contraction in the outstanding position, from 902 tonnes to 775 tonnes in just one week. This came under heavy liquidation and an increase in short positions.

[source]

By Andrea Tse
July 27, 2010 (The Street) — Gold prices have been drifting lower Tuesday morning as investors hang in the sidelines waiting for key fundamental news.

“Tuesday’s U.S. consumer confidence index report could move the gold market,” Jim Wyckoff of Kitco wrote in a morning report. He notes that a strong reading in the consumer confidence index would be a bearish development for gold but offer a boost to U.S. equities and risk appetite.

… Gold, a safe-haven asset, as well as treasuries and the dollar, slid the day before as stocks and industrial commodities rose, following news that U.S. new home sales exceeded expectations, rising to 330,000 units in June from 267,000 in May.

James Moore of BullionDesk said that a “re-test of the $1,165 level is on the cards,” as gold remains under pressure amid “stale liquidation” and an increase in spec shorts.

[source]

RS View: Wouldn’t it be nifty if the spec shorts would turn their shorting energies to the local deli instead — so that we could all enjoy a cheaper lunch for a change? Think about it…

Gold eases in range-bound trading

The COMEX December gold futures contract closed down $4.60 Monday at $1187.00, trading between $1182.40 and $1198.40

July 26, p.m. excerpts:
(from Dow Jones)
Gold futures fell slightly as stronger U.S. housing data and a brighter corporate outlook followed expected European bank stress test results last week to sap the fear factor that recently drove the yellow metal to record highs. The most-actively traded gold contract, for December delivery, fell 0.4%. Gold prices have pulled back below $1,200 in recent days as fears about another economic slowdown have waned…more
(from Marketwatch)
A jump in the sales of new homes took off some of gold’s shine as a safety buy. After falling to an all-time low in May, new-home sales increased to a seasonally adjusted annual rate of 330,000, above the 316,000 pace expected by economists surveyed by MarketWatch. Gold has been stuck within a narrow range. Last week, the metal veered between gains and losses, finishing with a weekly drop of less than 0.1%…more
(from Bloomberg)
Gold fell for the second straight session as the euro climbed against the dollar, eroding demand for the metal as a haven amid waning European-debt concerns. “There are no horror stories out of Europe at the moment, so gold is in a holding pattern,” said Frank Lesh, trader at FuturePath Trading LLC. “The traders are quick to take their profits and just as quick to get back in.”…more
(from Reuters)
Gold lost some safe-haven appeal after Friday’s European banks stress test showed no nasty surprises. Robin Bhar, analyst at Credit Agricole, said that gold could still benefit from financial uncertainty despite easing worries about debt held by banks. “The factors pushing gold haven’t gone away,” said Bhar, citing sovereign debt, the outlook for inflation and the devaluation of currencies…more
(from AP)
“Depending on your point of view you can regard the tests as some sort of ‘milestone’ which puts the eurozone banking crisis to bed and is therefore positive for markets, or you can take the view that the tests were simply ‘political whitewash’ that doesn’t resolve funding and capital needs, issues of counterparty risk and the possibility of eventual debt restructuring/default,” said Neil MacKinnon, global macro strategist at VTB Capital…more
(from TheStreet)
“For the moment, we expect the mixed mood in gold to continue given the strong selling above $1,200 and dip-buying below $1,190,” said James Moore, analyst at thebulliondesk.com. The summer months also tend to lead to weak gold prices regardless of other macro factors, as gold jewelry buying wanes in China and India. Wedding and festival seasons in India kick off in the fall, and many analysts are expecting a pop in gold prices starting in early September…more

see full news, 24-hr newswire…

July 26th’s audio MarketMinute