July 9, 2010 (Reuters) — Gold rose back above $1,210 an ounce today as a stock market rally showed signs of running out of steam, pointing to persistent jitters among investors, with buyers also attracted by the metal’s dip to six-week lows…

The metal has recovered after falling to its lowest since late May on Wednesday at just above $1,185 an ounce, but struggled to make new headway in early trade as appetite for nominally higher-risk assets like equities returned.

This risk appetite later seemed to be abating, as Wall Street stocks opened a touch lower and industrial commodities like oil pared earlier gains.

“The overall picture I think still points to cautiousness, which is positive for gold,” said David Wilson, an analyst at Societe Generale.

“Although we have entered a seasonally weak period for gold retail demand, wholesale buyers have taken the opportunity to buy upon dips, although not aggressively,” Barclays Capital said in a note.

“We do expect continued investor interest in gold to drive prices higher as the year unfolds, however near term long liquidation given elevated speculative length could cap upward momentum in the seasonally softer summer months.”

[source]

Reviving risk appetite weighs on gold price

The COMEX August gold futures contract closed down $2.80 Thursday at $1196.10, trading between $1187.30 and $1208.20

July 8, p.m. excerpts:
(from Dow Jones)
Gold futures fell slightly, settling just above six-week lows as stabilizing equities and currency markets had fewer investors seeking solace in the yellow metal. The euro hit two-month highs against the dollar while U.S. equities also rose, building on the previous day’s gains. Since falling almost 3% at the end of last week, the August gold contract has traded in a narrow range, staying within $15 an ounce of the $1,200 an ounce mark…more
(from Bloomberg)
The metal is down 1% for the week, trimming this year’s rally to 9.1%. “We’re tamping down on uncertainty,” said David Hightower, metals analyst at Hightower Futures Research. “There’s less euro uncertainty and less economic uncertainty. It’s a classic extraction of flight-to-quality longs.” The euro rose for a third day against the yen and the dollar as European Central Bank President Trichet said the second quarter in the euro region was probably better than the first…more
(from TheStreet)
Toon Van Beeck, a senior analyst at Ibis World, says there is a clear shift in investor appetite towards riskier investments in recent trading sessions as positive news flow from Europe has buoyed confidence. Still, he expects the global economic outlook to remain weak, noting that “any shock waves from any country will bring nervousness back to the market and drive up gold.” Van Beeck says current levels present a good buying opportunity for those who expect market turmoil ahead…more
(from AP)
Stocks mostly rose after a drop in first-time unemployment claims eased some concerns about the economy. The drop in claims halts at least temporarily a string of disappointing jobs reports. Those reports, including the government’s June employment numbers, have contributed to a sharp pullback in stocks over the past few weeks. The Dow Jones industrial average rose about 45 points in afternoon trading with broader indexes mixed…more
(from Marketwatch)
Late Wednesday, the IMF raised its outlook for global economic growth for 2010 and pegged its forecast for U.S. growth at 3.3%. However, the IMF’s updated estimate also warned of looming risk coming out of Europe’s debt issues, a factor that some analysts say could end up providing support for gold prices down the line. Gold hit a record in June as investors sought an asset class that’s expected to hold its value if inflation jumps or the economic recovery founders…more

see full news, 24-hr newswire…

July 8th’s audio MarketMinute

 

featuring:
Pete Grant, Jonathan Kosares & George Cooper

Discussion Topic: Gold’s Pullback — Don’t Blink . . . You Might Miss It

watch video

By Cordell Eddings
July 8, 2010 (Bloomberg) — LeBron James, the National Basketball Association’s Most Valuable Player the past two seasons, should sign a short-term contract and plow his wealth into gold and silver to protect himself against hyperinflation, according to the National Inflation Institute.

James, 25, who became a free agent July 1, will end months of speculation tonight, revealing in a live television special where he’ll play next season. The Fort Lee, New Jersey-based institute, which is “dedicated to preparing Americans for hyperinflation,” according to the organization’s website, suggests James be wary.

“If LeBron wants his money to be worth anything he should sign a short-term contract, because the economic picture five years out looks pretty bleak,” says Gerard Adams, the founder and director of the group, in a telephone interview. “LeBron James has said he wants to become a billionaire, but that will only happen if he takes his current wealth and invests it into gold and silver, in order to protect himself from hyperinflation.”

He recommends James ink a three-year contract, rather than the expected five- to six-year deal. [Adams] expects “double-digit” inflation within the next two years…

James has plenty of people weighing in on where he should go with everyone from U.S. President Barack Obama to filmmaker Spike Lee offering advice. Adams, a New York Knicks fan, says he cares more about what James does with his money.

“Everyone is so wrapped up in the LeBron story that they don’t see hyperinflation coming,” Adams says. “I hope LeBron is smarter.”

[source]

RS View: For Bloomberg this article represents an unusual mix of pop-culture and economics. Maybe there is hope yet for the media…

by Sharon Singleton
July 8, 2010 (Money) — If some of the world’s leading economists are to be believed, the end of the global economy is nigh.

Nobel prize-winning Paul Krugman recently warned of outright depression, blaming policymakers in withdrawing economic stimulus too soon. While Robert Prechter, a prominent technical analyst, has forecast the benchmark U.S. stock market could slump to below 1,000, from just above 10,000 today.

Policymakers, including those here in Canada, say economies are still recovering, though they concede the pace has become increasingly uneven.

So who’s to be believed? Despite the headlines generated by the prophets of doom, the consensus view is probably somewhere in the middle.

[source]

July 08, 2010 (China Daily) — Domestic investors’ gold frenzy pushed trading volume of the yellow metal to an historic high in the first half of the year, with gold imports also surging to a record…

Turnover in gold traded at the Shanghai Gold Exchange was up 58.7 percent at 3,741.5 tons in the first six months of 2010, in which spot goods volume reached 834.6 tons, according to Song Yuqin, vice-president of the exchange…

“The plummeting domestic stock markets amid the central government’s measures to rein in property bubbles have created a prosperous gold market, greatly enhancing the exchange’s turnover,” Song said in Beijing on Wednesday.

He added that investors’ appetite for gold to hedge against inflation risks also led to huge growth in gold imports in the first half, when the imported amount approximately equaled the total volume in the past three years, without giving specific figures. Song said that further rises in gold consumption and the trading volume could be expected.

Individual accounts in the Shanghai Gold Exchange reached 918,500 by the end of 2009, more than double the figure from a year earlier.

“Gold is not particularly volatile if compared with other commodities, and demand for gold has shown considerable resilience across the economic cycle,” said Eily Ong, an investment research manager at the WGC adding that gold as an inflation and dollar hedge tool achieved returns of 280 percent in 10 years.

[source]

see also

Gold Demand in China Jumps on Stock Slump, Cooling Measures, Exchange Says
By Bloomberg News (Jul 7, 2010) –
Gold demand in China, the world’s second-largest consumer, gained in the first half as government measures to cool the property market and falling equities spurred investment demand, the Shanghai Gold Exchange said…

Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.

“I expect China’s gold demand to rise by 11 to 12 percent this year to 440 to 450 tons because Chinese investors have shown their willingness to buy more when prices are on the rise,” Hou Huimin, deputy secretary-general at the China Gold Association, said today by phone. “I expect prices will rise over the remainder of this year and next year,” said Hou.

Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country’s largest gold deposit, jumped as much as 40 percent in the past six months, Song Quanli, deputy party secretary at the company, said today in an interview. “We have witnessed some really good sales in our retail outlets,” said Song at China National.

[Bloomberg]

July 8, 2010 (Creditman.co.uk) — There are 77,828 companies in the UK economy that are classed as “Zombie” businesses. These companies have seen their performance deteriorate to such an extent that they now exist merely to pay off their debts and survive.

David Pattison, chief analysts at Plimsoll, explains, “Every corner of the UK economy is blighted by Zombie companies. They are posting growing losses and, despite the freeze in the credit markets, increasing their debts.

A Zombie company typically has debts of 51% of their turnover — they merely exist to service their out of control liabilities. Many are also using their suppliers to finance their growing losses, by taking an average of 149 days to pay their bills”

Pattison also explains other major problems these Zombies are facing, “They are falling behind the rest in their respective markets. They are extremely unproductive and their cost base is just too high. As a result, investment plans have been mothballed meaning their aging assets are further restricting their ability to remain competitive”.

“Most have simply had their day and a combination of aging assets, rising losses and increasing debts mean they are unlikely to attract a suitor before the receivers are called. They will be forced back into negotiations with their lenders to buy more time but their future doesn’t look good”.

[source]

RS View: The tally of unserviceable debt grows, and with it we have roaming the earth…
Zombie banks
Zombie countries
Zombie states
Zombie municipalities
Zombie mortgage holders
Zombie pensions
Zombie post office
Zombie companies
… all leading to intractable Zombie currencies.
Don’t let the Zombie media eat your brains. Choose gold.

By Pham-Duy Nguyen
Jul 8, 2010 (Bloomberg) — Gold futures fluctuated between gains and losses amid speculation that the dollar will weaken, boosting demand for the precious metal as an alternative asset.

The dollar slipped 0.1 percent against a basket of six major currencies, heading for the fifth straight weekly decline. Gold traditionally has moved inversely to the dollar. The metal reached a record $1,266.50 an ounce on June 21 and rallied to all-time highs in euros, sterling and Swiss francs as investors sought a haven during Europe’s fiscal crisis.

“Gold is in transition,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “You have a more traditional gold and dollar relationship coming back, but it’s very fragile.”

… A rally in equities may also boost demand for the precious metal, McGhee said. Gold dropped 3.9 percent last week as investors sold gold to cover losses in the stock market. The Standard & Poor’s 500 Index lost 8.5 percent in the previous two weeks, before rebounding 3.7 percent this week through yesterday.

“If the relief rally in stocks holds, we’ll see gold start moving higher,” McGhee said. “If it doesn’t last, we’ll see people look to raise money again by selling gold.”

[source]

Rhona O’Connell
08 Jul 2010 (Mineweb) LONDON — The excellent detective work by Matthew Turner of Virtual Metals has turned up the news that the Bank for International Settlements had effected gold swaps of 346t with other counterparties by the end of March and it would appear that the figure had reached 382t by the end of April. This amounts to roughly 3% of the gold held by the signatories to the Central Bank Gold Agreement — although it should not, necessarily, be assumed that all of those swaps were with ECB members (although they probably were).

Bulls and bears can both chew on the fodder provided by this development…

[continued here]

RS View: The BULL & BEAR labels as presented make a clever and well-defined two-sided demonstration out of what might otherwise have been put forth as part of a more nebulous internal round-about assessment that a rational person automatically does as a normal part of digesting new information.

by Lawrence Williams
Wednesday, 07 Jul 2010 (Mineweb) — While there was a minor recovery over the U.S. holiday weekend in very thin trading, the gold price remained weak Tuesday and was then hit with a couple of pieces of seemingly adverse news which caused it to stutter yet again…

The first was that a London analyst, Matthew Turner of Virtual Metals, noticed that the Bank for International Settlements (BIS) — the bankers banker — had 346 tonnes of gold on its books which it had acquired through gold swaps with Central Banks. …. But, as Jim Sinclair quickly pointed out on JSmineset.com “Gold Swaps are usually undertaken by monetary authorities. The gold is exchanged for foreign exchange deposits with an agreement that the transaction be unwound at a future time at an agreed upon price.”
…
The second piece of news to knock the market was a note by China’s foreign exchange regulator that gold will not be a key investment for China’s foreign exchange reserves. This can be taken several ways, but a nervous market feared the worst… But if one analyses the comment, given that the gold component of China’s massive reserves is so tiny, it is likely to remain a relatively insignificant part of its reserves taken as a whole almost regardless of how much gold it takes into them!

China is an expert at playing the markets in any way which suits it. At the moment the Middle Kingdom is unlikely to disrupt the global foreign exchange status quo. It is not in its financial interests to talk down the dollar given its huge dollar denominated holdings, but it probably is in its interest to appear disinterested in gold even if, in reality, it is not. A top Chinese official has already noted that China has been buying gold on the dips, but as long as this is all it is doing it should not impact the gold price too positively (and de facto diminish the value against gold of the U.S. dollar), but does provide a stabilising influence which will suit its gold-oriented, and rapidly growing, investment public…

[China] waited six years last time to uprate its official gold reserves by over 450 tonnes. It is probably in no hurry now to do the same for another five or six years and may only do so when it is deemed propitious either economically or politically to do so.

Thus neither of these pieces of seemingly adverse news for gold should in reality have much adverse impact on the market. The former should be positive for gold and the latter taken with a pinch of salt.

[source]

Gold reverses higher on bargain hunting

The COMEX August gold futures contract closed up $3.80 Wednesday at $1198.90, trading between $1185.00 and $1204.40

July 7, p.m. excerpts:
(from Marketwatch)
Gold futures edged up as investors took an opportunity to buy bullion after prices fell to their lowest point since late May. Sentiment was earlier dampened by news that China would not increase its gold holdings and a separate report detailing central-bank gold sales. Central banks have entered into swaps with the Bank for International Settlements, in which they take out loans that would allow them to repurchase gold at a later date…more
(from TheStreet)
The fact that banks might have been forced to swap gold for cash highlights the lack of liquidity and economic hardship facing a global recovery while also making gold a real form of money. Philip Klapwijk, executive chairman of GFMS Research Group, commented that “Any use of gold by the official sector, as opposed to just straightforward selling, rather enhances gold’s monetary role and financial status.”…more
(from Reuters)
Gold slipped in earlier trade after China’s State Administration of Foreign Exchange said gold will not become a major component of the central bank’s portfolio. However, analysts said that given the size of China’s currency reserves, it was unsurprising gold would play only a relatively minor role in its portfolio, and that the news was unlikely to detract from central bank interest in gold if prices fell…more
(from Bloomberg)
The metal makes up about 1.6% of the foreign reserves in China, which purchased 454 tons from 2003 to 2009, according to the World Gold Council. China held 1,054.1 metric tons of gold last month, ranking sixth in the world. Song Yuqin, a vice general manager at the Shanghai Gold Exchange, said that gold demand in China gained in the first half as government measures to cool the property market and falling equities spurred purchases…more
(from Xinhua)
Gold dropped as low as $1185.00 but recovered during mid-session, as many traders found that the lowest price in six weeks suggested that the selling was overdone and took the chance to re-enter the gold market. The most active gold contract for August delivery rose 0.3%. The weaker dollar and the strong rally in the stock market Wednesday both added upward pressure on gold…more

see full news, 24-hr newswire…

July 7th’s audio MarketMinute

By Jack Farchy
July 7, 2010 (Financial Times) — Gold prices dropped to a six-week low on Wednesday as traders puzzled over the news that the Bank for International Settlements had received 346 tonnes of gold in “swap operations”.

But prices rebounded in the afternoon as Asian consumers of the metal saw the correction as a long-awaited buying opportunity.

According to a note in its latest annual report, in the financial year to March 31 the BIS took 346 tonnes of gold in exchange for foreign currency in gold swap operations – an action that surprised markets and left traders bemused about what the motives behind the swap might be…

Tom Kendall, precious metals analyst at Credit Suisse, said: “There were probably some hedge funds out there who thought somehow this was bearish because the gold could potentially be liquidated by the BIS into the market.” But he added: “Even if that were possible under the terms of the swap, I cannot conceive of a situation where it might happen.”

In its annual report – which was released last week – the BIS said that, under the swap operations, it exchanged currencies for physical gold. But it noted: “The Bank [for International Settlements] has an obligation to return the gold at the end of the contract.”

Spot gold dropped to an intraday low of $1,185.05 a troy ounce early in the day before recovering to $1,198.55 by midday…

Edel Tully, precious metals strategist at UBS in London, said: “From the lows we’ve seen today, gold has recovered impressively. Physical buying has been quite visible, particularly from Asia.”

GFMS, the precious metals consultancy, reiterated its forecast for gold to touch $1,300 an ounce before the end of the year, adding that physical demand should prevent prices falling below $1,150.

[source]

In the consolidated financial statement of the Eurosystem released today by the ECB for the week ended Friday July 2nd, the numbers therein capture the latest mark-to-market quarterly revaluation of assets.

With no material transactions by Euro-member central banks during the week, the 65.4 billion euro growth in gold reserves was solely delivered on account of the Eurosystem’s MTM architecture, bringing their total gold reserves to a new record high at €352.092 billion, up from €266.9 billion at the start of the year.

By comparison, the Eurosystem’s net position in foreign currency for the quarter grew by only 18.2 billion euro, of which 18bln was from MTM effects and 0.2bln from CB transactions. Foreign currency reserves now stand at €190.9 billion.

Consequently, the proportion of gold reserves in Eurosystem coffers have grown over the course of the past 6 months from 62% of total reserves to 65%.

Regarding the previous post, don’t think for a second that China is not already keenly aware and tactfully desirous of the counter-cyclical strength, stability and flexibility available in this gold-centric reserve architecture.

For more background on this new paradigm in the reserve management of the international monetary system, see my Jan 8th post.

R.

July 7, 2010 (Reuters) BEIJING — China on Wednesday ruled out the “nuclear” option of dumping its vast holdings of U.S. Treasury securities but called on Washington to be a responsible guardian of the dollar.

In the third in a series of statements explaining its work to the Chinese public, the State Administration of Foreign Exchange sought to allay concerns in the outside world that arise whenever Beijing shifts its holdings of U.S. government debt.

“Any increase or decrease in our holdings of U.S. Treasuries is a normal investment operation,” SAFE, the arm of the central bank that manages China’s official currency reserves, said.

It said it constantly adjusts its portfolio to maximimise returns, and any changes to its U.S. Treasury portfolio should be seen in that light and not interpreted politically.

In a series of questions and answers posted on its website, www.safe.gov.cn, SAFE asked rhetorically whether China would use its $2.45 trillion stockpile of reserves, the world’s largest, as a “nuclear weapon”.

SAFE said such concerns were completely unwarranted. “The U.S. Treasury market is the world’s largest government bond market, and U.S Treasury bonds deliver fair good security, liquidity and market depth with low transaction costs. The U.S. Treasury market is a very important market for China,” the agency said.

… it said economic conditions elsewhere were also a factor in determining the dollar’s trend. The euro zone, for instance, was struggling with high government debt levels. “We must recognise that any depreciation of the dollar is relative to other countries, and other countries or regions also have this or that problem,” SAFE said.

One of the prime concerns of Chinese Internet commentators is that a long-term decline in the dollar or euro will erode the value of SAFE’s portfolio. To that end, SAFE called on the United States and other major countries to take “responsible measures” to maintain the value of their currencies…

[source]

RS View: So far, so good. But then we reach the point in the article where a bit of political disinformation is surely at work because the internal consistency of logic in the presentation starts to deteriorate. Despite voicing concern over the economic problems that the U.S and other countries have which can affect the long-term value of their currencies, the article continues:

—— SAFE was lukewarm about gold as an investment. “It cannot become a main channel for investing our foreign exchange reserves,” the agency said, noting the size of the gold market was limited and prices were volatile.

Buying more gold would also not help much in diversifying China’s reserves. China has increased its gold holdings by more than 400 tonnes in the past few years to 1,054 tonnes. Even if it doubled that amount gold’s share of SAFE’s portfolio would increase by only one or two percentage points.——

Utterly ridiculous. To put this nonsense into perspective, let’s say that I lived in a rickety old shack and had a goal to build a simple but sturdy shelter out of bricks. I have a few bricks already on hand, but my blueprint suggests that they represent only 1% of the total needed for completion. Consider what value is served to bother with the following observation: “Gee, even if I double my bricks, they will bring me only one or two percentage points closer to my total.” With this logic, either NOTHING ever gets built in this world, or else (dare I suggest) we don’t stop at merely doubling something that rather needs to be increased by a factor of 20, 50, or even 100 to get a job done.

Or more quickly to the point, let’s say you have a fire to extinguish, burning at the top of a flight of 100 steps. It should be easy to dismiss as foolishness anything that dwells upon the inadequate doubling of an initial step as though it were somehow proof of a task’s insurmountability.

Returning to the deteriorating logic presented in the article, it concludes:

—— Answering its own question on whether it has bought into stocks, private equity funds or any other higher-risk instruments, SAFE said it never excludes any investment.

“It depends on whether a product meets SAFE’s demand for safety, liquidity and a stable yield for its FX reserves, and whether it can help SAFE diversify risks,” the agency said.——

So, putting aside the earlier protestations to the contrary, one would do well to recognize how aptly gold fits the institutional objectives. And since it isn’t specifically excluded from their operational purview (which we know from past evidence that it is indeed in fair play), the rational conclusion is that a determined journey of many steps is in the works, quietly, via the rear stairwell.

July 7, 2010 (BusinessReport) — Gold edged higher on Wednesday, rising back above $1,190 an ounce, as fresh demand emerged for the precious metal after its correction from recent record highs, which helped offset pressure from a firmer dollar.

Spot gold was bid at $1,193.35 an ounce at 15:52 South Africa time, against $1,191.50 late in New York on Tuesday.

“The general feeling is still of insecurity, and given the drop, people might see (gold) as a bargain, probably more on the speculative side than on the long-term investment side,” said Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus.

Gold has fallen some 6 percent from the record high at $1,264.90 an ounce it hit in late June, which has tempted some buyers back to the market.

In India, the world’s biggest gold consumer, jewellers bought stocks ahead of religious festivals, and other physical buyers in Asia snapped up bullion after prices fell.

[source]

by Michael Taylor
July 7, 2010 (Reuters) LONDON — Gold could touch $1,500 an ounce within 18 months as investors seek protection against further quantitative easing and rising inflation, United States-based investment fund Yorkville Advisers has said.

“The upside outweighs the downside,” said Brian Kinane, managing director at Yorkville. “It provides a potential inflation hedge and inflation is coming in due course. “It gives you protection for flight to safety because it’s the global currency that is not subject to quantitative easing,” he added. “I believe gold can move to $1,500 within 18 months.”

Quantitative easing, or pumping new money into economies, was a policy carried out by a number of governments as they sought to provide liquidity in financial markets during the global economic slowdown. … There is increasing speculation that central banks may begin yet another round.

“Gold is well priced right now but there are people who have a view that it could go to over $2,000 an ounce,” Kinane said. “I would be of the view that gold has more room to run.”

The worst global financial crisis in decades has driven sovereign debt higher as governments raised spending to boost growth while tax revenues have declined and unemployment has climbed.

Meanwhile, concerns over sovereign debt levels have shaken financial markets, causing a sharp depreciation…

[source]

Gold dips below $1200 as equities, euro rally

The COMEX August gold futures contract closed down $12.60 Tuesday at $1195.10, trading between $1189.50 and $1215.10

July 6, p.m. excerpts:
(from Dow Jones)
Gold futures fell to their lowest levels in six weeks as demand for the metal as an alternative investment waned amid stabilizing equities and currency markets. U.S. equities surged initially Tuesday, supported by bullish sentiment gleaned from comments made by the Australian central bank, which left its key interest rate unchanged but warned of inflationary pressure, and a general sense of relief at the absence of further disappointing economic news…more
(from Bloomberg)
The MSCI World Index of equities climbed as much as 2.5%. Gold futures for August delivery fell 1% as a rebound by the euro also reduced demand for gold as a haven. Last month, the metal rose to records in Swiss francs, U.K. pounds and euros amid Europe’s fiscal crisis. Tom Pawlicki, analyst at MF Global Holdings Ltd, remarked that “a stronger euro may also create an impression that the sovereign- debt crisis is abating.”…more
(from Marketwatch)
Analysts at Commerzbank said that gold’s safe-haven demand reached a “temporary peak” in May and June, although the need for security is still present to a lesser degree. “A slice of the pie is going toward stocks at the expense of gold today,” said Richard Ross, technical analyst at Auerbach & Grayson. Although the short-term direction is lower, gold’s bullish trend is intact, Ross said. He also pointed out that gold corrected in May, only to rise to fresh records in June…more
(from TheStreet)
Gold’s summer doldrums are nothing new, however. The season is typically met with slow buying in the absence of festivals or wedding seasons in China and India. Prices tend to come under pressure and rally in August ahead of the busy fall wedding period. However, if gold continues to fall below $1,200 an ounce, this could entice some price-sensitive consumers. According to reports, Indian bullion banks were showing strong demand for physical gold on prices’ recent correction…more
(from Reuters)
Over the longer term, uncertainty over the direction of the global economy and other factors could also send gold higher, said analysts who saw the metal ending the year at record peaks above $1,300 an ounce. Barclays Capital said that “given the host of different factors — ranging from concerns over the shape of economic recovery to fears of inflation supporting gold prices — we would expect gold prices to test higher highs as the year unfolds.”…more

see full news, 24-hr newswire…

July 6th’s audio MarketMinute

by Jeff Benjamin
July 6, 2010 (InvestmentNews) — To figure out what’s driving the price of gold, look no further than global government policies, said Evan Smith, manager of the $700 million U.S. Global Investors Global Resources Fund.

“We see gold as an insurance policy against bad government decision making,” he said. “What’s really pushed gold up to the levels is sovereign-debt risk all over the world.”

“You see the [government] programs being introduced, and you wonder how they’re ever going to be funded,” he said. “And there’s no reason why investors [around the world] couldn’t start to worry about sovereign-debt issues here in the United States.”

[source]

By Ambrose Evans-Pritchard
(Telegraph.co.uk) 04 Jul 2010 — … Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP….

Washington’s fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.

The housing market is already crumbling as government props are pulled away. The expiry of homebuyers’ tax credit led to a 30pc fall in the number of buyers signing contracts in May. “It is cataclysmic,” said David Bloom from HSBC…

The Fed is already eyeing the printing press again. “It’s appropriate to think about what we would do under a deflationary scenario,” said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to “strict scrutiny”, a comment I took as confirmation that the Fed Board is arguing internally about QE2.

[source]

By Kartik Goyal
July 7 (Bloomberg) — India needs a “contingency plan” by September to control inflation as prices are showing few signs of easing, former central bank Governor Bimal Jalan said.

“Inflation is an urgent issue and we don’t have a package as yet which can give us confidence,” Jalan, 69, who headed the Reserve Bank of India from 1997 to 2003, said in an interview in New Delhi yesterday. “We heard inflation will come down by March, then April. It was supposed to come down by now.”

Consumer prices in India are rising at least twice as fast compared with inflation rates in Brazil, Russia and China, the other three nations that make up the BRIC economies…

Inflation in India started picking up after a drought last year created shortages in rice, wheat and sugar. It accelerated as consumer demand for manufactured goods and services strengthened…

Prime Minister Manmohan Singh’s government is relying on adequate rains in the June-to-September monsoon season, the main source of irrigation in the country, to boost agriculture output and drive down farm prices. Last year’s showers were the least since 1972…

As inflation pressures remained unabated, Singh last month risked fanning it by raising gasoline and diesel prices to cut the government’s $5.5 billion fuel subsidy bill.

The move evoked a national strike in India on July 5, forcing schools and shops to remain shut and disrupting air, road and rail transport in several parts of the country.

[source]

by Julia Werdigier
July 6, 2010 (The New York Times) LONDON — Bank of England policy makers are puzzled by persistently rising prices in Britain — even during the deepest recession since World War II…

Of course, inflation can be beneficial for highly indebted countries like Britain — and its highly indebted consumers. But it also eats away at savings and hurts the working class and the poor hardest if wages and pensions do not keep up.

No one is yet talking about stagflation — a term often attributed to the British politician Iain Macleod, who used it in a speech to Parliament in 1965. It refers to a combination of stagnant growth and inflation — two economic phenomena usually considered to be contradictory.

But the Bank of England has acknowledged that it is “very concerned about what’s been happening to inflation” and that it is “surprised” at “how resilient inflation has been” especially against the background of a recession…

Despite disagreements about the root cause of higher consumer prices, most economists expect the Bank of England to keep interest rates unchanged until at least next year. The government’s austerity program, which includes another sales tax increase next January, means inflation could remain volatile.

“They should sound worried about inflation but also be mindful that there is a bigger danger, and that’s to increase rates when the economy is still low,” Mr. Gabay of Fathom Financial said. “If both consumers and the government save, things can turn ugly very quickly.”

[source]

RS View: Can anyone imagine a scenario in which the pound gets stronger as an outcome? Bottom line — Don’t trust your savings to a paper vehicle.

By Ockham Research
Jul 6, 2010 (Wall Street Pit) — The US Postal Service today announced that it will raise postage rates yet again, this time to 46 cents for a first class stamp. The rates will also rise for periodicals and parcels by 8% and 23% respectively. This is the seventh rate increase in the last decade, as the cost of shipping a letter has increased by an average annual rate of 3.1% during that time. According to our rough calculations, the rate increases have averaged about 70 basis points greater than CPI annually…

The rate increase is part of a plan to lower the projected $7 billion budget shortfall that USPS expects to incur this year. Costs have ballooned with retiree benefits, but the labor unions are likely too strong to allow any cut in those benefits…

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RS Comment: The good news is that the proposed hike in postal rates will not take effect until January 2nd, 2011 (giving ample time to buy an adequate supply of ‘Forever’ stamps at the current rate.) The bad news is that the Post Office doesn’t seem to have materially improved its poor condition since we last cast a spotlight on it here in mid-April…

by Allan Sloan
July 6, 2010 FORTUNE — … you have to protect yourself against a decline in the value of the dollar because our need to borrow huge amounts to cover trade and budget deficits is eroding the greenback’s standing as the world’s reserve currency.

But guess what? Even though it’s been a crummy year for U.S. stocks, foreign stocks have performed considerably crummier… non-U.S. stocks lost 12.2% (price declines and reinvested dividends) for the first half, while U.S. stocks lost 5.6%.

What’s happening, of course, is that we’re seeing a somewhat different version of the phenomenon in 2007-08, when scared investors sought refuge in the safe haven of U.S. Treasury securities because they feared a worldwide financial meltdown…

All that money flooding into the Treasury market drove down the interest rate on long-term Treasury bonds… Hence, long-term Treasury bonds’ strong performance for the first half of the year — and our country’s ability to finance its enormous deficits by selling Treasuries at very cheap rates…

In the long run, markets are rational. In the short run, anything can happen. The tech stock and house price bubbles lasted far longer than rationalists expected them to, but they ultimately popped. So will the Treasury bond bubble.

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by Michael Powell
7/3/2010 (The New York Times) — Even by the standards of this deficit-ridden state, Illinois’s comptroller, Daniel W. Hynes, faces an ugly balance sheet… He picks the papers off his desk and points to a figure in red: $5.01 billion.

“This is what the state owes right now to schools, rehabilitation centers, child care, the state university — and it’s getting worse every single day,” he says in his downtown office.

For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession.

Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps — cuts and tax increases — to close a deficit of at least $12 billion, equal to nearly half the state’s budget.

Then there is the spectacularly mismanaged pension system, which is at least 50 percent underfunded and, analysts warn, could push Illinois into insolvency if the economy fails to pick up…

As the recession has swept over states and cities, it has laid bare economic weakness and shoddy fiscal practices. Only an infusion of federal stimulus money allowed many states to avert deep layoffs last year…

“You’re not seeing these states bounce back, and that could be a big drag on the national economy,” said Susan K. Urahn of the Pew Center on the States. “It could be a very tough decade.”

…Few budget analysts are surprised to see Illinois, with a limping economy and broken political culture, edge close to the abyss. Two of the last six governors have served jail terms, and a third is on trial.

“We are a fiscal poster child for what not to do,” said Ralph Martire of the Center for Tax and Budget Accountability, a liberal-leaning policy group in Illinois. “We make California look as if it’s run by penurious accountants who sit in rooms trying to put together an honest budget all day.”

… The state pension system is a money sinkhole and the most immediate threat. The governor and legislature have shortchanged the pensions since the mid-1990s, taking payment “holidays” with alarming regularity.

… many analysts, liberal and conservative, warn of a potentially far grimmer reckoning — Greece by Lake Michigan. Borrowing costs are rising, nonprofits that depend on taxpayer money are dropping contracts, and the state’s pension costs and unpaid bills balloon each month.

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RS comment: Can you imagine if a reporter took the initiative to work up a consolidated governmental financial statement combining the 50 states together with the federal government along with all the municipalities? The result would be too horrific for publication.

Tue 07/06/10 NEW YORK (TheStreet) – Phil Streible, senior market strategist at Lind-Waldock, says gold’s price decline is technical and fundamental but he would use this selloff to scale into gold and forecasts $1,300 an ounce in the fall.

[video interview]

Phil discuses price action in terms of the traditional ‘Summer Doldrums’ Effect and anticipates end-of-year seasonal strength to follow in typical fashion.

By Pham-Duy Nguyen
July 6, 2010 (Bloomberg) — Gold futures tumbled below $1,200 an ounce as demand waned following the metal’s rally to a record last month…

Gold futures for August delivery fell $14.90, or 1.2 percent, to $1,192.80 at 9:54 a.m. on the Comex in New York. Before today, the metal gained 10 percent this year. The market was closed yesterday for U.S. Independence Day.

Speculative long positions, or bets prices will rise, outnumbered short positions by 244,725 contracts on the Comex in the week ended June 29, up 7.5 percent last month to the highest level this year, government data showed. Open interest in futures reached a record on June 30…

A slump in gold may signal an opportunity to buy, some analysts said. “With gold touching its lowest close in over a month, we see these levels as a good entry point for fresh long positions,” Hussein Allidina, the head of commodity research at Morgan Stanley, said in a report.

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By Jeremy Gaunt
Tuesday July 6, 2010 LONDON (Reuters) – World stocks bounced higher on Tuesday from a recent five-week low in a broad risk rally that boosted oil prices, while investors sold off the dollar and government bonds…

The FTSEurofirst 300 bounced back from six-week closing lows with a gain of 2.5 percent, led by mining shares, while Japan’s Nikkei closed up 0.8 percent, coming off a seven-week low.

U.S. stock futures were also up around 1 percent, pointing to a stronger start on Wall Street, which re-opens after a holiday on Monday. Emerging market stocks gained more than 1 percent.

The MSCI world index is still down more than 10 percent so far this year. Stocks were weaker on Monday in response to data showing a slower-than-expected improvement in U.S. employment.

Investors have been beset by concern that the global economic recovery is slowing enough to send some countries into a double-dip recession.

This is combined with nagging fears that the recovery seen so far is all down to government action, which may soon end.

“Awash with private sector debt (in its various forms), the world’s major economies may struggle to maintain their forward impetus once policy stimulus, both fiscal and monetary, is set on the path toward normalization,” BNY Mellon said in a note.

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by Min Zeng
JULY 6, 2010 (The Wall Street Journal) — A Treasury market rally ran out of steam as gains in the equity markets eased demand for safe assets.

Investors flocked to Treasurys during Asian trading amid worries about the economic outlook. Sellers emerged since the European session, with rallying stock markets in Europe and the U.S. pushing bond prices to session lows…

Traders cautioned that the rally has already discounted a lot about the bearish sentiment on the economy and the market needs fresh news to push yields to much lower levels.

“The hurdle for higher bond prices will stay elevated now that everyone is cowering in the same foxhole,” said William O’Donnell, head of U.S. government bond strategy at RBS Securities Inc. in Stamford, Conn. He added that Treasurys need a “cleansing” correction now that trader sentiment is excessively bullish and technical indicators suggested the bond market was overbought.

In recent trade, the benchmark 10-year note was flat to yield 2.977% and the 30-year bond was 3/32 higher to yield 3.937%. The two-year note was flat at 0.625%. Bond yields move inversely with their prices.

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LONDON, July 6 (Reuters) – Gold erased early gains on Tuesday to fall below $1,200 an ounce as the New York stock markets prepared to open, with a sharp rebound in equities pointing to better appetite for assets seen as higher risk.

European shares strengthened in early afternoon trade, while U.S. stock index futures also rose sharply.

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By Cleofe Maceda
July 3, 2010 (Gulf News) — Despite the bitter winds of global economic crisis, gold is still raining on Dubai, with retailers reporting rising sales. Just recently, the government-run luxury hotel, Emirates Palace, unveiled an ATM machine that dispenses small gold bars and coins, not paper bills.

According to the World Gold Council, the sentimental value of gold “sets it apart from the competing purchase choices, making it more desirable and long lasting” for many women.

Experts also consider gold an integral part of women’s appearance and of their ability to look and feel good. But more than anything, it is the investment value of gold that makes it worth every dirham spent.

“It comes to mind what I said a few years ago: When my wife buys clothes, she spends money, but when she buys jewellery she saves money,” recalls Rolf Schneebeli, chief executive officer of Joyalukkas.

Schneebeli says gold has various aspects that are appealing to women. First, gold is traditionally viewed as a store of value, a saving tool that will prove useful during a rainy day. This is the reason people gift gold on weddings, in the hope of providing safety to the couple for a long time to come.

“[Gold belongs] in the savings category and as such competes with bank deposits and stock portfolios. Here we would talk about bangles and similar pieces with limited value addition which are essentially the bank account on the wrist,” he adds.

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