U.S. Stocks Decline Amid Economic Reports
Bloomberg
U.S. stocks fell, a day after the Standard & Poor’s 500 Index failed to hold at an almost four- year high, as sales of previously owned houses missed estimates and data from Europe and China spurred economic concern.
Stocks pared losses after Greece’s finance minister said yesterday’s approval of a bailout means the nation is tied to the euro area. Toll Brothers Inc. (TOL) and KB Home dropped more than 2.7 percent to pace a slump in homebuilders. Dell Inc. (DELL) sank 6.1 percent as its sales forecast missed estimates. Financial shares had the biggest decline in the S&P 500 among 10 groups, falling 1.1 percent. Gannett Co. (GCI), the owner of 82 newspapers including USA Today, surged 4.4 percent as it will boost its dividend.
The S&P 500 retreated 0.1 percent to 1,360.89 at 2:19 p.m. New Yorktime, paring an earlier loss of as much as 0.5 percent. The Dow Jones Industrial Average declined 1.25 points, or less than 0.1 percent, to 12,964.44 after the 30-stock gauge rose above 13,000 (INDU)yesterday for the first time since 2008.
“You can ride this, but you’ve got to be very careful and sit near the exit,” David Darst, the New York-based chief investment strategist at Morgan Stanley Smith Barney, said in a telephone interview. His firm has $1.6 trillion in client assets. “Most of the economies are slowing. Earnings will be slowing. The market is overbought on a short-term basis.”
Stocks fell as purchases of previously owned homes climbed to a 4.57 million annual rate, less than forecast, data from National Association of Realtors showed. European services and manufacturing output unexpectedly shrank in February. China’s manufacturing may shrink for a fourth month, according to data from HSBC Holdings Plc and Markit. Fitch Ratings lowered Greece’s credit rating and said a default is highly likely.
Trimming Losses
Equities pared losses as Greek Finance Minister Evangelos Venizelos said yesterday’s decision by euro area finance ministers to approve a second rescue package for the country bound Greece to the euro and the euro area. Greece sealed a 130 billion-euro ($170 billion) bailout package by agreeing yesterday to austerity measures while reducing its bond principal by 53.5 percent as investors swap into new securities with longer maturities and lower coupons.
The S&P 500 yesterday failed to hold above its April 2011 peak of 1,363.61 (SPX), which was the highest level since June 2008. The index has rallied 3.6 percent in February and is poised for a third straight month of gains, the longest streak in a year. The monthly gain has extended this year’s advance to 8.2 percent amid higher-than-estimated U.S. economic data and profits and expectations Europe will tame its crisis.
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Gold at 3-Month High as Bargain Seekers Prevail
MarketWatch
Gold futures on Wednesday beat initial weakness to settle at a three-month high as the early price dips only enticed investors back to the metal.
Gold had spent most of the day in the red, as the optimism from the Greek deal faded after downbeat data from China and with investors taking profits given recent gains. Bargain-hunting ensued, however, in the last hour of trading, securing the milestone for the metal.
Gold for April delivery advanced $12.80, or 0.7%, at $1,771.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest settlement for gold since mid-November.
The metal, which settled 1.9% higher on Tuesday, spent most of the session in the red.
The decline in prices enticed back some investors, said Jim Steel, an analyst with HSBC in New York.
Helping gold higher were steep gains for platinum and palladium, he said. The gains came mostly on the back of a ongoing strike in South Africa, a top exporter of platinum.
Greece remained in the headlines after Fitch Ratings cut Greece’s sovereign-credit rating to C from CCC, and said that the planned bond swap for private debt holders will amount to a restricted default.
The dollar pushed higher, contributing to the fall of gold and other commodities, but moderated its gains. The ICE dollar index, which measures the greenback’s performance against a basket of six rival currencies, rose to 79.207 from 79.023 late Tuesday.
The dollar topped the key ¥80 level against the Japanese yen, also as economic data from China disappointed. The preliminary result of a survey by HSBC showed Chinese factory activity at a four-month high in February, but at a level that indicated modest contraction.
News on Tuesday that Beijing had cut reserve requirements for lenders had helped gold and other metals rise. The move was an effort to boost lending and increase liquidity in China, a large consumer of raw materials.
Copper and silver kept their losses, with platinum and palladium ending higher.
Copper for March delivery fell less than 1 cent to settle at $3.83 a pound.
March silver futures shed 18 cents, paring losses, to end at $34.25 an ounce.
Gold Up One Percent on Greek Deal, Economic Uncertainty
Reuters
Gold rose about one percent on Tuesday, outpacing gains in the euro and equities, as a massive European bailout deal as investors bought the metal amid doubts the bailout will work.
Gold rallied to its highest in more than two weeks after Euro zone finance ministers agreed a 130-billion-euro ($172 billion) rescue for Greece. Analysts said the deal bought time for the single-currency bloc but left deep doubts about Greece's ability to recover and avoid default.
Bullion has benefited from news that China recently cut its required reserve ratio and committed to help the euro bloc. The metal already received a strong boost after the U.S. Federal Reserve last month said it would keep rates near zero at least until late 2014.
"Gold gets a boost from the EU kicking the can down the road," said Rob Kurzatkowski, senior commodity analyst at optionsXpress.
"Not only does the bailout perhaps delay the inevitable (Greek bankruptcy), but it also opens the door for higher inflation across the euro zone," he said.
Spot gold rose 1.2 percent on the day to $1,755.19 an ounce by 11:30 a.m. EST (1630 GMT), having earlier hit a high of $1,756.41, the loftiest price since February 3.
Bullion was on track for its biggest one-day gain in two weeks.
U.S. COMEX April futures rose $31 from Friday's close to $1,756.90 an ounce as traders returned after Monday's U.S. Presidents' Day holiday.
Analysts said gold outperforming the U.S. stock markets and other riskier assets highlighted underlying inflation worries and lingering doubts on Greece's ability to avert a chaotic default in the long run.
However, gold could face strong headwinds as liquidity appears to tighten for European banks soon.
The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future.
GOLD-EURO CORRELATION
The positive 30-day log correlation between gold and the euro has risen to near 0.5 up from 0.3 last week, indicating a stronger positive link between the two.
"Gold is trading more like the other metals - as a risk asset, rather than a risk hedge," Citigroup analyst David Wilson said.
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The Enduring Popularity of Gold
GoldSeek
The World Gold Council (WGC) reaffirmed the power of the Love Trade in its 2011 Gold Demand Trends report released this week. Gold demand grew 0.4 percent in 2011 despite a 28 percent year-over-year increase in bullion’s average price.
After flirting with the top spot for some time, China emerged as the world’s largest gold market for jewelry and investment during the fourth quarter of 2011 as demand in India weakened. This is the first time China’s demand outpaced India’s in 11 quarters. However, India did retain the gold demand crown for the entire year, purchasing 933 tons compared to China’s demand of 770 tons.
I always say the trend is your friend, and I believe China’s increasing demand for gold is one trend that is just getting started. Although gold imports from Hong Kong were cut in half in December, HSBC Global Research reports that overall gold imports from Hong Kong were 10 times the historical average from January through November 2011. HSBC expects a continued rise in Chinese incomes will keep demand at a robust pace. The WGC sees domestic demand for gold jewelry and investment driving 20 percent growth in Chinese gold demand during 2012.
China should consider its leadership as the No. 1 gold market a short-term position, though. While China’s presence in the bullion market is strong and growing for jewelry and investment, India’s ancient relationship with the yellow metal is such that “domestic drivers of demand are largely independent of outside forces,” says the WGC. The WGC does not see India’s role in the gold market diminishing over the long term.
Ajay Mitra, the WGC’s managing director for the Middle East and India, recently expressed India’s strong ties with gold in a 60 Minutes feature. Gold has always been a part of India’s history, culture and tradition. I have witnessed firsthand the strength of this bond many times over the years. As the famous saying goes, “no gold, no wedding.”
Don’t Forget About the Fear Trade
The Fear Trade was also recently reaffirmed by the Federal Reserve when it publicly stated its intention to keep inflation at “exceptionally low levels” through 2014. Inflation is the kryptonite to the Fed’s monetary efforts and it’s likely the Fed will take any measures necessary to prevent inflation spikes.
The Fed has targeted a 2 percent inflation rate, which means the U.S. dollar will lose 33 percent of its value over the next 20 years, says The Daily Reckoning’s Charles Kadlec. In the next four years alone, nearly 10 percent of the “value of Americans’ hard earned savings” will be destroyed, says Charles. Put another way, Charles estimates that it will take $150 in the year 2032 to purchase the same amount of goods you could get for $100 in 2012.
For four decades following the end of the gold standard, the purchasing power of the dollar has been plunging: A dollar worth 100 cents in 1970 is now valued at a measly 18 cents.
Charles isn’t the only one opposed to the Fed’s “monetary manipulation.” In his latest letter to shareholders, Warren Buffett faults the government and its “systemic forces” for destroying the purchasing power of investors. He argues stock investments offer the best long-term investment opportunity because interest rate levels don’t offset the loss of purchasing power due to inflation.
However, there is one group that benefits from the low interest rate environment—borrowers. This means the largest borrowers in the world, developed world governments, will be able to service their enormous amounts of debt more easily. This year alone, the U.S., Japan and Europe will roll over $8 trillion in federal debt.
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Gold Ends at Highest Level in More than Two Weeks
MarketWatch
Gold futures rallied Tuesday, ending at their highest point in more than two weeks as traders cheered the approval of a second bailout for Greece.
Gold for April delivery advanced $32.60, or 1.9%, to end at $1,758.50 an ounce on the Comex division of the New York Mercantile Exchange. It had traded as high as $1,752.50 an ounce.
The settlement was gold’s highest since Feb. 2.
“Gold right now is behaving like a risk asset more than anything else,” tracking gains for U.S. equities and other commodities, said Frank Lesh, a broker and futures analyst with FuturePath Trading in Chicago.
U.S. markets were closed Monday for the Presidents Day holiday.
After a marathon meeting into the early hours of Tuesday, European finance ministers sealed a deal to give Greece up to 130 billion euros ($171.9 billion) of financial aid.
Other metals tracked gold higher, with copper and silver rallying. Copper for March delivery advanced 13 cents, or 3.5%, to settle at $3.84 a pound.
Metals also benefitted from news that China cut reserve requirements for lenders in an effort to spur lending and increase liquidity in its financial system. China is a top consumer of gold, copper and other commodities.
That was “good news for gold in the long run as bullion remains an attractive alternative to major currencies. Real interest rates are negative in major developed nations while developing nations are also playing their part in currency wars, fearing rapid appreciation of their domestic currencies against weak benchmarks,” analysts at VTB Capital in London wrote in a note to clients.
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Copper and Gold Gain After China Eases
MarketWatch
Copper and gold gained Monday after China cut reserve requirements for lenders and markets anticipated that European finance ministers would approve another loan for Greece.
“The metals and markets in general have been boosted following the cutting of reserve ratios in China,” William Adams, head of research at FastMarkets.com, wrote in emailed research.
“Given the emergence of more quantitative easing the weight of money is likely to remain a bullish factor so although we don not feel the fundamentals justify these high price levels, it is likely to take a catalyst to trigger a more meaningful correction,” he added.
Copper futures for March delivery HGH2 -1.08% rose 1.1% to $3.748 a pound in electronic trade on the Comex division of the New York Mercantile Exchange. Gold futures for April delivery GCJ2 +0.41% climbed $10.10, or 0.6%, to $1,736 an ounce.
U.S. markets were closed Monday for the Presidents Day holiday.
The policy easing by China, a major consumer of metal and other commodities, supported investor appetite for riskier assets. The People’s Bank of China Saturday said it was reducing the amount of money banks need to hold in reserve to spur lending and increase liquidity. The move comes after a like step in December.
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Gold Prices Climb With Euro on Hopes for Greek Deal
Economic Times
Gold prices rose more than half a percent on Monday as growing optimism that European leaders will sign off on a rescue deal for Greece lifted the euro, and after China's central bank further loosened monetary policy.
Spot gold was up 0.6 percent at $1,734.19 an ounce at 1210 GMT, while U.S. gold futures for February delivery were up $10.10 an ounce at $1,736.00.
Gold prices are up nearly 11 percent this year, benefiting from a rebound in the euro and expectations that U.S. monetary policy will remain loose, cutting the opportunity cost of holding non-yielding bullion. But analysts say the appeal of other investments could keep gold prices rangebound this year.
"The risks (in Europe) could dissipate modestly in the near term. Certainly, in China, there is a growing acceptance that the government will step in to support growth, and things look like they're stronger than expected in the United States," said Deutsche Bank analyst Daniel Brebner
"Globally, it looks like risk assets are being accumulated by investors, and in that kind of environment, gold should perform reasonably well," he added. "But I would argue it could underperform some of the other metals, the base metals and the white precious metals."
The euro rose 0.5 percent on Monday after China eased monetary policy to stimulate growth and expectations mounted that euro zone policymakers were set to approve Greece's long-awaited second bailout, averting a messy default.
Euro zone finance ministers are expected to approve a second deal for Greece when they meet at 1600 GMT, a move they hope will draw a line under months of turmoil that has shaken the currency bloc.
"The market's attention is to remain fixated on developments in the euro zone as finance ministers gather in Brussels to finalise the details of the second bailout for Greece," said VTB Capital in a note. "We see subdued action today as a positive decision on Greece is pretty much priced in."
Other assets seen as higher risk rallied along with the euro, with European equities reaching their highest in nearly seven months and oil prices up more than $1 a barrel. Safe-haven German government bonds slipped.
MONEY MANAGERS CUT GOLD LENGTH
Money managers in gold futures and options reduced their net long position by about 6 percent in the week of Feb. 14, their first decline in weeks, latest data from the U.S. Commodity Futures Trading Commission showed on Friday.
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China to Surpass India as Top Gold Buyer: Industry
Yahoo
China is set to overtake India as the world's largest gold buyer this year as demand for the metal for jewelry and as a safe-haven investment surges, the World Gold Council said Thursday.
Global demand hit 4,067.1 tonnes in 2011 -- edging up 0.4 percent year-on-year -- worth an estimated $205.5 billion, the first time demand has surpassed $200 billion, the WGC said in its latest annual report.
Gold prices rose to a record over $1,920 an ounce in September on frenzied buying by individuals, investment funds and central banks in the aftermath of a US credit rating downgrade and plunging global equity markets.
Prices have slipped since but still hover around $1,700 per ounce.
India, the largest gold consumer and importer, saw a 7.0-percent decline in demand year-on-year to 933.4 tonnes last year, while demand from China jumped 20.0 percent to 769.8 tonnes in the same period.
"There was a major boost to the overall demand from China, a trend we see continuing in the new year," said Marcus Grubb, WGC's investment managing director.
"It is likely that China will emerge as the largest gold market in the world for the first time in 2012."
India and China, which have been battled high inflation, combined account for more than half of the world's gold demand.
India, where gold is widely purchased for religious and ceremonial occasions, consumed less of the yellow metal in 2011 largely because of a weak rupee, which made imports of gold -- priced in dollars -- more expensive.
"The domestic currency fell precipitously in the second half of 2011, on foreign capital outflows. The rapid rise and fall in the rupee and resulting local gold price swings impacted gold buying," the report said.
India's gold demand was down 27.0 percent year-on-year in the second half of 2011.
The WGC said it expects global demand for gold to remain strong in 2012.
Despite the recent softening in demand, India is likely to record steady demand for gold this year, in-line with 2011 trends, analysts and the WGC said.
"The sentiment is likely to remain upbeat this year as inflation is moderating and various tax incentives are likely to support purchases," WGC's Middle East and India managing director Ajay Mitra told reporters.
Analyst Hareesh V. of research firm Geojit Comtrade expects India's gold demand to rise marginally by 2-3 percent this year.
"India could consume close to 965 tonnes in 2012, with the rupee rising against the dollar and inflationary pressures easing, which would boost the import of gold," Hareesh said.
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Middle-East Situation May Push Gold Prices: World Gold Council
Economic Times
Gold prices may go up in the near future because of uncertainty in the Middle-East, but this may not dampen the buying spirits among the Indians, the World Gold Council (WGC) said on Thursday.
"India's gold demand is likely to be positive this year in value terms. In volume, it may be same as last year or slightly higher," WGC Managing Director, Middle East and India, Ajay Mitra said here, after releasing the latest report on the precious metal.
"Prices in the short term may go up due to the uncertainty in the Middle East," he said. Tensions between Israel and Iran would lead to investors seeking refuge in gold, considered as a safe haven. Gold rates are ruling firm at Rs 28,340 per ten gram in Delhi today on seasonal demand and strong global cues.
Asked about the trends in the gold Electronically Traded Funds (ETFs), Mitra said, the option will retain investors' interest, including from the corporates.
"At present, about 50 per cent of investment in gold ETFs is from the corporates, who park their spare funds for better returns. This is very unique to India and due to this we see a similar investment demand trend in 2012 as well," he added.
Since the last two years, he said, WGC has also witnessed flow of funds from High Networth Individuals in the ETFs. He said demand for coins will continue to be stronger than bars. There is also a declining trend in recycled jewellery in the market mainly due to the rise in gold finance options.
When asked about jewellery demand for 2012, Mitra said, the current retail trend is positive. "The trend in the first half will give us a feel for the rest of the year in terms of jewellery demand ...", he said. In India, people normally buy gold during festivals as gifts and investments and for marriages.
Last year, 1,037 tonnes of gold was available in the domestic market, of which 969 tonnes was imported and the rest was from other sources, according to the 'Gold Demand Trends 2011' report.
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While You Were Sleeping, Central Banks Flooded The World In Liquidity
Zero Hedge
There are those who have been waiting to buy undilutable precious metals in response to a headline announcement from the Fed that it is starting to buy up hundreds of billions of Treasuries or MBS. This is understandable - after all that is precisely the trigger that the headline scanning robots which account for 90% of market action in the past year are programmed to do. And the worst thing that one can do is put on the right trade at the wrong time. Yet it may come as a surprise to some, that while the world was waiting, and waiting, and waiting, for Bernanke to hit the Print button, virtually every other central bank was quietly unleashing it own mini tsunami of liquidity. In fact, as Morgan Stanley puts it, "the Great Monetary Easing Part 2 is in full swing." But wait, there's more: in an Austrian world, where fundamentals don't matter and only how much additional nominal fiat is created is relevant, it is sheer idiocy to assume that the printers will stop here... or anywhere for that matter. They simply can't, now that the marginal utility of every dollars is sub 1.00 relative to GDP creation. This means that by the time the Global Weimar is in full swing, we will see much, much more easing. Sure enough, MS anticipates an unprecedented additional round of easing in the months ahead. So for those waiting to buy gold et al at the same time as DE Shaw's correlation quants do, the time will be long gone. Because slowly everyone is realizing that it is not the Fed that is the marginal creator of fake money. It is everyone.
Behold, the Great Monetary Easing part 2:
MS Summary:
The Great Monetary Easing Part 2 is in full swing – and begets inflation risks. Global monetary policy interconnectedness, the impact of central bank easing on commodity prices, and the possibility of an improved outlook for the real economy could mean a return of the Global Inflation Merry-Go-Round:1) Super-expansionary monetary policy in the major developed economies, particularly the US, a) contributes to commodity inflation and b) is imported by EM central banks through (US dollar) soft and hard pegs.
2) Price pressures rise in EM due to domestic overheating and higher commodity prices. Inflation is then re-exported to DM through more expensive goods exports.
3) More expensive imports from EM and dearer commodities raise inflation in DM. In turn, DM central banks initiate the next round by maintaining – or increasing – monetary accommodation.
2013 might yet look like 2011 on the inflation front.
...and Detail:
The Great Monetary Easing (Part 2), is in full swing … In response to a slowing global economy and further downside risks emanating from the possibility of an escalating Eurozone debt crisis, central banks all over the world – and across the DM-EM divide – have been deploying their arsenal for a while now, and should continue to do so. The result is aggressive monetary easing on a global scale – what we have dubbed the Great Monetary Easing, part 2 (GME 2 - see Sunday Start: What Next in the Global Economy, January 22, 2012); this follows on from GME1 in 2009-10. The GME2 is now in full swing. Last week, the Bank of England announced a further GBP 50bn of gilts purchases, to take place over the next 3 months. On Tuesday, the Bank of Japan upped the target of its Asset Purchase Program by 50%, from JPY 20trn to JPY 30trn, with the increment concentrated exclusively on JGB purchases. We think Sweden’s Riksbank will pick up the baton from the Bank of Japan on Thursday and cut the repo rate by 25 basis points.