By Adrian Ash, GoldSeek

London Gold Market Report

THE PRICE OF WHOLESALE gold bullion ticked higher early Thursday for Dollar investors, but slipped further for Sterling and Euro buyers as world stock markets again held flat together with commodities.

Government bonds fell, pushing the yield offered by 10-year UK gilts up to a 2-week high of 4.14%.

Ten-year US Treasuries offered 3.74% p.a., more than three-and-half percentage points above the yield offered by short-term debt.

“With a US rate hike likely within the next six months, gold may be in for a tough time if it does not find some direction shortly,” reckons one London dealer in a note.

“There are lot of buy orders below $1100,” counters Pradeep Unni, senior analyst at Richcomm Global Services in Dubai, speaking to Reuters.

“If we don’t find any clarity with respect to Greece and neighboring nations, gold will continue to fight bearish pressure.”

Greek public services were once again closed by a national strike on Thursday. Typically moving together against the Dollar, gold and the Euro in fact split apart when the Greek budget crisis first broke at the start of Feb.

Initially seeing Dollar-gold prices rise while the Euro/Dollar exchange rate fell, gold now stands flat from the start of March, while the Euro has added 2¢ to $1.3650.

On a rolling one-month basis, the daily correlation of gold and the Euro – averaging a strong +0.51 over the last decade – fell this week to minus 0.35, its most negative reading since March 2009.

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By Howard S. Katz, GoldSeek

Part of the explanation for the Dec.-Jan. decline in gold is the attack on the euro which is now going on in the media.  Indeed, the euro topped out very close to the exact day of the top in gold.  The market is thinking: decline in euro = rise in dollar = decline in gold.

First, let us ask what is the euro and how did it come to be?  Here there is a little historical background.  After we beat a little sense into them in 1941-45, the Germans gave up their attempt to become the master race and rejected all of the thinking which had led to the Hitler victory in 1933.  In 1949, they elected as chancellor a man who admired America, Conrad Adenauer, affectionately called der Alte or the Old Man,

Germans back at that time remembered the depreciation of the German mark in 1923, which had wiped out the middle class and destroyed their savings.  Adenauer admired America, in part, because of the stability of her currency.  The American dollar had kept its value from 1793 to 1933, meaning that average wholesale prices were the same in 1933 as they had been 140 years before.  In 1949, the depreciation of the U.S. dollar had only just begun, and America was regarded, at that time, as a relatively sound money country.

So Conrad Adenauer set up a German money system modeled on America.  In 1957, he created the Bundesbank.  The Bundesbank did print money, but it was committed to a policy of printing it in a very stingy fashion.  And then Germany, which had been bombed into rubble and overrun with foreign armies, emerged as the best economy in Europe.  German tourists stirred up resentment as they visited other countries in Europe.  “Hey, didn’t we just beat those guys?  How come they can afford to tour here, and we can’t afford to tour there?”

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By Adrian Ash, GoldSeek

It wasn’t called the “irrevocable exchange rate” for nothing…

PRICING YOUR money in gold – in a world where everyone else does the same, and at fixed exchange rates, too – makes for a big problem if the welfare state begins gobbling up more wealth, year after year, than it earns in taxation.

“No [social] safety nets were allowed. If the gold stock was flowing outward [thanks to the currency falling on the international exchanges], interest rates had to rise to attract foreign funds and the domestic economy had to be suppressed to curtail imports.”

So wrote Peter Bernstein of the Gold Standard in The Power of Gold. Glued back together after the cataclysm of World War I, this informal yet tightly rule-bound system cracked and finally shattered for good in the 1930s. But “even when countries went off gold,” as Princeton professor Paul Krugman wrote in late 2009, “the prevailing mentality made them reluctant to cut [interest] rates.” Or rather, it made them reluctant to cut the cost of money below zero, as he would advise. Because with the monthly in- and out-flow of gold bullion from the foreign exchanges for so long measuring the credit extended by foreign and domestic wealth, government policy naturally leant towards deflation.

Defending the value of cash, rather than inflating it away, gives creditors confidence. And that, paradoxically, is the only way to finance deficit spending long term. The alternative, at least to the mind of 1931 policy-makers, wasGermany’s 2.7 million per cent Weimar inflation of 10 years before.

“Whether we returned to the Gold Standard [after WWI] too early or not is debatable, but it is no longer a matter of more than academic interest,” wrote Edward Peacock, King George V’s own financial advisor, a director of Baring Bank, and a likely-looking successor as Bank of England governor, on 1st August.

“To go off the Gold Standard, for a nation that depends so much upon its credit, would be a major disaster.”

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By Liam Halligan, The Telegraph, London

Could the endgame of this Greek tragedy be a eurozone breakup? The single currency’s supporters maintain that such an outcome is mere mythology.

Greece accounts for only 3 percent of the 16 member states’ combined GDP, they say, and has lower debts than some of the banks bailed-out during sub-prime. A loan of E20 billion (£17.5 billion) would do the trick, we’re told. That’s less than the British government injected into either Lloyds or the Royal Bank of Scotland.

Such analysis sounds vaguely plausible. But its naïve and politically dishonest. Then again, the single currency was built on political dishonesty. That’s because, at the heart of the eurozone project there was always a fundamental contradiction — one that the architects of monetary union never dared to address. Now its being highlighted for them, whether they like it or not.

While the European Central Bank controls eurozone interest rates and the money supply, the size of each country’s fiscal deficit results from the spending and taxation decisions of its own sovereign government.

How can you enforce collective fiscal discipline in a currency union of individual sovereign states, each answerable to their own electorate? The truthful answer is you can’t — not unless you subjugate the autonomy of democratically-elected politicians and, by proxy, their voters.

Voters don’t like that. Neither do politicians. Faced with a choice between seriously annoying their own voters and seriously annoying the ECB, the most ardently “pro-European” lawmakers, even those with years of Brussels trough-nuzzling under their belt, will always side with their own. That’s why the eurozone will ultimately break up — whether Greece is bailed out or not.

The eurocrats blame “speculators” for the single currency’s woes. That’s a bit like sailors blaming the sea. The eurozone is ultimately doomed because, in the end, economic logic wins and the will of each country’s electorate bursts through. This current Greek saga won’t end the eurozone — but future historians will identify it, perhaps, as the beginning of the end.

Many have said it’s hardly surprising that Greece — with its history of financial profligacy and capital flight — has emerged as the eurozone’s Achilles heel. A more germane observation is that, while fiscally wayward, Greece is also the birthplace of democracy. If the Greek population wants to get upset, throw out its elected politicians and reject austerity, it must be allowed to do so. I think they’d be mad, but it must be their choice.

If Berlin and Brussels try to impose their own view on Greece and the “cuts” come from outside, the situation will become absolutely incendiary. Protests will turn into full-blown riots. Greece will endure very serious social unrest. Deep-seated rivalries and suspicions between countries will be re-ignited. And for what?

Greece is running a budget deficit of 12.7 percent of GDP. The real number could be 15 percent or more as Greek politicians have lied for years about the extent of their country’s liabilities. They’re not the first European leaders to do so and they won’t be the last. But Greece was, almost uniquely, assisted in its fiscal cover-up by Brussels — with the usual “convergence criteria” being bent to allow Greek euro entry.

As recently as September 2008, the euro seemed to be going well, despite the massive variation between member states. The five-year Greek credit default swap spread was less than 50 basis points. In other words, buying insurance against Greece reneging on its sovereign debt cost only slightly more than insuring German government bonds. Those, such as this columnist, who continued to warn that the eurozone was “dangerous and inherently unstable” were dismissed as cranks, xenophobes, or worse.

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By John Browne, GoldSeek

The European experiment with a trans-sovereign currency is facing its first acid test. The flashpoint today is Greece, which looks set to default on its debt barring some outside intervention. While many commentators have been squawking about the immediate crisis as if it were the end of life on Earth, I would like to zoom out and discuss the history and longer-term outlook for the euro and its parent, the European Union.

The launch of the euro was a major milestone in the sixty year process of European federalization. Economic considerations have always led the charge, from a normalization of tariffs to a free-trade area to a customs union. Still, the launch of a pan-European fiat currency and central bank without a unified political apparatus behind it was always considered a risky move.

Since its launch, the euro has outperformed expectations, establishing itself both as the world’s secondary reserve currency and the second most traded currency after the U.S. dollar. Because of this stellar introduction, the euro has been proposed as the new primary reserve currency in place of a devaluing U.S. dollar. However, its unusual foundation presents risks to which most investors are unaccustomed.

In essence, the euro was created as a lever to encourage a complete European political union rather than as a currency representing a call on an already unified economy, as with the U.S. dollar. Jean Monnet, one of the EU’s founding fathers, is reported as saying, “Europe’s nations should be guided towards the super-state without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose but which will inevitably, and irreversibly, lead to federation.”

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By Ambrose Evans-Pritchard, The Telegraph

Germany faces a terrible dilemma. Either Europe’s paymaster agrees to underwrite a Greek bailout and drops its vehement opposition to a de facto EU economic government, treasury, and debt union, or the euro will start to unravel, and with it Germany’s strategic investment in the post-war order.

The spike in yields on 10-year Greek bonds to 400 basis points above German Bunds has been shockingly swift — a warning to Britain too that markets can suddenly strike any country that takes creditors for granted.

We can argue over whether Greece, Portugal, or Spain are at risk of being forced out of the euro. But there is another nagging question: whether events will cause Germany and its satellites to withdraw, bequeathing the legal carcass of EMU to the Club Med bloc.

This is the only breakup scenario that makes much sense. A German exit would allow Club Med to uphold contracts in euros and devalue with least havoc to internal debt markets. The German bloc would enjoy a windfall gain. The D-Mark II would be stronger. Borrowing costs would fall. The North-South gap in competitiveness could be bridged with less disruption for both sides.

To be sure, Germany is happily placed in the current EMU system. By compressing wages for a decade it has stolen a march on EMU. Critics unfairly call this a beggar-thy-neighbour policy. It is simply the way Lutheran society operates, in deep contrast to the way Latin society operates — a cultural clash that should have given pause for thought before Europe’s elites launched headlong into their adventure.

German goods are flooding the South. In the 12 months to November, Germany-Benelux had a current account surplus of $211 billion: Spain had a deficit of $82 billion, Italy $74 billion, France $57 billion, and Greece $37 billion. German industry will not give up this edge lightly. However, the matter will in the end be decided by democracy. German citizens were given a pledge by their leaders in the 1990s that loss of the D-Mark would not lead to monetary disorder, or leave them liable for Club Med debt. That is the sacred contract of EMU.

“Politically,” said Bundesbank chief Axel Weber, “it’s not possible to tell voters that they are bailing out another country so that it can avoid painful austerity measures that they themselves have gone through. Such aid, whether conditional, or — even worse — unconditional, is counterproductive.”

Dr Weber is right on both counts. Fresh loans for Greece can achieve nothing useful at this stage. Greece already has a public debt hurtling towards 138 percent of GDP by 2012 (Standard & Poor’s). It is already in a debt compound spiral. The EU elites have yet to acknowledge that Greece and much of Club Med need gifts — not loans — akin to transfers paid to East Germany after unification, or North Italian perma-subsidies to the Mezzogiorno.

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By Peter Cooper, GoldSeek

The European Central Bank has a secret plan to defend the euro against a falling dollar. And it is no secret that the falling dollar is a danger to the euro-zone recovery and exports.

Indeed, the ECB would be in clear breach of its treaty obligations if it did not possess such a plan, so we can be quite certain that it is in place. All we can speculate on is at what point the ECB decides to act.

$1.50 euro

For a long time $1.50 to the euro has been a line drawn in the sand. That line has now been breached. It is therefore wise to expect some action from the ECB in currency markets before very long.

Market intervention will be the response to the falling dollar. It is unlikely that the dollar is going to be allowed to fall through the floor.

Most likely a secret plan to support the dollar was a big part of the G20 summit rather than the declared statement about the continuing stimulus packages that are a big part of the problem.

Those betting on a falling dollar now in financial markets could be in for a rude awakening. The dollar has fallen to a 16-month low, how much further can it go?

Read more….

GDP: Great Day to Play

Good Day,

Friday’s market sessions in precious metals started off on a tamer note, following the best gains in gold in three weeks. Explanations follow. The recapture of the $1045 area is noteworthy, although analysts we polled during the wee hours overseas are trying to define the move as everything from a ‘one-hit wonder’ to the ‘re-ignition of what we saw during most of October.’

The Bloomberg weekly survey foresees weaker gold prices come next week - not by a large margin (57% bearish)- but still focusing on a potential comeback by the US currency, the early signs of which became visible this past Monday. Demand for the yellow metal once again slipped away in India, following signs of life during the earlier part of the week when values came close to $1025 per ounce. The country recorded its sixth straight month of declining gold imports, despite a decent gain during September – in anticipation of festival-related sales.

New York spot dealings opened with a $2.60 loss in gold bullion, which was quoted at $1043.20 bid, as against a euro-dollar seen at $1.4798 and the USD index steady-to-higher, at 76.05, with little in the way of fresh news thus far this morning. Oil prices gave back about 50 cents of their whopper-sized Thursday gains, slipping to $79.32 per barrel. Risk traders took a latte break this morning, and this gave the dollar a moment to try to re-group.

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Read the rest of Gold, Silver, Metal Prices: Commentary – 10/30/2009 (2,324 words)

Twenty years ago in 1989 the Austrian State Mint passed from the Treasury into the ownership of the central bank. The mint was given the freedom to produce and sell products in accordance with the demands of the modern numismatic and investment markets. One of the very first innovations introduced by the new CEO, Paul Berger, was the production of a gold bullion coin for investment purposes: the Vienna Philharmonic.

On 16th October this year a limited quantity of 6,027 Vienna Philharmonic coins, each weighing 20 ounces of fine gold, will go on sale in Europe, America and Japan.

20 ounces to commemorate 20 years!

Why the odd number? The mint decided to offer 2009 coins (the date of the 20th anniversary) in its three major markets: in Europe, in America and in Japan. Investors still remember the 15 giant coins (each of 1,000 ounces) that celebrated the fifteenth anniversary in 2004, and that entered the Guinness Book of Records as the then largest gold coin in the world. All 15 giant coins were snapped up within days, and the excitement surrounding this special issue of a 20 ounce coin promises a similar market reaction.

The new 20 ounce coin has a diameter of 74 mm and a thickness of 8.3 mm and is housed in a prestigious wooden and red velvet case. Pre-orders for this unique anniversary gold coin have already started pouring into the mint in Vienna. It promises to be a major success as indeed the past 20 years of the Austrian bullion programme have been.

The Vienna Philharmonic Story

The decision in 1989 to issue a gold bullion coin in the two weights of 1 ounce and ¼ ounce was greeted with indulgent smiles. Austria, a small central European country since the destruction of her empire in 1918 and without any gold mining industry to support, was entering the bullion market, long dominated by the Krugerrand and that time divided between the USA, Canada and Western Australia.

Berger and his team decided that music was the ideal theme for their new coin. Austria was internationally renowned for its music, but they decided against the portrayal of one of the many great composers like Mozart, Haydn or Strauss. That would make the coin appear like a commemorative edition for collectors. Instead they chose a living and world-famous musical institution: the Vienna Philharmonic Orchestra. To their delight the members of the orchestra enthusiastically endorse this choice, freely grant the use of their name. The engraver, Thomas Pesendorfer, designed a collection of instruments to represent the orchestra itself and for the other side of the coin he took the great pipe organ of the Golden Hall in Vienna where the orchestra plays at home. It is seen on television around the world every year on 1st January during the New Year’s Day Concert.

The new Austrian coin was launched in Vienna on 10th October and was an immediate success. The demand in the home market was nothing less than ferocious. In two and a half months 419,000 ounces were sold, achieving with one blow an 18% world market share for the entire year 1989! It rapidly established itself as a serious participant in the international gold market. In 1992 and again in 1995, 1996 and 2000 the Vienna Philharmonic was ranked by the World Gold Council as the top selling gold bullion coin worldwide. In 2008 the Vienna Philharmonic continued to rank No. 1 in Europe and in Japan, and with a year’s market share of 25% it came in 3rd worldwide narrowly missing 2nd place. The “indulgent smiles” have long since disappeared.

A 1/10 ounce in 1991 and a ½ ounce coin in 1994 completed the traditional family of four sizes. In 2008 a silver 1 ounce Vienna Philharmonic was added to the investment range with resounding success.

Looking back on 20 years of continual growth and success, the Vienna Philharmonic has established itself firmly as one of the four great gold bullion coins offered on the international market of today. This one-time issue of a limited number of 20 ounce gold coins is but a fitting tribute to a 20 year long success story that shows no signs of letting up in the near future.

Related posts:

1. Last of the Austrian Mint’s “Vienna Jugendstil” Series
2. Austrian Mint Issues 5 Euro Silver Coin Honoring Great Conductor
3. Gold touches 27-year high of $746.30 an ounce; silver surges nearly 3%

The World Wide Fund for Nature (WWF) was started nearly 50 years ago in Europe with a mission to conserve nature. Over the years, the organization has grown world-wide and now directs millions of dollars annually toward nature preservation.

To help draw attention to the work of the WWF, The Royal Mint of the United Kingdom has created the WWF Silver Medal Set. The collection is limited to only 2,000 sets worldwide and comes housed in a beautiful presentation case with an illustrated booklet and a certificate of authenticity.

Each of the six medals features a different species protected by the WWF as well as an extract of a quotation from one of the organizations founders, Max Nicholson:

‘WWF is not just about saving whales and tigers and rainforests,and preventing pollution and waste, but is inescapably concerned with the future conduct, welfare and happiness and indeed survival of mankind on this planet.’

The medals are struck to proof condition from .925 sterling silver with a weight of 28.28 grams and a diameter of 38.45 mm. The Royal Mint Engraving Team designed the collection to showcase the following creatures:

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Read the rest of WWF Silver Medal Set Issued by The Royal Mint (333 words)

© Darrin Lee Unser for Silver Coins Today, 2009. |
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