Consumer Prices

Gold traded lower on Friday, moving towards a third straight week of losses on the backdrop of a recovering US economy, which prompted investors to put their money in other vehicles, while India’s plan to double the import duty on gold bullion erased some early gains. On news that Finance Minister Pranab Mukherjee proposed to double the 4% customs duty on gold from April 2012, physical dealers saw some panic buying from India, the world’s largest gold consumer. In January, India raised the gold import duty 90% and doubled the tax on silver as the government is struggling with a growing fiscal deficit and looked to increase revenues. Growing subsidies for fuel and food have left the government struggling to meet its budget target.  Indian investors, who are the largest consumer group of gold in the world, rushed to buy gold in advance of the government’s plan to increase the 4% customs tax in April 2012. The resulting gains where then eroded by stronger then expected US economic growth numbers.  

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While US equity futures continue to do their thing as the DJIA 13K ceiling comes into play again (two weeks ago Dow 13K was crossed nearly 80 times), ahead of today's 2:15pm Bernanke statement which will make the case for the NEW QE even more remote, none of the traditional correlation drivers are in active mode, with the EURUSD now at LOD levels, following headlines such as the following: "Euro Pares Losses vs Dollar as Germany’s ZEW Beats Ests" and 20 minutes later "EUR Weakens After German Zew Rises for 4th Month." As can be surmised, a consumer confidence circular and reflexive indicator is the basis for this Schrodinger (alive and dead) euro, and sure enough sentiment, aka the stock market, aka the ECB's balance sheet expansion of $1.3 trillion, is "improved" despite renewed concern over Spain’s fiscal outlook after better than expected German ZEW per Bloomberg. Next, investors await U.S. retail sales, which have come in consistently weaker in the past 3 month, and unless a pick up here is noted, one can scratch Q1 GDP. None of which will have any impact on the S&P 500 policy indicator whatsoever: in an election year, not even Brian Sack can push the stock market into the red.

While hardly expecting anything quite as dramatic as the default of a Eurozone member, an epic collapse in world trade, or a central banker telling the world that "he has no Plan B as having a Plan B means admitting failure" in the next several days, there are quite a few events in the coming week. Here is Goldman's summary of what to expect in the next 168 hours.

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Following a busy overnight session, which saw a surprise announcement out of the Brazilian Central Bank cutting rates more than expected, and confirmation of the deterioration in the Japanese economy where January saw a record current account deficit, today we have already seen the Bank of England proceed as expected keeping its key interest rate unchanged (at 0.50%) and QE fixed at GBP325 billion. The ECB is next with its rate announcement, expected to keep things on hold. Yet the mood of the morning is set by speculation that the Greek debt swap may see a sufficient participation rate for the PSI to go through, even if that means CAC activation, as somehow a Greek default is good, and only an "out of control" bankruptcy would be bad. That coupled with renewed expectations of more QE, sterilized or not, and hopes that tomorrow's NFP will be better than expected, as somehow the Fed will pump money even if the economy is "improving", is all that is needed to send the post-roll ES contract to session highs nearly 1% higher than yesterday's close.

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Not many websites, analysts or authors have both the balls/temerity & the analytical honesty to take Goldman on. Well, I say.... Let's dance! This isn't a collection of soundbites from the MSM. This is truly meaty, hard hitting analysis for the big boys and girls. If you're easily offended or need the 6 second preview I suggest you move on.

The Chinese population is beginning to realize that the Government is losing control. People are willing to go along with a regime as long as they can “get by” under it. But as soon as it becomes impossible to survive… then situations like Wukan happen. There will be a LOT of Wukans in the coming months and years in China. Whether it’s by inflation or an economic contraction brought about by Europe’s collapse (Europe is China’s largest trading partner), civil unrest and “mass incidents” will be on the rise in the People’s Republic as the Chinese realize that the current system and the supposed wealth it will create for them are in fact a giant fraud.

All you need to read.

• Brazil declares new ‘currency war’ (FT)
• Postal Cuts Are Dead Letter in Congress (WSJ)
• China state banks to boost selected property loans (Reuters)
• ECB Says Overnight Deposits Surge to Record (Bloomberg)
• Van Rompuy confirmed for 2nd term as EU Council president (Reuters) - you mean dictator
• BOJ Shirakawa: Japan consumer prices to gradually rise (Reuters)
• IMF Says Threat of Sharp Global Slowdown Eased (Reuters)
• Eurozone delays half of Greece’s funds (FT)
• BOJ Openings Can Shape Monetary Policy (Bloomberg)

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Silver as ever outperformed gold yesterday and traders attributed the surge to “massive fund buying” and to “panic” short covering. Some of the bullion banks with large concentrated short positions covered short positions after the technical level of $35.50/oz was breached easily. Massive liquidity injections and ultra loose monetary policies make silver increasingly attractive for hedge funds, institutions and investors. This time last year (February 28th 2011) silver was at $36.67/oz. Two months later on April 28th it had risen to $48.44/oz for a gain of 32% in 2 months. There then came a very sharp correction and a period of consolidation in recent months. Silver’s fundamentals remain as bullish as ever and the technicals look increasingly bullish with strong gains seen in January and February.

A riddle, wrapped in a mystery, inside an enema.

Just when we thought that when it comes to nonsensical announcements Europe is second to none, here comes the White House and takes the cake:

• WHITE HOUSE SAYS RISE IN GASOLINE PRICES CAUSED BY VARIETY OF GLOBAL FACTORS, INCLUDING UNREST IN SOME PARTS OF WORLD, FAST GROWTH IN OTHERS - RTRS

Uhm, would the "unrestful" parts of the world be those that have an above average US drone presence. At least we know that said price surges have nothing to do with the following chart: