Gold coin purchases gained 13% last year and will increase 2.7% in the first half. Purchases of gold bars increased by 36% to nearly 2,000 (1,194) metric tonnes, concentrated in China, Germany, Switzerland and Austria. East Asia demand for gold bars rose 53% to 456 metric tonnes. India rose 9% to 297 metric tonnes and western markets demand for gold bars rose 41% to 335 metric tonnes. Central banks increased net purchases by a massive fivefold to 430 tons last year, and may buy another 90 tons in the first half, GFMS said. Combined official holdings stand at 30,788.9 tons, data from the London-based World Gold Council show. “Attitudes among central banks haven’t really changed,” Thomson Reuters GFMS annual survey said. “There’s still that desire to come into the gold market to diversify some of the assets away from foreign exchange and to boost gold holdings.” The Thomson Reuters GFMS annual gold survey also predicts that gold will struggle in the first half of the year, increasing in the later half towards $2,000. It also says the gold bull market is losing steam and predicts an end to the run as economies recover next year and interest rates begin to rise.
- Greece Running Out of Time as Debt Talks Stumble (Bloomberg)
- China Economic Growth Slows, May Prompt Wen to Ease Policies (Bloomberg)
- Spain Clears Short Term Debt Test, Bigger Hurdle Looms (Reuters)
- U.S. Market Shrinks for First Time Since 2009 (Bloomberg)
- IMF, EU May Need to Give E. Europe More Help (Bloomberg)
- Securities Regulator to Relax Rules on Listing (China Daily)
- Monti Seeks German Help on Borrowing (FT)
- Draghi Questions Role of Ratings Companies After Downgrades (Bloomberg)
Eurozone special: the only developed economy where credit markets still have a say.
A Shocking €1 Trillion LTRO On Deck? CLSA Explains Why Massive Quanto-Easing By The ECB May Be Coming Next MonthSubmitted by Tyler Durden on 01/16/2012 17:26 -0400
It is a pure coincidence that following the previous report of stern condemnation of traditional ECB QE in the form of Large Scale Asset Purchases (LSAP) by the Bundesbank, we should follow it up with the latest analysis by Chris Wood of CLSA's famous Greed and Loathing newsletter, in which the noted skeptic does an about face on his existing short European financial trade and covers such exposure, while observing the much-discussed major shift in ECB liquidity provisioning as the catalyst. And while his trade reco may or may not be right (if we were betting people we would put our money on the latter), what is interesting is the basis for the material change in exposure which to Wood is explained simply by the dramatic shift in the ECB approach toward monetary generosity, courtesy of the arrival of ex-Goldmanite Mario Draghi. The basis is the first noted here massive surge in the European balance sheet (Figure 2) which while not engaging in prima facie monetization, has done so via indirect channels, in the form of an LTRO, which is basically a 1%, 3-year loan, but more importantly, a balance sheet expansion which while having failed to increase the velocity of money in any way (with all of the LTRO and then some now having been redeposited back at the ECB as reporter earlier), has at least fooled the market for the time being that any sub 3 Year debt is "safe". So just how large will the next LTRO be? "Market talk is focusing on an even bigger amount to be borrowed at the next 3-year longer-term refinancing operation (LTRO) due on 29 February. GREED & fear has heard guesstimates of up to €1tn!" That's right - it is possible that in its quanto monetary diarrhea (but at least it's not printing, so the Bundesbank will be delighted), the ECB is about to increase its balance sheet from €2.7 trillion to € €3.7 trillion, or a €1.7 trillion ($2.2 trillion) expansion in 8 months! And gold is where again?
A down day in the US on Tuesday could begin to trigger intermediate sell signals...~ Lee Adler
While it will hardly come as a surprise to many that after making it abundantly clear that Germany is in total disagreement with ECB monetary policies, culminating in the departure of Jurgen Stark from the European central printing authority, Germany will not permit irresponsible, Bernanke-esque monetary policies, it probably should be noted that even following the most recent escalation of adverse developments in Europe, which are now on the verge of unwinding the entire Eurozone and with it the affiliated fake currency, that the German central bank just said that any European QE could only come over its dead body. Today channeling the inscription to the gates of hell from Dante's inferno is none other than yet another Bundesbank board member, Carl-Ludwig Thiele, who said that "Europe must abandon the idea that printing money, or quantitative easing, can be used to address the euro zone debt crisis...One idea should be brushed aside once and for all - namely the idea of printing the required money. Because that would threaten the most important foundation for a stable currency: the independence of a price stability orientated central bank."
And so the latest inevitable outcome of the French downgrade from AAA has arrived, after the S&P just downgraded the EFSF, that pillar of European stability, from AAA to AA+. S&P adds: "if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'." In other words, as everyone but Europe apparently knew, the EFSF is only as strong as the rating of its weakest member. And now the rhetoric on how AAA is not really necessary for the EFSF, begins, to be followed by AA, next A, then BBB and finally how as long as the EFSF is not D-rated all is well.
The Rise Of Activist Sovereign Hedge Funds, The "Subordination" Spectre, And The Real "Coercive" Restructuring ThreatSubmitted by Tyler Durden on 01/16/2012 10:52 -0400
When Zero Hedge correctly predicted the imminent rise of the "activist sovereign hedge fund" phenomenon first back in June 2011 (also predicting that the "the drama is about to get very, very real") few listened... except of course the hedge funds, such as Saba, York, Marathon, and others, which realized the unprecedented upside potential in such "nuisance value", long known to all distressed debt investors who procure hold out stakes, and quietly built up blocking positions in European sovereign bonds at sub-liquidation prices. Based on a just released IFRE report, the bulk of this buying occurred in Q4, when banks were dumping positions, promptly vacuumed up by hedge funds. More importantly, we learn from IFRE's post mortem of what is only now being comprehended by the market as having happened, is the realization that the terms "voluntary" and "collective action clauses" end up having the same impact as a retailer (Sears) warning about liquidity (and the result being the start of the death clock, with such catalysts as CIT pulling vendor financing only reinforcing this) to get the vultures circling and picking up the pieces that nobody else desires. As a reminder, it was again back in June we predicted that "the key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"." Why? Because what this does is unleash the prospect of yet another word, which is about to become one of the most overused in the dilettante financial journalist's lingo: "subordination" or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.
The big news out of Europe on Friday was not S&P’s downgrade of 9 countries, France included. The ratings agency told us weeks ago that it might do this. No, much more important was the ECB’s saying in the bluntest possible terms that the EU leaders are backtracking on the fiscal compact agreed just 5 weeks ago by 26 of the 27 countries... Now the folks responsible for the actual writing of this fiscal treaty have only two weeks before the next EU summit to come up with something that satisfies both the EU heads of state — whose attempts to soften the terms show that they are apparently having second thoughts about giving away fiscal sovereignty — and the ECB paymaster. They’ll need to be as flexible as Chinese acrobats to make it work.
Although gold had its largest drop in the last 2 weeks on Friday, (-1.6%), it was 1.3% higher on the week and trading higher this morning. Many analysts feel that current sovereign, macroeconomic and geopolitical risks are not reflected in gold's price. Friday's news of France's loss of its AAA rating has put the European Financial Stability Facility (EFSF) at risk. The Eurozone economy resembles a large ship sailing in rough seas since France fund's 20% of the EFSF fund and 8 other members were also downgraded. This will almost certainly lead to the EFSF's downgrade which would result in the fund too paying more to borrow as credit costs rise. There are icebergs lurking in increasingly murky Eurozone waters. The European downgrades were long expected and may have been priced in the markets. The risk of a non orderly Greek default and of contagion in the Eurozone remains and is not priced into markets. It would lead to the euro falling sharply against other fiat currencies and particularly against gold.
After the fairly muted Wellington open, the reaction of the European bond markets to the S&P downgrade will be the next focus of attention. One benefit of the S&P ratings action is that it takes away one source of uncertainty. Given a French downgrade wasn't widely anticipated, market focus on this issue may well be short lived. Related to the European downgrades is the rating of the EFSF, which was also put on credit watch in early December. S&P have commented that they are in the process of evaluating the impact of the sovereign downgrades on the EFSF rating. For the AAA rating to be maintained it would require further commitments from European governments. Remaining in Europe, newswires report that Greek debt talks will resume Wednesday, thus the Greek PSI is likely to remain a focus all week.
Mario Draghi once again mistakes a Solvency issue for one of Liquidity
With Fed officials a laughing stock (both inside and outside the realm of FOMC minutes), Bank of Japan officials ever-watching eyes, and ECB officials in both self-congratulatory (Draghi) and worryingly concerned on downgrades (Nowotny), the world's central bankers appear, if nothing else, convinced that all can be solved with the printing of some paper (and perhaps a measure of harsh words for those naughty spendaholic politicians). The dramatic rise in central bank balance sheets and just-as-dramatic fall in asset quality constraints for collateral are just two of the items that UBS's economist Larry Hatheway considers as he asks (and answers) the critical question of just how safe are central banks. As he sees bloated balance sheets relative to capital and the impact when 'stuff happens', he discusses why the Eurozone is different (no central fiscal authority backstopping it) and notes it is less the fear of large losses interfering with liquidity provision directly but the more massive (and explicit) intrusion of politics into the 'independent' heart of central banking that creates the most angst. While he worries for the end of central bank independence (most specifically in Europe), we remind ourselves of the light veil that exists currently between the two and that the tooth fairy and santa don't have citizen-suppressing printing presses.
It would appear that the German public (and political class to some extent) are beginning to see the European project in the same manner as we described back in July. As the increasing burden of saving the eurozone from its own excess falls on the shoulders of every Tobias, Dirk, and Heike taxpayer in Germany, even industry leaders, such as Wolfgang Rietzle, the CEO of Linde, this weekend according to Reuters, are suggesting a line in the sand has to be drawn and that "if we do not succeed in disciplining countries then Germany needs to exit." This has been very much a view we have held for months, that instead of the periphery limping away one-by-one, the very core of the foundation will simply decide enough is enough or as Reitzle notes (among many other critically insightful comments) "the willingness of countries to reform themselves is abating if, in the end, the European Central Bank steps in." This morning Germany's FinMin Schaeuble added to the potential separation rhetoric with his comments, via Bloomberg:
- *SCHAUEBLE SAYS ECB AS LENDER OF LAST RESORT WOULDN'T CALM MKTS
- *SCHAEUBLE SAYS JOINT EURO REGION BOND SALES NOT A SOLUTION
Hardly reassuring given the dreams of every GGB owner and BTP-exposed insurance company are banking on the ECB cranking the presses to 'secure' nominal returns in the real world. Friday's mass downgrade (and S&P's more interesting Q&A) have perhaps left Germany on the hook for up to 56% of its GDP via the EFSF support mechanisms and as we noted six months ago, the moment for Atlas to shrug draws closer with every downgrade and SMP action.