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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.

While the gold standard may no longer exist, nations and international organizations still have 30,877 metric tons of bullion reserves, valued at about $1.77 trillion. The dollar has been the world’s reserve currency since the U.S. and allies agreed at the 1944 Bretton Woods conference to peg it to a rate of $35 per ounce of gold. It remained the most- traded legal tender after global currencies began freely floating in the early 1970s. The greenback dropped 12 percent against a basket of six major currencies since March 2009. The U.K. suspended the gold standard in 1931, Chatham House said. “Greater discipline on financial markets might have been helpful in inhibiting the reckless banking and excessive debt accumulation of the past decade,” the task force said. “However, with the onset of the global crisis, had gold had a more formal role to play, the rigidity it imposes might also have been a handicap when a more flexible policy response was required.” “For gold to play a more formal role in the international monetary system, it would be imperative for it neither to hamper the system’s performance nor to create unacceptable constraints on national economic policies,” the task force said.  Gold may “continue playing a significant role in the international monetary system, serving as a valuable hedge and safe haven, particularly in times when tail risks predominate.”

Sorry, you can't blame dollar and gold for the surging oil and gasoline price.

The IMF data on central bank demand in January showed that Sweden raised its gold reserves by 18.3 metric tons to 144 tons in January. The data on the International Monetary Fund’s website was gold bullish showing continued demand for gold by central banks internationally. Belarus added 5 tons to reserves, Kazakhstan raised reserves by 7.6 tons and Turkey increased gold reserves by 4.1 tons. They were two quite odd minor reductions in gold reserves. Mexico reduced bullion reserves by 0.1 ton and Tajikistan cut them by 0.3 ton, according to the IMF. However soon after the increase in Sweden’s gold reserves was reported by Bloomberg, Sweden’s central bank gold reserves contradicted the IMF data and denied that they had increased their reserves. Joanna Gerwin, acting head of communication for the Riksbank, told Bloomberg that Swedish gold reserves were unchanged at 125.7 metric tons in January. Officials at the IMF’s office in Paris said nobody in Europe was able to comment. Alistair Thomson, a spokesman for the IMF in Washington, didn’t immediately reply to a voicemail and e-mail from Bloomberg outside normal business hours. Interestingly, the Riksbank sold 36.6 tons under the Central Bank Gold Agreement (CBGA) from 2007-2009. An increase in reserves of 18.3 tonnes is exactly half of the amount sold and would mean that the Riksbank had bought back half of the gold sold from 2007 to 2009.

Earlier today, Wikileaks made its latest startling release on Twitter, telling the media world to standby for a 'major announcement'. Alas, in keeping with the recent tradition from Wikileaks, the "release" was a dud and is merely the collected dump of all the emails previously hacked from Stratfor by Anonymous, as was noted here previously. Alas a quick perusal through the emails so far reveals absolutely nothing exciting, except for the communiques of a paid intelligence provider, which may at times have had a few delusions of grandure and a mistaken and rather overblown sense of self-importance (hardly unique). Yet one exchange that is rather interesting is the following email thread from 2009 which goes from discussing how the billionaires behind ACORN have lost all respect for Obama and Biden ("The billionaire (who also funds ACORN) is greatly disappointed over Obama's "weakness and wimpyness" towards China... She believes Biden is weasel and Obama is a pussy... The liberal factions in DC think Obama is being a pussy."), views on Rahm Emanuel ("I don't disagree that Biden is a weasel. I think Emanuel is emasculating Obama by selling him on clever Clintonesque tactics"), views on how Obama may get back into the thick of things: ("Obama needs to get in a fight and do something really mean and unfair to the right."), on Obama and the banks: ("he could also tell the banks to go screw themselves.") and from there going to analyzing the GOP field: ("The GOP folks I talk to are pushing Jeb Bush. I think that is a mistake. Who else is out there?") and culminating with the GOP frontrunning Mitt Romney - "Romney can't make it. Mormons are viewed as Voo Doo." Much more in the full email thread inside.

"I felt a great disturbance in the Bourse, as if 216 hedge funds suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened."

“Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.” The Reuters Global Gold Forum confirms that in the small print of the Greek “bailout” is a provision for the creditors to seize Greek national gold reserves. Reuters correspondents in Athens have not got confirmation that this is the case so they are, as ever, working hard to pin that down. Greece owns just some 100 tonnes of gold. According to IMF data, for some reason over the last few months Greece has bought and sold the odd 1,000 ounce lot of its gold bullion reserves. A Reuter’s correspondent notes that “these amounts are so tiny that it could well be a rounding issue, rather than holdings really rising or falling.” While many market participants would expect that Greece’s gold reserves would be on the table in the debt agreement, it is the somewhat covert and untransparent way that this is being done that is of concern to Greeks and to people who believe in the rule of law.

Why Is Social Media Censoring Criticism of the Government?

Crude oil spiked to nine-month high primarily on investors fear of potential conflict over the escalating tensions between the US, Europe, Israel, and Iran.  Right now, it seems Iran could be the one blinks first (war or peace).

Those who have been correct about the crisis in recent years question whether a new Greek government will stick to the deeply unpopular program after elections due in April and believe Athens could again fall behind in implementation, prompting lenders to pull the plug once the eurozone has stronger financial firewalls in place. The much used phrase "kicking the can down the road" underestimates the risks being created by European and international policy makers. Some have rightly warned that we will likely soon run out of road. Rather than "kicking the can down the road" what politicians in Europe, in the U.S. and internationally are actually doing is "kicking a giant beer keg down the road".  The giant beer keg is the continual resort to cheap money in the form of ultra loose monetary policies, QE1, QE2, QE3 etc, money printing and electronic money creation on a scale never seen before in history. The road is our modern international financial and monetary system. The risk is that attempting to kick the giant beer keg down the road will lead to many broken feet and a destroyed road.  A European, US, Japanese and increasingly global debt crisis will not be solved by creating more debt and making taxpayers pay odious debts incurred through massively irresponsible lending practices of international banks. The likelihood of continuing massive liquidity injections by the ECB next week and in the coming weeks will help keep the opportunity cost of holding bullion the lowest it has ever been and likely contribute to higher bullion prices especially in euro terms in the coming months.

• German president resigns in blow to Merkel (Reuters)
• China central bank in gold-buying push (FT)
• Germany Seeks to Avoid Two-Step Vote on Greek Aid, Lawmakers Say (Bloomberg)
• Eurozone central bankers and the taboo subject of losses (FT)
• Bernanke: Low Rates Good for Banks in Long Run (WSJ)
• Cameron and Sarkozy to test rapport at talks (FT)
• Chinese Enterprises encouraged to invest in US Midwest (China Daily)
• Goldman Sachs Group Inc. and Morgan Stanley have reduced their use of "mark-to-market" accounting (WSJ)
• Regulators to raise trigger for rules on derivatives (FT)

Global demand for gold reached 4,067.1 tonnes last year, the highest tonnage since 1997, due in large part to a nearly 5% increase in investment demand, which hit a record 1,640.7 tonnes. Asian countries like China, India, Vietnam, Thailand and others see bullion as a store of value against the growing inflation and the ongoing debasement of their currencies. The fundamentals for gold in 2012 look good.  Continuing low and often negative real interest rates will continue to support gold’s safe haven status. The Fed’s statement that it will continue to see rates remain very low until 2014 is very bullish for gold. Central banks were net buyers of gold and their demand surged nearly 6 fold (570%) to 439.7 tonnes in 2011 (compared with 77 tonnes in 2010), more metal than at any time since the end of the gold standard in 1971. The World Gold Council noted that, “The buyers are all ... in Latin America, Asia and the Far East and they are basically enjoying strong growth, fiscal surpluses and growing foreign exchange reserves." 

While all the focus has been on Greece in recent days, the global nature of the debt crisis came to the fore yesterday and overnight. This was seen in the further desperate measures by the BOJ and Moodys warning that the UK could lose its AAA rating. Some of us have been saying for some years that this was inevitable but markets remain myopic of the risks posed by this. Possibly the greatest risk is that of the appalling US fiscal situation which continues to be downplayed and not analysed appropriately. President Obama unveiled a massive $3.8 trillion budget yesterday and he is to increase Federal spending by 53% to $5.820 trillion by 2022.  The US government is projected to spend over $6 trillion a year by 2022.  Still bizarrely unaccounted for is the ticking time bomb of unfunded entitlement liabilities - Social Security and Medicare, which Washington continues to deal with by completely ignoring them. While Washington and markets are for now ignoring the fiscal train wreck that is the US. This will change with inevitable and likely extremely negative consequences for markets – particularly US bond markets and for the dollar.

If there was one thing the Troika needed not to hear less than 24 hours after the latest bailout demand vote passed, it is that the leader of Greek ill-named "New Democracy" party who is likely to replace Papademos as the next leader of Greece following the April elections, is that at best the new "deal" will last for two months, or until after the next local election. Needless to say, this it the only "pledge" out of Greece in the past week that is 100% certain to be kept. From The Guardian: "Samaras, the current front-runner to replace Lucas Papademos, told parliament last night: "I ask you to vote in favour of the new loan agreement today and to have the ability to negotiate and change the current policy which has been forced on us"." While hardly surprising, Guardian goes on to point out "that would rather thwart the Troika's demands that Greece's leaders all pledge to implement the current plan, as Megan Greene of Roubini Economics pointed out on Twitter: 'Samaras demands bailout be renegotiated after elections and troika insists he sign that he'll uphold 2nd bailout. We still have a problem.'" Indeed - it is called Merkel seeks guarantees that what the next Greek leader said is a joke before it agrees to send even more billions in taxpayer cash down what Schauble earlier called a "bottomless pit."

Market focus tends to be almost solely on Chinese and Indian demand but demand is broad based throughout increasingly important Asian gold markets. Demand for gold remains robust in most Asian countries where consumers are buying gold as a store of wealth due to concerns about their local paper currency.  This phenomenon is happening throughout Asia including in Malaysia, Indonesia, Thailand and Vietnam and other large Asian countries (see news below regarding demand for gold by investors in Thailand).   AFP have a very interesting article on Vietnamese ‘gold fever’ which recounts how  “stashing gold at home rather than having cash in the bank is a generations-old habit in communist Vietnam”. And old habits are dying hard even if an ounce of gold bullion can now cost up to US $100 more in Hanoi than anywhere else in the world due to government meddling in the gold market. AFP quote 60-year-old retiree Truong Van Hue “I still like to keep my savings in gold. It's safe for retired people like me. I can sell the gold any time, anywhere, when I need cash,” he told AFP. Although the treasure has long been perceived as a safe haven, the recent gold rush has alarmed Vietnam's government, which is faced with an 18 percent inflation rate and an unstable national currency, the dong.