European Bail Out Brew Bubbles Over Again

Europe's never ending sovereign debt and default problems are rearing their ugly head once again. Just a rumor hitting the rounds that Portugal is being pressed to take a bail out, even when those rumors are denied was enough to send their bonds reeling. As it was the European Central Bank has to buy Portugal's bonds.

The ECB intervened to buy government bonds on the secondary market.

"They're buying five-years and 10-years in Portugal, whatever people are offering really," one trader said.

Another trader said the ECB appeared to be buying Greek and Irish bonds too. EU sources say the central bank has not yet bought Spanish government debt.

Credit default swaps for sovereign debt jumped 11 basis points on Portugal and 26.5 basis points for Ireland.

There is a domino theory that if Portugal is the next nation to be bailed out and saved from sovereign debt, Spain will assuredly also go south. Spain is a much larger economy. Ireland & Greece have already taken bail outs. It is assumed Portugal is next in the domino falling list. Contagion is also assumed when it gets to Spain. Contagion means the PIGS sovereign debt crisis will affect the United States and other nations outside of Europe.

Not ready for prime time: Some ideas on the relationship between gold and depressions

Barry Eichengreen and Kevin H. O’Rourke have been updating us on the progress of this depression by comparing it to the big one, The Great Depression. Their original post, in April 6, 2009, captivated their audience.

One thing that struck me was that we might compare the two events to the totally overlooked depression of the 1970s – The Great Stagflation. The reason why this one is missing and, perhaps, lost from official economic history is that it did not look anything like how we expect a depression to look – at least by the accepted, albeit vague, standard of what constitutes a depression. For instance, as shown in the graph below, year over year Gross Domestic Product enjoyed an unbroken expansion during the entire period.


USGDPYOY - 1970-1980.jpg

Chart 1 (Source: Bureau of Economic Analysis)

Compare this performance to the contraction of GDP during the Great Depression



Chart 2 (Source: Bureau of Economic Analysis)


U.S. Mint runs out

Yesterday there were two headlines of interest. One of which was about gold.

(Reuters) - The U.S. mint sold 190,000 1-ounce American Eagle gold coins in May, the largest number since January 1999, and the most in any month so far in 2010, according to a spokesman for the U.S. agency.

The other news article was about silver.

The United States Mint’s bullion 2010 American Silver Eagles posted their best May and second best sales month in history, according to the most recent figures available from the Mint.
In just the one month, buyers purchased an astonishing 3,636,500 of the one ounce .999 fine silver coins. This number smashes the old May record of 1,904,500 set last year.
May 2010 sales fell short of the best month ever by only 59,500.

So with all that gold and silver leaving the mint, I guess today's bulletins aren't really all that surprising.

Gold hits new record on Euro fallout

The price of gold surpassed its 2009 peak today, hitting an all-time record high of $1,232.50 an ounce. The reason for this is quite simple - Europe is printing nearly $1 Trillion dollar to stem their financial crisis and the markets think all that money will be wasted.
This is leading people to blasphemous conclusions.

“People are in panic mode,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “There is absolute panic over the risk of contagion spreading to other countries in Europe. Yields on Treasuries are so low, people are starting to look to gold as an alternative.”
“This is the beginning of the unraveling of fiat currencies,” said Michael Pento, the chief economist at Delta Global Advisors Inc. in Huntington Beach, California. “Money has to be backed by something. People are beginning to realize that gold is the world’s reserve currency.”

IMF to sell 191.3 tonnes of gold

The IMF is going to sell 191.3 tonnes of gold:

Spot gold XAU= dropped about 1 percent on Thursday after the International Monetary Fund (IMF) said it would sell its remaining gold reserves, but settled in a narrow trading band as the market absorbed the news.

The IMF announced it would begin phased open-market sales of the remaining 191.3 tonnes of gold under a program launched last year to raise new resources for lending. [nN17152668]

Gold was already losing ground early on Thursday and was quoted at $1,114.00 an ounce prior to the IMF statement, which quickly erased a further $8.25 off bullion.

"This wasn't totally unexpected given what the IMF has been saying, but it was still enough to give the market a rattle," a gold dealer in Sydney said.

Spot gold was quoted at $1,108.10 an ounce at 2219 GMT.

U.S. Mint suspends sales of gold coins...again

The gold price may be correcting, but the physical buying has never been higher.

"The United States Mint has depleted its inventory of 2009 American Buffalo One Ounce Gold Bullion Coins. ... No additional inventory will be made available. As additional information becomes available regarding 2010-dated American Buffalo One Once Gold Bullion Coins, you will be notified." So said a memorandum issued Friday to authorized purchasers of U.S. Mint gold coins and reported by Jim Sinclair..