The ICE dollar index DXY +0.12% , which measures the U.S. unit against a basket of six currencies, traded at 80.296 from 80.159 late Thursday — its longest winning streak since an 11-day run in August 2008, as the U.S. credit crisis heated up.

The euro EURUSD -0.07% also swung between slight positive and negative territory, lately buying $1.2920, down from $1.2943 in late North American trading Thursday.

For the week, the euro has lost 1.3%, finally breaking below $1.30 for the first time since January.

The dollar index has advanced for a second week, by 1%, as elections last weekend in France and Greece stirred worries that Europeans are becoming tired with the austerity measures forced upon them to address sovereign debt problems.

“Last weekend’s elections were finally the catalyst that pushed the euro dollar out of its range,” said John Doyle, director of markets at Tempus Consulting. “We saw a wave of anti-austerity sentiment and have to ask how is that going to affect other southern European countries.”

Spanish 10-year yields ES:10YR_ESP 0.00%  also touched 6% this week and European economic data showed countries struggling to grow.

“Things are still rosier on this side of the pond,” Doyle said. “We’re bullish on the dollar medium-term, but it’s going to take a while.”

A positive U.S. economic report Friday feeds into that longer-term lean toward the dollar.

The University of Michigan-Thomson Reuters consumer sentiment index climbed to 77.8 in May, up from 76.4 in April, above the 76.0 expected in a MarketWatch-compiled economist poll. Read about consumer sentiment.

That briefly turned U.S. stocks higher, but the S&P 500 Index SPX -0.34%   turned down 0.3% by just before the close of trading.

Investors’ appetite for risk took a hit starting late Thursday after J.P. Morgan JPM -9.28%  announced that it faced a loss of roughly $2 billion on trading in credit derivatives. Read story on J.P. Morgan.

The euro had little immediate reaction to the Spanish government’s announcement of reforms for its banking sector that include raising loss provisions on loan portfolios, according to reports.

May 11, AM

Gold extended to new 4-month lows in overseas trading on Friday, as risk aversion associated with last weekend’s elections in Europe persists. As we noted earlier in the week, this seems counter-intuitive to many, as the absence of counter-party risk actually makes physical gold one of the safest asset an investor can own. However, the proliferation of gold derivatives in recent years has resulted in paper driving at least the initial moves in risk-off scenarios.

If you missed Extraordinary popular delusions and the madness of machines, posted by USAGOLD’s President, Michael J. Kosares on Wednesday, I encourage your to take a moment and read it now.

The paper selling drives the price of gold down to a level where the physical buyers step back in to support the market. We’ve seen this pattern repeat itself many times during the course of the decade-long rally in gold.

As the week wraps up, gold remains below $1600, in the lower fifth of the 1920.50/1522.40 range that has prevailed since December. However, I believe the underlying trend remains unquestionably bullish, as the fundamentals that drove gold from $300 an ounce to more than $1900 an ounce are still very much in place. In fact, the latest deterioration of the fundamentals in Europe suggests to me that there will indeed need to be a policy response of some sort — and likely here in the US as well — which will set the stage for that dominant uptrend in gold to re-exert itself.

With regard to the likelihood of a European policy response, we saw a rather startling shift in the tenor of both the Bundesbank and the German Finance Ministry this week. Both have historically been staunchly opposed to anything that might trigger inflation in Germany. Suddenly they have become much more dovish and willing to “tolerate” above target inflation. I think that is reflective of just how dire the situation in Europe has become. One has to imagine, that with the door open, the policy that will stoke this higher rate of inflation can’t be far behind…and that will likely have a positive impact on gold.

It seems that the latest attempt to form a coalition government in Greece is on the verge of failure, making new elections next month increasingly likely. The latest polling within Greece suggests that if that were to happen today, the anti-austerity Syriza party would garner even greater support. If the market didn’t like the results of last weekend’s election, they’re probably not going to like the results of the next one any better…and possibly quite a bit less.

Peter Grant is USAGOLD’s resident economist and a well-known analyst globally in the forex and precious metals markets.

* Euro zone governments agree on 5.2 bln euros bailout
payment
    * Spot silver oversold, RSI at seven-month low below 29
    * Shanghai silver futures debut with lower prices, high
volume
    * Coming up: U.S. jobless claims, weekly; 1230 GMT

 (Adds details, comments; Updates prices)
    By Rujun Shen
    SINGAPORE, May 10 (Reuters) - Gold edged up on Thursday,
snapping three straight days of losses, as fears about Greece's
insolvency eased after euro zone nations agreed on bailout
payment to Athens, but the political crisis and Spain's banking
trouble keep sentiment brittle.
    Gold, though traditionally seen as a safe haven, fell victim
to a wave of sell-offs across risk assets in the past few days,
as the political turmoil in Greece threatens insolvency and an
exit from the euro zone just months after Athens secured the
latest round of bailout deal with international lenders.

    To the relief of investors, euro zone governments managed to
reach an agreement to pay Athens 5.2 billion euros out of the
region's bailout fund to keep Greece afloat.
    Spot gold inched up 0.2 percent to $1,593.41 an
ounce, off a four-month low of $1,579.30 hit in the previous
session. U.S. gold was little changed at $1,593.60.
    The Relative Strength Index (RSI) on spot gold hovered above
30, a threshold below which the underlying asset is seen to be
oversold.
    "There are not many good reasons to sell gold or other
precious metals," said Yuichi Ikemizu, head of commodity
trading, Japan, at Standard Bank. "It is risk-off selling in
everything but dollar and yen."
    The euro inched up, pulling away from a 3-1/2-month low hit
in the previous session, as German bond yields edged higher,
while investors focus on Spanish yields after Madrid took over
the country's fourth biggest bank Bankia in an effort to clean
up its banking sector.
    The physical gold market has seen some buying interest but
purchases from the main players such as India was subdued, even
after prices fell more than 3 percent in the past two days.
    "The physical market is relatively quiet even as prices are
lower, some of which may have to do with foreign exchange -- the
rupee is relatively soft," said a Singapore-based trader.
    "Some key parts of the physical market are only at a
fraction of what they were last year."	

    SHANGHAI SILVER FUTURES DEBUT
    The Shanghai Futures Exchange launched silver futures
trading earlier in the day, which attracted massive interest
from investors, although price performance was short of
expectations.
    The most-active contract for September delivery lost
0.7 percent from the basis price set by the exchange to 6,122
yuan per kilogram ($30.18 an ounce).
    The spot deferred silver contract on the Shanghai Gold
Exchange stood at 6,172 yuan.
    "A lot of people had expected a high premium at the opening,
eyeing arbitrage opportunities against spot prices, but the
overall market sentiment is still weak and that's why prices are
easing," said Chen Jiajie, an analyst at Orient Futures based in
Shanghai.
    Spot silver edged up 0.2 percent to $29.28 an ounce,
off a four-month low of $28.60 hit in the previous session. The
RSI reading fell below 29 earlier in the day, its lowest in more
than seven months.
    The total trading volume on the eight contracts <0#SAG:>
exceeded 300,000 lots -- the second most-active contract on the
exchange after copper.
    The exchange double-counts the trading volumes.
    Investor interest in the product may last if the market can
sustain liquidity, but the short trading hours may limit price
volatility and affect appetite in trading,  Chen added.	

  Precious metals prices 0644 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1593.41    2.96   +0.19      1.89
  Spot Silver        29.28    0.06   +0.21      5.74
  Spot Platinum    1502.44   10.66   +0.71      7.86
  Spot Palladium    613.70    4.90   +0.80     -5.95
  COMEX GOLD JUN2  1593.70   -0.50   -0.03      1.72        16485
  COMEX SILVER JUL2  29.28    0.04   +0.13      4.89         4057
  Euro/Dollar       1.2958
  Dollar/Yen         79.70

  COMEX gold and silver contracts show the most active months

 (Editing by Ramya Venugopal)

Market Vectors Gold Miners (NYSEArca: GDX) rallied 3.1% in afternoon trade while its small-cap counterpart Market Vectors Junior Gold Miners (NYSEArca: GDXJ) vaulted 3.4%.

GDX has been in a downward spiral since the beginning of March after hitting resistance at the 200-day simple moving average.

The miner ETF was down 24% for the three months ended May 8, according to Morningstar. It recently dropped to a one-year low. [Gold Miner ETF Falls to New 52-Week Low]

ETFs tracking precious metals and miner stocks have sold off recently while the U.S. dollar has moved higher on the latest Eurozone debt scare. [Gold, Miner ETFs Fall in Risk-Off Trade]

Fed members discuss growth outlook, 2014 commitment, QE3 potential
Euro fundamental issues more prominent than risk trends, but both a concern for the dollar
View our 2012 Forecast for the US Dollar

The Dow Jones FXCM Dollar Index managed to eke out its third consecutive weekly gain through this past Friday. Technically, this is the benchmark currency’s most consistent bull trend since the week ending November 26th, 2010. However, few would argue that this an exceptional run for the greenback nor that it looks like a self-sustaining trend. What’s absent? Conviction. For this index, there is a clear lack of momentum to the move. And, if we look across the majors, it’s obvious that its performance is uneven to the point of being at high risk of a substantial drop. We’ll take a look at the fundamental and sentiment-based factors that will determine the activity level and direction of the dollar for the coming week.

For the world’s most liquid currency, there are two primary fundamental themes that control both throttle and bearing: general risk appetite trends and the perception of the Euro-region’s financial health. While sentiment trends (which determine the general flow of capital in the system) are arguably the more influential catalyst, this particular drive is still lacking for conviction. In contrast, Europe is dominating the headlines and has consequently put the dollar on its back foot by reversing the polarity on EURUSD.

It is a fair assessment to say that the Euro’s trouble with Greece is hardly behind us, but the current outlook for the region’s greatest threat is one of relief. After Greece agreed to adopt additional stimulus requirements and EU ministers signed off on the second bailout program (in principle), the danger of an immediate crisis has been eased. In that relief, there is room for speculators to unwind short exposure and early adopters to position for further appreciation as additional steps are taken to bring the region back from the brink. That said, there is still a high risk that the rebound in confidence stalls in collapse. This weekend, the IMF is expected to reassert its €30 billion contribution to the Greece rescue. Furthermore, the private sector debt swap is ahead of us (requiring a 75 percent voluntary participation) and we shouldn’t discount the possibility that painful growth forecasts will lead officials to scuttle the effort.

And, while we keep an eye on Greek headlines, dollar traders will have to monitor another Euro-centric event: the ECB’s second LTRO (long-term refinancing operation). This is a direct stimulus effort – akin to the Fed’s QE programs and BoE’s bond purchase program. As we have seen many times before, stimulus injections can offer a temporary but powerful boost to risk appetite trends. It may very well be the case that this past week’s rally for European currencies (euro, pound, franc) was heavily influenced by the relief expected to follow the February 29th shot of capital. That said, it is interesting to note that general risk trends (which I like to measure in equity indexes like the S&P 500 and carry trade interest) far underperformed the Euro’s run. This could suggest that rallies for EURUSD, GBPUSD and CHFUSD (the inverse of USDCHF) are overdone. Or perhaps, traders outside of the regional currencies await confirmation.

If it came down to a direct conflict, risk trends would handily overpower euro-based fundamental drive for influence over the greenback. However, it could very well be the case that the Greek and LTRO events determine general risk trends. Yet, heading into the new week, the performance of the two macro themes is still clearly diverging. All it takes is a bout of modest panic to shake these low-volume markets.

As for scheduled event risk on the US-docket, we will have to limit our expectations as to what can be achieved for dollar impact and consistency of influence. Indicators like the consumer confidence survey, durable goods orders numbers and ISM factory activity report offer subtle adjustments to longer-term trends. For policy bearings, we have the Fed Beige Book and Bernanke talking policy. – JK

— Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

The Canadian currency traded within a two-cent range this week as retail sales fell while employment data improved in the U.S., Canada’s biggest trade partner. The nation’s economic growth slowed in the fourth quarter, data next week may show. The loonie, as the currency is called, slid versus the euro on bets an international bailout deal will save Greece from default, easing concern Europe’s debt crisis will worsen.

“No news is good news for the Canadian dollar,” Michael O’ Neill, vice president of foreign-exchange trading at RJOFX Canada, a unit of RJ O’Brien & Associates Inc., said, referring to news headlines on Europe. He spoke yesterday by phone from Toronto. “In the medium term, it’s grinding higher.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, declined 0.3 percent to 99.93 cents per U.S. dollar yesterday in Toronto, from 99.68 cents on Feb. 17. It touched 99.07 cents on Feb. 20, the strongest level since Oct. 28, and depreciated to C$1.0020 on Feb. 20, the weakest since Feb. 16. One Canadian dollar buys $1.0007.

O’Neill recommended buying the Canadian dollar on weakness.
U.S. Household Spending

Canada’s currency weakened even as crude oil, its biggest export, climbed. The loonie fell against 14 of its 16 most- traded peers amid speculation that higher oil prices will crimp American household consumption. That might weaken Canada’s exports, about 75 percent of which go to the U.S.

Crude oil for April delivery gained 5.4 percent to $109.71 a barrel in New York this week and touched $109.95 yesterday, the highest level since May 4.

The Dollar Index (DXY), which IntercontinentalExchange uses to track the greenback against the currencies of six major trading partners, including Canada, fell 1.3 percent this week. It was the biggest decline since January. The South African rand and the Norwegian krone were among the best-performing major currencies. Both countries export commodities.

“The U.S. dollar is generally weak, and that tends to drag the Canadian dollar down on the crosses as well,” said Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada’s RBC Capital Markets unit in London, referring to trades with currencies other than the greenback.

Volatility Drops

Implied volatility for one-month options on the Canadian dollar versus the greenback touched 6.90 percent yesterday, the lowest level on an intraday basis since June 2007. It closed at as high as 15.6 percent in September. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. It averaged about 10 percent over the past decade.

The Standard & Poor’s 500 Index rose 0.3 percent in a second weekly advance, and the MSCI World Index of equities in developed countries increased 0.9 percent in its second straight five-day gain.

The Canadian currency dropped for a seventh day versus the euro, the longest losing streak since April, on bets officials are succeeding in containing the European debt turmoil. Euro- area finance ministers reached agreement Feb. 21 on a 130 billion-euro ($175 billion) aid package for Greece, where the crisis began two years ago. The loonie dropped as much as 0.9 percent to C$1.3454 versus the common currency, the weakest since December.

The currency pair “looks set to test back toward C$1.35 as investors continue to close out euro shorts, perhaps in the misguided assumption that Europe is now saved by recent events,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. A short position is a bet that a currency will depreciate.

Bonds Gain

Most Canadian government bonds rose, pushing benchmark 10- year note yields down two basis points, or 0.02 percentage point, to 2.02 percent. Yields reached 1.837 percent in December, a record low. The 3.25 percent securities due in June 2021 increased 17 cents to C$110.33. Two-year yields were little changed at 1.07 percent before the government auctions C$3.5 billion ($3.5 billion) of the maturity on Feb. 29.

The difference between two- and 10-year government bonds, known as the yield curve, narrowed to 95 basis points yesterday, from 97 a week earlier. It shrank to 92 basis points on Feb. 1, the flattest since September 2008. A flatter yield curve generally indicates a worsening economic outlook.

Losing Year

The loonie weakened 3.2 percent over the past year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The U.S. dollar has lost 1 percent and the euro has fallen 3.4 percent.

Central banks in the U.S., Europe and Japan will probably add further extraordinary stimulus by expanding the size of their balance sheets, which already equal 25 percent of their gross domestic product, Bank of Canada Governor Mark Carney said in a speech he gave yesterday in New York.

Carney will keep his key interest rate at 1 percent through this year to aid the recovery, and the currency will trade at close to parity with the U.S. dollar, according to Bloomberg surveys of economists. Last month, the central bank predicted economic growth of 2 percent this year, with risks from global demand and household spending.

Canadian gross domestic product increased at an annualized 1.8 percent in the fourth quarter of 2011, according to the median of 23 forecasts compiled by Bloomberg. It gained at a 3.5 percent pace from July through September. Statistics Canada will release the data on March 2 in Ottawa.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

That’s allowed the nation to stockpile trillions of Dollars – more money than our entire monetary base totaled before the recent financial crisis.

The way it works is simple to understand. When a Chinese business earns Dollars by selling overseas, the law requires the company to hand those Dollars over to the country’s central bank, the People’s Bank of China (PBOC). In return, the business gets Chinese currency (called either the “Yuan” or the “Renminbi”) at a fixed rate.

There’s nothing fair about this. The Chinese people do all the work, and the Chinese government keeps all of the money. But that’s the way it goes.

At first, the Dollar inflow was small because trade between the two countries was tiny. In 1980, for example, China’s foreign currency reserves stood at approximately $2.5 billion. But since then, the amount of foreign currency reserves held by the Chinese government has gone up nearly every year…and now stands at $3.2 TRILLION. That’s a 127,900% increase. It’s simply astonishing to look at the chart of the increase in currency reserves…

As I mentioned yesterday, the group in China that manages these foreign reserves is called the State Administration of Foreign Exchange (SAFE). This group is engaged in a full-fledged currency war with the United States. The ultimate goal – as the Chinese have publicly stated – is to create a new dominant world currency and dislodge the US Dollar from its current reserve role.

And for the past few years, SAFE has had one big problem: What to do with so much money?

SAFE decided to use most of these reserves to buy US government securities. As a result, the Chinese have now accumulated a massive pile of US government debt. In fact, about two-thirds of China’s reserves remain invested in US Treasury bills, notes, and bonds. The next biggest chunk is in Euro. Of course, all this money is basically earning nothing to speak of in terms of interest…because interest rates around the world are close to zero.

And while the Chinese would love to diversify and ditch a significant portion of their US Dollar holdings, they are essentially stuck. You see, if the Chinese start selling large amounts of their US government bonds, it would push the value of those bonds (and their remaining holdings) way down. It would be like owning 10 houses on the same block in your neighborhood…and deciding to put five of them up for sale at the same time. Imagine how much that would depress the value of all the properties with so much for sale at one time.

One thing China tried to do in recent years was speculate in the US stock market. But that did not go well…The Chinese government bought large amounts of US equities just before the market began to crash in late 2007. It purchased a nearly 10% stake in the Blackstone Group (an investment firm)…and a similar stake in Morgan Stanley. Blackstone’s shares are down about 46% since the middle of 2007, and Morgan Stanley is down about 70% since the Chinese purchase.

The Chinese authorities got burned big time by the US equities markets and received a lot of heat back home. They are not eager to return to the US stock market in a meaningful way. So China’s US Dollar reserves just keep piling up in various forms of fixed income – US Treasury bonds, Fannie and Freddie mortgage bonds, and other forms of debt backed by the US government. These investments are considered totally safe – except that they’re subject to the risk of inflation.

According to a statement by the government: “SAFE will never be a speculator. It mainly seeks to protect the safety of China’s foreign exchange reserves and ensure a stable investment return.”

If the Chinese won’t buy stocks and the only real risk to their existing portfolio is inflation, what do you think they will do to hedge that risk?

They will Buy Gold…lots and lots of gold.

The Chinese are now clearly on a path to accumulate so much gold that one day soon, they will be able to restore the convertibility of their currency into a precious metal…just as they were able to do a century ago when the country was on the silver standard.

The West wasn’t kind to China back then. The country was repeatedly looted and humiliated by Russia, Japan, Britain, and the United States. But today, it is a different story…

Now, China is the fastest-growing country on Earth, with the largest cash reserves on the planet. And as befits a first-rate power, China’s currency is on the path to being backed by gold.

China desperately wants to return to its status as one of the world’s great powers…with one of the world’s great currencies. And China knows that in this day and age – when nearly all governments around the globe are printing massive amounts of currency backed by nothing but an empty promise – it can gain a huge advantage by backing its currency with a precious metal.

As the great financial historian Richard Russell wrote recently: “China wants the Renminbi to be backed with a huge percentage of gold, thereby making the Renminbi the world’s best and most trusted currency.”

I know this will all sound crazy to most folks. But most folks don’t understand gold, or why it represents real, timeless wealth. The Chinese do.

Buying Gold for your own private reserves? Call Altaif Group
Porter Stansberry, 23 Feb ’12

Porter Stansberry is founder and publisher of Stansberry & Associates Investment Research, a private financial publishing company based in Baltimore, Maryland, and editor of the monthly Porter Stansberry’s Investment Advisory.

As we know, gold has been steadily rising since last year and has recently experienced a fall and has stablised out currently. However it appears it may be on the rise again and reaching for a new level.

In actual fact, in the long term, gold has proven over the past 200 years to be very stable. The value of gold as a purchasing power, distinct from the purchase power of the US dollar for example, still remains very much the same or better.

If you look back through history you would find that one ounce of pure gold has hardly changed at all. One ounce of pure gold now still purchases the same as it did 200 years ago. The change in paper currency however, due to manipulation and removing the gold backing from currencies world wide, has been dramatic and can be shown by the consumer price index. What originally
cost 20 dollars in 1800 cost 216.86 dollars in 2005. Yet one ounce of gold still purchases today what it did 200 years ago. In fact it is tending to purchase more.

It is likely that this scenario will continue and over the next 200 years, inflation, recession etc. will continue as more paper money is printed. Yet the value of the pure gold troy ounce will remain the same in terms of purchasing power.

This is a good reason to purchase gold.

The next question is ‘what sort of gold should one buy?’

Out of the possible four types, stocks, exchange traded funds (ETFs), futures and bullion, it is the bullion that will retain its value. Stocks can crash, futures can change wildly and exchange traded funds, although based upon actual stocks, rather like the dollar when it was backed by gold, still has the volatility of trading in a similar way to stocks and futures.

Bullion has a history of remaining stable, whether it be gold bars or gold coins, both have the stability of being actual gol