Economic Calendar

Tuesday, August 23, 2011

Europe Failure With Bank Crisis Returns to Haunt Markets

By Simon Kennedy and Gavin Finch - Aug 23, 2011 6:01 AM GMT+0700

Europe’s Failure to Solve Crisis Returns to Haunt Markets

A euro sign sculpture stands in front of the European Central Bank's (ECB) headquarters in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

Four years to the month since the global credit crisis began, European lenders remain dependent on central bank aid, plaguing markets and economies worldwide.

Emergency steps such as unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent and greasing the lending of others, while low interest rates and debt-buying are containing borrowing costs. Such aid is needed as concerns about slowing economic growth and sovereign debt prompt banks to curb lending, stockpile dollars and hoard cash in safe havens.

“I’m not sleeping at night,” said Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. “We have moved into a new phase of crisis.”

Central bankers rescued financial firms after the collapse of Lehman Brothers Holdings Inc. in 2008 by providing limitless funding of as long as a year. While they treated the symptom --a lack of ready cash -- politicians, regulators and bankers in Europe have proved unable to cure the root cause: some European lenders are at growing risk of insolvency.

The tremors, the biggest since Lehman’s collapse, were triggered by European governments’ continuing inability to stop the sovereign debt crisis from spreading beyond Greece, Portugal and Ireland to question the Italy and Spain. Renewed signs of economic weakness globally and the downgrading of U.S. debt by Standard & Poor’s rekindled concern about the quality of all government debt.

Bank Stocks Tumble

The signs of distress are widespread and mounting: Banks deposited 105.9 billion euros ($152 billion) with the ECB overnight on Aug. 19, almost three times this year’s average, rather than lending the money to other lenders. The premium European banks pay to borrow in dollars through the swaps market increased yesterday for a fourth straight day.

European bank stocks have sunk 22 percent this month, led by Royal Bank of Scotland Group Plc (RBS) and Societe Generale (GLE) SA. Edinburgh-based RBS, Britain’s biggest government-controlled lender, has tumbled 45 percent, and Paris-based Societe Generale, France’s second-largest bank, dropped 39 percent.

The extra yield investors demand to buy bank bonds instead of benchmark government debt surged to 298 basis points on Aug. 19, or 2.98 percentage points, the highest since July 2009, data compiled by Bank of America Merrill Lynch show. The cost of insuring that debt against default surged to a record yesterday. The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers rose to 250 basis points, compared with 149 when Lehman collapsed.

Greek Default Concern

It was the specter of government debt turning toxic that has revived the liquidity crisis policy makers had tried to stop in 2008. As speculation grew that European banks would have to write down their holdings of more governments’ debt after a Greek default, lenders pulled funding to those banks that held the most peripheral debt. It also raised concern European governments would struggle to afford a further bail out of their banks, because both the state and the lenders had failed to reduce their borrowings since the onset of the crisis.

“The debt has been transferred from the banks to the sovereign, but it hasn’t actually been eradicated,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool. “Until the sovereigns get their balance sheets in order, then these concerns are going to remain.”

Funding markets have seized up as investors speculate that sovereign debt writedowns are inevitable. Banks in the region hold 98.2 billion euros of Greek sovereign debt, 317 billion euros of Italian government debt and about 280 billion euros of Spanish bonds, according to European Banking Authority data.


The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, was at 0.67 percentage point on Aug. 22, within 3 basis points of the widest spread since May 2009.

“The central bank is the only clearer left to settle funds between banks,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG (CBK) in Frankfurt. “There is a mistrust between banks in general, between regions and with dollar providers overall.”

Overseas banks operating in the U.S. may have cut dollar holdings by as much as $300 billion in the past four weeks as European banks faced a squeeze on funding and sought dollars, Jens Nordvig, a managing director of currency research at Nomura Holdings Inc. in New York said Aug. 18. Dollar assets declined by about 38 percent to $550 billion in the period, he said.

‘More Nervous’

“Banks are becoming more nervous about being exposed to other banks as they hoard liquidity and become more suspicious of other banks’ balance sheets,” Guillaume Tiberghien, analyst at Exane BNP Paribas (BNP), wrote in a note to clients on Aug. 19.

By contrast, banks in the U.S. are “flush” with liquidity, loan loss reserves and capital, Goldman Sachs Group Inc. analyst Richard Ramsden wrote in an Aug. 6 report. Large commercial banks combined holdings of cash and securities at large have climbed to 30 percent of managed assets, up from 22 percent at the start of the U.S. financial crisis in October 2007, Ramsden wrote, citing Federal Reserve data.

The Federal Reserve, which provided as much as $1.2 trillion of loans to banks in December 2008, wound down most of its emergency programs by early 2010. One of the few exceptions was the central-bank liquidity swap lines that provide dollars to the ECB and other central banks so they can in turn auction off the dollars to banks in their own jurisdictions.

Trichet, Bernanke

Banks’ woes are again thrusting central bankers to the fore as ECB President Jean-Claude Trichet joins Fed Chairman Ben S. Bernanke and their counterparts from around the world in traveling this week to Jackson Hole, Wyoming for the Kansas City Fed’s annual policy symposium.

After increasing its benchmark rate twice this year to counter inflation, the ECB this month provided relief for banks by buying Italian and Spanish bonds for the first time, lending unlimited funds for six months, and providing one unnamed bank with dollars to satisfy the first such request since February. In doing so, it’s maintaining a role it began in August 2007 when it injected cash into markets after they began to freeze.

Coming to the rescue isn’t easy for the ECB. Its balance sheet is now 73 percent bigger than in August 2007 and its latest bond-buying opened it to accusations that by rescuing profligate nations it’s breaking a rule of the euro’s founding treaty and undermining its credibility. Policy makers are also divided over the best course of action, with Bundesbank President Jens Weidmann among those opposing the bond program.

Economic Threat

The central bank is acting in part because governments have yet to ratify a plan to extend the scope of a 440-billion euro rescue facility to allow it to buy bonds and inject capital into banks. Markets tumbled last week on concern policy makers aren’t acting fast enough.

The funding difficulties of banks was one reason cited by Morgan Stanley economists Aug. 17 for cutting their forecast for euro-area economic growth this year to 0.5 percent next year, less than half the 1.2 percent previously anticipated. They now expect the ECB to reverse this year’s rate increases, returning its benchmark to 1 percent by the end of next year.

The economic threat is greater in Europe because consumers and companies are more reliant on banks for funding than their U.S. counterparts, said Tobias Blattner, a former ECB economist now at Daiwa Capital Markets Europe in London. He says the ECB should eventually try to hand over fire-fighting duties either to governments, who would then inject capital into financial firms, or national central banks, who could provide short-term loans to lenders.

Longer-term solutions may involve the restructuring the debt of cash-strapped nations in a way that doesn’t roil bank balance sheets, potentially in lockstep with a European version of the U.S.’s Troubled Asset Relief Program.

Lena Komileva, Group-of-10 strategy head at Brown Brothers Harriman & Co. in London, said the central bank may have no option but to extend the backstop role it is playing for periphery banks to lenders elsewhere. Refusal to do so would risk a European bank default by the end of the year, she said.

“Markets are back in uncharted territory,” said Komileva. “The crisis is a whole new story now.”

To contact the reporter on this story: Simon Kennedy in London at; Gavin Finch in London at

To contact the editors responsible for this story: Edward Evans at Craig Stirling at


U.S Stock Futures Rise on Fed Stimulus Speculation, China Manufacturing

By Nick Gentle - Aug 23, 2011 1:57 PM GMT+0700

Futures on the Standard & Poor’s 500 Index rose, signaling the U.S. equity gauge will open higher, on speculation the Federal Reserve will act to prop up the faltering economic recovery and as a contraction in Chinese manufacturing activity eased.

Futures on the S&P 500 expiring in September climbed 1.4 percent to 1,138.6 at 2:52 p.m. in Hong Kong. The contract swung between gains and losses before the release of a preliminary China purchasing-managers index compiled by HSBC Holdings Plc and Markit Economics. The S&P 500 closed little changed at 1,123.82 yesterday. Futures on the Dow Jones Industrial Average increased 1.2 percent to 10,977.

Most U.S. stocks fell yesterday as declines by Goldman Sachs Group Inc. during the last 15 minutes of trade erased an intraday advance on hopes Fed Chairman Ben S. Bernanke will unveil new stimulus measures as soon as this weekend. The S&P 500 fell 16 percent from July 22 through the end of last week and its members trade at an average 11.3 times estimated earnings, near the lowest level since March 2009.

“Investors are hoping the Fed will show its commitment to supporting growth,” said Nader Naeimi, a Sydney-based strategist for AMP Capital Investors Ltd., which manages almost $100 billion. “There’s a real risk of disappointment if some sort of strong commitment doesn’t appear. Still, corporate health looks good, sentiment has moved to pessimistic extremes, and valuations are very attractive, so we could be in for a strong, tradable short-term rally.”

Jackson Hole

A four-week global equity rout has wiped about $8 trillion from companies’ market value as Europe’s sovereign debt-crisis and worsening economic reports in the U.S. raised concern the global economic recovery is faltering. Central bankers from around the world converge on Jackson Hole, Wyoming, this week for a conference that last year resulted in Bernanke signaling a second round of Fed asset purchases that buoyed asset markets.

Investor sentiment was also bolstered today after HSBC and Markit Economics reported a preliminary reading of 49.8 for its Chinese purchasing-managers index in August, compared with last month’s final reading of 49.3. The final August number is due Sept. 1. A reading below 50 indicates a contraction.

The data suggests that growth in China is moderating rather than collapsing and the slide in the index in July may have been a one-off “blip,” HSBC said.

To contact the reporter on this story: Nick Gentle in Hong Kong at

To contact the editor responsible for this story: Nick Gentle at


Oil Rises a Second Day on U.S. Fuel Demand, Libya Crude Production Outlook

By Ben Sharples - Aug 23, 2011 1:35 PM GMT+0700

Oil advanced for a second day in New York as investors bet U.S. fuel demand may rebound and a recovery in Libyan crude output will take longer than expected.

Futures climbed as much as 1.2 percent before a government report tomorrow that may show U.S. gasoline inventories shrank last week while crude stockpiles rose. Prices also gained after a manufacturing gauge improved in China, the world’s biggest energy user. London-traded Brent rebounded, after dropping as much as 3.2 percent yesterday as Libyan rebels entered Tripoli.

“The market got a little ahead of itself in terms of thinking that the Libyan conflict might be all over in a week,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who predicts New York crude will average $115 a barrel this year. For West Texas Intermediate, the main grade traded in New York, “it still obviously has a focus on what’s happening in the U.S. in terms of petroleum demand.”

Crude for October delivery climbed as much as 99 cents to $85.41 a barrel in electronic trading on the New York Mercantile Exchange, and was at $85.32 at 2:32 p.m. Singapore time. The contract earlier fell as much as 0.4 percent. It gained 2.4 percent yesterday.

Brent oil for October settlement was at $109 a barrel, up 64 cents, on the London-based ICE Futures Europe exchange, after closing 0.2 percent lower yesterday. The European benchmark contract was at a premium of $23.63 to U.S. West Texas Intermediate crude futures compared with a record of $26.21 on Aug. 19.

Fuel Supplies

An Energy Department report tomorrow may show gasoline stockpiles declined 1 million barrels from 210 million barrels in the seven days ended Aug. 19, according to a Bloomberg News survey of analysts. Crude inventories probably increased a second week by 1.5 million barrels, the survey shows. The industry-funded American Petroleum Institute will report its own data today.

“Energy prices are expected to hold in a mixed direction today before tomorrow’s data potentially offer some support,” Tom Pawlicki, a Chicago-based analyst at MF Global Holdings Ltd., said in a note. “The question for Brent crude, as well as the Brent-WTI spread, will be exactly when Libyan oil output is restored and to what capacity.”

Libya Revolt

Brent dropped yesterday, narrowing its record premium above U.S. futures by the most in five weeks amid speculation that an end to Muammar Qaddafi’s rule will lead to a recovery in the nation’s crude production. Rebel fighters hunted for the leader and declared his regime over as the dictator’s forces kept up their fight in parts of Tripoli, the capital now mostly in rebel hands.

The Libyan revolt, which began in February, has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 100,000 barrels a day last month, a Bloomberg News survey showed. That’s less than 10 percent of the 1.6 million barrels the nation pumped in January, before the uprising.

Repairing damaged infrastructure and well heads at oil fields will take “several months and perhaps longer than a year,” Barclays Plc’s analysts, Helima Croft and Amrita Sen, said in a report e-mailed today. “Indeed, while the advancement of the rebels into Tripoli may have raised the specter of a speedy reincorporation of Libyan oil into the world market, we remain doubtful whether this will occur.”

It may take until 2012 before oil exports resume if the government falls, Emmanuel Fages, an energy analyst with Societe Generale SA in Paris, said yesterday. Goldman Sachs Group Inc. said resuming shut production will be “challenging,” according to an Aug. 22 report.

Front-month U.S. crude futures are 16 percent higher the past year. Prices also gained today amid speculation oil demand growth in China, the world’s second-biggest consumer, may accelerate. A preliminary reading of 49.8 for a manufacturing index released by HSBC Holdings Plc and Markit Economics today compares with a final reading of 49.3 for July.

To contact the reporter on this story: Ben Sharples in Melbourne at

To contact the editor responsible for this story: Alexander Kwiatkowski at


Australian, New Zealand Currencies Gain After China Manufacturing Report

By Masaki Kondo and Mariko Ishikawa - Aug 23, 2011 2:26 PM GMT+0700

The Australian and New Zealand dollars appreciated versus most of their major peers after a private report showed China’s manufacturing shrank at a slower pace this month, easing concern that the global economy is losing momentum.

The so-called Aussie gained for a third day against the U.S. currency as Asian stocks climbed, supporting demand for higher-yielding assets. The New Zealand dollar rose after a central bank report showed corporate executives’ outlook for economic growth even as their expectations for inflation have fallen.

“The data flow across the globe has been quite weak recently, so even a secondary indicator like this that comes out stronger than expected can have some impact” on the Australian and New Zealand dollars, Todd Elmer, head of Group-of-10 currency strategy for Asia ex-Japan at Citigroup Inc. in Singapore, said of the China manufacturing report.

Australia’s dollar advanced to $1.0486 as of 5:23 p.m. in Sydney from $1.0409 in New York yesterday, after falling as low as $1.0387. It bought 80.45 yen from 79.93 yen. New Zealand’s currency traded at 83.20 U.S. cents from 82.42 and rose to 63.83 yen from 63.29 yen.

The MSCI Asia Pacific Index of regional shares jumped 1.9 percent, set for its first advance in four days.

China Manufacturing

A preliminary gauge of China manufacturing in August was 49.8, according to a reading of the Purchasing Managers’ Index reported by HSBC Holdings Plc and Markit Economics today. That compares with a final reading for July of 49.3. A number below 50 indicates contraction.

“By the June meeting, signs were emerging that economic growth in many developed economies had lost some momentum,” Ric Battellino, Reserve Bank of Australia’s deputy governor, said today according to the text of a speech. “Growth in China and most other parts of Asia, however, remained a bright spot.”

New Zealand company executives see inflation averaging 2.9 percent in a year’s time, compared with a prior estimate of 3.1 percent, a quarterly report from the Reserve Bank of New Zealand showed today. Gross domestic product is projected to grow 2.9 percent in one year, up from 2.1 percent in the previous survey.

“Though inflation expectations are weaker, GDP outlook actually rises, so this isn’t a selling catalyst for the kiwi,” said Takuya Kawabata, a researcher in Tokyo at Research Institute Ltd., a unit of Japan’s largest foreign- exchange margin company. “The bias for the Reserve Bank’s move is an increase rather than a cut in interest rates.”

The one-year overnight-index swap rate, an indication of what traders expect the central bank’s key interest rate will average during the period, was at 2.8 percent today, compared with the official cash rate of 2.5 percent.

To contact the reporters on this story: Masaki Kondo in Singapore at; Mariko Ishikawa in Tokyo at

To contact the editor responsible for this story: Rocky Swift at


Douglas Peterson to Become President of S&P

Standard & Poor’s Future President Douglas Peterson

Standard & Poor’s future president Douglas Peterson. Photographer: Haruyoshi Yamaguchi/ Bloomberg

By Katrina Nicholas and John Detrixhe
Aug 23, 2011 12:07 PM GMT+0700

Standard & Poor’s, the ratings company that downgraded the U.S. AAA credit ranking for the first time, will replace President Deven Sharma with Citibank NA Chief Operating Officer Douglas Peterson.

Sharma, 55, will leave at the end of the year to “pursue other opportunities,” S&P’s parent McGraw-Hill Cos. said in an e-mailed statement. Peterson, 53, will take over Sept. 12 and Sharma will work on the company’s strategic review.

S&P’s Aug. 5 decision to reduce the U.S. credit rating to AA+ roiled global markets and boosted demand for Treasuries, sending the yield on the 10-year note, the benchmark for home mortgages and car loans, to a record low 2.03 percent. The New York-based company, which was blamed in an April Senate report for helping fuel the credit crisis, was criticized by the world’s most successful investor, Warren Buffett, who said the U.S. should be “quadruple-A.” The cut conflicted with Moody’s Investors Service and Fitch Ratings, which kept AAA grades.

“It looks like he’s being helped out the door,” Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York, said in a phone interview. “If it was a planned retirement, it should have been handled in a different way.”

Peterson, Sharma

Peterson was approached by McGraw-Hill in March, a person with direct knowledge of the talks said. He was chief executive officer of Citigroup Japan from 2004 to 2010 and was hired by the New York-based investment bank out of business school 26 years ago, according to an internal memo outlining his departure, whose contents were confirmed by Shannon Bell, a Citigroup spokeswoman in New York.

Peterson, who has an undergraduate degree in mathematics and history from Claremont McKenna College and a MBA from the Wharton School at the University of Pennsylvania, began his career in Argentina as a corporate banker and became Citigroup’s country manager in Costa Rica and then Uruguay, according to the memo.

Sharma, who joined S&P in 2007 as the global credit crisis was unfolding, will exit as McGraw-Hill faces mounting pressure from some of its shareholders to separate into four units. Jana Partners LLC and Ontario Teachers’ Pension Plan, which together own a 5.2 percent stake, presented a plan Aug. 22 to split the group, saying it has “consistently underperformed its potential” and is trading at “a sizable discount.”

Company Split

Since Aug. 5, the day of the downgrade, McGraw-Hill’s shares have lost 11 percent compared with a decrease of 6.3 percent for the S&P 500 Index (SPX), according to data compiled by Bloomberg. McGraw-Hill’s stock rose 0.1 percent to $37.04 yesterday.

Chief Executive Officer Terry McGraw said last month the company is conducting a strategic portfolio review after announcing in June plans to sell its broadcasting group. Sharma will work on the review until December.

In November, S&P was divided between McGraw-Hill Financial and the credit rating service. After the split, Sharma is “ready for new challenges,” according to the statement.

Sharma holds a bachelor’s degree from the Birla Institute of Technology in India, a master’s degree from the University of Wisconsin and a doctoral degree in business management from Ohio State University. He joined McGraw-Hill in January 2002 from consultants Booz Allen Hamilton, where he was a partner.

He was appointed president in August 2007, one month after S&P started lowering its ratings for hundreds of mortgage-backed securities, acknowledging that notes it originally deemed safe were now worth little.

S&P’s revenue grew 10.4 percent to $1.7 billion in 2010, from $1.54 billion a year earlier, Bloomberg data show.

“Since Sharma came in, he has done little to enhance the credibility or reputation of the ratings agency,” Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., said by phone. “Given the recent downgrades, it appears their operational management and ratings modeling have not been meaningfully strengthened.”

To contact the reporters on this story: Katrina Nicholas in Singapore on; John Detrixhe in New York at

To contact the editor responsible for this story: Shelley Smith in Hong Kong at


Gold climbs to record above $1,910 on growth fears

SINGAPORE | Tue Aug 23, 2011 3:03am EDT

(Reuters) - Spot gold soared to an all-time high above $1,910 on Tuesday, scoring a record top for a fourth consecutive session, as persistent worries about global economic growth burnished bullion's safe-haven appeal.

The precious metal was headed for a seventh straight session of rise and a monthly gain of more than 16 percent, highest since September 1999.

Spot gold gained 0.8 percent to strike an unprecedented $1,911.46 an ounce, before easing to trade flat at $1,897.05 by 2:26 a.m. EDT.

U.S. gold rose 1.4 percent to a record high of $1,917.90, and retraced to $1,900.80.

Investors are waiting for flash purchasing managers' index (PMI) data for Germany, France and the euro zone later in the day, with a weak number likely to exacerbate fears about bailing out the bloc's indebted peripheral states.

"We are not hearing much good news out of Europe or the United States," said Darren Heathcote, head of trading at Investec Australia.

"The picture looks pretty bleak in the short term... For the time being investors are happy looking at gold as safe haven in these troubled times, and will continue to do so until we see something positive and sustainable."

On the chart, gold has been in the overbought territory since early August, with the Relative Strength Index hovering about 83.

Technical analysis suggested gold could pull back to $1,860 during the day, said Reuters market analyst Wang Tao.


The Shanghai Gold Exchanges said it will raise trading margins on three of its gold spot deferred contracts to 12 percent from 11 percent starting August 26, and widen the daily trading limits to 9 percent from 7 percent.

Shanghai gold T+D contract fell less than 2 yuan from a high of 391.85 yuan per gram at the news, but has since stabilized around 391 yuan, or $1,900.02 an ounce.

Traders are eyeing potential hikes in U.S. gold futures margins. They were last raised on August 11 by 22 percent, triggering a correction in gold prices.

But concerns about the world's economic growth soon offset the impact of the margin hike, and gold embarked on another leg of record-setting rally just a week later.

"Everyone says that gold has been rising too fast, beware, beware, beware!" said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong. "But there is no sign of gold prices turning to point south."

Leung said scrap selling was minimal and sellers are waiting for higher prices, while investors continued to show buying interest.

Market participants are eyeing an annual central bank conference in Jackson Hole, Wyoming, where the U.S. Federal Reserve Chairman Ben Bernanke is scheduled to speak on Friday.

Spot silver rose to $44.14, its strongest since early May, tracking gold's strength. It was later trading at $43.44, down 0.7 percent from the previous close.

Spot platinum hit a three-year high at $1,912 an ounce, before easing to $1,904.24.

In other news, China's flash Purchasing Managers' Index, designed to preview the country's factory output before official data, edged up to 49.8 in August, from July's final reading of 49.3.

That leaves the index a touch under the 50-point mark that demarcates expansion from contraction in activity. HSBC publishes its final China PMI index for August on Sept 1.

(Editing by Himani Sarkar)


Markets Look Ahead To Fed's Jackson Hole Meeting

22 August 2011, 3:45 p.m.

By Debbie Carlson
Of Kitco News

(Kitco News) -The Federal Reserve will hold its annual symposium in Jackson Hole, Wyo., at the end of this week and all eyes will be on Federal Reserve Chairman Ben Bernanke when he addresses the group on Friday.

It was at last year’s meeting that Bernanke hinted the Fed would start another round of asset purchases to stimulate the economy. In November the Fed said it would buy $600 billion in bonds in a program that ended in June, dubbed a second quantitative easing.

Now with concerns that economic growth is slowing in the U.S. market watchers are

debating whether or not the Fed will try another method to stimulate the economy. This comes on the heels of a downgrade of the U.S. debt outlook by Standard & Poor’s which caused an already weak stock market to accelerate losses and sent gold to record levels.

“It’s definitely caught everyone’s attention. The feeling is that they (policy makers) know they have to do something,” said Mike Daly, gold and silver specialist at PFGBest.

According to a Bloomberg News story, the bond market is already pricing in that the Fed will announce new bond purchases of $500 billion to $600 billion.

A new stimulus program would give gold prices more room to rise, Daly said. “Printing money is always supportive for gold,” he said.

The markets will turn to Bernanke for guidance, said Ross Norman, chief executive officer at London-based gold dealer Sharps Pixley.

“In Jackson Hole, the market seems to be reaching for some sort of long-term plan, something that will alleviate the situation, but stir growth. Right now there have just been palliatives, such banning short-selling in Europe, the CME raising margins on gold,” he said.

What’s needed are jobs. “Not just any jobs, but economically useful jobs that will help North America get back on its feet,” Norman said.

Market participants wonder what the Fed could do to stimulate the economy further since they seem to have run out of options. Interest rates are already at rock-bottom and on Aug. 9 at the latest Federal Open Market Committee meeting, the Fed said it would leave interest rates low until mid-2013. Further, two rounds of stimulus have not had the desired effect of stabilizing the economy and producing jobs.

Shawn Hackett, president, Hackett Financial Advisors, said there are still some avenues left open. The Fed hinted that there are other instruments in their “tool box” to use, although they have stayed quiet on those devices.

Hackett said one of those methods would be for the Fed to do a reverse repurchase agreement, often called a “reverse repo.” A reverse repo is a purchase of securities with an agreement to resell them at a higher price at a specific time in the future.

The idea behind the reverse repo would be to get banks to lend, something the two quantitative easing programs did not do, he said. Banks have $1.8 trillion deposited with the Federal Reserve in its non-borrowed reserves. Non-borrowed reserves can be leveraged 10:1 which would allow the extension of bank credit by up to $18 trillion without printing any more money, Hackett said.

“(This) would launch an even greater asset inflationary boom to hard assets than we have already seen and provide huge opportunities to reenter the long side of commodity markets and commodity related equities. It would appear that the parabolic moves in precious metals this year as well as the huge out performance of overall commodities in relation to stocks is already suggesting that the big money may already be preparing for this massive reverse repo bank credit expansion policy,” Hackett said.

Some market watchers said it’s possible that Bernanke might only reiterate what was said recently.

Carlos Sanchez, associate director of research with CPM Group, noted that the Fed’s decision Aug. 9 to put a timestamp on how long they will hold rates at near-zero was a change from previous comments. “That in itself was a very strong signal. I don’t know if the Fed will be so quick to act with another policy tool to help stimulate economic activity – it takes time to trickle through the larger economy,” he said.

CPM Group’s Sanchez and Brown Brothers Harriman analysts both said the U.S. economy is in a different spot than it was last year. In 2010, deflation was a significant concern and that is not as much of an issue now, especially after last week’s consumer price index showed a rise to 0.5% in July.

Sanchez said that unemployment last year was rising and now it is stable. “While the economy isn’t great, is hasn’t worsened,” he said.

BBH analysts said even if there is no stimulus planned, that doesn’t mean the current risk-off trading atmosphere is over.

“All told, with the Fed unlikely to announce a dramatic policy shift this week we suspect that market sentiment is likely to remain negative and thus expect safe havens to remain in demand,” they said.

Gold has been a favorite safe haven for nervous investors.

Sanchez said some precious metals traders could wait to see how this week plays out before coming back into the market. Gold’s recent move to near $1,900 an ounce is more technical-chart driven than based on fundamentals.

That could leave it vulnerable to a break – PFGBest’s Daly called buying gold up here “scary.”

If gold can rally above $1,900 it could quickly move to $2,000, Sanchez said, but a move under $1,860 could led to a break of$50 to $100.

Norman, of Sharps Pixley, agreed that gold is overpriced at current levels based on fundamental factors. He said a break could come - and the Jackson Hole symposium might be the peg, depending on what is said.

If gold breaks, he said a move of $50-$60 is feasible, but he didn’t think it would fall much further because of strong demand.

“It’s clearly underpinned – there’s buying at each dip. We don’t know who, some of it comes out of Asia, it might be central banks, but we don’t know. Look at how gold behaves during adverse conditions,” he said, adding that the quick rebounds are the sign of a strong market.

By Debbie Carlson of Kitco News