Friday, September 30, 2005


US Dollar Stronger, Except For Canada

Reuters has this end of the week dollar roundup. "The dollar posted solid gains against the yen on Friday in technically-driven trading and eked out an advance against the euro amid end-of-quarter book squaring and a better-than-expected manufacturing report from the Chicago area."

"The Canadian dollar rose to almost a 14-year high against the greenback as momentum players bet on steady economic growth, more interest rate hikes and further investment in Canada's oil patch."

"Dollar/yen rose to a two-month high around 113.68 yen, as the currency pushed through a series of stop-loss levels forcing investors to buy dollars to reduce their losses, traders said. 'It's a technically-driven market with dollar strength rather than yen weakness,' said Bill Hoerter."

"The euro traded at $1.2024 according to Reuters data, down 0.1 percent compared with late Thursday. The euro had hit a two-month low of $1.1976 earlier this week."

"'Given the stronger-than-expected headline number and the rise in the prices paid component, that would reaffirm the measured stance (of rate increases) currently held by the Fed and likely would be supportive for the U.S. dollar over the short run today,' George Davis said. The prospect of higher U.S. interest rates tends to boost the appeal of dollar-denominated deposits to foreign investors."

Thursday, September 29, 2005


Gold And Swiss Franc Decouple

My favorite gold play for years has been the Swiss Franc. But checking the Kitco site this morning, one finds spot gold is up almost 8% the past 30 days and over 15% in the last year. Whereas the Franc has lost 4% in the last month and is almost sideways over the last year. What happened? The Swiss sold much of their gold and have been cutting interest rates in an effort to stimulate the economy. While the US is raising rates.

It looks like the long held belief in the Swiss for financial sure-footing has come to an end.

Monday, September 26, 2005


Has US 'Lost Control' Of It's Budget?

The Independent had this report on a discussion with Fed boss Alan Greenspan. "Bitter disagreements over global economic policy broke out into the open yesterday as the French Finance Minister claimed that Alan Greenspan had admitted America had 'lost control' of its budget."

"In an extraordinary revelation after a meeting between Thierry Breton and Mr Greenspan, M. Breton told reporters: 'We have lost control,' that was his [Mr Greenspan's] expression. 'The US has lost control of their budget at a time when racking up deficits has been authorised without any control [from Congress],' M. Breton said."

"'We were both disappointed that the management of debt is not a political priority today. The situation that is creating tension today on the currency clearly the American deficit.'"

"A clearly irritated senior US Treasury source said: 'Things can get lost in translation.'"

"Speaking at a meeting of the International Institute of Finance, Zhou Xiaochuan, the governor of China's central bank, said people were right to worry about imbalances. 'The US has always run a fiscal imbalance and current account imbalance but in the recent two years we see the magnitude of the deficits is historically high. People start to worry,' he said."

Friday, September 23, 2005


Credit Players Paperwork 'In Disarray'

CNN Money reports on the huge increase in derivatives. "Credit derivatives, complex investments based on the value of corporate bonds, have soared in popularity on Wall Street, sparking regulators to step up their scrutiny of this rapidly growing marketplace."

"One of the most common credit derivatives, a credit default swap, calls for the seller to pay if the underlying bonds get downgraded or if the issuer defaults. The swaps are akin to insurance for investors, and supporters say they help spread and manage risk."

"The credit derivatives market overall was worth about $8.4 trillion last year, and has roughly doubled in each of the last three years."

"'Risk transfer through derivatives is effective only if the parties to whom risk is transferred can perform their contractual obligations,' Federal Reserve Chairman Alan Greenspan said in a speech last spring."

"Last week, the Federal Reserve Board of New York met with several Wall Street firms to discuss its worries that the contracts are not being processed in a timely way, the Fed announced."

"The regulators worry that a series of big corporate defaults, while unlikely, could nevertheless pose substantial risks to financial markets, with ripple effects on interest rates and the broader economy. When General Motors and Ford debt first got cut to junk status last spring, many hedge funds and proprietary trading desks at banks reportedly lost hundreds of millions of dollars."

"Many hedge funds and other investors move so quickly that a big default or downgrade could trigger simultaneous sell signals, causing everyone to head for the exits at once. Another problem is with how trades are settled, Tanya Azarchs said, adding it was troubling to see that back-office operations of many players in credit derivatives markets were in disarray. 'That makes you question whether anything else is wrong as well,' she said."

"Lastly, if trades don't get processed accurately after a default or series of defaults, there could be flood of lawsuits that can become 'really messy and difficult for the court system' if the paperwork is in disarray, she said."


China Demand For US Paper In Doubt

The Chinese are diversifying away from the US dollar. "Treasury prices fell Friday in anticipation China, the second largest foreign holder of U.S. debt behind Japan, could curb its purchases as it took another step toward currency flexibility."

"China may need fewer of the U.S. Treasurys it buys with dollar proceeds from transactions historically used to hold down the value of its yuan. A cheaper yuan, relative to the dollar in particular, makes Chinese goods more competitive. China earlier this year dropped a rigid, decade-long currency peg to the dollar."

"On Friday morning, the benchmark 10-year Treasury note was down 1/4, or $2.50 for each $1,000 in securities at face value, at 100 9/32. The drop in price lifted its yield, a reference for mortgage and corporate borrowing rates, to 4.21% vs. 4.18% Thursday."

"'There is ample upside room for yields rise to 4.3% on top without encountering significant resistance,' said analysts at Ried Thunberg ICAP. The 30-year bond fell 13/32 to 113 11/32, yielding 4.49% vs. 4.46%. The 2-year note was off 3/32 at 100 even, yielding 3.99% vs. 3.94%."

"China said Friday it will widen from 1.5% to 3% the band in which the yuan trades against the euro, yen and the Hong Kong dollar. Some analysts said the move came as China's currency policies are likely to feature at Washington meetings of the Group of Seven largest industrialized nations beginning Friday."

Thursday, September 22, 2005


The True Price Of Gold: Part Three-Silver

Today this blog looks at transaction costs for silver. In this case 100 ounce bars. At the Kitco site, they show silver spot at $7.36 and quote a price for a bar at $806. The web site doesn't say, but lets assume they pay shipping. This could be an issue because these bars are heavy, let me tell you!

So I call a dealer in Phoenix. The lady informs me they are paying $715 for 100 ounces this afternoon. This is more like my experince in the past, being offered under spot for my metals. I can remember that the discount on silver was higher than gold in the 1980's as well. Perhaps this is because silver is more volatile in price.

So there is a $91 dollar difference in the sell-to-buy price today, that is an 11.2% haircut right off the bat. And I am looking at least an hour drive each way, maybe more.

One big drawback to silver is the weight I mentioned before. If you want to invest a few thousand dollars, it will take up a lot of space and you will need a heavy duty carry-case. That said, I profited more from silver in the past because it does move more in price. Don't let the past year or two fool you; gold and silver can trade sideways for months and years.

In the next part of this series, I will look at gold alternatives, such as e-gold. Please check back often as I intend to post regularly about precious metals, currencies and the markets they trade in.

Wednesday, September 21, 2005


The True Price Of Gold: Part Two

To make this simple, I am choosing to price 1 ounce American Gold Eagles. The Kitco site is showing spot at $470 and some change. I go to the US Mint site and they don't have any available, but show a proof price of $720. So maybe these are in special condition.

I do a search for Eagles on the internet and pick a high ranked site. The pricing schedule has the coins selling for $497.90, if you buy 10, which is the smallest number they deal in. That would come to $4,979, and they pay shipping.

I call a dealer about an hour away. He offers spot for up to 10 Eagles. The difference? About $275, or 5.5% of the nearly $5,000 purchase price. A lot better than back when I originally got into this market, but still kind of expensive compared to brokerage fees, etc.

What the gold market has been doing recently is notable as well. At these levels, gold is near a multi-year high in dollar terms, but not in inflation adjusted numbers. Had one bought a $400 coin in the 1980's it would be selling at a serious loss in real terms. Which brings up a point. Isn't gold supposed to out-pace inflation?

How much would my 10 gold Eagles have to appreciate to break even, assuming that my buyer would still give me spot? Spot gold would have to climb up to $526.87, or over $56 from todays numbers. That's just to break even. This analysis doesn't include the opportunity cost of lost interest that could be earned, which is admittedly low, but still adds a couple of percent to be overcome.

As this series continues, my point is to examine why someone should want to own gold, how much is enough, and what to expect if one needs to sell. It is obvious that as an in and out transaction, there is not a lot to be gained. The best reason to physically own gold is as a sort of insurance policy against financial disruption. And like insurance, having too much is wasteful.

I will continue this series tomorrow with a look at silver. Please check back here during the days to come as I will have more precious metal related news and some currency happenings as well.

Tuesday, September 20, 2005


The True Price Of Gold: Part One

Over the next few days this blog will have a series of posts aimed at exploring what prices gold and other metals actually exchange for. This isn't intended to encourage or discourage owning precious metals; rather to educate myself and readers in the nuts and bolts of how the system works. This will be a learning experience for me as I haven't purchased physical gold or silver for years and I realize many changes have occurred since.

Almost twenty years ago I bought my first gold coins. Actually they were bullion coins; in my case Krugerrands. I also purchased some 100 ounce silver bars. I chose Krugerrands because they were cheaper and therefore closer to the spot price. The reason for the lower price was the problems with the South African state. The price levels then were not that different from today; around $400/oz. for the gold and over $7/oz. for the silver.

Over a short period of time, silver had moved up in price and being the naive speculator that I was, I walked into the retail outlet that I had purchased from with the intention of selling some portion back. I was informed that this firm 'sells metals, and doesn't buy.' Thus began an journey of learning a hard fact; what do the reports of 'spot' prices mean if the average Joe can't find a buyer?

I had paid a premium for the gold of about $50 over spot. (I am confident that the internet has shaved that down today.) Over the next months and years, many of the dealers I approached would only pay $50 less than spot! And if prices had recently jumped higher, they wouldn't neccesarily move with it. Of course when prices fell they were quick to adjust in that direction.

Then there were the distance issues. When I was able to find the best price, it usually involved many hours of driving. Plus it was typical for the buy offer to only be valid for a day or so. You're get the picture; there were plenty of folks that will sell me gold or silver, but unloading it was time consuming and the discounts ate most of the appreciation.

In the next part of this series, I will contact actual buyers and sellers of gold and relate what the prices are today for both. Please check back for what should be an interesting exercise!

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