Money and Metals

Bloomberg reports on a bond market that could spell trouble for the US dollar. "Japan's 10-year government bonds fell for a third year, the longest such stretch since 1990, on signs the world's second-largest economy is nearing an end to deflation."

"Consumer prices rose last month for the second time in seven years, laying the ground for the central bank to change its five year policy of pumping cash into the economy and keeping interest rates at almost zero."

"Benchmark 10-year yields rose 3.5 basis points this year to 1.470 percent, according to Japan Bond Trading Co., the nation's largest debt broker. Yields climbed 57 basis points over the past three years, the biggest jump since a 260 basis-point surge from 1988 to 1990. A basis point is 0.01 percentage point."

"Bank of Japan Governor Toshihiko Fukui on Dec. 8 said his board is 'close' to ending its policy of adding cash into the banking system."

"'Weak U.S. housing data fueled concern of a U.S. economic slowdown, triggering buying of bonds,' said Tsutomu Kawasaki in Tokyo, a fund manager who helps oversee the equivalent of $9.18 billion in Japanese bonds."

Reuters takes a look at prospects for the US dollar in 2006. "After a surprise 2005 in which the dollar rose, against the predictions of many analysts, the U.S. currency is likely to fall in 2006. But exactly when and how hard, they say, will depend largely on how the U.S. interest rate story plays out."

"But while the focus on interest rates isn't expected to change, the story itself is. In 2005, the dollar lifted steadily as the Federal Reserve continued raising short term interest rates in the United States, bringing them to 4.25 percent by the end of the year. Rates in the euro zone and Japan, meanwhile, remained largely stagnant. But in 2006, the key for major currency markets will be the end of the Fed's rate raising cycle, and the degree to which the euro zone and Japan will be raising rates."

"Of course, the consensus could be wrong, just as it was a year ago. At the end of 2004, a vast majority of analysts failed to foresee the dollar rising from its multiyear lows hit in December of that year. Indeed, many had expected the dollar to continue plunging in 2005 due to concerns about funding the U.S. current account deficit."

"Of course, it's a different situation now, particularly because the Fed is broadly expected to stop hiking rates in 2006. In addition, the Bank of Japan is expected to finally start tightening its own policy while the European Central Bank, which raised rates by a quarter-point in 2005 to 2.25 percent, is seen increasing its short-term rates at least two more times, although action beyond that remains a question mark."

"Several banks see the dollar appreciating substantially in the months ahead before retreating sharply in the second half. For example, JP Morgan sees the euro falling to $1.16 by the end of March and $1.15 by midyear, before lifting to $1.25 at year end. A few see a bullish 2006 for the U.S. currency. Credit Suisse First Boston and Bank of Tokyo Mitsubishi are some of the banks forecasting a substantially stronger dollar next year."

"Largely absent from analysts' outlook for 2006, meanwhile are predictions of any extraordinary performance for Asian currencies, particularly the yen. A year ago, expectations were that the yen and other Asian currencies would be the star performers in 2005, based on a belief that a revaluation of the Chinese yuan would take some competitive pressure off Japan and other Asian nations and make them more comfortable with stronger domestic currencies."

"That prediction turned out to be a bust. Indeed, China revalued modestly, but it barely made a dent in yen's sell-off versus the dollar. For 2006, analysts expect China will allow the yuan to continue edging higher under the country's more flexible currency policy. But they are clearly now more cautious about whether that will necessarily translate into a stronger yen."

A reader sent in some gold mining stocks of note. Miramar Mining Corp. had a great day, up over 13%. Cardero Resource was up almost 7% today and has had a nice year. And speaking of annual returns, check out Yamana Gold Inc.

Do you have any gold mining stock tips?

Bloomberg reports on what is driving gold higher. "Gold rose to a two-week high on speculation that central banks, the biggest holders of the precious metal, may buy more bullion to bolster their reserve assets. China should increase its gold holdings to 2,500 tons from 600 tons, said China Galaxy Securities economist Teng Tai. Russia, South Africa, and Argentina also have said this year they would hold more gold. Central banks, mainly in the U.S. and Europe, hold almost a fifth of the world's gold."

"Gold futures for February delivery rose $6.20, or 1.2 percent, to $516.30 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $520.20, the highest since Dec. 14. Gold has jumped 18 percent this year, heading for a fifth straight annual gain."

"Increasing its holdings to 2,500 tons would make China the world's fifth-biggest holder of gold, behind the U.S., Germany, the International Monetary Fund and France. It is currently the 10th largest holder, according to the producer-funded World Gold Council."

"Gold has rallied from a 20-year low of $253.20 an ounce in 1999 partly because 15 central banks in Europe agreed to limit annual bullion sales. Central banks sold 478 metric tons last year, or 23 percent less than in 2003."

"Gold also gained on speculation a cooling housing market may slow the U.S. economy and send the dollar lower. 'The housing market will have an impact if it comes off hard,' said Domenick Nardo, a trader in New York. 'A weak forecast for the economy would be supportive of gold.'"

The Resource Investor looks at an unusual metals market. "In 2002, the United States imported 54% of its needs of rare earth metals. In 2003, that figure rose to 100% and has remained there since. What happened? The two U.S. producers of rare earth metal concentrates were shut down after a private group, which had gotten in 2001-2002 a donation of more than $5 million from a Chinese 'supporter,' raised environmental concerns. Within two years, the Chinese were producing nearly 100% of the world’s supply of cerium and lanthanum, rare earth metals (rems)."

"Of the 100,000 million tonnes of rare earth metals (rems) mined and refined each year, 46% (mainly cerium and lanthanum) are used to produce automotive emissions controls, mostly catalytic converters. The bulk of the rest of the rems produced are used to make permanent magnets mostly used in high efficiency and miniaturized electric motors."

"As of now, in 2005, no American manufacturer can produce a catalytic converter, a miniature electric motor, a high-density magnet, a nickel metal hydride battery or a hybrid vehicle without materials supplied by the Peoples’ Republic of China (PRC). To be more specific, none of these products can be produced without the agreement of Bao Steel to sell the American, manufacturer of the rare earth metals necessary. In the PRC it is Bao Steel that has cornered the mining, refining and manufacturing of the rare earth metals."

"For the immediate future, the only investment play for rare earth metals is Bao Steel and its partners, GM and ENER. If you truly believe that the future holds large numbers of hybrid cars and that catalytic converters will continue to be used to clean the exhaust of the world’s internal combustion engines then Bao Steel is the place to be driving on the greenest acres."

Elliott Wave International has this look at the forex market. "Forex brokerage business has never been better. With the number of new accounts exploding by 500% or more, brokers’ revenues are skyrocketing, too. This enormous boost in forex trading activity may be partially due to fear. Fear of holding U.S. dollars, that is."

"The buck had been on a losing streak since 2000, until exactly one year ago, when in December 2004, it hit an all-time low of $1.36 against the euro. It was around that time when many American investors began waking up to the idea of 'protecting their wealth' through currency diversification."

"Ironically, and typically, the peak of this 'grass-roots interest in other currencies' proved to be the worst possible moment for moving out of U.S. dollar holdings. Ironically, because the dollar’s multi-year slide ended on December 30, 2004, catching even 'most professional currency managers off guard and causing them to lose a lot of money' (Reuters). And typically, because the public usually joins the trend right at market reversals."

"While more 'convenient,' forex trading is by no means risk-free. In fact, risks can be even bigger than in stock trading because currency speculators often use leverage of up to 200 times the value of their cash (compare that to the 1:2 margin typically offered to stock traders.) Plus, the day-to-day volatility, a blessing for the nimble forex players, can be devastating for the less-prepared ones."

"While more 'convenient,' forex trading is by no means risk-free. In fact, risks can be even bigger than in stock trading because currency speculators often use leverage of up to 200 times the value of their cash (compare that to the 1:2 margin typically offered to stock traders.) Plus, the day-to-day volatility, a blessing for the nimble forex players, can be devastating for the less-prepared ones."

"And U.S. based forex speculators are less-prepared. One broker says, 'U.S. [forex] retail investors still don't understand what they are doing compared with overseas investors' (Reuters.) As a result, 'if 15% of day traders are profitable, I'd be surprised,' says another broker (WSJ)."

A long slumbering measure of future volatility, the CBOE VIX index, jumped up by ten percent this morning.

The yield curve finally inverted this morning. "The yield on benchmark 10-year US Treasuries fell below that of 2-year notes, inverting the yield curve for the first time since December 2000. An inverted yield curve has often preceded an economic slowdown, sparking worries that the U.S. economy could lose steam soon and spell trouble for the dollar."

"The yen fell against the dollar and euro on Tuesday in choppy trading as the outlook for a prolonged period of near-zero interest rates in Japan prompted investors to seek higher yields elsewhere. The dollar was up around 0.8 percent at 117.07 yen , bringing its gains this year to more than 14 percent."

"Market participants said the yen could continue to suffer amid zero interest rates. Japanese rates have been stuck around zero for nearly five years. The Fed, in contrast, has repeatedly lifted rates since last year, bringing its fed funds rate to 4.25 percent."

"The European Central Bank raised rates earlier this month to 2.25 percent, its first tightening in five years. Some traders think the yen will see little benefit even if the BOJ raises rates once or twice as there would remain a huge yield gap between Japan and the rest of the world."

"And Market Watch has this on gold. "Gold futures rose Tuesday, pulling the broader metals sector higher, amid forecasts of continued strong physical demand from China, India and the Middle East."

"Gold for February delivery was recently trading up $4.80 at $510 an ounce on the New York Mercantile Exchange. The metal had pulled back to as low as $492.30 last week as traders locked in gains ahead of the year end. Silver futures were last trading up 14 cents at $8.785 an ounce. Platinum was up $3.70 at $969 an ounce and palladium rose $2.45 to $260 an ounce."

# posted by Ben Jones @ 6:45 AM 0 comments

This foreign exchange site looks back on the US/Canadian trading. "Markets today are characteristically slow, given the time of year. As today is an unofficial holiday for many traders and bankers, volumes are likely to be thin. Let's take a look back at USD/CAD."

"Although the Canadian Dollar began the year like many other currencies (under pressure from the USD), the spike in oil prices changed the equation. As the largest exporter of oil to the oil-hungry U.S., the currency went into a prolonged surge for the better part of 2005's second half."

"In recent weeks, the rally has stalled around the 115 mark. The saying 'so goes oil, so goes the Canadian Dollar' seemed to hold true this year, although the underlying 'real' economy has been quite strong of late, with many firm sectors helping drive investor interest. The Canadian Dollar gained roughly 9% against the USD in 2005."

And this report came in from Russia. "Russian gold production fell 6.7% year- on-year to 157.555 tonnes in January-November 2005, the Gold Producers' Union said in a release, quoting a figure for mined gold, byproduct gold and secondary gold or gold recovered from scrap."

"Gold production fell more than 11 tonnes or 6.7% year-on-year. Recoveries fell particularly, by 4 tonnes, because the secondary processing of refined gold into ingots was no longer classified as gold recycling with effect from September."

"Russia could reduce gold production 13% compared with this year's anticipated total to 130.7 tonnes by 2010 - as much as the country mined in 2000, Valery Braiko, head of the Russian Gold Producers' Union, has said."

Reuters reports on a mining merger that got a mixed reception on Wall Street. "Toronto-based Barrick Gold Corp., the world's No. 3 gold producer, agreed on friendly terms to acquire Placer Dome Inc. after raising its offer for the Vancouver gold producer to $10.4 billion, the companies said Thursday. That deal prompted Vancouver-based gold producer Goldcorp Inc. to buy certain mining assets from Barrick for just under $1.49 billion in cash."

"In afternoon trading on the New York Stock Exchange, Goldcorp shares rose 67 cents, or 3.4 percent, to $20.45; shares of Placer Dome fell 63 cents, or 2.8 percent, to $22.02; and shares of Barrick fell 60 cents, or 2.2 percent, to $26.62."

"The new $10.4 billion offer replaces Barrick's last offer of about $9.4 billion that had been rejected by the board of Placer Dome, the world's sixth-largest gold mining company. Under the agreed to terms, Placer shareholders will get either $22.50 in cash or 0.8269 of a Barrick common share plus 5 cents cash per share."

"Barrick, Canada's biggest gold miner, has limited its cash for the offer at $1.34 billion and shares to be issued at 333 million. Placer's board unanimously backed the new offer."

"Under the $1.49 billion transaction, Goldcorp will get Placer's stake in the Campbell mine, the Porcupine joint venture and the Musselwhite joint venture in Ontario. The company will also receive a 50 percent interest in the La Coipa mine in Chile, and a 40 percent interest in the Pueblo Viego development project in the Dominican Republic."

Bloomberg has the latest on what's driving the US dollar. "The dollar rose for a third straight day against the euro and the yen after a measure of U.S. consumer prices in the third quarter was revised higher. The report reinforced speculation the Federal Reserve will raise interest rates at least two more times. Higher U.S. rates may enhance the yield advantage that has pushed the dollar up about 14 percent against the euro and the yen this year."

"The dollar's gains came before a speech by Fed Bank of Richmond President Jeffrey Lacker today, in which he may signal policy makers will keep raising rates. 'Investors are fixated by Lacker, especially after a series of strong economic data,' said Nobuaki Tani, a senior currency dealer in Tokyo. 'Expectations for U.S. rates will continue to boost the dollar.'"

"The euro failed to sustain earlier gains it made in European trading after Reuters reported the ECB will lift rates in March. The yield on the three-month Euribor contract due in September reached 3.025 percent today, the highest since March. The ECB raised its benchmark for the first time in five years on Dec. 1 to 2.25 percent."

"ECB Chief Economist Otmar Issing is among policy makers who have warned that the increase may not be the last should inflation pose a threat. Inflation in the euro region has exceeded the bank's 2 percent target every month since May. 'We're going to have to get more solid indications that the ECB are preparing to raise rates again soon before people start buying the euro aggressively,' said Paul Robson."

"Richmond Federal Reserve Bank President Jeffrey Lacker on Wednesday said the U.S. economy appeared poised to grow 3.5 percent next year, but warned that inflation risks from high energy prices had not fully passed. 'Growth is on a solid footing, despite this year's run-up in energy prices and the disruptions of a devastating hurricane season,' he said."

"'Granted, housing activity seems to be softening, and at least some potential price level pressures remain, so it may be too soon to break out the eggnog,' Lacker added. 'But inflation expectations remain contained, and we at the Fed are well-positioned to resist inflation pressures, should they emerge.'"

Check out the new link in the side bar to a Federal Reserve inflation calculator.

The Financial Review looks at the end of the year prospects for the Australian dollar and gold. "The Australian dollar is losing its grip again as the year end approaches, sliding back toward its lowest levels this year on a combination of a stronger US dollar, weakening gold and base metal prices and expectations of a further narrowing in Australia's interest rate premium."

"The $A lost more than half a cent overnight to reach US73.20¢, its lowest level since late November and not far from the 13-month low of US72.60¢ it plumbed on November 14. The local currency has now lost more than three per cent of its value in the space of a week."

"Pushing the $A lower was another sharp retreat in the price of gold, which sank back below the psychologically key $US500 an ounce mark as speculators who rode it to quarter century highs at $US540 an ounce last week booked profits ahead of the holiday season. Gold was at $US492 late in New York."

"A broadly stronger US dollar didn't help either. The greenback posted solid gains against the euro, yen and Swiss franc after news of stronger-than-expected US housing starts for November was seen as narrowing the odds of the Federal Reserve following up January's anticipated rate rise with another move in March. This would take the benchmark US short-term interest rate to 4.75 per cent, within sight of Australia's official cash rate of 5.50 per cent."

"Analysts say the sharp reversal in the $A in the past week looks to be part of a widespread clearing of the decks by hedge funds ahead of the end of the year, although further losses from here could leave it exposed to a sharper decline."

"

This mornings economic news was bad news for bonds and good news for the US dollar. "The dollar climbed the most in six weeks against the euro and advanced versus the yen as a report showing gains in U.S. housing starts reinforced speculation the Federal Reserve will raise interest rates at least twice more."

"'The housing data was stronger than expected,' said Niels From, a currency strategist n Duesseldorf, Germany. 'The Fed is not done hiking rates, and that should favor the dollar.'"

"'The push the dollar is getting is partly on the back of stronger-than-expected housing data,' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. 'It's not just that housing starts are up. Permits were expected to fall.'"

"'Prospects for widening rate differentials between the U.S. and economies such as Japan and Europe helped the dollar this year and will continue to do so,' said Osamu Takashima, chief currency and treasury division analyst at Bank of Tokyo Mitsubishi Ltd., a unit of the world's biggest lender by assets."

Daily FX has today's US dollar action. "With no major economic releases on the calendar today, the dollar recuperated a part of its losses during the Asian session and then spent most of the US trading session range bound. The NAHB housing market index was the only release on the calendar and the disappointment from the release was hardly surprising since the housing market has already shown signs of slowing."

"Falling to a 32 month low of 57 in December, evidence that the Fed’s interest rate hikes are slowing the economy is becoming increasingly apparent. A slowdown in the housing market has broad ramifications for the economy as a whole. Not only could it directly impact consumer spending, but it can also have residual effects on the construction sector and demand for building materials. In addition, a large number of jobs tied to the housing market have been created over the past few years."

"The British pound sold off against the dollar today as the UK gave up a part of its EU rebates and Bank of England Chief Economist Bean sounded another dovish note for a fragile market that is waiting impatiently for the BoE to signal whether another bout of tightening may be seen early next year. The dollar rallied 0.4 percent against the Japanese yen, which is rather small compared to the currency pair’s 4 percent slide over the course of three days."

"U.S. gold futures settled a shade higher but off session highs Monday as the market's failure to breach a key technical level and a sale of gold reserves from the Bank of Portugal caused some investors to liquidate some of their long positions, sources said."

"Gold for February delivery edged 0.20 cents higher to $506.10 an ounce at the New York Mercantile Exchange's COMEX division, after dealing from $503.60 to $512.10. 'The gold market ran into resistance just where it was expected, at the $512-$513 area, and we failed. To be up around $5 earlier in the day and then close virtually unchanged is not a good sign,' said one dealer."

"Adding to the downside pressure was a report Monday that the Bank of Portugal had sold 10 tons of gold reserves in the last month and has now completed settlement of the sale. 'As of now, most of the central banks have closed their books and are now just going to be book squaring heading into the new year,' said George Gero."

"Spot silver reached $8.55/58 an ounce, firmer than the previous $8.52/55. The fix was at $8.6150. In NYMEX futures, January platinum surged $16 to end the day at $977 an ounce, as option expiration day on Wednesday caused some short players to cover positions. Platinum futures hit a near 26-year high at $1,026 last Monday. Spot platinum was quoted at $972/976. March palladium gained $1.05 to $265.75 an ounce. Spot at $260/264."

Reuters reports on the treasury markets and the yield curve. "U.S. Treasury debt prices were mixed in quiet pre-holiday trade on Monday, as a soft reading of a construction industry index added to buying flows that were already in the market. The day's most interesting feature was a repeat of last week's inversion of the front end of the yield curve."

"Two-year notes were again yielding more than both three and five-year debt, though traders and strategists cautioned that thin pre-holiday trade clouded the significance of the move. Two-year notes were yielding nearly 2 basis points more than both three-year and five-year debt, and only 6 basis points fewer than 10 year notes, compared with 8 basis points late on Friday."

"'I haven't seen the flows, but it sure seems like there's some rate-locking going on,' said Gerald Lucas, a Treasury and agency debt strategist at Banc of America Securities."

"The market is now looking toward data on U.S. housing starts and producer prices due out on Tuesday."

The Dallas News looks at golds' role in the changing world economy. "'One thing contributing to higher gold prices is the first changing of the guard at the Federal Reserve since 1987,' John Lonski, chief economist at Moody's said. 'There could also be uncertainty about the longer-term outlook for the dollar.'"

"Gold's behavior, it would seem, encapsulates everything negative that consumers, politicians and Wall Street are ignoring, our untenable record trade deficit and a housing bubble that's poised to pop into a recession. 'The question is whether the Fed has gotten itself into a corner because of record high ratios of home prices to personal income,' Mr. Lonski added. 'The big risk is an extended period of home price deflation.'"

"A housing crash in the U.S. would bring job growth to its knees and push nascent deflationary threats to the forefront in a hurry. Any less in the way of income growth among U.S. households would cripple the few lucky industries that still retain pricing power. And that would be disastrous for all the debt lurking just under the surface like so many breeding Florida alligators."

"Deflation would perversely cause debt loads to grow, wages would fall as debt payments held steady."

"One way to 'solve' the problem of the debt bubble, Mr. Lonski said, is to do the opposite, to engineer inflation: 'The time-honored way of reducing debt loads is by way of higher inflation.'"

"Peter Schiff is an outspoken opponent of this route out of the swamp. 'Ben Bernanke believes that credit expansions need never end, that a boom can be prolonged indefinitely simply by printing enough money,' Mr. Schiff said. 'The fact that the incoming Fed chairman believes such nonsense is similar to a Cold War president having believed he could win a nuclear war,' Mr. Schiff said, mixing metaphors. 'However, Bernanke's finger will not be on the button but on the printing press, and he seems itching to crank it up as he is convinced he will win the deflation war.'"

"That will send the dollar falling, and that, I learned, has put the golden gleam in the eye of a vitally important group of investors."

The Gazette in Canada worries about the financial health down south. "Times are good in Canada, really good. Now watch out. This is the essence of a sobering new warning from chief economist Clement Gignac at the National Bank of Canada. Gignac paints a persuasive picture that 2006 could well be the year in which our luck runs out as years of accumulated financial excesses in the U.S. economy start to come unwound, beginning with the deflation of a housing bubble that may be stretched to its limit."

"Why worry? Because we happy Canadians are perched on top of what many economists, including Gignac, regard as a financial volcano: the increasingly stressed U.S. economy. If it blows, we can expect to be shaken badly. Gignac believes that 2006 is the year when the housing bubble will start to deflate. If this is abrupt, it could trigger a recession. More likely, he thinks, it will happen gradually and there will merely be a sharp economic slowdown."

"How sharp? U.S. economic growth from the end of this year through the end of 2006 will likely decelerate to 2.4 per cent from the past year's robust 3.7 per cent. The principal reason is that consumer spending growth will grind nearly to a halt, falling to the slowest rate in 15 years."

"Canada's overall growth will slow, too, even though the energy and commodity-driven economies of the West and the Maritimes should hold up well. The soft spot will be Ontario, which produces a larger percentage of North America's autos than any other locale, even Michigan. When consumers feel impoverished, the last thing they want to buy is a new car."

"Quebec will also be hurt, since it depends on exports to the U.S. and to Ontario. It will also feel it if a U.S. slowdown squeezes demand in other parts of the world, as it likely would."

Reuters reports on the capital inflows to the US. "Foreign central banks turned net sellers of U.S. debt for the first time in over a month last week as they shed some of their Treasury bond holdings, Federal Reserve data showed on Thursday."

"The Fed said its overall holdings of Treasury and agency debt kept for overseas central banks fell by $1.218 billion in the week ended Dec. 14, to stand at $1.511 trillion."

"Selling of Treasury bonds was key to the overall decline, with the breakdown of custody holdings showing overseas central banks sold $2.266 billion in government debt. Debt sold sold by government-sponsored agencies like Fannie Mae and Freddie Mac fared better, with the offshore institutions buying $1.048 billion in that sector."

The US government had some numbers out this morning. "U.S. consumer prices fell 0.6 percent in November, the largest decline in 56 years, as energy prices posted a record 8.0 percent drop in the month. The slide in prices was slightly larger than the 0.4 percent reversal expected by Wall Street and was the biggest decrease in prices since July 1949."

"Gasoline prices dropped 16.0 percent, the largest monthly decline according to records dating back to 1967, while fuel oil costs fell 6.1 percent and natural gas prices fell 0.5 percent. Electricity prices rose, however, by 3.8 percent, the largest increase in records dating back to 1952."

Gold markets 'bounced' overnight. "Gold futures climbed back above $510 an ounce Thursday following a two-session decline that subtracted more than $20 an ounce from the metal's value. Prices tested the 20-day moving average this morning, said Dale Doelling. 'If gold manages to hold here, then the market could just turn and make new highs before the year ends.'"

"But gold could also 'pull the entire metals complex lower if it manages to log consecutive closes below the $500 mark,' he said. 'If that were to happen, we could be in for an ugly end to, what so far has been, a stellar year for these markets.'"

"As the Japanese yen shot up versus the dollar, it prompted Japanese investors, heavy buyers of gold on Monday, to perform a U-turn and hit the sell button. Investors have been steadily buying gold on concerns about rising energy costs, dollar stability and fears of terrorist attacks, but the latest push came specifically from Japanese investors looking to hedge currency concerns."

"Platinum and palladium, both used in jewellery and car autocatalysts, fell to their lowest in just over a month, as the sell-off spilled over into these markets. Both recovered partially later following gold's bounce, with platinum last at $954/957 from $962/966 in New York, while palladium was at $257/261 an ounce from $260/264."

"Silver, which put in the steadiest performance of the day, rose to $8.50/8.53 an ounce from $8.38/8.41."

Has the gold juggernaut run out of steam? "Gold in New York plunged 2.8 percent, the biggest drop in a year, on speculation demand will slow from Japanese investors after the Tokyo Commodity Exchange increased the cost of trading the metal."

"The Tokyo exchange, the world's second-largest metals and energy futures market, boosted minimum deposits for trades to curb speculation after gold surged to a 24-year high of $544.50 an ounce on Dec. 12. Gold sold in yen climbed 18 percent in the five weeks ended Dec. 9."

"Gold for February delivery fell $14.60 to $509.50 an ounce on the Comex division of the New York Mercantile Exchange, the biggest one-day decline since Dec. 8, 2004, and the lowest closing price since Dec. 2. The metal fell 1.4 percent yesterday. 'Gold is getting smoked largely because of Japan raising margin limits,' said John Licata, an independent analyst in New York who correctly predicted in 2002 gold would rise to $500 in 2005. 'You will start to see bottom fishers come back in the low $500s, especially pension funds and central banks looking at a $30 slide in prices as a great opportunity to increase positions.'"

"Hedge funds and other large speculators have more than tripled their net-long positions, or bets prices will increase, in New York gold futures since the end of July, government figures show."

"Simon Weeks said gold was potentially heading for $498-500 an ounce over the next 10 days, with lots of Japanese investors still caught long above the market. Frenzied buying of Japan's TOCOM futures this week, itself partially triggered by weak currency concerns, was a major driver in taking gold to new highs."

"In other precious metals, platinum tumbled to $962/966 an ounce from $991/995 late in New York. One trader noted a big increase in volumes traded on the Shanghai exchange, with 247 kg daily turnover versus a daily average so far this month of just 42 kg. Sister metal palladium fell less sharply to $260/264 an ounce from $269/273."

"Silver dropped to $8.38/8.41 in the U.S. market from $8.49/8.52 previously in New York."

Bloomberg notes a partial yield curve inversion in Europe. "Eurodollar futures, which settle at a three-month lending rate that traders set based in part on the Fed's target, yield less for contracts maturing in June 2007 than for contracts maturing in June 2006."

"The spread 'can invert more,' Richard Gilhooly, bond strategist said, especially if the housing market continues to show signs of cooling. The Mortgage Bankers Association today said its weekly index of refinancing activity fell to the lowest since June 2004."

"'There may be some people out there who believe the Fed is going to be finished here by the next FOMC meeting next year,' said David Glocke, who manages $9 billion in Treasuries at mutual fund firm Vanguard Group Inc. The outlook for growth means 'the risk is that yields would move higher, and my portfolios are positioned for that,' he said."

"The yield on the benchmark 10-year note fell 7 basis points, or 0.07 percentage point, to 4.45 percent at 2 p.m. in New York. The yield fell as low as 4.43 percent. Yields move inversely to bond prices. Shorter-maturity yields, more closely linked to the Fed's target rate, declined less on expectations that the central bank will still raise rates at its next meeting on Jan. 31. Ten-year yields drew within 8 basis points of two-year yields, matching the smallest gap between the two in four years. Five-year yields drew even with two-year yields at about 4.36 percent."

As Market Watch reports, the US dollar is still moving in tandem with gold. "Gold futures prices extended their slide in electronic trading early Wednesday, despite a sharp decline in the U.S. dollar, as traders continued digested the Federal Reserve's decision to raise interest rates. Gold for February delivery was last down $9.00 at $515.10, but had been down as much as $10.40 at a low of $513.70 earlier in the session."

"'The gold market seems to be unsure of how to take the new language by the Fed,' said veteran commodities trader Kevin Kerr. 'Gold traders are a bit weary from the volatile rollercoaster ride this week and it's only Tuesday,' said Kerr."

"The Fed's latest rate hike didn't help the dollar, which slumped 1.2% vs. the yen to a 2-week low of 118.64. Against the euro, the buck lost 0.6% to $1.2014. A lower dollar typically helps boost gold prices, as the resulting higher import prices puts upward pressure on inflation."

"March silver followed gold lower, losing 29.7 cents, or 3.3%, to close at a nearly two-week low of $8.585 an ounce. January platinum closed down $22.20 at $995.90 an ounce and March palladium finished down $19.10 at $273.25 an ounce."

Market Watch has the AM report on gold markets. "Gold futures were lower for the first time in eight sessions early Tuesday, pulling back as traders locked in some of the metal's recent gains ahead of a Federal Reserve meeting. Gold for February delivery was last trading down $1.60 at $529.90 an ounce and fell as much as $7 overnight. The contract is more than $14 below the quarter-century high touched early Monday."

"'Speculative accounts had been running record net long exposures in the futures gold market, and the exit for profit taking always risked being a tight one once prices started to fall,' said economists at Action Economics."

"Gold was also hit by profit-taking in Japan overnight, after the Tokyo Commodity Exchange said it will raise margin requirements on gold futures from Dec. 14, in an effort to curb volatility in the market. The exchange said it will raise margin requirements on platinum from Dec. 15 if prices reach the upper price limit on Dec. 13 for three contract months or more."

"Platinum was last trading down $11.70 at $1,006.40 an ounce. Palladium was down $6.35 at $286 an ounce. Silver lost 0.20 cent to $8.88 an ounce."

The gold isgrabbing headlines again. "Comex gold shot to another fresh 25-year high on Monday but eased from that level by the close at the New York Mercantile Exchange. The benchmark February contract settled up $1.30 at $531.50 an ounce, off a high of $543.00 reached during the day session."

"Bill O'Neill said the longer-term picture for gold remains positive and the yellow metal is likely to reach $600 an ounce in 2006. O'Neill added that physical demand for gold is holding steady despite the rise in prices."

"'We are seeing solid levels of demand in Russia, the Middle East and Vietnam," said O'Neill. We are still bullish on gold but there is a little too much frenzy going
on," O'Neill said. In the next few weeks, O'Neill cautioned that the market may see some end-of-the-year book squaring, but he added that gold is moving on with a new
role as an alternative non-nationalized currency."

"The silver market followed gold's moves but settled lower on the day. The most-active March contract closed the day down 21.3 cents at $8.882 an ounce. During the session, the white metal traded in a $8.730-$9.280 range."

Bill Fleckenstein has an editorial on the Fed nominee. "A recent profile of the incoming Fed chairman reveals his lack of real-world experience and an arrogant confidence the economy can be managed. Anyone with even an ounce of common sense, and a similar degree of familiarity with the Depression, will quickly see that Bernanke has no comprehension of the fact that booms and busts are related. More than related. To a degree, honest people can argue how much, booms cause busts. They don't just precede them. Booms derange prices and therefore misdirect investment."

"Bernanke says that the Fed should never prick a bubble but only clean up the mess afterward. I disagree with him there, too, but this Fed doesn't just stand around watching bubbles inflate. It's inflating them, both with its monetary policy and with its tonsils. Bernanke's tenure will prove this in spades as the residue from the prior stock mania and fallout from the leveraged-housing bubble cave in on him."

"My friend's take was so succinct and spot-on..here it is: 'What his comments..typify is Bernanke's own brand of orthodoxy, at the root of which is an arrogant belief that a central bank can lead a market economy around by the nose.'"

"'For Bernanke, booms have nothing to do with busts. The common-sense theorists of the so-called Austrian School might as well never have been born. So, on top of the arrogance of the central economic planner, add the arrogance of the cock-sure college professor. The gold price isn't going up for nothing.'"

One trader makes the case that deflation is already here. "I’m more convinced than ever that deflation is inevitable. This is partly the result of some very interesting conversations I have had recently with colleagues. One highly experienced former broker said..the US economy is producing unbelievably strong numbers. Why did he think it is working so well? It’s all about supply and demand, he said, and India and China are producing large quantities of cheap goods."

"Isn’t that going to be deflationary, I asked? No, was the answer, because there are vast numbers of people in India and China wanting to join the industrialised world and they will become the new consumers. So it appears that this is why the City is so bullish in the face of this huge expansion in global production capacity, which, on the face of it, by simple arithmetic, must be deflationary."

"In my view, you’ve only got to think about it for a moment to realise it can’t possibly be true. They simply aren’t paid enough to buy the goods they are going to produce at western prices. The theory that they will be able to do so seems to me to be a utopian dream, born of optimism and complacency because things have gone well so far."

"And it’s not just low wages which are keeping production costs down; it’s mechanisation and computerisation as well. You don’t need that many human beings these days."

"Skilled labour costs in China are between one-sixth and one-eighth of those in the west. Unskilled labour, I have read, may be as little as one-tenth of the cost in the west. And ­Chinese workers work more hours. There are also becoming far more of them, that too must be deflationary. Chinese universities turn out nearly 400,000 skilled engineers a year, whereas in Germany it’s about 40,000. Indian universities produce about 300,000 a year."

"I think we already have severe deflation right now, but it’s being masked. The Dow Jones AIG Commodity Index, which reflects the underlying price movements of a very broad range of commodities: energy, petroleum, precious metals, industrial metals, grains, livestock and softs (cocoa, sugar, coffee, cotton etc)..has increased by 142% since February 1999. US house prices have doubled since 1991, increasing 48% since June 2000 alone."

"So why is there no inflation? Doesn’t this strike you as odd? Could this, by any chance, be related to the fact that last year Alan Greenspan’s Fed had to drop interest rates to the floor in a desperate bid to stave off deflation? You bet it is."

"They have pumped up demand with the most inflationary interest rates since the early 1950s, yet inflation has remained meek and mild. But they haven’t cured deflation. They have masked it. The result, of course, is an ideal boom, with no inflation, and that’s why my friend is so contented. But it’s a complete illusion."

"When this economic cycle turns down, and the demand for fuel, houses and commodities wanes, and the debt which has been incurred to finance it has to be repaid, there will be nothing left to disguise the deflation, because the excess production capacity will still be there."

Reuters has the latest on 'gold fever.' "Gold fever took prices as high as $530.40 an ounce for the first time in nearly a quarter of a century on Friday as investors, particularly in Asia, rushed to buy an asset that has gained over 16 percent in the past month."

"'This buying is just more of the same of what we have been seeing. I suspect also that it may be central bank buying that is supporting it on the dips,' Paul Merrick of RBC Capital Markets said. Spot gold was at $529.70/530.50 an ounce by 1604 GMT, up two percent from $519.50/520.30 last quoted in New York on Thursday. The metal has soared $75, or 16.4 percent, since November 7."

"Some investors were speculating about potential purchases from some of the word's central banks, previously long-time sellers. 'I strongly believe that Asia and China are buying, but we will not know until they've finished buying or are close to it, for sure,' said Juerg Kiener."

"A spokesman at the China Gold Exchange said: 'We have encouraged the Bank of China to buy more gold, or if not, to relax the barriers and allow more Chinese people to do so.' However, he said he was not aware of the central bank's policy on the matter."

"In November Russia, Argentina and South Africa expressed interest in increasing their gold holdings, even though European central banks have sold more than 100 tonnes since September."

"Other precious metals got caught in gold's slipstream, with silver hurdling $9.00 to levels last seen 17-1/2 years ago. Spot was at $9.01/9.04, up 1.4 percent from $8.88/8.91 late in New York. Platinum was at $1,000/1,004 an ounce, against $998/1,002 late in New York. It touched $1,004 against Monday's peak of $1,006, the highest since March 1980."

Market Watch has the latest on the gold bull market. "Gold futures climbed near $524 an ounce Thursday to trade at their highest level since 1981, chalking up a sixth consecutive session of gains on the heels of strong physical demand and concerns about inflation. Futures prices haven't traded at a level that high since April 1981, according to monthly charts. The contract settled at $522.70, up $4.90."

"'Momentum is definitely accelerating as February gold has now tacked on $60 in just a little over a month's time,' said Dale Doelling. 'All the markets need now is some extraordinary event to occur, like a stock market meltdown or a terrorist attack on U.S. soil, and we could see a quick $50-$100 pop in the price of gold,' he said."

"Other metals were swept up in the rally, with silver for March delivery closing up 11.30 cents to $8.99 an ounce, its highest in 18 years. January platinum rose $8.80 to $1,007 an ounce."

"The Amex Gold Bugs Index climbed as high as 265.94 points, its highest level ever. The CBOE Gold Index and the Philadelphia Exchange Gold & Silver Index were both trading at their highest levels in nearly nine years."

The Business Day site has this interview with Jim Rogers. "LINDSAY WILLIAMS: Jim, can we maybe start..the precious metals, and base metals. What do you think the prospects are for this particular complex?"

"JIM ROGERS: You haven’t seen anything yet. Copper needs to correct, but the shortages of raw materials is going to get much worse over the next 10 to 15 years, and we’re going to have an unbelievable bull market. There’s been no major oil discovery anywhere in the world in over 35 years. Most metals companies have not been exploring for metals, and certainly not opening many new mines, except for gold that’s continued to expand."

"Gold is certainly going to participate, but I think you’re going to make more money in in sugar or coffee than you will in gold. In previous bull markets of any asset class, everything makes a new all-time high. That means gold has to go to at least $900, and silver has to go much higher if history is any guide to how bull markets have always worked."

"LINDSAY WILLIAMS: Is there any problem perhaps with the US dollar when it comes to the dollar price of commodities, we’ve seen the gold, platinum, silver and copper prices and everything else dislocating from the strength of the US dollar, does that mean that we should ignore the dollar’s strength and just buy commodities?"

"JIM ROGERS: The dollar is fundamentally very flawed, and it’s going to be a serious problem in the next five or 10 years, it’s having a big rally in 2005 for some technical reasons. It was beaten down in 2002, 2003 and 2004 and there’s a special tax incentive for American companies to bring their money back into the US this year, but that incentive ends this year, and so you will see the dollar resume it’s decline, and that is bullish for commodities, but that’s not the main reason commodities will be going up. The main reason is supply and demand are out of whack, but a weak currency like the dollar is going to help commodities."

The Financial Times reports that fundamentals are becoming a factor in the New Zealand currency market. "The New Zealand dollar came crashing back to earth on Wednesday after soaring to 20-year highs in trade-weighted terms this week. In reality, the kiwi has long been heading for a fall. Many commentators have long viewed the currency as overvalued."

"'People are starting to think it is time to start edging their way towards the exit, because when people start to rush, the kiwi door is very narrow,' said Geoff Kendrick, currency strategist at Westpac."

"Kris Bernie, dollar bloc analyst at National Australia Bank, said: 'Those who were hanging on for further rate rises may have got spooked. This was an accident waiting to happen.'"

Bloomberg has the latest on the US consumer. "Borrowing by U.S. consumers unexpectedly fell in October as plunging auto sales reduced demand for financing, a Federal Reserve report showed today. Consumer credit, or non-mortgage loans to individuals, decreased by a record $7.2 billion to $2.16 trillion."

"Financing for new automobile purchases provided less support to consumer credit in October, as U.S. vehicle sales declined to a seven-year-low of 14.7 million units on an annualized basis."

"Consumer credit had been expected to rise by $5 billion in October. General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, said their vehicle sales fell 26 percent in October from the same period a year ago. New guidelines requiring higher minimum monthly payments on credit cards may have contributed to the October decrease in consumer debt, according to John Silvia, chief economist at Wachovia Corp."

"The Fed is encouraging banks to raise minimum monthly credit-card payments to about 4 percent of the outstanding balance from 2 percent. 'People have adjusted faster than we expected to the way they use credit,' Silvia said before the report. 'This could be a signal that Christmas sales may be weaker than expected.'"

"Higher mortgage rates in October also made it more expensive for consumers to support their spending patterns by tapping the equity in their homes. The average fixed rate on a 30-year home mortgage was 6.08 percent, compared with 5.79 percent in September and 5.66 percent in October 2004, according to the MBA. The average number of weekly mortgage refinancing applications declined 11.4 percent in October from the prior month."

A writer at MSN Money looks at alternative reasons for golds rise. "Another factor working against inflation as the primary reason for the metal's recent rally is timing. More than half this year's gain has occurred in the last month, after a long series of rate increases by the Fed and after a big price drop in crude."

"If not inflation worries, then what? The timing of the price move suggests that seasonal factors might be at play. Jewelry demand is often high this time of year. The demand surge for jewelry would at least help to explain the timing of the breakout. If true, then investors need to be concerned that the rally might run out of gas in the first quarter."

"Arguing against such a reversal is the fact that the breakout to new high ground has occurred while the U.S. dollar has been gaining strength relative to foreign currencies. Much of gold's advance into the low $400s came against a falling dollar, compelling many investors to suggest that the metal had become a hedge against dollar weakness."

"But with gold rallying alongside the dollar this historical link may no longer be valid. Looked at another way, gold may no longer be constrained by the dollar and its movement. This important decoupling has some gold speculators suggesting that the move in the metal is foreshadowing a period of financial distress. Frankly, though, such theories have been routinely put forth by gold bugs over the years as reasons why the metal should be purchased and I see no more merit to them today than in the past."

"A more simple reason for gold's move might just be that after years of central bank selling, there are now reports that worldwide central banks are starting to add to their gold holdings. Increased buying on the part of central banks, coupled with the seasonal boost in demand and limited supply, make a pretty compelling case for higher gold prices."

One gets the feeling that now gold has topped $500, the market is wondering where to go from here. "The price of gold has been rising steadily since 2001, a period that has seen a return to deficit spending in the United States and a worsening geopolitical quagmire. More recently, other trends have fueled gold's rise, including a revival of inflation, the Federal Reserve's raising of short-term interest rates and a weakening dollar."

"'By early next year, you are going to see $525, and down the road even a lot higher than that,' Pierre Lassonde, the president of Newmont Mining Corp. He said the price is likely to surpass $1,000 per ounce in the next five to seven years."

"'We question the sustainability of the recent breakout,' Morgan Stanley analyst Rick Bensignor told clients."

"Yingxi Yu, a precious metals analyst for Barclays Capital, said, 'The key driving factor behind gold's recent run-up is aggressive fund buying, both in the U.S. and Japan, attracted by gold's impressive upward trend in a variety of currencies.' However, Yu said, 'Over the long term, a true bull market needs long-term investors, and we suspect the current speculative interest reflects tactical investors likely to exit their positions at signs of the uptrend faltering, though of course it is difficult to identify what may trigger such a change in sentiment.'"

"Financial consultants say news of gold's run has prompted questions from clients about whether they should invest. John Scarborough urges them not to. 'First of all, it's purely speculative. There is no long-term benefit. It's not a long-term investment per se. It does not generate any income, it's just speculation on what will happen to the price,' Scarborough said."

"'Very often, when something like that becomes very popular, like now, it is hardly the time to invest in it. It's like the bubble in tech stocks, when tech stocks were wildly popular and a lot of people..got in at the high,' he said."

"Coin shop owner Allen Notowitz says prospective buyers have increased tenfold in the last month. Notowitz, who has been in the coin business for 40 years, said he has always considered gold 'strictly an insurance policy (against collapse of the dollar), and you hope you never collect.'"

"He added, 'You buy life insurance, and you do not expect to collect on it. You buy gold, no more than 5 to 10 percent of your portfolio, and you hope gold goes to zero. I don't want my grandchildren living in a country where the economy has gone so far downhill that gold is selling at $5,000. If that happened, do you realize what the dollar would be worth?'"

The MarketWatch site has this look at whci metals will perform best. "Prices for most precious and industrial metals have climbed to levels they hadn't seen in years, forcing investors to consider whether the rally in the metals will soon come to an end."

"Gold and silver are trading at their highest levels since 1987, while palladium's price is at a 20-month high, platinum recently reached its loftiest level in more than 25 years and copper has scaled to never-before-seen heights."

"December gold climbed to a high of $503 an ounce Thursday, the highest price the futures market has seen since December 1987. Demand for the yellow metal stems from an investment perspective, with investors betting that inflation will continue to increase in 2006 and others expecting gold to protect them from a 'currency crunch.'"

"It's the most likely of the metals to keep moving higher, said Brick Capital's Batt. And while he wouldn't necessarily by a buyer at current levels, he said he would look to buy gold on a dip in prices."

"Ned Schmidt, editor of the Value View Gold Report said gold is in an 'overbought condition.' 'A correction is in the process of developing, with a potential downside below $460,' he said. 'Investors should be watching gold, rather than buying.' Ben Johnson also sees a decline in gold prices by the end of the year, he said. 'When all advisers get very bullish, contrarily there are fewer investors then left to buy, and prices often go down,' he said."

"Silver has 'the greatest potential for gain,' said Paul Mladjenovic. Silver can easily go down 50 to 75 cents in a few days since a 'handful of large firms have performed egregious shorting through paper trading that has artificially depressed the price of silver,' he said. But 'due to the very acute physical supply situation, silver can easily have an explosive upside, especially due to increased industrial demand" from China and India.'"

"Platinum, another industrial and precious metal, 'is bound to continue higher as pent-up demand for the metal is coming from everywhere, catalytic converters and jewelry demand to name a couple,' said commodities trader Kevin Kerr. January platinum peaked at $1,004 an ounce Monday, nearing the record for a front-month contract of $1,085 set in March 1980."

"The mixed prospects for the all the metals certainly make for a confusing market. So what's the best way to approach it? 'You don't make money from Page 1 news. And metals are Page 1 news right now,' said Brian Batt."

"Batt recommends that traders be 'cautious on all the metals in the short term. Sentiment is extremely bullish, just about as bullish as it has been in the last decade.'"

This GATA reports on a proposal in Latin America shows more government interest in precious metals. "The proposal to monetize a standard 1-ounce pure silver coin by means of a quote issued by each national central bank in terms of each country’s currency and with similar seigniorage has crossed Mexico's border and has been well received by Latin American legislators."

"Congressmen from Mexico's three main political parties explained the benefits of this citizen proposal, which supersedes political differences and is being considered by Mexico's lower house of Congress, the Deputies Chamber, and proposed the adoption of the silver ounce as a common currency for Latin America."

"'The silver coin is the adhesive, the glue, that we require for a strong, regional monetary unification,' Mexican Congressman Fernando Guzmán said in his speech."

"Guzmán, from the PAN party, and his fellow Mexican congressmen, Benito Chávez of the PRI party and Rafael Candelas of the PRD party, showed their colleagues from 22 countries how the Mexican proposal could provide a basis for a model of regional integration."

"The Mexican legislators stressed the silver coin's great attraction for popular savings and the insurance the coin would give ordinary families against currency devaluation in monetary crisis, which have been common in Latin America."

"Jorge Possi, an Uruguayan congressman, commented: 'This is a good way for the majority classes. If this works it could protect people from the cycles of the economy, from devaluations, and other problems that Mexico and other countries have had.'"

"Armin Diez, an Uruguayan congressman, pointed out the benefits of 'stability, the backing that the national economy itself will have,' adding, 'I think it is most interesting. It is an alternative that each country may choose to copy.'"

This Reuters report looks at what the worlds' central banks may be planning. "Years of super-cheap credit are coming to an end as the world's major central banks begin to act in unison to drain excess cash that many fear could have severe repercussions for economic and price stability."

"As heads of the U.S. Federal Reserve, European Central Bank and Bank of Japan meet in London this weekend with finance ministers and bankers from the Group of Seven economic powers, they are likely to conclude there is still much to do."

"By the middle of next year, all three of these central banks may be withdrawing cash from the global economy, via higher Fed and ECB interest rates or, in the case of Japan, by ceasing to pump even more cash into the system. Whether this is concerted or just coincidence is unclear."

"What is clear to many experts is Fed tightening alone has not been sufficient to dampen what many see as high levels of risk-taking in world markets, buoyant private credit growth everywhere and bubble-like behavior in housing and equity markets. To the extent there is a collective desire to drain global liquidity, it will require tightening from all three regions."

"'There's clearly concern in Washington and Frankfurt that financial conditions are still too loose,' said Jim O'Neill, chief global economist at Goldman Sachs. He added that Japan may lag, but will also need to mop up abundant global cash."

"Some say there is a gnawing anxiety that core consumer price inflation is not telling the full story. If interest rates remain so low, the risk is financial excess, more bubbles and even deep deflation down the line."

"When the G7 met in September, a central feature of that meeting was a presentation by Fed Vice Chairman Roger Ferguson on how cheap money was allowing global markets to indulge in a very high level of risk taking."

"So, if there was collective G7 concern last September that global liquidity was too high, it will not have gone away. 'I'd say relatively little progress has been made, debt spreads are still very narrow, asset prices are still very high and real and nominal long yields are very low,' said Larry Kantor, head of global economic research at Barclays Capital. 'It's not the whole story, but to some extent that must be contributing to the decision of the ECB to start tightening and the Bank of Japan to consider its options too.'"