Thursday, February 16, 2006

 

Currency, Gold Reserves And Hedging

Reuters has the currency news. "The dollar drifted lower on Thursday with mixed U.S. economic data outweighing Federal Reserve Chairman Ben Bernanke's latest interest-rate supportive remarks. In a second day of congressional testimony on Thursday, Bernanke reiterated his upbeat assessment of the U.S. economy and an earlier warning about inflation risks, leaving expectations for further Fed rate hikes little changed."

"Meanwhile, the Philadelphia Federal Reserve Bank's survey of business conditions provided only light support for the dollar despite a strong reading."

"'The overall reading is obviously very strong, but I think the market might be hampered a bit by the prices paid index being a bit lower here. That might be keeping a lid on the dollar,' said John Beerling, regional foreign exchange trading desk manager at Wells Fargo in Minneapolis. A measure of prices paid by manufacturers dropped to 30.5 from 44.9 the month before as energy prices eased. A lower prices paid index is usually viewed as dollar-negative since it limits the need for U.S. interest rate hikes."

"In late trading in New York, the euro was slightly higher against the dollar at $1.1892 with traders locking in profits in the late afternoon. The dollar crept 0.1 percent lower to 117.65 yen. The dollar was little changed at 1.3108 Swiss francs while sterling was at $1.7385."

"The biggest mover on the day was the New Zealand dollar, which dropped to near 16-month lows at $0.6668, according to Reuters data, after piercing an options barrier at $0.6700. 'The outlook for the New Zealand economy points to relative weakness,' said Michael Jansen, currency strategist with National Australia Bank in New York. 'From a medium-term perspective, people are really lining up to kill this thing,' he added."

"Some analysts said that price action in the last few days suggested that the dollar's rally may need fresh fuel to keep going since the Fed's Bernanke effectively has given his stamp of approval on the central bank's stance on monetary policy. St. Louis Federal Reserve President William Poole also said he is comfortable with current market expectations for future policy tightening, citing the risk of a pass-through of energy prices."

"'The current phase of the dollar's rally is starting to look mature,' said Nick Bennenbroek, vice president for foreign exchange research at Brown Brothers Harriman in New York. The charts still look constructive for the dollar, but I think $1.18 would prove to be good support for euro/dollar and that a more significant correction in the dollar may not be that far away,' he added."

In metals news. "The German government and the Bundesbank have agreed to end a long-simmering row over the use of Germany's huge gold reserves, the finance ministry revealed on Thursday. Finance Ministry Peer Steinbrueck has dropped proposals to change the existing law regarding the sale of the Bundesbank's gold reserves, the ministry said in a statement."

"There had been plans to alter the existing Bundesbank law so that the German central bank would no longer be obliged to transfer the proceeds from any gold sales directly to the federal budget. The German bank had been concerned that any changes to the law could potentially affect its independence in the matter of gold sales and in its autonomy in the management and investment of its currency reserves."

And from the mining sector. "Precious metals commentator GFMS has indicated that the pace of quarterly de-hedging fell to its lowest level for more than two years. Combined with the 3,96-million ounces reduction in the nine months to September, the full year reduction in the hedge book amounted to a provisional 4,44-million ounces."

"Commenting on the findings, senior analyst Bruce Alway reported that the slow-down in de-hedging does not necessarily suggest that there has been a change in producer sentiment towards hedging. He added that one should bear in mind that two-thirds of the global hedge book is controlled by AngloGold Ashanti, Barrick (and Placer Dome) and Newcrest, who generally speaking, appear intent on reducing their level of hedge cover rather than to commit to fresh hedging."

"From the juniors, the December quarter witnessed an unusually high level of fresh hedging, most of which was related to new mines and development projects. Of the more significant hedges, there were additions from European Minerals, Equigold, Oceana Gold, Resolute Mining, Sino Gold and St. Barbara."

Comments:
This is definitely bullish. The big dogs are de-hedging in expectation of higher prices and profits. The little guys that are hedging are only doing so to finance new ventures.
 
nice to see germany being smart!
 
JL2,

Thanks for the link! That SUA letter is the most bullish statement yet I've read on silver.
 
Update Silver ETF!

http://www.resourceinvestor.com/pebble.asp?relid=17119
 
Phase 2

http://www.321gold.com/editorials/texashedge/texashedge021706.html
 
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