Money and Metals

Reuters has an update on the currency front. "Sterling hit a fresh seven-month low against the euro on Thursday as the single currency's overall strength prevailed due to growing expectations for a European Central Bank rate hike in May. A recent wave of hawkish rhetoric from the ECB left investors pricing in an interest rate rise for May as a near certainty in short-term money market instruments."

"This comes only days after the Bank of England signalled it would keep borrowing costs steady at 4.5 percent for now, with economists in a Reuters poll expecting the bank to remain on hold all year. 'I think the market generally likes the euro against just about everything,' said Kevin Grice, economist at American Express Bank."

"A survey from the Nationwide building society showed British house prices jumped 1.1 percent this month, taking the annual increase to its highest in almost a year, suggesting a housing recovery is firmly back on track. 'I think (the house price numbers are) consistent with the theme that the housing market has certainly bounced from the bottom and will help to provide some momentum for the consumer sectors through the course of this year,' said Jeremy Stretch, market strategist at Rabobank. 'I think that's going to be enough momentum to suggest that the Bank of England will not do anything on rates through the course of 2006.'"

"Earlier this year, many had expected that UK rates would be cut by the end of 2006 in order to boost growth."

And Business Week has this on mining stocks. "Suppliers are dealing with strikes and outages. But as demand soars, investors are seeing gold, silver, and other commodities hit their highest prices in years. Prices for gold, silver, and platinum are at the highest levels since the early 1980s."

"So isn't it time to sell these hot commodities and the stocks of companies that produce them? Not so fast, say analysts and fund managers. Commodity cycles run in decades, and there are plenty of fundamental reasons why metal prices should, at the very least, remain elevated. 'We see good global demand while supplies are facing labor and mining problems,' says Derek van Eck, chief investment officer of Van Eck Associates in New York. 'I just can't find a big, bad story out there anywhere on the horizon that's going to change the picture.'"

"Gold sometimes trades in its own world as the safest of all safe havens in times of turmoil. The current rally is being fed rather by increased buying from a host of areas, according to the World Gold Council. Jewelry demand rose 14% measured in dollars, industrial demand increased 11%, and investors upped their purchases by 37%, including a 67% increase from exchange-traded funds in the U.S. and elsewhere, the council reported. On the supply side, mines produced only 1% more gold than they did in 2004."

"Frank Holmes, CIO at U.S. Global Investors in San Antonio, has been bullish on gold throughout the current cycle; he points to the run-up in oil as an overlooked factor. Billions of petrodollars have already flowed into gold, he says. Based on the historic relationship between the two commodities, he says, gold should hit at least $700 within a couple of years."

"Still, that doesn't mean that shares of every gold-mining company are a buy, say the fund managers. The biggest producers, companies like Newmont Mining (NEM) or Barrick Gold (ABX), aren't able to increase production much and are operating older, less-efficient mines than some smaller players. Van Eck favors mid-tier players including Meridian Gold (MDG) and Agnico-Eagle Mines (AEM). Holmes likes Goldcorp (G) which is showing growth and has diversified into copper."

"Silver rose last year as demand for the metal in jewelry and electronics grew faster than expected. But lately, silver has been running higher because of ETF excitement. While there may be less interest in a silver ETF, the silver market trades far less in a day than gold, so the impact of the ETF could be greater. Investors who don't want to wait can buy shares of silver producers. Silver Wheaton (SLW) has been able to increase cash flow at double the rate of the metal's advance, says U.S. Global's Holmes."