Money and Metals

Here is some information on the new silver ETF. "A silver-exchange traded fund launched on the American Stock Exchange Friday finished with a volume of 2.342 million shares on its first day, reported the American Stock Exchange. The closing price for the iShares Silver Trust was $138.12, which was up from an opening of $129."

"The ETF is designed to allow investors to buy or sell shares similar to a stock, except the ETF closely tracks the day-to-day movement of the commodity. It trades under the symbol SLV."

"Total shares outstanding, ounces of metal in the trust and other data will be posted on a regular basis at the Web site www.ishares.com, as is the case for the iShares Comex Gold Trust. While Barclays is the trust sponsor, the Bank of New York is the trustee. J.P. Morgan Chase Bank N.A., acting through its London branch, is custodian."

Additional info from (WARNING!) the PDF file prospectus, which doesn't allow copy and paste, apparently. The trust allows investors to place market, limit, or stop-loss orders. It can be shorted, even on a down-tick.

The sponsors fee accrues daily, is paid monthly in arrears and is calculated at an annualized rate of .50% the net asset value. There is no index. It is set up as a grantors trust. It is not a derivative. Shareholders will not receive a 1099. The trust will forward a letter with information on calculating pro-rata shares of income and expenses.

Bloomberg reports on an interesting day in the markets. "Silver prices in New York surged 9.3 percent, the biggest gain in 11 years, on speculation investor demand will grow as Barclays Plc began offering an exchange-traded fund backed by the metal. Silver futures for May delivery jumped $1.17 to $13.76 at 1:05 p.m. A close at that price would mark the biggest gain since March 1995."

"Barclays offered 50,000 shares of its iShares Silver Trust, each representing 10 ounces of silver. The fund rose $8.02 to $138.02 on the American Stock Exchange. 'Most of this is new buying for the exchange-traded fund,' said Daniel Vaught, a commodities analysts at A.G. Edwards. 'That is playing a role in strengthening the market.'"

"Gold futures surged to a new 25-year high on a falling dollar and worries over Iran's atomic program on Friday. June delivery gold was up $16.70, or 2.55 percent, at $653 per ounce 12:11 p.m. EDT, trading in a range of $634 to $655.50, a new contract high."

"Strong oil and base metals prices and uncertainty over the U.S. economy fueled waves of aggressive investor buying across the precious metals group, dealers said. 'I think gold has kind of taken on a leadership role,' Steve Platt, a broker in Chicago, said, adding that the yellow metal also was benefiting from a weak dollar. 'People for a long time had not been interested in the precious metals to any big degree, but now you have started to see them look at them once again as a flight to quality in terms of asset diversification,' Platt said."

Reuters on what's moving the markets. "Metals and other commodities retreated from their highs Thursday after China upped interest rates to check its economic growth. Precious metals trading was choppy as the Chinese move played off against roaring physical demand for gold in India and the regulatory approval of a long-awaited silver exchange-traded fund from Barclays Global Investors."

"Silver for July delivery rose 9.1 cents to $13.03 per ounce, trading in a wide range of $12.3150 to $13.25. Nearby May silver was up 9.5 cents at $12.91. June gold gained $2.50 to $644.50 an ounce, dealing between $627 and a session peak of $646.20."

And some little known info on one Arab state. "Due to higher oil revenues, impressive growth in non-oil exports and favorable macroeconomic conditions, the net foreign assets held by Saudi Arabian Monetary Agency, autonomous government institutions and local commercial banks increased by 42.9 percent to SR752.8 billion in 2005."

"Following sharp increases in oil prices since 2001, Saudi Arabia began registering substantial surpluses in the balance of payments over the last few years. This has enabled the Kingdom to hold higher levels of foreign reserves, accelerating to reach SR851.8 billion in 2005."

"Economist Dr. Said Al-Shaikh said, 'The high level of foreign exchange reserves has enforced the stability of the riyal exchange rate. At the end of 2005, every SR100 in money supply (M3) was backed by SR138 in the official and banks’ net foreign assets. This ratio further improved to SR141 in January 2006, an impressive cover which a few countries are currently enjoying worldwide.'"

"The Kingdom’s regulations require that each riyal of currency issued by SAMA must be backed by an equivalent amount of foreign currency or gold."

Some reports on currency developments. "News from central banks of China and the US battled for ascendancy in the currency market on Thursday, and it was Washington that ultimately had the most effect on the world's largest market. Beijing surprised traders by announcing its first interest rate rise for 18 months in an attempt to cool its overheating economy."

"But the day's moves were driven by dovish Congressional testimony from Ben Bernanke, the newish Federal Reserve chairman. Mr Bernanke pointed to signs of a slowing in the US housing market, adding that 'it seems reasonable to expect that economic growth will moderate towards a more sustainable pace as the year progresses.'"

"The market took this as a hint that the Fed may pause after taking rates to 5 per cent in May, sending bond yields lower and eroding yield support for the dollar."

"With Mr Bernanke also warning that the scale of the US current account meant there was a 'small risk of a sudden shift in sentiment that could lead to disruptive changes in the value of the dollar,' the greenback tumbled 0.6 per cent to $1.2521 to the euro and 1 per cent to $1.8013 against sterling, both seven-month lows."

"It also fell 0.7 per cent to Y114.01 against the yen and 0.8 per cent to SFr1.2605 versus the Swiss franc, both three-month lows, and 0.4 per cent to C$1.1230 against the Canadian dollar, a 14-year low."

"China's move appeared to be driven by fears of an investment bubble, with GDP growth reaching an annualised 10.2 per cent in the first quarter of the year. The People's Bank reacted by pushing the one-year lending rate from 5.58 to 5.85 per cent, its first rate rise since October 2004."

And Market Watch had this news. "At long last, a silver exchange-traded fund that has been in the works for over a year is expected to begin trading Friday. A registration statement for the highly-anticipated ETF from Barclays Global Investors was declared effective at 10 a.m. Eastern time Thursday by the Securities and Exchange Commission, clearing the way for the ETF to list, an SEC spokesman said."

Bloomberg reports on golds' comeback. "Gold prices closed at the highest in more than 25 years as the dollar dropped to a seven-month low against the euro, boosting the precious metal's appeal an alternative investment. Silver also gained."

"'It's a concerted attempt to diversify out of dollar denominated assets,' said Stephen Platt, a commodities analyst in Chicago. 'There's still underlying fund support for gold and silver.'"

"Gold futures for June delivery rose $7.80, or 1.2 percent, to $642 an ounce on the Comex division of the New York Mercantile Exchange, the highest close since December 1980. Silver for May delivery rose 25.5 cents, or 2 percent, to $12.815 an ounce. Prices have surged 44 percent in 2006."

"The euro touched $1.2471 against the dollar, the highest since Sept. 7. The dollar dropped after U.S. reports showing higher-than- expected new home sales and orders for durable goods failed to allay expectations interest rates will rise faster in Europe than in the U.S. 'Any dollar weakness is supportive for gold,' said Frank Lesh, a futures analyst."

"'Everybody is looking at the end of the Fed tightening cycle,' Lesh said. A 5.25 percent rate won't be high enough to stop investment in precious metals, he said."

"Holders of the benchmark 10-year U.S. Treasury have lost 4.3 percent this year. Gold has gained for five straight years, outperforming returns on the 10-year bond in four of those years."

"Australia's BHP Billiton Ltd. said production will fall at its Cannington mine, the world's largest silver mine, driving prices of the metal higher."

Some bond market news. "Treasury debt prices extended their fall on Tuesday after a lackluster reception for an auction of 5-year Treasury Inflation-Protected-Securities dealt another blow to a market already reeling from strong economic data. Stronger-than-expected readings on consumer confidence and existing home sales had already prompted investors to raise bets that the Federal Reserve may push interest rates higher than currently thought."

"The market extended its losses after the TIPS auction met with tepid demand, traders said. 'The auction is lending some more weakness to the general tone of our market that started with the housing number this morning and this is not helping,' said Rick Klingman, head trader on the U.S. Treasury desk with ABN AMRO."

"Interest from indirect bidders, understood to include foreign central banks, was about 26 percent, down from an average of about 39 percent in the two 5-year TIPS auctions of 2005."

"The benchmark 10-year Treasury note was heading for its biggest daily rise in yield since July 2005. Bond yields and prices move inversely. Ten-year notes traded 22/32 lower in price for a yield of 5.08 percent versus 4.99 percent late on Monday."

"Five-year notes were down 12/32 in price to yield 4.99 percent, compared with 4.90 percent on Monday. Two-year notes were 4/32 lower in price for a yield of 4.96 percent from 4.89 percent late on Monday. The 30-year bond was down 1-8/32 for a yield of 5.15 percent from 5.06 percent."

And precious metals. "Silver futures closed almost 7% higher Tuesday as the first U.S. silver exchanged-traded fund appeared to move closer to launch. Gold prices rose more than $10 an ounce."

"Silver for May delivery rose 78.5 cents, or 6.7%, to close at $12.56 an ounce after reaching a high of $12.65. The contract lost 9.2% of its value on Monday as traders locked in some of the recent gains that pushed futures prices to a 23-year high last week. Prices also dropped almost 14% on Thursday."

"According to a regulatory filing Monday, Barclays Capital Inc. on April 21 deposited with the custodian of a planned silver exchange-traded fund 1.5 million ounces of silver to back 150,000 shares with each representing 10 ounces of silver. Indeed, 'it is another indication of imminent blessing,' said Jon Nadler, at bullion dealers Kitco.com."

"But (newsletter editor) Ned Schmidt argued that 'this deposit suggests that purchases of silver may not be necessary when the silver ETF begins trading.' 'This news, obviously not kept secret, was the likely reason for silver selling off last week,' he said."

"July platinum finished up $11.80 at $1,144.50 an ounce after reaching an all-time futures high of $1,144.80 earlier. June palladium rose $6.30 to close at $368.25 an ounce."

"Gold strengthened Tuesday as the dollar hit a fresh seven-month low against the euro. In New York trading, the dollar strengthened 0.1% to 114.84 yen. The euro rose as high as $1.2439 before slipping back to $1.2408, up 0.3%. The British pound was up 0.1% to $1.7867. The dollar was off 0.05% at 1.2684 Swiss francs. The euro rose 0.4% to 142.52 yen."

"The housing market is seen as a key element in the Fed's thinking on how far it should raise interest rates to stave off inflation. 'I suspect that the members of the Fed will be as confused about what is going on in the housing market as I am,' said (economist) Joel Naroff. 'The FOMC members probably would like to pause. But the data right now are not giving them much cover."

The precious metals are seeing some volitility. "Gold continued a rollercoaster ride on Monday, trading in a broad range below its 25-year peak, and silver took a beating, falling more than 8 percent. Some investors booked profits from highs and price dips attracted new buyers, but overall sentiment remained upbeat, traders said."

"Gold traded in a range of $20 an ounce, compared with an average $27 in the previous three sessions, but much higher than about $10 in the past weeks. Gold raced as high as $639 an ounce from $632.00/632.80 late on Friday, before dropping to an intraday low of $618.70. It was quoted at $622.80/623.80 in New York, against a 25-year peak of $645.75 on Thursday."

"A weak dollar first pulled more money into gold, before easing oil prices took some of the worry out of inflation concerns, prompting a wave of bullion sales, dealers said. Oil fell sharply after the Organization of Petroleum Exporting Countries promised to keep pumping near maximum capacity."

"Analysts said the dollar was under pressure after finance ministers of the world's biggest economies called for major exporting nations to allow their currencies to rise against the dollar to help resolve global imbalances."

"For the second time in three sessions, silver futures fell sharply largely due to more liquidation after a sharp run-up in recent weeks, analysts said Monday. Most-active May silver lost $1.190 to $11.775 an ounce on the Comex division of the New York Mercantile Exchange."

"'Really, silver had gotten too far in front of itself,' said Paul McLeod, vice president with Commerzbank. 'So we're seeing a pullback.' The challenge for traders now is finding technical levels to use as a basis for their trading, after the wide ranges that have been occurring lately, he commented. Intra-day ranges lately have been 'phenomenal' and the volatility is likely to continue, said McLeod."

"The May contract managed to get back to $13.32 overnight, but eventually turned south again and hit its weakest levels of the day just before the close. 'When the market failed to hold $13, I think it shook some confidence in the market a little bit,' said Jim Quinn, commodity floor analyst with A.G. Edwards."

"Some of the activity may have been options-related, and some was probably also tied to upcoming first-notice day for the May futures on Friday, said Quinn. 'Everybody is starting to roll out of the front and into the back a little bit,' he said. 'Nobody wants to be involved in the notices.'"

"McLeod suggested increased margins may have contributed to some of the selling. They were raised for Comex gold, silver and copper after Friday's close. 'The late speculators who came in may have thought it was too expensive to hold their positions,' he said."

"Much of the selling has been from managed-money accounts, said Quinn. 'The buying in here is dealer and it's scale-down,' he added."

"McLeod offered the view that the bulk of the selling pressure has been from traders exiting silver, rather than a large influx of fresh shorts. Sell stops accelerated silver's losses late in the session as it broke down below the area around $12.05 and dipped under $12, said Quinn."

"Platinum fell as low as $1,100 an ounce before recovering to $1,118/1,123, against $1,125/1,130. Palladium was down $2 at $353/358."

Forbes picked up the G7 news. "The dollar remained firmly on the backfoot after G7 countries called for emerging countries' currencies to be allowed to appreciate, particularly the Chinese yuan. Such a direct statement on the currency issue had been unexpected and it added to a string of dollar-negative issues in the market at the moment, including record high oil prices and the possibility of more central banks diversifying their reserves away from the dollar."

"UBS analyst Daniel Katzive said the G7 statement over the weekend could contribute to bringing concern over global imbalances back to being a key issue in currency markets, particularly after the IMF was 'unequivocal' in stating that a weaker dollar was likely to be part of global rebalancing."

"'The statement caps a week of official focus on the potential risks from and remedies for international imbalances, suggesting official focus on this topic has reached a new level of intensity,' he said."

"Katzive also noted a comment from Russia's central bank chief on Friday that the dollar was not the 'absolute' reserve currency, while a Qatar central bank official was reported this morning as indicating that the central bank is buying euros and could continue until a 40 pct allocation is reached."

Bloomberg has some currency reports. "The dollar may weaken on speculation falling home sales and slowing manufacturing growth will prompt the Federal Reserve to raise interest rates just once more this year, a Bloomberg survey showed. Sixty-two percent of the 53 traders, strategists and investors surveyed April 21 from Sydney to New York advised selling the U.S. currency against the euro. Fifty-eight percent forecast the dollar will decline against the yen."

"Lehman Brothers reiterated on April 20 that clients should sell the dollar against the currencies of Norway, Sweden and Switzerland as interest-rate support for the dollar falls. The firm predicts the dollar will drop to $1.25 against the euro and 105 yen this year."

"Net long positions, the difference in the number of wagers by hedge funds and other speculators on an advance in the euro versus a drop, rose to the highest since November 2004. The yen benefited from speculation the Group of Seven industrial nations would increase pressure on China to let its currency gain more rapidly. China is Japan's largest trading partner and a stronger yuan may boost Chinese imports of Japanese goods."

"The Group of Seven called on Asian nations, especially China, to allow their currencies to appreciate, in a statement released late on April 21. Stronger Asian currencies and less reliance on exports for growth can help reduce imbalances that jeopardize a 'strong' economic outlook, the officials said."

"'Cooling housing markets will have a negative impact on consumer spending and employment,' said Yuji Kameoka, a currency analyst and senior economist at a unit of Daiwa Securities Group Inc., Japan's second-largest brokerage. 'The dollar will be weak, as the U.S. economy is expected to slow down from now on.'"

And on New Zealand. "New Zealand's central bank Governor Alan Bollard will probably leave interest rates at a record high this week and signal no change this year because of the risk of inflation accelerating, according to economists. 'The housing market is not slowing sufficiently to comfort the Reserve Bank of New Zealand,' said Cameron Bagrie. 'Ensuring inflation expectations remain anchored will be the Reserve Bank's primary aim, and this will require the talk to remain tough.'"

"Adding to the pressure on prices, New Zealand's dollar is the worst-performing major currency this year, falling 8.2 percent to 62.8 U.S. cents in trading on April 21. Gasoline prices have increased 24 percent since the start of the year to a record NZ$1.68 a liter because of higher crude oil costs and the weaker currency."

"The economy contracted 0.1 percent in the fourth quarter and may have also shrunk in the first quarter, pushing the economy into recession, according to some analysts. 'We raise the prospect here that New Zealand has already fallen into a recession,' Brent Layton, director of the New Zealand Institute of Economic Research Inc., said, citing the institute's survey of trading across 551 businesses which showed 38 percent of companies had lower profits and 47 percent faced higher costs in the first three months of the year."

"The economy is at a 'virtual standstill,' said Brendan O'Donovan, chief economist at Westpac Banking Corp. in Wellington. He expects a rate cut in July."

Gold and silver end a wild week. "Gold futures climbed 2% Friday to recoup almost all of the previous session's loss; silver recovered from a two-week low. 'Although gold remains vulnerable to at least another bout of selling as we head into next week, the fact that it erased Thursday's losses demonstrates (for the time being) the fact that this bull is alive and kicking,' said Jon Nadler, at bullion dealers Kitco.com."

"Gold for June delivery rose $12.40 to close at $635.50 an ounce on the New York Mercantile Exchange, rebounding from a $12.90 pullback on Thursday. It closed up 5.9% from last Thursday's close, which was the final trading day for last week."

"'Iran's continuing stubborn stance, Russia's back-pedal posture against Iranian retributions, $75 per barrel oil, and continued worries about the day of reckoning for the dollar outweighed the nice feelings that most profit-takers experienced on Thursday,' said Nadler."

"Market strategist Emanuel Balarie said a pullback below the $600 level could be triggered by 'some heavy profit selling.' However, 'pullbacks and consolidations along the way are good for the long-term movement of this gold bull market,' he said, adding that these serve 'the purpose of shaking loose speculators and short-term traders that do not believe in the longevity of this bull market.'

"'In either case, I still expect gold prices to now break $700 before the end of the year,' Balarie said."

"Silver prices bounced higher following Thursday's nearly 14% drop. May silver closed up 44 cents, or 3.5%, at $12.965 an ounce, but not before touching a two-week low of $12.15 during the session. Futures prices reached a 23-year high of $14.575 on Wednesday. They're up 0.9% for the week. 'Silver has good interest around $12, but $10 remains in the cards,' said GoldSeek.com's Peter Spina."

"'Follow-through selling in the current volatile market could see silver dip to $11.25-$11.50, but with ETF speculation still rife funds/speculators will still be keen to buy dips,' said TheBullionDesk.com's James Moore."

"July platinum moved up $30.40, or 2.7%, to $1,139.20 an ounce after a record of $1,140.90. The contract gained 4.6% for the week. June palladium closed at $359.80, up $9.90 for the day and up 3% for the week. The Amex Gold Bugs Index tacked on 4% to close at 373.68, just shy of a record set at 385.37 on Wednesday. The benchmark dropped 6.7% on Thursday, but still gained 7.2% for the week."

"'The gold market held its ground,' said Daniel Vaught, an analyst at A.G. Edwards. 'That it stayed well above $600 in the face of the silver sell-off convinced investors that it's still involved in a bull market.'"

"Some investors recommended selling gold and buying silver after silver dropped more than gold, narrowing the ratio between the metals. 'Buying silver and selling gold this morning might well be the way to go,' said Dennis Gartman, editor of the Gartman Letter. Yesterday, it took about 44 ounces of silver to buy an ounce of gold. Today, it takes about 50 ounces, he said."

Some US dollar news. "The euro spent most of the Asian session and the early part of European trade mired below the 1.2300 figure until news that the Swedish Central bank made a major change in its foreign exchange reserves catapulted the currency higher. The pair rose 50 points in a matter of 5 minutes."

"In an announcement on its website the Riksbank noted that it reduced its dollar denominated assets from 37% to 20% while increasing its holding of euros from 37% to 50% of total reserves. Reserve diversification by central banks has been a key driver of dollar weakness this year and tonight’s news further serves to reinforce the notion that the greenback may be under more structural pressure going forward."

"'Many might see this as a signal of a wider trend that dollar holdings might eventually be cut,' said Naomi Fink, currency strategist at BNP Paribas. 'It did have an impact on the market, although this is not representative of how global reserve holders are going to allocate their reserves. The market is much more interested in larger reserve holders,' Fink said."

"In New York trading, the euro rose 0.5% to $1.2338, while the dollar was down 0.5% at 116.92 yen. The dollar weakened 0.3% against the British pound, with one pound fetching $1.7820. The dollar also changed hands at 1.2748 Swiss francs, down 0.4%."

"Also on Friday, Russian Finance Minister Alexei Kudrin said that the dollar wasn't the absolute reserve currency and that the U.S. swelling deficit could affect its stability eventually."

"The news from Sweden and Russia followed comments in the past month by Middle Eastern central banks that they're looking to diversify reserves away from the greenback and raise the euro's weighting. Chinese officials have also repeatedly suggested that Beijing should gradually stop buying dollar-denominated bonds."

"'Reserve diversification by central banks has been a key driver of dollar weakness this year and this news further serves to reinforce the notion that the greenback may be under more structural pressure,' said Boris Schlossberg, currency strategist."

"But Marc Chandler, global head of currency strategy at Brown Brothers Harriman, noted that while the Swedish announcement 'caught the market a bit wrong-footed,' it's not 'as dollar negative as initial market reaction may suggest. There does appear to be an adjustment of reserve composition, but an orderly implementation of it need not impact prices, nor does it change the role of the dollar in the world economy. It remains the single largest reserve asset,' he said."

"The dollar fell four sessions out of five this week as traders scaled back expectations that the Federal Reserve will continue to hike interest rates aggressively."

A report on what happened today in the metals arena. "Gold and silver were batted away from earlier 25-year and 23-year peaks on Thursday, triggering a widespread sell-off across the commodities arena. 'Fund profit-taking caused the rally to stall, triggering further long liquidation, with the resulting sell-off in a largely one-way market causing metals to drop like a stone,' said James Moore."

"Spot gold touched $645.75 an ounce, the highest since November 1980, but subsequently fell to as low as $608.50. It steadied at $619.20/620.00 in late New York trade, against a quote of $633.70/4.50 late on Wednesday."

"Spot silver shot to a new 23-year peak of $14.68 an ounce, but later traded at $12.43/12.46, down sharply from the previous $14.60/14.63."

"'Has it done any damage, or is it just a correction in an upward trend? That‘s a tough call,' Stephen Briggs, metals economist said. 'It certainly reminds people that even commodities, with the euphoria surrounding them, are not a one-way bet the whole time. Up until today, we were getting into bubble-like territory,' he added."

"Silver futures in New York dropped by as much as 19 percent in the frenetic sell-off in metals Thursday, with a limit-down move prompting trading to be briefly halted. May delivery silver at the New York Mercantile Exchange‘s COMEX division plunged $1.9970, or 13.8 percent, to settle at $12.5250 per ounce."

"But, with oil prices not far from fresh record highs around $74 a barrel and tensions between Iran and the West over nuclear issues, gold was likely to remain in demand as a safe haven, analysts said. Expectations of further dollar weakness ahead was also cited as a price-supportive factor. 'My gut feeling is that it is not the end of the story for gold. Iran hasn‘t gone away, there is probable dollar weakness,' Briggs said."

"Platinum dropped to $1,097/1,102 an ounce in New York from $1,117/1,121, and well off a new record of $1,130. Palladium was down at $346/351 from $367/371."

The New York Times has this report on derivatives. "Once used almost exclusively by corporate risk managers, derivatives have recently become a popular tool for local governments seeking to reduce their cost of borrowing. Instead of simply issuing bonds, as they did in the past, governments now often issue bonds and simultaneously enter into derivatives contracts, usually of a type known as interest rate swaps."

"After watching hundreds of towns, school districts, power utilities, port authorities and other government bodies plunge headlong into the derivatives markets over the last few years, accounting rule makers have decided those governments should reveal the extent of their involvement with the exotic instruments, and spell out what risks they may pose for taxpayers and bondholders."

"Some of the renewed enthusiasm was apparently kindled by swap contracts that included big upfront payments to the governments, a powerful temptation for officials struggling to balance their budgets. When swaps perform as advertised, they do indeed make it cheaper for governments to borrow. But when something goes wrong, they can wreak havoc."

"'The public needs to better understand the nature of these transactions,' said Robert H. Attmore, chairman of the Governmental Accounting Standards Board, an independent group that writes accounting rules for state and local governments. The seven-member board voted Tuesday to proceed with a project to make governments provide much more information about their use of derivatives."

"One example of what can go wrong is now playing out at the Delaware River Port Authority, which handles bridges, railroads and other transportation services near Philadelphia for Pennsylvania and New Jersey. In 2001, the port authority was planning to sell $358 million of bonds. Officials wanted to economize by using a floating interest rate."

"But the port authority also wanted to protect itself from future interest rate increases. So it struck a side agreement with UBS Securities, involving a type of derivative called an interest rate swap option, or swaption. The terms meant that UBS would get the larger payment if interest rates fell below a certain point, and the port authority would get larger payments if rates rose above it. The swap was thus meant to serve as a hedge for the port authority."

"Before the bonds could be issued, the governors of Pennsylvania and New Jersey had a falling-out over plans to dredge a long stretch of the Delaware River. That caused a split on the port authority's board, making it impossible to issue the bonds. Meanwhile, interest rates have remained low, prompting UBS to exercise its swap option and start collecting its money. Now the authority must make payments to UBS every month, even though the bonds were never sold."

"The port authority's recent financial statements do not show that the problems were looming. In 2003, the port authority did disclose, in its footnotes, that it had entered into several interest rate swap options in exchange for upfront payments totaling $40 million from three financial services firms. The footnotes explained that the port authority would be exchanging a stream of payments with UBS for many years if UBS exercised its option. But they did not show how big the payments might be, or explain the risks."

"Peter L. Block, a director in Standard & Poor's government ratings division, said analysts like him were eager to see what would show up once the new accounting procedures come into force. Mr. Block said he was guessing that most swaps would pass the coming accounting test. 'If 98 percent are stable,' he said, 'you want to know about the 2 percent that aren't, because you might have big exposure to them.'"

Bloomberg reports on high flying precious metals. "Gold rose to a 25-year high and silver topped $14 an ounce for the first time since 1983 as investors snapped up precious metals to hedge against inflation. Gold futures for June delivery climbed $12.70, or 2 percent, to $636 on the Comex division of the New York Mercantile Exchange, after earlier reaching $637.40. Gold for immediate delivery rose $17.43, or 2.8 percent, to $638.50 at 7:36 p.m. in London, gaining for the fourth straight session."

"The rally in consumer prices last month, tame compared with the gains of more than 12 percent in 1979 and 1980, will spur gold higher, analysts said. 'It was only a matter of time until rising costs reached a point where they were going to be passed along' to consumers, said Michael Alfstad. 'That will add to the building interest in gold. $600 will not be the last threshold that is exceeded before this year is done.'"

"Jim Rogers, the former George Soros partner who foresaw the start of a commodity rally in 1999, said gold may reach $1,000, surpassing an all-time high of $873 reached in 1980."

"Higher costs for energy fueled this year's rally in precious metals just like it did in 1980, analysts said. Oil prices more than doubled in 1979 after a revolution in Iran slashed the nation's oil exports. By 1981 U.S. refiners were paying an average $35.24 a barrel, or $78.50 in 2006 dollars, Energy Department figures showed."

"Silver for May delivery rose 77 cents, or 5.6 percent, to $14.555 an ounce on the Comex, after reaching $14.575, the highest since February 1983. Silver's gain was the biggest fluctuation of any commodity today."

"'The bull market in gold is young, but silver looks to be in a blow-off phase,' said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York. 'The top could coincide with the ETF introduction.' Gold and silver are both vulnerable to short-term declines, analysts said. The relative strength index for both metals rose above 70 today. Readings above 70 indicate prices may be poised to fall."

"'The commodities keep on rolling on the upside that you have enough hedge funds out there that believe in the rally,' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. 'This is an overreaction, and you're susceptible to a decent- sized correction.'"

Using the inflation calculator located in this blogs sidebar, one finds that a $14.57 ounce of silver bought should cost $29.62 if it was a typical good or service. An ounce of gold purchased in 1980, as this article notes, was around $873. Using the calculator, that amount is $2,145 in todays' dollars.

The IMF has a report out today calling for a lower US dollar. "Restoring balance to the world economy will require shifts in global demand and exchange rates, and governments must not stand in the way of the process, the International Monetary Fund said on Wednesday. The IMF renewed a warning about the threat posed by trade distortions, saying a fall in the dollar and a rise in some Asian currencies is one prerequisite to resolving them."

"IMF chief economist Raghuram Rajan later said while the fund was not urging a weaker dollar, it was pressing governments to remove rigidities in foreign exchange markets."

"'I'm not asking for a depreciation of the dollar by any means,' he told a news conference. 'Exchange markets do what they do. What is important is to allow them to do what they do, which is to remove rigidities in areas where those rigidities exist so that exchange rates can support the adjustment,' he added."

"The fund lamented the lack of action to tackle this risk, citing only 'modest signs' of improvement in U.S. savings, limited adjustments in exchange rate policies in emerging Asia, and more room for reforms in the euro zone and Japan. 'An orderly resolution of global imbalances will require measures to facilitate a rebalancing of demand across countries and a realignment of exchange rates over the medium term,' the IMF said, saying this means the U.S. dollar would need to fall significantly as currencies in surplus countries, such as some in Asia and oil producers."

"'The longer the adjustment is delayed, the larger these exchange rate adjustments will ultimately need to be and the greater the risk of overshooting,' it added."

"Energy prices were also a growing peril, the fund said. 'Looking ahead, limited excess capacity in the oil sector is likely to persist well beyond 2006 and prices will continue to be susceptible to geopolitical events,' the fund said."

"Economists are uncertain how the massive shortfall in the U.S. current account, the broadest measure of trade and investment flows, will resolve itself. The IMF suggested the imbalances could be resolved through a private-sector led adjustment without government action, a process that would see U.S. private savings rise gradually as interest rates increase and the housing market slows, accompanied by exchange rate adjustments."

"A more abrupt and disorderly unwinding could spark a messy dollar slide, a larger increase in interest rates and a sharp economic contraction or recession."

The Labor Department has this report on inflation. "Clothing and shelter costs in March spurred the biggest rise in core U.S. inflation in a year, the government said on Wednesday in a report that cast doubt on a quick end to Federal Reserve interest-rate rises. Energy prices helped push the overall consumer price index up a steep 0.4 percent. Excluding food and energy prices, the index advanced 0.3 percent, a bit more than forecast."

"'This is not good news,' said (economist) Robert MacIntosh. 'That should take the punch bowl away for today.' Prices for U.S. government bonds fell, the dollar rose and stock futures pared gains as traders increased bets that two more rate hikes may lie ahead, rather than just one."

"Despite the gain in core prices, the 12-month rate of advance remained at a relatively benign 2.1 percent. The 12-month gain in overall consumer prices slowed to 3.4 percent from the 3.6 percent rise registered through February. Energy costs shot up 1.3 percent last month, reversing a 1.2 percent February drop. Gasoline prices increased 3.6 percent, while natural gas costs fell 4.3 percent."

"The rise in consumer prices ate into Americans' spending power, with inflation-adjusted earnings falling 0.3 percent in March. Over the past year, real earnings have risen a scant 0.1 percent."

"Fed officials are counting on a slowing U.S. housing market to keep the economy from overheating, and there have been numerous signs a long housing boom is simmering down. The latest indication was a report from the Mortgage Bankers Association on Wednesday that showed mortgage applications fell last week for a second consecutive time as mortgage rates reached new multiyear highs."

Bloomberg reports on another amazing trading day. "Gold rose above $620 an ounce, the highest since 1980, as record oil prices and a drop in the dollar prompted some investors to buy bullion seeking a hedge against inflation. Gold has jumped 20 percent this year as oil climbed to a record $71.60 a barrel today. Gold prices are up 45 percent in the past year. Gold futures for delivery in June rose $4.50, or 0.7 percent, to $623.30."

"Silver for May delivery rose 42 cents, or 3.1 percent, to $13.785 an ounce on the Comex, after reaching $13.82. Prices are up 55 percent in this year.

"'Institutions are looking to hedge themselves against weakness in the dollar and inflationary threat,' said Brian Hicks. 'Gold can go much higher. It hasn't eclipsed its previous highs.''

"Mounting tensions over Iran's nuclear program helped sustain gold's 3.1 percent gain yesterday, the most since Sept. 11, and helped boost the price of oil. Iran is the world's fourth-largest producer. The prospect of a weaker dollar has also helped boost gold, analysts said. The U.S. currency neared its lowest against the euro this year after a report showed U.S. housing starts slowed last month, suggesting a weakening economy."

"'The strength in gold is revealing the general weakness in the dollar,' said Peter Schiff. Gold moved in tandem with the euro from 2002 to 2004. The relationship changed last year when gold gained 18 percent as the dollar climbed 14 percent against the euro."

"'A lot of demand for commodities is purely inflationary,' Schiff said. 'Money is losing value. It's not just the dollar. It's the euro. It's the yen. All these currencies are being debased.'"

"The dollar extended losses against major rivals Tuesday after minutes from the latest Federal Reserve monetary-policy meeting suggested the policy-making board could be at the end of its cycle of tightening interest rates."

"In late New York trading, the dollar was changing hands at 117.09 yen, down 0.6% from late Monday. The euro was up 0.8% at $1.2351. The British pound rose 0.8% to $1.7830, while the dollar was last down 0.9% at 1.2686 Swiss francs."

Bloomberg reports this mornings' data is undermining support for the US dollar. "The dollar neared its lowest against the euro this year as investors pared bets the Federal Reserve will raise interest rates two more times after reports showed housing starts slowed and inflation remained tame."

"The dollar extended its drop a fourth day as speculation mounted that the central bank may pause in its rate raising campaign after it meets on May 10. Concern growth in the world's largest economy will slow prompted the dollar yesterday to slide the most against Japan's currency since March."

"The dollar dropped to $1.2276 against the euro at 11:51 a.m. in New York, from $1.2250 yesterday. It earlier reached $1.2302, nearing $1.2332, the low for this year reached on April 6. The U.S. currency weakened to 117.71 yen, from 117.81."

"'The fact that the housing numbers were lower than expected, that is a red flag,' said Matthew Lifson, chief currency trader at PNC Capital Markets. 'The U.S. economy may begin to slow.'"

"Investors are looking to the minutes from the Fed's last monetary policy meeting later today for signs of whether central bankers favor additional interest rates increases this year."

"The Wall Street Journal on April 14 reported that some Fed officials aren't convinced rates will need to rise as much as investors expect. The U.S. currency has declined about 3.7 percent this year versus the euro on anticipation higher borrowing costs are slowing growth. It is little changed in 2006 against the yen."

"The dollar gained about 14 percent last year against the euro and yen, as rising rates made U.S. assets more attractive to foreign investors. That may begin to change as the Fed stops raising rates while the European Central Bank and Bank of Japan are expected to raise rates through the year. The difference, or spread, between yields on U.S. 10-year Treasury notes and similar maturing German debt was 1.05 percentage points today. It narrowed to less than 100 basis points earlier this month and has averaged 51 basis points over the last five years. The spread between U.S. and Japanese debt was 304 basis points."

Bloomberg has the latest on precious metals. "Gold rose the most since the Sept. 11 terrorist attacks on concern that the dispute over Iran's nuclear program will disrupt oil exports and spur inflation. Silver topped $13 an ounce for the first time since 1983. Gold is the highest in 25 years on concern that gains in energy and metals prices will boost the cost of consumer goods. Oil jumped to a record high today in London."

"'We're in the throes of a protracted bull market,' said Frank McGhee, metals trader in Chicago. 'This is a fund-buying frenzy. It's being fed by investor interest. You're seeing the metals inflating against all paper currencies.'"

"Gold futures for June delivery rose $18.70 to $618.80 an ounce on the Comex division of the New York Mercantile Exchange, after reaching $619.30. the 3.1 percent gain was the biggest since Sept. 14, 2001, the first day of trading after the terrorist attacks."

"Silver rose 51 cents, or 4 percent, to $13.365 an ounce on the Comex, after earlier reaching $13.38, the highest since March 1983. Silver has jumped 89 percent in the past year."

"'It was a perfect storm for gold today,' said David Meger, an analyst in Chicago. 'Lower dollar. Higher oil prices. Base metals rallying. Commodity interest across the board. Funds are not afraid of buying on new highs.'"

"Hedge-fund managers and other large speculators increased their net-long position in Comex gold by 30 percent in the four weeks ended April 11, reports from the U.S. Commodity Futures Trading Commission show."

"Gold sold in yen has gained 19 percent this year while gold sold in euros has climbed 15 percent. Last year, the metal gained 36 percent in both currencies while gold sold in dollars gained 18 percent. 'Gold is a currency,' said George Ireland."

And a Bloomberg columnist thinks inflation is higher than reported. "I'm convinced there's a much more insidious story that needs to be told as the bond and precious-metals markets gyrate daily over perceived inflation threats. If the full impact of consumer-price increases were accounted for, investors would have a lot more to worry about, and you should prepare for a threat that's much greater than Labor Department reports indicate."

"The government has a vested interest in keeping official inflation measures low. Everything from Social Security cost-of living increases to marginal tax rates is adjusted annually to this all-important gauge. 'It's hard to argue that the average person has seen a 3 percent CPI,' analyst Jim Floyd says. 'If you've had surgery, paid for college or bought a house recently, it's hard to buy even a 3.5 percent inflation rate.'"

Market Watch reports on the uncertain trading ahead this week. "The dollar traded sharply lower early Monday, sliding to a more than one-week low versus the euro and yen, as traders cautiously awaited a flurry of economic data for clues on the U.S. economic and inflation outlook. In early New York trading, the euro rose to $1.2240, up 1.1% from late Friday. The dollar changed hands at 117.75 yen, down 0.8%. The dollar weakened 1.3% to 1.2815 Swiss francs, while the pound rose 1.2% to $1.7704."

"Earlier, the dollar showed little reaction to weaker-than-expected data showing manufacturing activity in the New York area slowed in April. The Empire State Manufacturing index fell to 15.8 in April from a revised 29.0 in March New York Federal Reserve Bank said. Economists were expecting the index to fall to 24.5."

"The dollar also weakened after reports from China that Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, called for authorities to gradually reduce their purchases of U.S. debt and instead focus on buying more physical goods from the U.S."

"Such a measure, in the short-term, 'may only exacerbate dollar's troubles as China has become the second largest holder of dollar reserves in the world and therefore represents pivotal buying demand for U.S. debt obligations,' said Boris Schlossberg, senior currency strategist."

"On Tuesday, the Federal Reserve will also be releasing the minutes from their March 28 monetary policy meeting, which is also the very first meeting that Ben Bernanke served as Fed Chairman. 'Market players don't want to be caught the wrong way here going into a very heavy data week in the U.S.,' said Michael Woolfolk, senior currency strategist at the Bank of New York."

"Kathy Lien said with oil prices making new record highs, 'inflation figures this week should be good for the dollar as well, which means that we are setting up for a dollar positive week .'"

The International Herald Tribune has this update on the situation in Iceland. "This tiny windswept island nation of 300,000 people has undergone one of the fastest, fizziest economic transformations in the world in recent years, one that is on par with the expansion enjoyed by many of the world's fastest-growing emerging markets."

"Thanks to the opening of its financial markets and a flow of money from international investors lured by its high interest rates, Iceland has quickly morphed into a European mini-titan. The local stock market, created in 1985, has been the best performing Western market for four years in a row."

"But Iceland's ascent has hit a speed bump in the past several months. Concerned that the economy has overheated, and anxious to cash in on their gains, some global investors, including hedge funds, have withdrawn money from Icelandic markets. This pullback has caused the main stock index to fall 18 percent, and the currency, the krona, to weaken. Analysts and investors have weighed in, seeing a cautionary tale for other fast-growing emerging markets as Iceland's economic miracle melts away."

"The concern is 'not that Iceland directly causes other problems,' said economist Brad Setser. Instead, Iceland could remind investors that 'things can turn around' in countries with a big current account deficit, a hot housing market and an overvalued currency."

"'Many countries have the same macroeconomic configuration of Iceland,' economist Nicolas Bouzou said. That configuration, he said, includes a 'real estate bubble, very strong credit expansion and a very high commercial deficit.' The same could be said of New Zealand, Australia and even the United States, he added. It is always a small event, Bouzou said, that triggers what he called 'systematic crashes.'"

"Iceland's harshest critics have come from Denmark, which for centuries held it as a colony until Iceland declared independence in 1944.

"'Iceland looks worse on almost all measures than Thailand did before its crisis in 1997, and only moderately more healthy than Turkey before its 2001 crisis,' Danske Bank analysts wrote in a report last month."

"Lars Christensen, one of the authors of the Danske report, briskly summarized his thesis. 'Markets are increasingly focused on the financing of imbalances,' he said, because 'global liquidity is getting tighter.' And the countries with the biggest imbalances, he said, are Hungary, New Zealand and Iceland."

"'I don't think Iceland is doomed,' he said. 'With every good party there is a hangover.' He pleaded with Iceland's banks to pull back on lending, the better to 'be able to start another party.'"

The International Herald Tribune has this update on the situation in Iceland. "This tiny windswept island nation of 300,000 people has undergone one of the fastest, fizziest economic transformations in the world in recent years, one that is on par with the expansion enjoyed by many of the world's fastest-growing emerging markets."

"Thanks to the opening of its financial markets and a flow of money from international investors lured by its high interest rates, Iceland has quickly morphed into a European mini-titan. The local stock market, created in 1985, has been the best performing Western market for four years in a row."

"But Iceland's ascent has hit a speed bump in the past several months. Concerned that the economy has overheated, and anxious to cash in on their gains, some global investors, including hedge funds, have withdrawn money from Icelandic markets. This pullback has caused the main stock index to fall 18 percent, and the currency, the krona, to weaken. Analysts and investors have weighed in, seeing a cautionary tale for other fast-growing emerging markets as Iceland's economic miracle melts away."

"The concern is 'not that Iceland directly causes other problems,' said economist Brad Setser. Instead, Iceland could remind investors that 'things can turn around' in countries with a big current account deficit, a hot housing market and an overvalued currency."

"'Many countries have the same macroeconomic configuration of Iceland,' economist Nicolas Bouzou said. That configuration, he said, includes a 'real estate bubble, very strong credit expansion and a very high commercial deficit.' The same could be said of New Zealand, Australia and even the United States, he added. It is always a small event, Bouzou said, that triggers what he called 'systematic crashes.'"

"Iceland's harshest critics have come from Denmark, which for centuries held it as a colony until Iceland declared independence in 1944.

"'Iceland looks worse on almost all measures than Thailand did before its crisis in 1997, and only moderately more healthy than Turkey before its 2001 crisis,' Danske Bank analysts wrote in a report last month."

"Lars Christensen, one of the authors of the Danske report, briskly summarized his thesis. 'Markets are increasingly focused on the financing of imbalances,' he said, because 'global liquidity is getting tighter.' And the countries with the biggest imbalances, he said, are Hungary, New Zealand and Iceland."

"'I don't think Iceland is doomed,' he said. 'With every good party there is a hangover.' He pleaded with Iceland's banks to pull back on lending, the better to 'be able to start another party.'"

A survey on gold was recently released. "Gold may post further strong gains in the next two years, and even surpass the 1980 high of $850 an ounce, as the U.S. economy slows and the dollar loses ground. That's the key finding of the GFMS Gold Survey 2006."

"'Levels safely over $600 are now in our sights and further hefty gains over the next year or two are quite possible, in the right circumstances, the 1980 high of $850 could even be taken out,' said Philip Klapwijk, chairman of the independent precious metals research consultancy. Gold will continue to find support from inflationary pressures and political tensions in the Middle East, retaining its role as a safe-haven investment."

"GFMS believes this phenomenon is still at its early stages but would not be surprised to see longer-term investors like pension funds enter the commodities market, propelling gold prices even higher. 'You're playing with fire if you ignore the weight of money argument, looking ahead into 2006,' said Klapwijk. 'We'd only need to see a tiny slice of mainstream assets diverted into gold, which comparatively is a pretty small market, and the price could really take off.'"

"One factor that could weigh against the price is declining demand. The survey found that in 2005, jewelry demand rose by almost 100 tonnes, with most of that strength coming in the first half when the price was still in the low $400s and Asian gross domestic product growth robust. Demand weakened sharply in the fourth quarter, notably in countries like India, a big gold consumer, as the rally took off and prices became more volatile."

"'From what we've heard for the first few months of this year, we could see jeweler demand slumping back almost 500 tonnes for the full year,' said Klapwijk.
'That'd leave jewelry offtake some 400 tonnes below mine production. That's just not sustainable in the long term.'"

"Mine production rose 2% in 2005 to more than 2,500 tonnes, the survey found, mostly due to a recovery at the giant Grasberg mine in Indonesia following landslides in 2003, and record output at Peru's Yanacocha mine."

A pair of reports on the international finance scene. "U.S. 10-year Treasury note yields rose to 5 percent for the first time since June 2002, a harbinger of higher borrowing costs for everything from home loans to corporate bonds. Investors are pushing yields higher to compensate for the risk economic growth will cause inflation to accelerate, leading the Federal Reserve to add to 15 interest-rate increases."

"'People are going to hear about it tonight on the TV, the highest yields in four years,' said William Hornbarger, chief fixed-income strategist at A.G. Edwards Inc., which manages about $331 billion. The yield may climb to 5.38 percent by mid-year, he said."

"Yields also are rising on speculation that higher short-term interest rates and improving economic growth prospects in Japan and Europe will entice people in those regions to invest domestically rather than in U.S. Treasuries. 'We underappreciated the force of foreign buying in anchoring down rates,' said John Ryding, chief economist at Bear Stearns Cos. 'But it looks now that that's not the case, that maybe some of that foreign support is diminishing. We saw rising bond yields globally last night in Japan and in Europe as well.'"

From Business Week. "Central bankers trying to control inflation may have to work harder in the future as oil prices remain high and corporations begin spending cash reserves, the International Monetary Fund said Thursday. The international lending organization said that while globalization has provided some brake on inflation in recent years, it cannot be relied upon to do so in the future."

"'Despite having been helpful in the past, globalization may not be a crutch for central banks to lean on going forward,' said Raghuram Rajan, the IMF's chief economist."

"Adding to the risk is the possibility of further, partly globalization-related commodity price increases, including oil whose price at times has neared record levels of $70 a barrel. The forecast concludes that the contribution of higher oil prices to the trade deficits which many countries, including the United States, are running, 'will persist longer than in the past, adding to the risks associated with these imbalances.'"

"The IMF said the lack of adjustment in these imbalances is a concern. 'The large current account deficit in the United States increases the risk of a downward adjustment of the U.S. dollar, which would push interest rates up sharply and possibly lead to a recession,' the forecast said."

"The IMF defines globalization as the acceleration in the pace of growth of international trade in goods, services and financial assets, overlapping in many countries with economic and financial deregulation and with the information technology revolution."

Gregory Karp at the Allentown Morning Call has this column on spending. "There was a time when it might have seemed outrageous that Americans spent $36 billion a year on their pets, including custom-made parakeet caskets. But no more. The benchmark for sane spending has shifted, often crossing a line into the ludicrous, contends Sarah Ball Teslik, CEO of the Certified Financial Planner Board of Standards. Teslik recently wrote an article called 'Parakeet Funerals,' delving into the absurdity of keeping up with the Joneses, which today has become an all-out sprint."

"It's natural to set your own spending standards by what your neighbors are buying. 'The trouble is, our neighbors are wacko,' Teslik said in an interview."

"Many Americans claim they cannot save enough money for their future. But they collectively spend billions of dollars on smoking, gambling, electronics and chocolate, Teslik said."

"But Teslik doesn't blame you for overspending. She's becoming more convinced that it's simply human nature, and we've always been like this. An intense impulse to consume immediately serves us well in times of scarcity. But in an era of overabundance, coupled with the availability of easy credit, that impulse has led consumers to spend their heads off."

"Consider the following: In the 1950s a third of American homes didn't have complete indoor plumbing. Today, many newly built homes have three toilets. And despite the ease of getting drinkable water from their plumbing, Americans today spend nearly $10 billion a year on bottled water because, well, just because."

"By the end of the 1950s one in five American households had no access to a telephone. In 1953 just two-thirds of homes had even a black-and-white television."

"Presumably children born in the 1950s and today would be basically the same, but expectations sure have changed. Try taking away the Xbox video game console or iPod and giving them a Hula-Hoop or clump of Silly Putty."

"Credit cards were in their infancy in the 1950s, and nobody used them for everyday purchases. But now, anybody who can fog a mirror can get a credit card and instantly separate their consumption from payment. 'I remember the cash, and I equate it to my credit card. My kids don't,' Teslik said. 'This divorcing of cash from the spending of cash is huge. You can hit zero and go below zero with a credit card, whereas you can't' with cash."

"'It's not that human nature has changed. It's just the ability to spend tomorrow's earnings as well as today's is new,' she said."

"So it's clear that although Americans of the 1950s were happy, they didn't live better. We just expect more now. If we could readjust our expectations and live just a little more like the '50s, maybe we'd feel more comfortable not spending on parakeet funerals."

Market Watch has some trading numbers. "Gold futures closed below $600 an ounce Tuesday, reflecting traders' wariness about the metal's lofty level, but silver inched higher with concerns about Iran's nuclear activities helping to fuel buying. 'Gold is testing the waters around $600, but with oil near $70 and strong demand out of Asia, gold will have difficulty moving much lower,' Peter Spina said."

"Gold for June delivery climbed as high as $605.60 an ounce on the New York Mercantile Exchange after tapping $608.40 in electronic dealings. The contract closed Tuesday at $599.40 an ounce, down $2.40 for the session. May silver closed up 4 cents at $12.60 an ounce after reaching $13.01 an ounce overnight. July platinum eased $11.30 to finish at $1,094.60 an ounce, after touching a record $1,111 overnight, on concerns about a furnace shutdown at Lonmin's Marikana operations caused by a leak. Lonmin is the world's third-biggest platinum producer. June palladium fell $13.85 to close at $346 an ounce."

"On Monday, gold futures closed above $600 after the New Yorker magazine reported that the United States is stepping up preparations for a possible air attack on Iranian nuclear facilities, which may involve the use of nuclear weapons against fortified underground sites. The Washington Post carried a similar weekend report. 'Iran has moved to the front pages of investors' attention, said Spina. 'It is clear Iran is provoking the United States.' This much 'is reflected in the price of gold where investors seek refuge in time of instability.'"

"Iran's hard-line president said Tuesday that the country 'has joined the club of nuclear countries' by successfully enriching uranium for the first time. 'I formally declare that Iran has joined the club of nuclear countries,' he said. The crowd broke into cheers of 'Allahu akbar,' or 'God is great.' As part of the ceremony, costumed dancers performed on the stage, holding aloft vials of raw uranium and also chanting 'Allahu akbar.'"

And there is a central bank talking about selling gold. "The chief of the Central Bank of France said that the bank has sold 161 tonnes of gold in 2005, for a value of $2.30 billion, Reuters reported. Bank of France Governor Christian Noyer declined to comment on the pace at which the central bank would sell gold in 2006, saying only it would depend on market conditions and take place in conformity with an accord by central banks."

"The Central Banks' Gold Agreement, which came into force in September 2004, bound banks to cap their total sales at 2,500 tonnes in the 2004-2009 period, compared with 2,000 tonnes in the previous five years.'

"The official said that the central bank would use revenues generated from its gold sales to invest in foreign exchange."

The Australian reports on an interesting turn of events. "It could soon be worthwhile for Americans to melt down their pennies for scrap, if zinc and copper prices continue their current rate of increase. Copper prices have risen 30 per cent this year, and zinc is up 55 per cent, a rise of about $US550 a tonne in a little more than three weeks. Another rise of the same magnitude would make the metal content in the US 1c coin worth more than its face value."

"There are 160 pennies in a pound, worth a face value of $US1.60. With each penny made of 97.5 per cent zinc and 2.5 per cent copper, based on current prices the metal value is worth about $US1.36. Therefore another 25c a pound rise in zinc, or about $US551 a tonne, would see the metal value of the US penny worth more than the monetary value."

"Market analysts do not rule out such a rise in the zinc price. 'Zinc prices have already risen further than what most people had ever thought but that is not to say there cannot be further gains,' said Ingrid Sternby, metals analyst at Barclays Capital. 'Could we see another $US500 on zinc? It's possible,' she said."

"But Ed Yardeni, who drew attention to the penny's rising scrap value, said: 'Don't bother melting the pennies just yet. However, at the rate that metal prices have soared since the end of last year, there might soon be an arbitrage play between pennies and zinc,' Mr Yardeni said."

"Europeans would not be facing the same dilemma as their US counterparts should prices continue to soar. Euro coins are mostly made of steel, which would require a doubling in the steel price before it would become economic to melt the 1c euro coin."

CCN reports the precious metals had another good trading day. "U.S. benchmark silver futures shot up 4 percent to settle at a 23-year high on Monday, powered by robust investor buying and gold futures' climb above $600 per ounce, analysts said. May delivery silver on the New York Mercantile Exchange's COMEX division jumped 49 cents to end at $12.56 an ounce."

"'We now see silver at $14/oz in one month and $16/oz in three months, compared to our previous forecasts of $10.50 and $11/oz previously,' John Reade, analyst with investment bank UBS, said."

"June gold advanced $9.10 to $601.80 an ounce, trading from $592.60 and $602.80. NYMEX July platinum rose $28.90 to $1,105.90 an ounce, after futures hit a new all-time high of $1,108. Spot platinum traded at $1,087/1,091. June palladium gained $6.70 to $359.85 an ounce. Its early peak at $364 marked its highest since September 2002. Spot palladium was worth $354/360."

And the Financial Times found a gold bear. "I went to find one of the world’s few remaining gold bears. He didn’t want to be identified, not even by which hemisphere he works in. Actually, he’s not always bearish, but now, as he says, 'This price level is not based on anything terrestrial. But then gold is the only commodity that is a major world religion.'"

"'The price is already up about 40 per cent over the past year. Do you really want to hang around for the last 10 per cent? Not that the multi-year, secular bull market for gold is over. But this rising phase is getting old. It has accompanied a boom in commodities prices based on growth in the new industrial countries that has in turn been fuelled by cheap money in the older powers. The next rising phase, a year or two off, will discount the central banks’ and governments’ inflating their way out of an asset price decline.'"

"'If you’re determined to buy a precious (or semi-precious) metal, silver has been even stronger than gold lately. As its proponents will repeatedly tell you, especially when they have not renewed their prescriptions, the above ground supply of silver is more limited than that of gold. Silver also benefits from a higher proportion of industrial demand than gold.'"

"'What could make a 'sell gold, buy industrial commodities' trade go wrong? A US or Israeli strike on Iran would do that. Interestingly, while there’s been more chatter about such a strike among the political classes in the past two weeks, the online betting services show a decline in the odds of an Iran bombing within the next year. So if you trust betters more than pundits, take your gold profits and buy copper."

Bloomberg report Canada continues to be a hot investment sector. "The Canadian dollar rose for a fifth day on speculation the Bank of Canada may keep raising interest rates, boosting the currency's appeal among international investors. 'The economy is possibly growing faster, which will put extra pressure on the Bank of Canada to raise interest rates,' said Sal Guatieri, senior economist at the Bank of Montreal in Toronto. 'The labor market is getting very tight, which may put upward pressure on wages and inflation. This definitely encourages the bank to go further.'"

"The Canadian dollar also gained as traders rebuilt their long positions, or bets that the currency will rise against its U.S. counterpart, said Trevor Dinmore, vice president of currency strategy at Deutsche Bank AG, the world's largest currency trader. 'Sentiments shift toward being bullish on the Canadian dollar,' said Dinmore, who is based in London. 'People are getting back to the trade.' If the Canadian dollar strengthens to C$1.1390 in the next few days, it may have the potential to appreciate further versus the U.S. dollar to C$1.1290, said Dinmore."

"The Canadian currency also benefited as prices of commodities increased. Commodities account for 35 percent of Canada's exports and about 10 percent of its C$1.09 trillion economy, the world's ninth largest. The Standard & Poor's/TSX Composite Index advanced 47.23, or 0.4 percent, to 12,288.44 as of 11:23 a.m. in Toronto. The benchmark, up 9 percent this year, reached 12,342.02 on April 6. Gauges of energy and materials stocks, which account for 46 percent of the S&P/TSX's value, have paced the index's gain this year."

"Crude oil for May delivery rose as much as 1.4 percent to $68.30 a barrel in New York, where it traded most recently at $67.90. Reports the U.S. is planning military strikes against Iran, increased concern supplies from the world's No. 4 producer will be disrupted."

The Times Online ran this unusual report. "Financial regulators in all EU countries are to be asked today to prepare for the collapse of a big hedge fund or a similar sudden financial shock. EU finance ministers and central bankers, meeting in Vienna, were told that the collapse of a hedge fund could now destabilise European financial systems as well as the financial markets."

The Financial Times reports it was a drill. "Europe’s financial regulators have held a 'war game' exercise, simulating a continent-wide financial crisis, amid fears they are ill- prepared to stop a problem in one country spreading across borders."

"The exercise involved simulating the collapse of a big bank with operations in several large countries to see whether the European Central Bank, national central banks and finance ministries could work toget- her to contain the crisis."

'It is understood the exercise took place at the headquarters of the ECB in Frankfurt at the end of last week. One person involved said: 'It is like checking whether a nuclear power plant can survive a plane crashing into it.'"

"The exercise took place on the eve of a meeting of European Union finance ministers and central bank chiefs in Vienna, at which the bloc’s financial stability was high on the agenda."

A reader suggested the prospects for precious metals in a recession for a weekend topic. "This needs to be a weekend topic; it keeps coming up."

"Specifically, 'How will precious metals fare in the coming recession / depression?' with the sub-topic 'What other safe-havens are there and how would they rank?.'"

Another shared this, "Its not clear to me that metals would ashed value along with everything else in a post housing recession. I could just as easily see capital flight out of equities and *in* to precious metals."

'I think the big question is: where is the safe haven? A mixed currency basket? 'Recession proof' equities? Oil?"

Another had a quote, "What's that quote I always see at PrudentBear? Oh yes...'Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.'"

One reader took a quote from an article posted yesterday. "I love this quote: 'Some economists think the blow would be tolerable because most people could stay in their homes and wait for price recovery.'"

"ASSuming they could, you can be assured they won't be spending a thin dime on SUVs, plasma screens and stainless steel appliances!"

Reuters has some price action. "Gold futures in New York tumbled from a 25-year high on Friday morning, pressured by speculator and trade selling as the dollar climbed after a closely watched U.S. jobs report and as oil prices eased. Silver moved lower, after stretching up to a new 22-year peak above $12 an ounce, on further speculative buying. Platinum and palladium also pulled back."

A Market Watch report looks at the chances for a global post-housing bubble recession. "The U.S. economy has in recent years been a key driver of global growth, and a sharp downturn would certainly have an impact around the world. The Federal Reserve could fail in its effort to slow the economy just enough to relieve inflationary pressures without triggering a recession."

"In fact, most of the Fed's major credit tightening moves in the last sixty years have ended in recession, often because an energy crunch, war or terrorist attack occurred just as the Fed was at a delicate stage in the interest raising process."

"Possible triggers for a recession next year, besides a miscalculation by the Fed, include an oil supply interruption, a precipitous drop in inflated home prices, or a crisis in foreign confidence that slowed the inflow of investment dollars the U.S. has come to depend on, driving long-term interest rates sharply higher."

"Chinese manufacturers accustomed to rapidly rising exports to the U.S. would be hit hard if exports to the U.S. suddenly leveled off or declined. It's impossible to predict how many Chinese workers would lose jobs. However, Chinese companies probably have built huge inventories of materials because of worry about shortages. They could be clobbered the way U.S. manufacturers were in the recession of the early 1970s, which followed a period of materials shortages and soaring materials prices."

"Metals and other materials prices could drop sharply, depressing stocks of producers in developing countries. Also, if oil demand dropped simultaneously in the U.S. and China, two leading importers, oil prices could collapse. That probably would trigger a painful drop in energy stocks. However, 'we'd regard that as a tremendous buying opportunity," said Arvind K. Sachdeva. He's bullish about the long-term outlook for energy and assumes oil prices would rebound as the recession ended."

"The whole U.S. housing sector, from homebuilders and related building materials and service industries to recent home buyers, is cited by many observers as the most vulnerable U.S. economic sector. Home prices in much of Florida, parts of California and other states along the East Coast and Southwest could drop fairly sharply."

"Some economists think the blow would be tolerable because most people could stay in their homes and wait for price recovery. Others think as much as 40% of U.S housing is extremely over valued and vulnerable to major price decline. Inventories of unsold homes are at near record highs, and a recession often quickly turns a modest surplus into a huge overburden that drives down prices."

"A home price decline could further slow the rest of the economy, said Raj Aggarwal, 'because people are spending their houses these days' by re-mortgaging or taking out second mortgages to pay off credit cards or make major purchases.'"

Having achieved their price targets in precious metals and related stocks, many traders are saying, 'Now What?' "Gold has reached $600 an ounce for the first time since 1981 but the real surprise will be where it goes from here, with experts predicting a drop in the near term that could clear the way for four-digit prices in the next few years."

"'Gold at $600 an ounce might be a surprise to many, but these are the same people that were surprised when gold hit $300, when it broke $400 and when it moved to over $500,' said Emanuel Balarie, a senior market strategist at Wisdom Financial. 'Most likely, they will still be surprised when gold hits $1,000 an ounce,' which could come in the next three to four years, if not sooner, he said."

"Gold futures for May delivery climbed as high as $601.90 in electronic trading early Thursday in New York, and peaked at $600 in the regular session. The contract closed at $599.70, up $7.20. The strength helped lift silver futures above $12 an ounce."

"Iran is pricing their oil in euros and China's 'spreading the word that it's likely to stop purchasing U.S. dollars and other dollar-denominated assets,' Thomas Hartmann, an analyst at Altavest Worldwide Trading said. Overall, 'paper currency is not favored right now, which shifts demand towards gold,' he said."

"'There are some worrying signs to me in the short term,' said Brian Batt, a managing member at Brick Capital Partners, pointing out that the 'gold stock/price of gold ratio is dropping. The gold shares are acting weaker than the gold price, where they usually give an investor two to three times leverage to the gold price,' he said. 'This type of action has preceded previous corrections in the sector.'
So, 'this is a time to be booking some profits,' he concluded."

Some mining news. "Although first-quarter bullion prices were 27.4 per cent above the same period last year, 'gold producers are expected to continue to be negatively impacted by higher cash costs, partly due to foreign exchange and higher input costs,' UBS analyst Brian MacArthur wrote in a recent commentary."

"'There's a lot of cost creep,' Haywood Securities analyst Kerry Smith said Thursday. 'Fuel is more expensive, reagents are more expensive, consumables are more expensive. So all your input costs have gone up. The average cost curve for the industry has probably gone up 25 per cent.'"

"Recent high bullion prices are also pushing gold miners to process lower-grade ore. 'And we went through 10 years of pretty low metal prices,' Smith added. 'Miners wouldn't admit it at the time, but metal prices were low, so they had to mine higher-grade material to make money at all. Now, with metal prices higher, people can now start mining lower-grade material. That increases your costs.'"

"Vincent Borg, spokesman for Toronto-based Barrick Gold Corp. (TSX:ABX), the world's biggest gold miner, said the company, 'like many others,' is lowering the cutoff grade in its mines because the ore is now more economic."

"Smith pointed to Inmet Mining Corp.'s (TSX:IMN) Troilus mine in northern Quebec as 'a good example of a mine that, at $325 gold, didn't make any money but, at these prices, it does okay.' Inmet put the mine up for sale this week."

"Toronto-based gold miner Crystallex International Corp. (TSX:KRY) saw its stock shoot up 28.21 per cent, or $1.45, to $6.59, after well-known CNBC 'Mad Money' host Jim Cramer said the shares should rise due to higher gold prices and because Wall Street has been undervaluing the miner over fears that Venezuelan president Hugo Chavez will nationalize its Las Cristinas mine."

"Pan American Silver Corp. (PAA:CN) dropped 88 cents, or 3 percent, to C$28.81. The mining company whose No. 2 shareholder is Bill Gates' Cascade Investment LLC said it will sell about 5.8 million shares. Additional stock may dilute existing shareholders' stakes. The stock's still up 32 percent in 2006."

MarketWatch reports on the fast moving gold market. "Gold futures tapped $600 an ounce Thursday morning for the first time since January 1981, pulling other metals to multiyear pinnacles and delivering copper to a new all-time high. 'Gold is exploding, and silver isn't far behind,' said Kevin Kerr."

"Gold for June delivery rose to $600 an ounce in regular trading on the New York Mercantile Exchange, having hit a high of $601.90 overnight. The contract was last traded at $597, up $5.30. May silver also traded at a new 22-year high of $12.01 an ounce, after peaking at $12.08 overnight. The contract was last up 22.5 cents at $11.93."

"'Key resistance was broken overnight and, as we have been building support and healthy consolidation over the last week or so, now we have a firm base to move higher,' said Kerr, who noted that Thursday's early rally has come without any real news to drive it."

"On the other hand, the break through $600 may also trigger a range of stops and key hedge-fund buy levels, said Kerr. 'Trading in the pits will be volatile today, to say the least, as traders and fund managers scramble for cover, at least those who are short,' he said. 'Those who are long will be scrambling to buy whatever they can to add to their winning positions.'"

"After the $600-$625 level, there may be a consolidation, perhaps back to $575, warned Peter Spina, an analyst at GoldSeek.com. Then from here, 'it is $650-700, ultimately,' he said, with $690-700 possibly the next upside target. 'Then it's onwards to over $800 ($825-875).'"

"Silver may see a correction that brings '$10 back, but then we look for $15 followed by $20-25, which is likely a year or so off,' said Spina."

"July platinum rose $14.40 to $1,095 an ounce. June palladium was up $14.85 at $357.50 an ounce after a $361.75 high, a level the futures market hasn't seen since mid-2002."

"Meanwhile, indexes tracking stocks in the metals-mining sector moved higher Thursday, on track to mark a fourth straight winning session.
The Amex Gold Bugs Index (HUI) rose to an all-time high of 354.32. It was last up 1.5% to trade at 353.25. 'The move on the HUI today above 350 is significant as it portends the move in gold to and past $600,' said Spina. 'The key for today is to close above 350 on the HUI and all indications are that it will accomplish this unless we have a significant pullback in the gold price,' he said."

A look at the trading numbers. "Gold rebounded on Wednesday to come closer to a recent 25-year high, helped by a weak dollar, firm oil and a rally in base metals, and analysts said prices could soon hit $600 as investors remain positive. 'A sudden increase in geopolitical tensions or a fresh bout of speculative/investor buying still has the potential to force a test of $600,' said analyst James Moore."

"Gold rose as high as $589.40 an ounce before ending New York trading at $587.40/588.30. That compared with $585.90/6.80 in the U.S. market late on Tuesday. Silver fell to $11.60 an ounce and was later quoted at $11.70/11.73 in New York. Tuesday, it ended near $11.66/11.69. Last Friday, prices climbed to a 22-year high of $11.91."

Platinum edged down to $1,068.50/1,071 an ounce, versus $1,078/1,082 previously, while palladium fell to $338/342 an ounce from $339/343."

"Worries such as Iran's nuclear programme have driven investors to seek gold, a traditional safe-haven investment. Some reports said Iran had moved a significant amount of its gold from Europe, and the last move was from Credit Suisse. 'We can not comment on those rumours. We never do that,' said a spokesman at Credit Suisse in Switzerland."

"The Toronto Stock Exchange's main index soared 125 points on Wednesday to end at another record close as firming metals prices boosted mining shares while the energy sector rallied as oil moved above $67 a barrel. The resource-driven index, which has been pushing its record close higher several times in the past two weeks, has gained 9.1 percent so far this year."

Some mining news. "Yamana Gold Inc. today announced the completion of Yamana's previously announced acquisition of Desert Sun. Pursuant to the acquisition of Desert Sun, shareholders of Desert Sun will receive 0.6 of a Yamana common share for each Desert Sun common share upon submission of their Desert Sun shares together the requisite letter of transmittal. Yamana will issue approximately 63.9 million common shares in connection with the acquisition."

"Yamana is a Canadian gold producer with significant gold production, gold and copper-gold development stage properties, exploration properties, and land positions in all major mineral areas in Brazil. With the acquisition of Desert Sun, Yamana also owns the Jacobina Mine. Yamana expects to produce gold at intermediate company production levels in 2006 in addition to significant copper production by 2007."

"Cassidy Gold Corp is pleased to announce results from ongoing aircore drilling on its 100%-owned Kouroussa Project, located in Guinea, West Africa. Aircore drilling consisted of 3 fences of between 10 and 15 holes each, oriented to the east-northeast across a prominent north-trending ridge along the east side of the Manie geochemical anomaly. The two fences to the north are 120 metres apart and intersected significant widths of gold mineralization."

This Canadian website has these remarks on oil supplies. "It is not often that a Canadian bank becomes weather forecasters, but that is exactly what CIBC is doing in a report issued yesterday. CIBC warns that 'A newly formed La Nina in the Pacific and significantly above-average surface water temperature in the hurricane belt of the Atlantic both suggest that 2006 will be another big storm season in the oil-rich Gulf of Mexico.'"

"They go on to say that 'We expect our huge overweight position in energy to generate exceptional returns over the next 9 months with the resumption of the hurricane season in the Gulf of Mexico.' They are looking for $70 crude later this year which would bring on the same surge in gasoline prices that we saw last summer."

"However with tighter supplies of gasoline, in part caused by the fact that the Gulf of Mexico is not back to full production because of the damage wreaked by last hurricane season, the ultimate peak for gasoline prices could be well above last year's record levels. Earlier last year, CIBC World Markets chief economist Jeffery Rubin called for $78 oil this year and now that is followed by the Bank itself forecasting $70 plus oil later this summer."

"We also recall the Goldman Sach's forecast last summer talking about a price spike in oil taking us over $100 per barrel. Although the price calls may be speculative, some energy analysts are forecasting that 2006 will probably be the first year in history where the demand for oil will outstrip the world's supply."

CNN Money has some trading numbers. "U.S. gold futures gave back some recent gains by the close and held at lower levels throughout the session on Tuesday, as some large players decided to take profits, traders said. 'It was just a little bit of profit taking. Guys who have sizable positions are just taking some money off the table. That's it,' said one New York gold dealer."

"June gold on the New York Mercantile Exchange's COMEX division fell $3.70 to $590.60 an ounce by the close and set a session range between $589.50 to $595.30. Spot silver slipped to $11.66/11.69 an once, from $11.75/78 previously. It was fixed at $11.7450 on Tuesday. NYMEX July platinum firmed $2.50 to finish at $1,091.60 an ounce. It hit a 26-year high above $1,105 last week."

"Spot platinum fetched $1,078/1,082 an ounce, $5 more than Monday's late quotes. June palladium lost $4.05 to end at $342.35 an ounce. Last Thursday, it climbed to a near four-year high at $355.80. Spot palladium was indicated at $339/343 an ounce, slightly more than Monday's close."

"After striking a 25-year peak on Monday, some traders said they thought a target of $600 an ounce was still in view for both COMEX and spot gold. 'At this point in the game, it's all technical. We're still working toward our objective in gold, the initial objective which is $600,' a trader said."

"Deutsche Bank's global head of commodities research said on Tuesday gold may head beyond $600 and toward $700, boosted by upbeat fundamental factors and by fund buying."

"The dollar fell to a two-month low against the euro on Tuesday, as investors expectations for a European interest rate increase were heightened after a news report said the European Central Bank may raise rates at its May meeting. While the dollar's weakness may have underpinned gold's losses, traders said they thought its influence these days was secondary to technical factors."

"'We've somewhat separated from our relationship with the euro. It's one of the things we factor in, but it's not the driving force that it used to be,' said one trader."

And Market Watch has this on the silver ETF. "A highly anticipated exchange-traded fund tracking silver prices may usher in a correction from multidecade commodity highs if it follows the pattern of gold ETFs, analysts say. Analysts, though, say the introduction of the silver ETF could actually set up a price pullback in the days and weeks following the start of trading."

"The most successful gold ETF launches were Gold Bullion Securities on the London Stock Exchange in December 2003, and StreetTracks Gold Trust in November 2004 on the New York Stock Exchange. Mohinta found gold prices rose by up to 12% in the 90-day periods leading up to the ETF launch dates, only to fall between 7% and 10% in the corresponding period after the listing date. So far in 2006, through Monday's close, silver futures are up more than 32%, fueled in part by the ETF talk."

"Mohinta said he doubts that the entire 13 million-share allocation will immediately sell out, pointing to the common practice of using mining stocks such as Pan American Silver Corp. to get exposure to silver without holding the physical metal. Stocks have the added benefit of dividends, he added."

"'While silver can get to $15 or $20 before it's all said and done, the actual launching of the silver ETF could mark a short-term top for silver,' added Peter Grandich, noting that the silver ETF could represent a 'buy the rumor, sell the news' trade."

"Analysts are also warning about potential confusion over the tax structure of precious-metals ETFs. Under current tax law, long-term gains from the sale of silver are taxed as 'collectibles' like artwork. Therefore, if held for more than a year, gains on the silver ETF would be taxed at a maximum rate of 28%, compared with 15% for so-called long-term gains on stocks. If sold in less than a year, gains are taxed as ordinary income.'