Monday, June 05, 2006

 

'Investors Refocus' On Previous Dollar Concerns

The week is off to a rough start for the US dollar. "The Chinese yuan finished over-the-counter foreign exchange trading at 8.0077 to the dollar, compared with last session's closing level of 8.0230, traders said. The yuan rose by the most yesterday since July's revaluation as the People's Bank of China allowed it to strengthen along with Asian currencies against the US dollar."

"China's currency climbed 0.18 percent against the greenback, more than half its allowed daily range. The yuan will breach 8 to the US dollar should it repeat the gains today."

"The dollar fell to a 13-month low versus the euro and traded flat versus the yen Monday, as investors continued to digest last week's lower-than-projected jobs data and awaited an interest-rate decision by the European Central Bank later this week."

"'Fundamental considerations are aligned against the U.S. dollar and this will prevent sentiment from improving in the days ahead,' said Marc Chandler, senior currency strategist at Brown Brothers Harriman. 'The issues for the dollar have been completely reversed as Friday's horrid NFP [non-farm payrolls] results have put a lid on any expectation of further rate hikes from the Fed,' said Boris Schlossberg, senior currency strategist at FXCM."

"In New York trading, the euro was at $1.2957, compared with $1.2918 late Friday, after rising as high as $1.2979, the highest level since May 5, 2005. The dollar changed hands at 111.67 yen, compared with 111.65 yen. The euro was at 144.69 yen from 144.35 yen. The British pound was fetching $1.8787 against $1.8733. The dollar traded at 1.2027 Swiss francs compared with 1.2137 francs."

"Gold futures rose Monday after Iran warned that U.S. actions could lead it to halt shipments of oil, sending crude prices sharply higher and creating a safe-haven bid for gold. Gold for August delivery was last up $8 or 1.3%, at $649 an ounce on the New York Mercantile Exchange."

"Meanwhile, Citigroup upgraded its gold-price forecasts, predicting that the metal will rally back through its recent peak above $730 an ounce as inflation fears persist."

"'Following the current period of volatility and instability we expect investors to refocus on the previous concerns of continuing high oil prices leading to higher inflation, which would ultimately lead to higher interest rates and a subsequent slowing down of the U.S. economy resulting in a weaker U.S. dollar,' said Jonathan Battershill, an analyst at Citigroup in Sydney. 'All of these factors would result in stronger gold prices.'"

"The world's big money brigade is snapping up gold bullion at eight times the rate originally thought, according to a report by UBS, the world's biggest gold trader. The huge sums entering precious metals below the radar are likely to help to put a floor under the gold price after the dramatic fall of $112 an ounce in late May, the sharpest correction since the bull market began five years ago."

"The Swiss bank said information from its trading floor suggested that funds and investors were allocating 20pc of their commodity portfolios to precious metals."

"President Vladimir Putin, a frequent critic of dollar hegemony, has ordered the Russian central bank to raise the gold share of foreign reserves from 5pc to 10pc. Russia's reserves have surged to $237bn, the world's fourth biggest, after rising 61pc in 2004 and 40pc in 2005. With a current account surplus of 10pc of GDP, it must sweep up a big chunk of global gold output just to stop its bullion share of reserves from falling."

"UBS warned that gold may have further to fall, followed by a period of sideways trading before embarking on another powerful upward leg of the bull-market rally. (Gold expert) John Reade said the immediate risk was a global economic downturn, dragging gold down in an avalanche sale of all commodities."

"But if the global economy turns nasty, gold will ultimately decouple from its base metal cousins and regain its usual role as a safe haven currency and defence against dollar disorder. 'The bottom line is liquidation first, haven later,' he said."

Comments:
Wow. Anybody ever watch the live 24 hour spot? Gold just went from $644 oz to $636 oz in less then 5 minutes.

Somebody (CB?) was doing some serious selling. We were off to such a good week too thanks to the Ayatolla.
 
Jdog, Bernanke mumbled something that was interpreted as saying the fed will raise rates in June, as if that makes any difference to what will happen to the dollar. The stock market sold off big, too. The short-sightedness of people trading minute-to-minute minutae is ridiculous. Every day a new signal. I am sticking to my guns (and gold, and oil).
 
Yeah I read BB speach but it was a full 15 minutes that Gold made the drop. Strange. As far as the drop due to inflation and the rates, that is shortsighted but it appers to be the way the traders are looking at it...if that is the case we should see a big gain in gold once the Fed pauses..
 
John,
It is a money blog, but unfortunately, money is at the heart of all. Most political moves are, unfortunately, made for money. The only way to solve this monetary debacle, from oil to housing, to stocks, to gold, is for one simple thing to happen. It always starts at the top.

We need a President who will pledge that his pay and retirement will be the same as an O-7, nothing more, nothing less. Every person he appoints will have the same. They won't take any deals after office in the form of any financial profit. Medical coverage the same as the military, including housing. End of story. The folks we elect will now have to take an interest in making decisions that will be in our country's best long term interests. How could they not when they are going to have to live off a modest income. You bet they'll be fiscally responsible. They may even realize that inflation when on a fixed income isn't such a brilliant idea. Unless the folks making the policy are in the same boat as the vast majority of the population, this madness over speculation will continue. We'll be blogging about where to park money based on the policies of those we elected until there is nothing left other than IOUs. It is off the topic on face value, but underneath, it is at the very core of the topic.

As a side note, you think Greenspan would have done what he did if tied to the same entitlements as above?
 
kerk93,

Oh, and while we're wishing, I'd like a pony!

One of my best reasons for hoarding PMs is that politicians can be counted on to make the worst of almost any situation.
 
“You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

-George Bernard Shaw

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.”

-Friedrich A. Hayek (1899-1992) Austrian Economist, Author and 1974 Nobel Prize-Winner for Economics
 
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