Thursday, June 01, 2006

 

US Dollar Gets A 'Feel Good Effect'

Lots of currency and commodity news today. "The dollar edged up against most major currencies Thursday even after the release of disappointing data on manufacturing activity and construction. The dollar slipped after the two reports came out, but rebounded after the Energy Department reported that domestic oil and gasoline inventories rose last week, according to Michael Woolfolk, a senior currency strategist at the Bank of New York."

"'What we're seeing now is a moderation, a feel good effect after the three reports,' Woolfolk said."

"The euro bought $1.2797 in afternoon New York trading, down from $1.2814 in New York late Wednesday. The British pound fell to $1.8643 from $1.8689. The dollar strengthened against the Japanese currency, rising to 112.68 yen from 112.59 yen. In other trading, the dollar bought 1.2217 Swiss francs, up from 1.2182 late Wednesday, and 1.1021 Canadian dollars, up from 1.1011."

"Asia’s economic powerhouses, which have pushed commodity prices and regional stocks to record highs, may have spewed out some of their best growth numbers for the current four-year expansion phase during the first quarter. But India and the resurgent export powerhouses South Korea, Taiwan, Hong Kong and Singapore are unlikely to be able to sustain such growth in coming quarters as soaring energy and commodity prices dampen consumption and stoke inflation, forcing central banks to raise the cost of money, analysts said."

"China, where annual growth in investment spending accelerated to almost 28 per cent in the first quarter after a 25.7 per cent growth in all of 2005, could be the sole exception as money for factories, roads and ports continued to pour in, they said."

"Demand from the US economy, which has powered much of the current phase of Asian expansion that followed the deadly severe acute respiratory syndrome outbreak in 2002, is also set to sputter as high fuel prices and falling property prices hit personal consumption."

"'The best is behind us. First quarter would have been the peak,' said Arjuna Mahendran, chief economist for Asia at the private banking arm of Credit Suisse in Singapore. 'There will be a pause in the US economy in the third quarter. That will have ramifications for Asia.'"

"Gold futures closed above their worst levels Thursday, but still ended the session at a six-week low with traders using strength in the U.S. dollar as an excuse to continue to lock in recent gains. Gold for August delivery finished down $15.50 at $633.50 an ounce on the New York Mercantile Exchange, its weakest closing level since April 24. It fell as low as $625.70 early in the day, a level not seen since April 20."

"'Lest anyone had remaining doubts that gold is (also) a two-way market, this morning's implosion in the price was probably enough to do away with such uncertainty,' said Jon Nadler, at bullion dealers Kitco.com."

"The combination of a temporarily weak dollar, a steep sell-off in the copper pits and fresh round of fund liquidations have gold starting to look 'as if it really wants to complete a full 50% correction from last month's highs,' he said. 'Such a move could indeed bring it anywhere near $585 to $600 in coming sessions.'"

"July silver closed down 55 cents at $11.905 an ounce, falling below the $12 an ounce level for the first time since May 22. July platinum ended down $17 at $1,229.80 an ounce and June palladium lost $9.85 to close at $337.40."

"Peter Grandich said today's close below $635 'could suggest a test of the psychologically important $600, but the real long-term support is in the $575 area.' The key in the coming days and weeks is to view this as a correction in a secular bull market, not the end.'"

"A commodity price 'bubble' may not burst until the fourth quarter, when higher interest rates slow economic growth and demand for crude oil, copper and other raw materials, Societe Generale (SocGen) said."

"Commodities including zinc and platinum have reached records in the last several months. Prices may rise further in the third quarter because of speculation about supply disruptions and declining inventory, Frederic Lasserre, Paris-based head of commodities research at Societe Generale, France’s third-largest bank, said."

"'The idea of a bubble is starting to gain popularity among investors,' Mr Lasserre said on Wednesday. 'But the bubble cannot burst until there is a consensus that it exists in the first place. We are not there yet. We believe that this correction does not yet mark the end of the bull run and that performance should remain spectacular until the fourth quarter,' Mr Lasserre said."

Comments:
'Peter Grandich said today's close below $635 'could suggest a test of the psychologically important $600, but the real long-term support is in the $575 area.'

A good example of technical analysis, versus what the public thinks is important. It will be interesting to see if these levels are tested and what comes out of it.
 
thejdog:

Since Ive got 3xs as much cash in USD then gold...

And that's after buying 600+ ounces? I wish I was as well-positioned for the future. But then again, I'm sure it's not enough for you, too! ;-)
 
john in va,

Real rollercoaster, isn't it? That's why PMs aren't for the faint of heart. NBD here.

Although it was nice to see the PM's potential put on display, it definitely was going to far too fast. Again, the fear isn't there yet and won't be for a while. This is exactly why I say it's still early in phase II.

Since I'm far from my goals for accumulating PMs, it'll be nice to be picking up a lot more for a given chunk of change, too.

BTW, parts III & IV of my depression case -- "What's Happening Now..." -- on the way soon.
 
I have to say that I am not really sure what the markets are doing today.
Looks like Fed is very concerned with inflation, which means a June hike is more likely than not. That results in the gold taking a beating. But why is that good news for stocks, especially the NASDAQ? What's up with stocks?

Other economic indicators are conflicted at the best. Some retailers are up, some are down, overall still robust. Construction is down a bit, but productivity is up. None of them is earth shattering.

My other question is how come consumption is still up? Refi is down, wages are up just a bit but still mostly flat. Did people go deeper in debt in May? I guess the consumption was done mostly at high end stores.

Can we say lower rungs of society are starting to feel the hurt. Fundamentals of the economy are not supporting the stock rally today. And all things will be pointing to a downturn at the end of the year.

Gold may hurt till Fed pauses or starts to ease when recession hits. It might still have $50 to go southward. It is good hedge against inflation so it will hold up and move up from there.

The markets are trying to figure out what to do, just as Fed. But one thing is for sure, the economic fundamentals are deteriorating. Do we agree on that?
 
gold is only down 15%, that's nothing. that's not even a blip compared to other corrections.
 
John in VA,

Just wanted to say... Keep up the contrarian angle! Always appreciate alternate viewpoints; don't want tunnel vision.
 
here is a good start.

Silver Investor

Real Silver Highs

Silver/Oil Ratio Extremes
 
SilverHwk,

Silver has everything going for it that gold does and more. I personally favor silver, but have so far split my money just to be prudent.
 
FANTASTIC post mr sd cdl.

what is it you think he brought him in to do, keep the markets inflated? he'll probably just keep causing inflation in commodities.
 
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