Monday, June 19, 2006


US Dollar, Oil Crimp Gold Price

Some money and metals news for this Monday. "The yen stabilized across the board on profit-taking following the damage sustained in the Asian & European sessions resulting from reports that North Korea was preparing to test a long-range missiles. The yen sell-off was triggered by Japanese PM Koizumi’s remarks threatening 'severe action' in the event that North Korea went ahead with its tests as that would mean the world’s second biggest economy would be dragged into the nuclear standoff."

"The yen hit all time lows against the euro, 8-year lows against the sterling and 2 ½ monh lows vs the US dollar."

"The (US) dollar rallied across the board on a combination of expectations of a August Fed hike, merging from last week’s stronger than expected economic reports. The boost to the dollar also resulted from further credit tightening steps by China to cool its economy as the measure could cool Beijing’s demand for commodities, thus impacting the commodity currencies against the dollar."

"The People’s Bank of China announced last week it will raise the reserve ratio for commercial banks to 8.00% from 7.50%, effective next week. The move is estimatd to lock away as much as reduce 150 billion yuan ($18.7 billion) out of the money system."

From Reuters. "Gold prices fell 2 percent on Monday as the dollar's rise and weaker oil triggered selling by investors wary of taking large positions after a recent selloff, dealers said. 'You have to expect gold to move in quite volatile ranges, between $550 (an ounce) and $600, until it finds that physical demand has adjusted to more stable prices,' said analyst Matthew Turner."

"Early buying faded fast after spot gold rose as high as $580.10 an ounce as investors were cautious to add new positions. Gold fetched $568.80/569.50 an ounce in the New York afternoon, after falling as low as $565.70, compared with $578.00/8.70 late on Friday."

"One New York dealer said a reason for the sell-off in metals starting overnight was a report that China will move to tighten credit lending by lifting banks' reserve requirements, which analysts say should decrease demand for commodities. 'That's an indication that they (China) are going to slow their growth, and that is going to hurt the metals,' a precious metals trader in New York said."

"A European trader said: 'There's some support at $566, and there are offers around $573 and $574, so I expect it to be range-bound for the time being.'"

"Despite gold being off last week's three-month low of $543, traders said renewed dollar strength undermined sentiment. The dollar struck an eight-week high against the yen and rose across the board, boosted by expectations the U.S. Federal Reserve will raise short-term interest rates perhaps two more times in coming months."

"A weaker oil price was another factor weighing on gold. U.S. crude futures fell toward $69 a barrel after major oil exporter Iran said there was a positive atmosphere in the dispute over its atomic work, easing concern about threats to oil supply."

"James Moore, an analyst with TheBullionDesk, said spot gold was looking set to spend more time trading between $580 and $550, with the $548-$550 region being where technical and physical buying probably would provide good support."

"In other precious metals, silver fell as low as $9.83 an ounce before rising to $9.97/10.07, against $10.13/10.23 late Friday. Platinum drifted down to $1,138/1,144 an ounce from $1,147/1,155 previously, while palladium edged down to $290/295 an ounce from $300/305."

IMO the story to watch for all these markets is the Fed. The US$ is going to key on that and PM's will follow suit. Also, the market looks like it wants to test gold at these levels, so it could end up being a big technical week.
(That's an indication that they (China) are going to slow their growth, and that is going to hurt the metals,' a precious metals trader in New York said.")

in which case a dollar flight will happen that will boost gold and silver, and probably commodities in general.
more great commentary from dr. faber.

June 06, 2006
Time to take a Holiday???
by Marc Faber

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