Wednesday, July 26, 2006

 

Fed Report, Weak Dollar Lifts Gold

DAily FX reports on what moved currency markets. "Rarely is the Beige Book report as market moving as it was today. At a time when traders are scrambling to figure out whether the Federal Reserve has enough evidence to raise interest rates again in August, the clarity of the Beige Book was exactly what dollar bears needed to hear."

"According to the Fed districts, there have been continued weakness in retail sales and except for 'only scattered exceptions' activity in the housing market is also slowing."

"Even though the report is clearly more supportive of a pause than a hike, do not be mistaken, the report indicates that economy is still growing. Whether today’s dollar weakness can be sustained will be dependent upon tomorrow’s durable goods and new home sales reports."

"Gold futures surged Wednsday as the dollar dropped against major currencies. Gold for August delivery ended up $3.90 at $621.90 an ounce on the New York Mercantile Exchange."

"The downward trend in the dollar was the main reason for gold's positive close, said trader Charles Nedoss. 'I don't think things are getting any better in the Middle East,' Nedoss added. He said that gold will experience resistance around $627, but if the Mideast situation continues to worsen and the dollar keeps falling, then gold might trade higher for the rest of the week."

"Silver edged up 13.5 cents at $11.08 an ounce and platinum rose $4.90 at $1,234.40 an ounce. Palladium dropped 10 cents at $316.90 an ounce."

"Peter Grandich said there appears to be a heavy 'short' presence in gold, 'based on the fact that gold has been hit hard on several occasions of late, shortly after the second London fix, when European physical buying is over. I believe these sellers are exhausting themselves and a short squeeze is near,' Grandich said."

"New Zealand's central bank Governor Alan Bollard kept the benchmark interest rate at a record-high 7.25 percent and said 'it will be some time' before he considers cutting rates because inflation is accelerating."

"Inflation reached 4 percent in the year through June and is likely to persist near that level for 'several quarters,' Bollard said in a statement released in Wellington today. Annual inflation won't return to the central bank's target range of between 1 percent and 3 percent until late next year, he said."

"'The Reserve Bank is signaling a sustained period of slow growth over the coming two years,' said Cameron Bagrie, chief economist at ANZ National Bank Ltd. in Wellington. Still, 'interest rates are not going to come down in a hell of a hurry.'"

Comments:
That is the dilemma you have as a debtor. Raise rates to stimulate more investment from foreigners, but you'll kill the homeowners severely in debt. Eventually that will cause massive defaults which will cause upheaval in the economy.

Stop raising rates, and foreign demand will dry up which will raise rates even more. End result of that situation, see above.

Inflate your way out, and foreign investment stops again. Result, see above.

Unfortunately, that is the situation we're in after years of promises that can't be kept. I'd say that right now, the only really holding it together (my opinion, but just as good as Bernanke or Greenspan when you think about it), is that countries have to hold dollars to buy oil. I'm sure the rise in price of oil has a lot to do with some of those dollars going right back into bidding for oil (inflation...go figure). That will be the final nail if/when it happens.

Those who fear that deflation will wipe out PMs, I don't think so. There are a lot of dollars out there in the form of savings vice debt. The forward-looking folks will be attempting to preserve what they have. As the housing bubble plays out, where else are you going to put them that won't be a promise to pay back written on paper?
 
Kerk,

That's a good description of the interest rate dilemma. IMO, PM's are good insurance, in some amount, during inflation or deflation. Even in a severe deflation episode, governments may do something crazy that makes a safe haven essential.
 
What a difference a day makes huh? yesterday dollar looking stong then bam...I see a scenario where the tide could turn on the dollar ,then naturally PM's. It's such a small market .If the herd sniffs fear it could turn on a dime.
Bought some more small miners. QEE, TGB . NEM bought a huge chunk a few months ago of QEE so thought it would be a fun play at a whole .31¢.
Any insider specs anyone wants to share other than the obvious?
 
Kerk,

I second Ben's comments. The government & Fed have essentially checkmated themselves. Obviously, it's in nearly everyone's best interest (no pun intended) to NOT recognize that fact, because no one wants to see the game end. End it will, though.
 
SOme good info on this message board..

http://www1.investorvillage.com/smbd.asp?mb=471&mn=52&pt=msg&mid=172602
 
"Peter Grandich said there appears to be a heavy 'short' presence in gold, 'based on the fact that gold has been hit hard on several occasions of late, shortly after the second London fix, when European physical buying is over. I believe these sellers are exhausting themselves and a short squeeze is near,' Grandich said."

This is an increasingly common statement these days, particularly in Silver where there are (apparently) fewer than 5 short sellers that represent almost 90% of the global short interest. Question for the others here: how much credence are you all giving to the theory of short players being on the verge of collapse/default? Obviously if Ted Butler, Grandich and others are correct -- the case for PM's is more bullish than ever. Anyone?
 
Soho, I've heard that around..The market is so small they are basically just manipulating the market..Run it up ,and short it down. Being the FED likes the metals contained there is no impetus to stop the games. I see a groundswell in interest starting though.
The talking heads on CNBC,Cramer etc are all touting PM's now..Once the momentum starts I think they won't be able to keep up. Time will tell. Even Silver is acting 'funny' It used to follow Gold like a mirror, now it rising ,and mainting it's on range. Due to it's relative scarcity? who knows ,but my gut says........
 
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