Wednesday, July 19, 2006

 

Gold Regains Safe Haven Allure On Remarks

The markets reacted to the Fed chairmans' appearance today. "Federal Reserve Chairman Ben Bernanke soothed investors with his view that economic growth seems to be moderating and inflation remains contained. To be sure, some observers felt the market was hearing everything positive Bernanke said and ignoring his many caveats. While he laid out the conditions that would make the Fed pause its rate hikes, it isn't clear the economy currently meets those prerequisites, as the day's inflation numbers made clear."

"The Labor Department said the Consumer Price Index rose by 0.2 percent in June, the smallest increase in four months. But core inflation, which excludes energy and food, rose by 0.3 percent in June, higher than the 0.2 percent Wall Street expected. That increase left core inflation rising for the past three months at an annual rate of 3.6 percent, far above the Federal Reserve comfort zone of 2 percent or less."

"The dollar fell the most in three weeks against the euro and weakened versus the yen after Federal Reserve Chairman Ben S. Bernanke said 'moderation' is under way in the economy. 'The dollar is finding selling pressure across the board,' said Matthew Kassel, at ING Financial Markets. 'The market is pricing out another rate increase in August.'"

"The dollar weakened against all 16 most actively traded currencies except for the New Zealand and Taiwanese dollars. 'The market had expected a more hawkish statement from Bernanke than the market received,' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. 'Support for the U.S. dollar collapsed for now.'"

"'There are a couple of headlines on growth and the market took it to sell the dollar,' said Jeffrey Young, head of currency research at Citigroup. 'It seems to be a very, very narrow reading on the statement. I am not convinced about the whole story.'"

"The euro may have gained support from a German government report today showing producer price inflation in Europe's largest economy was faster than expected in June, backing the case for the European Central Bank to raise borrowing costs next month. The ECB boosted rates three times since December to 2.75 percent."

"Gold futures closed higher Wednesday, strengthened by the falling dollar after Federal Reserve Chairman Ben Bernanke signaled that the end of the rate-hiking cycle may be closer than many expected. Gold for August delivery ended up $13.30 at $642.80 an ounce on the New York Mercantile Exchange, pulling back up from an overnight low of $618.90."

"'Gold bullion and equities took off at drag-race speeds, immediately after Mr. Bernanke confirmed that he sees plenty of signs of a slowing U.S. economy,' said Jon Nadler, analyst at Kitco.com. 'Once again, gold can refocus on the geopolitical drivers that have lent it support in past weeks.'"

"Silver added 60 cents at $11.125 an ounce. Platinum rose $2.90 at $1,237.50 an ounce and palladium added $3.80 at $318.0 an ounce."

"Gold may now regain some of its safe-haven allure. Dale Doelling, chief market technician at Trends In Commodities, said that gold will likely rise further in the next few days. 'The longer-term outlook isn't as clearly defined and it will take consecutive closes above the recent high at $677.50 to get the momentum players back into the market,' Doelling said."

"The remarks caught many in the market by surprise, a trader said. 'It's completely wrong-footed the market,' he said. 'People were looking to test the downside and had taken short positions, but the Fed caused quite a rally. The markets are very whippy and the reaction was exaggerated, which is a reflection of the illiquidity of the market and the size of some of the positions in it,' he said."

"'I still feel that the geopolitical arena is underpinning it. It's certainly providing support and it has the potential to blow up,' Darren Heathcote, head of trading at Investec Australia in Sydney, said. 'If it escalates to Syria and Iran, I guess there's a potential for gold to probably push through recent highs again, to break back through $670s if that should happen,' he added."

Comments:
BTW, I didn't realize the EWI free week ended so soon in the day, so I wasn't able to get the LT technical picture.
 
this whole business about PMs(and oil) falling if the economy falls is wrong. the economy soared for the 80s and 90s yet oil and the PMs fell almost the entire time.
 
JL II, I am struggling with this.
I believe that if the global economy goes deep in to a recession/depression, commodities will fall. I believe they will hold
more value than anything else.

I just received notice that my tech company has started layoffs.
The first since 2K...I think this is the beginning..A signal of things to come?
 
they may fall in the shortrun. but they already fell bigtime. the economy often falls BECAUSE of commodity prices rising and grows when they fall. it makes sense.

commodities rose during the 70s and caused the economics problems. they rose during the 30s, during the Great Depression.
 
Don't confuse a depression with deflation. We haven't had deflation since the 30s. Asset prices may drop but it won't be from contraction of the money supply/credit (deflation). That is why commodities can rise while other assets (real estate, stocks) fall. The Fed monetary policy is inflationary regardless of what happens to asset prices.
 
What a rollercoaster. I'm glad I'm not trying to time it.

thejdog, Mike, et al:

Any street talk??
 
I think the erratic markets merely reflect political tensions. Much like major elections these days, when you throw out any strong overriding values or guiding principle, you're bound to get mixed results. Get used to it!
 
TJBear, Yeh, I just keep riding this rail too, but being a newbie have been trying to figure what the best plan is.
I read on the Yahoo-slw board to sell in May,and wait til August. Wish I had ,but still not bad. Wish there was alittle more experts to add to the threads here. Of course it's all a guess ,and know longterm what the trend is, but still the painful learning process...I just keep dollar cost averaging ,and read,read,read. Kitco,Safehaven,Gold-eagle, etc...is there a better source i can source?
 
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