Monday, July 17, 2006


Profit-Taking In Gold As US$ Strengthens

Dow Jones Newswire has the metal trading numbers. "Gold futures did an abrupt about-face Monday, hitting seven-week highs in overnight screen trading before turning sharply lower largely on profit-taking, traders and analysts said. August gold settled down $16.10 to $651.90 an ounce on the Comex division of the New York Mercantile Exchange."

"Several analysts suggested some traders were exiting flight-to-safety positions since the Israeli-Hezbollah fighting has not become even more widespread, as some may have feared. Other catalysts, they added, were a stronger dollar, softer crude oil, caution ahead of Federal Reserve Chairman Ben Bernanke's congressional testimony this week, and chart-based factors."

"'We're seeing some profit-taking,' said Paul McLeod, vice president for Commerzbank. 'However, the markets were quite thin. I think the moves were exaggerated, given the volumes that were traded. It certainly wasn't a big rush to the exit doors.' Some of the long liquidation may have been because the Middle East situation doesn't 'look particularly worse than it did on Friday,' said McLeod."

"Other traders also cited dollar strength as a gold-bearish influence, as the
euro slid as far as $1.2512 from $1.2652 late Friday."

"Person listed other factors that may have been weighing on gold besides the
Middle East situation. 'On Friday, we saw a lot of gold stocks down, which was something a little bit eerie,' he said, noting that gold-mining equities sometimes lead the commodity."

From Reuters. "Revaluing International Monetary Fund gold reserves to shore up its financing to make up for reduced demand for emergency loans is not appropriate, U.S. Treasury Under Secretary Tim Adams said on Monday. 'We, the U.S., do not think that gold is an appropriate option. For us, it is not an option,' Adams told Reuters in an interview."

"Two years ago the largest shareholders in the Fund flirted with the idea of revaluing its more than 100 million ounces of gold reserves. The complex process involved the IMF selling a total of 12.9 million ounces of gold to Mexico and Brazil, both of which had financial obligations coming due to the fund."

"The 2004 proposal ran into resistance from Group of Seven rich industrialized countries and gold-mining powerhouse South Africa. Some national treasuries of IMF shareholder countries would have had to book the entire write-down in the year of sale, creating an accounting headache. Others were concerned about the likely bearish impact on precious metals markets and some feared a permanent reduction in IMF assets."

The Associated Press. "Worried that China's sizzling economic growth could ignite a financial crisis, the country's leaders have raised interest rates and imposed regulatory controls. But they have avoided the step that Washington most wants: a sharp rise in the value of China's currency. And China gives no sign it will let the yuan rise significantly any time soon."

"'China will forthrightly continue to push forward the reform of the flexibility of the renminbi exchange rate,' said Finance Minister Jin Renqing, quoted by state media. 'But we will not blindly follow demands by other countries to correct global imbalances.'"

The Bangkok Post. "The baht is expected to strengthen further following the appreciation of Asian currencies against the weakening US dollar, currency experts say. The baht could rise as high as 37 to the US dollar if China decides to adjust the yuan's trading value and if the Japanese yen tests a level of 105 to the dollar."

"The Bank of Thailand is likely to leave its benchmark interest rate unchanged at 5% when its Monetary Policy Committee meets tomorrow, according to Satian Tantanasarit, financial markets management executive of TMB Bank. The reason, he said, was that the spread between local and US rates was currently narrow at 0.25 percentage points."

"'The upward interest-rate trend is a global issue. The Bank of Japan raised its rate last week by 25 basis points after freezing it for six years. Rumours that China would soon do something with its currency also have a correlation with our exchange rates,' he said."

Markets will move on news but long-term trends for the USD, gold and interest rates have not changed. Buying and selling around core holdings seems appropriate, given the volatility.

Looks like we're down some more. What are the current technicals we should be watching?
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