Tuesday, July 11, 2006


US Dollar 'Losing Favor'

Marketwatch looks at what moved the metals market today. "In a clear display of their safe-haven allure, gold futures closed higher Tuesday after seven explosions ripped through evening rush-hour commuter trains in Mumbai. Gold for August delivery closed up $17 at $643.10 an ounce on the New York Mercantile Exchange, its highest level since June 5."

"The train blasts in Mumbai, India's financial center, resonated on the gold market since the country is one of the biggest buyers of physical gold. 'Every time you have a terrorist-related violent act, there'll be a bounce in gold, because it's a move to safety,' said Amaury Conti, equity trader at Austin Calvert-Flavin."

"'We've seen spikes in the gold price every time you have such an event,' Conti said. 'If gold closes above $640, that would be very positive.'"

"Other metals prices also posted gains. Silver added 44 cents at $11.55 an ounce, platinum rose $23.30 at $1,254 an ounce and palladium was up $5.30 at $329 an ounce."

"In another political development, Iran said Tuesday it wouldn't meet a mid-July deadline to respond to an incentive package that western nations designed to deter the country from enriching uranium."

"On the currency markets, the dollar little changed against major currencies. Brien Lundin of the Gold Newsletter said the dollar is losing favor as a 'long-store value. There's a growing consensus that the trend for the dollar is down over the long term.'"

From Bloomberg. "The Canadian dollar dropped to the lowest in more than two months and bonds rallied after the Bank of Canada kept its benchmark interest rate at 4.25 percent, ending a streak of seven increases since September. The currency fell to 88.34 U.S. cents at 3:23 p.m. in Toronto, from 88.95 U.S. cents yesterday. One U.S. dollar buys C$1.1321."

"Canada's dollar earlier touched 88.14 U.S. cents, the lowest since 87.78 U.S. cents on April 25. It weakened against all 16 primary currencies tracked by Bloomberg News. Canada's dollar declined for a fifth day, the longest losing streak since a six-day retreat during a period ended March 10. The currency reached 91.44 U.S. cents on May 31, the highest since 91.47 U.S. cents on Jan. 4, 1978."

"Core inflation rose 2 percent in May from a year earlier, the fastest since December 2003. Overall consumer prices rose 2.8 percent, Statistics Canada said June 20. The country's trade surplus unexpectedly narrowed in April to the smallest since January 2005, shrinking to C$4.07 billion from C$5.34 billion the month before, as exports of cars and trucks dropped."

"Canada lost 4,600 jobs in June, the first decline this year, according to StatsCan on July 7. Economists surveyed by Bloomberg News expected a gain of 10,000 jobs after the creation of 96,700 positions in May."

The Korea Herald. "On widespread anticipation that the Bank of Japan would raise interest rates on Friday, analysts are divided over the fallout of the central bank's decision on the local financial markets."

"Many global traders expect the central bank to raise its benchmark interest rate by 0.25 percentage point for the first time in almost six years when a two-day policy meeting concludes on Friday."

"The focal issue would be whether the BOJ's decision to abandon the ultra loosened monetary policy would increase the value of the Japanese yen, prompting more investors to close yen carry trading."

"What's worrying is that the BOJ's move could accelerate capital outflow from emerging markets including Korea. With the continued selling spree that began early May, foreign ownership in the local bourse fell below 40 percent compared to 44.14 percent in April 26, according to the Korea Exchange. The rising geopolitical risk along with worsening corporate profitability has already dampened investor's sentiment, particularly affecting overseas investors."

"Ending the carry trade, however, could boost demand for the Japanese currency and consequently increase the value of the yen against the U.S. dollar. The won and other Asian currencies are expected to follow the suit."

"That could be an additional factor in increasing market fluctuations, analysts say. 'Yes, it's not entirely unexpected but still it's too big a news to ignore,' said Hwang Kum-dan, a market strategist at Samsung Securities Co."

I can remember when the US$ went up in 'flight to quality' moments. There are a bunch of markets that will have to adjust to an end of Yen carry trade. This could explain the recent metals sell-off. Now commodities and other markets will have to find a real equilibrium.

BTW, there is a planned shutdown on the blogger network today, from 4: to 5:30, PST I believe
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