Thursday, August 03, 2006


Central Banks Hike Interest Rates

Interest rate hikes were the big currency news today. "The Bank of England raised interest rates a quarter of a percentage point to 4.75 percent Thursday, citing persistently high inflation as it made a largely unexpected move that changed the cost of borrowing for the first time in a year."

"The European and Danish central banks followed suit in moves that were expected, but wary investors sent markets lower as the moves raised fears that the U.S. Federal Reserve would do the same when it meets next week."

"The British pound strengthened against the U.S. dollar, rising to $1.8854 from $$1.8779 late Wednesday in New York. The euro was little changed as the ECB gave no strong signal on its future course. Most analysts believe the ECB will raise its rate to 3.25 percent when it meets on Oct. 5."

From South Africa. "Reserve Bank governor Tito Mboweni announced the second consecutive repo rate hike of 50 basis points Thursday, which saw the central bank's lending rate to commercial banks climbing up to 8 percent. The last MPC meeting in June also decided to raise the rate by 50 basis points."

"The Monetary Policy Committee came to this decision following its meeting in Pretoria on Wednesday and Thursday, due to perceived threats to the inflation outlook which were pushed by oil and food prices and the volatile rand. 'The MPC remains concerned about the longer term threats to the inflation outlook and has therefore decided that a further adjustment to the repo rate would be prudent.'"

From Australia. "Yesterday's 25 point rise in the official interest rate will add $49 a month to an average $300,000 home loan. John Howard, who had argued last week that inflation was under control apart from one-off increases in banana and petrol prices, yesterday changed tack."

"'Nobody likes interest rates going up, but I don't believe that the Reserve Bank had any responsible alternative other than to take that decision,' he said."

"The Reserve Bank stands poised to lift interest rates again and to keep increasing them until the pace of personal borrowing slows. The bank's statement on interest rate policy, due this Friday, is expected to argue the economy can't support both a boom in business investment and a rapid increase in consumer demand."

"The dollar fell against the euro and the pound Thursday after the European Central Bank and the Bank of England raised interest rates. However, the dollar strengthened against the Japanese currency, climbing to 114.91 yen from 114.55 yen. In other trading, the dollar bought 1.2309 Swiss francs, up from 1.2297 late Thursday, and 1.1252 Canadian dollars, down from 1.1263."

"The market is looking ahead to the Labor Department's report on employment Friday, which could figure into its view on the Federal Reserve's interest rate decision next week, David Gilmore said. A long string of interest rate hikes has boosted the dollar, but the Fed has indicated it's nearing the end of its credit tightening campaign and any increase in rates depends on data showing high inflation."

"Spot gold was lower in early afternoon trade on profit taking following yesterda’s rally, traders said. With high volatility making for a nervous market, more short-term losses were possible for the metal which was seen remaining in a broad range, however."

"In afternoon trade, spot gold was quoted at $645,75 a troy ounce from a previous close of $651,80/oz."

"'Gold at the moment has traded down about $6. It spiked yesterday and went up to about $655 on things hotting up in the Middle East. It’s come off now with people envisaging we could have a settlement there, but there could be a civil war in Iraq so there is still trouble on the horizon,' said Mark Wurr, head of trading at Global Trader."

"Looking at the longer term, Wurr believed gold would go up past $700/oz but only near the end of the year. In the meantime, it was trading quite vigorously, he said."

"'Volatility for the last month or so has been 25% or something, which is very high. Normally, it is about 10%,' he noted. He said that in theory, the high volatility meant there could be a sell off. 'It makes people nervous when volatility increases as quickly as it has and could be a reason to take profits.' Wurr therefore believed that gold could be sold down to about $636-$625."

"Platinum was quoted at $1,240.50/oz from an overnight close of $1,248/oz, while palladium was $2 weaker than its overnight close at $322,50/oz. Platinum was down in line with gold and commodities in general, said Wurr."

The catalyst for the Asian crisis is having problems again. From Thailand:

'The Saha Group, the country's leading consumer product manufacturer, said yesterday that it would cut its production costs to cap prices for as long as it could. Mr Boonsithi said the only help he wanted from the authorities was the stabilisation of the baht at around 40 against the US dollar, compared with around 38 baht at present.'

'He said capping prices would help the Commerce Ministry ensure the rate of inflation this year did not exceed 5%.'

And on gold hedging:

'In industry news, global gold hedging declined by 11 percent to 43 million ounces in the second quarter of this year, compared with the January-March period, its largest-ever percentage fall, a report said.'
Ben, In what way are you saying this is a catalyst for another Asian crisis? Purposly manipulating the currency ,or lack of funds coming in?
Seems there is a few taking their Physical Silver......Maybe not quite a run ,but still if was to continue?
'In what way are you saying this is a catalyst for another Asian crisis?'

Sorry for not making myself clear. IMO, it was the Baht crash that kicked off the Asian financial crisis in the late 90's. I was only referring to that event, not suggesting a repeat, neccesarily.


Lots of people (including EW's Prechter) believe a deflationary depression will take the metals down to Y2K levels before heading for the stratosphere. Well...

I believe it's very possible that the "End of the Gold Basis" (as Fekete put it) will occur beforehand, effectively isolating PMs from a contraction. Jas Jain has stated much the same thing, in that when economic armageddon is realized all the Gold will already be tied up and no longer available to the common man at any price.

I've previously made the point that there really isn't that much Gold (or Silver) in the world. OTOH, there's a hell of a lot more money out there, so it wouldn't take much of it to remove all PMs from the public domain rather quickly.


My thought is we will see some wild swings as it is a thin market,BUT I don't think it will fall much relative to the price now..Certainly not pre Y2K prices...People are already rotating out of dollars. All the talking heads on CNBC are talking some gold in their positions. As the dollar unwinds just more interest in the PM's. Some minor shortages already showing up on silver...Russia, China, etc etc all increasing their reserves substantially.
Italy was just shown to increase holdings of $sterling 25% thereby secretly? getting out of the dollar..I think it's similar to housing. People are whistling past the graveyard with their eye on the door....Time will tell. Long term ,nothing but up ....
at least that's where I have my blue chips.
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