Money and Metals

Bloomberg reports on currencies. "The dollar fell for a second day against the euro and yen after slowing inflation and housing boosted speculation the Federal Reserve won't lift borrowing costs again this year. The U.S. currency also declined against the British pound, Swiss franc and New Zealand dollar on concern the yield attraction of dollar-denominated assets will wane. The dollar dropped the most in about two weeks yesterday after wholesale prices unexpectedly fell last month."

"'Inflation pressure remains contained,' said Paresh Upadhyaya, who helps manage $29 billion in currency assets at Putnam Investments in Boston. 'The dollar is weakening across the board. People are taking out rate hike expectations in the next few months.'"

"'People are taking that as a signal that another Fed rate increase is becoming less likely,' said Ryan Shea, a currency strategist at State Street Global Markets in London. 'If this continues we will see institutional investors selling quite a lot of dollars.'"

"Housing starts fell 2.5 percent to an annual rate of 1.795 million, the lowest level since November 2004, the Commerce Department said. Building permits, a sign of future construction, declined 6.5 percent, the most since September 1999. 'If the housing boom is going bust, then the consumer will be squeezed and that means lower growth,' said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo. 'It's not a good U.S. dollar number at all.'"

"The dollar extended losses after a Fed report showed industrial production increased less than forecast in July. The 0.4 percent increase in output at the nation's factories, utilities and mines followed a 0.8 percent gain in June, the Fed said."

From MarketWatch. "Gold futures closed higher Wednesday for the first time in five sessions as softer-than-expected consumer inflation data dulled expectations that the Federal Reserve will raise interest rates again and put pressure on the U.S. dollar.
The inflation data release clearly shows that Federal Reserve Chairman Ben Bernanke is 'deluded in thinking that inflation is going to wither,' said Ned Schmidt, editor of the Value View Gold Report."

"Gold for December delivery closed up $6.10 at $639 an ounce on the New York Mercantile Exchange. The contract lost more than $29 in the last four sessions."

"Peter Grandich said that on a technical basis, gold is setting up for a large rally, after a medium- to long-term bottom that should be set in the next few days to couple of weeks. 'Personally, I would love to see a washout under $600 but markets rarely provide you the ultimate best scenario,' he said. 'Whether or not this occurs, the most important belief of mine is not only that are we going to take out the highs of earlier this year around $735, but it's only a question of when, not if, we make new all-time highs in 2007.'"

"Grandich cited a range of factors to support his bullish outlook, including a 'constructive' supply versus demand scenario with mining supply currently below expectations while demand remains high. 'While there will be a lull at times, serious geopolitical concerns in the world should give gold a strong underpinning for the foreseeable future. It's clear that the U.S. dollar is no longer the sole go-to place for safe-haven investing.'"

"Elsewhere in metals trading Wednesday, September silver futures closed up 20 cents at $12.285 an ounce. October platinum rose $9.60 to close at $1,251 an ounce and September palladium added $11.70 to end at $336.40 an ounce."