Friday, September 22, 2006


'A Big Bet The Fed Is Done'

Reuters reports on the currency action. "The dollar slipped against the euro, and inched up against the yen on Friday, against a backdrop of growing risk aversion in world markets as investors fretted that slowing U.S. economic growth may prompt the Fed to cut interest rates as early as next year. It was the outlook for interest rates that drove the dollar as investors still traded off Thursday's Philadelphia Federal Reserve Bank report showing the first negative reading in business activity in September in more than three years."

"'The market is putting a lot of weight into the Philly Fed (data) and the Fed leaving rates unchanged,' said Joe Francomano, vice president of FX at Erste Bank in New York. 'The market is making a big bet that the Fed is done.'"

"'Weakness against major currencies is a function of the downgraded growth expectations,' said Robert Lynch, head of G10 FX strategy for the Americas at HSBC in New York. 'The market is all about pricing risk. The latest data has increased the perceived risk that it could be a hard landing' for the U.S. economy, he said."

"In addition to concern that a U.S. economic slowdown could harm global growth, another factor behind heavy selling of emerging market currencies, stocks and bonds was increased political risk. This week brought a collapse of Poland's coalition government, violence over a political scandal in Hungary, a military coup in Thailand, and another political scandal in Brazil."

From Bloomberg. "'The dollar is vulnerable,' said Todd Elmer, a currency strategist at Citigroup Global Markets in New York. 'The market has started to price in some risks of a rate cut in December.'"

"'We are solid dollar bears,' said David Durrant, chief strategist in New York at Julius Baer Investment Management, which oversees about $42 billion. 'A move to price in a rate cut in December signifies a softer dollar ahead. I would prefer assets outside the U.S.' Durrant predicted the dollar will slide to $1.30 per euro and 110 yen by year-end."

"European Central Bank officials including President Jean- Claude Trichet this week reiterated their pledge to exercise 'strong vigilance' on inflation, paving the way for higher rates next month."

"The yen may also garner support as China's yuan gained a fourth straight week. 'We see the dollar-yuan rate sliding to about 7.8 later this year and then about 7.4 by the end of next year,' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York."

"The yuan today reached its strongest since China ended the currency's peg to the dollar in July last year."

"Gold rose, capping its biggest weekly gain since July, as the dollar weakened against the euro and jewelers from India increased buying before the country's wedding season. 'We've seen some pretty phenomenal physical demand from India, which has limited gold's downside potential,' said James Moore, an analyst with"

"Gold futures for December delivery rose $7.10, or 1.2 percent, to $595.40 an ounce on the Comex division of the New York Mercantile Exchange. The $12.40 gain for the week was the biggest since the five-day period ended July 28 and ended two weeks of declines. Prices are down 19 percent from a 26-year high of $732 on May 12."

"Gold for immediate delivery rose $5.35, or 0.9 percent, to $589.54 an ounce as of 8:27 p.m. in London time."

"Gold prices 'will bounce again,' after an annual deadline for European Central Bank sales expires at the end of September, Peter Hambro, founder and chairman of Peter Hambro Mining Plc, said yesterday. The company is Russia's third-biggest gold miner."

"Under the Central Bank Gold Agreement, banks in Europe agreed to sell no more than 500 tons in the year ending September. They've sold 380 tons as of Sept. 19, the London- based World Gold Council said."

"Gold 'is still a bit at risk of further pressure,' Moore said. 'There is potentially more metal coming onto the market.'"

"Among other precious metals for immediate delivery in London, silver rose 3 cents, or 0.3 percent, to $11.145, palladium climbed $10, or 3.2 percent, to $319 while platinum gained $7, or 0.6 percent, to $1,145.50."

I wonder what kind of people or institutions lost money on the implosion of Amaranth. I dont think our financial system can absorb many more 6B hedge fund losses.
Anybody out there more familiar with the terms of the Central Bank Gold Agreement? Seems to me that the Semptember "deadline" isn't much of a deadline at all, since they can sell 500 tons the day after the deadline as well (since that date falls into the following year). It would seem to me that the so-called "deadline" only has any bearing if the central banks sell a portion of their gold prior to September, thereby decreasing the remaining percentage of their 500 ton allocation that they are still allowed to sell before the September deadline. (Which is where we are right now).

But as soon as we roll-over the "deadline", it would seem to me that far from being safer, the gun is now reloaded for another potential 500 ton sale. No?

Someone help me out on why so many articles claim that gold will rise after the deadline is over. Doesn't the passing of the "deadline" mean that central banks are again free to sell an additional 500 tons?

There has to be some huge money being lost on energy/commodities.
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