Friday, September 29, 2006


Fed Fears Hit Gold

Some currency reports. "The US dollar was stable against the euro on data from the United States suggesting that the US economy was enjoying a soft landing. The euro meanwhile is on the backfoot after inflation in the 12-nation single currency zone dropped to an annual rate of 1.8 per cent from 2.3 per cent in August."

"Analysts said the ECB was still on course to lift its key refi rate another quarter point to 3.25 percent next Thursday, especially after a surprising rise in economic sentiment in the eurozone. 'The temporary drop in inflation in September is unlikely to deter the ECB from hiking, especially as inflation is set to move back above target over coming months,' said Mitul Kotecha, head of global foreign exchange strategy at Calyon."

"The US dollar was stronger during the week after the US core personal consumption expenditures deflator figures in August were higher than had been expected. The deflator, which is the Federal Reserve’s favorite measure of inflation, was at its highest annualized rate in eleven years."

"The greenback was 0.9 percent higher versus the euro, to $1.2661, while it added 1.3 percent in relation to the Japanese yen to ¥118.03."

"Worrisome news of rising consumer prices helped torpedo gold Friday. December bullion futures shed $6.70 to close at $604.20 an ounce on the Comex. The core personal consumption expenditure deflator rose 0.2% in August, putting its year-over-year increase at 2.5%, the highest in over a decade. It will likely lower the prospect of a cut in short-term interest rates anytime soon as the Federal Reserve tries to squeeze burgeoning price pressures out of the economy."

"St. Louis Fed President William Poole gave some hawkish comments in a speech Friday: 'Accepting higher inflation, or even a continuation of the current rate of inflation, in an effort to sustain current employment levels will only lead to more grief later,' Poole said."

"Chart watchers were not viewing recent trends positively despite the fact that the yellow-metal found support above the psychologically important $600 level. 'It's making a stair-step decline, which is normal for a bear market,' says Rich Ishida, president of Pasadena-based MarketVane. 'I see lower highs and lower lows.'"

"Elsewhere in gold, Sweden's Riksbank says it intends to sell 10 tons of bullion over the next 12 months, according to news reports."

"Gold for December delivery climbed for seven sessions in a row to tally a gain of $27.70 from the closing level on Sept. 19. A week ago, the contract closed at $595.40 and it ended last month at $634.20, so it marked a gain of around 1.5% for the week, but a loss of $30 for the month."

"December silver closed down 19.5 cents at $11.54 an ounce, ending the month 11.4% lower. It was up 2% for the week."

"'After going straight up after bottoming around $570, gold is deservingly taking a breather today,' said Peter Grandich. Grandich said he expects prices to 'test critical resistance around $640 next month and if it breaks through, a more dramatic rise to this year's old highs around $735 are in the cards.'"

"The metal, which jumped about 5 percent in a week, lacked the strength to hurdle the moving average barrier at $613.70 in December futures in the near term. 'If we pop through that, it could be 'Katie bar the door.' But it's probably going to take some kind of news to do that,' said James Quinn, commodities commentator at A.G. Edwards & Sons."

The FED (unknown if other CBs are on the same plan) will make as much of a case for raising rates as they possibly can, only to keep them steady or cut them. In reality, it costs them nothing (banks lose less if 10 year climbs based on perception of future hikes, yet the Fed Funds Rate doesn't actually move until they move it). At the same time, the dollar doesn't continue falling based on this same perception. The only drawback I can see is that it doesn't make our exports any cheaper. That is the pickle.

They want a lower mortgage rates to ease the housing debacle. If they get there by lowering the Fed Fund rate, the dollar tanks (assuming the other CBs don't lower theirs). This would be great, except for our massive debt. It makes it easier to pay off, but then inflation would be very difficult to hide as the dollars come home. When will it be time to level with the American people and come clean with the mess that was made?
Question: Aside from attempting to manipulate a market in a particular direction, are there any other reasons to *ever* announce well in advance that you're *going* to be buying or selling a massive quantity of a commodity?
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