Thursday, September 07, 2006

 

Metals Have 'Slightly Run Out Of Steam'

Bloomberg reports on the markets. "Gold and silver in New York tumbled the most in seven weeks as the dollar strengthened against the euro, eroding the appeal of precious metals as an alternative investment. 'Dollar strength is hurting the metals,' said Frank McGhee, head metals trader at Integrated Brokerage Services in Chicago. 'Every fund is hitting the door at the same time.'"

"Gold futures for December delivery fell $16.90, or 2.6 percent, to $624.90 an ounce on the Comex division of the New York Mercantile Exchange, marking the biggest percentage drop since July 18. Prices still are up 39 percent from year ago. Silver for December delivery dropped 50.5 cents, or 3.8 percent, to $12.695 an ounce. Prices reached $13.37 on Sept. 5, the highest since May 17. The metal still has surged 78 percent in the past year."

"The dollar was stronger against major currencies as it followed Treasury yields higher. The greenback had a boost on Wednesday from data that showed a surprisingly big jump in U.S. labour costs and raised the risk that the Federal Reserve may have to tighten policy again this year."

"Oil prices slipped to their lowest level in five months before recovering slightly. Prices have slumped more than six percent in two weeks. 'Precious metals have slightly run out of steam,' economist Stephen Briggs said."

"UBS Investment Bank recommended that investors might use current price levels to buy precious metals. 'We are mindful, however, that precious metals are more sensitive to the dollar, which looks solidly rangebound, and that our medium to longer term forecasts for higher prices will require the dollar weakness we expect to materialise,' said John Reade, analyst at UBS."

"'In addition to fresh confirmation of rising Chinese gold production (+9% in the January through June time frame), the market was also presented with ongoing dialogue about a significant mine expansion effort by Gold Fields in South Africa,' said analyst Nell Sloane."

"'While the mine expansion was known in the action yesterday, the trade is seeing the details of an effort to 'go deep' and hopefully increase production by as much as 10.8 million ounces,' she said."

"But Brien Lundin, editor of Gold Newsletter said he didn't believe the Gold Fields' announcement had any impact on the gold price Thursday. 'The expected production growth is too far off in the future, and spread over too many years, to have any significant impact on the current supply/demand dynamic,' he said. And it 'does little to alter the solidly established trend of declining gold production worldwide,' he said."

"Mexico's currency fell to an eight week low against the dollar in early Mexico City and U.S. trading. The peso fell 0.5 percent from late yesterday. For 2006, the peso is down 3.6 percent, the third-worst performance of the 16 major currencies. The yield on the benchmark government bond due in December 2015 rose 5 basis points, or 0.05 percentage point, to 8.25 percent."

"The 12-nation euro was down sharply against the U.S. dollar on Thursday after a second U.S. labor market report supported the case for higher interest rates there."

"Still, the dollar fell to 116.42 Japanese yen from 116.59 on Wednesday. The yen advanced after a German official said the Japanese currency's weakness would be a topic when G-7 officials meet in Singapore this month."

Comments:
So what say you? Buying opportunity? We are back to the guessing game with the Fed or is the central bank irrelevant now?
 
I just don't see how the FED is going to raise rates. They can prolong the devaluing of the dollar by talking tough in between meetings. However, when the meeting arrives, they simply won't be able to raise (they could, obviously, but don't have the political will to do it). Because we as a country have gotten soft, there will be intense political pressure to cut rates.

Maybe Bernanke is smart enough to realize that will be devastating, but I think he'll cave. Only in hindsight will they realize that a weaker dollar will change the global economic environment in ways they never dreamed. You devalue the reserve currency of the world, and we're talking hyperinflation on a global scale. Uh oh.

On the other hand, he could restore faith in the dollar, cause a depression, but preserve the long term financial prosperity of the USA. I just don't think the long term security of our nation is on the radar. Only how to stay popular and in power the longest.

Time will tell. If you have faith, stay in cash. If not, get the heck out fast.
 
I still have some purchasing to do, so I'll take those buying opportunities when I get them, thank you very much!

Meanwhile...

On the other hand, he could restore faith in the dollar, cause a depression, but preserve the long term financial prosperity of the USA.

kerk93, don't quite get your reasoning here. A strong dollar requires stable government and a relatively strong economy to underpin the "full faith & credit". IOW, people have to believe the government issuing the paper will be around and have the economic backing to repay. DC is bankrupt, therefore raising rates will also raise the cost of debt & deficit maintenance. A depressed economy doesn't inspire creditors, either.

Again, the destination is not in question, only the journey has yet to be written.
 
TJ!
Unfortunately, I think, You missing something.
Goverment and Issuers of the Dollar are not the same people.
Only indirectly, what is good for Bankers is good for the economy.
kerk93!
There is one more option.
Postpone colapse of the currency long enough to change into another one.
It will be called Amero (like Euro). And in order to do this they need several years and create the union of US, Canada and Mexico.
At this point, you think, I am crazy. Just wait.
Have you ever wonder why Bush supports Immigration Reform?
Just part of the process.
 
TJ,
By saying "faith", I don't describe it exactly the way you do, but essentially the same. You say a stable government which will be around for a while, where I say just a gov't you can trust to not create so much more of their currency that I get taxed to oblivion.

As an example, the Chinese and Russians have been around for a long time. Their gov'ts have been around a long time also, and will probably be around for a long time in the future. A reason I don't buy their currency (there are others, but this is a big one), is that I don't have the faith that they are doing things on a truthful and fair manner.

So, when I say faith in our FED, I am simply saying that investors would have the trust to see (at least appear) that we are attempting to take a way out of the problem other than inflating it away (actually toiling away / working hard to pay up with our hard earned money back to the foreigners).

Is that going to happen? Not from what I'm seeing. A fair number of people I see that aren't afraid to get their hands dirty and work long hours are people who are speaking Spanish. The rest are driving Escalades, selling houses or dollars back and forth to each other. They are making this happen by taking on more and more debt. This debt has been financed by foreigners to a large extent. Yeah, not great prospects for the future.
 
Mike C.,

Doesn't matter that the Fed is separate; only thing that matters is that any move they make (including no moves at all) won't help. They're all painted into a corner by soaring debt and a diving economy. That's why I have PMs -- there's no way out.

I don't totally dismiss the whole "Amero" thing, but I fail to see how it'll help or even come to pass. There'll be shooting first.

That said, I expect the coming "perfect storm" to clean house in the U.S. and thereby allow it to rise anew thereafter, better for it.

kerk93,

Agree on the "faith" definition.
 
From Todd Harrison at Minyanville on August 30, 2006. Pay particular attention to the last paragraph. Also, read Buchanan's book "State of Emergency". I have also been thinking of the term "Perfect Storm" as it applies to the housing crash, illegal immigration, dollar devaluation, globalization and the coming recession or depression.

P.S. Will China crash and break-up within the next 3 years?:

Minyanville's Harrison:

Nationalization

If the greenback continues to debase, countries will hoard natural resources as a self-defense mechanism. Bolivia, Brazil and Venezuela have already taken steps in this direction although this dynamic is in its infancy. Several events during the last few years have planted seeds of US isolationism that continue to sow. The scuttling of CNOOC's (CEO) acquisition of Unocal, for instance, sent a clear message to multinational corporations that when the going gets tough, the tough will look out for themselves.

The brunt of this evolution will likely be felt in the mining and energy spectrum, which could lead to further decoupling of the commodities and their equity brethren. While US corporations have become synonymous with exposure to their underlying assets, in part because they are the default vehicle of individual investors, we could experience an unpleasant wishbone as heretofore third world countries begin to protect their assets.

One possible scenario involves the establishment of a North American community, one that marries Canadian natural resources with cheap Mexican labor under the directive of a US initiative. Given the current global evolution, including the European Union and the fortification of the Middle East, this solution seemingly makes sense. More likely than not, however, politics and agenda will shelve this initiative until it becomes all too apparent that we need it to compete on a global basis."
 
America is beyond broke. I don't worry about short term dollar fluctuations. The dollar can only fall, with time. Yes, I think we may be seeing another buying opportunity here for metals.
 
"we need it to compete on a global basis."
The way I see it.
It is initiative of The Masters of Currency to postpone collapse by constant growing demand for it.
When Mexico will be unified with US and Canada they will have many additional millions of people using FED's new currency everyday.
They know better than we do, that demand for the treacherous loans from IMF and World Bank (which are owned by Masters of Currency) are not very popular any longer in the world. They know better than we do that oils backing of dollar is standing on shaky legs with the increasing demand for oil from China and Chavez and Iran and others getting together to kick US a$$. MoC have to do something.
Cheap labor and resources is just a frosting on the cake or rather good idea how to explain that to the public.
Got Gold?
 
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