Money and Metals

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."