Money and Metals

Reuters reports on the US dollar. "The dollar dropped to a one-month low against major currencies on Tuesday after softer-than-expected October economic data spurred some doubt about U.S. growth potential. While analysts acknowledged that sentiment on the dollar has turned negative in the last week, they said that the key test for the greenback will be on Friday, with the release of the October U.S. payrolls report."

"'The U.S. dollar has been hit by the weaker-than-expected consumer confidence and Chicago PMI data,' said Marc Chandler, head of global currency strategy with Brown Brothers Harriman in New York."

"The dollar index, a measure of how the U.S. currency fares against a basket of six of the most liquid currencies, fell 0.4 percent from Monday to 85.21, the lowest since late September. For the month, the dollar index has tumbled 0.9 percent, the largest monthly decline since May. For the month, the dollar is down around 1 percent against the yen, snapping four months of gains against the Japanese currency."

"The euro rose 0.4 percent on the day to $1.2783 before retracing slightly to $1.2763. The dollar fell 0.7 percent against the yen to about 116.63 yen and then pared losses to 116.92 yen."

From Bloomberg. "New Zealand's dollar rose to a five- week high as investors are attracted to the nation's high bond yields amid signs that the Federal Reserve may start to cut interest rates next year."

"New Zealand's three-year bond yield trades at a 1.93 percentage point premium to the equivalent U.S. maturity, the widest spread in a month. The currency has gained 8.3 percent the past three months, the world's best-performing major currency tracked by Bloomberg."

"'The New Zealand dollar has staged a recovery underpinned by its status as a relatively high-yielding currency,' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington."

"Reserve Bank Governor Alan Bollard on Oct. 26 kept the nation's benchmark interest rate unchanged at a record 7.25 percent and said he couldn't rule out a rate rise."

From MarketWatch. "Gold futures fell Tuesday, but closed above the $600 level for a third session in a row to score a monthly gain as traders weighed pressure from North Korea's willingness to return to discussions about its nuclear activities against support from weak U.S. economic data."

"Gold 'still needs to overcome the resistance band between $608-$612 but appears to have made the breakout from its three-month downtrend on the charts,' said James Moore, an analyst at TheBullionDesk.com. 'Resistance above is pegged at $624 with support seen at $598/$592,' he said."

"Gold for December delivery closed down 60 cents at $606.80 an ounce on the New York Mercantile Exchange after tapping a low of $600.50. Other metals declined after posting gains in the previous session, but silver was the exception. It saw its December contract climb 2 cents to close at $12.27 an ounce and it ended the month with a gain of 6.3%."

"January platinum lost $6.7 to close at $1,086.50 an ounce, down 5.5% from a month ago, and December palladium closed down $6.05 at $322.70 an ounce, up 2% for the month."

"With gold now back close to the $600 an-ounce level, 'we need to see whether this is a pullback for consolidation before another up leg, or else a failed break-out,' said William Adams, metals analyst at BaseMetals.com."

The Associated Press. "The Bank of Japan voted unanimously Tuesday to leave its key interest rate unchanged at 0.25 percent, but the central bank chief said rates could be gradually increased if the economy expands as expected."

"As for risks to the Japanese economy, the BOJ cited a possible downward slide in U.S. housing prices, which could drag on growth in the U.S., Japan's biggest export market. The report also said that inflationary pressure may rise in U.S."

The Associated Press reports on currencies. "The dollar fell against the yen in Asian trading Monday as figures showing weaker-than-expected U.S. economic growth continued to weigh on the American currency. The U.S. dollar was trading at 117.44 yen by mid-afternoon in Tokyo, down from 117.59 yen from late Friday in New York. The euro fell to US$1.2719, from US$1.2736."

"During the Asian session, Japanese exporters, as well as mutual and pension funds sold the dollar, sending the currency to as low as 117.20 yen, dealers said."

"'After many unsuccessful attempts to lift the dollar above 120 yen (over the past few weeks) and the weaker-than-expected U.S. economy, some players have given up challenging the dollar's upside for now,' said Jun Kato, at Shinkin Central Bank."

"Traders expect the dollar to remain weak this week as players may hold off buying the greenback, and are eager to check to see if the U.S. October non-farm payrolls, which economists on average expect a 125,000 gain, will come out weaker than the forecast. Kato said the dollar may fall to 116.00 yen this week if the data turn out to be weak."

"Also weighing on the dollar versus the yen is the possibility that Bank of Japan Governor Toshihiko Fukui may take a hawkish tone at his press conference Tuesday. 'Some players are speculating that the Fukui may sound hawkish to leave the door open for a possible rate hike in December,' said Kikuko Takeda, currency research manager at Bank of Tokyo Mitsubishi."

From Bloomberg. "Canada's dollar dropped, snapping a four-day winning streak, after a government report showed factory prices and raw-material costs fell by the most in almost two years in September. The decline was the biggest in almost three weeks."

"'Oil is trading below $60 a barrel, and that's also a factor, influencing the currency,' said Maria Jones, a currency strategist at TD Securities Canada Inc., in Toronto. Crude oil fell the most in more than three weeks as warm U.S. weather reduced demand for heating fuels, bolstering inventories. Crude oil for December delivery fell $1.88, or 3.1 percent, to $58.87 barrel"

"The currency has fallen more than 2 percent since reaching a 28-year high on May 31, as economic growth slowed and prices of commodities peaked. The yield on Canada's benchmark 10-year note was little changed at 4.07 percent."

From MarketWatch. "Gold futures climbed more than $6 an ounce Monday to mark their highest closing level in more than four weeks, supported by strong physical demand as the Christmas holiday season approaches. 'In recent weeks, gold has been a market in search of a direction,' said Brien Lundin, editor of Gold Newsletter. 'Now there's growing evidence that it has found a direction -- and it is up.'"

"Gold for December delivery closed up $6.40 at $607.40 an ounce on the New York Mercantile Exchange. That's its strongest closing level since Sept. 28. The contract climbed as high as $613.20 Monday, its loftiest intraday level since Sept. 8. Prices for the precious metal had gained Friday with a firmer oil price and declining dollar after a surprisingly weak U.S. third-quarter growth reading."

"The physical gold market has been 'experiencing enormous demand, particularly from India,' for more than a month, said Lundin."

"Against this backdrop, December silver futures closed up 17 cents at $12.25 an ounce. January platinum rose $13.50 to end at $1,093.20 an ounce and December palladium rose $5.75 to close at $328.75 an ounce."

Bloomberg reports on the error that may rock markets on Monday. "An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist."

"Last quarter's annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported."

"The increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said."

"'Last quarter was weak even with the benefit of this mismatch and the fourth quarter will now also be weak because it's going the other way,' Carson said. 'Whatever output you have this quarter, which will probably be down, will be discounted by a likely rebound in prices.'"

"An increase in inventories overall suggests manufacturers may need to trim production this quarter. The economy will probably grow at an annual pace of 1 percent from October through December, down almost a full percentage point from his earlier estimate, according to Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank Securities Inc. in New York."

"'A relatively large inventory build last quarter will need to be worked off and that will produce a negative hit to production, employment and income,' LaVorgna added."

Bloomberg reports on the markets. "Gold rose in New York, capping the third straight weekly gain after a U.S. report showed economic growth slowed in the third quarter, weakening the dollar and boosting the metal's appeal as an alternative investment. Gold is up 16 percent this year, while the dollar index has fallen 6 percent against a basket of six major currencies."

"'There's a big focus on what could happen to the dollar,' said Carlos Perez-Santalla, a gold trader and president of Hudson River Futures in New York. 'I'm liking gold again.'"

"Gold futures for December delivery rose $1.20, or 0.2 percent, to $601 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price since Oct. 19. Prices gained 0.8 percent for the week."

"The U.S. economy grew at a 1.6 percent annual rate in the third quarter, the Commerce Department said today. The increase was less than forecast and the slowest pace in more than three years, as housing slumped and the trade deficit widened."

"Former Federal Reserve Chairman Alan Greenspan said central banks and private investors are beginning to shift holdings from the dollar to the euro. 'We're beginning to see some move from the dollar to the euro, not only in the private sector, but by monetary authorities, by central banks,' Greenspan said yesterday."

"'Mr. Greenspan's comments about migration into the euro is on the supporting side for gold,' said Frank McGhee, head metals trader at Integrated Brokerage Services Inc. in Chicago. The metal faces resistance at $600, analysts who study price charts said. Today is the third time gold has closed above $600 this month."

"'Gold needs to get through a series of important resistances between $602 and $605 to attract substantial fresh buying,' said Robin Bhar, an analyst at UBS AG in London."

"The dollar fell the most against the yen in more than five weeks and declined versus the euro after a government report showed U.S. economic growth slowed in the third quarter. 'The GDP number was the catalyst to sell dollars,' said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. 'For the dollar to fall and break out of the ranges we've seen all year, you've got to have the yen participating.'"

"The U.S. currency fell to 117.58 yen at 4:01 p.m. in New York from 118.38 yesterday. The dollar declined for a fourth consecutive day against the European currency to $1.2735 per euro, from $1.2694 yesterday, the longest losing streak in more than five months. The dollar also fell against the Danish krone, British pound and Swiss franc, and was weaker versus 13 of 16 major currencies tracked by Bloomberg."

"The Canadian dollar jumped to its highest point in nearly a month against the U.S. currency on Friday, as data showing a much bigger than expected slowdown in U.S. third-quarter growth sent the greenback down sharply."

"This reinforced the somewhat dovish tone of the U.S. Federal Reserve's statement earlier this week and drove the greenback decisively below the C$1.12 level for the first time since Oct. 3. 'Purely from a psychological point of view, that's an important level,' said Matthew Strauss, senior currency strategist at RBC Capital Markets. 'I think from this point forward the market will much more sensitive to any news that might indicate a further slowdown in the U.S. economy.'"

"However, if the U.S. weakness persists and begins to affect Canadian growth via trade performance, the Canadian dollar could find itself cooling as well, he said, particularly versus overseas currencies."

Bloomberg reports on the US dollar. "The dollar fell against the euro for a third consecutive day, its longest losing streak in more than a month, and weakened versus the yen after a report showed the U.S. median price for new homes declined the most since 1970."

"The U.S. currency also weakened against the South African rand, South Korean won and Swiss franc as further evidence of a cooling housing market supported the Federal Reserve's decision yesterday to keep borrowing costs unchanged."

"'This will keep the Fed worried about the economic growth going into the fourth quarter,' said Kathy Lien, chief currency strategist at Forex Capital Markets LLC in New York. 'U.S. consumers living freely on paper wealth of their homes will have less to spend for the Christmas season. This is a bearish picture for the dollar.'"

"'The dollar bulls have given up for the time being,' said Michael Woolfolk, senior currency strategist at the Bank of New York. 'They were hanging their hat on the FOMC statement. It didn't come through.'"

"Gold gained for the third straight day in New York as a decline in the value of the dollar against the euro boosted the metal's appeal as an alternative investment. Gold futures for December delivery rose $9, or 1.5 percent, to $599.80 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price in a week. Futures climbed 1.4 percent in the previous two sessions."

"'The overall consensus is that the dollar is going to weaken this year,' said Matt McKinney, a commodity broker at Infinity Brokerage Services in Chicago. 'Most of my clients have unloaded the short positions in gold,' he said."

"'It took 5 months for the market to correct,' said Dale Doelling, chief market technician at Trends In Commodities. 'I believe this correction is over and the next big leg up has begun.' It's possible that December gold will trade near the $650 level before the end of the year, he said, and likely reach new high sin 2007."

"'A steadier oil price, a retreating U.S. dollar and Iran/Iraq geopolitical concerns moving back towards the front page' -- all 'are allowing gold to once again test key resistance between $600 [and] $610,' said Peter Grandich, editor of the Grandich Letter. 'It appears only a question of when, not if, it breaks out to the upside.'"

"December silver futures closed up 35 cents, or 2.9%, at $12.24 an ounce, January platinum added $14.30, or 1.3%, to close at $1,083.30 an ounce and December palladium rose $3.40 to end at $326.50 an ounce."

The Federal Reserve held rates stready today. "The Fed's Open Market Committee kept the nation's benchmark rate unchanged at 5.25 percent for a third straight meeting, but it noted that recent readings on inflation have moved higher recently. There may have been some disappointment on Wall Street because 'it's not a sign that the Fed is going to be cutting rates anytime soon,' said Drew Matus, senior economist at Lehman Brothers."

"Oscar Gonzalez, an economist with John Hancock Financial Services, said the Fed was likely to remain on hold for 12 months. 'They are aware that there is an inflation risk but they are not committed to raising rates at this point given the information that the economy really is slowing down. The policy is to wait and see what the data tells us,' said Gonzalez. The dollar extended losses as the Fed was not seen as ratcheting up its inflation worries."

"'The bottom line is that the statement had a hawkish tone,' said Mike Moran, chief economist for Daiwa Securities America. 'They are not considering easing monetary policy at this time (but) I think it's likely they will have to tighten again sometime in 2007.'"

"Gold future extended their gains above $590 an ounce in after-hours trade Wednesday, as traders reacted with relief to the Federal Reserve's decision to leave rates unchanged but continue to drive home its anti-inflation message."

"Meanwhile, the dollar extended its losses against major rivals after the Fed decision. Policymakers were expected to leave interest rates unchanged at 5.25% but the central bank kept the door open for further increases if inflation heats up."

"James Moore, analyst at TheBullionDesk.com in London, said that from a technical standpoint, gold is finding physical support during dips, while investment funds are selling into rallies, 'but the short-term trend remains one of weakness with gold requiring a rally through $608 to confirm a break-out on the charts,' he said."

"Other metals were mixed earlier. Silver futures closed up 4 cents to $11.89 an ounce, platinum was up $5.90 at $1,069 an ounce and palladium rose 10 cents to $323.10 an ounce."

Bloomberg reports on the US dollar. "The dollar halted its two-day advance versus the euro and yen, surrendering its early gains on speculation the Federal Reserve during tomorrow's interest-rate meeting may not highlight inflation risks as growth slows. 'There is a lack of a catalyst in the market to push the dollar above its recent highs,' said Tim Mazanec, senior currency strategist at Investors Bank & Trust Co."

"A government report this week may show the weakest U.S. economic growth since the last quarter of 2005. 'We expect third-quarter GDP figures will disappoint the market,' said Jonathan Cavenagh, a currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-largest lender. 'This will damp the momentum we have in the U.S. dollar' and prompt a drop to $1.26 per euro by the weekend."

"'We expect significantly weaker-than-consensus GDP growth at 1.5 percent,' said Sebastien Barbe, a senior currency economist at Calyon in Hong Kong. 'The markets will come back to more dovish expectations of U.S. interest rates, which can translate into across-the-board dollar weakness.' The dollar may fall to $1.35 per euro and 112 yen by year- end, Barbe said."

"The yen may benefit after Japan's finance ministry said the world's second-largest economy is improving in all of its 11 regions as businesses and consumers spend more. Bank of Japan Governor Toshihiko Fukui has said the bank will boost interest rates 'gradually,' after its first rate increase in almost six years to 0.25 percent in July."

"The currency may also gain after Finance Minister Koji Omi said Japan is ready to take action on foreign exchange rates if necessary. Japan's currency has dropped 6.9 percent against the euro this year and reached a record-low 150.73 on Aug. 31."

From MarketWatch. "Gold futures closed higher Tuesday, scoring their first gain in three sessions with oil prices strengthening on the eve of U.S. supply data and the dollar slightly weaker as the Federal Reserve met to discuss interest rates."

"'For the time being, the market is still lacking momentum of its own and as such is at the mercy of external forces, primarily oil and the dollar,' said James Moore, analyst at TheBullionDesk.com."

"From a technical perspective, traders 'tried to take out stops down near $570 and failed, causing a short-covering rally,' said Peter Grandich, editor of the Grandich Letter. But 'gold continues to be trapped between $570 and $600.'"

"Gold for December delivery closed up $4.70 at $587.60 an ounce on the New York Mercantile Exchange bouncing off a low of $576, its weakest level since Oct. 12. On Monday, the contract lost more than $13 to tally a two-session loss of $19.60."

"'Gold must not just hold key support above $560, but it has to begin to hold its gains or a much deeper correction down to $540 is possible,' said Grandich."

"Meanwhile, crude futures climbed above the $59 a-barrel level as traders bet that U.S. data due Wednesday will show a third-weekly decline in distillate supplies. See Futures Movers. Gold could be 'falling into a position where it is lumped together with other commodities and ignored along with them for the time being,' said Jon Nadler, at bullion dealers Kitco.com. The market is left with 'Fed watching and OPEC watching,' he said."

"From here, 'investors will absolutely have to step up to the plate and show their true colors now that India festivals are concluding,' he said."

"Against this backdrop, other metals were mixed. December silver added 18 cents to close at $11.85 an ounce, recovering from an earlier low of $11.35. January platinum fell $11.30, or 1.1%, to end at $1,063.10 an ounce while December palladium added $1.65 to close at $323."

The Street.com reports on the markets. "Concern that the Federal Reserve may reveal increased anxiety over inflation later this week buoyed the dollar and sent gold skidding Monday. Although investors will need to wait until Wednesday before seeing meaningful data, it's clear that no one is expecting that day's Federal Reserve Open Market Committee meeting to result in an interest rate cut."

"Meanwhile, some see the Fed getting religion on the need to tame inflation, thus postponing the likely date of a future rate cut. 'The data continue to bear out the conflict between Fed's dual mandates,' writes T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York. 'Inflation is at risk because core is not only above the Fed's comfort level but is also headed higher, while growth appears to be easing.'"

"Depending on the strength of the overall economy, however, a longer pause may turn into an actual hike. The fed fund futures market is priced for 12% odds of a hike at the Jan. 31 FOMC meeting, up from 6% on Friday, according to Miller Tabak. In early September, the market was priced for a 50% chance of a cut at the January meeting."

"Similarly, currency traders aren't betting on a cut, and they bid up the price of dollars. The greenback was recently trading at 119.275 yen, up from 118.69 yen late Friday. It was also stronger against the euro."

"The strength in the dollar sent contracts for December delivery of gold tumbling $13.50 to close at $582.90 an ounce on the Comex."

From Bloomberg. "Gold in New York fell the most in two weeks as a gain in the value of the dollar against the euro reduced the metal's appeal as an alternative investment. A drop in oil prices also reduced the metal's appeal as a hedge against inflation."

"'With the stronger U.S. dollar and lower oil prices, gold's going to have a problem holding on to $600,' said Mike Sander, a commodity broker at Altavest Worldwide Trading Inc. 'There's less of an inflationary risk.'"

"'The inflation outlook is fairly benign,' said David Thurtell, an analyst at BNP Paribas in London. 'Investor demand will not be as strong as it has been.' Gold has slumped 20 percent from a 26-year high of $732 an ounce in mid-May. Oil prices have dropped 25 percent from a record $78.40 in July."

"Hedge-fund managers and other large speculators reduced their net-long position in Comex gold in the week ended Oct. 17 to the lowest in more than a year, Commodity Futures Trading Commission data showed on Oct. 20. 'There seems little sign of investors and speculators wanting to rebuild long positions,' John Reade, an analyst at UBS AG in London, said in a report."

"Gold's liquidation occurred early in the day, when sell stops were hit. Other precious metals met similar fates. 'Friday's close was not good,' said Pat Lafferty, Commodity Trading Advisor with Fox Investments. 'We finally pushed through and closed above $600 on Thursday, after having bounced from it three or four days in a row. Then Friday's failure to close above $600 was very disappointing.'"

"Thus, selling set in Monday as the market remained below this key swing level, continued Lafferty. 'A lot of stops were getting hit,' he said. Many of these stops had been raised by traders on the heels of gold's recent uptick, Lafferty added."

"December silver settled down 29.5 cents at $11.67 an ounce. January platinum fell $7.70 to $1,074.40 an ounce. December palladium fell $9.15 to $321.35 an ounce."

From Reuters. "Japan's top financial diplomat said on Monday he was not expecting further declines in the value of the yen, and added that he saw Japan's economy staying on a solid recovery path. 'I see no reason for a further deterioration in the yen given the strength in the Japanese economy,' Hiroshi Watanabe, Japan's vice minister for international affairs, told reporters after a speech."

"The dollar slipped slightly against the yen after Watanabe's remarks, paring the day's gains, but was still trading up half a percent on the day at around 119.30 yen, not far off 10-month highs."

"Watanabe also said he did not regard the current value of the yen, which has slumped to its lowest in more than two decades on a trade-weighted, inflation-adjusted basis as weak. The currency has been battered by carry trades, in which investors sell the yen for higher-yielding currencies such as the U.S. dollar and New Zealand dollar."

"The size and impact of such trades, however, had been exaggerated, Watanabe said, and the volume of outstanding carry trades probably stood at 'several trillion yen, not trillions of dollars,' a small amount relative to the size of flows in the foreign exchange market."

"Watanabe reiterated his government's view that an end to almost a decade of deflation in Japan was in sight. Heartened by such signs the Bank of Japan raised interest rates to 0.25 percent in July, its first rate rise in more than six years."

"He also said the two big risks for the Japanese economy over the coming two years would be a revival of geopolitical tensions in Iran and North Korea, or a slowdown of the Chinese economy. 'We are very much cautious about China,' said Watanabe, saying he saw the risk of a 'readjustment' in the Chinese economy this year or next."

The Sacramento Bee has this report. "It's more than pork bellies, copper and oil futures. To the nation's largest public pension fund, investing in commodities is far different from a decade ago and extends to cutting-edge ethanol plants, gas pipelines, cement plants, entrepreneurs designing the latest technology to improve oil exploration and startups developing the next generation of raw materials."

"'You'll see a greater percentage of investing in natural resources. This is a big change to our portfolio,' said Russell Read, chief investment officer of the $213 billion California Public Employees' Retirement System. 'This will be important to our investment success.'"

"Just five months into the job, Read is mapping out a new investment paradigm for the giant fund. His strategy will integrate the highly volatile world of commodities and natural resources with the fund's current bets on mainstream stock, bonds, real estate and private equity."

"In the long run, Read said, CalPERS would develop a new investment mind-set and possibly create a new class of assets."

"Read wants to unveil a pilot commodities investment program this fall. A former money manager who oversaw billions in commodities-related investments for private firms, Read is counting on his track record to sell the idea to trustees and 1.4 million state and local government beneficiaries of the nation's largest public pension system."

"Nine years ago, Read was the chief architect of the first commodities mutual fund, the Oppenheimer Real Asset Fund. It's generated a five-year annual return of 13.46 percent, bettering a 6.84 percent gain over the same period for the Standard & Poor's 500 Index, according to Morningstar."

"The commodities move, some experts predict, could put CalPERS on the cusp of the next wave of high-flying investment opportunities, perhaps rivaling the golden age of the high-tech boom. 'We are at the beginning stages of a very important transformation,' said George Manahilov of Barclays Capital. 'Investors are trying to find the niche that can be exploited.'"

"From 1959 to 2004, commodity futures have delivered average annual returns of 11.5 percent, mirroring the performance of stocks. In the past four years, commodities produced a 135 percent gain."

"Yet commodities are considered risky investments influenced heavily by world events. In 2001, the closely watched Goldman Sachs Commodity Index lost 32 percent because of a global economic slump that put a damper on industrial demand and farm prices."

"Some experts say the commodities rally has run its course. They point to a recent drop in oil prices to about $60 a barrel, about 25 percent below the record highs reached in mid-July. The Goldman Sachs index has dropped 15 percent in the past 12 months."

"U.S. public funds have taken a longer view and consider commodities as strategy to diversify the portfolio. Pension plans have invested about $30 billion to $40 billion in commodities during the first half of 2006. Today, public funds are estimated to have invested more than $100 billion, or about 3.7 percent, of their assets in commodities, experts say. Morgan Stanley predicts public funds investments will double within five years."

"CalPERS is likely to follow a cautious strategy, board President Rob Feckner said following a workshop introducing trustees to commodities investing earlier this month. 'It's certainly food for thought. I don't think the board is entirely there,' Feckner said. 'We need to test the market before we jump in.'"

"In a report issued in March, CalPERS officials said that commodities futures, considered as a hedge against inflation and stock market downturns, could generate an annual return of 6.5 percent, compared with 8 percent for stocks and 5.5 percent for bonds. CalPERS could invest up to $3 billion into this area."

"Through investments in companies such as Chevron Corp. and Alcoa Inc., CalPERS is already exposed to the commodities markets. Officials say roughly 20 percent of its portfolio is linked to raw materials. For the most part, public funds invest in commodities through passive investments linked to indexes such as the Goldman Sachs Commodities Index."

"But Read said the futures markets don't include materials such as cement. To take advantage of that commodity, CalPERS would invest in a cement producer or distributor. In Europe, major institutional investors have been quicker to embrace commodities. More than 100 funds have poured money into raw materials."

"Read and other experts say prices and demand will continue to be fueled by high-growth emerging markets such as China and India. 'The scarcity and increasing prices have a silver lining in that it will lead to more innovation,' said Brad Barber, a finance professor at the University of California, Davis."

"The big payoffs could emerge from companies and entrepreneurs that profit by designing technology to develop and distribute raw materials, especially in the energy sector. 'New technology development will increasingly focus on natural resources, whether in stocks, private equity, bonds or real estate,' Read said. 'We're looking at a shift in every asset class.'"

"Steven Strongin, a strategist for Goldman Sachs, said the challenge is finding these startup companies. 'This is really a massive change,' Strongin said. 'Every part of the commodities market needs capital. You really don't know who the winners are. You have to spread the capital.'"

Some currency news. "The dollar made modest gains against the euro and yen on Friday, despite disappointing U.S. economic reports a day earlier. The euro bought $1.2620 in late New York trading, just off its level of $1.2626 in New York late Thursday."

"The dollar also rose to 118.65 Japanese yen from 118.15 yen, and 1.2587 Swiss francs from 1.2572. However, the British pound rose to $1.8843 from $1.8777, and the U.S. dollar slipped against the Canadian dollar to 1.1246 from 1.1273."

"'The dollar may have taken a tumble yesterday on the back of some worse than expected U.S. manufacturing data, but traders now seem reluctant to let the greenback slip much further ahead of the (Fed) rate meeting due next week,' said David Jones, chief market analyst at CMC Markets. 'Consensus is still suggesting that the next move for interest rates ... will be lower, but precisely when this will be seen is clearly open to debate,' he said."

"The main focus of the day was on North Korea and OPEC. China has toughened up its stance and has banned bank transactions between the two countries. In addition, the market continues to doubt whether OPEC members will actually follow the cartel's production cuts. The fear is that if oil prices continue to remain low, some of the smaller members would feel compelled to make up lost revenue by increasing production once again. Russia has already announced that they have no plans to back OPEC's decision and will not be reducing oil production."

"The Financial Times reports that the previous strength in oil prices has encouraged many members to overspend in increasing production. In order to meet its current pace of spending, Saudi Arabia needs oil prices to trade at a minimum of $38 a barrel which compares to $15 a barrel in the mid nineties. Their costs continue to grow by 20 percent a year, which means that if growth continues at that level, by 2010 oil prices would need to be at $65 a barrel for them to breakeven."

"There are three main events that we are watching in the US next week which are Durable Goods, GDP and the Federal Reserve rate decision. Although no changes are expected in US interest rates, as usual, the FOMC statement could provide some clues on how far away we may be from another change in interest rates. More specifically, we will be looking for whether they put greater emphasis on the drop in headline inflation or the rise in core prices."

"Gold futures closed under $600 an ounce Friday, as weakness in oil prices dampened the metal's attractiveness as an inflationary hedge, but the benchmark gold contract still tallied a gain of nearly $4 for the week as a whole."

"'If and when prices were to penetrate strongly over the low $600s, the mood would surely improve,' said Jon Nadler, at bullion dealers Kitco.com. The trouble for gold bulls are 'repeated failures and pullbacks we witness at higher levels,' he said."

"Gold for December delivery closed down $6.10 at $596.40 on the New York Mercantile Exchange, retreating from an intraday high of $602.80. The contract, however, closed near a three-week high on Thursday and ended 0.6% above last week's closing level of $592.70. December silver futures fell 19.5 cents to close at $11.965 an ounce, up 2.4% for the week. January platinum lost $12.70 to end at $1,082.10 an ounce, slightly lower than last week's closing level. December palladium closed off $6.90 at $330.50 an ounce, up about 4.6% for the week."

"For gold, 'plenty of resistance lies between $600-$608, the upside break-out level on the charts," said James Moore, an analyst at TheBullionDesk.com. 'We are getting closer to a reversal confirmation here, until then, the downtrend channel remains the force to reckon with,' said Peter Spina, chief investment strategist at GoldSeek.com."

"Looking further ahead, 'we could see oil move easily back to the mid-$60s and this appears to be enough impetus to take gold definitely back above the $600 levels,' he said. "

A look at currencies. "The U.S. dollar's losses accelerated after the release of much weaker-than-expected manufacturing data in the Philadelphia region. The buck was down 0.6% vs. the yen at 118.23 vs. 118.92, while the euro was up 0.5% against the dollar at $1.2604 vs. $1.2532."

"The Canadian dollar jumped to a one-week high on Thursday, helped by stronger commodities and a sharply falling U.S. currency. The currency got an early boost after Statistics Canada reported a stronger-than-expected rise in wholesale trade in August from July, while higher crude oil and gold prices added to the allure of Canada's resource exports."

"But it was a weak read on a U.S. regional business conditions survey that drove the Canadian dollar's biggest move, cutting the legs out of the U.S. dollar."

"'It's more of a broad-based U.S. dollar move today in terms of any price action that it is the Canadian dollar reacting to any specific event domestically,' said George Davis, chief technical strategist at RBC Capital Markets."

"The currency broke through the C$1.13 level for the first time in over a week, triggering automatic buy orders which drove it as high as C$1.1265, or 88.77 U.S. cents. 'Once we got through the (U.S. dollar) overnight lows at C$1.1330, there were just stops everywhere,' said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston."

"'I think it's a general U.S. dollar correction, unable to continue the momentum that it's gained over the last couple of weeks.,' he said."

"Gold futures climbed above $600 an ounce Thursday to close near a three-week high. The allure of the precious metal returned as a defensive investment in the face of strength in oil prices and weakness in the dollar. 'Gold continues to build a base after absorbing strong bouts of selling,' said Peter Grandich, editor of the Grandich Letter."

"'A close above $610 is needed to turn the market technically bullish again, and that appears to be only a question of when,' Grandich said."

"Gold for December delivery climbed $9.90 to close at $602.50 an ounce on the New York Mercantile Exchange, after rising as high as $604. The contract hadn't traded or closed above $600 since Oct. 2. December silver rose by 34 cents, or 2.9%, to end at $12.16 an ounce."

"The gold market 'may be setting itself up for a broader move,' said Jon Nadler, at bullion dealers Kitco.com. But 'if rallies are not sustained... then the overhang of available physical gold will indeed depress gold values back towards the mid-$500s before the year draws to a close. We are walking on recently cooled lava here -- the crust remains quite fragile, so walk slow we must,' Nadler said."

The Associated Press has some currency news. "The dollar gained a little ground against the euro Wednesday following a new round of inflation data and an unexpected rise in housing construction. The euro bought US$1.2524, down from US$1.2546 in New York late Tuesday. The British pound fell to US$1.8674 from US$1.8704."

"The dollar edged up to 118.99 Japanese yen from 118.89 yen. Earlier in the day, it had fallen after a newspaper report suggested that the Bank of Japan is concerned about the national currency's recent weakness."

"Some yen buying was seen overnight after a report emerged that Bank of Japan is concerned with the impact of yen carry trades on the yen and short-term Japanese interest rates. Yen carry trades involve the sale of yen to invest in higher-yielding assets and can create more volatility when traders scramble to cover their short yen positions. One factor that may keep the yen on the defensive is a potential second nuclear test by North Korea."

"The Japanese yen made gains early against the US dollar and the euro on Wednesday after newspaper reports implied that the Bank of Japan is getting ready to increase its scrutiny of carry trades. The gains were lost later in the session, however, when the Bank denied that it would watch the trades more carefully or in any new ways."

"Gold fell in New York for the second straight day after a drop in oil prices reduced the metal's appeal as a hedge against inflation. The price of gold has followed oil this year. The metal has fallen 19 percent from a 26-year high, partly as oil shed 26 percent from a record in July."

"'Gold is really following the crude market,' said Michael Guido, director of hedge-fund marketing at Societe Generale in New York. 'A fall below $58 could drag gold down further.' 'One of the biggest threats to commodities is the flow of money into equities,' Guido said. 'That could strip money from the gold market.'"

"Gold for December delivery closed down 90 cents at $592.60 an ounce on the New York Mercantile Exchange, after rising as high as $598. The contract, which lost $5 on Tuesday, hasn't touched $600 since Oct. 2. December silver rose by 4 cents to close at $11.82 an ounce, following a loss of 20 cents in the previous session."

"'Resistance has proved extremely strong ahead of $600 and the market is likely to need either oil to make a substantial move back above $60/barrel, or the return of dollar bears before this can be achieved,' said James Moore, an analyst at TheBullionDesk.com. For now, 'rallies will continue to be used as selling opportunities with resistance seen from $600 to $608, which is my upside breakout level,' he said."

"January platinum added $10.10 to close at $1,093.10 and December palladium rose $12.90 to end at $332.50 an ounce."

Gold markets ran into a technical wall today. "Gold futures fell by $5 an ounce Tuesday, and silver futures gave back more than 1%, with both metals relinquishing most of the gains from the previous session after failing to reach key price levels. 'Gold and silver are having a hard time with psychological resistance levels at $600 and $12, respectively,' said Dale Doelling, at Trends In Commodities. 'The recent bounce in prices may end up being just that, a temporary bounce,' Doelling said. 'Only time will tell.'"

"Gold for December delivery closed down 0.8% at $593.50 an ounce on the New York Mercantile Exchange, after dipping to a low of $589. The contract traded as high as $599.80 early on in Tuesday's session."

"December silver fell by 13 cents to close at $11.78 an ounce after a high of $11.98. It climbed 23 cents in the previous session. January platinum lost $8.30 to close at $1,083 and December palladium closed down $4.95 at $319.60 an ounce."

"Despite recent gains, however, 'gold still faces plenty of scaled up resistance with chart congestion likely to be heavy' between the 200-day moving average of $599.70 and $608,' said James Moore, an analyst at TheBullionDesk.com."

"Reports that North Korea is about to set off a second atomic device, oil prices around $60 and a 'markedly softer U.S. dollar should all have bolstered gold prices to well over $600 by now,' said Jon Nadler, at bullion dealers Kitco.com. 'On the other hand, imploding PPI figures prompted by the collapse in energy costs and a sharp contraction in U.S. industrial production have traders worried that while inflation may not be an imminent threat, stagnation (or worse) surely could be,' he said."

"The dollar fell Tuesday, touching a more than one-week low against the yen, after a report showed the U.S. industrial sector slowed more-than-forecast last month and as traders continued to digest the Russian central bank's recent decision to diversify its foreign-exchange reserves."

"The Canadian dollar fell to the lowest since July after the Bank of Canada kept its benchmark interest rate unchanged at 4.25 percent and cut its economic growth forecast."

"The currency's decline deepened after it weakened past the C$1.14 level, traders said. The central bank reduced its growth estimate for this year to 2.8 percent from a 3.2 percent prediction in July. The prospect of slower growth means the central bank is more likely to refrain from lifting borrowing costs further, traders said."

"'We're in a bearish trend for the Canadian dollar, at least through the end of this year,' said Linda Jespersen, managing director of currency trading at National Financial Bank in Toronto. 'There are a lot of motivated sellers for the currency at the C$1.1400 level.'"

"Canada's dollar has fallen about 4 percent since reaching the 28-year high. Crude oil fell for the first time in four days on forecasts that U.S. inventories rose and skepticism OPEC will cut production by 1 million barrels a day. Prices have declined about 8 percent in the past year."

"The U.S. dollar was barely changed against the euro Tuesday as new inflation data from the world's largest economy provided a mixed picture. U.S. Labor Department data on Tuesday showed that wholesale inflation plunged by the largest amount in more than three years in September, thanks to a record drop in the cost of gasoline."

"However, core inflation, excluding energy and food, jumped by 0.6 percent in September, well above economists' expectations of a 0.2 percent increase."

"Economic data are being watched closely for clues about the U.S. Federal Reserve's future course on interest rates. Another key inflation gauge, the U.S. consumer price index, follows on Wednesday."

The big news today was from overseas. "Russia is to diversify further its foreign exchange reserves, the world’s third-largest, and will begin to add the yen to its currency stockpile, its central bank said yesterday. With Russia’s reserves expanding rapidly thanks to huge inflows of funds generated by being the world’s second-biggest oil exporter, the central bank said it wanted to widen the range of currencies it holds."

"Russia's total reserves are outstripped only by those of China and Japan. Sergei Ignatyev, the central bank’s chairman, said that about half the total reserves were held in dollars, with the bulk of the rest in euros. Holdings of yen were close to zero."

"Alexei Ulyukayev, the bank’s first deputy chairman, said that, as of next year, yen would be increased as a proportion of the total reserves, while Russia would build stocks of other currencies, including the Australian and Canadian dollars. This could apply some downward pressure to the US dollar. At present about 45 per cent of new funds is being invested in dollars, 45 per cent in euros and 10 per cent in sterling."

"The precise composition of the total reserve is secret, but in July Mr Ignatyev said that the proportion of US dollars in the total had been cut to 50 per cent and euros increased to 40 per cent — suggesting that Russia had been selling dollars to buy the euro, adding to upward pressure on the latter."

"The dollar fell the most against the yen in two weeks after Russia's central bank said it was adding the Japanese currency to its foreign-exchange reserves. 'The move could lead toward broader U.S. dollar weakness,' said Mark Meadows, a strategist at currency-trading company Tempus Consulting. With the dollar near key trading points of 120 yen and $1.2470 per euro 'it brings up the question of whether the dollar is going to be able to sustain moves past these levels.'"

"The dollar slid 0.5 percent, the most since an identical decline on Oct. 2, to 119.05 yen at 5 p.m. in New York, from 119.64 on Oct. 13. The U.S. currency touched 119.01, the weakest since 118.90 on Oct. 10. Japan's currency also advanced to 149.19 per euro from 149.71. The dollar was little changed at $1.2534 versus the euro from $1.2513."

"The yen has dropped 1.1 percent versus the dollar this year and reached a record-low of 150.73 against the euro on Aug. 31."

"The yen also rose on the perception North Korea's test of a nuclear device was less successful than feared, said Craig Russell, senior currency strategist at brokerage ODL Securities Inc. 'It doesn't look as bad in Asia as we thought it would be.'"

"Governors of six Persian Gulf central banks, including Saudi Arabia, the United Arab Emirates and Qatar, will meet next month as they seek to create the Middle East's first unified currency by 2010, a Qatari official said. The meeting is the next step in a round of talks among the six Gulf monarchies to discuss monetary union, said Basheer Yousef al-Kahalooth, an official at the Qatar Central Bank, in a phone interview from Doha."

"Monetary union among the Persian Gulf monarchies may lead to the end of their currencies' peg to the U.S. dollar, and 'a more flexible currency regime,' said Monica Malik, an economist with Standard Chartered Bank in Dubai."

"'This is another dollar-selling factor,' said Brian Dolan, research director at Forex.com, which has about $250 million worth of funds under management. 'It is eroding some of the dollar strength we have seen in the past two weeks.'"

"The U.S. currency may extend a three-week rally against the euro and yen as an improving economy prompted traders to erase bets the Federal Reserve will reduce borrowing costs in coming months. Interest-rate futures show traders see 2 percent odds of an increase to 5.5 percent by the Fed's Jan. 31 meeting. It compares with 46 percent odds of a rate cut on Sept. 25."

"Gold futures climbed toward $600 an ounce Monday to close at their highest level in two weeks as traders mulled several bits of supportive news. Gold for December delivery closed up $5.80 at $598.50 an ounce on the New York Mercantile Exchange after trading as high as $598.90. The contract hasn't traded or closed at levels this high since Oct. 2."

"'Gold has found further support overnight following the U.N.'s decision to impose sanctions against North Korea,' said James Moore, analyst at TheBullionDesk.com."

"December silver closed up 23 cents at $11.91 an ounce. January platinum rose $8 to end at $1,091.30 and December palladium finished up $8.60 at $324.55 an ounce."

"From a technical perspective, the market has been trading below the 50-day moving average for the last couple of weeks 'and when it broke above it, the funds and momentum traders got long and pushed the market higher,' said Dale Doelling, chief market technician at Trends In Commodities."

Reuters reports on currency trading. "The dollar rallied on Friday and U.S. Treasury prices fell as solid U.S. economic data reduced expectations for interest rates cuts. The dollar strengthened to around $1.25 per euro, a level not breached in nearly three months, after the University of Michigan's consumer sentiment index posted a surprisingly large rise in October, dashing views the Federal Reserve could cut interest rates in coming months."

"The dollar's climb was triggered earlier in the session when a separate report showed U.S. retail sales unexpectedly declined in September, but were resilient when excluding the effects of lower gasoline prices."

"'These two numbers, consumer sentiment and retail sales, combined with the revisions to nonfarm payrolls from last week are dollar supportive straight down the line,' said Joseph Trevisani, chief market analyst at FX Solutions."

"They have squashed speculation about Fed rate decreases, and you have to concede the possibility of the Fed actually raising rates again,' he said."

"The dollar was up 0.6 percent against the Swiss franc at 1.2755 francs. The euro broke as low as $1.2496 on electronic trading system EBS, trading below a key level, and was later trading down 0.4 percent on the day at $1.2505."

"The dollar was at 119.77 yen, up 0.4 percent and in sight of the 120 mark. A break of that technical level would likely open the floodgates for further dollar strength, traders said."

"In the commodity markets, U.S. crude oil futures jumped above $59 a barrel on Friday on news of oilfield shutdowns in Norway and helped by indications OPEC may meet next week to formalize a production cut agreement, traders said."

"Gold futures climbed more than $12 an ounce Friday, closing near a two-week high and gaining nearly 3% for the week, with support coming from higher energy prices, reports of strong physical demand for the metal from India and heightened prospects for international sanctions against North Korea."

"Gold for December delivery closed up $12.40 at $592.70 an ounce on the New York Mercantile Exchange, the contract's strongest closing level since Oct. 2. On Friday, the December contract ended the week with a gain of $15.90 after closing out last week at $576.80."

"'Despite the enormous hype in the last few weeks over the gold price, fundamentally little has changed in the gold market,' said Julian Phillips, an analyst at GoldForecaster.com. 'In particular, the Indian market, a market driven by forces totally unrelated to those that drive the New York and London markets, is a very supportive force,' he said."

"For the moment, 'while short-term factors could take the price down again, it seems as though the downward pressure is abating in the near term.'"

"Other metals finished higher, with December silver adding 30 cents to close at $11.68 an ounce, 4.5% above the week-ago level. January platinum closed up $8.70 at $1,083.30 an ounce, putting the week's gain at 0.2%. December palladium rose $8.05 to end at $315.95 an ounce, closing more than 5% above the week-ago level."

Reuters reports on the currency markets. "The Canadian dollar rose modestly on Thursday, as Canada's trade surplus beat expectations in August, while the greenback was pressured by data showing a massive U.S. trade deficit. 'The U.S. trade balance number carries a lot of weight because of the sheer size of it,' said Ted Gould, trader at Investors Bank & Trust."

"The Bank of Canada will set rates on Tuesday. Analysts are now projecting the bank's next move will be a rate cut sometime next year, as they expect a slowing U.S. economy to have a heavier impact on Canada than many have factored in."

"'To imagine that the U.S. economy is going to slow from an average growth rate of about 3.5 percent down to an average growth rate of about 2 percent and for Canada not to be affected, is dreaming in technicolor,' said Marc Levesque, chief fixed-income strategist at TD Securities."

From Daily FX. "Seven days of consecutive weakness has once again proven to be the most that the EUR/USD could handle. The dollar started the day on a softer footing even before US data hit the tape. To the surprise of the market, the trade deficit widened to record levels once again in the month of August. With oil prices remaining stubbornly high and above $70 for most of the month, the import bill continued to rise."

"At the same time, imports from China continued to grow despite the recent appreciation in the Yuan. This makes the gap between US trade related outflows and foreign investment related inflows even more difficult to close."

"If you recall, the Treasury's net foreign purchases report was extremely weak for the month of July. Foreign demand for US assets is expected to rebound in August thanks to the rally in stocks, but if it does not jump significantly, we would have two months of funding deficiencies, which would be a problem for the dollar."

"Aside from the weak trade balance this morning, the Fed’s Beige Book report also disappointed traders by not containing the same hawkish tone as the FOMC minutes released yesterday. At this point, the US dollar is reaching critical resistance levels. A true top in the mighty buck will be dependent upon tomorrow’s consumer spending data."

From MarketWatch. "Gold futures for December delivery closed up $3.80 Thursday to close above the $580-an-ounce mark for the first time in three days, finding support in a weaker dollar and slightly higher oil prices."

"Gold moved higher after data showed the U.S. trade deficit widened by 2.7% in August to a record $69.9 billion. Adding more support for prices Thursday, consultancy firm GFMS reiterated its mildly bullish stance for gold once again, 'as it envisions a return to the low $600's before year-end and then to a possible $700 within six months' time,' said Kitco's John Nadler."

"But Dale Doelling, chief market technician at Trends in Commodities, said metals traders are becoming increasingly frustrated with gold's reluctance to break in either direction. 'Maybe we'll see the majority of the long-term bulls finally throw in the towel which would push prices sharply lower for a session or two,' he said."

"Oil prices gained Thursday, but remained under $58 a barrel on the heels of a rise in U.S. crude supplies and a decline in distillate inventories."

"December silver futures closed up 5 cents at $11.38 an ounce and January platinum finished up $1.80 at $1,074.60 an ounce, but December palladium dipped $1.05 to close at $307.90 an ounce."

A Fed report shook up the currency markets this afternoon. "The Canadian dollar slid to a 2-1/2 month low versus the greenback on Wednesday, as commodity prices continued to decline, while a key report from the U.S. Federal Reserve suggested officials are still concerned about U.S. inflation."

"The somewhat hawkish Fed minutes report, which boosted the U.S. dollar broadly, although those gains were pared somewhat after news reports that a small aircraft had crashed into a building in New York. 'I think that the market was leaning a little bit on a hawkish stance from the Fed, and they got it,' said Steven Butler, director of foreign exchange at Scotia Capital."

"'We're slowly grinding to the next (technical) level, which is probably C$1.1425, which still seems like it's a little bit away, but it feels definitely like the market's... now going to continue to look to buy U.S. dollars on dips,' Butler said."

"While the market is debating the U.S. rate outlook, Bank of Canada rates have not budged since May and are not expected to move next week, when the Bank of Canada announces its next rate decision. The central bank's overnight rate is 4.25 percent, while the comparable fed funds rate is 5.25 percent."

"The economic fashions for the United States are changing. Out of style: the need for aggressive Federal Reserve rate cuts starting early in the new year. Back in style: a possible 'soft landing' for the U.S. economy."

"That change is tripping up the finance world's fashion followers who had bet recently on a sharp economic slowdown by positioning for lower interest rates and a weaker U.S. dollar. Lower market interest rates that have helped stabilize the housing market, as suggested this week by St. Louis Fed President William Poole, calls for drastic rate cuts to head off a recession are fading."

"Subsequent Fed speakers sang a similar song, culminating in Wednesday's hawkish minutes from the Sept. 20 Federal Open Market Committee meeting."

"The soft-landing scenario has hit interest rate futures, where dealers recently bet heavily on a slowing economy. The fed funds yield implied by Eurodollar futures has risen by almost 25 basis points since Oct. 4, erasing the equivalent of a quarter-point Fed rate cut."

"After the FOMC minutes, futures briefly implied, for the first time in three weeks, a small chance the Fed could raise rates in December from the current 5.25 percent. The U.S. dollar, meanwhile, is at multi-month highs against major currencies on assessments that the economy is in better shape than many had thought."

"Gold futures climbed Wednesday, but closed under $580 an ounce for a second session as traders weighed the precious metal's value as a defensive investment against a backdrop of weaker oil prices and threats of more nuclear tests from North Korea."

"With international tensions rising, gold for December delivery climbed by 30 cents to close at $576.50 an ounce on the New York Mercantile Exchange. The contract traded as high as $583.40 earlier, after losing $6.60 in the previous session."

"Other metals followed gold's lead higher on Nymex, with the exception of platinum, which saw its January contract fall by $2.90 to close at $1,072.80 an ounce. December silver futures closed up 11 cents at $11.33 an ounce and December palladium added $7.35 to end at $308.95 an ounce."

"On Wednesday, Edmund Daukoru, president of the Organization of the Petroleum Exporting Countries who also serves as Nigeria's oil minister, said OPEC has agreed to cut its global production by 1 million barrels per day in a move to boost prices, but were still discussing how to share the cut, Dow Jones Newswires reported."

"'If gold does indeed deserve to close out the year on a high(er) note, it will do so only after having proven to its faithful that it does retain its security blanket attributes after all,' said Jon Nadler, at bullion dealers Kitco.com. 'It is not that gold's fundamentals are shaky; it just needs to re-align itself with one or more traditional drivers of demand and exhibit better correlation,' he said."

The US dollar is the item to watch. "The dollar reached its highest this year against the yen as investors pared bets the Federal Reserve will reduce borrowing costs in coming months. Interest-rate futures contracts show traders cut bets the Fed will lower its overnight interest rate on loans between banks by the end of January. Fed officials have recently emphasized the risks of inflation."

"'Fed-speak in the past week has delayed the expectation of an ease until the second quarter,' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York. 'The market has gotten a little more hawkish and given the dollar some natural support.'"

"The dollar traded at 119.71 yen at 5 p.m. in New York, from 119.11 yesterday when the Japanese currency touched an eight- month low after North Korea said it detonated a nuclear bomb."

"The U.S. currency rose for a sixth consecutive day against the euro to $1.2538, the strongest since July 19 when it touched $1.2458. It closed at $1.2596 yesterday."

"The dollar may advance to a 10-month high of 121.40 against the yen now that it has broken through resistance at 119.40, according to Masashi Hashimoto, a currency analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ. The dollar last reached 121.40 on Dec. 5."

"'Some of the yen's recent declines have been driven by technical factors,' said Steven Englander, head of currency strategy for the 10 major industrialized nations at Merrill Lynch & Co. in New York. 'It's not so much a question of whether there's fundamental yen weakness.' Having broken through important technical levels, 'the market is trying to test the upside.'"

"The U.S. currency has gained 4.6 percent against the yen and 2 percent versus the euro in the second half of the year after the Fed on June 29 raised its benchmark interest rate to 5.25 percent and indicated it would pause before adjusting rates further."

"The dollar continues to be supported by investment in U.S. assets, UBS AG's London-based global head of foreign exchange strategy Mansoor Mohi-Uddin wrote in a note to clients."

"Former Fed Chairman Alan Greenspan told an audience of insurance-industry executives the U.S. housing market's tumble will 'dramatically slow' following drops in construction and prices this year. 'That can only be a boost to the dollar because' housing weakness has been a main driver for people selling the dollar, said Thierry Elias, head of currency trading in New York at Natexis Banques Populaires."

The Australian. "Gulf oil producers will continue buying US dollar-based assets with their windfall revenues but not all the money will flow into the US, according to Mohsin Khan, director of the IMF's Middle East and Central Asia department."

"Gulf oil producers, including Saudi Arabia, Kuwait and the United Arab Emirates, will record current account surpluses of $US239 billion this year, rising to $US259 billion in 2007, a new IMF report says. 'We are seeing a shift away in location, but not necessarily in US dollar-based assets,' Mr Khan told the Financial Times. 'You can acquire US dollar assets virtually anywhere. These include eurobonds and direct investments in Asia and the Middle East.'"

"The big investments were going on in refineries in China, in real estate in Pakistan and telecoms in Egypt. 'These are US dollar-based,' he said."

"Surpluses among oil producers, as well as China, are the flipside of the large US current account deficit. 'The two big entities in surplus right now are the oil producers and Asia, particularly China. The US is in deficit, so that is how it is matching up,' Khan said."

From MarketWatch. "Gold futures closed Tuesday with a loss of more than $6 an ounce, surrendering the prior session's gains sparked by North Korea saying it had tested a nuclear weapon, as oil prices retreated and the dollar strengthened against rival currencies."

"'As traders watched a surging dollar and easing crude-oil prices, the realization set in that it may perhaps become difficult to achieve even a $600 price average for 2006 in gold,' said Jon Nadler, at bullion dealers Kitco.com. And 'the almost complete lack of emotional reactive power to the unfolding North Korean nuclear drama casts a deep and very dark shadow on gold as a safe haven,' he said, adding that 'many are beginning to wonder just what it is that gold will react to anymore.'"

"Gold for December delivery closed down $6.60 at $576.20 an ounce on the New York Mercantile Exchange, after having weakened to an intraday low of $573. December silver futures closed down 20 cents at $11.22 an ounce, while January platinum lost $19.20 to close at $1,075.70 an ounce and December palladium dipped $1.65 to end at $301.60 an ounce."

"James Moore, analyst at TheBullionDesk.com, said that in light of its recent trend, he expects gold to continue to meet resistance any time a rally is attempted. The metal lost $27 an ounce last week, against a backdrop of weak oil prices and dollar strength."

"A decision by the OPEC to cut production and seasonally strong physical buying of gold would help limit further weakness, 'although I think a further shake-out..back to $553 is required before gold finds a base,' he said."

From the Associated Press. "Investors sought safe havens in the U.S. dollar and gold as analysts cautioned that a sharper reaction could develop as world leaders consider their response to North Korea's underground weapon test. The yen hit a seven-month low. The dollar was trading at 119.15 yen from 118.98 yen, earlier reaching as high as 119.29 yen. In London, gold rose to $578.25 per troy ounce in London trading, up from $567.50."

"The euro was barely changed Monday against the U.S. dollar. The euro bought US$1.2602 in afternoon European trading, compared with US$1.2595 late Friday in New York. The British pound fell to US$1.8645 from US$1.8705 as new data showed British producer prices declining by 0.3 percent in September."

From Bloomberg. "A nuclear test is a threat to Japan, as Tokyo is 809 miles (1,295 kilometers) from North Korea's capital of Pyongyang. North Korea's firing of missiles in July sparked a debate on whether Japan should consider pre-emptive strikes, which are banned under current law."

"'Further escalation of the tension in North Korea will weaken the yen,' said Michael Woolfolk, senior currency strategist at the Bank of New York. 'Geopolitical risks in Asia have disproportional impact on currencies.'"

"The yen has weakened 1.1 percent this year against the dollar and 7.1 percent versus the euro. The South Korean won dropped 1.5 percent, the most since December 2004, to 963.85 per dollar and weakened against all 16 primary currencies tracked by Bloomberg News."

"'The reaction in the yen has been muted,' said Meg Browne, vice president of foreign exchange at Brown Brothers Harriman & Co. in New York. 'In the yen, as horrible as it is, the test is done. The real issue is what happens next. Does this escalate? We would bet no. We should start to see these currencies calm down.'"

"'I'm bullish on the U.S. dollar for the next couple of days,' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. The dollar may rise to 119.40 yen this week, Hampton forecast."

"UBS AG expects the euro to gain less versus the dollar during the next month than previously predicted. The world's second-largest currency trading bank estimates the euro will gain to $1.27, compared with its prediction of $1.30 a week ago."

From MarketWatch. "Gold for December delivery closed up $5.70 at $582.50 an ounce. Silver added 24.5 cents to $11.42 an ounce."

Reuters reports on currencies. "The Canadian dollar inched lower against the U.S. currency on Friday, surrendering earlier gains as the market digested tepid domestic jobs figures, while the greenback rose after upward revisions to U.S. jobs data eased concerns over an economic slowdown."

"A tighter U.S. labor market would likely keep upward pressure on wages and inflation, reducing the chance that the U.S. Federal Reserve will cut interest rates."

"'Prior to the U.S. employment report, the Canadian dollar had been stronger, but then it was hit along with almost every other major currencies, which tumbled after the U.S. payroll results and the prospect of big upward revisions,' said Doug Porter, deputy chief economist at BMO Capital Markets in Toronto."

"The resource-linked Canadian dollar found some support in steady crude oil prices, Porter said. 'Whereas the other currencies weakened, the Canadian currency was almost unchanged during the session, with oil prices holding on around $60 a barrel.'"

From MarketWatch. "Gold futures staged a late-day reversal to close higher Friday, but strength in the U.S. dollar and weakness in oil prices helped prices tally a loss of more than $27 an ounce for the week."

"'Despite already being in a weakened position from heavy selling earlier in the week, gold managed to rally late in the day after being down $10 thanks to a stronger U.S. dollar and weaker energy prices,' said Peter Grandich. The 'reversal could be signaling the worst is over for gold, but follow-through buying next week back toward $600 will be needed to signal the all-clear sign,' he said."

"Gold for December delivery closed at $576.80 an ounce on the New York Mercantile Exchange, finishing the session with a gain of $1.30 after spending much of it on the decline. Prices fell to $564.50 during the day."

"'It's a good sign that gold has not been able to make a new weekly low below $563.50,' said Dale Doelling, chief market technician at Trends In Commodities.
'Weakness in the stock and bond markets may also be providing a firmer bid in the metals complex,' he said."

"'The return of weakness in the oil market is likely to weigh further on gold,' said James Moore, an analyst at TheBullionDesk.com in London. That will likely force prices to re-test of June's $542 low, he said in a note to clients."

"'However, as with any trend, a period of correction/consolidation is perfectly normal and is constructive longer-term, allowing investors to enter the market at more affordable levels,' he said."

"For now, traders 'remain apprehensive that despite relative strength indicators flashing near oversold levels, the precious metal appears determined to probe the ultimate (current) support near $542,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com."

"'Expect a few more attempts to regain composure but the $570 and $600 (200-day moving average) are now concrete ceilings to have to overcome,' he said.
And 'money might just be on the sidelines, awaiting to buy from $480 to $540,' he added."

"December silver futures moved higher Friday, reversing from a low of $10.87 to close at $11.175, up 10.5 cents. It finished 3.2% below last week's closing level.
Platinum and sister metal palladium closed lower, but well above the day's lows. January platinum declined $5.40 to end at $1,080.80 an ounce and December palladium lost 90 cents to close at $300.25 an ounce, with both contracts ending below last Friday's level."

Canadian Business. "Gold futures strengthened Friday in volatile trading, as worries about possible North Korean nuclear tests and short covering helped the market snap back from early weakness."

"Gold's recovery came about on concerns about North Korea possibly detonating a nuclear device as soon as this weekend, said Leonard Kaplan, president of Prospector Asset Management. He added that trading was thin, with big orders hitting the floor. 'That's why it moved quickly.'"

"In energy trading on the Nymex, crude oil futures fell after two days of gains amid doubts that the Organization of Petroleum Exporting Countries will cut production. A day after reports indicated that OPEC had agreed to cut production by 1 million barrels a day, the group's president said he was still consulting with fellow ministers on the need for an emergency meeting."

"'A meeting hasn't been called yet, we're still in consultations,' OPEC President Edmund Daukoru told Dow Jones Newswires."

MarketWatch reports on the gold market. "Gold futures closed with a gain of almost $9 an ounce Thursday, to recoup part of a four-session loss of 7% as oil spiked higher on news that major oil producers will cut output. 'Bargain hunters emerged, buying up the battered gold and silver markets,' said Peter Spina, chief investment strategist at GoldSeek.com. 'The fact remains: oil is a short-term driving force as speculators trade the metal based off this lead indicator, for the time being,' he said."

"Crude futures for November delivery closed above the $60-a-barrel level Thursday, gaining after news that the Organization of the Petroleum Exporting Countries has informally agreed to cut production by one million barrels a day."

"Gold for December delivery closed up $8.80 at $575.50 an ounce on the New York Mercantile Exchange after a high of $578.80. The contract suffered a loss of $44.20 over the past four sessions, with almost $15 of that loss seen on Wednesday alone as a volatile oil price and strong stock market sapped demand for gold."

"December silver futures finished up 27.5 cents at $11.07 an ounce, January platinum closed up $3.80 at $1,086.20 an ounce and December palladium rose $4.50 to close at $301.15 an ounce."

"Whether or not the move is 'the start of another constructive phase or a phony dead-cat bounce will only be decided somewhat later, and it will largely be dependent on what happens in the energy complex and the U.S. economy over the next two or three months,' said Jon Nadler, at bullion dealers Kitco.com."

"Technical damage remains a 'stark reality as we get closer to the end of the week, and gold will have much to prove in coming sessions,' he said. December gold fell to an intraday low of $563.50 on Wednesday, its weakest level since mid-March.
'Long-term buyers should welcome an opportunity to cost-average their holdings,' said Nadler, adding that he doesn't see evidence that the U.S. dollar's 'ills have suddenly been cured.'"

The Street.com. "News that the European Central Bank will likely keep its short-term interest rates relatively high will likely keep downward pressure on the dollar."

"The ECB increased its key short-term interest rates a quarter-point to 3.25% Thursday, and its president, Jean-Claude Trichet, warned about the dangers of a robust European economy stoking wage-led inflation. Trichet did nothing to dispel investor expectations of a further 25-basis-point rate increase in December."

"The announcement seems to have been largely anticipated by the market, and the dollar was mixed against the major currencies; the euro was recently trading at $1.2692, down from Wednesday's $1.2713. The greenback was weaker against the yen, buying 117.62 yen vs. 117.88 yen previously."

"Elsewhere in the bullion market, Barclays Capital is accusing the Bank of France of selling 100 tons of its gold holdings in addition to the roughly 393 tons already reported by the ECB Wednesday, according to a report by London's Telegraph. The sales were allegedly made via the futures market to disguise the effect, the story says."

"On the technical-analysis side, signals continue to leave traders feeling cautious about whether the bounce in prices might convert into a sustained rally."

"'The gold price is still under its 200-day [moving] average, which is a bearish indicator,' says Mike Sander, an analyst at futures broker Altavest."

From Bloomberg. "Federal Reserve Vice Chairman Donald Kohn warned investors not to underestimate the central bank's inflation concerns and challenged the wagers of some traders that interest rates may be cut."

"Kohn said in a speech late yesterday that he's more worried about persistent inflation than a slowdown in growth. 'Don't sell the Fed's concern about inflation short,' he said in response to questions after the address. 'Further upward movements in inflation would be very adverse to the economy and would, I think, require policy actions.'"

"The remarks by Kohn, who has worked at the Fed since 1970 and served as former chairman Alan Greenspan's chief strategist, are at odds with speculation that a housing slump will prompt a rate cut by early next year. Yields on 10-year Treasury notes approached a seven-month low yesterday and yields on interest- rate futures implied a reduction in rates by the end of March."

"'You think it will take some decline in interest rates to make this forecast come true,' he added. 'I'm saying I don't know where interest rates need to go.'"

From Reuters. "U.S. interest rates may not be high enough to quell a recent bout of inflation, Philadelphia Federal Reserve President Charles Plosser said on Thursday. In a speech peppered with stern anti-inflation warnings, Plosser said the U.S. central bank's very credibility was at stake when it came to keeping prices under control."

"'There remains some risk that policy is not yet firm enough to ensure a return to price stability over a reasonable time horizon,' Plosser told the CFA Society of Philadelphia."

"'We need to remain vigilant and recognize that maintaining the current stance of policy, or even firming further, may be in the best interests of the economy's long-run performance,' he said."

"The bond market reacted negatively to Plosser's comments, since many investors had been betting an economic slowdown could force the Fed to start cutting rates by early next year."

MarketWatch reports on the precious metals trading. "Gold futures fell almost $15 an ounce Wednesday to mark a four-session loss of over 7% as recent weakness in oil prices and strength in the stock market helped pull the precious metal's benchmark contract to a more than six-month low."

"Gold for December delivery closed down $14.80 at $566.70 an ounce on the New York Mercantile Exchange after reaching $563.50, an intraday level the contract hasn't seen since mid-March."

"Dale Doelling, chief market technician, said he expects to 'see some kind of washout in the precious metals and a subsequent capitulation in the financial markets and stocks specifically. When that does occur, it will be time to buy the metals and sell the stock index futures in a big way.'"

"For now, 'industry insiders remain cool-headed and [are] using this pullback as an opportunity to add at discounted levels,' said Peter Spina, chief investment strategist at GoldSeek.com, emphasizing that investors are being given 'one heck of an opportunity to still get in at extremely attractive levels.'"

"'As we approach some very strong technical support, the market can quite possibly reverse quickly and in a blink of an eye, gold may be right back above $600,' he said."

"Either way, what happens in the next few sessions will go a long way toward determining gold's direction for the rest of 2006, said Peter Grandich."

"A steep decline seen recently in energy prices has eased inflation worries and in turn reduced safe-haven demand for the metal. Crude futures climbed Wednesday, but not before touching a nearly 16-month low. These factors 'have been reflected in the recent shift in investor capital,' said James Moore, analyst at TheBullionDesk.com. As gold and other commodities have fallen sharply, equities have rallied."

"Grandich laid out both bullish and bearish cases for gold. 'Holding above September's low around $570 and then closing above $610 should clearly indicate the bull market remains intact and new highs are on the offering,' he said. 'However, a close below $570, and a test of the May lows of $540 and even ultimate support at $500 is quite possible.'"

"Rounding out the action in the metals pits Tuesday, December silver fell 25 cents to close at $10.795 an ounce after a nearly three-month low of $10.65, while January platinum dropped $47.50, or 4.2%, to end at $1,082.40 and December palladium lost $9.80 to close at $296.65 an ounce."

From Business Day. "The European Central Bank will disclose later today whether the signatories to the Central Bank Agreement rushed to sell their full allocation of gold just before the deadline of September 26. If the signatories, some of the world’s biggest holders of gold, sold considerably less than they were permitted under the agreement, it could indicate a fundamental shift in key governments’ attitudes towards gold as a store of value."

"Central banks origi-nally agreed to limit yearly gold sales because of concern about the destabilising effect of uncoordinated sales and fears of substantial central bank selling on the gold price. The first five-year agreement covered 1999 to 2004 and the second Central Bank Agreement runs from 2004 to 2009."

"It limits signatories’ total sales of gold to 500 tons a year for a five-year period, or a total of 2 500 tons. The signatories included the ECB and the central banks of Portugal, Greece, Italy, Germany, France, Belgium and Ireland."

"In past years the signatories sold close to the full allocations each year. But latest figures from the ECB covering the year to September 22 showed total sales by central banks had reached only 398 tons."

"According to Numis Securities analyst John Meyer, European central banks, particularly Germany, had decided to retain some gold reserves. 'This is an indication that banks in developed economies see a need to hold back on gold sales, perhaps to protect against economic risk or for higher price levels,' he said."

The Associated Press. "The euro dropped against the dollar Wednesday, even after reports on U.S. manufacturing and services provided new evidence that the economy may be slowing there. The euro bought US$1.2687 in afternoon European trading, down from US$1.2727 in New York late Tuesday. The British pound slipped to US$1.8834 from US$1.8872, while the dollar was up to 118.02 Japanese yen from 117.89 yen."

"Slowing growth has convinced most economists that the Federal Reserve will hold U.S. interest rates unchanged for the rest of the year. Rising interest rates elsewhere also may weigh on the dollar."

"The ECB is widely expected to lift its key interest rate when it meets Thursday. It would be the fifth such move since the bank started adjusting rates in December 2005."

The Ottawa Business Journal. "The Canadian dollar dropped further Wednesday morning. Economists are speculating that the U.S. Federal Reserve will increase the benchmark lending rate in order to restrain inflation. Federal Reserve Bank of Kansas City President Thomas Hoenig, said late yesterday in Albuquerque, New Mexico that core inflation is high and needs to be reduced."

"'Inflation, honestly, right now is too high' according to Hoenig, inflation is a 'major challenge' for the Fed. Inflation in August excluding food and energy increased to 2.5 per cent compared to the year before whereas Fed's chairman, Ben S. Bernanke, categorizes the rate of one to two per cent as his comfort zone."

Bloomberg reports on precious metals trading. "Gold in New York tumbled the most in three months as plunging energy costs reduced the appeal of the precious metal as a hedge against inflation. Gold is down 21 percent from a 26-year high of $732 an ounce on May 12, partly because the price of oil has dropped 24 percent from a record in July. Crude oil fell below $60 a barrel to a seven-month low."

"'Everybody is getting out of their positions,' said Nick Ruggiero, a trader at Eagle Futures. 'Crude came off almost $3 this week, and gold is following.' Losses accelerated after gold fell below $600. 'That was a big number,' Ruggiero said. 'We had a lot of sell stops for long positions.'"

"Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures in the week ended Sept. 26, Commodity Futures Trading Commission data showed on Sept.29. Speculative long positions, or bets prices will rise, outnumbered short positions by 71,244 contracts. Net-long positions fell by 6,624 contracts, or 8.5 percent, from a week earlier to the lowest since August 2005, the data showed."

"'All the funds are hitting the door at the same time,' said Frank McGhee, head metals trader at Integrated Brokerage Services."

"Silver for December delivery fell 59.5 cents, or 5.1 percent, to $11.045 an ounce. Palladium for December dropped $12.15 or 3.9 percent, to $302 an ounce. Platinum for January declined $35.20, or 3 percent, to $1,124 an ounce."

"'Contributing factors to today's decline were identified as sharply lower oil prices, a significant slowdown in the making in the U.S. economy, and the stampede for the exit doors by a notable number of hedge funds,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com."

"Gold for December delivery closed down $21.80 at $581.50 an ounce on the New York Mercantile Exchange. Prices closed lower Friday and Monday as well, so they've lost a total of $29.40, or 4.8%, during their three-session losing streak."

"'There remains a distinct smell of fear in the air over the [gold] bullion pits at the moment,' said Nadler. 'Despite robust recent jewelry off-take and a seasonality strength factor, the dominant theme for the moment is the petro-dollar one.'"

"For prices, 'it seems resistance around $608-$612 will keep the yellow metal capped, while further pressure in the oil market could see gold dip back into the previous $573-$594 trading area,' James Moore, an analyst at TheBullionDesk.com said."

"Overall, 'the near-term outlook for the precious-metals complex is bleak,' said Dale Doelling, chief market technician at Trends In Commodities. 'We'll just have to wait and see if those June lows hold to determine if the bull market turns into a bear market,' he said. The December gold contract fell to a low of $576 in June."

"Not even a threat of nuclear tests by North Korea could help boost demand for the metal as a safe haven in times of geopolitical uncertainty."

"'The message is that previously gold made a high, it's in a correction and there is really not a conceptual story or a risk appetite reason to invest, other than for a short-term trade,' says Woody Dorsey, behavioral market strategist at Market Semiotics, who expects continued weakness going forward."

"'We had a lot of physical demand when the spot price dipped below $600 around the middle of the month,' says Bernard Hunter, director of precious metals at Toronto-based ScotiaMocatta. Now that demand has been met and that gold has proved unable to stay above $600 an ounce, jewelry fabricators may wait until there is further price weakness before returning to the market, he says."

"'Physical buyers, such as jewelers, are very savvy when it comes to playing the market their way,' adds Hunter."

"The Canadian dollar finished lower versus the U.S. dollar on Tuesday as an empty domestic economic calendar left the commodity-linked currency little choice but to focus on another drop in oil and gold prices."

"'As the U.S. economy looks to deteriorate a little bit perhaps the Canadian economy will go along with that, and so the Canadian dollar has not held quite as well today,' said Carolyn Kwan, markets economist at Scotia Capital."

"'Commodity currencies are getting hammered because gold and oil are down,' said Robert Houck, a dealer with Wells Fargo. 'Whether it's a trend or not, these are big moves today.'"

"By midafternoon, the U.S. dollar was up 0.55 percent from late on Monday at C$1.1215, while the Australian dollar down 0.6 percent at $0.7430. The U.S. dollar jumped 1.7 percent to three-year highs around 7.8870 South African rand. The Norwegian crown fell for a third straight session, trading at 6.5849 to the dollar, not far off its weakest point in six months."

"'Markets are range trading and looking ahead to the ECB and Bank of England on Thursday as well as a deluge of Fed speakers,' said Dustin Reid, senior currency strategist with ABN AMRO. 'There's nothing fundamental driving markets right now.'"

"Against the yen, the dollar rose 0.2 percent to 117.90 yen. The dollar climbed 0.2 percent to 1.2452 Swiss francs."