Money and Metals

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."