Money and Metals

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."