Thursday, January 25, 2007


"Global Imbalances More Concentrated"

The Associated Press reports on currencies. "The euro climbed Thursday against the U.S. dollar despite surveys from Germany, Europe's largest economy, showing an unexpected dip in business confidence and consumer climate. The 13-nation euro bought US$1.2980 in morning European trading, up from US$1.2961 the night before in New York."

"The British pound rose slightly to US$1.9691 from US$1.9672 the day before, while the dollar fell to purchase 120.56 Japanese yen, from 120.95 yen in New York."

"The euro's rise came despite a report from Munich's Ifo institute, which showed its business climate index declining to 107.9 in January from 108.7 in December. Economists polled by Dow Jones Newswires had expected a slight rise to 108.8."

From Reuters. "Gold turned lower on Thursday afternoon after it rallied to a five-and-a-half month high in early session, as a technical sell-off halted the rally, while oil reversed course to trade down."

"Other precious metals tracked gold, with silver jumping to a one-month high, platinum touching its highest in two months and palladium climbing as high as $352 an ounce, the highest in more than four-and-a-half months."

"Gold hit $654 an ounce, its highest since Aug. 9, and retreated to $645.70/646.70 by 3:03 p.m. EST, against $647.20/648.20 late in New York on Wednesday."

"Scott Meyers, senior analyst at Pioneer Futures, said that gold went into a technical resistance level, which triggered some selling. 'You can see more profit taking tomorrow,' Meyers said."

"After several recent attempts, gold breached the $650 mark and analysts said that the currency and energy markets were expected to help gold to scale new highs going forward. 'Overall, we still have got a macro-economic picture that is relatively supportive for gold investors,' said Michael Widmer, metals analyst at Calyon Corporate and Investment Bank."

"It has gained seven percent from its low in early January, but is still about 11 percent down from a 26-year high of $730 in May last year. 'A holistic picture of the market hints of a major rally in gold,' Pradeep Unni, analyst at Dubai-based Vision Commodities Services, said, adding the metal was getting support from oil."

"Oil prices fell below $55 a barrel, as profit taking and ample U.S. inventories countered cold weather in in top consuming regions."

"In other metals, silver rose to 13.54 before easing to $13.32/13.39 an ounce, against $13.18/13.25, its previous close in New York, while platinum was at $1,171/1,176 after rising to $1,180, against $1,164/1,169 in New York late Wednesday."

"'While resistance ahead of $1,180 has proved strong, the metal remains within its short-term uptrend and should garner strength from further gains in gold and silver,' James Moore, precious metals analyst at, said."

"Palladium was last quoted at $350/354 an ounce, compared with $344/349 at its previous finish in the U.S. market."

From MarketWatch. "Gold futures touched their highest level in eight weeks Thursday after breaking through what analysts called a key price-resistance level of $650, but prices closed slightly lower to reflect weakness in oil prices."

"'The key now is to climb the resistance around $675, which would then accelerate this advance even further with the highs from 2006 then the next target,' said Peter Spina, chief investment strategist at"

"'The gold market is showing tremendous strength,' said Spina. 'Yes, oil and the U.S. dollar have been factors giving direction to this market, but now there is growing independence in gold's moves of late. There is strong investor interest again and...we could be in the midst of the next leg higher, but let the market confirm this to us,' he said."

"'The "$675 area is the key from a technical perspective and we may need to consolidate around the $650 mark first before climbing the next wall, he said."

"Indeed, 'investors and traders are showing a marked degree of caution in assembling the building blocks of this rally,' said Jon Nadler, at bullion dealers 'If a sufficiently solid foundation can be established here, perhaps hedge funds or other trigger-finger happy speculators will reconsider early bailouts at higher levels,' he warned."

The Telegraph. "The vast imbalances in the global system were growing worse by the day and might be setting the stage for a financial crisis, experts warned. Zhu Min, the Bank of China's executive vice-president, said the explosive growth in derivatives to $370 trillion had flooded the global system and made it too easy to acquire credit."

"Predicting that the storm would break next year, he said: 'There is money everywhere. You can get liquidity from the market every second for anything. Derivatives are eight times global GDP and much of the money is flowing to Asia, where people have no idea what risks they are taking.'"

"Mr Zhu said the money supply in the US had doubled from 25pc to 50pc of GDP in 20 years, and risen to 75pc of GDP in Japan. The effect of so much easy credit had been to reduce yields on risky bonds to wafer-thin margins, and blind investors to risk."

"'The global imbalances are becoming more concentrated, not less,' he said. While China is adding to its colossal reserves at a rate of $200bn (£102bn) a year, five countries, led by the US and Britain, now account for 84pc of the $1,000bn of trade deficits in the global system."

"Montek Ahluwalia, deputy chief of India's planning commission, said the derivatives revolution had allowed banks to 'park risk elsewhere,' disguising the danger."

"However, Jacob Frenkel, vice-chairman of AIG international, said the 'perma-bears' had been silenced last year, and much the same would happen in 2007. 'The dire predictions haven't come to pass. The dollar hasn't collapsed; the yen hasn't appreciated dramatically; oil has not reached $100. We see a lot of ugly bears growing horns and becoming bulls,' he said."

"Everything looks perfect, and that in a nutshell is what worries the bears. As Lawrence Summers, the former US Treasury secretary, warned this week, ultra-optimism usually precedes a fall. 'It's worth remembering that markets were very upbeat in the early summer of 1914,' he said."

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