Thursday, January 18, 2007


Oil Pulls Gold Lower

Reuters reports on the currency markets. "The dollar rose to nearly a four-year peak against the yen on Thursday, buoyed by a raft of generally strong U.S. economic data and a decision by the Bank of Japan to keep interest rates steady. The dollar, however, turned lower against the euro and sterling in late trading on some technical selling, despite positive U.S. numbers, traders said."

"'We're seeing the dollar give up some of its gains against the euro, but I wouldn't read anything into that. That's just position adjustment,' said Joe Francomano, vice president of foreign exchange at Erste Bank in New York. He noted that the U.S. economic data were all supportive of the dollar and overall the currency did quite well, posting the sharpest gains against the yen."

"By late afternoon trading, the dollar came off highs to trade at 121.20, still up 0.5 percent on the day."

"Thursday's U.S. data bolstered expectations the Federal Reserve won't have to cut U.S. rates any time soon. A stronger-than-expected U.S. Mid-Atlantic manufacturing survey for January, a broadly in-line consumer price index in December, and a rise in the pace of U.S. home construction in the same month enhanced the market's bullish dollar sentiment."

"The euro initially fell on the robust U.S. data, but recovered late in the day to $1.2958, up 0.2 percent from late on Wednesday. Sterling, meanwhile, was up 0.2 percent at $1.9737. Naomi Fink, senior currency strategist at BNP Paribas in New York, said gains in the euro against the dollar were helped by buying interest in the single currency versus the yen."

"'The dollar's limited ability to capitalize on good data versus the euro shows euro/yen bullishness is keeping euro/dollar dips limited,' Fink said."

From MarketWatch. "Gold futures closed more than $5 lower Thursday, retreating from their highest prices in more than two weeks as pressure from a steep drop in crude oil offset support tied to prospects that there will be higher investment and physical demand for the precious metal. Gold for February delivery closed down $5.20 at $628.10 an ounce on the New York Mercantile Exchange. Earlier, the contract reached a high of $637.20, its strongest intraday level since Jan. 3."

"'On one side of the equation, you have the strong fundamentals underpinning the gold market supported by renewed nuclear concerns from North Korea and Iran,' said Peter Spina, chief investment strategist at 'On the other side of the equation, we have another sizable drop in oil as it searches for its bottom ... combined with positive U.S. economic data supporting a firm U.S. dollar,' said Spina."

"On Thursday, in reaction to a U.S. military buildup in the Gulf, Iranian President Mahmoud Ahmadinejad said his country was prepared for any possible standoff with the West over its nuclear activities, the Associated Press reported."

"'In the end, gold is fighting to move higher, but the sellers appear to have the upper hand,' he said. From here, 'look for some difficulty to extend gains under these circumstances,' but overall, it appears that 'a strong base [is] being built from which gold will propel higher ... once the right time arrives,' he said."

"On Nymex, March silver futures shed 20.5 cents to end at $12.685 an ounce, reversing after earlier climbing to $12.99. April platinum rose $13.90, or 1.2%, to close at $1,168.50 an ounce and March palladium climbed 45 cents to finish at $343.40 an ounce."

From Bloomberg. "Ecuador's economy minister told a group of investors who visited his office yesterday that the government may repay only 40 percent of its foreign debt as part of an effort to free up funds for health care and education."

"Ricardo Patino, who took office with President Rafael Correa on Jan. 15, told the investors that a debt reduction of that much or more is among the possibilities the government is considering, an Economy Ministry spokeswoman said."

"Patino's debt reduction estimate is the first indication the South American country has given on the amount of money it's looking to shave off its debt servicing. Correa has been saying for months that he planned a restructuring of the country's $11 billion foreign debt, without providing specifics."

"Ecuador's 10 percent dollar bonds due in 2030, the government's benchmark foreign securities, tumbled today, driving the yield up 110 basis points, or 1.1 percentage points, to 14.32 percent."

"'At this point, one has to assume that there will be some sort of default,' said Adam Weiner, who manages emerging-market debt at New York-based OppenheimerFunds Inc., which has $250 billion under management. 'This is a willingness to pay issue, not an ability to pay issue.'"

"Patino told the investors that much of the debt is 'illegitimate' and 'a burden on Ecuador that inhibits growth' and takes away from social spending, according to Citigroup Inc., which arranged the meeting in Quito."

"'He argued that for the first time in many years investors will be dealing with a finance minister determined to defend and prioritize social spending over external or domestic debt servicing,' Citigroup analysts Don Hanna and Jose Wynne wrote in a report to clients."

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