Wednesday, February 28, 2007


Gold Falls On "Temporary Liquidation"

Bloomberg reports on the US dollar. "The dollar advanced from a 10-week low against the yen and rose from the weakest since January versus the euro after Federal Reserve Chairman Ben S. Bernanke said it is 'reasonable' to expect stronger growth in midyear. 'The market takes Bernanke's comment as hawkish,' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research."

"The dollar rose to 118.41 yen at 3:57 p.m. in New York from 117.93 yesterday when it reached 117.49, the weakest since Dec. 15. The U.S. currency traded at $1.3233 per euro from $1.3242 yesterday when it touched $1.3259, the lowest since Jan. 3."

"The yen also fell against the euro, British pound and currencies in Australia and New Zealand as the decline in industrial production and retail sales encouraged investors to put on carry trades following yesterday's unwinding. The Swiss franc, another so-called funding currency for the carry trade, dropped versus the dollar."

"At 0.5 percent, Japan has the lowest borrowing costs in the industrialized world compared with 5.25 percent in the U.S. and U.K. Switzerland's benchmark is 2 percent. The ECB's rate is 3.5 percent."

"'The BOJ is still dovish and they won't raise interest rates rapidly,' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. 'Investors are still willing to short the yen.' A short position is a bet on a currency's decline."

From MarketWatch. "Gold futures closed Wednesday with a loss of nearly $15 an ounce, with the market still reeling a day after a global stock-market sell-off. But prices finished higher for the month and most analysts remain convinced that the decline for the day was only a temporary setback in the metal's climb toward $700."

"'For many months now, gold has managed to correct very overbought conditions in a manner of a day or two, and it would not surprise me that it has done so again,' said Peter Grandich, editor of the Grandich Letter."

"Gold futures for April delivery dropped as much as $23.20 during Wednesday's session to a more than two-week low of $664 an ounce on the New York Mercantile Exchange. It closed at a one-week low of $672.50, down 2.1%, or $14.70. The last time the market saw a pull back like this was during the Jan. 3 to Jan. 5 period, when prices fell nearly $40 in two days, according to Neal Ryan, director of economic research at Blanchard."

"Despite the day's losses, the contract ended the month of February with a gain of $14.60, or 2.2%."

"May silver closed the day down 3.1%, or 45.5 cents, at $14.235 an ounce, touching $14.12 at its worst point. It also managed to post a gain for the month, 3.9% higher than the Jan. 31 closing level."

"'With the pullback in so many markets, it is fair to say that the gold and silver pullback is not about gold and silver,' said Julian Phillips, an analyst at 'These falls [have more] to do with short-term traders perceptions and technical selling,' he said."

"'This massive equity market liquidation [Tuesday] has sparked concern across the spectrum of markets as traders fear cash is the best position to be in,' said John Person, president of 'There could be a fall-out from large hedge fund losses, so traders are bailing on commodity positions,' he said."

"Indeed, 'there is a liquidation of assets across the board here -- funds forced to raise capital and the precious metals were not immune to this,' said Peter Spina, chief investment strategist at He emphasized, however, that he considers the situation to be a 'temporary liquidation from these funds which require capital to cover losses.'"

"Other metals were mixed Wednesday, with platinum's April contract adding $3.10 to end at $1,256.40 an ounce. It was up more than 6% for the month. The June contract for sister metal palladium closed unchanged at $356.60 an ounce, up about $11 from a month ago."

"Crude-oil futures fell to a low of $60.30 a barrel Wednesday to catch up on losses posted in the after-hour session Tuesday evening as traders fretted about the potential for weaker energy demand."

"The perceived risk of owning Philippine, Indonesian and Thai dollar-denominated debt increased on concern a global slump in stocks will damage the creditworthiness of emerging markets."

"Credit-default swaps, used to speculate on the governments' ability to repay debt, rose as Asian equities fell the most in more than eight months. Five-year contracts based on $10 million of Philippine debt increased to $124,000 from $114,000 yesterday, according to data compiled by Bloomberg. The cost was as high as $141,000 earlier, according to Rabobank International."

"Benchmark indexes tracking the contracts in the U.S. and Europe rose yesterday by the most since they were created in 2004 on concern rising mortgage defaults in the U.S. and declines in stocks will damage companies' ability to repay debt. An equity market slump in China prompted concern that the world's fastest-growing major economy may slow."

"'The selloff in China's stock market yesterday served as a strong reminder to global investors that the high-yield market is overvalued,' said Ken Hu, who helps manage $100 billion at First State Investments in Hong Kong."

"Asian currencies including the Indonesian rupiah and Philippine peso weakened today as fund managers pared riskier investments. The rupiah slid 0.8 percent to 9,153 per dollar and the peso fell 0.3 percent to 48.53."

"The yield premium, or difference in yield, between the Indonesian government's 10-year benchmark bond and similar- maturity U.S. Treasuries widened 7 basis points to 1.66 percentage points, the most since Dec. 5, according to prices from Merrill Lynch & Co."

"Credit-default swaps based on Thai government debt increased 8 percent to $40,000 and those referencing Indonesian debt rose 9 percent to $124,000, according to data compiled by Bloomberg. The swaps were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default."

"'The perception of risk is increasing after China, driving yields higher,' said Vikki Guevara, Assistant Vice President at Philippine National Bank in Manila. 'We're just being lumped with other assets in the region.'"

"Asian credit ratings won't be affected by the slump in equities, said Takahira Ogawa, a Singapore-based director of sovereign ratings at Standard & Poor's. 'It's a short-term phenomenon,' he said. 'If there's a kind of very significant bubble in assets, it could cause implications for financial systems and markets. But at this stage, we see it rather as a price correction.'"

Boy, the shakeup yesterday could end up being a huge turning point. The Asian crisis started of much like this in the 90's. Risk tolerance changing; lots of imbalances.

This yen carry trade problem isn't going away, yet nobody seems to do anything but talk. The IMF, the BIS, etc, all seem unwilling to push the matter.
Yes, Caution as all is speculative today, favor Gold TA - it can be volatile at times. This is a risk opportunity situation.
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