Tuesday, February 20, 2007


Gold "Hammered" As Markets Eye BOJ

marketWatch reports on the precious metals markets. "Gold futures fell sharply on Tuesday, as a steep drop in crude-oil prices and a rise in the U.S. dollar weakened demand for the precious metal. Gold for April delivery closed down $11.80 at $661 an ounce on the New York Mercantile Exchange."

"Gold prices were 'hammered by relentless profit-taking and perceptions that oil may slide further, while the dollar may gain in the short term,' said Jon Nadler, an analyst at bullion dealers Kitco.com."

"Crude for March delivery was last down $1.59, or 2.7%, at $57.80 a barrel on the New York Mercantile Exchange. 'No one should treat the falling oil market with a mere casual glance,' Nadler said. If crude oil prices collapsed to $50 a barrel, for example, gold would find long-term support at around $550 an ounce."

"'We would still consider the probability of gold first trending higher at this time, but can't rule out an early summer during which signs of peace break out and the angst premiums of various safe-haven assets disappear for a while,' Nadler said."

"Other metals prices were mixed. March silver closed down 16 cents at $13.83 an ounce, while April platinum gained 8.70 to close at $1,219.10 an ounce. March palladium ended down $2.05 at $339.75 an ounce."

"The strong performance of the American dollar on Tuesday also weakened demand for gold. The dollar rose against the yen, reflecting growing expectations that even if the Bank of Japan decides to lift borrowing costs this week, Japanese interest rates are likely to remain at relatively low levels."

From Bloomberg. "The yen approached the lowest level in more than 14 years against the British pound as the Bank of Japan began a two-day monetary policy meeting under pressure from politicians to keep borrowing costs low."

"The Japanese currency also dropped for a third day versus the dollar and euro. The Bank of Japan's credibility as an independent inflation fighter was questioned after policy makers kept the benchmark interest rate unchanged last month."

"'There is enough firepower from the political community to pressure the BOJ to put rates on hold,' said Robert Fullem, vice president of U.S. corporate currency sales at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. 'I don't think the BOJ will raise rates this time. People are looking for opportunities to sell the yen.'"

"The yen fell to 119.99 versus the dollar at 4 p.m. in New York from 119.56 yesterday."

"Losses in the yen could be limited as calculations by Credit Suisse Group show a 62 percent chance of an increase to 0.5 percent, compared with 63 percent yesterday and 33 percent a week earlier."

"'When the interest-rate gap between the U.S. and Japan narrows, the yen appreciates,' said Steven Englander, head of currency strategy for the 10 major industrialized nations at Merrill Lynch & Co. in New York. Even though a 0.25 percentage point rate increase sounds 'miniscule, it looks as if the flow does matter to the market.'"

"The government reported on Feb. 15 that Japan's economy expanded at an annualized pace of 4.8 percent in the fourth quarter from the previous three months, exceeding economists' estimates for a 3.8 percent expansion."

"The yen may rebound toward 119 per dollar if the Bank of Japan boosts borrowing costs, said Naomi Fink, senior currency strategist at BNP Paribas SA in New York. 'We see less and less reasons why the BOJ should remain on hold,' given the upside surprise in growth."

"'Fukui didn't signal clearly that they are going to hike,' said Lara Rhame, a senior currency strategist at Credit Suisse in New York. 'You are going to see a bearish trend in the yen reemerge if the BOJ sounds dovish' in the press conference tomorrow."

"The yen has declined 3.5 percent against the dollar and 5.8 percent versus the euro in the past six months."

"The Swiss franc, another funding currency for the carry trade, dropped against the dollar, euro and pound today. Switzerland's benchmark interest rate is 2 percent, the second- lowest among industrialized nations after Japan."

"New Zealand's dollar may fall on speculation Japan's central bank will increase its benchmark rate today, reducing the appeal of borrowing cheaply in yen to invest in higher-yielding currencies."

"Reserve Bank of New Zealand Governor Alan Bollard said on Jan. 25 unless he saw moderation in housing and demand, it was likely he would raise interest rates. The New Zealand dollar has risen 5.5 percent the past three months as investors anticipate a rate rise in the first half of this year."

"The yield on the benchmark 10-year government bond was unchanged at 5.93 percent. The yield is 1.22 percentage points more than the equivalent U.S. maturity. Three weeks ago the yield gap was 1.11 points."

"Volatility on options on the Australian dollar versus the yen should decline after Australia's Bureau of Statistics reports wage figures for the fourth quarter and the Bank of Japan concludes its monetary policy meeting."

"The wage growth figures will be followed tomorrow by Australia's Reserve Bank Governor Glenn Stevens' testimony before a Parliamentary committee in Perth, Australia. The two-day meeting by the Bank of Japan will end later in the day in Tokyo."

"'The wage cost index will have more market moving impact than Stevens' testimony,' said Richard Franulovich, senior currency strategist in New York at WestPac Banking Corp., Australia's fourth largest bank. 'The risk is that we do see stronger than expected wages for the quarter. This is the only thing that could force the hand of the central bank to raise rates in the future.'"

"The rate differential between the Australia and Japan helped strengthen the Australian dollar to ten-year highs versus the yen last month. Australia's benchmark lending rate of 6.25 percent. The yield on Australia's benchmark 10-year note is 5.77 percent, while benchmark 10-year note in Japan yields 1.69 percent."

"The Australia's currency traded at 94.35 yen per Australian dollar in New York, up from 94.03 yesterday. The currency traded to 96.45 yen on Jan. 24, its strongest levels since May 1997, when the currency traded at 96.73 yen."

"The strengthening of the Australian dollar versus the yen triggered options traders to purchase yen calls to protect against a possible snap back upward in the value of the yen."

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