Monday, February 05, 2007


Gold Shakes Off "Fund Debacle"

The Associated Press reports on the currency market. "The dollar rose against the euro and pound Monday after a report from a trade group showed that growth in the U.S. service sector accelerated in January, signaling the economy got off to a strong start in 2007."

"The euro bought $1.2927 in afternoon New York trading, down from $1.2967 in New York late Friday. The British pound fell to $1.9596 from $1.9673. However, the dollar slipped against the Japanese currency, falling to 120.35 yen from 121.07."

"In other trading, the dollar bought 1.2487 Swiss francs, up from 1.2473 late Friday, and 1.1815 Canadian dollars, down from 1.1859."

"The Institute for Supply Management said on Monday that its index of business activity in the U.S. service sector advanced to 59.0 in January from 56.7 in December. Analysts had expected a reading of 57. A reading above 50 indicates expansion, while one below indicates contraction."

"The service industries covered by the ISM report represent about 80 percent of the nation's economic activity, and economists are looking for the sector to be a driver of growth in 2007 as the manufacturing sector struggles with weakness in the automotive and housing industries."

From Bloomberg. "The yen gained versus the dollar and increased the most against the euro in a month on speculation European policy makers will say Japan's currency is too weak."

"The yen climbed against the 16 most-active currencies after officials in Europe said the Group of Seven nations would debate the issue this week. Japan's Vice Finance Minister Hideto Fujii said the G-7 will discuss currency markets as usual. Futures trading data released on Feb. 2 showed investors held record bets the Japanese currency would fall."

"'The yen has momentum coming into the G-7 meeting after all the talk about it being undervalued,' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York. 'Looking at the net shorts, you've got to wonder how long this can remain without some kind of a correction.'"

From MarketWatch. "Gold futures closed higher Monday, gaining nearly $5 an ounce as economic concerns related to the recent strength in energy prices helped drive demand for the precious metal. Gold for April delivery closed up $4.60 at $656.10 an ounce on the New York Mercantile Exchange."

"On Friday, gold closed down 1.7%, or $11.50, at $651.50 an ounce. 'Gold was rocked back on its heels on Friday ... by lack of follow-through by the funds,' said Julian Phillips, an analyst at 'Investment demand rose well, but physical demand backed off.'"

"'The extent of the drop shook the market because it fell straight through resistance it had just broken through,' he said. 'We have to conclude that these were speculative plays as the gold price is now recovering through $650. If investment and physical demand are the forces behind the bull market, these speculative waves will keep the market very volatile, but the tidal flow of the market will dominate beyond the short term,' he said."

"Early Monday, April gold climbed as high as $657.50 'amid a recovery prompted by crude oil nearing $60 once more,' Jon Nadler, an analyst at bullion dealer, wrote. March crude prices touched a one-month high of $59.95 a barrel, then retreated from the day's peak, but March natural gas continued higher as icy conditions struck the Northeast."

"'Resistance for gold remains to be found near the $655 area and such values must be overcome yet again in order to re-establish the previously bullish tone in earnest,' said Nadler. And 'for the moment, gold must also maintain itself above $640 so as not to turn the mood sour and prompt buyers to hold out for the low(er) $600s,' he said."

"March silver added 18.5 cents to end at $13.56 an ounce. April platinum rose $8.20 to close at $1,171.70 an ounce and March palladium closed up $4.10 at $342.35 an ounce."

"A report last week that Red Kite Management, a $1 billion metals trading hedge fund, wants to extend the notice period for investor redemptions after losses of as much as 15% in January, may further affect metals trading."

"Red Kite, run by Michael Farmer, Oskar Lewnowski and David Lilley, asked investors in its metals fund to approve an amendment that would require 45 days notice before money can be withdrawn, according to a copy of a Jan. 31 letter from the firm obtained by MarketWatch."

"'All eyes seem to be on whether funds are in trouble with another Amaranth-type sell-off, and given the sell-off in oil and the metals in early January, this would not be a surprise,' said William Adams, an analyst at 'However, if the damage was done in January, then this may well be a 'sell the rumor, buy the fact' situation as the pain may already have been taken by the funds,' Adams said."

"For now, according to Nadler, it seems that gold has 'shook off some of the stigma that may have rubbed off of base metals in last week's Red Kite fund debacle.'"

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