Wednesday, March 21, 2007


"Another Pin In The US Dollar Balloon"

A report from MarketWatch. "Gold futures gained a dollar Wednesday to end near their highest level in three weeks, then climbed some more in electronic trading after the U.S. Federal Reserve left interest rates unchanged at 5.25% for the sixth time in a row.
In a statement, the Federal Open Market Committee said its 'predominant policy concern remains the risk that inflation will fail to moderate as expected.'"

"'Inflation failing to moderate, per the FOMC decision today, indicates new worries on inflation from the Fed,' said Peter Spina, chief investment strategist at"

"'This, combined with the drop in reference to a rate hike, places pressures on the U.S. dollar and therefore deemed favorable for gold prices,' he explained. 'The initial reaction is a bit muted in the gold markets, but some firming bids are showing and may assist the yellow metal to break past this $660 area barrier.'"

"Gold for April delivery rose $1 to close out the regular trading session at $660 an ounce on the New York Mercantile Exchange. It was the contract's strongest closing level since March 1. It had gained $17.50, or 2.7%, during a five-session winning streak."

"In electronic trading on CME Globex, the April contract was quoted at $664.60 an ounce, about two hours after the Fed decision. The Fed announced its decision at 2:15 p.m. Eastern, 45 minutes after the official close of regular metals trading in New York."

"'There's absolutely nothing in the latest Fed comments to altar gold's march to $700+,' said Peter Grandich, editor of the Grandich Letter. 'Their notation the economy is now 'mixed' ratchet their economic outlook lower, and puts another pin in what little hot air remains in the U.S. dollar balloon.'"

"'While the fat lady hasn't sung yet, she's already in the building and has flowers for the gold bears burial upcoming,' he said."

"Before the announcement, James Moore, an analyst at said in a note to clients that although most people expected the Fed to leave rates unchanged, the recent slowdown in the U.S. housing market had led to speculation the Fed may cut rates, 'a move likely to be bearish for the dollar and bullish for gold.'"

"Other metals prices lost ground during the regular trading session. May silver fell by 5 cents to close at $13.32 an ounce. June palladium fell $3.30 to end at $352 an ounce and April platinum slipped $5.30 to close at $1,230 an ounce."

From Bloomberg. "Canada's dollar climbed to a three- month high after the U.S. Federal Reserve abandoned its tilt toward higher borrowing costs, raising speculation the rate difference between the two countries will narrow."

"Traders bought the currency as the yield advantage on U.S. two-year notes over Canadian bonds shrank to the smallest in 14 months. The currency's gain yesterday, the most in nine months, followed a report of quicker Canadian inflation that damped speculation the Bank of Canada will lower its 4.25 percent benchmark interest rate. The U.S. key rate is 5.25 percent."

"'The market has started to price in a rate cut by the Fed later this year, and that's helping the Canadian dollar,' said Marc Levesque, chief strategist at TD Securities in Canada."

"The New Zealand dollar surged to its highest in a month on speculation the U.S. Federal Reserve will cut interest rates this year, bolstering the appeal of higher- yielding currencies."

"The U.S. dollar fell to a two-year low against the euro after the Fed removed a reference in its statement yesterday suggesting its next move may be to raise interest rates. 'The Fed's watered-down tightening bias undermines the attractiveness of U.S. dollar investments,' Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington said. 'It encourages people to invest in currencies with higher yields.'"

"Gains in the U.S. stock market also boosted the local currency, Hampton said, adding to the so-called carry trade, where investors borrow cheaply in currencies such as the yen to invest in higher yielding assets like those in New Zealand. The yield gap between Japan and New Zealand is 7 percentage-points."

"'The carry trade is quite tied to the equities market at the moment,' she said. 'The stock market rally boosted risk appetite and the appeal of currencies like the kiwi.'"

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