Thursday, March 29, 2007


Fund Sell-Off Takes Gold Lower

MarketWatch reports on currencies. "The dollar rose against the yen Thursday after a government report showed the U.S. economy grew at a faster pace than initially reported in the fourth-quarter. The yen fell across the board, snapping a two-session rise, as steadying global equity markets encouraged investors to reestablish carry trades. Weaker-than-expected Japanese retail sales data further weighed on the yen."

"'The dollar/yen extended its rebound by a full yen from yesterday's 116.40 low amid rebounding equities, a neutral [Federal Reserve Chairman Ben] Bernanke and a 0.2% decline in Japanese retail sales,' said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets. 'The redress in risk appetite is now boosting the higher yielding currencies.'"

"Late in New York, the dollar was quoted at 117.94 yen, compared with 116.86 yen late Wednesday. The euro stood at $1.3333, compared with $1.3312. The British pound traded at $1.9623 vs. $1.9612. The dollar changed hands at 1.2172 Swiss francs, compared with 1.2165 francs."

"In the GDP report, the year-over-year increase in core personal consumption expenditure price index was unrevised at 2.2%, described by Bernanke as 'uncomfortably high.' The Fed has an implied target of about 1% to 2% for core inflation."

"'Core inflation has remained elevated,' said Michael Woolfolk, senior currency strategist at The Bank of New York. 'Until core inflation falls back below the 2% [year-over-year], a Fed rate cut will remain a remote possibility. This may help to explain why Bernanke made a point yesterday of indicating that the Fed had yet to change its inflation bias.'"

"Gold futures fell Thursday, as traders locked in gains before the end of the quarter, despite rallying crude-oil prices and mounting tensions between Iran and the U.K. 'Fund liquidations hit bullion and hit it pretty hard,' said Jon Nadler, analyst at"

"Gold for April delivery closed down $5.30 at $661.50 an ounce on the New York Mercantile Exchange."

"Crude oil for May delivery rallied $1.95, or 3%, to close at $66.03 a barrel Thursday, marking the contract's highest closing level since Dec. 20. It touched a high of $66.50, its strongest intraday level since Dec. 5."

"'That gold is willing to give up some of its recent gains despite the lack of resolution to the hostage impasse is a caution sign in the making,' said Jon Nadler, metals analyst at 'Fund liquidations hit bullion and hit it pretty hard.'"

"'The risk/reward picture is back in favor of taking profit or shorting bullion until at least such time as either the crisis deepens or other markets give a compelling 'buy' signal and drag gold along with it,' Nadler said."

"'While the current environment remains supportive for gold, the metal continues to meet strong resistance which may remain in place till after the end of the month/quarter,' said James Moore, metals analyst at"

"Other metals prices were lower. May silver fell 11.5 cents at $13.34 an ounce, April platinum ended down $8.20 at $1,242.60 an ounce and June palladium fell $1.85 at $356 an ounce."

"The number of B, or junk, credit ratings assigned to U.S. companies surged to 42% of all ratings in 2006, up from 36% in 1998 and up from just 7% in 1980 when A-rated credit dominated the market, according to S&P. Analysts say the shift away from sound credit at companies reflects a belief among managers that they can grow themselves out of debt and a comfort level with high interest rate risk."

"Last year, S&P issued two downgrades for every upgrade, the highest rate in three years."

"S&P said there were 300 new B-rated credits last year compared to just 66 in 2001, the average for companies getting assigned a rating for the first time has tumbled to B-minus from B-plus and the spread between investment grade and junk bonds has narrowed."

"'We're not saying this is Armageddon,' said Nicholas Riccio, a managing director at Standard & Poors. 'But we think the credit risk has increased over the last two years.'"

"Dollar volume of LBOs rose to more than $350 billion last year, up from less than $150 billion in 2005 and $50 billion in 2003, according to S&P. 'By the end of this year the default rates are going to increase,' Riccio said. 'If you look at the new issuance we're rating, it's coming in lower. Historically, if you look at the pattern, it's not too far afield before the default rates start moving higher.'"

"So, can anything be done to avert the coming credit crunch for corporations? No. And that's answered without hesitation. Look at any market. The cycle moves up and down. It may shift in a month or a year, or two years, but the credit cycle will change again."

"Corporate borrowers and the banks that bankroll them know the score. So far, no one is twisting the tap handle. But it will change. It may not be Armageddon, but it could be a recession."

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