Tuesday, March 27, 2007

 

Weakening Economy Knocks US$

The Financial Times reports on currencies. "Weaker-than-expected US consumer confidence data ensured that the dollar remained on the back foot Tuesday with its defences against the euro crumbling due to stronger German business sentiment. Stuart Bennett, economist at Calyon, said: 'Stronger activity will put greater pressure on already stretched capacity and should intensify those upside risks to inflation that the ECB has warned are likely to come through later in the year.'"

"Canada's dollar jumped against its US counterpart as results from the Quebec election made it less likely a referendum on separation was imminent."

"Marc Chandler at Brown Brothers Harriman suggested that other factors behind the currency's strength, including cross-border merger deals and rising commodity prices. 'Oil prices near the high for the year may be helping underpin sentiment,' he said."

From Bloomberg. "The New Zealand dollar may rise on speculation the U.S. Federal Reserve will cut interest rates this year, luring investors to higher-yielding currencies."

"The local currency reached a 22-month high yesterday after a report showed U.S. consumer confidence dropped from a five-year high. The data prompted traders to increase bets the Fed will cut borrowing costs, spurring investment in riskier assets offering higher yields. New Zealand's record 7.5 percent interest rate is 2.25 percentage-points higher than the benchmark rate in the U.S."

"'Our view is price pressures will decline enough this year for an easing of rates' in the U.S., Todd Elmer, currency strategist at Citigroup Global Markets. As the U.S. dollar falls, 'New Zealand's high-yielding assets are a particularly attractive target,' he said."

"The local dollar bought 71.69 U.S. cents at 9:30 a.m. in Wellington, from 71.76 cents in late Asian trading yesterday. It reached 72.04, the highest since May 12, 2005."

The Statesman. "Iran has significantly reduced the amount of US dollars it holds in its foreign reserves, the head of its central bank has revealed. Dollars now make up 20% of reserves, in line with the policy of lower exposure to the currency, Ebrahim Sheibany said."

"Iranian industry officials have said 60% of its oil trade with other Opec members is now in non-dollar currencies, although this figure has not been corroborated."

"The Reuters news agency reported Chinese sources as saying that state-owned oil producer Zhuhai Zhenrong Corporation had moved out of the dollar for its Iranian trade late last year. If correct, this would be significant since Zhuhai imports 240,000 barrels of oil a day from Iran while China is one of Iran’s most important customers."

From MarketWatch. "Gold futures closed lower Tuesday, tracking a pullback in crude-oil prices a day after a strong rally sparked by tensions between Iran and the U.K."

"Gold for April delivery closed down $1.40 at $662.50 an ounce on the New York Mercantile Exchange. 'Another largely sideways day has been seen in the precious metals despite a weaker than expected confidence reading from the New York Conference board,' said James Moore, metals analyst at TheBullionDesk.com."

"'Both oil and the dollar will provide intra-day direction, while traders now will likely wait for Bernanke testimony tomorrow and the impact it might have on the greenback,' said Moore. On Wednesday, Federal Reserve Chairman Ben Bernanke is scheduled to testify on the nation's economic outlook before the Joint Economic Committee on Capitol Hill."

"'Bullion market participants expect they will get a better sense of gold's immediate trading direction once they hear from Mr. Bernanke again regarding the state of the U.S. economy,' said Jon Nadler, analyst at Kitco.com."

"Gold prices are meeting strong resistance between $664 and $666, though the continuing stand-off between Iran and Britain may spark further safe-haven buying, Moore said."

"Other metals prices were mainly lower. May silver ended down 13 cents at $13.28 an ounce, June palladium fell $3 at $356 an ounce and May copper ended down 8.10 cents at $3.0575 a pound. April platinum gained $5.50 at $1,242 an ounce."

Comments:
Which is more important in directing the price of gold, the price of oil, or the "value" of the US Dollar? Depends, all else remaining about the same, oil. Just as the value of the US Dollar was once measured compared to gold, appearances (price movements) seem to be, the rest of the world (and most of the market?) now measures the value of gold in relation to the price of oil. Demand sets the world market price of oil more than the "value" of the US Dollar, like houses (Shhh supply). If so, this warm Spring should see lower use of oil and a lower oil price. This current high price may be this years high price until say... cold Fall? Unless...

Silver does not seem to track the price of gold, I can buy silver at last year(s) prices, not so for gold.

They do not "need" to attract new buyers of...

The US does. Or does it? How can rates "not" be raised and still attract new/more buying of bonds? Extortion?

Government officials everywhere tend to seem to reveal sensitive things after the fact, the lack of any announcements may indicate deception of some kind. "...the head of its central bank has revealed...20% of reserves...lower exposure to the currency..."

"... 60% of its oil trade with other Opec members is now in non-dollar currencies, although this figure has not been corroborated." ...Zhuhai Zhenrong Corporation had moved out of the dollar for its Iranian trade late last year..."
Is this that "Iranian Oil Burgoise" so many said would not happen? China and Iran have started, and only one strip of red, red-tape to do so. Drip...

Recently I saw twenty, well-off adults (speculators?) pay ~10% less than the face value of small bags of US Nickels, six times. Too much trouble. To convert to paper? The trouble with converting anything to paper is the doing, and finding someone somewhere who will. Bens story of gold buying and selling $50 over and under the official price makes me ill. Transaction and opportunity costs. The highest value to the greatest amount of the population. Hamburger?

How close is the world to being at a saturation point for industrial components that use gold among those who can afford to purchase without financing. Take away the home ATM mew, etc... and who has money for a new PC. Does a corresponding decline in industrial/retail demand mean a temp lower gold price? Hmmm, 1999.
 
IMO gold industrial and even jewelry-related demand isn't the issue. You just can't attribute the gold bull to anything but inflation.

Oil is a good measure of inflation, because it permeates our lives and directly impacts our pocketbooks. Stands to reason that gold & oil would track.

Just finished reading "The Long Emergency". Not ready to "buy the farm" yet ;-) but his point about peak oil and the economy bouncing off each other for a few years rings true to current circumstances.
 
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