Money and Metals

The Associated Press reports on currencies. "The dollar narrowed earlier losses Tuesday after a U.S. survey showed an unexpected recovery in consumer confidence. The 13-nation euro rose to $1.3453 in late New York trading, up from $1.3447 late Friday. The euro traded as high as $1.3520 during Tuesday's session after European Central Bank board member Axel Weber was quoted as pointing to possible inflationary pressures in the euro zone."

"The dollar pared its losses against the euro after the New York-based Conference Board said its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Analysts had expected the reading to fall to 104.5."

"But news on the housing sector was less positive, with the Standard & Poor's housing index indicating that U.S. home prices fell 1.4 percent in the first quarter compared to a year ago, the first time since 1991 that prices posted a quarterly drop."

"U.S. economic data are being watched closely for pointers to the Federal Reserve's future interest rate course."

From MarketWatch. "The yen briefly rallied after news that China raised its stamp tax on securities trading triggered some unwinding of carry trades. But gains in the yen later fizzled as investors believed the hike is unlikely to have a major impact on China's stock market and currencies."

"'The news out of China is especially striking against the government's series of [recent] attempts to tighten liquidity,' said Sophia Drossos, currency strategist at Morgan Stanley. 'While we believe that the announcement may cause a wobble in risk appetite, it is unlikely to significantly derail market trends, as seen in the quick recovery from the late February Chinese stock plunge,' she said."

"The dollar was quoted at 121.63 yen, compared with 121.69 yen. Most financial markets in the U.S. and Europe were closed Monday. The British pound stood at $1.9810 vs. $1.9843. The dollar changed hands at 1.2253 Swiss francs, compared with 1.2276 francs."

"The euro touched a fresh record high against the yen after Weber, ECB council member and president of the German Bundesbank, in an interview with the Financial Times, said the current cycle of interest rate hikes is not over. 'If necessary we also have to move into a territory that is portrayed as being restrictive if that is needed to control inflation,' Weber said."

From Bloomberg. "The Bank of Canada said for the first time in a year that it's ready to increase interest rates because inflation is accelerating faster than it expected."

"The central bank may raise rates 'in the near term' should inflation stay above its 2 percent target, policy makers said today in a statement from Ottawa. The Canadian dollar rose to the highest level in more than 30 years and government bond yields surged. The bank, which kept the benchmark rate at 4.25 percent today, next meets on July 10."

"'The Bank is sending a point-blank warning,' about raising interest rates, said Doug Porter, an economist with BMO Capital Markets in Toronto. He predicts two quarter-point moves at the next meetings, in July and September."

"Gold futures climbed Tuesday for a second-straight session but finished below the day's best level, finding support from some weakness in the U.S. dollar, but pressured by a steep drop in oil prices."

"Gold for June delivery closed up $1.90 at $657.20 an ounce on the New York Mercantile Exchange, retreating from an earlier high of $661.90. The contract climbed $2 on Friday, but still lost $6.70 last week."

"Overall, 'not since the secular bull market began more than five years ago has there been such a pronounced increase in bearishness towards gold without an accompanying decline,' said Peter Grandich, editor of the Grandich Letter."

"'Unless these bears can get gold below $640 fairly soon, they may see their shorts squeezed all the way up to and through $700,' he said."

"'Traders are looking at gold as a strong value buy since stocks are recovering, and with the strong housing numbers last week and with higher gasoline prices, it appears that inflation can still present a problem,' said John Person, president of NationalFutures.com. 'Therefore it is a great time to add long positions.'"

"Also, the June gold futures contact has a first notice day on Thursday, 'so last week we may have seen a long liquidation and now traders are re-entering the further out months,' he said. 'This is adding to support in the gold market.'"

"The gold market 'has withstood tremendous pressure in the last few weeks with investment buying turning to selling and central bank sales at high levels again,' said Peter Spina, an analyst at GoldSeek.com. 'The market has held up solidly above support in the lower $650s, but [has been] unable to get over $663,' he said.

"Meanwhile, Spina pointed out that there's news the $11.4 billion Swiss-based Novartis Pension Funds will invest 4% of the funds into precious metals."

"'Gold and silver have upside bias during this shortened weak with terrific support just below these current levels,' Spina said."

"Silver prices were the biggest gainers among the metals Tuesday, with the July contract gaining 22.3 cents to close at $13.223 an ounce. September palladium fell 50 cents to finish at $372.55 an ounce and July platinum gave back $13, or 1%, to end at $1,264.80 an ounce."