Wednesday, June 06, 2007


Gold Is Drifting

Bloomberg reports on currencies. "The euro dropped from a record high against the yen and fell versus the dollar as comments from European Central Bank President Jean-Claude Trichet reduced speculation on two more boosts in interest rates this year. The European currency weakened as the ECB, which lifted its benchmark lending rate to 4 percent as economists expected, reduced its growth outlook and held its inflation forecast steady for next year. The yen rallied on a decline in U.S. stocks and rising bond yields in Japan."

"'Trichet wasn't as decisively hawkish as the market expected,' said Jens Nordvig, a senior currency strategist in New York at Goldman, Sachs & Co. 'We had expected an upward revision in the inflation forecast next year, but it was kept unchanged.'"

"Australia's currency rose to an 18-year high against its U.S. counterpart after a government report showed Australia's economy grew at the fastest pace in more than three years. The Reserve Bank of Australia held it benchmark rate at a six-year high of 6.25 percent today."

"The yen strengthened against the dollar and euro as a slump in European and U.S. stocks prompted investors to reduce higher-yielding investments financed by loans in Japan, known as carry trades. Morgan Stanley advised clients to reduce European share holdings after three market signals indicated it's time to sell."

"The Japanese currency also got a boost as a decline in Japan's two-year government notes pushed yields above 1 percent for the first time in a decade."

"'As we see risky assets such as equities coming under pressure, it does suggest we will see renewed strength coming through for the yen,' said Ian Stannard, currency strategist in London at BNP Paribas."

"Japan's benchmark rate is 0.5 percent, the lowest among major economies. It compares with the Federal Reserve's 5.25 percent and the Bank of England's 5.5 percent. The yen advanced a third straight day against the dollar, increasing 0.28 percent to 121.05, rebounding from 122.14 on June 1, the lowest since Jan. 29."

The Financial Times. "The high-yielding New Zealand dollar reached a peak of $0.7554 against the dollar Wednesday, its highest level since it was allowed to float freely in March 1985. However, the kiwi eased back later in the session to stand just 0.2 per cent higher at $0.7510 as investors sold the New Zealand dollar aggressively against the yen while risk aversion rose as global equity markets tumbled."

"Gold and silver fell in New York on speculation that higher global interest rates will reduce demand for precious metals as alternative investments."

"'In a higher-rate environment, gold ultimately will suffer,' said Frank McGhee, head metals trader at Integrated Brokerage LLC in Chicago. 'The sentiment has changed toward what the Fed is going to do. The Fed remains steady with a bias toward a raise.'"

"Gold futures for August delivery fell 50 cents to $674.60 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier rose as high as $677.30 and dropped as low as $670.20."

"The Federal Reserve has kept borrowing costs unchanged at 5.25 percent since June 2006. The ECB's rate increase today was the eighth since late 2005."

"Gold generally moves in tandem with the euro. The metal has climbed 5.7 percent this year, while the euro has climbed 2.3 percent. A rally in the 13-nation currency may still help gold, said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey."

"'I like gold on the long side,' Goodis said. 'The euro is going to rally because the interest rate gap between the U.S. and Europe will start to widen.'"

"Gold has fallen for three straight sessions after climbing 1.5 percent on June 1, the most in three months. The metal faces selling around $675, traders said. 'Gold is drifting,' McGhee of Integrated Brokerage said. 'On a technical level, we've found some fairly stiff resistance.'"

"Silver for July delivery fell 9.5 cents, or 0.7 percent, to $13.717 an ounce. The metal has climbed 6.1 percent this year. In 2006, the metal gained 46 percent, while gold climbed 23 percent."

"'The fundamentals of silver continue to look strong,' said Robert Quartermain, CEO of Vancouver- based Silver Standard Resources. 'They are better than gold. We're seeing much more application of silver' in industry, he said."

"Industrial demand last year was 430 million ounces out of a total 910 million ounces, Quartermain said."

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