Wednesday, June 13, 2007


Pressure Remains To The Downside For Gold

Reuters reports on currencies. "The dollar climbed to a 4-1/2-year high against the yen on Wednesday, helped by data indicating U.S. retail sales growth in May was the highest since January 2006, which many investors took as a sign of a pick-up in U.S. economic growth."

"Limiting the dollar's gains was a dip in the U.S. benchmark 10-year Treasury note yield, which fell from five-year highs even as investors seem more willing to bet that the Federal Reserve's next move could be a hike in interest rates."

"'The market is interest rate focused and retail sales were really quite strong suggesting economists may revise up their forecast for the second quarter even further,' said Meg Browne, currency strategist at Brown Brothers Harriman. 'But a lot of the good news is already in the market.'"

"In late afternoon trading, the dollar rose 0.9 percent against the yen, changing hands at about 122.73 yen, close to the session high of 122.76 yen, a 4-1/2-year high. Dollar/yen also got a boost in technical trading triggered first by investors selling the yen against the euro, said Brian Dolan, chief FX strategist, at"

"Investors broke through initial resistance on the euro/yen at 162.80 which had been around the high in the currency pair for the past several sessions. 'Once we got beyond that, dollar/yen popped as well,' Dolan said. Euro/yen last changed hands up 0.9 percent at 163.35 yen."

"The dollar rose to a four-month high of 1.2469 Swiss francs, up for its fifth consecutive session before surrendering some gains to trade at 1.2451 francs. Sterling fell 0.1 percent to $1.9727."

"Over the last week, bond markets have even begun to price in a chance that the Federal Reserve will raise interest rates next year."

"The dollar generally strengthens when dealers anticipate a rise in U.S. interest rates and the dollar index, a gauge of the greenback's performance against a basket of six major currencies, briefly rose above its 100-day moving average for the first time since mid-February, a positive technical signal for the markets."

From MarketWatch. "Gold futures closed modestly lower Wednesday with pressure from a stronger U.S. dollar offsetting support from gains in oil prices, which had helped renew concerns about inflation. 'A tug of war exists between the spate of positive news we see, like retail sales and then the rally in energies,' said Kevin Kerr, editor of Global Resources Trader, a newsletter of MarketWatch."

"'There is so much conflicting data that traders are just uncertain of how much to put into the yellow metal or will they need the cash liquidity to cover stock market margin calls,' he said."

"Gold for August delivery declined by 40 cents to close at $652.70 an ounce on the New York Mercantile Exchange, recovering a bit from the $649.30 low it had seen earlier in the session. But the contract finished well below the day's peak of $656.20."

"During Wednesday's trading session, 'inflation fears' had driven the metal's price higher, according to Kerr. 'With food and energy prices on the rise, inflation is going to come into play there, and all of this other talk is wishful thinking or a form of denial,' he said."

"'Gold is still well below where it should be and that's because of the pervasive strength of the dollar and ongoing good news like retail sales,' he said. The 'real number' to look at will be Thursday's CPI and Friday's PPI figures, he said."

"In the meantime, gold managed an attempt at testing the area near $650 on Wednesday, 'but basically gave it up by the close, in the face of a resilient U.S. dollar,' said Jon Nadler, an analyst at Kitco Bullion Dealers. 'The metal did not manage a sustained rally' despite a better than $1 rise in crude oil during high point of the rally Wednesday, he said."

"Nadler admits Kitco was a 'overly optimistic' in its average gold price forecast for 2007. It expected an average of $690 gold this year, 'encouraged by the orderly and robust fashion in which gold prices rose since they recorded their January $605 lows.
But 'with two weeks to go before half-time, we are scaling that number back 5% to the $655 level, at best,' he said."

"That doesn't rule out a visit by gold to the $700 mark for a brief time, maybe even before the year's end, he said. But the 'pressure at the moment remains to the downside,' he said."

"Still, gold saw some support earlier Wednesday from 'physical buying and technical trade, as both gold and silver are at three-month lows,' said Zachary Oxman, a senior trader at Wisdom Financial."

"'Fundamental support is coming in from the uptake by the physical market of the roughly 183 tonnes of extra central bank selling and 30 tonnes of ETF selling,' he said. 'The nearly $60 price sell-off in gold has put a strong floor in the market as physical buying has increased to take up the open supply.'"

"For now, 'we are close to seeing a short-term bottom for many of the metals here, as a few are in oversold territory,' said Edward Meir, an analyst at Man Financial."

"However, much will ride on the inflation figures coming out of the United States on Thursday and Friday," he said in a research note. 'We think that an in-line set of readings is most likely, and will possibly lead to some buying and/or short-covering setting in. And 'unless we see some wildly unexpected PPI and CPI figures out at the end of the week, the tech trading community sees a bottom in the $647-$650 range" for gold, according to Neal Ryan, director of economic research at Blanchard."

"In economic data reported Wednesday, U.S. retail sales rose by 1.4% in May, the largest seasonally adjusted gain in 16 months. The Commerce Department said sales rose for all categories of spending, from gasoline and automobiles to building supplies and clothing."

"As for the other metals, July silver followed gold lower, losing 3 cents to close at $13.06 an ounce, but July copper added 2.6 cents to close at $3.313 a pound.
July platinum fell $12.90 to end at $1,283.50 an ounce and September palladium shed $2.20 to finish at $370.65 an ounce."

"'At the same time, the CPM advisory report makes mention of the fact that global individual investors may well be reluctant to add new metals positions at high price levels, but when they perceive a bargain opportunity in silver, they tend to take advantage of it," said Nadler. 'CPM concludes that silver demand remains 'healthy' despite the declines in India and in the area of traditional photographic use,' he said."

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