Tuesday, June 05, 2007


US Dollar-Negative Sentiment Coming Back

Bloomberg reports on currencies. "The dollar dropped to a more than two-week low against the euro and fell versus the yen as Federal Reserve Chairman Ben S. Bernanke said housing will remain a drag on economic growth 'somewhat longer' than expected. The U.S. currency pared its losses after a private report showed services industries expanded last month at the fastest pace in more than a year, reducing the likelihood the central bank will cut interest rates."

"The yield of two-year Treasuries reached 5 percent for the first time since August, increasing the allure of U.S. assets and capping the dollar's decline."

"The dollar dropped 0.24 percent to $1.3521 per euro at 4:25 p.m. in New York and earlier reached $1.3554, the lowest since May 16. It fell to a record low of $1.3681 per euro on April 27. The U.S. currency fell 0.31 percent to 121.39 yen, declining as low as 121.12. The Swiss franc gained 0.45 percent to 1.2182 per dollar and 0.21 percent to 1.6472 per euro."

"The Swiss franc and the yen were two of the top gainers against the dollar among the 16 most active currencies tracked by Bloomberg after a decline in U.S. stocks led investors to reduce their appetite for risk, exiting so-called carry trades in which they buy higher-yielding assets financed by loans in Japan and Switzerland."

"The dollar weakened earlier on speculation central banks will signal higher interest rates at meetings this week, increasing the value of local currencies. The ECB and Australia's central bank will meet to set rates tomorrow, followed by the Bank of England and New Zealand's central bank a day later. The Federal Reserve's benchmark is 5.25 percent, compared with 3.75 percent in the euro zone, 5.5 percent in the U.K., 6.25 percent in Australia and 7.75 percent in New Zealand."

"The dollar traded at $1.9929 per pound, compared with $1.9914 yesterday, and fell 0.38 percent against the Australian dollar and 0.27 percent versus the New Zealand currency."

"'The dollar-negative sentiment is coming back,' said Greg Salvaggio, vice president of capital markets at currency-trading firm Tempus Consulting Inc. 'The Fed is really pigeonholed to have a hawkish posture on interest rates this year. With central banks in the euro zone and U.K. continuing to raise interest rates, it is very difficult to buy the dollar right now.'"

From Reuters. "Gold gave up gains in New York afternoon trade on Tuesday after hitting a fresh three-week high as continued gold selling by European central banks dampened buying."

"Spot gold rose as high as $673.95 before falling to $669.30/670.80 an ounce by 2:50 p.m. EDT, against $670.50/672.00 late in New York on Monday. Most-active August gold on the COMEX division of the New York Mercantile Exchange settled down $1.20 at $675.10 an ounce, traded in a tight range from $674.10 to $678.80."

"'The market was long, probably on the back of a weakening dollar, expecting more of a reaction as we moved into the New York market. In fact, there has been some selling since the opening and longs have been squeezed out,' said David Holmes, director of precious metals sales at Dresdner Kleinwort."

"'I am sure the move is partly technical. We are likely to remain rangebound,' he said."

"Gold often moves in the opposite direction to the dollar and is generally seen as a hedge against oil-led inflation. But slightly bearish was news that the Bank of Spain sold almost a million troy ounces of its gold reserves during May, following sales of 1.3 million ounces in both March and April."

"'The sale of what looks to be about 30 tonnes of gold is another good amount, although less than the 40 tonnes sold in each of March and April,' said John Reade, head of metals strategy at UBS Investment Bank."

"He said probably Spain was selling gold because the metal was making up an increasing proportion of its reserves. It also appeared likely that the Bank of Spain had received the 100 tonne quota that the Bundesbank had no plans to use, he said. 'Central Bank gold sales always seem to influence market sentiment by more than they should and this news...is not positive for the short-term outlook for gold.'"

"In another news, the European Central Bank said gold and gold receivables held by euro zone central banks fell 29 million euros to 179.995 billion euros in the week ended June 1."

"While gold's longer-term outlook was more positive, with some still eyeing a move back over $700, the metal failed to crack that level three times earlier in the year. It peaked at $693.60 in April, which was its highest in 11 months."

"Jon Bergtheil, global metals strategist at J.P. Morgan, noted that commodities as an asset class were not performing as well as they had done in previous years. 'In the last year, they have significantly underperformed equities,' he said."

"In other precious metals, silver matched Monday's five-week high of $13.79 an ounce and was last quoted at $13.75/13.78, against Monday's $13.69/13.73 late in New York. Platinum dipped to $1,291/1,296 from its previous finish of $1,296/1,300, while palladium was at $365/368 an ounce, compared with $369/373 late in the U.S. market on Monday."

"Francisco Paramés, the best-performing fund manager in Spain for the past five years, predicts that a real estate crash in his homeland will spread, dragging down companies throughout the country. Lending by banks and other credit institutions has almost tripled in Spain since 2000."

"'A lot of people are going to be unemployed,' Paramés said. 'Our most important bet is the one you can't see: that we don't bet on the Spanish economy, which is going to go through some very rough times because of the credit bubble.'"

"'Credit has increased by 25 percent a year for six years,' Paramés said. 'That's never happened anywhere else in the world, even China.'"

I guess you missed the article in London Telegraph May 17 stating Spain only had 12 days reserves left with which to service their current account deficit and had sold 80 tonne of gold the previous six weeks. The 100 tonne allotment was desperately needed in order to buy Spain a little more time. With a current account deficit of 9.5% of GDP we are talking a few months at most. With rising interest rates in the EU and 93% of Spanish mortages in ARM's, the housing bubble in Spain is exploding. This senario is spreading across the region with major problems in Portugal and Greece. The next Great World Depression starts in Spain.
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