Monday, February 28, 2005


Bonds Down, Volatility Index Soars

The 10 year US bond fell hard today driving the yield up to 4.359%. And once again the Volatility Index (VIX) gave us a ride today closing well off its highs to finish up over 5%. It seems last weeks nervousness hasn't let go of the traders.


US Dollar Falls Out Of The Gate

In a week that could test the confidence of dollar bulls the greenback dropped overnight and continued the decline this morning. The fall was most pronounced versus the Japanese yen. Gold held onto its gains from last week.

Friday, February 25, 2005


Asian "Catch-22" With The US Dollar

The web site of the Financial Times has a piece on the dilemma facing central banks in Asia. The bank reserves have been hit hard by the decline of the greenback. But they are not eager to pull the rug out from under their biggest customer. This paragraph sums up their choices:

"The meeting...led to speculation that Asia is attempting to draft a unified response to its catch-22 situation – while it is not in the interest of Asia as a whole to sell dollars, thereby sending the dollar lower and crystallising losses across the continent, it is in the interest of each individual country to be the first to sell, assuming the dollar declines further."

A game of chicken among the Asian banks could emerge, where one player dumps their dollar assets to get out before the price plummets. The fate of the dollar is in the hands of these central bankers.


Copper Sits At Multi Year High

While many precious metals have been up and down, copper has stayed near its highs without much retreat. Here are a few charts covering various time frames and at the bottom are graphs representing inventory. As you can see, low supply seems to suggest the industrial metal won't be headed down anytime soon.

Tuesday, February 22, 2005


Markets Shifted Today

Gold was up over $8, the US dollar took a tumble versus the euro, yen, Swiss franc and Canadian dollar. Equities joined in with the Dow off 174 and the Nasdaq down 28 points. Both markets closed at their lows for the day. The big shocker was the CBOE Volatility Index, which jumped 17% by 5PM Eastern.

Today may be a key move in the housing and lending industries. Fannie Mae started the day at a 4 year low, but gave up another 1.5% today. The builders got hit as well, most of them fresh off 52 week highs. It makes sense that the lenders would precede the builders in a bear market pullback.

Pulte finished down 3.8%, Centex fell 4.4% and KB Home finished 2% lower; all three traded on higher than average volume.


Volatility Index Breaks Out: Gold Moves Up

Gold is way up Tuesday morning and the US dollar is giving up most of the recent rally. But a bigger news item may be the awakening of the long dormant Volatility Index which is up over 10% this AM. I will be watch this closely, as it may be a turning point.

Sunday, February 20, 2005


US Dollar & Yen Weak

The US dollar has slipped back from its beginning of the year rally. But the greenback has company as the yen hit a year low versus UKs' sterling.

Saturday, February 19, 2005


Treasury Yields Up 6%+ In Ten Days

Since dipping below 4% on February 9th, the US 10 Year Treasury bond yield was driven up to close at 4.26% on Friday. This rate of return is more than 6% higher in ten days.

Wednesday, February 16, 2005


Japan Slips Back Into Recession

Deflation regained its grip on the Japanese economy again, BBC reports. "Gross domestic product fell by 0.1% in the last three months of 2004". The US dollar is closing near the highs versus the Yen, while the gold backed Swiss Franc has gained on the greenback four straight sessions.


Economist: Fed Has Growth Bug

The brave Stephen Roach over at Morgan Stanley reports that the worlds central banks are throwing in the towel regarding economic imbalances. The US government is going along. "Once again, America’s fiscal policy rests on the belief that growth is the rising tide that lifts the revenue boat. America’s fiscal discipline is not about tough choices —it’s a classic supply-side growth gambit. America’s central bank also has the growth bug again".

Sunday, February 13, 2005


Gold A Hedge On Deflation?

Writer Josh Reuben over at The Wall Street Examiner has a report on the gold markets' reaction to falling bond yeilds and asset inflation. While I subscribe more toward the technical explanation of price movement, he demonstrates that gold hasn't performed as the fundamentals would suggest.

"Has gold been a poor hedge for inflation? It would appear so." Ouch! But wait."While the conventional wisdom holds that all assets including gold would decline in a deflationary scenario, following which precious metals would outperform, the alternate scenario would have a run on bonds coincide with a rally in gold".

Friday, February 11, 2005


Gold, Silver Bounce & Dollar Stronger

The folks at EWI (see previous post) have been very accurate recently. In their January and February "Financial Forecast" they predicted the turns and the time windows for gold and the dollar. Its free, now until the 16th.

And did you notice that silver moved up 60 cents in the last two sessions!

Thursday, February 10, 2005


EWI Hosts Free Week

If you haven't signed up for free week at Elliott Wave International, hurry on over to this site and do so. Lots of info on precious metals and currencies. They were right on in their call for the gold and dollar turnaround the last few weeks.

Wednesday, February 09, 2005


10 Year Bond Yield Below 4%

In case you missed it, the 10 year US treasury bond return slipped under 4% today.

Sunday, February 06, 2005


IMF Gold Sales Considered

The G7 meeting has turned up a proposal to sell some of the International Monetary Funds gold stocks, purportedly to aid in debt relief. The bank has about 3,217 tons of bullion under its control.

The proposal isn't welcome by everyone, however. Canada prefers to directly finance its portion of the aid whereas the United States representative stated "(we are)not convinced that gold sales is a necessary way to do [debt relief].”

The proposal will likely weight down gold prices tomorrow (Monday). This situation is reminiscent of past years when central banks would "talk down" gold prices by threatening to dump reserves on the market. It is possible that this action is a manipulation of the market, but gold is well off its highs. As of this writing Sunday afternoon, the dollar has continued strengthening versus the Swiss Franc, a common proxy for gold.


Saturday, February 05, 2005


Russia Moves Toward Euro

The Russian peg to the US dollar for oil sales has cost the Ruble 30% this year. Now the Financial Times is reporting the oil giant is moving toward the Euro for pricing its exports.

Friday, February 04, 2005


Dollar Soars: Gold, Copper Down

The US dollar hit a high not seen since November 2004 versus the Swiss Franc today. Against the Yen, the greenback held up at 104, continuing its sideways motion. Spot copper broke through support to end at 1.43 US. A weak jobs report has Wall Street betting that the interest rate rise will be halted or slowed by a stalling economy.

It is worth noting that two widely held beliefs are now being dispelled: one, that the dollar could only head lower and two, that interest rate could only go higher. Both are now in doubt, typical of mainstream financial consensus.

Thursday, February 03, 2005


US Senators To China: Float Or Else

Several US senators have taken an unusual step by working up a bill to penalize China if it doesn't allow it currency to "float" against the dollar within a time window. "A least a dozen US senators are said to have agreed to co-sponsor the bill which would give China "a window of 180 days" to revalue the yuan or face a 27.5 percent tariff on all Chinese manufactured goods entering the United States".

For its part, the Chinese are not pleased by the intervention, "We believe this is not a way to resolve differences," foreign ministry spokesman Kong Quan told a regular briefing.


BOJ Bill Action Fails: Deflation Rampant

Deflation raised its ugly head in Japan, as the central bank failed to find takers for its zero interest treasury bills. " (T)he bank has flooded the markets with liquidity in an effort to head off systemic risk and rid the economy of deflation, which has dogged the economy since the mid-1990s...The BoJ’s board has predicted a return to inflation of 0.1 per cent in the year to March 2006, though officials admit this goal could be hard to attain if wages continue to fall".

Wednesday, February 02, 2005


Currencies, Gold Yawn At Fed Move

In the immediate wake of the FOMC move to raise the Fed Funds rate one quarter of a point the markets were largely unchanged. The dollar was up slightly versus the Swiss Franc and the Japanese Yen. Gold was up a fraction.

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