Tuesday, January 31, 2006


New Highs For 'Former Wallflower'

The Canadian Press has the latest on the gold sector. "The Toronto stock market moved into positive territory late Tuesday morning as gold stocks continued to shine in the wake of rising bullion prices. On the TSX, the gold sector was up three per cent as the near-month contract on the New York Mercantile Exchange rose $3.40 to $569.20 US an ounce. Eldorado Gold rose 18 cents to $5.85."

"But shares in Apollo Gold moved down nine cents or 18.75 per cent to 39 cents on delays at its Montana mine."

"Gold futures climbed above $575 an ounce Tuesday, a fresh 25-year high, and silver prices reached 1984 levels as Iran appeared closer to a referral to the United Nations' Security Council amid concerns about the nation's recently resumed nuclear-research program. Metals traders also awaited the Federal Open Market Committee's decision on U.S. interest rates, due at 2:15 p.m. Eastern time, shortly after metals trading closes in New York."

"'As the Fed-watchers are keeping a keen eye on Mr. Greenspan's farewell gesture to the dollar, and as the watchers of mounting global instability are keeping a keen eye on gold's presence in their basket of assets, gold continues its energetic blossoming from former wallflower to an unstoppable powerhouse,' said Jon Nadler, investment products analyst at bullion dealers Kitco.com."

"At the same time, March silver climbed as high as $9.915 an ounce, an intraday futures level not seen since April 1984. It was last up 9.5 cents, or 1%, at $9.87. Looking ahead, Kitco.com's Nadler expects 'great feats from silver in coming months and years.'"

"Still, he is 'fully aware that the white metal is primarily an industrial commodity (albeit one gifted with more than a few historical monetary attributes) and that its fate is inexorably tied to copper production, as well as hopefully, continuing strong demand from Asian countries.'"

"When it comes to buying precious metals 'as an insurance policy..silver does make sense once the core gold allocation has been accounted for,' he said. 'As the monetary role of silver tends to reassert itself during gold bull markets, and the spill-over effect ('poor man's gold') takes hold in the investment community, silver also shines, and then some,' he added."

"Also in metals, April platinum headed higher for a seventh session in a row, up $6.90 to reach $1,086 an ounce after tapping $1,086.50, a record level for a front-month contract. The previous record was $1,085, though the all-time high for any contract month was $1,189.50, both levels reached on March 5, 1980."

"Sister metal palladium saw its March contract add $11.50 to $295.50 an ounce."

"The Amex Gold Bugs Index (HUI) moved as high as 344.63 points, a new record. It was last up 3.3% at 344.43, with an 8.2% rise in shares of Agnico-Eagle Mines (AEM)."

Monday, January 30, 2006


Five Ways To Buy Gold

This Bankrate.com piece looks at the best ways to buy gold. "The conundrum for investors is that gold can be owned in different forms. Some are riskier than others. Liquidity varies, as do the costs associated with each form of the asset."

"Dealers sell gold bullion bars in various weights from 1 ounce to 100 ounces or larger. You can also buy gold coins such as the American Eagle through dealers, brokerages and some banks. The U.S. Mint has a list of authorized dealers. You'll pay a commission or premium, and most dealers have purchase minimums. Be sure to study the differences between bullion gold coins, which are valued according to the market price for an ounce of gold, versus coins that have a collector's value."

"You can own a chunk of gold by investing in exchange-traded funds that make buying and selling gold bullion as easy as buying and selling stocks. The share price of streetTRACKS Gold Shares (GLD, news, msgs) roughly tracks the price of gold and represents an investment in gold bullion. In effect you get to own gold without the hassle of storing and insuring. 'With GLD, each share is priced at about one-tenth the price of gold bullion. If gold goes to $600 an ounce, then the price of a share should be about $60,' says Martin Weiss."

"The objective of iShares COMEX Gold Trust (IAU) is the same but, so far, is much less widely traded than GLD. There are fees associated with exchange-traded funds, but they're usually low. In addition, expect to pay a commission to your broker for each trade."

"When it comes to gold stocks you're investing in a mining company. Gold mining stocks can be more volatile than the exchange-traded funds. 'You're buying a company in the gold business, and indirectly you get a stake in their gold reserves and their gold business. It's an indirect method of betting on gold.' Weiss says. 'Mining stocks reflect the profits of the company. If it costs the company $250 an ounce to dig up gold, pay employees, gas and the like, and gold is selling at $375, their profit is $125,' he adds. 'If the price of gold rises to $500 their profits have doubled, so the stock is more volatile. But it works the other way, too. A drop in the price of gold could flip flop a company from one that's profitable to one that's bleeding.'"

"Advisers often tell do-it-yourself investors that the safest way to play the stock market is to buy mutual funds. That advice probably holds up well when looking for a foothold in gold, too. They're not always pure plays on gold, but that helps lessen volatility, says Mark Skousen 'I like the mutual funds that include a lot of different commodities including gas and oil such as U.S. Global Resources Fund (PSPFX). There are several out there that give you a little more investing in other areas, rather than just precious metals,' (Skousen said). Two other funds that were recommended in the course of researching this article are Prudent Global Income (PSAFX) and Vanguard Precious Metals and Mining (VGPMX). There are scores of other mutual funds that seek to give investors a stake in gold."

"Buy gold jewelry because you like it, not as an investment. You pay a premium for jewelry, in part, because of the design and craftsmanship. If you buy 14 karat gold, it's less pure than investment grade. When you sell you'll need to consider the purity of the gold and, more than likely, it will have to be refined to bring it up to investment grade."


US Dollars' Fate Hangs On Interest Rates

Opinions are mixed on the interest rate front. "The dollar reached a four-week high against the yen on Monday, supported by expectations that the U.S. Federal Reserve will continue to raise interest rates even after an anticipated hike this week. Expectations are building that the central bank could keep raising after this week's gathering, helping to attract more investor funds to the dollar from lower-yielding currencies, especially the yen."

"'I still think the U.S. interest rate will be raised to 4.75 percent and above,' said a Tokyo-based trader at a Japanese bank. 'U.S. consumption is firm. So are U.S. stock and housing prices.'"

A Bloomberg columnist points out that the GDP news is worse than reported. "Even the pessimists were too optimistic on fourth-quarter growth, which slowed to 1.1 percent, less than half the consensus forecast and about one-fourth the third quarter's 4.1 percent pace. Not only was the increase in real gross domestic product the smallest in three years, but the composition wasn't so hot either. Inventories added 1.5 percentage points to GDP growth, which means that final demand (GDP minus inventories) fell for the first time since the first quarter of 2002."

"There's no debate over the trend in growth; the only question is the magnitude of the slowdown. Many analysts have been expecting capital spending to take up the slack as consumer spending slows. But fourth-quarter investment in equipment and software underperformed expectations, rising 3.5 percent, the smallest increase since the first quarter of 2003."

"The fourth quarter's 1.1 percent rise in consumer spending was held back by a 17.5 percent plunge in durable goods purchases, the biggest drop in almost two decades. The dive in automobile purchases alone subtracted more than 2 percentage points from GDP growth."

"'The fundamental and policy backdrop still suggest that both the growth cycle and the tightening cycle are in their very late stages,' Citigroup economists write in their Jan. 27 weekly. The interest-rate futures markets are still challenging that assumption. If history is any guide, they should come around to that way of thinking before the Fed."

Sunday, January 29, 2006


A Look At Rhodium

One reader recommended some information on Rhodium. "Wollaston discovered rhodium in 1803-4 in crude platinum ore he presumably obtained from South America. Rhodium occurs native with other platinum metals in river sands of the Urals and in North and South America. It is also found with other platinum metals in the copper-nickel sulfide area of the Sudbury, Ontario region."

"The annual world production of rhodium is only 7 or 8 tons. The metal is silvery white and at red heat slowly changes in air to the resquioxide. At higher temperatures it converts back to the element. Rhodium has a higher melting point and lower density than platinum. Its primary use is as an alloying agent to harden platinum and palladium. Such alloys are used for furnace windings, thermocouple elements, bushings for glass fiber production, electrodes for aircraft spark plugs, and laboratory crucibles."

"It is useful as an electrical contact material as it has a low electrical resistance, a low and stable contact resistance, and is highly resistant to corrosion. Plated rhodium, produced by electroplating or evaporation, is exceptionally hard and is used for optical instruments. It has a high reflectance and is hard and durable. Rhodium is also used for jewelry, for decoration, and as a catalyst."

Rhodiums color is 'silver-white.' Characteristics include, 'forms hard coatings' and apparently doesn't react with air or some harsh chemicals.

Here are some price charts for Rhodium. "Rhodium is highly resistant to corrosion, and is extremely reflective. It is used as a finish for jewelry, mirrors, and search lights. It is also used in electric connections and is alloyed with platinum for aircraft turbine engines. Another use is manufacturing of nitric acid and used in hydrogenation of organic compounds. Rhodium usage is dominated by autocatalyst applications where it is used together with platinum and palladium to control exhaust emissions."

"South Africa is the major source, accounting for almost 60% of the world's rhodium supply Russia is the second largest producer, although its sales are, as with the other PGMs, volatile and subject to political intervention."

"Lonmin (LMI.LN) 1Q platinum output seen at 248,000 troy ounces, palladium seen at 115,000 troy ounces and rhodium seen at 36,000 troy ounces, according to a London based analyst. Another analyst reckons on platinum production of 242,500 troy ounces. 'We continue to be on track to meet our full-year target of around 1 million ounces of platinum sales,' said Lonmin CEO, Brad Mills."

Saturday, January 28, 2006


Should Precious Metals Be Held Physically?

A reader raised this topic for discussion. "Is it necessary to have physical possession of gold for ultimate safety?"

Another added, "I know I am old fashioned when it comes to this point. I think one should most certainly hold some gold & silver in physical form. There are those who will pop-up and talk about safety and storage. I've held Au&Ag for years it's not been a problem for me. No one knows what you have unless you tell them. I also think a person should hold on to some cash."

"In the event of an emergencey good luck with electronic money. Ask anyone who has been through a hurricane, tornado, earthquake etc. What a seller of goods & services will accept as payment when the electricity is off. It's best to look at precious metals as an insurance policy, in the event of an economic storm. There are some mighty dark clouds on the horizon. I'm no doom & gloomer, but as the old saying goes it is better to be safe than sorry."

Friday, January 27, 2006


GDP Report 'Supportive', Russian Output Trimmed

Dow Jones Newswire has this on precious metals trading. "Comex silver is still higher although down from its earlier peak on profit-taking, says Tom Boustead, analyst with Man Financial. March silver peaked at a contract high of $9.80 overnight. It is now up 6.5 cents to $9.67."

"'We came in quite strong in the silver,' he says. 'We're getting a little bit of profit-taking coming in." Earlier, a softer-than-forecast U.S. GDP report, which bolstered the euro, was supportive for gold and silver, says Boustead. Gold has also pared its gain, although Feb is still up $1.20 to $561.10."

And Mining Weekly had this on Russian production. "Russia's gold output fell to 168,03 t in 2005, down 3,5% from 2004, industry lobby the Russian Gold Industrialists Union said on Friday. The lobby has revised down its estimate of total gold output in 2004 to 174.14 t from a previous 180.5."

"'The 2004 secondary gold output figure had to be revised down by some six tonnes,' Valery Braiko, head of the lobby, told Reuters. He declined to elaborate."

"The lobby initially expected output last year to reach 183 t. But it cut its forecast in November as reserves at some deposits had proved to be lower than expected, while at others companies had to switch to processing ores with lower than expected quality."

"A lobby statement said output of gold from mines fell by 4,3% to 152,03 t last year from 158,88 in 2004. Gold output as a by-product of other metals rose by 6,8% to 11,12 t from 10,42, while refining of the metal from scrap rose by 0,8% to 4,88 t from 4,84 in 2004."


Post Weekend Topics Suggestions Here!

Is there a topic that you would like the readers of this blog to consider? Ideas about what investment vehicles are best, or historical trends to watch? Please post any ideas here and I'll put them up over the weekend.

Thursday, January 26, 2006


Silver Bucks Gold, Miners Upgraded

More volatility in the futures market today. "Gold futures fell Thursday, giving back much of nearly 1% gain they saw in the previous session, but prices were still trading above the session's worst level. 'Despite the continuing consolidation, there are few gold sellers,' said Julian Phillips, an analyst at GoldForecaster.com. 'Any pullback is already bringing buyers.'"

"Gold for February delivery fell to a low of $554.40 an ounce on the New York Mercantile Exchange. It was last at $557.70, down $4.80. Analysts remained upbeat about the metal's overall outlook despite gold's occasion pull backs. 'With..a lot of talk about new commodity funds getting involved in the metals, we have to think that the trend in gold will continue to point to the upside,' Nell Sloane. In the near term, she sees the $566 level as a 'critical pivot point, with close-in resistance seen at $570.'"

"Most other metals prices on the exchange pulled back along with gold after Wednesday's broad market strength, but silver managed to reach another 18-year high."

"Gold Fields Ltd. (GFI) saw its share rise 1% to $21.65. The South African miner said second-quarter earnings, which exclude special items, rose to $40 million from $11 million a year ago on higher production, lower expenses and strong gold prices. 'As expected, Gold Fields posted a strong December quarter with, in particular, the South African operations delivering a healthy 8% improvement in production, while maintaining a strong grip on costs as evidenced by a 4% decline in total cash costs,' CEO Ian Cockerill said in a statement."

"Shares in London-listed diversified resources groups Anglo American (AGL) and BHP Billiton (BIL) roared to record highs on Thursday morning after positive rating news from JP Morgan boosted the stocks in London. A weaker rand gave them added impetus locally. The rand was bid at 6.08 per dollar, around four cents weaker than its level at Wednesday's close on the JSE."

"In a research note, JP Morgan upped Anglo to 'neutral' from 'underweight' and reiterated its overweight rating on Billiton. Xstrata was upgraded to 'overweight' from 'neutral', while Rio Tinto was downgraded to 'neutral' from overweight'. JP Morgan said that it had reviewed the potential for each company to re-invest the considerable cash it expects to result from this period of strong commodity prices."

"As a result, it believed Xstrata and Billiton had the biggest upside potential from current levels, at 32% and 5% respectively, AFX reported."

Wednesday, January 25, 2006


'Caution The Operative Word' As Gold Soars

MarketWatch has the metals trading numbers. "Metals futures marked a broad advance Wednesday, with gold closing with an over $4-an-ounce gain, copper reaching a record level and silver and platinum prices tapping multi-year highs. Gold for February delivery rose to a high of $566.90 an ounce on the New York Mercantile Exchange before closing at $562.50, up $4.40, or 0.8%."

"'The huge pool of global liquidity out there has not found a better place to rush into, and is enchanted with gold and its prospects,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com. From here, 'unless the commitment to the metal has a long-term orientation, the air pockets that lie ahead will look and feel quite frightening,' said Nadler."

"'Current trading range is seen between $540 and $580 with the outside of the envelope at as wide as $490 to $600,' he said, adding that 'caution remains the operative word.' Indeed, Dale Doelling, chief market technician at Trends In Commodities, said he sees the fresh buying Wednesday as 'highly suspect.' 'Gold continues to suffer from an overbought condition and I'd advise only the bravest of traders to add to long positions at this juncture,' he warned."

"A retest of the recent lows around $540 seems to be the 'most likely course,' but if that happens, 'it would set up an excellent entry point for new positions,' he said. There's a 60% to 70% change that the market will 'see some retracement in gold, as well as Silver, before any new highs are achieved,' he added."

"'Gold continues to suffer from an overbought condition and I'd advise only the bravest of traders to add to long positions at this juncture,' he warned."

"'Without any fresh bullish news, one has to assume that it is the funds and the weight of money that is once again pushing these prices higher,' said William Adams, an analyst at BaseMetals.com."

"March silver finished up 28.2 cents, or 3.1%, at $9.51 an ounce. It traded as high as $9.54, a level not seen since mid-1987. With the break above the resistance mark of $9.30, 'silver now looks to target the $9.50-$10 level with renewed momentum back in the market,' said Peter Spina, an analyst at GoldForecaster.com."

"April platinum closed at $1,064.80 an ounce, up $6.80, after touching another 26-year high of $1,068. Sister metal palladium saw its March contract tack on $7.80 to close at $283.90 an ounce."

"The CBOE Gold Index (GOX), which traded at $4.38, with a 4% rise in shares of Coeur d'Alene Mines (CDE)leading the strength among the benchmark's components. The Philadelphia Gold and Silver Index (XAU) was at 313.09, up 2.4%. Other notables among metals companies included Hecla Mining (HL), which climbed 5.6% to stand at $4.33 and Apex Silver Mines (SIL) up over 3%."


A 'Difficult Time' Ahead: Mellon

A British finance mogul had a warning for the west. "Jim Mellon says 2006 is the year to hunker down and consolidate. The high-flying financier says the party is over and it's time to prepare for the great depression of the 21st century. 'My suggestion is that the next two or three years are going to be a dangerous and difficult time for us,' says Mellon."

"The global entrepreneur and economic pundit is picking a rough sailing for western economies like New Zealand's. And he says much of the problem is stemming from America. 'Every man, woman and child in America imports approximately $16 worth of foreign product and they only export $9 so there's a gap of several dollars a day for every man, woman and child, multiplied by 282 million people, multiplied by 365 days a year, equals $US 650 billion a year which is bigger than most countries GDP by a mile...that's how deficit is financed...by the Chinese and Japanese banks buying American government debt,' says Mellon."

"'Ultimately how does America pay for that...there's only one way out and that's a lower standard of living for the Americans and hence for the rest of us in Anglo-Saxon economies.' Mellon says the West can't compete with China on a manufacturing basis because the average wage rate is between 20 and 30 US cents per hour while in Germany and the UK it's $US30 per hour. And he says the skills gap is not that great. 'We have approximately 15 years before China overtakes the US - it's already overtaken the UK, France and Germany.'"

"And Mellon says New Zealand has experienced the same 'frenzied boom' as in the UK, America and Australia. 'Property prices have gone up 10 times in the space of 20 years...that's a ludicrous rise and incomes haven't risen 10 times.' Mellon's own 'rough forecast' is that over the next five years or so properties could fall 50 percent."

"He is concerned that many people are loaded with debt rather than savings. 'There's no stigma attached to being in debt any more so your grandparents would have been mortified if they'd owed more than 5 shillings on something but now it's acceptable.'"

Tuesday, January 24, 2006


Gold Demand Stalls, Simmers Tests Tailings

Bloomberg has the latest metal news. "Gold may decline in London as gains last week that sent the precious metal to its highest in 25 years deterred jewellery buyers in India, the biggest gold consumer, and other Asian countries. 'Demand in India has dried out, and as a whole Asian demand has slowed down,' James Moore, TheBullionDesk.com analyst, said."

"New deposits 'are becoming more difficult to identify and more difficult to turn into mines,' Barrick Gold chairman Peter Munk said. 'Right now demand for political reasons and because of new wealth in India and Russia is strong and supply is difficult.'"

"In SA, the world’s biggest gold producer, a strengthening rand has narrowed margins for mining companies.'

And a South African mining venture covered on this blog had a breakthrough. "Junior miner Simmers and Jack Mines (Simmers, SIM) says a substantial new surface uranium and gold resource has been confirmed at its Buffelsfontein operations. 'All indications are that it is highly workable,' said Simmers' CEO Gordon Miller."

"The resources are contained in 283 million tonnes of relatively homogenous tailings dams and metallurgical test work is currently underway to determine the most cost-effective extraction methods. Based purely on the surface re-treatment opportunity, the initial results indicate a 15-year project life, with the potential to extract 12 million pounds of uranium and 1.3 million ounces of gold."


'Cannot Discount A Run On The Dollar': IMF, Fed

The Financial Times had some comments by a Fed official. "Timothy Geithner, president of the New York Federal Reserve, on Monday dismissed the view that the US current account deficit was sustainable, suggesting the risk of a sudden fall in the dollar would grow the longer the trade gap widened. Mr Geith-ner said the problem could not necessarily be expected to solve itself."

"'Time does not necessarily help. The longer these gaps continue to build, the greater the ultimate adjustment required, and the greater the risks that accompany that process,' he said. 'The plausible outcomes range from the gradual and benign to the more precipitous and damaging,' he said. 'The size and duration of these [global] imbalances, perhaps the most visible of which is the US current account deficit, present challenges, and risks, for the world economy.'"

"His warning came as Raghuram Rajan, chief economist at the International Monetary Fund, repeated his concern over the risk of a run on the dollar. 'You cannot discount a run on the dollar. But you cannot fully quantify that risk at the moment,' he said at the same meeting."

"Mr Geithner has long focused in public speeches on the risks associated with the current account deficit. But he does not see a role for monetary policy in responding to the current account by raising interest rates. Many economists have argued that the risks to the dollar from the bloated current account deficit are mitigated by support for the currency from Asian central banks, which wish to prevent an appreciation of China’s yuan undermining export growth. However, Mr Geithner said this should provide little comfort over the long term."

"'A prolonged continuation of the exchange rate arrangements that have given rise to the large increase in foreign official investments in US financial assets is unlikely to be consistent with the domestic requirements of those economies and for this reason many are already in the process of change,' he said."

"'Even if we could be confident that the world would be comfortable financing the US on these terms for some time, that fact alone does not mean that it is prudent for the US to continue borrowing on this scale.'"


Putting A Price On Mining, Exploration Stocks

Paul van Eeden discusses how to put a price on two types of metals firms. "Commentary to address; this week is part one: Valuing Mining Stocks. Mining is a finite business. Mineral deposits contain a certain amount of ore and when that ore is mined out the deposit is depleted, no matter what you do or wish."

And in the second part, he looks at exploration. "Exploration companies don't have assets, cash flow or earnings. They typically only have a management team, sometimes a bit of cash, and one to several properties."

"The cash will get spent, usually a lot quicker than anticipated. Their projects aren't assets: they are liabilities where the cash is going to get spent. That leaves us with management, and management is absolutely an exploration company's biggest asset, if not its only asset. Promoters of these stocks will tell you their company's management has a superb track record, but the reality is that there aren't even enough mediocre management teams to run the thousands of exploration companies resident in Vancouver alone."

"If an exploration company's only asset is management, how do we put a value on it?"

Monday, January 23, 2006


'Alternative Currency' Appeals As US Dollar Sinks

Bloomberg looks at the trading day. "Gold rose in New York as the dollar declined against the euro and the yen, boosting the precious metal's appeal as an alternative currency. The dollar declined today against 16 of the most-active currencies after officials at the European Central Bank suggested higher rates are needed to prevent a surge in oil prices."

"'Gold is considered an alternative to all currencies,' said Dennis Eich, a precious metals analyst in Chicago. 'Investors are going into gold instead of the dollar, the euro or the yen.'"

"Gold futures for February delivery rose $4.70, or 0.9 percent, to $558.70 an ounce on the Comex division of the New York Mercantile Exchange. Prices reached $568.50 on Jan. 20, the highest in 25 years. The metal has gained 7.7 percent this year."

"The dollar's decline began in Asian trading after the Dow Jones Industrial Average fell on Jan. 20 by the most since 2003. 'The dollar move actually helped act as an incentive for people to buy gold,' said Frederic Panizzuti, senior vice president at a Geneva-based precious-metals trading and refining company."

And this mining news site reports that the Placer Dome/Barrick merger is a done deal. "Placer Dome's chief executive handed in his resignation on Friday after Barrick Gold scooped up the majority of the smaller gold producer's shares and extended its takeover offer for the remaining stock. About 358-million, or 81%, of Placer Dome common shares had been tendered to Barrick's $10,4 billion offer by the Thursday midnight deadline."


Gold May Hit $600 To $800 Per Ounce: JPM

Reuters reports on a new prediction for gold. "Gold prices may reach almost $600 an ounce by the end of the year on supply worries, firming jewellery demand, geo-political concerns and favourable currency environment, J.P. Morgan Securities said in a report on Monday. Prices might even jump to $800 from $556 now, if Iran's nuclear issue heated up and oil hit $100 a barrel, it said. Oil prices are currently ruling at around $68."

"'For gold, event risks are surfacing at a time when mining supply was already inadequate and jewellery demand firming. Fundamentals alone justify prices near $600 by year-end, while a meltdown in Iran/spike in crude could see $800 gold,' it said."

"'Iran situation remains fluid and unlikely to be resolved soon. This backdrop is supportive of precious metals and energy, but leaves base metals somewhat vulnerable,' the report said. The report said the market needed both mine supply and considerable amounts of other sources of supply such as sales by central banks and investors to achieve balance."

"By 2007, non-mine supply would be needed to be half of mine supply to balance the market, considering growth rates in jewellery demand, the report said. 'In our opinion, there is a zero percent possibility of mines achieving 50 percent production growth by 2008,' it said."

"The reports said gold was likely to gain from a favourable currency environment, with the dollar seen range-bound in the first half of the current year, while weakening later. A weak U.S. currency makes dollar-priced gold cheaper for holders of other currencies and lifts gold demand."

"Gold reserves with central banks and the International Monetary Fund total around 31,000 tonnes. In some European countries, gold accounts for half of their reserves, while in the U.S., the world's biggest holder, it makes up 64 percent."


US Dollar Continues Slide

Forex Television has the early currency news. "The euro and the Swiss franc continued to gain against the dollar as rising oil prices and lower equities led investors to switch out of the US currency in favour of safe-haven assets. 'After over a fortnight of range-trading the FX market appears to have staged a break-out,' said HBOS analyst Steve Pearson."

"'Investors are increasingly optimistic on the prospects for euro zone growth and the market is getting close to fully pricing 3 pct ECB rates by year-end. In contrast, signs of weakness in the US housing market..are leading markets discount an imminent end to, and possible reversal of, the Feds tightening cycle,' Pearson said."

"A speech by ECB president Jean-Claude Trichet on Wednesday will be closely scrutinised, while a series of economic sentiment indicators out of Europe this week, including the key German Ifo survey, are expected to show further imrpovement in the euro zone economy."

Sunday, January 22, 2006


Some Metals 'Face Depletion': Study

As we get ready for what should be an interesting week for precious metals and curriencies, check out this Yale study. "If all nations were to use the same services enjoyed in developed nations, even the full extraction of metals from the Earth's crust and extensive recycling may not be enough to meet metal demands in the future, according to a new study. Researchers looked at metal stocks thought to exist in the Earth, metal in use by people today, and how much is lost in landfills."

"Using copper stocks in North America as a starting point, the researchers tracked the evolution of copper mining, use and loss during the 20th century. They then combined this information with other data to estimate what the global demand for copper and other metals would be if all nations were fully developed and using modern technologies."

"All of the copper in ore, plus all of the copper currently in use, would be required to bring the world to the level of the developed nations for power transmission, construction and other services and products that depend on the metal. For the entire globe, the researchers estimate that 26 percent of extractable copper in the Earth's crust is now lost in non-recycled wastes. For zinc, that number is 19 percent. These metals are not at risk of immediate depletion, however, because supplies are still large enough to meet demands and mines have become more efficient at extracting these ores."

"But scarce metals, such as platinum, face depletion risks this century because of the lack of suitable substitutes in such devices as catalytic converters and hydrogen fuel cells."

Friday, January 20, 2006


Will Iran Buy Gold?

Reuters looks at what moved the US dollar today. "The dollar slid on Friday, weighed by concerns the Federal Reserve is close to the end of its dollar-boosting tightening cycle, and by higher oil prices and the inability of the U.S. currency to rise out of ranges."

"The Swiss franc, seen as a safe haven in times of increased market risk, drew some support after a senior Iranian official confirmed Iran had started transferring assets from European accounts to other foreign banks in an attempt to preempt possible United Nations sanctions over its nuclear program."

"In Tehran, a senior Iranian official on Friday confirmed comments from central bank governor Ebrahim Sheibani carried on Iran's ISNA student news agency that Iran had started transferring funds. 'Yes, Iran has started withdrawing money from European banks and transferring it to other banks abroad,' he told Reuters. There were no details on where the funds might go. The news spooked financial markets as they pondered the likely destination of Iran's funds, helping send oil above $67 a barrel and spurring the gold rally."

"Comex gold futures resembled base jumpers Friday, first they climbed to heights not seen in 25 years due to strong technicals and geo-political concerns, then jumped off a cliff on profit-taking. The other precious metals followed. The session was volatile, with a difference of $15.80 an ounce between the high and low in February gold and a tumble of 42.5 cents from the high to low in March silver."

"When the markets finally settled, February gold lost $5 an ounce to $554, while March silver slid 17.8 cents an ounce to $8.93. April platinum lost $12.50 to $1,036.20 an ounce after earlier hitting a high for the day of $1,056. March palladium managed a 5-cent gain to $277.70 but settled well down from its $286.50 high for the day."

"One trader of platinum and palladium expressed surprise at the extent of the
sell-off in all of the precious metals since. Oil is up. And usually when oil is up, gold will follow and pull the other metals up with it,' he said. 'But for some reason, gold bucked the trend today and pulled down platinum and palladium with it. It's just a crazy day.'"

"The move by Iran to transfer its assets is to preempt a potential asset freeze by the United Nations Security Council after Iran refused to relent to Western pressure to curb a nuclear program. I don't think it is possible for Iran to take money out of both the United States and Europe,' said Michael Woolfolk, senior currency strategist with Bank of New York. 'There are just not sufficiently deep or liquid markets to place these sums of money,' he added."

"A complete overhaul of Iran's reserve portfolio is highly unlikely but some of the funds could be redirected to other assets, analysts said. 'Would it surprise me that they would change their whole asset allocation dramatically? That would be more surprising,' said Alan Ruskin, chief international strategist with RBS Greenwich Capital in Greenwich, Connecticut. 'They could change some of it to something more country-neutral, like gold,' he added."


Readers Choice: Take A Look At Silver Wheaton

One reader recommended a look at a silver mining stock. "Silver Wheaton Corp. (SLW) engages in the purchase and sale of silver. It purchases silver produced by Luismin mines in Mexico and the Zinkgruvan Mine in Sweden. The company was incorporated in 1994. It was formerly known as Chap Mercantile, Inc. and changed its name to Silver Wheaton Corp. in 2004. Silver Wheaton is headquartered in Vancouver, Canada."

At this link one can find the financial statements. And at this link the company explains it's cost per ounce is only $3.90; that is probably Canadian. This isn't a small company either, with a market cap near one billion.

Here are the companys reserves and resources.

From the firms 12/22/05 press release. "Silver Wheaton Corp. is pleased to announce that it has closed its previously announced bought deal equity financing for gross proceeds of C$100 million. A syndicate of underwriters, led by GMP Securities L.P., and including Scotia Capital Inc., Haywood Securities Inc. and Fort House Inc., purchased 15,625,000 units at a price of C$6.40 per unit. The size of the offering was increased from C$80 million to C$100 million upon the exercise of the underwriters’ option to purchase an additional C$20 million of units. Each unit consists of one common share and one-half of one Series 'B' common share purchase warrant."

"Each whole warrant entitles the holder to purchase one common share of Silver Wheaton at a price of C$10.00 at any time on or before December 22, 2010. The warrants are listed on the Toronto Stock Exchange under the trading symbol 'SLW.WT.B.'"

"Silver Wheaton is the only public mining company with 100% of its revenue from silver production. Silver Wheaton is debt-free, unhedged and well positioned for further growth."

So my question for the reader is, what is SLW planning to do with the C$100 million?

Thursday, January 19, 2006


Gold Futures Advance $15

A look at todays' metals action. "Gold futures climbed almost $15 an ounce Thursday, erasing the prior session's losses. Gold for February delivery closed up $14.50 at $559 an ounce after touching an intraday high of $559.70. The benchmark contract lost nearly $10 Wednesday."

"'We saw little evidence yesterday that the Godzilla-size footprints of funds bailing out of gold was present,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com. 'We did see evidence overnight that millions of tiny [individual-investor] footprints make for an equal-size impact on gold, in the opposite direction."

"For now, the 'path of least resistance continues to point uphill,' he added, noting that the immediate range to consider is $545 to $565 an ounce. 'Taking out $568 will signal another stage altogether.'"

"March silver closed up 23.5 cents at $9.108 an ounce and April platinum finished up $18.80 at $1,048.70 an ounce. March palladium rose $3.75 to close at $277.65 an ounce."

And Reuters reports on the coming Canadian gold mining giant. "Barrick Gold Corp. (ABX.TO) got ready on Thursday to bring Placer Dome Inc. (PDG.TO) employees and assets under its wing as the midnight deadline for its $10.4 billion takeover offer neared. he two Canadian gold mining giants shook hands on a friendly deal just before Christmas after duking it out for a couple of months."

"Barrick has already won antitrust approval in Canada, the United States, Australia, Germany, Switzerland and South Africa. The deal has also garnered support from the analyst community, who say the sweetened offer will likely succeed."

"If the deal succeeds, Barrick will sell Placer's Canadian assets to another Canadian producer, Goldcorp Inc. (G.TO), for $1.485 billion. The remaining Placer assets will make Toronto-based Barrick the world's largest gold producer, ahead of U.S.-based Newmont Mining Corp. (NEM.N) and South Africa's AngloGold Ashanti Ltd. (ANGJ.J), with 2005 pro forma production of 8.3 million to 8.4 million ounces."


'Big Adjustment Soon, Political Turmoil': Buffett

Warren Buffett is speaking about the economy at Forbes. "Don't count on a soft landing for the country's deficit-addicted economy, Buffett reiterated Tuesday. The U.S. trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to 'political turmoil,' the decorated investor warned."

"Buffett's bearishness is understandable: Fixing the trade deficit, which soared to a record $665.9 billion in 2004, and is expected to top $700 billion this year, is becoming rather like turning around an ocean liner by dipping a teaspoon in the water."

"Buffett told business students at the University of Nevada that the globe owned $3 trillion more of the U.S. than it owned of them. 'In my view, it will create political turmoil at some point...Pretty soon, I think there will be a big adjustment,' he said without elaborating."

"Fifteen years ago, the U.S. had no trade deficit with China, Buffet opined. 'Now it's $200 billion. If we don't change the course, the rest of the world could own $15 trillion of us. That's pretty substantial. That's equal to the value of all American stock,' he added."

"In the past the billionaire has doubted that an upward revaluation of the renminbi would greatly reduce this number."


A 'Recession' For 'Pricey Laggard' Funds

Business Week reports on a pull back in hedge funds. "While bubble watchers were obsessing over the housing market last summer, a soft hissing sound started emanating from the general direction of the capital markets."

"The leak was in hedge funds, a $1.1 trillion industry that had doubled since 2000. By December the air was gushing out. Net money flows into hedge funds, which are investment pools available mainly to institutional and wealthy individual investors, were down 44% in the third quarter from a year earlier, according to industry statistics. And they slowed to almost nothing in the fourth quarter."

"Chicago's Hedge Fund Research reported in December that through Sept. 30, a record 484 funds, more than 6% of the total, had shut down in 2005. Figures for the fourth quarter aren't available yet, but they're sure to be even worse, says Minneapolis hedge-fund manager Andrew Redleaf. He describes the situation as a 'recession for hedge funds,' and says things are even bleaker than the data show, because the numbers are based on unaudited results reported to industry groups."

"What went wrong for funds? In a word, performance. Standard & Poor's measure, which tracks 42 funds across nine different investing styles, gained just 2.3% in 2005, less than the 4.9% total return for the plain-vanilla S&P 500-stock index. The funds' high fees and rigid rules, coupled with the paltry returns, have been their undoing. The typical fund charges 1% to 2% of assets under management, plus 20% to 50% of any profits. Many funds also require that investors lock up their money for a long time, often a year or more, before selling. All of this was fine from 2000 to 2002, when hedge funds were beating the stock market handily. Now they're laggards, pricey laggards that are hard to get out of."

"High-profile hedge-fund blowups, including the debacle of Wood River, chronicled in these pages in October, haven't helped matters. The $450 million Bayou Group LLC turned out to be an outright fraud. Its July, 2005, closure was particularly unsettling because well-known industry consultants like the Hennessee Group had clients in the fund."

"William Bloss, a lawyer for some of Bayou's investors, says his clients don't want anything to do with hedge funds anymore. 'People are much less comfortable with this world,' says Bloss."

Wednesday, January 18, 2006


After 50% Run Up, Sellers Panic In Japan

Market Watch looks at what happened last night in Japan. "U.S.-listed shares of Japanese companies tumbled Wednesday, caught in the downdraft created when the Tokyo Stock Exchange was forced to close early after a flood of orders threatened to overwhelm its systems. Officials were forced to close the exchange 20 minutes earlier than its regularly scheduled time, an unusual move that came after a day of heavy selling pressure."

"'The [Japanese] market has rallied a tremendous 50% in just eight months,' said Steve Kelsey in Hong Kong. 'The market looked extended as you could see turnover was dropping. The market repeatedly tried to break the 16,500 level; however, each rally was made on lower turnover, indicating that bulls were already fully positioned and there was no new buying coming in.'"

"At Merrill Lynch, analyst Masatoshi Kikuchi said he believes the current selling will be short-lived. 'We believe this should not lead to the start of a bear market or be considered as the bursting of the bubble,' said Kikuchi. Looking at the bursting of past bubbles such as the asset-inflated bubble in 1990 or the IT bubble in 2000, steep share-price declines presaged economic recession, he said."

"'We see no changes in Japan's strong economic fundamentals and corporate-earnings trend,' he said."

"The Tokyo market also came under pressure from disappointing earnings from chip giant Intel, Internet company Yahoo and blue chip IBM, all of which took their toll on the broader technology sector, according to Jonathan Allum. 'The Intel report is of particular concern in that the missed forecast is only six weeks old and this is a major tech bellwether,' he said."

"Among individual American Depositary Receipts, financial giant Nomura fell 4.5% to $17.79. Telecoms company NTT lost 4.6% to $23.24 and real estate company Orix Systems lost 4.6% to $116.50."


CPI Report Shows More Deflation

The Labor Department reported lower prices. "U.S. consumer prices unexpectedly fell for a second month in December as energy prices declined, a government report showed. Excluding food and energy, prices rose no faster in 2005 than the year before. The 0.1 percent decline in the consumer price index follows a 0.6 percent decline in November, the first back-to-back declines in two years, the Labor Department said today."

"'Inflation pressures are fairly well-contained,' said Brian Bethune, an economist at a forecasting firm in Lexington, Massachusetts. 'This will reinforce the Fed's view that only a few more rate hikes are indicated for this monetary tightening cycle.'"

"The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices consumers pay for services, ranging from medical visits to airline fares and movie tickets. Houston-based Continental Airlines Inc. said yesterday it had a fourth-quarter loss because of increased competition from low cost carriers and the inability to raise fares to cover higher fuel costs."

"'We continue to face significant challenges,' CEO Larry Kellner said in a statement. Crude oil 'still hovers at record-high prices.'"

"Wal-Mart Stores Inc.'s strategy of cutting prices hurt the Bentonville, Arkansas-based retailer's December results. The company said earlier this month that the smallest December sales gain in five years may erode fourth-quarter profit. A survey released last week by the National Federation of Independent Business showed fewer small business owners raised prices last month, and a declining number said they plan to charge more in coming months."

"U.S. producer prices excluding fuels and food rose less than forecast in December, a sign companies are having little success so far in passing along higher raw materials costs. Prices of goods imported into the U.S. unexpectedly fell for a second month in December, the first back-to-back decrease since 2004, suggesting overseas competition will limit domestic inflation."


Market 'Comes To Terms' With Dollar Sell-Off

Forex News has the latest on the US dollar. "The dollar came off earlier highs as investors braced for a raft of US data this week and as a degree of caution prevailed, keeping the currency from breaking new ground. The big picture continues to suggest the market is gradually coming to terms with the idea that early 2006 dollar selling on the premise the Fed will essentially be done with rate hikes on 31."

"'January, may not be right,' said Gavin Friend at Commerzbank Corporates and Markets."

"The dollar was buoyed through most of 2005, following a three-year downturn, by a growing focus on interest rate developments around the world, and finished the year nearly 15 pct up against its chief rivals, the euro and the yen. However, the growing market view that the US rate hiking cycle is nearing its end weighed on the dollar at the start of 2006."

"Still, market perceptions rely heavily on economic data and any sign of a pick up in the numbers will re-ignite rate hike expectations and in turn help the dollar move higher. Today, the focus will be on US inflation figures for December due out at 1.30 pm GMT, data on portfolio flows into the US in November at 2.00 pm GMT and the Fed's assessment of the economy after market close at 7.00 pm GMT."

"Friend at Commerzbank Corporates and Markets said the portfolio flows data my pose a risk for the dollar."

Tuesday, January 17, 2006


Fitch 'Dusts Off' $70 Oil Scenario On Iran Situation

Fitch Ratings has this look at oil prices. "Fitch Ratings said today that near-term global economic prospects remain positive but geopolitical concerns and the potential implications for oil prices are a key risk. A number of downside risks were present including that of sharper-than-expected household sector retrenchment in the US, in a climate of unprecedented highs in net household debt and debt service ratios - and a renewed surge in oil prices."

"'Uncertainties over the situation (in) Iran have led us to dust off our USD70 per barrel oil price scenario,' Brian Coulton added."

And the Guardian looks at the Iran issue. "Iran stepped up its defiance of international pressure over its nuclear programme yesterday by warning of soaring oil prices if it is subjected to economic sanctions. 'Any possible sanctions from the west could possibly, by disturbing Iran's political and economic situation, raise oil prices beyond levels the west expects,' Iran's economy minister, Davoud Danesh-Jafari, said."

Sunday, January 15, 2006


'Deflation Persists' In Japan As Rates Fall

Bloomberg has the latest on deflation in Japan. "Japan, the world's biggest debtor, may pay the lowest cost to sell 30-year bonds since February 2004 after government officials suggested the central bank will keep interest rates near zero percent. Thirty-year bond yields dropped to a six-month low after Bank of Japan Governor Toshihiko Fukui said on Jan. 8 there's still 'some way to go' before consumer prices stop falling in the world's second largest economy."

"Finance Minister Sadakazu Tanigaki said a day later it's too early to raise rates because costs haven't stabilized after seven years of deflation."

"The yield on Japan's 2.5 percent government bond due September 2035 has dropped 25 basis points to 2.265 percent since it was sold on Oct. 18. Japan's central bank has said it won't change its five-year- old interest-rate policy until prices stop falling for at least a few months. Core consumer prices, the central bank's preferred measure of inflation, rose 0.1 percent in November from a year earlier, the first increase in two years."

"'Mild deflation still persists even though the statistics have been improving,' Tanigaki said in New York on Jan. 9."

"Japan's public debt swelled to the equivalent of $6.4 trillion as the ruling Liberal Democratic Party spent 10 years pouring money into roads, bridges and construction projects to spur growth. The consequences of being the world's biggest borrower have been limited because more than 90 percent of the government's borrowing is held locally and rates near zero percent kept financing costs low."

"The U.S., the world's second-biggest debtor, relies on foreign investors who hold about 52 percent of its $4.1 trillion of bonds. Italy is the No. 3 borrower with the equivalent of $1.5 trillion in government debt."

"Pacific Investment Management Co., which runs the world's biggest bond fund, is buying Japanese 30-year bonds, Tomoya Masanao, a portfolio manager at Pimco Japan Ltd., said in a Dec. 22 interview. As the U.S. housing market slows, demand for Japanese exports will drop, hurting Japan's economic expansion, he said. A fifth of Japan's overseas shipments go to the U.S. 'We see a negative outlook for the U.S. economy, and that's the main reason for us to think Japanese growth will slow in late 2006 and yields won't rise much,' said Masanao."

Friday, January 13, 2006


Gold Shines As All-Purpose 'Insurance Policy'

CNN Money reports on the days metals markets. "Gold awoke from a week-long slumber to hit a new 25-year peak on Friday as investors actively bought metals again, pushing platinum to its highest level in nearly 26 years. After starting the week setting new highs, gold traded quietly until late on Friday afternoon when it suddenly jumped 1.5 percent to score a fresh peak of $556.50."

"Platinum, used mainly to clean auto exhaust emissions, rose largely on speculative buying, although worries about supply are also a support to the market, dealers said. 'The recent move above $1,000 is mostly driven by speculative buying,' Barclays Capital said in a report."

"Platinum demand has now outstripped supply for eight straight years, thanks to robust consumption by car manufacturers in Europe where diesel engines continue to gain market share. Until recently, only platinum could be used for both diesel and gasoline catalysts."

"Silver was hot on gold's heels, gaining just over two percent to $9.20 from $9.00. 'I hear there is some quite good buying in investment products and we are seeing very good demand for bars here,' one German trader said."

"Investor interest in exchange-traded gold funds (ETFs) has soared since the end of 2005. These products, traded on some of the world's major stock exchanges, give investors a share of a bar of gold. Analysts estimate the five ETFs now hold some 384 tons of gold, equivalent to the gold reserves of Russia."

"'Gold is more and more becoming an insurance policy against any type of disruptive risk and most portfolio managers believe that gold is an asset which should not be missed in their portfolios,' Frederic Panizzutti."

Thursday, January 12, 2006


Commodities Pulled By Supply Issues

MarketWatch has this report on todays metals action. "Gold futures edged lower Thursday as traders chose to lock in profits after closing above the $550-an-ounce level in the previous session. 'The strong close in New York [Wednesday] has again prompted profit taking from Asian traders...and again signals the market may need to consolidate back towards $525 before pushing through $550 and setting a new high for the year,' James Moore."

"Gold for February delivery fell $3.10 to $547 an ounce on the New York Mercantile Exchange after climbing more than $4 on Wednesday. 'The market is now in a highly overbought condition, which would lead me to believe that some short-term weakness may ensue,' said Dale Doelling."

"March silver traded down 6 cents at $9.005 an ounce. April platinum was up $2.60 at $1,027.90 an ounce, trading at its highest level since mid-December, while March palladium shed $2.50 to $275."

"Credit Suisse warned investors to expect severe price spikes for metals over the next two years and said the market had ignored supply issues, the big theme for 2006, as it was apparent the mining industry was not responding fast enough in bringing on new capacity."

"Nymex February West Texas Intermediate traded 76 cents higher at $64.70 a barrel after spiking to $65.10, the highest level since the start of October. IPE February Brent added 90 cents at $63.07 a barrel amid concerns over possible disruptions to Iran’s exports of 2.6m barrels of oil a day if the US and its allies ask the UN’s Security Council to impose sanctions."

"Traders were also concerned that Iran could suspend oil exports as a protest against any actions by the UN. Kevin Norrish of Barclays Capital said: 'What might have been a more minor issue for the oil market a few years ago, when there was 6m barrels a day or more of spare capacity, is a very major issue in a world with less than 2m barrels a day of spare capacity.'"

Wednesday, January 11, 2006


SA Mining Co. Turns To 'Dumps' For Uranium

The Business Report looks at the operations of a mine in South Africa. "Simmer and Jack (Simmers), the marginal gold mining company that left the JCI stable in July last year, has a bright future based on the uranium deposits in its gold mine dumps as well as its underground reserves."

"This is according to gold mining analyst Nick Goodwin, who said yesterday that the Harties and Buffels mine of Simmers was rich in uranium, which was booming as the world had to move from fossil fuels to nuclear power. Goodwin said Simmers was instituting a project to mine the dumps for uranium."

"Simmers has three divisions, the shallow gold mining at Pilgrims Rest; the Harties and Buffels mine; and the Randfontein Foreshaft. The Pilgrims Rest division will provide 15 percent of Simmers earnings, the other two will provide 50 percent and 35 percent, respectively."

"An analyst who asked not to be named said Simmers' prospects were tied to the gold price and the rand. 'Typically, the grades of uranium are not very high and what will be important will be the price of extracting the metal.'"

"Simmer and Jack's chief executive, Gordon Miller, said the uranium prospects were 'very exciting' because of the rapid rise in the spot price of the metal, currently $36.50 (R222.65) a pound, rising from $10 a pound two years ago."

If this chart is correct, the train may have already left the station on this stock. Insight into trading South African stocks is appreciated!


Gold Consolidates 'On A Very High Level'

Reuters looks at the day for precious metals. "Gold consolidated on Wednesday after touching a 25-year high earlier in the week, but analysts and traders said it was building steam for another charge higher. A rise in the dollar earlier had prompted some investors in Asia to drag down the metal."

"Spot gold was quoted at $544.20/545.00 an ounce by 1557 GMT, slightly up from $543.80/544.60 late in the U.S. market on Tuesday. It spiked to $550.75 on Monday, the highest since January 1981. Talk of China diversifying some of its dollar asset reserves was a major factor in driving gold higher earlier this week, although a senior central banker said media had wrongly interpreted a statement from the foreign exchange regulator."

"Physical demand for gold has also been affected due to such high price levels. 'We will be more comfortable with a positive view on the metal once physical demand has re-appeared again, although...we believe lower and more stable prices are required for physical buyers to re-emerge,' John Reade of UBS Bank said in a note."

"The dollar lost ground against the euro and steadied versus the yen, as the market waited data that could offer clues about U.S. economic growth and the monetary policy. Thursday's data is expected to show a narrowing of the U.S, trade deficit in November from a record shortfall the previous month. In other precious metals, platinum was mostly stagnant, dipping to $1,008/1,012 per ounce from $1,008/1,012. Palladium fell to $267/271 from $272/275. Silver eased to $8.90/8.93 an ounce from $8.94/8.97 late in the U.S. market."

Tuesday, January 10, 2006


Housing Slump To Hit Economy, Rates, US Dollar

Reuters reports on the US dollar and housing. "The dollar's strength isn't wholly dependent on the state of the U.S. housing market, but investors said on Tuesday they are focusing more closely on that key segment of the world's largest economy than they have in years."

"As house prices appreciated, existing homeowners simultaneously cashed out equity to buy consumer goods, adding to the economy's advance and helping to create new jobs. The growing economy did two things: raise confidence in U.S. assets and increase investor demand for the dollars to buy them. At the same time, steady growth prompted the Federal Reserve's policy setting committee to raise benchmark interest rates which further stoked demand for dollar-denominated securities."

"But after 13 interest rate hikes with at least one more expected, analysts say slower demand for housing is reducing consumer spending and eroding demand for dollars. 'With a year and a half of hikes, there are indications now that (home) prices are starting to moderate across the country,' said Charmaine Buskas."

"'With the housing market expected to cool through 2006, the drivers of U.S. growth are expected to change, but this is unlikely to keep the Fed from tying up its tightening cycle any later than' March, she added."

" If 'the U.S. housing market simply falls under its own weight, a distinct possibility given the major overhangs in property values in many segments of the nation, the hit on wealth-dependent consumption and GDP growth could then be a major negative for the dollar,, said Stephen Roach, chief economist at Morgan Stanley."

"With U.S. homeownership running at 68.8 percent in the third quarter of 2005, according to the Census Bureau, a stall in the housing market will be felt across a wider swathe of the U.S. population than the stock market crash of 2000."


Phelps Dodge Bets Against Itself

While not a precious metals producer, one mining stock felt burned by betting against the price of what it produces. "Shares of Phelps Dodge Corp. continued their slow recovery from a sharp pullback Tuesday but remained lower as the copper mining giant slashed its profit outlook for the fourth quarter. The shares plunged as much as 10.7% in early dealings, falling to $138. On heavy New York Stock Exchange volume, Phelps Dodge recovered to end at $146.58, down 5.2%."

"Quarterly charges would jump to $2.05 a share from 23 cents, reflecting in part what the company called 'higher copper prices for the period, associated adverse accounting effects of the company's 2005-2007 copper price-protection programs, and production and sales shortfalls of copper and molybdenum.'"

"The Phoenix-based company cited one-time charges as the principal factor behind reducing its fourth-quarter earnings to a range of $1 to $1.30 a share, down from a previous estimate of $4.15 to $4.40 a share."

"Phelps Dodge also said its total cash balance at the end of 2005 stood at about $1.9 billion, or $400 million less than management had forecast at the end of October. The company said it contributed $200 million to recently established trusts for post-retirement medical and life-insurance benefit obligations as well as $100 million to a recently established trust for environmental reclamation and remediation obligations."

"Reflecting record price gains for copper, Phelps Dodge stock more than doubled from its 52-week low of $78.20 set last May, setting a 52-week high of $156.90 on Monday."

"Phelps Dodge Corporation engages in the production of copper, molybdenum, molybdenum-based chemicals, and continuous-cast copper rod primarily in the United States."


More Warnings From China About Reserve Policy

The Washington Post reports on the biggest currency story going. "China has resolved to shift some of its foreign exchange reserves, now in excess of $800 billion, away from the U.S. dollar and into other world currencies in a move likely to push down the value of the greenback, a high-level state economist who advises the nation's economic policymakers said in an interview Monday."

"The Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb."

"Stephen Green, senior economist with the bank Standard Chartered PLC in Shanghai, identified several signals that China is intent on limiting its exposure to the dollar, not least, a recent pledge from the State Administration of Foreign Exchange to 'actively explore more efficient use of our foreign exchange reserves.'"

"'We believe this adds to the downside pressure the U.S. dollar is currently facing,' Green wrote. 'It is the first official expression from SAFE that they are looking at switching away' from the dollar."

"The comments on SAFE's Web site reinforced earlier public warnings from Yu Yongding, an economist on the monetary policy committee of China's central bank, that the country's reserves are now vulnerable to a drop in the value of the dollar."

"Not all economists anticipate negative repercussions for the U.S. economy. Were China and Japan to engineer a significant fall in the dollar, those nations also would suffer the consequences, sharply diminished exports as Americans lose spending power, plus a drop in the value of their dollar assets. 'It is thus extremely unlikely that China would do anything to harm its own balance sheet,' wrote Stephen Jen, an economist with Morgan Stanley."

"Warnings about an impending Chinese sell-off in dollars emerged in July, as China slightly altered the way it sets the value of its currency, the yuan, bumping it up against the dollar by about 2 percent. The move temporarily muted criticism on Capitol Hill from those who accuse China of currency manipulation."

"China sought to quash such talk. In September, a senior central bank official told a ballroom full of international executives gathered in Beijing that China would not sell significant quantities of U.S. bonds, cognizant that such a move would cause the price to plunge."

"Even if a Chinese shift away from the dollar weakened the currency, that would probably not soothe tensions with those in Washington calling for an increase in the value of the yuan to help U.S. manufacturers. Unless China severs the link between the value of its currency and the dollar, a move Beijing says could destabilize its economy, then a weaker dollar would simply mean a weaker yuan as well, leaving in place the current debate over whether China's export earnings are being netted unfairly."

Monday, January 09, 2006


Gold Market 'Too Small' For China : Analysts

Dow Jones Newswire has this report on gold and China. "The world gold market is too small for China to achieve any meaningful diversification into the precious metal, leaving it likely the country will instead follow a more cautious, dollar-bound investment path, analysts said Monday. Sentiment towards gold has been boosted since Friday, when it was reported that China may start to diversify its foreign exchange reserves away from the U.S. dollar and government bonds."

"Hu Xiaolian, director OF China's State Administration of Foreign Exchange, said in a statement last week that the agency plans to 'further improve the structure of currency assets in the foreign exchange reserve portfolio and continue to broaden foreign exchange reserves' investment channels.'"

"Taken by many market participants to be a plan to move into gold, the precious metal jumped from an intraday low of $523.15/oz to around $540/oz as the possibility was widely welcomed by gold traders. The metal reached a fresh 25-year high of $544.40/oz Monday."

"Analysts remain skeptical over the likelihood of an aggressive move into gold. 'We view China's ability to raise gold holdings to a meaningful level for diversification as constrained, as the gold market is too small for this to happen without a serious price distortion,' said Barclays Capital analyst Yingxi Yu."

"'If it were to raise (its gold holdings from 1.1%) to 10%, it would absorb some 4,680 tons, or around two years of global mine production. Investing in other commodities like oil and base metals would be more possible, or the outcome could well be a combination of elements from different asset classes,' she added."

"To bring China in line with other international standards is unlikely, said HSBC analyst Alan Williamson. 'For China to raise its gold in reserves to the international average of 8.9% would require the purchase of an additional 3,613 tons,' said Williamson. 'For China to raise its gold in reserves to the ECB benchmark of 15% would require the purchase of an additional 6,501 tons,' he added. By comparison, most European national banks have agreed to limit their total gold sales to 2,500 tons in the five-year Central Bank Gold Agreement, signed in 2004."

"A further problem comes from the fact that should China stop acquiring U.S. dollars with its reserves, the greenback would come under extreme pressure, something the Asian country has been keen to prevent in order to protect its export sector. For this reason, U.S. dollar-denominated treasuries and bonds look likely to remain the most desired assets for the Chinese, analysts believe."

"Also, it's still uncertain whether or not increased volumes of gold changing hands at the gold fix in recent weeks are anything to do with Asian central banks buying. 'We have no way of knowing if this is true,' said UBS analyst John Reade. 'We have no evidence that central banks in the region are adding to gold reserves, but we noted a lot more interest in the metal than we have seen in recent years,' Reade added."


Record Fall For Consumer Spending In November

The Associated Press has this on consumer spending. "Consumer borrowing fell in November for a second straight month, the first time that has occurred in more than 13 years. The Federal Reserve reported Monday that borrowing declined at an annual rate of $648.8 million in November following a record rate of decline of $8.4 billion in October."

"The weakness in November caught analysts by surprise. They had been expecting a rebound in borrowing based on the fact that consumer spending and consumer confidence both revived in November, reflecting a drop in gasoline prices."

"The $8.4 billion rate of decline in borrowing in October was a record for a single month and reflected a sharp drop in auto sales. By category, credit card debt and other revolving loans edged up a slight 0.5 percent in November at an annual rate after having fallen by 2.8 percent in October."

"Non-revolving debt, the category that includes auto loans, fell for a third consecutive month, dropping 0.9 percent after having declined 5.8 percent in October and 0.3 percent in September."

"The decline in overall borrowing pushed consumer debt in the categories tracked by the Fed down to $2.156 trillion in November, slightly below the all-time high of $2.165 trillion set in September."

Sunday, January 08, 2006


Is The Fed Saying Stocks Are Too Pricey?

The LA Times looks at risks and reward. " A handy excuse for anyone who's afraid of committing to stocks or bonds this year is that the Federal Reserve says it's a bad idea."

"How so? The central bank, by raising short-term interest rates to 4.25 percent from 1 percent over 18 months, is sending a message that investors ought to be taking on less risk. Some nervous investors are echoing what they believe the Fed is implying: that it's difficult to justify paying current prices for stocks, bonds, real estate and many other assets because the returns they might generate in the next few years aren't compelling compared with what cash accounts pay."

"The so-called risk premium; the reward for holding a risky investment over risk-free cash--isn't there, many say. 'Our five-year forecasts show that most asset [classes] are expected to earn very little over cash,' said Gordon Fowler, chief investment officer at Glenmede Trust Co.."

"Of course, that's a judgment call that is dependent in part on estimates of such variables as future corporate earnings growth and inflation. Yet Greenspan himself has marveled this year at how little risk investors seem to think they're taking in stocks and bonds at these prices and yields. Because volatility in stock and bond markets has declined sharply over the last two years, people may be figuring that that relative calm will endure forever, Greenspan said in July congressional testimony."

"His response to that notion was a warning: 'History cautions that long periods of relative stability often engender unrealistic expectations of its permanence.'"

"The minutes of the Fed's Dec. 13 meeting, showed that policymakers believed that the number of additional rate increases 'probably would not be large.' Once they're finished, stocks should boom again, right? Well, maybe."

"Michael Panzner took a look at the performance of the S&P 500 index in the 12 months following each Fed rate peak since 1980. The S&P was higher a year after the peaks of 1984, 1989 and 1995 (it was up 12.7 percent, 12.9 percent and 35.7 percent, respectively). But it was lower a year after the peaks of 1981, 1987 and 2000 (down 9.3 percent, 16.1 percent and 12.4 percent)."

"Not surprisingly, the market's trend mainly hinged on what happened with the economy. So if you believe that the economy runs a high likelihood of recession this year, history supports the idea that the risk in buying stocks is excessive. If, however, you see a soft landing, the risk of being out of the U.S. stock market would seem to be greater than the risk of being in, even with cash returns better than they've been in nearly five years."

Friday, January 06, 2006


Will Geopolitical Events Push Gold Over $1,000?

A reader wanted your take on this editorial. "A melt down is on the near horizon, far exceeding that of Chernobyl Ukraine, but this time, will be intentionally done, probably by summer, and Gold will pop to over $1000/oz, virtually over night, and maybe to $1500/oz."

"With moderate-of-late Sharon out of the political picture with a stroke, it will be difficult for Perez to hold the middle ground in Israel's politics to secure a centrist political party victory supporting Palestinian statehood and unilateral withdraw and moderation, as the Likud party chief, and former Prime Minister, Benjamin Netanyahu resurfaces from the shadow's of the parting Sharon. It wont take long either after the March Israeli election."

"The big surprise this day was the lack of a big gold move to the upside. The Gold Cartel must have been in play big time this day, or no one has their eyes open. This may be the cause of staggering open interest driving force in today's action."


China Hints At Dollar Pullback

The Financial Times has this bombshell on China. "China indicated on Thursday it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds, a potential shift with significant implications for global financial and commodity markets."

"Economists estimate that more that 70 per cent of the reserves are invested in US dollar assets, which has helped to sustain the recent large US deficits. If China were to stop acquiring such a large proportion of dollars with its reserves, currently accumulating at about $15bn a month, it could put heavy downward pressure on the greenback."

"According to Stephen Green, economist for Standard Chartered in Shanghai, although the language was 'vague,' Thursday's statement was the first time Safe has publicly indicated a shift away from dollar assets. 'It is a subtle but clear signal that they are interested in moving away from the US dollar into other currencies, and are interested in setting up some kind of strategic commodity fund, maybe just for oil, but maybe for other commodities,' he said."

"The Group of Seven leading industrialised economies has repeatedly called for an adjustment in global trade imbalances, including a rise in the renminbi. The US has expressed frustration that China has not allowed its currency to rise significantly after last July's 2 per cent revaluation. That saw China move from a dollar peg to managing its currency against a basket of currencies, potentially allowing the renminbi to rise against the dollar."

"John Snow, US Treasury secretary, speaking earlier on Thursday, repeated his call for China to allow the renminbi to rise against the dollar. 'The trade deficit is influenced by lots of things, differential growth rates, differential savings rates and investment rates and so on. But clearly, getting the [Chinese currency] more appropriately valued will be helpful to the global adjustment process,' he said."

Wednesday, January 04, 2006


Another Shining Day For Precious Metals

Market Watch reports on another big day for gold traders. "Gold futures stretched their winning streak to seven sessions Tuesday, tapping their highest intraday level in three weeks and marking their loftiest close since 1981. Gold for February delivery climbed to a session high of $533.20 an ounce on the New York Mercantile Exchange, a level not seen since Dec. 12 when prices reached $543, an intraday high last achieved nearly 25 years ago."

"The contract finished the session up $13.60 at $532.50 an ounce, the highest futures closing level since April 1981. 'The emergence of fund/investor buying today, rather than long liquidation that was seen 12 months ago, is positive for gold's short- as well as longer-term outlook,' said James Moore."

"Taken in this light, gold's December high will be 'coming into traders' sights soon, with the next major upside target being $550,' he said."

"March silver also gained ground to start the trading week, adding 27 cents to close at $9.16 an ounce after a $9.185 high, its loftiest intraday level since Dec. 12. 'There's a lot of upside left in the entire metals complex,' said Dale Doelling."

"The factors that drove gold up by more than $80 an ounce over 2005 remain intact, said Peter Grandich. The foremost of these, physical and investment demand, shows no sign of cooling down. 'The rapidly growing economies in China and India have been key and while soft patches are likely going forward, the enormous wealth creation ongoing there appears to assure strong demand for gold for the foreseeable future,' Grandich said."

"Silver prices also look strong in early January and are forecasted to break the key $10 level by mid-2006, Matthew Parry, an economist at Moody's said."

"In other metals trading, March palladium rose by $8.70 to close at $270.20 an ounce and April platinum added $2.80 to finish at $981.80 an ounce. Supplies of gold fell by 98 troy ounces to 6.66 million troy ounces, while silver inventories declined by 3,956 troy ounces to 119.9 million troy ounces."

"The benchmarks tracking metals-mining companies rallied along with the precious metals, taking one key index to its highest level on record. The Amex Gold Bugs Index moved up by 7.9% to end the session at 298.77 after setting an intraday record of 298.93. The Philadelphia Gold and Silver Index rallied to 136.1, up 6.3% at the close, and the CBOE Gold Index climbed to 128.26, up 7.2%. Both touched their highest levels in more than nine years."

Bloomberg has the latest on the US dollar. "The dollar had the biggest two-day drop against the euro in more than four months after the Federal Reserve suggested it is closer to halting its interest rate increases. An end to the Fed's rate increases may prevent a further widening of the yield advantage on U.S. assets that pushed the dollar up more than 14 percent against the euro and yen in 2005."

"'There's a dollar-bearishness out there right now,' said Peter Lorraine, a managing director of foreign-exchange trading at Brown Brothers Harriman & Co. in New York. 'Once the Fed says they're getting near the end, the dollar is falling.'"

"The number of rate increases needed to control inflation 'probably would not be large,' yesterday's minutes from the Fed's December policy meeting showed."

"'There are players, including hedge funds and pension funds, establishing new longs in the euro at the start of the year,' said Lee Ferridge, a proprietary trader at Rabobank Groep in London."

Tuesday, January 03, 2006


Gold Rallies On 'Disdain For All Currencies'

Bloomberg reports on the first trading day of 2006. "Gold in New York climbed 2.6 percent, the most since February 2002, on speculation that investors will buy bullion as an alternative to currencies because of concern about accelerating inflation."

"Gold's rally was sparked by the dollar's biggest decline in three months against the euro, after a report showed the pace of U.S. manufacturing slowed. Gold jumped 18 percent in 2005 for the fifth straight annual gain, even as the dollar climbed 15 percent. The precious metal rose in all currencies last year, paced by a 36 percent value increase in yen and euros."

"'We're trying to get exposure to gold as a hedge for a weakening dollar and the twin deficits,' said Matthew Rudolf, a fund manager in Seattle with $400 million under management."

"Gold has become an alternative reserve currency to both the U.S. dollar and the euro for second and third-tier central banks, said (economist) Dennis Gartman. Russia, South Africa and Argentina said last year they would hold more gold. Central banks, mainly in the U.S. and Europe, hold almost a fifth of the world's gold. 'This is a bull market predicated upon disdain for all currencies,' Gartman said."

And this Australian report looks a US dollar bets. "Billionaire investor Warren Buffett and the biggest banks in the currency market, Deutsche Bank, UBS and Citigroup, missed the United States dollar's rally in 2005. But they are sticking with their predictions for 2006."

Mr Buffett, chairman and CEO of Berkshire Hathaway, lost almost $US1billion ($1.4billion) betting in part on the British currency against the $US as the pound suffered its biggest loss since 1992. Deutsche Bank, UBS and Citigroup analysts forecast the $US would weaken to an all-time low of $US1.40 to the euro. Instead, it rose 14.4per cent."

"Mr Buffett and the bank analysts said they were not wrong, just early."

"'There are signs the Fed may stop raising rates so the $US may go down,' said Benedikt Germanier, a currency strategist in Zurich at UBS, the second-biggest foreign exchange trading bank."

"Mr Buffett, who has been selling the $US since 2002, said the currency should fall because the trade deficit, which increased to a record $US68.9billion in October, keeps widening. A wider deficit means more US dollars have to be exchanged for foreign currencies to pay for imports."

"'I am a bull on sterling versus the $US,' Mr Buffett said in May. The pound has since dropped 6 percent. Mr Buffett reduced his bets on the $US's decline to $US16.5 billion from $US21.5 billion in June, according to a November 4 statement from Berkshire Hathaway. The company, which had $US 926 million of pretax currency losses in the first half, used forward contracts, agreements to purchase or sell a currency in the future at a preset price."

"'The policies that we're following are likely to lead to a weaker $US over a long period of years,' Mr Buffett said in June. 'It's not a forecast for next week, or next month or even next year.'"


Gold Shakes Off It's PC Demons

Business Week interviews a 'gold bug. "James Turk..is a gold bug of long standing. Turk recently spoke about how high gold will go, who's buying it, and why."

"Why has gold climbed in the past few years? Gold responds to monetary problems. For the first few years gold was rising only against the dollar. But what has happened over the past years is that gold has been rising against all national currencies, and that's significant. Initially, when there were problems with the dollar, people saw the euro as safe. But in May, [after] the French and Dutch votes that rejected the European constitution, people began looking at the euro and realized it wasn't the haven they thought it was. Since then the riots in France and all the other bad news coming out of Europe have reinforced that view. Consequently, money has been moving to gold."

"How high do you think it's going to go? My expectation is that we're going to see $600 in the first quarter of 2006, and sometime over the course of 2006 we're going to touch that $850 level."

"The Economist called gold a 'barbarous relic.' Why is there such hostility? There's a lot of antigold propaganda, partly because economic theories don't explain what gold is and how it works. It became politically incorrect to think of gold as money once it had supposedly been demonetized in 1971, when President Nixon closed the gold window. But the reality is, monetary theory is one thing and the way gold works in the real world is entirely different."

"You mentioned that gold isn't politically correct. What do you mean? In 1971 Nixon closed the gold window, he said that gold was being demonetized. The reality is that gold still is money, but what's being demonetized is the dollar. Every year the purchasing power of the dollar is being eroded by inflation."

"Why is gold still a safe haven? The way it works is gold is money. Gold is the only asset we produce for accumulation. Every other good and service we produce is consumed. Gold is hoarded. Essentially all the gold ever mined throughout history currently exists in above-ground stocks."

"That's not true for anything else. Even copper is consumed in the sense that it is dispersed in millions of applications around the globe. The fact that gold is hoarded is what makes it money. And it's very useful for economic calculations for prices of goods and services over long periods of time."

"Who is interested in buying gold these days? The most significant buyers over the past few years have been individuals. Gold goes to where the wealth is being created. So for example, the European central banks have been disgorging gold from their vaults, and that gold is going to China and India because that's where new wealth is being created. Gold is also going to the Middle East with the rise in energy prices."

"So the central banks of China and India are accumulating gold? The Central Bank of China apparently is buying. There has been no evidence that the Central Bank of India is buying. But individuals in those countries are accumulating the gold."

"How can an individual invest in gold? We use the term investment, but that's a little bit misleading. The amount of crude oil that you can buy with an ounce of gold is the same as it was 50 years ago. So in that sense, gold hasn't really provided any rate of return. What we call the rate of return in gold is actually the loss of purchasing power of the dollar. You can only have a rate of return when you take that gold and take risks with it, as you would a normal investment. You either take that gold and buy stocks with it, or you lend it to generate some kind of rate of return."

"So when you look at an investment portfolio and you have stocks, bonds, and cash, gold should be counted as part of your cash. It should be that part of the portfolio that provides liquidity."

"What do you think of the gold exchange traded funds? iShares Comex Gold Trust (IAU ) and streetTracks Gold Shares (GLD ) are not an alternative to owning physical metal. They're a convenient way to speculate on the price of gold. They don't prove that the gold actually exists in the vaults of the custodians and the sub-custodians with an audit."

If the dollar becomes stronger again or another currency emerges as the sort of investment that people want to put money into, will it affect the price of gold?
In the past few years we've seen the price of gold rising not only against the dollar, but also against the euro, the Swiss franc, and the Japanese yen. Gold is rising in terms of every major national currency. You haven't had this since the 1970s. What happened then was there was a flight out of national currency because people became concerned about inflation and other monetary problems. This is going to continue in my view in the years ahead."


Report Drives US Dollar Lower

The Dow Jones News Service reports on what's moving the US dollar this morning. "The dollar fell to session lows against most major currencies after a sharper-than-expected drop in the Institute for Supply Management's manufacturing index. The December ISM manufacturing index fell to 54.2 from 58.1. The reading had been expected to come in at 57.1. There were also substantial declines in the prices and employment indexes."

"'This is clearly disappointing data,' said Greg Anderson Currency Strategist at ABN Amro in Chicago. 'We have the lowest ISM in four months, and that contrasts to a very strong run we've seen in the euro-zone's PMI.'"

"Around 10.20 a.m. EST (1520 GMT), the euro was at $1.1948 from $1.1828 late Friday, according to EBS. The dollar was at Y116.90 from Y118.01, and at CHF1.2985 from CHF1.3154. The pound was at $1.7342 from $1.7179, and the euro was at Y139.69 from Y139.55.

"The data came as the dollar was already weakening, particularly against the euro. The single currency was already at a session high in the minutes leading up to the data. After the ISM number came out, the euro tapped a session high of $1.1950, its highest level in two weeks. The dollar also dipped under other keynote levels, falling below Y117 and under CHF1.30 against the Swiss franc."

"The poor ISM number comes ahead of the release of the minutes of the Dec. 13 Federal Reserve meeting. The minutes are expected to underscore that the Fed will be increasingly data sensitive in its future policy decisions."

Monday, January 02, 2006


'No Way To Challenge What The Fed Does'

Scripps Howard News Service had this short review of the Fed's history and the new nominee. "Ben Bernanke will succeed the retiring Alan Greenspan as head of the Federal Reserve at the end of this month, becoming the 14th chairman since Congress created the central bank to put an end to 'moneyed trusts' that politicians blamed for periodic financial panics."

"Before Congress chartered the Fed in 1913, it fell to Wall Street financiers, principally J.P. Morgan, and thousands of small community banks to bankroll American business and territorial expansion. The economy was based on a constant currency supply pegged to the price of gold so that money couldn't expand in case of a bank run. After a century of these panics, Congress set up the Federal Reserve System in hopes of maintaining an adequate supply of currency and credit and to try stabilizing a mushrooming industrial economy."

"The Federal Reserve Board of Governors, led by the Fed chairman, was established with 12 regional Federal Reserve Banks to supply the nation with money through commercial banks. The Fed also was set up to supervise nationally chartered commercial banks' operations. It a so serves as a credit regulator. The Fed also handles check-clearing duties. The Fed's policy-making Open Market Committee has charge of monetary policy and is made up of the chairman, the board members and a rotating group of regional Federal Reserve Bank chiefs."

"The committee uses interest rates that it charges member banks and the banks charge each other for overnight borrowing to increase or contract the supply of currency and credit and try keeping the economy on an even keel."

"The 1970s oil shocks and the end of all ties between the greenback and gold made the Fed's controlling of the world supply of U.S. currency central to its role, says economist Lee Hoskins, a member of the 'Shadow Fed,' a curmudgeonly committee formed in the 1970s to keep an eye on the central bank. Arthur Burns, the White House economic adviser Nixon made Fed chief in 1970, came to believe 'the logic of events' dictated expansive growth of the U.S. money supply on his watch, according to Burns biographer Wyatt Wells. "

"Eventually, inflation soared to double digits as the wage-price spiral raced out of control, and it fell to President Jimmy Carter's choice of Paul Volcker as Fed chief in 1979 to break the back of inflation by ratcheting up interest rates, sending mortgage and car loans soaring to 20 percent. As Volcker's successor in 1987, Greenspan stayed on the inflation-control course through interest rates. Inflation was targeted implicitly under Greenspan, whose verbal obfuscations were studied from Wall Street to Main Street for clues even after the Fed finally went public with announcements of interest rate decisions in 1994."

"Alan Greenspan came to enjoy mythic stature, enough so that 'Maestro' was the title of Bob Woodward's celebrity bio that praised Greenspan's rapid response to the 1987 stock-market crash, the '90s Mexican peso crisis and Asian 'contagion.' Fed accommodation when the tech bubble burst and the 2001 terrorist strikes only added to his luster. But the concept of Fed chief as financial rock star is a recent phenomenon and a role Bernanke isn't likely to repeat, Fed-watchers agree."

"Bernanke is one of a number of monetary economists to foresee focusing a central bank's role on fighting inflation through controlling the money supply. He's been 'hooked' ever since he read Milton Friedman and Anna Schwartz' seminal 1963 tome 'Monetary History of the United States' as a graduate student."

"To advance monetary policy, Bernanke has theorized in favor of 'inflation targeting,' in which the Fed sets explicit goals for inflation control 'to anchor public expectations about inflation.' Were he to translate inflation targeting theory to fact by winning the consensus of the Fed's Open Market Committee, 'It would make the Fed accountable because now there's no way to challenge what the Fed does,' says Shadow Fed founder Schwartz."

"Bernanke is also a student of the Depression, the Fed's most dismal failure. With mounting bank failures and depositor runs on banks that fought to stay open in the wake of the 1929 stock market crash and deepening recession, Congress moved to create a new array of bank, thrift, securities and insurance regulators."

"Those Depression-era firewalls separating banks, brokerage houses and insurance companies stayed largely in place until the 1990s. In 1999, Congress and President Bill Clinton agreed on a financial deregulation bill that made the Federal Reserve the super-overseer of a U.S. financial system that now promises one-stop financial shopping."

"It is a role and responsibility to which the Fed is still adjusting, says University of Pennsylvania political scientist Donald Kettl, author of 'Leadership at the Fed.'"

"Kettl notes that Greenspan hasn't hesitated to speak out the 'significant risks' of the federal budget deficit, an 'irrationally exuberant' stock market and other issues not strictly in the Fed's purview, something Bernanke says he doesn't plan to do."

This page is powered by Blogger. Isn't yours?