Thursday, August 31, 2006


Deals Send Message Gold Is Undervalued

The Associated Press has some currency numbers. "The dollar rose against the euro and yen Thursday after Washington released generally upbeat data and the European Central Bank hinted at an upcoming interest rate hike. The Commerce Department reported Thursday that consumers boosted their spending in July by the largest amount in six months. Incomes also rose, reflecting stronger wage growth."

"Meanwhile, a separate report showed that orders to American factories dropped by 0.6 percent in July, the biggest decline in three months."

"Earlier on Thursday, the ECB left its key refinancing rate unchanged at 3 percent Thursday. However, bank President Jean-Claude Trichet then pledged 'strong vigilance' on inflation, wording that on previous occasions has signaled a rate rise is a month away."

"The New Zealand dollar gained 1.3 percent against the U.S. currency today, the most among 16 major currencies tracked by Bloomberg. The South African rand dropped the most, losing 1.61 percent."

"Gold futures climbed Thursday, garnering strength from Iran's continued regusal to bow to U.N. demands that Tehran cease enriching uranium, but prices still ended the month with a loss of 2%. Gold for December delivery closed at $634.20 an ounce on the New York Mercantile Exchange, up $8.10 for Thursday's session, but down $12.60 from the contract's month-ago closing level of $646.80."

"December silver tacked on 36 cents to close at a three-month high of $13.03 an ounce, ending 13% above the month-ago close. October platinum closed up $13.70 at $1,251.20 an ounce. It closed at $1,241.60 on July 31. December palladium added $3.40 to end at $348.70 an ounce Thursday, closing 7.9% above the month-ago level."

"Traders also digested the latest merger in the metals sector Thursday. Goldcorp, another miner with operations in Nevada, Mexico and Central America. The deal values Glamis, using Wednesday's closing prices, at $51.49 a share, a 33% premium to its closing price."

"Goldcorp's stock fell 9.2% to close at $27.66, but shares of Glamis closed at $46.12, up 18.7%, after trading as high as $48.07. The strength in the Glamis shares sends a message that some gold assets, and perhaps gold itself, are undervalued, said Nell Sloane, an analyst at"

"'The merger further consolidates the production and sales of the gold supply and the communication from [Goldcorp] indicated that none of the company's production or reserves would be hedged, and that is already widely known but to some, that suggests that the de-hedging pattern continues and physical supply is crimped,' Sloane said in daily commentary. Glamis Gold shares climbed as much as 24% on news that Goldcorp will acquire the miner for $8.6 billion in stock."

The Financial Times. "Mining companies are generating so much cash at the moment due to high metals prices that it sometimes appears hard for them to know how to spend it."

"Several large groups, such as Anglo American, Antofagasta and BHP Billiton, have unveiled special dividends and share buy-back plans in recent months as a way to give that cash back to shareholders. And some are beefing up their pipeline of projects."

"Whether the acquisitions are paid for with cash or shares, mining executives have been given the confidence to strike ambitious deals by the fact that they are in the middle of the strongest commodities boom for several decades, and are making record profits. 'There are more deals going on as mining companies have more cash, and less to spend it on,' says one London-based mining analyst."

"Bolstering further the country’s creditworthiness, the Reserve Bank of India’s gold reserves value have increased a whopping 49.19% in the last one year, from $4.4 to $6.6 billion, as on the week ended August 19. This was against a mere 6.5% increase when compared to the previous year. In the previous year, gold reserves increased from $4,123 million to $4,395 million."

"Madan Sabnavis, chief economist at NCDEX Ltd, said, 'The increase in value of the gold reserves gives the comfort to the nation that in the worst case scenario, it can pledged for getting loans as happened in 1991 when the country was on the verge of a bankruptcy. Therefore, central banks would prefer to hold on to gold even though it does not earn any return.'"

"The central bank has categorically denied that it has not converted any additional reserves into gold during the reporting period. 'The entire rise in the gold reserves in the last one year is due to the price of gold,' a RBI spokesman said."

"According to London Fix data, the price of gold increased from $438.6 per ounce to $652.25 per ounce, an increase of 42.5%, during the same period."

"This massive increase in gold valuation has taken place when there was a valuation loss of dollar against major currencies. The dollar valuation accounted for a decline of $5 billion in total domestic forex reserves during 2005-06 as against a valuation gain of $2.4 billion in 2004-05."

"Anticipating the US dollar to weaken in the short to medium term, there are few central banks who are contemplating to convert some of its reserves into non-US dollar assets, especially gold, United Arab Emirates being one of them."

Wednesday, August 30, 2006


'Have Central Bankers Slain Inflation?'

Bloomberg reports on the gold market. "Gold climbed in New York, snapping a two-day slump, as a slowing U.S. economy sent the dollar lower against other currencies, boosting the appeal of the precious metal as an alternative asset. Gold futures for December delivery rose $4.40, or 0.7 percent, to $623.50 an ounce at 12:52 p.m. on the Comex division of the New York Mercantile Exchange. The price dropped 1.9 percent in the past two days, touching $615.50 yesterday, the lowest since July 24."

"Every 1 percent move in the trade-weighted dollar has prompted a 3 percent move in gold this year, compared with a ratio of 1 percent to 1.5 percent from April 2001 to November 2004, John Reade, an analyst at UBS AG in London, said in a report today."

"'We suspect this is due to the increased interest in gold from funds and investors,' Reade said. 'This relationship indicates that should the dollar weaken as we expect, then gold's rise should outperform the dollar's fall by a considerable margin.'"

"The Financial Times looks at central bank policy. "Central banks’ near universal success in bringing down inflation over the past two decades has led many policymakers to conclude that they have pretty much solved the problem of high inflation, once and for all. Market participants have bought into this story. But have central bankers truly slain the hydra of inflation?"

"We should consider the possibility that the unprecedented pace of modern globalisation, recently emphasised by Ben Bernanke, the Federal Reserve chairman, might also have played a role. If so, what will happen if the winds of globalisation ever reverse course?"

"Why should globalisation matter for inflation? A very popular but wrong-headed view is that 'China exports deflation,' so that more rapid growth in China automatically translates into lower inflation everywhere. This is nonsense. As long as a central bank has monopoly control over its currency, as most do, it can set medium and longer term inflation trends at any level it likes. If the central bank really wants to stabilise the country’s overall inflation rate, it will respond to lower import prices by allowing an offsetting rise in the prices of domestic goods. In this sense, it would be more accurate to say that China exports inflation rather than deflation."

"Central banks have been able to establish and maintain low inflation while delivering growth results that have often outperformed expectations. Rather than face the usual historical trade-off, central banks have let citizens have their cake and eat it. No wonder central bankers have become so popular. But Precisely because globalisation has produced such a steady stream of upward surprises, there is an element of illusion to central banks’ success, as most people have only sluggishly adjusted their expectations to the faster growth trends."

"But life cannot always be this good for a central bank. If big Fed interest rate surprises are always cuts, markets will eventually catch on, ratcheting up inflationary expectations. Economists Milton Friedman and Ned Phelps elegantly illustrated this point way back in the 1960s."

"So the question is: what happens if the winds of globalisation turn? What if a combination of economic and political problems leads to a sharp slowdown in China? What if a slowdown in trend growth exacerbates the fiscal problems that most countries are already going to face as their populations age? Or, more immediately, what if there is a disorderly unwinding of the oversized US current account deficit? Having built up public expectations about their ability to deliver high growth and low inflation simultaneously, central bankers might have a hard time explaining what went wrong."

"Perhaps central banks will get lucky and not have to face any severe problems for another couple of decades but, unfortunately, that is not likely. Thus, there is some urgency in the need for central banks to take greater pains to avoid taking too much credit for upside performance."

"Already today, central banks face steeply higher oil prices combined with a pause in falling import prices from developing Asia. But the current conjuncture is just a small test compared with what might happen if globalisation hits a really large bump in the road. Then, at least in a few big countries, inflation will end up being far higher than policymakers or market participants now seem to think possible. Market convictions that inflation is forever dead will be shattered."

Tuesday, August 29, 2006


'Sacrifice The Economy Or The Dollar'

Forex News reports on the Fed minutes. "The dollar weakened across the board after markets digested the minutes of the FOMC’s August 8th meeting in which the committee voted on leaving policy unchanged. The Board deemed that the 'full effect of previous increases in interest rates on activity and prices probably had not yet been felt, and a pause was viewed as appropriate to limit the risks of tightening too much.'"

"Additionally, 'with energy prices possibly leveling out, aggregate demand moderating, and long-term inflation expectations contained, core PCE inflation likely would decline gradually from its elevated level, though the upside risks to inflation were significant.'"

From Bloomberg. "The dollar extended a drop against the yen and fell versus the euro after minutes from the Federal Reserve's Aug. 8 meeting showed policy makers said inflation 'remained contained.'"

"'The market had set itself up for hawkish minutes,' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. 'I don't think the monetary policy is there to be supportive of the U.S. dollar.'"

"The Fed's recognition of the weakening housing market was 'weighing on the dollar,' said Samarjit Shankar, at Mellon Financial Corp. Yet the Fed is 'not ruling out a future tightening.' With a rate increase still on the table 'there's a significant upside risk for the dollar' on stronger-than- expected data later in the week, Shankar said."

"'I expect the euro to continue to rally, not only against the yen but against the dollar,' said Michael Woolfolk, senior currency strategist at the Bank of New York in New York. 'All you have to do is take a look at interest-rate differentials, which continue to move in favor of the euro.'"

From MarketWatch. "Gold futures fell in tandem with oil Tuesday to tally a two-day loss of more than $11 an ounce, then moved higher in the electronic trading session as investors weighed the prospects for metals demand and mulled the minutes from the Aug. 8 Federal Reserve monetary policy meeting."

"'The FOMC minutes detail the growing fears of the weakening U.S. economy while trying to downplay inflationary pressures,' said Peter Spina, chief investment strategist at The choice remains clear: 'you must sacrifice the economy or the dollar,' he said, explaining that higher rates will help support the ailing dollar while crippling the fragile economy and 'it does not appear this will be their route.'"

"The market could be 'looking at rate cuts in 2007,' and this will 'drive another nail into the dollar's coffin,' Spina said. The falling value of the dollar 'will be another strong driving force for the gold market as we look into 2007 and beyond.'"

"Gold for December delivery climbed back over $620 an ounce in electronic trading Tuesday evening in New York, trading up $1.90 at $621 immediately after the Fed minutes were released. Before the details on the Fed meeting were released, December gold closed down $4.80 at $619.10 an ounce."

"December silver closed at $12.322 an ounce Tuesday, reversing from an earlier low of $12.02 to close up 12.5 cents. October platinum closed down 20 cents at $1,227.50 an ounce and December palladium fell $4.85 to end at $342.90 an ounce."

"Adding pressure to gold prices Tuesday, the U.S. consumer confidence index fell to 99.6 points in August from a revised 107 in July, according to the Conference Board.
'Stagflation is indeed the name of this game, normally good for gold, but not today,' said Kitco's Jon Nadler."

Monday, August 28, 2006


Is The US A 'Second-Rate' Industrial Nation?

The BBC reports on the inside scoop at the IMF. "The worlds' top central bankers and finance ministers will be among the 10,000 people converging on Singapore next month for the IMF's annual meetings, and one of the big talking points will be how to make the Fund more relevant to Asia and developing countries. Rather than being best known for lending, should it instead be policing world economics?"

"While the world economy is stable the IMF says it wants to turn its focus to surveillance. It says this would involve tackling 'the difficulties of unprecedented global imbalances and the challenges facing individual countries.' One of the main imbalances, it says, is between the US and the rest of the world."

"In a recent speech, the IMF's managing director, Rodrigo de Rato said this was not sustainable, saying: 'American consumers cannot support demand in the rest of the world indefinitely.' He warned an 'abrupt depreciation of the US dollar' could have disastrous consequences, pushing up the cost of Asian exports to the US, bad news for Asian exporters and American consumers who are already juggling rising fuel and household bills."

"Meanwhile, such a fall could also be exacerbated by countries switching out of the dollar and into other currencies or commodities like gold. It's this type of scenario the IMF wants to avoid."

"The IMF has reformed itself many times claims think-tank chief Jean Pisani-Ferry, but this time it will be a significant gamble for an institution which is 'losing influence.' 'If the IMF succeeds, it will position itself again at the core of administrative discussions which has not been the case over the last couple of decades because of the creation of G7,' he said. 'If it fails, it's a significant failure.'"

The Christian Science Monitor. "The United States is the world's only military superpower and has the globe's largest economy. Yet, by some measures, the US is a second-rate industrial nation, at best. 'Compared to other advanced economies, our market-driven model yields highly varied results regarding the living standards of our citizens,' notes a study by the Economic Policy Institute (EPI), a nonpartisan think tank in Washington."

"In terms of the percent of its population living at or below the poverty line, for instance, the US ranks worst among 16 wealthy countries, according to the Luxembourg Income Study. That study found that 17 percent of Americans are poor. As for child poverty, the US also sits on the bottom, with 21.9 percent."

"The usual comeback to such comparisons is that the US has a marvelous job-creation economy. But the EPI study find this claim 'exaggerated.' US job growth since 2000 has been 'lackluster' and 'far worse' than several other well-to-do nations belonging to the Organization for Economic Cooperation and Development."

The Financial Times. "The US Federal Reserve is wrong to focus on core measures of inflation that exclude energy prices, Charles Bean, chief economist at the Bank of England, has suggested. It should focus instead on headline inflation, which is much higher, he argued. Including energy and food costs, US consumer price inflation is running at an annual rate of 4.1 per cent, against 2.7 per cent for core inflation."

"Since both price trends had a common cause, he said it makes little sense to focus 'on measures of core inflation that strip out energy prices while not stripping out falling goods prices as well.'"

"The Fed has tended to treat the rise in oil prices as a step change to a new equilibrium price level, which in itself does not generate ongoing inflationary pressure. It focuses on trying to prevent the “pass through” of higher energy costs to consumers in the form of higher prices for other goods and services."

"But the Bank of England and the ECB increasingly take the view that energy prices may be on a long-term upward trend."

From Reuters. "The dollar weakened slightly in quiet trade on Monday ahead of key signals this week of where U.S. interest rates might be headed, including Federal Reserve meeting minutes and the August payrolls report."

"'Economic data in the U.S. this week is likely to reinforce expectations that the Fed tightening cycle has ended,' UBS currency strategists wrote in a note to clients. 'The combination of slowing activity data and tame inflation is negative for the dollar and should keep euro/dollar elevated.'"

"Markets are also looking to the August U.S. payrolls report on Friday, as well as the core personal consumption expenditures index for July due on Thursday. 'A moderate gain (in payrolls) in line with the past few months will confirm the stand-pat stance for the Fed,' said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. This is 'no surprise, but part of a bearish underlying picture for the U.S. dollar versus overseas majors,' he added."

"The European Central Bank is also scheduled to meet on Thursday, but markets expect the bank to keep rates steady at 3 percent."

Saturday, August 26, 2006


Odds For US Recession Grow

Zee News reports on the Fed meeting. "The US economy is facing uncertainties, both on the degree to which price pressures are contained and how much the economy might slow, IMF chief economist Raghuram Rajan said on Friday."

"'I think this is a time of a fair amount of uncertainty, because certainly there seems to be a shifting in the United States,' he said on the sidelines of a conference here. 'We`re not quite sure if inflationary pressures are contained ... and we are also not sure how far and how quickly housing will slow.'"

"He said there were 'substantial risks on the downside,' mentioning both the slowing housing market and lofty oil prices."

The Vancouver Sun. "The odds of a U.S. recession have increased dramatically, a Canadian bank economist is warning. The bank announced the odds of a U.S. recession have nearly doubled to 40 per cent from the 25 per cent it estimated in the spring. Its announcement came in the wake of further evidence this past week the U.S. housing market is going from boom to bust."

"We have long held the view that a bursting of the U.S. housing bubble would be bearish for the U.S. economy," the bank said in a statement issued at week's end.

It's only a matter of time before the surge in inventories leads to a nationwide decline in home prices that will erode personal wealth at a time when energy bills and debt obligations have hit record highs and that in turn will force consumers to cut spending and rebuild their savings, it said. 'Against this backdrop, we have decided to raise the odds of a U.S. hard landing,' it said."

"That means a recession of two straight quarters 'or worse' of shrinking economic activity, Gignac noted. The odds are still a bit greater the U.S. will avoid a recession, but 'we are close to the edge.'"

"'It's the single biggest risk to the U.S. economy and..we haven't seen the bottom yet,' said Patricia Croft, chief economist with Phillips, Hager and North Investment Management Ltd. 'There may be a bit of a lag but if the U.S. goes down we're going down with them.'"

The Burlington Free Press. "Fresh evidence shows that high energy prices and sagging home values are pinching the main driver of the U.S. economy; the average joe's wallet. Retailers and economists say many Americans are waiting to buy big-ticket items and cutting back on frills. Homeowners are shelving plans to remodel kitchens. Families are dining out less and tightening their budgets."

"'People are taking funds from one area and committing them to another, gasoline and utilities in particular,' said Gregory Miller, chief economist at Sun Trust Bank."

"Psychologically, this creates the opposite of the 'wealth effect' that kept upbeat consumers spending as stock prices rose in the late 1990s and real estate boomed after the recession in 2001, said Robert Weagley, chairman of the personal financial planning department at the University of Missouri."

"Meanwhile, this week's housing numbers show that the real estate market is likely to decline further as the number of unsold homes grows, further pressuring prices downward. 'I rarely find myself in a position where a single data release really snaps my head around,' Miller said. 'I'm beginning to question my assumption that this housing correction will continue to occur in a controlled fashion.'"

Thursday, August 24, 2006


Traders Wait On Bernanke Speech

Bloomberg reports on the US dollar. "The dollar gained a third straight day against the euro, reversing earlier losses, amid lingering speculation the Federal Reserve will lift borrowing costs again this year. The currency has rebounded 1.3 percent after approaching a 16-month low at $1.2938 per euro on Aug. 21. Investors may also be reluctant to add to bets it will fall further before a speech tomorrow by Federal Reserve Chairman Ben S. Bernanke."

"'It is still a 50-50 chance the Fed may raise rates one more time,' said Richard Vullo, head of corporate foreign exchange sales at Fortis Financial Services. 'Until we have confirmation from the Fed, it is hard to see the dollar get hammered.'"

"'There's a little bit of hesitancy to short the dollar ahead of Bernanke's speech,' said Andrew Busch, a currency strategist at BMO Capital Markets. Fed Bank of Chicago President Michael Moskow two days ago said the central bank may need to resume lifting borrowing costs because inflation remains a threat."

The Daily FX. "The US dollar has become practically immune to the continual disappointments in US economic data. We started the week off with a sharp drop in existing home sales and today, we saw another fall in the sales of new homes along with a weaker than expected durable goods report. The signs of a slowdown in the US economy are clear, but the extent of the slowdown is not."

"This is the main reason why the US dollar has remained strong. Traders are still holding out for the possibility of another rate increase this year by the Federal Reserve. However given the recent trend of economic data and oil prices, we doubt that there is enough evidence to convince Federal Reserve Chairman Ben Bernanke to change his mind."

The Dow Jones Newswire. "Comex gold futures closed lower on Thursday at the New York Mercantile Exchange as the precious metal suffered losses at the hands of a rising dollar. At settlement, benchmark December gold was down $4.50 at $628.50 an ounce."

"During the session the contract traded to a high of $635.50 an ounce once the mixed U.S. economic data was announced, but the rally ran out of steam in the absence of follow-through buying, said analysts at MKS Finance in Geneva in a daily market comment."

"Dan Vaught, analyst with Ag Edwards, said it was surprising that the dollar rallied on the heels of the rather bearish nature of the reports but added that the absence of controversy involving Iran, North Korea and the Middle East 'robbed the bulls' of an upturn in gold prices."

"September silver ended 20.5 cents lower at $12.31 an ounce, with traders noting 'thin and stagnant' trading conditions with most players sidelined. 'We believe that silver will continue to follow the fluctuations of its sister metal and for the short-term remain within a $12.00-$12.70 range,' said the MKS analysts."

"The platinum group metals sector settled mixed, with October platinum ending the session up $1.20 at $1,237.70 an ounce. September palladium settled $2.40 lower at $344.45 an ounce."

Wednesday, August 23, 2006


US Dollar Down On Economic Worries

Forbes reports on the currency trades. "The U.S. dollar was lower against other major currencies in late European trading Wednesday. The euro traded at $1.2805, up from $1.2796 late Tuesday in New York. Later, in midday trading in New York, the euro fetched $1.2788. In midday New York trading, the dollar bought 116.42 yen and 1.2355 Swiss Francs, while the pound was worth $1.8917."

From Bloomberg. "Canada's dollar gained for a third day, touching a six-week high, as reports pointed to a continued expansion of the nation's economy. 'There is a lot of corporate demand for the Canadian dollar below C$1.1140, and that's driving the currency higher today,' said Jonathan Gencher, VP of foreign exchange sales at BMO Capital Markets in Toronto. 'The bigger economic picture still favors the currency; we'll continue to see a slow but steady appreciation of the Canadian dollar this year.'"

"Canadian dollar's gains this year have also come as the price of crude oil jumped 17 percent, partly on concern Iran may curb shipments. 'The Canadian dollar has clearly outperformed other major currencies today,' said John Rothfield, a senior currency strategist at Bank of America Corp. 'Investors are getting more comfortable with the Canadian dollar when the energy security is worsening. Some people are putting option- based trades because the Canadian dollar tends to do well when oil prices rise.'"

"The yen reversed Tuesday's losses against the greenback Wednesday in New York. The Japanese yen showed steady gains against the dollar throughout overnight trading and into the early morning hours. The Japanese currency held steady against the greenback for several hours. However, amid the release of U.S. existing new home sales data, the yen edged lower against its U.S. counterpart. As of 2:50 pm ET, the U.S. dollar was worth 116.33 yen."

From MarketWatch. "Gold futures fell Wednesday to their lowest level in three sessions as traders reacted to moves in the U.S. dollar following a drop in existing-home sales. Adding pressure to metals prices, oil futures dropped on the heels of a climb in last week's gasoline inventories."

"Gold for December delivery closed down $1 at $633 an ounce on the New York Mercantile Exchange. It finished at its weakest closing level since Friday, after trading as high as $639.80 during the day, its highest intraday level since Aug. 17."

"'Gold traders are gearing up for a move back above $650 as Iran has sent the clear message that it will not stop enriching uranium and as the Fed signals that more rate increases may be needed,' said Kevin Kerr, editor of a newsletter published by MarketWatch. 'Gold thrives off such uncertainty.'"

"'$700+ is still our target by years end, if not even higher. Individuals who were kicking themselves the last time gold ran to $700 should take a long hard look at the buying opportunities in gold right now, they may not last,' he said."

"Other metals ended on a mixed note Wednesday. September silver added 25 cents to close at $12.515 an ounce after a high of $12.68, a level it hasn't seen since late May. October platinum fell $1.30 to end at $1,236.50 an ounce and September palladium rose $3.90 to close at $346.85 an ounce."

Tuesday, August 22, 2006


Markets Watch Central Bank Moves

Some Fed comments shook up the currency markets today. "Europe's 12-nation currency fell to $1.2803 at 5 p.m. in New York, from $1.2891 late yesterday, when it reached $1.2938. It was the euro's largest decline since July 17. The dollar remained higher after Federal Reserve Bank of Chicago President Michael Moskow said the central bank may have to resume raising interest rates."

"'The risk of inflation remaining too high is greater than the risk of growth being too low,' Moskow said in prepared remarks. 'Some additional firming of policy may yet be necessary.' Separately today, Atlanta Fed President Jack Guynn said there's an 'upward creep in inflation,' though inflation may recede 'over the medium term.'"

"The Euro declined from an 11-week high as traders scaled back expectations the European Central Bank will lift interest rates twice more this year. 'There is a clear concern that the current expansion may not last,' said Jens Nystedt, a currency strategist in New York at Deutsche Bank AG. 'The ECB may not have to hike as aggressively. It hurt the euro today.'"

"Mexico's peso fell by the most in three weeks on concern the U.S. central bank may resume raising interest rates, reducing the allure of emerging-market assets. 'On a day with limited data and news, Moskow's hawkish declarations suggesting that more hikes may be needed pushed the peso to test 10.84' per dollar, Pedro Tuesta, chief economist at research firm 4Cast Inc., said."

"The yield on Mexico's benchmark 8 percent bond due in December 2015 rose 1 basis point, or 0.01 percentage points, to 8.14 percent."

"'The risk of inflation remaining too high is greater than the risk of growth being too low,' Moskow said."

From Reuters. "Gold prices moved down slightly in choppy trade on Tuesday partly influenced by movements in the dollar, and analysts said the metal might witness an uptrend after the end of the current holiday season. Palladium tracked gold's movements, jumping to a 2-1/2-month high before drifting lower. Other metals also traded in a range."

"'The market is thin. There are a few players playing. Funds are very much sidelined,' said Peter Hillyard, head of metals sales at ANZ Investment Bank. 'They (funds) are essentially still long and they are just sitting on their positions and not doing anything. So what you have got is the day-traders controlling the market.'"

"Spot gold hit a high of $628.50 an ounce before falling as low as $620.10. It was quoted at $623.70/624.50 late in New York, against $625.60/626.40 the previous day. Palladium rose as high as $343.50 an ounce before falling to $339/344, against $342/348 in the U.S. market late on Monday. Prices spiked to a four-year high of $406 in May."

"Some dealers in Hong Kong said there was a pick-up in demand for palladium and platinum in China. Platinum rose to $1,237 an ounce before falling to $1,227/1,232, down from $1,230/1,235. Silver fell to $12.21/12.31 an ounce from $12.29/12.39."

"Oil steadied near $72.50 a barrel. 'The tension in the Middle East region is likely to buoy both gold and crude oil prices,' Standard Bank said."

"Germany's Bundesbank is not planning to sell gold from its reserves in the next year of the central bank gold agreement, its president Axel Weber indicated."

Monday, August 21, 2006


'The Summer Of Unrest Continues'

Some reports on currency markets. "Against the U.S. dollar, the European currency extended last week's gains Monday in New York. The Euro gained momentum against the greenback during the overnight period, pushing up into the early morning hours. The pair continued to show steady advances throughout much of the morning period, fetching an 11-week high of about 1.2936. Soon after, the European currency edged lower against its U.S. counterpart."

"Earlier, remarks by Bundesbank President Axel Weber, predicting substantial economic growth in the Euro-zone for the remainder of 2006, increased speculation that the ECB may raise rates in September. Also, Euro-zone trade balance data reported higher-than-expected, rising 2.0%."

"The Canadian dollar rose the most in two weeks as gains in commodities including crude oil and gold boosted the currency's appeal. Canada's dollar has climbed 4 percent this year, benefiting from rising prices of its commodity exports."

"'Oil above $70 always provides a psychological support to investors, and that's what we're seeing today,' said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto."

"Crude oil rose a second day after Iran resisted a United Nations demand to stop enriching uranium, heightening concern oil supplies from the world's fourth-largest producer will be disrupted. Crude for September delivery rose as much as 94 cents, or 1.3 percent, to $72.08 a barrel."

From MarketWatch. "Gold futures surged nearly $14 an ounce Monday to close at their loftiest level in three sessions as oil prices gained on signs that Iran is poised to reject a United Nations demand that it cease enriching uranium for its nuclear program. 'The summer of unrest continues to unfold and keep volatility on the boil, just as we get closer to the time of seasonal strength in gold prices,' said Jon Nadler, an investment products analyst."

"Gold for December delivery closed up $13.50, or 2.2%, at $635.20 an ounce on the New York Mercantile Exchange, recouping more than half of the nearly $23 loss recorded last week as easing Middle East tensions and inflation concerns undercut demand for the metal as a safe-haven investment and inflation hedge."

"Demand from physical buyers, largely absent from the action last week, added support for the higher prices, according to Nadler. 'Although the repair process remains tentative and the market could still reverse course if prices are deemed either too lofty or simply unsustainable, the stabilization is welcome after several turbulent weeks,' he said."

"Peter Grandich said technically, gold is set up for a run to new yearly highs above $735 an ounce before the end of 2006, after establishing a bottom above the psychologically key $600 level."

"September silver futures tacked on 31.5 cents to close at $12.345 an ounce after touching a high of $12.45, a level it hasn't seen in more than a week. October platinum added $18.50 to end at $1,242.10 an ounce, while September palladium closed up $10.90 at $345.20 an ounce."

Friday, August 18, 2006


Gold 'Battered By Relentless Selling'

MarketWatch has the metals numbers. "Gold futures fell Friday to tally a decline of nearly $23 an ounce for the week as easing Middle East tensions and inflation concerns tamped down demand for the metal as a safe-haven investment and inflation hedge."

"'Battered by relentless waves of selling, gold bullion came to within 1% of touching the $600 mark on Friday,' said Jon Nadler, analyst at"

"Gold for December delivery closed at $621.70 an ounce on the New York Mercantile Exchange, down $3.60 for the session and at its worst closing level since late June. Prices finished $22.70, or 3.5%, below the week-ago close of $644.40."

"'Gold fell in concert with the clouds of war lifting over the Middle East, and with the price of crude oil coming down to earthly levels once again,' said Nadler. September crude futures climbed Friday, but were lower for the week."

"From here, prices may test the 'psychological $600 level is likely but strong interest from bargain hunters and physical players is expected, and will be a good area for investors to enter the market,' said James Moore. Gold, he said in a note to clients, 'remains on course to finish the year above $700.'"

"Peter Grandich agreed. 'Gold continues to build a strong base above the psychological $600 level that should allow for a test of the yearly highs around $735 before year-end,' he said. 'A new all-time above remains only a question of when, not if, as the U.S dollar eventually makes new lows below 80 basis the U.S. Dollar Index.'"

"For now, however, news of an interest-rate hike in China, as Beijing continues to try to rein in surging investment and loan growth, put pressure on gold. The People's Bank of China raised its one-year lending rate to 6.12% and its one-year deposit rate to 2.52%, pushing both rates up by 0.27%."

"September silver closed up 3.5 cents at $12.03 an ounce, up 1.2% from last week's close of $11.885. October platinum fell $9.70 to $1,223.60 an ounce, down 2.5% from the week-ago close, while September palladium lost $2.85 to end at $333 an ounce, closing up $10.70 from last Friday."


Russian Reserves Hit All-Time High

The Moscow Times has this report on Russia's currency. "The country's gold and foreign exchange reserves jumped by a record $10.1 billion in the week ending Aug. 11 as analysts said the Central Bank faced increased pressure from traders betting on ruble appreciation. The jump in reserves beat the previous weekly record of $9.6 billion, set in January 2005, and took the reserves to $277 billion, also a record, further strengthening Russia's position as the world's third-largest holder of reserves, after China and Japan."

"'The biggest part in this increase is the money from last Thursday's session,' said Nikolai Kashcheyev, chief analyst at Vneshtorgbank's treasury department."

"Ruble-dollar trade hit an all-time high of $7.7 billion on Aug. 10 as traders sold the greenback on expectations of a further ruble rise following higher-than-expected July inflation. 'High inflation figures for July became the main impulse and have only strengthened peoples' perceptions that the Central Bank would be forced to let the ruble appreciate,' said Vladimir Pantyushin of Renaissance Capital."

"The ruble has effectively appreciated by 7.9 percent so far this year against a currency basket, compared with a government target of 9.0 percent for the whole of 2006. The Central Bank has vowed to defend the ruble exchange rate and has said it has enough forex reserves to withstand any speculative attack on the ruble."

"On the technical side, the reserves may decline in the following weeks, as Russia has to pay over $20 billion to the Paris Club of creditors as part of its early redemption deal. But Vneshtorgbank's Kashcheyev said he believed further attacks on the ruble-dollar rate were inevitable, given that Russia made the ruble fully convertible in July."

Thursday, August 17, 2006


Commodity Sell-Off 'Spills Over' Into Metals

Reuters reports on the US dollar. "The U.S. dollar recovered some ground on Thursday, after two days of falls, as investors who had sold the currency short on a bet it had more room to fall were forced to buy it back in the wake of stronger-than-expected economic data. The dollar recovered from earlier losses after the Philadelphia Federal Reserve Bank said its index of business conditions in the U.S. Mid-Atlantic region climbed in August to the highest level in more than a year."

"'I solely believe (trading) is technical at this point and the market bailing on short dollar positions,' said Joe Francomano, vice president of FX at Erste Bank."

"Traders had said there was a chance of a short-term rebound in the dollar since market positioning was already heavily skewed against the greenback but in favor of other currencies such as the euro and sterling."

"Even with the enexpectedly robust Philly Fed data however, Fed funds futures on the Chicago Board of Trade still showed investors pricing in just an 18 percent chance that the Fed will raise interest rates at its next meeting in September. Last week the market was pricing in almost an even money chance at one point."

"The Fed left rates on hold at 5.25 percent last month after raising its funds rate at 17 straight meetings since June 2004. Sterling was down 0.5 percent at $1.8871, under pressure all day after British retail sales unexpectedly fell in July."

"That added to losses made when minutes released on Wednesday of the Bank of England's last rate-setting meeting suggested the bank was in no hurry to repeat this month's surprise rate hike to 4.75 percent."

Dow Jones Newswire. "The continuing tumble in crude-oil prices took a toll on New York precious metals Thursday, with long liquidation occurring and the loss accelerating in gold when sell stops were hit, traders and analysts said. December gold settled down $13.70 to $625.30 an ounce on the Comex, while September silver gave up 29 cents to $11.995."

"Shortly after Comex gold closed, the Chicago Board of Trade's full-sized December gold futures were down $13.90 to $625, while full-sized September silver was down 28.5 cents to $12.002. Several market watchers said, the metal took its cue from the energy complex, as September crude fell to as low as $70 a barrel, its weakest level since June 21. The euro then gave up its gains late in the day, adding to gold's woes."

"'This is mainly an energy situation,' said Scott Meyers, senior trading analyst with Pioneer Futures. 'The energies got clobbered for another day. If you look at the charts, they're very similar. The energy sell-off is starting to spill over to the metals.'"

"'The sell-off in energy is affecting precious metals despite the weakness in
the dollar,' said analyst Mike Zarembski, who cited spec selling in particular. commented."

"'We are seeing a lot of liquidation in precious metals, base metals and energy,' said one trader. 'There seems to be kind of a widespread liquidation' A couple of dealers also cited thin liquidity during the summer vacation season as a factor contributing to the metals' weakness. 'It's mid-August,' said one. 'Liquidity dried up some months ago and it's even worse now."

"Meyers and a trader reported that sell stops in Comex December gold were hit around $630. The $630.50 low from Tuesday was a roughly three-week bottom. Meyers said he would put the next support around $615."

"One trader characterized gold as consolidating at the moment. 'Oil has been continuing to slide,' he said. 'We've been waiting for this, after oil's weakness yesterday. Then today, it's spilled over into commodities (as a whole). Gold is taking it on the chin, too.'"

"Platinum got pulled lower with crude and other metals, said a desk trader.
October platinum settled down $17.70 to $1.233.30 an ounce."

Wednesday, August 16, 2006


US Dollar Weakens On Slower Economy

Bloomberg reports on currencies. "The dollar fell for a second day against the euro and yen after slowing inflation and housing boosted speculation the Federal Reserve won't lift borrowing costs again this year. The U.S. currency also declined against the British pound, Swiss franc and New Zealand dollar on concern the yield attraction of dollar-denominated assets will wane. The dollar dropped the most in about two weeks yesterday after wholesale prices unexpectedly fell last month."

"'Inflation pressure remains contained,' said Paresh Upadhyaya, who helps manage $29 billion in currency assets at Putnam Investments in Boston. 'The dollar is weakening across the board. People are taking out rate hike expectations in the next few months.'"

"'People are taking that as a signal that another Fed rate increase is becoming less likely,' said Ryan Shea, a currency strategist at State Street Global Markets in London. 'If this continues we will see institutional investors selling quite a lot of dollars.'"

"Housing starts fell 2.5 percent to an annual rate of 1.795 million, the lowest level since November 2004, the Commerce Department said. Building permits, a sign of future construction, declined 6.5 percent, the most since September 1999. 'If the housing boom is going bust, then the consumer will be squeezed and that means lower growth,' said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo. 'It's not a good U.S. dollar number at all.'"

"The dollar extended losses after a Fed report showed industrial production increased less than forecast in July. The 0.4 percent increase in output at the nation's factories, utilities and mines followed a 0.8 percent gain in June, the Fed said."

From MarketWatch. "Gold futures closed higher Wednesday for the first time in five sessions as softer-than-expected consumer inflation data dulled expectations that the Federal Reserve will raise interest rates again and put pressure on the U.S. dollar.
The inflation data release clearly shows that Federal Reserve Chairman Ben Bernanke is 'deluded in thinking that inflation is going to wither,' said Ned Schmidt, editor of the Value View Gold Report."

"Gold for December delivery closed up $6.10 at $639 an ounce on the New York Mercantile Exchange. The contract lost more than $29 in the last four sessions."

"Peter Grandich said that on a technical basis, gold is setting up for a large rally, after a medium- to long-term bottom that should be set in the next few days to couple of weeks. 'Personally, I would love to see a washout under $600 but markets rarely provide you the ultimate best scenario,' he said. 'Whether or not this occurs, the most important belief of mine is not only that are we going to take out the highs of earlier this year around $735, but it's only a question of when, not if, we make new all-time highs in 2007.'"

"Grandich cited a range of factors to support his bullish outlook, including a 'constructive' supply versus demand scenario with mining supply currently below expectations while demand remains high. 'While there will be a lull at times, serious geopolitical concerns in the world should give gold a strong underpinning for the foreseeable future. It's clear that the U.S. dollar is no longer the sole go-to place for safe-haven investing.'"

"Elsewhere in metals trading Wednesday, September silver futures closed up 20 cents at $12.285 an ounce. October platinum rose $9.60 to close at $1,251 an ounce and September palladium added $11.70 to end at $336.40 an ounce."

Tuesday, August 15, 2006


Gold Seeing 'Flight To Quality Liquidation'

The US dollar weakened on economic data today. "Against the British pound, the dollar was unable to hold its gains Tuesday in New York trading. The greenback showed choppy trading against the pound during the early morning period. This came as UK core CPI data unexpectedly fell. However, the U.S. currency dropped against the pound amid the release of U.S. economic data. The greenback traded down to a 4-day low of about 1.8970."

"Earlier, U.S. PPI data reported lower than economists had predicted. The monthly PPI reading rose 0.1 percent in July, compared to the consensus of a 0.4 percent increase."

"Gold futures closed near a three-week low Tuesday to mark a four-session loss of more than $29 an ounce, extending declines as the Israel-Hezbollah cease-fire eased international worries. An unexpected decline in core wholesale prices and weaker-than-expected manufacturing data helped lower inflation concerns. The weak data prompted a drop in the odds of a September interest rate hike and weighed on the U.S. dollar, but failed to provided a boost for the precious metal."

"'As most of the war premium and some of the oil price-related surge are evaporating from the bullion market, gold prices are dropping to levels that are more in line with their pre-July 4th levels,' said Jon Nadler, at 'In the absence of immediate crises, and not helped by subdued PPI is aiming to rediscover just where its support levels are rooted,' he said."

"December gold futures closed down $6.40 at $632.90 an ounce on the New York Mercantile Exchange. Earlier in the session, the front-month contract hit a nearly three-week low of $630.50. The contract has now lost $29.10, or 4.4%, in the past four sessions."

"'The gold market is obviously seeing flight to quality liquidation in the wake of the Middle East cease-fire and, not surprisingly, because of the rather significant correction in oil prices,' Nell Sloane, an analyst at NS Futures, said in a daily commentary. 'In fact, the investment or flight to quality crowd seems to be consistently backing away from the market and is doing so in a moderately aggressive fashion,' she said."

"Elsewhere, the New York Federal Reserve Bank's Empire State Manufacturing index fell to 10.3 in August, the slowest growth pace since June 2005, from a revised 16.6 in July, while economists had been forecasting a decline to 13.9 from the initial estimate of 15.6. The data pushed the price of the September Fed fund futures contract up 0.01 to 94.73, which implies a 24% chance that the Fed will raise its target on overnight rates to 5.5% from 5.25% when it meets Sept. 20. Late Monday, the odds of a hike were 36%."

"As a result of the lowered outlook for a rate hike, the U.S. dollar fell vs. its major rivals, but that apparently wasn't enough to lift investment demand for gold."

"In other metals, September silver slipped 7.5 cents to close at $12.085 an ounce.
October platinum gained $8.10 to close at $1,241.40 an ounce and September palladium advanced $6.40 to end at $324.70 an ounce."

The Motley Fool has this report. "This past June, Rockville, Md.-based Rydex added six more currency-based exchange-traded funds to the market when it launched the CurrencyShares series of funds on the New York Stock Exchange. These ETFs, the CurrencyShares Australian Dollar (NYSE: FXA), British Pound Sterling (NYSE: FXB), Canadian Dollar (NYSE: FXC), Mexican Peso (NYSE: FXM), Swedish Krona (NYSE: FXS), and Swiss Franc (NYSE: FXF) funds, were created to track the price movements of world currencies."

"These new creations follow the first-ever currency ETF, the Euro Currency Trust (NYSE: FXE), which Rydex launched at the end of 2005. It was designed to rise in value when the euro strengthens relative to the U.S. dollar and fall when the euro weakens. These new ETFs work on the same principle."

"Even though these are currency funds, don't expect any cash income from them. If you sell your shares after a fund's currency strengthens relative to the U.S. dollar, you'll have a gain. There have been times when I've watched the dollar go down in value and wanted to benefit from that trend. With these new funds, investors can implement a strategy to do just that. But remember that you'll have to deal with swings in value in the capricious currency markets."

"Strangely, Rydex seems to have had no yen for a Japanese currency fund. That's too bad, since a Japanese yen fund would have rounded out the major currencies."

Monday, August 14, 2006


'What's The Safe-Haven Currency'?

The greenback was stronger again today. "The greenback increased last week's gains against other major currencies Monday in New York trading. With no significant U.S. economic data scheduled to be released today, the market now turns toward PPI, Empire manufacturing and net foreign securities data due out Tuesday, as well as CPI data scheduled to be released Wednesday."

From Bloomberg. "Gold in New York fell for the third straight session as lower energy costs reduced the appeal of the precious metal as a hedge against inflation. Gold and oil have moved mostly in lockstep this year. Oil touched a two-week low after BP Plc said it will keep half of the production flowing at Alaska's Prudhoe Bay, the biggest U.S. field, and a cease-fire began in Lebanon."

"'You've got crude oil down rather substantially, and that's a negative influence on gold,' said Daniel Vaught, a commodity analyst at A.G. Edwards."

"Gold is 'at risk of softening further across the week following the mild easing of Middle East tensions and reduced U.K. terror alert,' said James Moore, a precious metals analyst. The U.K. today lowered the threat of terrorism in the country from the highest level."

"Gold for December delivery finished down $5.10 at $639.30 an ounce on the New York Mercantile Exchange, its lowest closing level since July 26. Silver rose 27.5 cents to close at $12.16 an ounce."

"Also Monday, October platinum closed down $21.10 at $1,233.30 an ounce and September palladium retreated by $4.00 to $318.30 an ounce, moving in tandem with gold."

"James Moore said the reduction of safe-haven concerns following the cease-fire may be offset by other worries. 'With Iraq still on the verge of civil war, and Iran and North Korea's nuclear policies a cause for concern, geo-political tensions are still extremely high, with some investors likely to view gold's current dip as a good area to enter the market,' he said."

"'The markets are being whipsawed by every minor news item and comment by anyone of any importance around the globe,' said Dale Doelling, chief market technician at Trends In Commodities. 'This makes for an extremely difficult trading environment.'
If current market conditions are short-lived and short-term trends emerge once again, 'the likelihood that the metals markets can push to new all-time highs will rise dramatically,' he said."

"Prices may see a 'major rally' in early September, according to Peter Grandich, who said he believes gold is going through a 'classic bull-market consolidation.' 'A new yearly high above $735 is likely before year's end thanks to a combination of geopolitical concerns here and abroad, strong seasonal demand and the recognition that the U.S. dollar is terminally ill,' he said."

And MarketWatch looks at the Swiss franc. "The Swiss franc has lost its status as safe-haven of choice, at least for now. The currency, known in the market as the Swissie, traditionally benefits in times of geopolitical uncertainty. But it has remained weak recently, even though rising Middle East tensions and waves of terrorist activity have put financial markets worldwide on high alert."

"'The recent escalating in geopolitical conflict has caused investors to opt for the U.S. currency,' said Boris Schlossberg, senior currency strategist at FXCM. 'Previously, the Swiss currency would have held this noble designation.'"

"The Swissie fell 0.7% against the U.S. dollar Thursday, followed by another 0.8% decline Friday. Against the euro and the British pound, the losses were even greater as the currency tumbled to an almost four-month low on the euro and more than two-year nadir versus sterling Friday."

"'People are sort of trying to figure out what's the safe-haven currency, but there is no consensus on this at this point,' said Robert Hormats, vice Chairman of Goldman Sachs International."

"Historically, the Swiss franc was considered the currency safe haven of choice thanks to the country's low inflation, current-account surpluses and once-vast gold reserves. It also benefited from Switzerland's centuries-old and jealously-guarded political and military neutrality, which has kept the land-locked country clear of external influences."

"But the Swissie's longstanding role as a safe haven started to wane in the mid-1990s. The European Union's increased integration, the gradual opening up of Switzerland's banking sector and the launch of the euro late in the decade all contributed, analysts said. Other factors included the rise of new derivatives to hedge risk and the modernization of a number of emerging economies."

"'The market has traditionally exaggerated the role of the Swiss franc as a safe-haven currency,' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman."

"But views are as divided as ever. Even Jean-Pierre Roth, chairman of the governing board of the Swiss National Bank, said that the weakness of the Swissie this year was 'hard to explain.' Despite such 'potentially destabilizing factors' as the surge in oil prices, geopolitical tensions and profound global imbalances, 'over the past few months, the Swiss franc has even trended downward, a decline that is hard to explain given the low rate of Swiss inflation as compared to the rest of Europe,' Roth said at the general meeting of shareholders of the Swiss National Bank in late April."

"The reasons the franc hasn't strengthened amid the latest political unrest may also be 'more technical than fundamental,' Joel Nathan ForexFund's Ward said.
Currency is exchanged for many reasons, such as mergers and acquisitions, repatriation of corporate profits and institutional investing, 'but the deciding factor to holding a specific currency for long-term profits is its interest rate,' Ward said."

"BBH's Chandler, agreed, saying that the low interest rates in Switzerland have prompted many speculators to use the franc as an alternative to the yen as a funding currency in carry trades, in which investors make profits by borrowing low-yielders and reinvesting in higher-yielding currencies and assets."

"With the Swiss franc currently offering only 1.5%, while currencies such as the pound and the Australian dollar offer much higher yields, 'the Swiss franc becomes a currency more likely sold against the higher-rate currencies just to earn the interest rate differential,' Ward said."

"The breakdown of the strong relationship between the Swissie and gold also contributed to the currency's recent weakness, said Schlossberg. At one time, the franc was 40% backed by gold, but the Swiss government sold the nation's hefty gold reserve in 2005 and returned the funds to the country's cantons, he said.
As a result, 'while gold continues to remain the asset of choice in times of geopolitical stress...the Swiss franc can no longer benefit from the metal's massive appreciation,' said Schlossberg."

Friday, August 11, 2006


A Situation In Which The Fed Cannot Win"

A pair of editorials on the economy, starting with the New York Times. "In the cool and quiet marble corridors of the Federal Reserve, the strategy for taming inflation sounds painless. Many economists, though suggest that the Fed is either too rosy about the looming slowdown or naïve about the difficulty of reaching its goal for inflation."

"This time, many analysts say that the Fed and its new chairman, Ben S. Bernanke, face considerably tougher challenges. Crude oil, at more than $70 a barrel, is selling at prices that would have been unthinkable in 1995. Productivity growth, which was accelerating in 1995, is slowing these days. The dollar, which was climbing against other major currencies in 1995, is declining against most of them now."

"'The economic slowdown has to be much more substantial than anybody in the Federal Reserve or on Wall Street is expecting,' said Robert J. Gordon, a professor of economics at Northwestern University. Mr. Gordon said the last few decades had shown a grim but consistent trade-off: to reduce inflation by one percentage point, the unemployment rate has to rise by about two percentage points for a full year."

"To reduce inflation to the upper limits of what Mr. Bernanke and other Fed officials consider acceptable, more than three million jobs would be lost, a bigger drop than in the recession of 2001."

"And that is Mr. Gordon’s relatively upbeat hypothesis, which assumes no other shocks to the economy, no additional increases in energy prices, no collapse in the dollar’s value, no collapse in housing. 'I think the Fed is facing an absolutely classic case of stagflation,' Mr. Gordon said, 'a situation in which they cannot win.'"

"He is not alone. Many other economists contend that inflation is more entrenched and will be more painful to reverse than the Fed thinks. Others predict that inflation will indeed subside, but only because the economy will weaken much more than the Fed is expecting."

"Economist Nouriel Roubini predicted that the economy would fall into a recession early in 2007 as a result of high energy prices, higher interest rates and a housing collapse. 'Either the Fed does not believe its own inflation forecast, which I don’t think is the case,' Mr. Roubini said, 'or the slowdown is going to be greater than what they have been saying. They can’t have it both ways.'"

"Specialists like Mr. Gordon at Northwestern maintain that the labor market is already very tight and predict that wages will soon start to push up inflation. But others disagree, arguing that wages over the last five years have lagged behind increases in productivity and have barely kept up with inflation. The bigger risk, according to that school of thought, is to make the situation worse by driving up unemployment."

"'We have no clue about labor market tightness right now,' said J. Bradford De Long, a professor of economics at the University of California, Berkeley, who argues that workers still have little bargaining power. Depending on one’s perspective, Mr. De Long said, the Fed’s attempt at a soft landing is either a display of cool-headed technocracy or murky witchcraft. 'Right now, he said, 'this is on the witchcraft side.'"

From Paul Krugman. "These are the dog days of summer, but there’s a chill in the air. Goldman Sachs recently reported that the confidence of chief executives has plunged. The key point is that the forces that caused a recession five years ago never went away."

"Business spending hasn’t really recovered from the slump it went into after the technology bubble burst. Also, the trade deficit has doubled since 2000."

"Nonetheless, the economy grew fairly fast over the last three years, mainly thanks to a gigantic housing boom. But the conventional wisdom was that housing would have a 'soft landing.' You might say that the theory was that investment and exports would stand up as housing stood down. The latest numbers suggest, however, that this theory isn’t working."

"Now maybe we’ll still manage that soft landing. But based on what we know now, there’s an economic slowdown coming. And what will policymakers do about a slump, if it happens? A snarky but accurate description of monetary policy over the past five years is that the Federal Reserve successfully replaced the technology bubble with a housing bubble. But where will the Fed find another bubble?"

Thursday, August 10, 2006


Gold, Silver Down 'In Lockstep' With Oil

Bloomberg reports on the gold market. "Gold and silver prices in New York fell the most in three weeks as lower energy costs reduced the appeal of precious metals as a hedge against inflation. Oil fell below $75 a barrel today on speculation demand for jet fuel may decline after London police foiled a plot to blow up airplanes bound for the U.S. from the U.K. Gasoline tumbled the most since May."

"'Oil is getting pounded, and gold has been trading in lockstep with oil,' said metals trader Frank McGhee. Gold futures for December delivery dropped $16, or 2.4 percent, to $646 an ounce on the Comex. Silver futures for September declined 46.5 cents, or 3.7 percent, to $12.105 an ounce."

"Gold's volatility, or the rate at which a price moves up and down, was 30 percent in the past 100 sessions, the highest for that period since 1982."

"J.P. Morgan analyst John Bridges said gold was 'misbehaving' because investors appear to have decided that the terror threat 'has apparently been defused, the gold insurance can be foregone for a while, and they can refocus on summer holidays. We believe this highlights the complacency and short-term nature of much investment,' Bridges said."

"Kevin Kerr, editor of a newsletter published by MarketWatch, said gold's move was puzzling as it should have benefit from its traditional safe-haven role. 'The news is coming in so fast and furious that traders are almost in shock and are getting their bearings and deciding what to do next,' he said."

"The dollar rebounded from a two-month low against the euro before a report tomorrow that may show U.S. retail sales surged last month. The statistics may help the dollar by damping speculation the Federal Reserve is done raising interest rates."

"'There's been chatter in the market that perhaps the Fed might prove to be more vigilant in the face of inflation risks,' said Sophia Drossos, chief currency strategist at Morgan Stanley in New York 'We've definitely seen a paring of short dollar positions,' which are bets the currency will fall."

"Traders were betting the dollar would fall this week after the Fed met on Aug. 8, and have been disappointed that it didn't extended losses beyond $1.29, said Russell LaScala, head of spot foreign-exchange trading in New York at Deutsche Bank AG. 'The risk is tomorrow we get a strong number' in the retail sales report, said LaScala. 'It may give the impetus for another leg up for the dollar.'"

"The U.S. currency has lost 7.2 percent against the euro and 2 percent versus the yen this year on speculation the Fed will stop raising rates as central banks in Europe and Japan continue lifting their benchmarks."

Wednesday, August 09, 2006


Is The Fed Pause A 'Definitive Moment'?

Financial Times looks at the post-pause landscape. "The US dollar drifted lower on Wednesday as market attention turned to the fate of the greenback if the Federal Reserve has, as many now expect, reached he end of its tightening path. With the pause widely expected, the dollar's decline was muted. 'The end of the Fed's tightening cycle has been greeted with a whimper,' said Steve Pearson, chief currency strategist at HBOS."

"However, opinions were acutely divided as to where the dollar is going next. Neil Mellor, currencies strategist at Bank of New York, argued that the turn in the US monetary cycle 'could ultimately be regarded as a definitive moment in what many economists believe to be an inevitable resumption of the dollar's downtrend.'"

"Todd Elmer, analyst at Citigroup, citing mounting evidence of slowing US growth and ongoing structural problems, added: 'We find solid grounding for our conviction that the dollar will see new lows in the months ahead.'"

"However Mr Pearson, one of the few remaining dollar bulls, argued that most of the bad news was now priced in for the greenback. 'Given Fed funds futures are now discounting just a 32 per cent chance that the Fed hikes again, we see little further downside for the dollar from the domestic interest rate outlook unless markets start to contemplate rate cuts,' he said."

"If Thursday's US trade data do not undermine the currency, 'the worst may well be over,' for the dollar, Mr Pearson said."

"Gold was rallying again Wednesday as investors fled the U.S. dollar and oil prices climbed. December contracts for the yellow metal reached a high of $666.50 an ounce before retreating to close up $4.70 at $662 on the Comex."

"'Gold continues to work hard on all cylinders,' says Peter Grandich. 'The main thrust is heightened geopolitical tension, but it will be the declining dollar that pushes the yellow metal's price to new highs.'"

"Another bullish factor for gold was ongoing concern over inflation, with some investors worried that the Fed may have missed the boat Tuesday when it paused its two-year rate hike program and left the base borrowing rate at 5.25%. 'Inflation is a lot worse than the Fed lets on,' says Peter Schiff, president of broker-dealer Euro Pacific Capital. 'If they were [truly] concerned about inflation they wouldn't have paused.'"

The Financial Times on China. "China’s central bank stoked expectations of a further renminbi appreciation on Wednesday by saying the exchange rate could play a role in addressing international payments imbalances."

"The statement, in the People’s Bank of China’s second-quarter monetary report, came amid speculation that Beijing is poised to take a bolder approach towards the renminbi after keeping it under tight control since scrapping its peg to the US dollar a year ago."

"The bank stressed that international payment imbalances could 'certainly not be resolved solely by relying on exchange rate appreciation.' However, it said 'appropriate use' should be made of the 'special effects' the exchange rate could have in efforts to adjust the structure of the economy and achieve 'overall balance.''

"'As part of a package of measures, the exchange rate can play a certain role in addressing the imbalance in international payments,' the bank said."

"some analysts said the report supported the view that a consensus was forming among Beijing policymakers behind a stronger, more flexible currency. 'It is a signal of intent,' said Huang Haizhou, head of Greater China research for Barclays Capital. 'It shows increasing readiness for further renminbi appreciation and for widening of the band.'"

Tuesday, August 08, 2006


FOMC Statement 'Dovish' On Inflation

The FOMC decision is in. "The Federal Reserve on Tuesday left a key interest rate unchanged, marking at least a temporary pause in what had been the longest unbroken stretch of Fed rate increases in recent history. It was the first time the Fed had met and not raised rates in more than two years."

"However, the relief for millions of business and consumer borrowers could be only temporary. The central bank said that 'some inflation risks remains,' holding out the possibility that it could resume raising rates at future meetings."

"In 17 consecutive meetings stretching from June 2004 through June 2006, the Fed boosted the funds rate from a 46-year low of 1 percent to the current 5.25 percent, all in an effort to slow the economy enough to keep inflation under control."

"The Fed's decision to finally pause had been widely anticipated given the signs of a spreading economic slowdown, in part reflecting the impact of the Fed's long string of rate hikes."

The Financial Times. "The US dollar held firm on Tuesday as the Federal Reserve held rates for the first time in two years and suggested that inflation pressures 'seem likely to moderate over time.' The accompanying statement was modestly more dovish than expected, leading the futures market to scale back the chances of a rise in September instead."

"'The statement was slightly less hawkish than the market was expecting, particularly on inflation,' said Marc Chandler, head of global currency research at Brown Brothers Harriman."

"However, after a knee-jerk sell-off, the dollar recovered to sit little changed on the day at $1.2834 to the euro, Y115.15 against the yen and $1.9073 against sterling. The greenback also rose 0.3 per cent to $0.7611 against the Australian dollar."

"Gold futures rose slightly in after-hours trade Tuesday after the Federal Reserve left rates on hold. Gold for December delivery was up 70 cents at $657.80 an ounce. Jon Nadler, at, described the metal's reaction as 'one of the least eventful' to a Fed decision and said it may not show much response until the end of the week."

"'At this time, the conclusions to be drawn are that the Fed senses sufficient sluggishness on the economic front to allow it to rest at least until such time as external energy shocks work their way into the inflation statistics that it monitors and force it to resume the rate tweaking strategy,' he said.'

Monday, August 07, 2006


Markets Watch Oil, FOMC

The reports on what moved the metals markets today. "Gold got another oil-fueled boost Monday after BP announced it would cut output by 400,000 barrels a day, 8% of total U.S. production, in order to deal with a pipeline leak in Alaska. Prices for the benchmark December gold contract closed up $3.20 an ounce at $659.20 on the Comex. Gold has been tracking the price of oil lately, and crude oil was recently trading up $2.04 a barrel at $76.80."

"'Oil above $76 is definitely a help,' says Jon Nadler, an analyst at Kitco. But the gold market is also being buoyed by the weak July employment data released Friday, he notes. The data suggest the Fed may end its 17-step series of rate hikes when it meets Tuesday, boosting the prospects for a weaker U.S. dollar."

"Nadler, however, is not so sanguine about the Fed. 'I think they might just do one final tweak because they are much more spooked about the prospect of real stagflation than many believe,' he says. 'If they do hike rates, we are good for a $15 to $20 drop in the gold price.'"

From Dow Jones Newswire. "Analysts at MKS Finance said gold had a dull start to the week with any rallies met with profit-taking. After coming off of its session highs, gold appeared to drift slightly lower through the remainder of the session."

"'The release of the FOMC decision tomorrow after the Comex close with a pause
in the hike cycle expected should be, in our view a catalyst for the yellow
metal in the short-term,' said the analysts."

"The silver market remained in a narrow range but was unable to end in
positive territory on Monday. The benchmark September contract settled 22 cents lower at $12.265 an ounce. During the session the contract traded in a tight $12.18-$12.49 range."

"The platinum group metals complex ended the session subdued with the
most-active October contract settling $10.90 higher at $1,266.90 an ounce.
September palladium settled up 5 cents at $327.55 an ounce."

The Sydney Morning Herald. "The Australian dollar closed stronger, despite a bank holiday in parts of the country, as the US dollar dropped-off on expectations the US Federal Reserve would keep interest rates on hold this week."

"'I suspect that once we get past the Fed decision, which will be early on Wednesday morning, there is quite a significant risk we'll see the Australian dollar making more ground against the US dollar and there's a chance that we'll see that building towards 77 cents fairly quickly,' Grange Securities research director Stephen Robert said."

From Reuters. "With the ink barely dry on another unexpectedly weak U.S. payrolls report, some traders are looking beyond Tuesday's Federal Reserve meeting to guess when the central bank might start trimming interest rates."

"Many strategists say a rate cut could come between the fourth quarter of 2006 and mid-2007 as policy-makers respond to dwindling economic expansion, as shown by last week's report that U.S. gross domestic product grew just 2.5 percent in the second quarter, well down from 5.6 percent in the first."

"Friday's July jobs report 'is the first real hard data besides the second quarter's weak GDP report that supports the Fed's slowdown forecast,' said Scott Anderson, senior economist at Wells Fargo in Minneapolis."

"Still, strategists said the policy-setting FOMC will likely issue a sharply worded statement that contains hawkish verbiage about inflation and does not rule out future hikes. 'We do not believe one payroll report can help forecast what the Fed will do come September and October,' said Wells Fargo's Anderson. 'The next hurdle for the Fed will be confirmation that inflation pressures are beginning to ebb. It is this next hurdle with which we think the Fed may have more of a struggle.'"

From Bloomberg. "Borrowing by U.S. consumers unexpectedly accelerated in June as credit card debt jumped, a Federal Reserve report showed today. Consumer credit, or non-mortgage loans to individuals, rose $10.3 billion to $2.19 trillion following a revised $5.89 billion increase in May. The two-month gain was the biggest since September-October 2004."

"Americans are making greater use of their credit cards to finance purchases because rising interest rates and a cooling housing market make it harder for them to take out home-equity loans. Higher prices at filling stations are also prompting consumers to take on more debt, economists said."

"'The jump in consumer credit coming at a time when consumers are hard hit by soaring gasoline costs could indicate some financial woes on the part of borrowers,' said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi. 'It looks as if consumers are relying more on credit cards now that other avenues of credit such as mortgage refinancing have been shut off to them.'"

"The Mortgage Bankers Association's index of applications to buy a home or refinance an existing loan dropped 1.2 percent in the last week of July to the lowest level in more than four years."

"Instead, consumers are turning to credit card debt. American Express Co., Bank of America Corp., JPMorgan Chase & Co. and Citigroup all reported higher second-quarter profit from credit cards, partly because a new law making it harder for Americans to file for bankruptcy protection led to fewer defaults."


Shut Down In Prudhoe Bay

Some big news in the oil market. "Oil company BP has indefinitely shut down the nation's biggest oilfield after finding a pipeline leak, removing about 8 percent of U.S. oil production and stoking fears that already high gas prices will shoot up further.'

"Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night that the eastern side of Prudhoe Bay would be shut down first, an operation anticipated to take 24 to 36 hours. The company will then move to shut down the west side, a move that could close more than 1,000 Prudhoe Bay wells."

"Once the field is shut down, BP said oil production will be reduced by 400,000 barrels a day. That's close to 8 percent of U.S. oil production or about 2.6 percent of U.S. supply including imports."

"BP officials said they didn't know how long the Prudhoe Bay field would be off line. 'I don't even know how long it's going to take to shut it down,' said Tom Williams, BP's senior tax and royalty counsel."

"'"Oil prices could increase by as much as $10 per barrel given the current environment,' said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. 'But we can't really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced.'"

"But Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said he expected the impact to be minimal since crude inventories are high."

Saturday, August 05, 2006


Weekend Topic: Will Gold Tank Before Soaring?

A couple of readers posted this as a topic for the weekend. "WILL GOLD TANK BEFORE SOARING?"

"Lots of people believe a deflationary depression will take the metals down to Y2K levels before heading for the stratosphere. Well...I believe it's very possible that the 'End of the Gold Basis' (as Fekete put it) will occur beforehand, effectively isolating PMs from a contraction. Jas Jain has stated much the same thing, in that when economic armageddon is realized all the Gold will already be tied up and no longer available to the common man at any price."

"I've previously made the point that there really isn't that much Gold (or Silver) in the world. OTOH, there's a hell of a lot more money out there, so it wouldn't take much of it to remove all PMs from the public domain rather quickly."

Another added, "My thought is we will see some wild swings as it is a thin market, BUT I don't think it will fall much relative to the price now..Certainly not pre Y2K prices...People are already rotating out of dollars. All the talking heads on CNBC are talking some gold in their positions. As the dollar unwinds just more interest in the PM's. Some minor shortages already showing up on silver...Russia, China, etc etc all increasing their reserves substantially."

"Italy was just shown to increase holdings of $sterling 25% thereby secretly? getting out of the dollar..I think it's similar to housing. People are whistling past the graveyard with their eye on the door....Time will tell. Long term ,nothing but up, at least that's where I have my blue chips."


Belize Heading For 'Sovereign Default'

A once popular off-shore tax haven is on the rocks. "'Devaluation is not on the table,' Prime Minister Said Musa assured members of the media and the public at a press briefing on Thursday evening, August 3 in Belmopan. Musa called the briefing to explain how the government planned to “rearrange” 90% of its public debt, a portfolio US $ 960 million."

"Musa acknowledged that Belize was heading for a sovereign default when this plan was put in motion. The government will be working very closely with official sector partners such as the International Monetary Fund (IMF), the Inter-American Development Bank and the Caribbean Development Bank."

"The government of Belize is now calling on its commercial creditors, that is, private lending institutions which have loaned government money in the past, to cooperate in helping Belize meet its debt repayment commitments."

"While Musa initially blamed four tropical storms which hit Belize between 1999 and 2003 for some of the debt the country incurred, in the end he was forced to take blame for the debt crisis. His government had carried out expansionary programmes, he admitted because the economy was in recession. The government also undertook a major housing construction programme which played a large part in accumulating debt."

"Government, he said, had also undertaken a lot of public investment projects to improve infrastructure, maintain existing systems and services, expand the education system, improve health care services, build highways, and expand utilities."

"The Prime Minister, even in the gloom of red ink, boasted some success: reducing the fiscal deficit from 8.7% of GDP to 3.1% of GDP within 24 months and by cutting capital expenditure to the bone. The primary deficit, he said, had been reversed from a deficit of 2% of GDP to a surplus of 3.1% of GDP through improving revenue collection and tightening spending. The Central Bank has also simultaneously tightened the liquidity in the banking system to protect international reserves."

"These reserves stand presently at Bze $150 million, or US$75 million, the Governor of Central Bank, Sydney Campbell explained at this point. The Central Bank monitors the liquidity situation to ensure "there is sufficient foreign exchange to meet debts as they become due, Campbell said.

"Musa did not clarify whether the holders of GOB bonds would be asked to take a hit, but Carla Barnett, Financial Secretary, said discussions with bond- holders would be taking place shortly, in a matter of weeks."

Thursday, August 03, 2006


Central Banks Hike Interest Rates

Interest rate hikes were the big currency news today. "The Bank of England raised interest rates a quarter of a percentage point to 4.75 percent Thursday, citing persistently high inflation as it made a largely unexpected move that changed the cost of borrowing for the first time in a year."

"The European and Danish central banks followed suit in moves that were expected, but wary investors sent markets lower as the moves raised fears that the U.S. Federal Reserve would do the same when it meets next week."

"The British pound strengthened against the U.S. dollar, rising to $1.8854 from $$1.8779 late Wednesday in New York. The euro was little changed as the ECB gave no strong signal on its future course. Most analysts believe the ECB will raise its rate to 3.25 percent when it meets on Oct. 5."

From South Africa. "Reserve Bank governor Tito Mboweni announced the second consecutive repo rate hike of 50 basis points Thursday, which saw the central bank's lending rate to commercial banks climbing up to 8 percent. The last MPC meeting in June also decided to raise the rate by 50 basis points."

"The Monetary Policy Committee came to this decision following its meeting in Pretoria on Wednesday and Thursday, due to perceived threats to the inflation outlook which were pushed by oil and food prices and the volatile rand. 'The MPC remains concerned about the longer term threats to the inflation outlook and has therefore decided that a further adjustment to the repo rate would be prudent.'"

From Australia. "Yesterday's 25 point rise in the official interest rate will add $49 a month to an average $300,000 home loan. John Howard, who had argued last week that inflation was under control apart from one-off increases in banana and petrol prices, yesterday changed tack."

"'Nobody likes interest rates going up, but I don't believe that the Reserve Bank had any responsible alternative other than to take that decision,' he said."

"The Reserve Bank stands poised to lift interest rates again and to keep increasing them until the pace of personal borrowing slows. The bank's statement on interest rate policy, due this Friday, is expected to argue the economy can't support both a boom in business investment and a rapid increase in consumer demand."

"The dollar fell against the euro and the pound Thursday after the European Central Bank and the Bank of England raised interest rates. However, the dollar strengthened against the Japanese currency, climbing to 114.91 yen from 114.55 yen. In other trading, the dollar bought 1.2309 Swiss francs, up from 1.2297 late Thursday, and 1.1252 Canadian dollars, down from 1.1263."

"The market is looking ahead to the Labor Department's report on employment Friday, which could figure into its view on the Federal Reserve's interest rate decision next week, David Gilmore said. A long string of interest rate hikes has boosted the dollar, but the Fed has indicated it's nearing the end of its credit tightening campaign and any increase in rates depends on data showing high inflation."

"Spot gold was lower in early afternoon trade on profit taking following yesterda’s rally, traders said. With high volatility making for a nervous market, more short-term losses were possible for the metal which was seen remaining in a broad range, however."

"In afternoon trade, spot gold was quoted at $645,75 a troy ounce from a previous close of $651,80/oz."

"'Gold at the moment has traded down about $6. It spiked yesterday and went up to about $655 on things hotting up in the Middle East. It’s come off now with people envisaging we could have a settlement there, but there could be a civil war in Iraq so there is still trouble on the horizon,' said Mark Wurr, head of trading at Global Trader."

"Looking at the longer term, Wurr believed gold would go up past $700/oz but only near the end of the year. In the meantime, it was trading quite vigorously, he said."

"'Volatility for the last month or so has been 25% or something, which is very high. Normally, it is about 10%,' he noted. He said that in theory, the high volatility meant there could be a sell off. 'It makes people nervous when volatility increases as quickly as it has and could be a reason to take profits.' Wurr therefore believed that gold could be sold down to about $636-$625."

"Platinum was quoted at $1,240.50/oz from an overnight close of $1,248/oz, while palladium was $2 weaker than its overnight close at $322,50/oz. Platinum was down in line with gold and commodities in general, said Wurr."

Wednesday, August 02, 2006


Gold Follows Oil Higher

Bloomberg has the trading numbers for gold. "Gold rose to a two-week high in New York as higher energy costs boosted the appeal of the precious metal as a hedge against inflation."

"Gold and crude oil have moved mostly in lockstep this year. Natural-gas prices jumped as much as 12 percent, and oil climbed above $75 a barrel on concern a strengthening tropical storm in the Atlantic Ocean may disrupt production in the U.S. Gulf. Tropical Storm Chris may become the year's first Atlantic hurricane late today or early tomorrow."

"Gold futures for December delivery rose $7.70, or 1.2 percent, to $666.50 an ounce at 9:22 a.m. on the Comex division of the New York Mercantile Exchange. Prices earlier reached $666.80, the highest since July 17."

"'The focus is on the energies,' said Matt McKinney, a broker at Infinity Brokerage Services in Chicago. 'Fundamentally, we're going to see higher gold prices as long as energies continue to go up and there are fears of inflation.'"

"Tom O'Brien, editor of the Gold Report, pointed to Tuesday's breakdown in the U.S. dollar index as key to watch near term for the precious metals markets. 'On a technical basis, the dollar index broke a channel line that will being the dollar back to the lows around 83.00,' he said."

"Looking ahead, O'Brien expects additional deterioration in the U.S. dollar index to continue to support the precious metals complex. He pointed to the July 17 peak at $691.20 as his near term target for Dec gold. In silver, he added, 'it looks like we are going to get into the $12.60 area.'"

"September silver was at $12.245, up $0.505; Range: $12.290-11.760. October platinum was at $1260.60; up $2.10; Range: $1267.50-1258.20. September palladium was at $328.95, up $7.00; Range: $329.00-323.50.'

Tuesday, August 01, 2006


Gold, US Dollar Get 'Safe-Haven Bid'

The new Treasury Secretary spoke today. "U.S. Treasury Secretary Henry Paulson, in his first major public address since taking the reins at Treasury, laid out many of the same positions as predecessor John Snow, including that on currencies. 'I believe that a strong dollar is in our nation's interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals,' Paulson told a Columbia University audience."

The Financial Times. "The US dollar rose on Tuesday as strong economic data revived talk of an August rate rise and Hank Paulson, the new US Treasury secretary, reiterated his department's 'strong dollar' policy."

"Equally importantly, Tuesday's flow of US economic data was also strong, leading to investors to price in a greater probability of US interest rates being raised next week for the 18th straight meeting. 'With pipeline price pressures clearly intensifying, a rate hike cannot be ruled out next week,' said James Knightley, economist at ING Financial Markets."

"As a result, the dollar rose 0.3 per cent to Y115.02 against the yen and 0.2 per cent to C$1.1336 against the Canadian dollar, although it handed back gains to sit little changed at $1.2767 to the euro and dipped 0.1 per cent to $1.8697 against sterling. The yen was weak across the board, falling 0.3 per cent to Y146.83 to the euro and 0.4 per cent to Y215.08 against sterling, despite the lack of an obvious driver."

"Amid mounting signs that the US economy is beginning to slow, research by Lehman Brothers indicated that the Australian dollar is the currency most sensitive to a slowing US economy, followed by sterling and the Mexican peso. In contrast, the euro, yen and Swiss franc have historically risen against the US dollar in such circumstances."

"The Malaysian ringgit was a big loser Tuesday as Asian currencies were undermined by tepid stock markets and a view that any pause in US interest rate rises could be taken as a sign the US economy is slowing."

"JPMorgan Chase currency strategist Claudio Piron said there seemed to be an increase in risk aversion. Some investors were worried about a slowdown in US growth and a Fed pause in raising rates would be taken as a sign the authorities were concerned, too."

"Piron pointed to the failure of the Standard & Poor's 500 Index to rally beyond a 100-day moving average while the volatility index was finding support at higher levels. 'The market is very treacherous. It looks as though volatility is still trending higher and the equity markets are still struggling,' he said."

From MarketWatch. "Gold futures rallied Tuesday, tracking sharp gains in the oil market after Iran's president rejected a United Nations resolution demanding that it suspend uranium-enrichment activities. 'Gold is getting a safe-haven bid again,' said Amaury Conti, equity trader at Austin Calvert-Flavin."

"Gold for October delivery closed up $12 at $652.40 an ounce. The contract had fallen to as low as $635 early in the day. Other metals were also higher, with silver up 37 cents at $11.74 an ounce. Platinum added $16.90 to $1,258.50 an ounce, palladium ended up $4.80 to $321.95 an ounce."

"'On the one hand, there's worry about the Middle East and then with oil back over $75 a barrel, inflation fears are creeping back up,' he said. 'We've also had some hawkish comments from Fed speakers in the past few days," refueling concerns that the U.S. central bank may increase interest rates for an 18th time at next week's monetary-policy meeting.'"

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