Friday, September 29, 2006


Fed Fears Hit Gold

Some currency reports. "The US dollar was stable against the euro on data from the United States suggesting that the US economy was enjoying a soft landing. The euro meanwhile is on the backfoot after inflation in the 12-nation single currency zone dropped to an annual rate of 1.8 per cent from 2.3 per cent in August."

"Analysts said the ECB was still on course to lift its key refi rate another quarter point to 3.25 percent next Thursday, especially after a surprising rise in economic sentiment in the eurozone. 'The temporary drop in inflation in September is unlikely to deter the ECB from hiking, especially as inflation is set to move back above target over coming months,' said Mitul Kotecha, head of global foreign exchange strategy at Calyon."

"The US dollar was stronger during the week after the US core personal consumption expenditures deflator figures in August were higher than had been expected. The deflator, which is the Federal Reserve’s favorite measure of inflation, was at its highest annualized rate in eleven years."

"The greenback was 0.9 percent higher versus the euro, to $1.2661, while it added 1.3 percent in relation to the Japanese yen to ¥118.03."

"Worrisome news of rising consumer prices helped torpedo gold Friday. December bullion futures shed $6.70 to close at $604.20 an ounce on the Comex. The core personal consumption expenditure deflator rose 0.2% in August, putting its year-over-year increase at 2.5%, the highest in over a decade. It will likely lower the prospect of a cut in short-term interest rates anytime soon as the Federal Reserve tries to squeeze burgeoning price pressures out of the economy."

"St. Louis Fed President William Poole gave some hawkish comments in a speech Friday: 'Accepting higher inflation, or even a continuation of the current rate of inflation, in an effort to sustain current employment levels will only lead to more grief later,' Poole said."

"Chart watchers were not viewing recent trends positively despite the fact that the yellow-metal found support above the psychologically important $600 level. 'It's making a stair-step decline, which is normal for a bear market,' says Rich Ishida, president of Pasadena-based MarketVane. 'I see lower highs and lower lows.'"

"Elsewhere in gold, Sweden's Riksbank says it intends to sell 10 tons of bullion over the next 12 months, according to news reports."

"Gold for December delivery climbed for seven sessions in a row to tally a gain of $27.70 from the closing level on Sept. 19. A week ago, the contract closed at $595.40 and it ended last month at $634.20, so it marked a gain of around 1.5% for the week, but a loss of $30 for the month."

"December silver closed down 19.5 cents at $11.54 an ounce, ending the month 11.4% lower. It was up 2% for the week."

"'After going straight up after bottoming around $570, gold is deservingly taking a breather today,' said Peter Grandich. Grandich said he expects prices to 'test critical resistance around $640 next month and if it breaks through, a more dramatic rise to this year's old highs around $735 are in the cards.'"

"The metal, which jumped about 5 percent in a week, lacked the strength to hurdle the moving average barrier at $613.70 in December futures in the near term. 'If we pop through that, it could be 'Katie bar the door.' But it's probably going to take some kind of news to do that,' said James Quinn, commodities commentator at A.G. Edwards & Sons."

Thursday, September 28, 2006


Oil Leads Commodities Up

MarketWatch reports on the US dollar. "The dollar traded higher Thursday, touching a one-week high versus the yen and two-week high against the British pound, continuing its recent rebound as investors shrugged off an unexpected downward revision to U.S. growth in the second-quarter."

"David Gilmore, a partner at Foreign Exchange Analytics, said the dollar was moving against the yen as the Japanese currency continued to react to recent comments from new Finance Minister Koji Omi that there wasn't any reason to take any action on the euro/yen rate. 'People are sort of betting on Japan and the yen still being the source of funding for the carry trade,' in which investors make profits by borrowing lower-yielders and reinvesting in higher-yielding currencies and assets, Gilmore said."

"Meanwhile, the British pound came under heavy pressure after news that the U.K. Office of National Statistics made a serious error in its inflation data calculations and has 'slashed its estimate of annual inflation,' said Boris Schlossberg, senior currency strategist at FXCM."

"Also on Thursday, the greenback slipped below 7.90 versus the Chinese yuan for the first time since Beijing revalued its currency last year."

From the Standard. "The US dollar bought less than 7.9 yuan for the first time since a link to the US currency ended in July last year."

"US Treasury Secretary Henry Paulson said Wednesday in Washington that he asked Senators Charles Schumer and Lindsey Graham to delay a vote on imposing duties on Chinese goods. Sanctions are 'not the right way to negotiate with China,' he said. 'Quiet diplomacy always works in Sino-US politics,' said Wang Qing, head of economics and strategy for Greater China at Bank of America Corp in Hong Kong. 'If the senators pass the bill, it'll be a major setback.'"

"Dealers said a powerful correction may be looming due in part to the yuan's recent rapid gains. 'The market appears to be convinced the central bank is willing to allow the yuan to rise at a faster pace,' said a dealer at a major domestic commercial bank. 'But the market also believes the central bank will reach the goal by widening the yuan's trading band instead of straight-line gains.'"

"One-year contracts show traders are betting the yuan will strengthen to 7.6430 in a year, compared with 7.6545 Wednesday. That would mean the currency would rise 3.2 percent in that period. The yuan's gain may slow on speculation China's central bank will engineer two-way moves in the currency, said Royal Bank of Scotland Hong Kong- based strategist Ben Simpfendorfer."

From Dow Jones Newswires. "Gold futures continued their recent bounce Thursday, with traders and analysts citing improved physical demand and chart-based factors, with the metal getting an additional boost as oil kept recovering from its recent lows."

"December gold rose $7.60 to settle at $610.90 an ounce on the Comex division of the New York Mercantile Exchange, while December silver added 3.5 cents to $11.735."

"Some of the selling pressure from earlier in the month abated when the Comex December futures' bottom of $576.60 on Sept. 15 remained above the June lows, said Tom O'Brien, analyst and editor of 'The Gold Report' newsletter. Now, the contract is poised to return to $619, perhaps in the next couple of days, O'Brien said."

"'When you hold support, the market has proven there are no more sellers in the market,' he said."

"Looking at the market on a fundamental basis, 'Oct. 16 is the first holiday in India,' O'Brien said, referring to the Diwali holiday. Then comes what is referred to as the 'wedding season' in November and December. 'Those jewelers come into the market right now to buy the gold,' he said. 'That's real support. That's real physical buying.'"

"A gold trader also cited both technical strength and improving physical demand, but added that a recovery in crude oil since the beginning of the week has given gold an extra push higher. 'There has been good physical demand lasting for the last one-and-a-half to two weeks,' he said. 'That paved the way. And technically, we held the $570-ish area.'"

"'Oil held a trendline. And when oil bounced, gold bounced,' said one trader. 'And because it had strong fundamentals, which is the physical demand, specs started to get slightly more positive on gold.'"

"While silver's gain Thursday was modest, O'Brien suggested that the metal technically has been stronger than gold for a while now. During a recent correction lower, December silver stopped at $10.55 on Sept. 15, well ahead of its June 14 low of $9.64."

"'That is showing silver has a little more strength than gold,' O'Brien said. However, silver had a heavy one-day sell-off of more than $1 on Sept. 11. Thus, he said, 'it's going to take a little bit more work' for the metal to break out of a current band of resistance that he puts all the way from $11.20 to $12.32. Like gold, December silver hit its strongest level since Sept. 11, peaking overnight at $11.86 an ounce."

"Meanwhile, October platinum gained $7 to $1,146 an ounce and January rose $13 to $1,160. The rollover continues ahead of first notice day for October at the end of the month. December palladium added $4.10 to $324.10 an ounce."

"'They are just following oil up,' said a Platinum Group Metals trader. 'It's all on the back of oil right now. That's pulling gold and everything else up.'"

Wednesday, September 27, 2006


Gold Climbs Above $600 Mark

MarketWatch reports on the move in gold today. "Gold futures closed Wednesday above $600 an ounce for the first time in more than two weeks, extending strength from the previous session with support from strong overseas demand, firmer oil prices and the recent conclusion to European central bank sales of the precious metal."

"'The catalyst for this move has been the convergence of two primary factors: the cessation...of the central bank disposals and the emergence of positive demand reports from key consuming countries,' said Jon Nadler, an investment products analyst at bullion dealers"

"'We have a feeling that hard-core bears will want more evidence of sustained strength, and they will be looking for slippage in the dollar, rising oil, and aggravating geopolitics before they, too, commit to the market to the same extent they did in the second quarter of this year,' he said."

"Gold sales for this year, under the central bank gold sales agreement, a handshake pact among central banks that set limits on each year's sales of the metal from sovereign vaults, concluded on Tuesday."

"Against this backdrop, gold for December delivery closed up $6.20 at $603.30 an ounce on the New York Mercantile Exchange. It climbed as high as $604.80, the contract's strongest level since Sept. 11."

"Crude-oil futures rallied to close near $63 a barrel Wednesday as the latest report of ample U.S. petroleum supplies raised the prospect that the Organization of the Petroleum Exporting Countries will decide to cut production."

"Oil 'remains a crucial factor in gold's movements though, with another dip below $60/barrel still having the potential to trigger a correction back to the June lows of $542/oz,' said James Moore, analyst at November crude futures fell under $60 on Monday, the contract's weakest level since November of last year."

"With oil prices higher Wednesday, strength in the U.S. dollar failed to cap gold's gains. The greenback touched a one-week high against the yen, but was slightly weaker against the euro after a U.S. report showed better-than-expected sales of new homes in August."

"Other metals moved higher along with gold, with silver posting the strongest gains. December silver rose 20.5 cents to close at $11.70 an ounce after an $11.82 high, the strongest level the contract has seen since Sept. 11. 'Having cleared chart resistance at $11.40, [silver] should now be looking to edge back towards $12,' said Moore."

"Palladium saw its December contract rise by $1.35 to close at $320 an ounce and October platinum futures rose $7.40 to end at $1,139 an ounce."

Tuesday, September 26, 2006


Metals 'Bloodied But Unbowed'

MarketWatch reports on the US dollar. "The dollar was trading mostly firmer against major currencies Tuesday, touching a one-week high versus the euro, after a report showed U.S. consumer confidence rebounded in September. Gains in the dollar may be limited as traders await economic reports on durable goods and new home sales as well as revised second-quarter U.S. growth later in the week, said Michael Woolfolk, senior currency strategist at the Bank of New York."

"'There is little doubt that the going will be treacherous this week for dollar bulls, the market appears willing to sell dollars on the slightest indication of weakness,' he said."

"Meanwhile, the euro initially gained, before tumbling against the dollar after a German business-climate poll indicated that the nation's business leaders are less optimistic about the prospects for the economy compared with the current situation."

"Also on Tuesday, the Chinese yuan finished at its strongest level against the dollar since last year's revaluation. The yuan, also known as the renminbi, closed at 7.9150 against the greenback, compared with Monday's close at 7.9212."

"'The dollar still gets support in the short-term,' said Matthew Strauss, senior currency strategist at RBC Capital Markets Inc. in Toronto. 'It is too early to price in an interest-rate cut' by the Fed."

"Interest-rate futures show traders are pricing in a 12 percent chance the Fed will cut its benchmark rate, now at 5.25 percent, to 5 percent by year-end. The likelihood of a cut was about 19 percent yesterday. 'We don't think they need to hit the panic button, because overall growth is pretty good,' said Jeffrey Young, head of currency research in New York at Citigroup Inc."

"'The data are building a case that the euro zone growth rate has probably peaked,' said Adrian Foster, director of currency sales at Dresdner Kleinwort in Singapore. 'The euro is a sell on rallies.'"

"Gold futures rose Tuesday as strong overseas demand for the precious metal combined with the end of European central bank sales, lifting the benchmark gold futures contract to its highest level in two weeks. 'While some more backing and filling is possible, gold has once again withstood a sharp and violent correction – a trademark pattern in secular bull markets,' said Peter Grandich."

"Gold for December delivery closed up $1.20 at $597.100 an ounce on the New York Mercantile Exchange reversing from an earlier low of $591.60. The contract touched a high of $599.50, its loftiest intraday level since Sept. 14. Silver's December contract gained 17 cents to close at $11.495 an ounce."

"'The scheduled official [central bank] sales are now over, and India is back, and buying,' said Jon Nadler, at bullion dealers Sept. 26 marked the end of 2006 gold sales under the Washington Agreement, a handshake-pact among 15 central banks that set limits on each year's sales of the metal from sovereign vaults."

"'It turns out that the rumors of massive year-end sales by the signatories of the central bank gold agreement were rumors,' said Julian Phillips, an analyst at 'We could see a total for the year of only 415 metric tons (including unannounced sales) – still well short of the 'ceiling' of 500 metric tons,' he said."

"'Of far greater importance is the fact that only (plus or minus) 600-700 (metric tons) remain of the announced sales for sale over the next three years,' he said."

"'The metals complex is bloodied but unbowed and, if I'm right, the metals will find their footing leading to a rally that will get a lot of traders' attention," said Dale Doelling, chief market technician at Trends In Commodities. 'Strong physical demand, a U.S. dollar working its way lower on a weakening U.S. economy and a belief that heighten geopolitical concerns worldwide are only a question of when, not if, all remain supporting factors for gold,' said Grandich."

"It's important to note: 'the yellow metal is not out of the woods yet, particularly with gold's recent correlation with oil, and remains vulnerable to bouts of fund liquidation,' said James Moore, analyst at in London."

"Given that, traders need to 'continue to take into account the sustained closings we have had under the moving average levels and allow for the possibility of a further spike to the downside absent surprise geopolitical developments or some terrible economic data,' said Nadler."

"'All we did was trade down to support just above the $590 area, then bounced off of that, from a technical perspective,' said Dave Meger, senior metals analyst with Alaron Trading. 'We saw a little buying come into that price level, and that created a little short covering.'"

"But the futures stalled at $599.50, just shy of the $600 psychological area, Meger continued. October platinum settled down $1.60 at $1,131.60 an ounce. December palladium settled up $1.45 at $318.65 an ounce."

Monday, September 25, 2006


'Gold Still Looks Defensive'

Bloomberg reports on gold markets. "Gold rose for the fourth straight session, erasing earlier losses, as a rebound in the cost of energy boosted the appeal of the precious metal as a hedge against inflation. 'The gold market is taking its lead from energy,' said Michael Guido, director of hedge fund marketing at Societe Generale in New York. 'They've been moving tick for tick in September. The short-covering in crude has given back some to gold.'"

"Gold futures for December delivery rose 50 cents, or 0.1 percent, to $595.90 an ounce on the Comex division of the New York Mercantile Exchange after earlier dropping as low as $587.50."

"Prices may drop because gold failed to close above the 200-day moving average on Sept. 22, some analysts said. The metal has traded below that average since Sept. 12. 'A close above its 200-day moving average could bring some additional buying back to the market, but a failure to do so could send the market drifting lower,' said Jim Pogoda, an investor in Summit, New Jersey."

"Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures to the lowest level in more than a year during the week ended Sept. 19, U.S. Commodity Futures Trading Commission data show. Speculative long positions outnumbered short positions by 77,868 contracts, the lowest since Aug. 5, 2005, the agency said on Sept. 22."

"'Gold still looks defensive,' said William O'Neill, a partner at commodity research firm Logic Advisors LLC in New Jersey. 'Funds are shying away, and that is keeping rallies in check.'"

Th "India is expected to import 10% more gold during 2006 compared with the 2005 total of 720 tons, according to a representative of the Gem and Jewelry Export Promotion Council."

"Weighing on the downward side was a slightly higher dollar against the euro, which was recently trading at $1.2762 vs. 1.2788 late Friday. The dollar was buying 116.525 yen, barely changed from 116.52 yen at the end of last week."

"This week traders will eagerly await data from the European Central Bank, scheduled for Tuesday release, showing the value of gold sales last week. Tuesday marks the deadline for central banks to fill their annual quota of bullion sales under the terms of a multilateral agreement."

A new ETF is launched. "Last week, a new currency ETF came to market with almost no notice: the PowerShares DB G10 Currency Harvest Fund. The fund invests in currencies of the G-10 countries: the euro, yen, Swiss franc, British pound, Norwegian krone, Swedish krona and the Canadian, Australian and New Zealand dollars, but not the greenback, because this ETF is primarily intended as a tool of diversification for U.S. investors."

"The strategy is to go long the three highest-yielding currencies leveraged 2-1 and to short the three lowest-yielding currencies with no leverage. The idea is that higher-yielding currencies attract capital at the expense of the lower yielders."

"Higher yields do tend to make a currency more attractive, but that overlooks an important point: Currencies whose interest rates are moving up tend to be strong. A currency starting from a low base interest rate that is headed higher is likely to be a strong currency, but it could be overlooked by the ETF's strategy."

"An example of this is the Swedish krona, which is a short position in the ETF. Sweden has raised rates several times this year, has better GDP growth and a lower unemployment rate than the eurozone, and a more conservative party won the recent national election. These factors are bullish for the krona, and indeed it has strengthened against both the U.S. dollar and the euro."

"The ETF is long the New Zealand dollar, but you may not want a bite of the kiwi. The overnight rate has been the highest of the bunch for several years now and there is visibility for it to stay high for a while still, meaning it could remain a long position in the ETF for some time."

"Last week, New Zealand reported a record current account deficit for the second quarter of NZ$15.15 billion ($9.9 billion), approximately 9% of GDP. The current account deficit has tripled in the last three years. This could result in a lower kiwi. The Reserve Bank of New Zealand may be painted into a corner of maintaining a high interest rate to defend a declining currency."

"This is not to say that the fund should not be bought. However, the strategy has its limitations, and understanding what could go wrong is important."

Friday, September 22, 2006


'A Big Bet The Fed Is Done'

Reuters reports on the currency action. "The dollar slipped against the euro, and inched up against the yen on Friday, against a backdrop of growing risk aversion in world markets as investors fretted that slowing U.S. economic growth may prompt the Fed to cut interest rates as early as next year. It was the outlook for interest rates that drove the dollar as investors still traded off Thursday's Philadelphia Federal Reserve Bank report showing the first negative reading in business activity in September in more than three years."

"'The market is putting a lot of weight into the Philly Fed (data) and the Fed leaving rates unchanged,' said Joe Francomano, vice president of FX at Erste Bank in New York. 'The market is making a big bet that the Fed is done.'"

"'Weakness against major currencies is a function of the downgraded growth expectations,' said Robert Lynch, head of G10 FX strategy for the Americas at HSBC in New York. 'The market is all about pricing risk. The latest data has increased the perceived risk that it could be a hard landing' for the U.S. economy, he said."

"In addition to concern that a U.S. economic slowdown could harm global growth, another factor behind heavy selling of emerging market currencies, stocks and bonds was increased political risk. This week brought a collapse of Poland's coalition government, violence over a political scandal in Hungary, a military coup in Thailand, and another political scandal in Brazil."

From Bloomberg. "'The dollar is vulnerable,' said Todd Elmer, a currency strategist at Citigroup Global Markets in New York. 'The market has started to price in some risks of a rate cut in December.'"

"'We are solid dollar bears,' said David Durrant, chief strategist in New York at Julius Baer Investment Management, which oversees about $42 billion. 'A move to price in a rate cut in December signifies a softer dollar ahead. I would prefer assets outside the U.S.' Durrant predicted the dollar will slide to $1.30 per euro and 110 yen by year-end."

"European Central Bank officials including President Jean- Claude Trichet this week reiterated their pledge to exercise 'strong vigilance' on inflation, paving the way for higher rates next month."

"The yen may also garner support as China's yuan gained a fourth straight week. 'We see the dollar-yuan rate sliding to about 7.8 later this year and then about 7.4 by the end of next year,' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York."

"The yuan today reached its strongest since China ended the currency's peg to the dollar in July last year."

"Gold rose, capping its biggest weekly gain since July, as the dollar weakened against the euro and jewelers from India increased buying before the country's wedding season. 'We've seen some pretty phenomenal physical demand from India, which has limited gold's downside potential,' said James Moore, an analyst with"

"Gold futures for December delivery rose $7.10, or 1.2 percent, to $595.40 an ounce on the Comex division of the New York Mercantile Exchange. The $12.40 gain for the week was the biggest since the five-day period ended July 28 and ended two weeks of declines. Prices are down 19 percent from a 26-year high of $732 on May 12."

"Gold for immediate delivery rose $5.35, or 0.9 percent, to $589.54 an ounce as of 8:27 p.m. in London time."

"Gold prices 'will bounce again,' after an annual deadline for European Central Bank sales expires at the end of September, Peter Hambro, founder and chairman of Peter Hambro Mining Plc, said yesterday. The company is Russia's third-biggest gold miner."

"Under the Central Bank Gold Agreement, banks in Europe agreed to sell no more than 500 tons in the year ending September. They've sold 380 tons as of Sept. 19, the London- based World Gold Council said."

"Gold 'is still a bit at risk of further pressure,' Moore said. 'There is potentially more metal coming onto the market.'"

"Among other precious metals for immediate delivery in London, silver rose 3 cents, or 0.3 percent, to $11.145, palladium climbed $10, or 3.2 percent, to $319 while platinum gained $7, or 0.6 percent, to $1,145.50."

Thursday, September 21, 2006


Feds 'New Reality' Boosts Gold

The reports on the US dollar. "A weaker greenback helped push gold higher Thursday, despite some early-session concern over central-bank selling and hedge fund liquidation. 'The dollar weakness is due to the new reality that the Fed is very likely done raising interest rates,' says Randy Diamond, an analyst at Miller Tabak."

"With the next move in U.S. short-term interest rates likely to be lower, traders will likely be selling dollars in favor of yen and euros. The dollar was buying 116.38 yen, down from 117.45 yen late Wednesday, and was also losing against the euro."

"'The market's got its knickers in a twist about whether it's going to have to absorb more heavy sales from the signatories to the second Central Bank Gold Agreement,' says Rhona O'Connell, an analyst with GFMS Analytics in London. 'Whether they are or whether they aren't, it's the perception that is important.'"

"The European Central Bank sold about 499 million euros worth of gold last week, or about 34 tons of gold, and concern remains that more could be coming soon."

"Also dampening the mood was Amaranth, which was reported earlier this week to have lost $4 billion while trading in volatile natural gas futures. 'A news story like that is going to cause someone to stop and think,' says Bernard Hunter, director of precious metals in Toronto for bullion bank ScotiaMocatta. 'It surely must have an impact on your decision on whether to invest in commodities.'"

"Hunter adds that he is seeing increased physical buying of bullion, which is helping support the price level, although investors are quickly developing lower expectations about prices."

"'It's interesting that we are seeing demand increase as the price drops,' says Alex Edwards, chief operating officer at, who adds that business is up 30% in value terms in September compared with August despite the recent selloff."

From MarketWatch. "December gold climbed $2.10 to close at $588.30 an ounce in New York, as weakness in the U.S. dollar and strength in oil prices drove investment demand. Earlier, prices for the contract climbed as high as $590.80. December silver closed at $11.245 an ounce, up 10.5 cents."

"Scott Meyers of Pioneer Futures said gold closed higher but was unable to break out of Wednesday's trading range. 'It was meandering near its lows for the day and we are seeing support around the $575-$576 level but there is strong resistance near $600,' said Meyers."

"The silver market appeared to settle in better shape than gold as the December contract did push above Wednesday's session high. During the session the contract got as high as $11.29 an ounce."

"October platinum settled 50 cents lower at $1,139.50 an ounce while December palladium ended up $2.65 at $309 an ounce."

Wednesday, September 20, 2006


'Fed Trying To Engineer Soft-Landing'

The Associated Press reports on the FOMC meeting. "The Federal Reserve left a key interest rate unchanged on Wednesday as falling energy prices helped to restrain inflation pressures. Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent."

"The Fed is trying to engineer a soft-landing for the economy in which growth is slowed enough to keep inflation from getting out of hand without overdoing the credit tightening and raising the chances of a recession."

"In its statement, the Fed continued to signal concerns about inflation, repeating a phrase it had used last time, that the Fed's rate setting panel 'judges that some inflation risks remain.'"

"The decision to keep rates unchanged Wednesday was supported by a 10-1 vote with Jeffrey Lacker, president of the Fed's Richmond regional bank, again casting the lone no vote. Lacker, who also dissented in August, argued again that another quarter-point rate hike was needed to keep inflation in check."

"Economists who believe the Fed is finished raising rates point to the drop in energy prices as a major factor that will help slow price pressures going forward. Also helping to lower inflation pressures has been a big slowdown in housing followin

"PIMCO, one of the world's largest bond managers, expects the U.S. economy to slow appreciably over the next 12 months, a PIMCO executive said Wednesday."

"The biggest downside risk for global growth is a sharper-than-expected slowdown in the U.S. housing market, said Paul A. McCulley, a managing director and portfolio manager at PIMCO."

"PIMCO expects the effect on growth outside the U.S. to be mild, with global inflation increasing modestly over the next 12 months, causing the European Central Bank and the Bank of Japan to continue to raise interest rates, even as the Federal Reserve stays on hold, McCulley said."


'Fed Trying To Engineer Soft-Landing'

The Associated Press reports on the FOMC meeting. "The Federal Reserve left a key interest rate unchanged on Wednesday as falling energy prices helped to restrain inflation pressures. Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent."

"The Fed is trying to engineer a soft-landing for the economy in which growth is slowed enough to keep inflation from getting out of hand without overdoing the credit tightening and raising the chances of a recession."

"In its statement, the Fed continued to signal concerns about inflation, repeating a phrase it had used last time, that the Fed's rate setting panel 'judges that some inflation risks remain.'"

"The decision to keep rates unchanged Wednesday was supported by a 10-1 vote with Jeffrey Lacker, president of the Fed's Richmond regional bank, again casting the lone no vote. Lacker, who also dissented in August, argued again that another quarter-point rate hike was needed to keep inflation in check."

"Economists who believe the Fed is finished raising rates point to the drop in energy prices as a major factor that will help slow price pressures going forward. Also helping to lower inflation pressures has been a big slowdown in housing followin

"PIMCO, one of the world's largest bond managers, expects the U.S. economy to slow appreciably over the next 12 months, a PIMCO executive said Wednesday."

"The biggest downside risk for global growth is a sharper-than-expected slowdown in the U.S. housing market, said Paul A. McCulley, a managing director and portfolio manager at PIMCO."

"PIMCO expects the effect on growth outside the U.S. to be mild, with global inflation increasing modestly over the next 12 months, causing the European Central Bank and the Bank of Japan to continue to raise interest rates, even as the Federal Reserve stays on hold, McCulley said."


'Fed Trying To Engineer Soft-Landing'

The Associated Press reports on the FOMC meeting. "The Federal Reserve left a key interest rate unchanged on Wednesday as falling energy prices helped to restrain inflation pressures. Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent."

"The Fed is trying to engineer a soft-landing for the economy in which growth is slowed enough to keep inflation from getting out of hand without overdoing the credit tightening and raising the chances of a recession."

"In its statement, the Fed continued to signal concerns about inflation, repeating a phrase it had used last time, that the Fed's rate setting panel 'judges that some inflation risks remain.'"

"The decision to keep rates unchanged Wednesday was supported by a 10-1 vote with Jeffrey Lacker, president of the Fed's Richmond regional bank, again casting the lone no vote. Lacker, who also dissented in August, argued again that another quarter-point rate hike was needed to keep inflation in check."

"Economists who believe the Fed is finished raising rates point to the drop in energy prices as a major factor that will help slow price pressures going forward. Also helping to lower inflation pressures has been a big slowdown in housing followin

"PIMCO, one of the world's largest bond managers, expects the U.S. economy to slow appreciably over the next 12 months, a PIMCO executive said Wednesday."

"The biggest downside risk for global growth is a sharper-than-expected slowdown in the U.S. housing market, said Paul A. McCulley, a managing director and portfolio manager at PIMCO."

"PIMCO expects the effect on growth outside the U.S. to be mild, with global inflation increasing modestly over the next 12 months, causing the European Central Bank and the Bank of Japan to continue to raise interest rates, even as the Federal Reserve stays on hold, McCulley said."

Tuesday, September 19, 2006


PM's And Energy In 'Rally-Sold Mode'

A report on the troubles in Thailand. "Stocks dropped suddenly Tuesday after Thailand's military launched a coup against the country's prime minister. Traders watching Thailand closely are certain to remember how trouble in the kingdom had worldwide implications in the past: The Asia currency crisis that erupted in 1997 began with the devaluation of the Thai baht, then snowballed into a currency crisis in emerging markets around the world."

"The baht fell sharply Tuesday, as did Brazil's real, which also tumbled in the '97."

From Bloomberg. "Canada's dollar fell to a one-month low as inflation cooled and crude oil tumbled to the weakest since March. A slower pace of inflation bolstered speculation the Bank of Canada will keep borrowing costs on hold this year. Sinking prices of the nation's commodity exports further undermined the currency."

"'You've got a combination of factors which are going against the Canadian dollar,' said C.J. Gavsie, BMO Capital Markets in Toronto. 'Oil has given up $2 in a day. That massive plunge sped up the correction,' meaning the currency's drop, he said."

From Reuters. "Gold tumbled after early short-lived gains on Tuesday as investor confidence remained fragile after last week's huge sell-off and ahead of this week's U.S. Federal Reserve meeting. Silver sank 2.9 percent and failed to hold above the $11 an ounce mark as technical fund selling continued to pressure the precious metals complex."

"Gold hit a high of $588.50 an ounce in Asian trade before falling as low as $576.40. It was last at $576.70/578.20 in New York, against $586.20/7.70 late on Monday."

"Dealers said precious metals and energy markets now looked to be in a 'rally-sold' mode, as any move higher tends to be met with renewed selling because technical indicators appear very oversold."

"'Technical funds have been shorting the gold market, the silver market and selling the energy market as well, so you have new shorts in the market who I think are defending positions and selling on rallies,' said Mike Guido, director of hedge fund marketing at Societe Generale in New York."

"Prices got little in the way of safe-haven support from a crisis in Thailand, as gold mostly tracked crude as well as a stronger dollar."

"The dollar firmed against the euro in choppy trade after a sharp decline in U.S. housing strength and inflation in August, supporting the view that the Federal Reserve will keep interest rates steady. The Fed meets on Wednesday to decide on rates, after its first pause after 17 straight rate increases at its last meeting."

"In related news, gold reserves of euro zone central banks fell 499 million euros in the week to Sept. 15, the European Central Bank said. The fall was due to sales of gold by three Eurosystem central banks and some traders said the figure suggested a sale of about 34 tonnes of gold during the week."

"In other metals, silver fell as low as $10.79 an ounce before ending at $10.80/10.87, compared with $11.12/11.19 previously. Platinum eased to $1,150/1,155 an ounce, while palladium was at $312.5/317.50 an ounce from $307/312."

Monday, September 18, 2006


'A Remarkable Opportunity?'

The Washington Post has the latest from the US trasury chief. "U.S. Treasury Secretary Henry Paulson on Monday played down hopes for "quick fixes" in the drive to persuade China to let its currency rise, damping market speculation about swifter Asian currency appreciation. 'It takes a while and I'm not looking for immediate solutions or any quick fixes to particular situations,' said Paulson."

"He spoke to reporters traveling with him following meetings at the annual International Monetary Fund and World Bank meetings. Paulson also participated in meetings on Saturday of finance chiefs from the Group of Seven, the United States, Britain, Canada, France, Germany, Italy and Japan, that called for currency flexibility and essentially aimed to drive up Asian currencies such as Japan's yen and China's yuan."

"Paulson's remarks about China gave the U.S. dollar a fresh boost as the market interpreted this as a sign that the United States would not step up pressure on Beijing to allow its currency to strengthen faster. The dollar edged up yen to a fresh five-month high of 118.23 yen."

The International Herald Tribune. "'China is at a crossroads,' said Lanxin Xiang, professor of international history and politics at the Graduate Institute of International Studies in Geneva. 'They are not quite sure which way to turn in the international monetary system. Should they take the Bretton Woods system seriously and engage, or should they reconsider the rules of the game?'"

"U.S. dominance of the international system makes Beijing suspicious, Xiang said, and many Chinese policy makers would prefer a regional approach that would nurture nascent structures like an Asian monetary fund and an Asian currency unit."

"'China is very cautious about this stuff,' Leon Brittan, a senior adviser at UBS and a former deputy president of the European Commission, said, referring to the Bretton Woods system. 'They want a seat at the table, but they probably don't want to become a major player because they don't perceive they have much to gain.'"

"Recently, there have been signs of some quite radical thinking from Beijing in regard to the international monetary system."

"'The U.S. dollar is no longer a stable anchor in the global financial system, nor is it likely to become one,' said Fan Gang, a member of the Monetary Policy Committee of the Chinese central bank. 'Thus it is time to look for alternatives.'"

"Ideas floated in this regard, Fan said, include an international currency based on the Special Drawing Rights of the IMF, the evolution of an Asian currency unit, a return to the gold standard or something 'in between' these proposals."

From MarketWatch. "Gold futures climbed nearly $10 an ounce Monday to close at their strongest level in three sessions as traders with an upbeat outlook on the precious metal took advantage of last week's losses to buy back into the market at lower prices.
'Gold is bouncing thanks to a deeply oversold condition,' said Peter Grandich."

"'The difference now is traders are looking to sell rallies versus buy dips,' he said, adding that 'gold will need to close above $610 to confirm the recent big slide was indeed just a correction.'"

"Gold for December delivery closed up $9.80 at $592.80 an ounce on the New York Mercantile Exchange, its highest closing level in three sessions. Earlier, the contract touched a high of $594.40 following a loss of nearly 6% last week."

"'The odds of a consolidation above $575 have increased with the bounce off last Friday's lows," said Nell Sloane, analyst at However, 'to shut off the selling pattern over a series of days will require a persistently lower dollar or a persistently higher equity market,' she said."

"'Without some strong wave of Indian buying, news of resurgent Chinese activity or some other major fundamental revival, we doubt that December gold will be able to rise above significant overhead resistance up at $600,' she said."

"Likely adding more support for prices is market speculation over the potential for a rise in European central bank gold sales, ahead of a deadline next week. 'With next week's deadline for the European central banks to complete their 2006 gold sales and lending, gold's volatility could amplify in the coming days due to uncertainty over what the 15 banks will do,' portfolio managers at U.S. Global Investors wrote in a weekly newsletter issued Monday."

"The latest estimates indicate that the banks have sold less than 350 metric tons of their 500 metric-ton quota for the year ending Sept. 27, 2006, they said.
'Contrary to some opinion, the central banks are not heavy sellers of gold at the moment, nor have they been,' said Julian Phillips, an analyst at"

"'There has been no change in the gold and silver tide, which is still flowing,' he said. 'The question is, is this a remarkable opportunity or is there a bit further down to go?'"

"Also on Nymex, December silver rallied 41.5 cents, or 3.8%, to close at $11.29 an ounce, a reversal following last week's loss of more than 11%. October platinum found support from the strength in other precious metals to close at $1,166.90 an ounce, up $3.20. But December palladium closed at $311.55 an ounce, down $3.25 for the day."

Friday, September 15, 2006


Commodities Not A 'One Way Bet'

The Financial Markets site has this on the greenback. "The US dollar strengthened somewhat on Friday after new consumer price inflation data showed that consumer inflation was up 0.2 percent month-on-month, putting the annual core inflation rate at 2.8 percent, about what had been expected. Meanwhile a consumer sentiment survey showed that the mood of US consumers was better, mostly due to declining energy costs."

"Meanwhile, the Swiss franc weakened during the week after the Swiss National Bank raised rates to 1.75 percent on Thursday. The Swiss currency was 0.7 percent lower over the week versus the euro, to a 6½ year low."

"The Canadian dollar slipped against the U.S. currency on Friday, as soft commodity prices weighed, while the greenback benefited from position-squaring ahead of a weekend Group of Seven meeting."

The "Gold was slumping again Friday as benign price data helped reduce investor concerns over inflation. Contracts for December delivery of gold were recently sliding $7.30 at $578.70 an ounce on the Comex, as expected resistance at $580 failed to materialize."

"'I think the bigger picture here is that there is now a dawning realization that the U.S. economy is slowing,' says Anirvan Banerji, director of research at the Economic Cycle Research Institute in Manhattan. 'Today's inflation number would have contributed to that feeling.'"

"Other observers point to a radically changed outlook for the world, compared with that seen only a few weeks ago, as a factor driving gold prices lower."

"'When investors came back from the summer holidays they saw a rising dollar and a cease-fire in Lebanon,' says Matt Turner, a metals analyst at Virtual Metals. When compared with the previous scenario 'maybe commodities didn't see such a one-way bet.'"

"Turner also notes that the metals meltdown seen in late May and June and which took spot prices as low as $569.75 an ounce from a high of $725.25 on May 12 may have been stemmed by Barrick Gold's aggressive second-quarter program of dehedging. Unwinding short positions would have resulted in bullion buying on the open market and could have provided a floor for sliding prices."

The Shanghai Daily. "Linking China's currency reform to America's growing trade deficit is 'detrimental to both sides,' a Ministry of Commerce spokesman said yesterday. Spokesman Chong Quan's remarks came after two US senators threatened to push for a vote on punitive tariffs against China for not making enough progress in reforming its currency regime."

"China began revaluing its yuan in July last year by eliminating its peg to the US dollar and linking it to a basket of currencies and allowing it to float within a 0.3 percent daily trading band. The currency has strengthened gradually over the past 13 months, gaining 4 percent since the revaluation began."

"To ease the trade imbalance, the State Council, China's Cabinet, is devising policies to facilitate imports. In addition, China's central bank may widen the yuan's trading band against the US dollar in the fourth quarter or early next year, a senior economist said yesterday."

Thursday, September 14, 2006


Gold, Oil Extend Declines

Bloomberg reports on Gold trading. "Gold in New York fell to the lowest since June after a rally above $600 failed to attract new buyers. 'People are selling rallies now,' said Frank Lesh, a trader in Chicago. 'There are still some longs that have been trapped. The trade now is to sell gold and get short of this stuff.' Gold is down 20 percent from a 26-year high of $732 an ounce reached on May 12."

"Gold futures for December delivery fell $10.30, or 1.7 percent, to $586 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price since June 28. Prices earlier traded as high as $601.80. Today's decline was the sixth in seven sessions."

"Losses accelerated after gold fell below the 200-day moving average, a signal to traders who look at historical charts that prices are poised to fall. 'You have a flip in the market from net long to net short,' said Michael Guido, director of hedge fund marketing at Societe Generale in New York. 'Speculators are starting to short the market.'"

"A decline in oil helped send gold lower. Oil futures touched $63.15 today, the lowest since March 23, after reaching a record high of $78.40 on July 14. Oil erased earlier gains after the Energy Department said inventories are 11.7 percent higher than the five-year average. Gold and oil have generally moved in lockstep as investors buy the metal as a hedge against inflation when energy expenses climb."

"Gold may drop to $575 before rebounding, said Guido. 'The intention is to buy the market but investors want to see how low it can get,' Guido said."

"The lowest prices in more than two months may attract some buyers, analysts said. Gold may rise to $700 an ounce by the end of this year, GFMS Ltd., an indepe"ndent London-based precious metals research company, said in a report today.

"Net purchases of gold for investment totaled 165 tons in the first half, compared with net sales of 38 tons a year earlier, GFMS said. Jewelry demand, the biggest use for the metal, fell 28 percent to 1,069 tons. 'The worst of the decline may be over,' said GFMS Executive Chairman Philip Klapwijk at a London conference today."

"'I'm looking for a bounce from bargain hunters,' said Leonard Kaplan, president of Prospector Asset Management. Lower prices have lured some of his clients back to the market, he said."

From Today Online. "And as the cliché goes: 'When the US sneezes, the rest of the world catches a cold.' The problem is that if the eagle has a severe chill, the Chinese dragon could catch pneumonia. And with both sick, the global economy is in trouble."

"China's economic success has been powered by an export boom to the US. US consumers spend billions on cheap goods manufactured in China, where labour costs are a fraction of Western capitalist labour costs. China in turn imports raw materials like oil, iron ore and copper from third countries."

"But with the US economy slowing and consumers cutting back their spending, China's growth could come to a sudden halt if Americans stop buying Chinese imports."

"The doomsday scenario is premised on the questionable but plausible analysis that an economic bubble (bigger than the dotcom one) has developed in China, a view held by a quiet minority of experts. The bubble will be pricked by the US economy going into a severe recession, as investors and Chinese consumers in China worry about the consequences of a US recession."

"If this happens, China will no longer be able to fund America's massive budget and current account deficit by buying US treasury bonds. (It is doing this because it wants to keep its currency from rising against the US dollar, believing that a rising yuan is bad for exports to the US). The US dollar will collapse, bringing another set of problems."

Wednesday, September 13, 2006


Gold Now 'Severly Oversold'?

Bloomberg looks at the metals trading. "Gold in New York rebounded from a 10- week low as some investors bet the 8.1 percent drop in prices in the past five sessions was overdone. Gold's seven-day relative-strength index fell below 30 for a third straight day, a signal prices may rise. Before today, the metal was down 19 percent from a 26-year high of $732 an ounce in mid-May."

"'The market is now so severely oversold that a bounce is inevitable,' said Dennis Gartman, gold trader, economist and editor of the Gartman Letter."

"'The market has flushed out a lot of weak long positions,' said Stephen Platt, a commodities analyst at Archer Financial Services Inc. 'There's a lot of speculative buying interest back under $600.'"

"'There's still speculation that certain banks may come in and sell more gold,' said Carlos Perez-Santalla, gold trader and President of Hudson River Futures. 'They'll be looking to sell on rallies.'"

"The Bank of Portugal said on Sept. 11 it sold 20 tons in the past few months. The amount sold last week by the two unnamed banks was the most since two member banks sold gold worth 291 million euros in the week ended July 7. 'Any rally toward $595 to $605 will be met with considerable selling from central banks who've got tons of gold yet to sell and now feel as if they must do so, for they've missed the chance to sell $100 higher,' Gartman said."

"Gold for December delivery closed up $2 at $596.30 an ounce in New York Mercantile Exchange action, having earlier touched a high of $600.50. December silver closed up 6 cents at $11.20 an ounce, rebounding after ending the previous session at its lowest level since late July."

"Other metals also moved higher, with platinum the only exception. October platinum fell by $22.70 to close at $1,185.80 an ounce. On Tuesday, it was the lone gainer among the key metals futures, climbing nearly $8. December palladium climbed $6.25 to $318.35 an ounce."

"The dollar slipped slightly after US Treasury Secretary Henry Paulson issued a clear warning to China to allow the yuan to appreciate to better reflect its fundamentals."

"His stance suggests that the US will pursue a hard line at the upcoming G7 meetings this weekend. The last time the group of seven most industrialised nations jointly called for greater currency market flexibility, the dollar suffered hefty calls while Asian currencies edged higher. Exhorting greater flexibility is usually seen as code speak for China to allow the yuan to float freely."

"'Pulling no punches, Treasury Secretary Hank Paulson is recommending China swiftly enact economic reforms, with his emphasis on floating the yuan,' said Jeoff Hall, at Thomson IFR Markets said. 'Paulson has admonished that failure to quickly adopt a flexible exchange rate or to ratify other reforms could result in a 'backlash' from other industrialized economies,' added Hall."

"Paulson's comments sets the stage for this weekend's G7, IMF and World Bank meetings. Last week, a German official said the yen's weakness against the euro would be brought up at the meeting."

"The currencies of Thailand, Malaysia and Indonesia may rise faster than their North Asian counterparts as Southeast Asian central banks let them strengthen to control inflation, said Morgan Stanley chief Asia economist Andy Xie."

"A stronger baht, ringgit and rupiah may temper inflation by lowering the price of imported goods, reducing the need for higher borrowing costs that may also choke economic growth, Hong Kong-based Xie said. North Asian economies are not faced with the same inflation pressure, so are more likely to resist currency gains in order to help exporters, he said."

"'The central banks of Southeast Asian countries don't want to raise rates, while they also want to control inflation,' Xie, a former World Bank economist, said. 'The way to do that is to let their currencies appreciate.'"

"'Domestic demand is noticeably weak, especially in Indonesia and Thailand,' Xie wrote in the report. 'Hence, it makes sense to trade currency strength for rate hikes.'"

Tuesday, September 12, 2006


Gold Closes Under 200 DMA

Bloomberg reports on gold markets. "Gold fell in New York, erasing earlier gains, on speculation a drop in the cost of oil and other raw materials will reduce the precious metal's appeal as a hedge against inflation. Gold has tumbled more than $50 an ounce in the past five sessions and is down 19 percent from a 26-year high in May. 'Investors are trying to get out of their long positions,' said Nick Ruggiero, a trader in New York. 'There are no support levels. It's going the keep the bear forces here.'"

"Oil fell as low as $64.11 a barrel today after reaching a record $78.40 on July 14. 'By the end of the year, I could see another $25 to $50 downside' for gold, said Alan Mandel, a trader in New York. 'Crude oil and other commodities are dropping.'"

"Gold closed under the 200-day moving average for a second straight day. 'It has broken the long-term trend,' said Michael Sander, a commodity broker. 'A close down at those levels was very negative. That's an extremely bearish sign.'"

"December gold fell $3 to settle at $594.30 a troy ounce on the New York Mercantile Exchange, after falling below $600 the day before for the first time since June. December silver gave up 10 cents to $11.14 an ounce."

"December palladium also slipped late in the session, settling down $3.95 at $312.10 an ounce. However, October platinum managed a $7.90 gain to settle at $1,208.50 an ounce. The platinum futures had fallen more than $100 from last week's high to Monday's low."

The "Gold's failure to convincingly break through psychologically important resistance at $600 an ounce Thursday sparked another bout of short-selling as investors shrugged off worse-than-expected economic news and a botched terrorist raid in the Middle East."

"'There was a lot of short-selling Monday that returned to the market just moments before the session closed Tuesday,' says Carlos Sanchez, an analyst at CPM Group, 'It's bearish that prices didn't close above $600 an ounce, but bullish that they didn't fall all the way to $580,' the likely zone for the next major support level."

"He still expects to see a rally that could follow the pattern exhibited by the metal in June, when spot prices sprang back from a low of $567.25 an ounce on June 14 to hit a high of $671.50 on July 17. Sanchez warns that investors should anticipate increased metal price volatility during the days to come."

"Other news shows the European Central Bank system stepped up its pace of bullion selling as holdings of gold and receivables dropped by 114 million euros, or about 7.5 tons, last week, compared with 28 million euros in the prior period. That means the bank still has about 150 tons of potential selling available in its quota, under the terms of a multilateral sales agreement that expires Sept. 26. The ECB is not, however, obliged to reach the full allowance."

"Some observers blame Monday's selloff on the ECB trying to offload even more metal as the central bankers rebalance their reserves. In the absence of major news, investors, who hold more gold than all central banks combined, will no doubt remain skittish to such suggestions."

"Countering the bearish effect of the ECB sales was information that South Africa, the world's largest producer of gold, saw production drop by 7.2% in the year to July."

Monday, September 11, 2006


Buying Opportunity Or Popping Bubble?

Bloomberg reports on commodity predictions. "The drop in oil, gold and other raw materials since May is signaling an end to the five-year bull market in commodities as global growth slows and demand falls. 'The mega-run for commodities has run its course,' says Stephen Roach, the chief global economist at Morgan Stanley, the world's biggest securities firm. Roach in May said the surge in oil and metals was a bubble about to pop."

"Commodities are plunging because of reduced growth in some of the world's largest economies. The U.S. Federal Reserve's report on economic conditions in each of its 12 districts last week indicated consumer spending rose 'slowly.' Expansion in China, where growth of 9 percent in the past four years caused raw-material orders to surge, may be curtailed as the central bank raises interest rates and curbs lending."

"Some strategists remain bullish. James Gutman, senior commodities economist in Goldman Sachs Group Inc., the world's second-largest securities firm by market value, says the commodities losses are nothing more than 'cyclical fluctuations.' 'We're certainly not at the end of the long-term bull market,' says Gutman. 'If there are any near-term corrections, I'd view them as a buying opportunity.'"

From MarketWatch. "Gold futures dropped under $600 an ounce Monday to their lowest level since late June with some analysts blaming the sharp declines on European central bank gold sales. 'The selling in the last few sessions has all the earmarks of central bank selling," said Peter Grandich, editor of the Grandich Letter."

"'The belief the Washington Agreement participants would not meet their quota by September 26th now looks like wishful thinking,' he added, referring to a handshake-pact among certain central banks to set limits on each year's sales of the metal from sovereign vaults. Gold for December delivery fell $24.30, or 3.9%, to $593 an ounce on the New York Mercantile Exchange, after trading as low as $592.50 an ounce."

"December silver futures also dropped to $11.42, its lowest level since July 27 and was last down 86.5 cents at $11.43 an ounce. The contract dropped nearly 6% last week."

"Precious metals prices have seen some hefty losses over the past several days, but many analysts believe the declines provide a buying opportunity. Against this backdrop, other metals were sharply lower Monday. October platinum lost $36.50, or 3%, to $1,1963 an ounce and December palladium traded down $17.40, or 5.2%, at $316.20 an ounce."

Friday, September 08, 2006


Boomers And Deflation

Danielle DiMartino writes about the baby boomers and deflation." A reader suggested that immigrants are the obvious solution to the economic vacuum being created by the baby boomers leaving the workforce. Imagine for a moment that there were enough immigrants and young people to offset the number of boomers who will be retiring. If that were the case, would they have the financial wherewithal to fill boomers' shoes?"

"'To think that all the boomers have to do is sell their homes to pay for retirement and health care begets the legitimate question of 'to whom and at what price?'' Pimco's Bill Gross wrote. 'If there are fewer X'ers and Y'ers to unload even their second homes to, rudimentary supply/demand curve analysis suggests prices must adjust downward to facilitate the transfer, incorporating the ability of immigrants and future first-time buyers to afford what now seem to be unaffordable starter homes.'"

"One word is written all over the unfolding demographic picture: deflation. Right now, we're all feeling the faintest of deflationary winds."

"Doug Ingram of Dallas-based Samco Capital Markets explained: 'In mere weeks, gasoline has plunged 65 cents in some areas. In the South, where we use such expressions, we'd say that's downright deflationary.'"

"But it's bigger than an energy bubble. 'What if,' Mr. Ingram asked, 'housing, autos and gasoline all get cheaper? What will housing retreating by 10 to 20 percent and gasoline falling off 26 percent do to inflation?'"

"Deflation, or consistently falling prices, sounds good on the surface. But it's an economic spiral, in which consumers and businesses put off spending indefinitely, on the theory that everything will be cheaper if they just wait until tomorrow."

"In the end, Mr. Gross worried, it is 'too late to have babies, too politically sensitive to import more workers, too daft to recognize that the boomer winter is rapidly approaching and that our assets will not fund our liabilities.'"

"The Bank Credit Analyst suggested: 'Bonds should rally as the market discounts more aggressive Fed easing next year in response to the slowing U.S. economy and receding inflation expectations.' The BCA may be on to something. It was no coincidence that Japanese government bonds outperformed every other asset class in their battle against deflation."

Thursday, September 07, 2006


Metals Have 'Slightly Run Out Of Steam'

Bloomberg reports on the markets. "Gold and silver in New York tumbled the most in seven weeks as the dollar strengthened against the euro, eroding the appeal of precious metals as an alternative investment. 'Dollar strength is hurting the metals,' said Frank McGhee, head metals trader at Integrated Brokerage Services in Chicago. 'Every fund is hitting the door at the same time.'"

"Gold futures for December delivery fell $16.90, or 2.6 percent, to $624.90 an ounce on the Comex division of the New York Mercantile Exchange, marking the biggest percentage drop since July 18. Prices still are up 39 percent from year ago. Silver for December delivery dropped 50.5 cents, or 3.8 percent, to $12.695 an ounce. Prices reached $13.37 on Sept. 5, the highest since May 17. The metal still has surged 78 percent in the past year."

"The dollar was stronger against major currencies as it followed Treasury yields higher. The greenback had a boost on Wednesday from data that showed a surprisingly big jump in U.S. labour costs and raised the risk that the Federal Reserve may have to tighten policy again this year."

"Oil prices slipped to their lowest level in five months before recovering slightly. Prices have slumped more than six percent in two weeks. 'Precious metals have slightly run out of steam,' economist Stephen Briggs said."

"UBS Investment Bank recommended that investors might use current price levels to buy precious metals. 'We are mindful, however, that precious metals are more sensitive to the dollar, which looks solidly rangebound, and that our medium to longer term forecasts for higher prices will require the dollar weakness we expect to materialise,' said John Reade, analyst at UBS."

"'In addition to fresh confirmation of rising Chinese gold production (+9% in the January through June time frame), the market was also presented with ongoing dialogue about a significant mine expansion effort by Gold Fields in South Africa,' said analyst Nell Sloane."

"'While the mine expansion was known in the action yesterday, the trade is seeing the details of an effort to 'go deep' and hopefully increase production by as much as 10.8 million ounces,' she said."

"But Brien Lundin, editor of Gold Newsletter said he didn't believe the Gold Fields' announcement had any impact on the gold price Thursday. 'The expected production growth is too far off in the future, and spread over too many years, to have any significant impact on the current supply/demand dynamic,' he said. And it 'does little to alter the solidly established trend of declining gold production worldwide,' he said."

"Mexico's currency fell to an eight week low against the dollar in early Mexico City and U.S. trading. The peso fell 0.5 percent from late yesterday. For 2006, the peso is down 3.6 percent, the third-worst performance of the 16 major currencies. The yield on the benchmark government bond due in December 2015 rose 5 basis points, or 0.05 percentage point, to 8.25 percent."

"The 12-nation euro was down sharply against the U.S. dollar on Thursday after a second U.S. labor market report supported the case for higher interest rates there."

"Still, the dollar fell to 116.42 Japanese yen from 116.59 on Wednesday. The yen advanced after a German official said the Japanese currency's weakness would be a topic when G-7 officials meet in Singapore this month."

Wednesday, September 06, 2006


'Considerable Uncertainty About Soft Landing'

Reuters has this report on currencies. "The Canadian dollar finished higher versus the greenback on Wednesday after the Bank of Canada left interest rates unchanged and issued a statement that was seen as more hawkish than expected. All of the Canadian dollar's gains came after the Bank of Canada did as expected and left its key overnight rate unchanged at 4.25 percent and said that economic growth had slowed more than anticipated."

"However, the statement sparked buying of the currency as it surprised traders who had been expecting a more gloomy economic assessment given recent data that have shown the economy hitting a soft spot in recent months. 'The price action was more or less to buy Canada on the release of the Bank of Canada, but I think it had more to do with coincidence and timing rather than the Bank of Canada statement itself,' said Jack Spitz, director of foreign exchange at National Bank Financial."

"Spitz, who said the bank statement alone was not enough of a reason to buy the Canadian dollar, suggested the move was due more to an ongoing need for investors to be long Canada on stable fundamentals."

From Bloomberg. "Deutsche Bank AG has joined firms such as Bank of America Corp. and Lehman Brothers Holdings Inc. in lowering its forecast for the yen against the dollar. The bank expects the currency to advance to 108 yen per dollar by year-end, down from a previous forecast of 102. It said the change reflects a slower pace of inflation in Japan and the expectation that the nation's central bank will raise interest rates at most one more time this year."

"'We got interest rate differentials with the dollar wrong because we were surprised by the weak inflation data in Japan,' said Jens Nystedt, a currency strategist in New York at Deutsche. The bank was also surprised by the persistence of the carry trade, where traders borrow in the low-yielding yen and use it to buy investments in higher-yielding countries, he said."

"The BOJ may still lift its benchmark rate to 0.50 percent by year-end, said Nystedt. Deutsche Bank previously forecast at least three rate increases this year, to 0.75 percent. The Federal Reserve's benchmark rate is 5.25 percent and the European Central Bank's target is 3 percent."

The Shanghai Daily. "The revaluation of the Chinese currency should continue gradually rather than abruptly, taking due account of regional implications, according to a report by the United Nations Conference on Trade and Development published in China yesterday."

"Supachai Panitchpakdi, secretary general of the UNCTD, said the yuan's appreciation should not be too rapid and should depend on the real situation in China and nearby countries. "The country has played a vital role in spreading and sustaining growth momentum throughout the developing world - a process which must not be derailed,' said Supachai."

"Therefore, the yuan's revaluation should continue gradually rather than suddenly, he said."

"Gold prices retreated in the afternoon on Wednesday as traders cashed in on gains from a rally to four-week highs, prompted by a firmer dollar and weaker oil prices, dealers said. Platinum hit a three-month peak before slipping back and palladium recorded a new three-month high, while silver ended stronger and above the $13 an ounce mark."

"'If the dollar continues to strengthen, you could see the gold price dipping down to the $630s (an ounce) or around there, but fundamentally I am still fairly friendly towards the metal,' said a precious metals trader in London. 'If it holds at these levels a bit longer, you will see some physical demand coming in,' he added."

"Gold for December delivery finished the day down $5.10, or 0.8%, at $641.80 an ounce on the New York Mercantile Exchange. The contract closed at an almost four-week high near $647 Tuesday, buoyed by physical demand as the Asian jewelry season approaches. That trend should continue in the coming weeks, according to James Moore, analyst at"

"'While the combination of firmer dollar/softer oil have the potential to trigger profit taking, the recent pick-up in physical, investor and fund interest, coupled with more fundamental issues such as low mining output, should see gold test back towards $650-$655 and our year-end target of $700 an ounce,' he said."

"Against this backdrop, December silver closed up 6 cents at $13.20 an ounce, logging its strongest close since May 23. October platinum closed down $4.50 at $1,275 an ounce while December palladium rose $4.15 to close at $359.55 an ounce."

"World economic growth will extend for a fifth record year in 2007, the International Monetary Fund says, but cautions that the risk of a severe global slowdown in 2007 is stronger than at any time since the 2001 terror attacks on the US."

"'Risk to the global outlook is clearly tilted to the downside,' the IMF said, adding, 'there is a one-in-six chance of growth falling below 3.25 per cent in 2007.'"

"While the IMF has been warning for several years of mounting risk for the global economy, it is the first time it has warned so strongly about such a sharp potential slowdown. 'There is considerable uncertainty about whether the global economy will achieve a soft landing to a more sustainable pace of expansion or whether the world faces a period of sharply slower growth,' the report says."

Tuesday, September 05, 2006


Gold Breaks From 'Traditional Indicators'

MarketWatch has this currency news. "The dollar rose against the euro, but fell to a two-week low against the yen Tuesday, as traders continued to trim bets against the Japanese currency following the better-than-expected capital spending figures. 'The main theme at the start of this week has been the unwinding of yen funded carry trades,' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman."

"In addition, 'speculative yen shorts have been extended for some time, which has provided conditions for a potential yen correction,' he said."

"Japan's Ministry of Finance said Monday that capital spending by Japanese corporations jumped 16.6% in the April-to-June quarter from a year ago. 'The news instantly revived speculation that BoJ may be forced to raise rates higher before the year end in order to contain the robust investment growth in the Japanese corporate sector,' said Boris Schlossberg, senior currency strategist at FXCM."

From Reuters. "Gold jumped more than 2 percent on Tuesday as traders returned from the final long weekend of summer in a mood to buy precious metals, shrugging off falling oil prices and mixed signals from the dollar. 'I'm thinking there is some money coming out of the energies and coming into metals,' said a floor broker."

"Silver took a leading role overnight, but gold sprinted ahead at the open on the COMEX division of the New York Mercantile Exchange. Commodity funds were buyers, seemingly chomping at the bit after weeks of sideways trading for gold."

"December gold rose $14.30, or 2.3 percent, to $646.90 an ounce, trading to a 25-day high at $648.50 from $631.60, the bottom overnight. 'There was some talk that India and the Far East have been active participants in the cash market, particularly in gold,' said James Quinn, commodities commentator at A.G. Edwards. 'The gold market hit some stops this morning above the $636 level and we haven't looked back since.'"

"Floor brokers were watching $649/$650 as major resistance for the benchmark contract."

"'It is quite a sharp jump when you consider oil is well entrenched below $70 and the U.S. dollar at $1.28 against euro is relatively strong,' said Bernard Hunter, a director of precious metals trading at ScotiaMocatta in Toronto. 'Gold's reaction is probably breaking away from those traditional indicators.'"

"December silver settled up 7 cents at $13.14, trading from $13.0350 to $13.37, its best price since May 30. Silver outperformed gold in recent weeks, rising about 36 percent in value since mid-June. Gold climbed around 16 percent in the same period."

"IMF Managing Director Rodrigo Rato told a news conference that increased IMF surveillance of currency policies in fast-growing emerging economies needed to ensure those policies were not used as an instrument to distort the global economy."

"Without naming countries, Rato said the IMF was advising some governments to move to greater exchange rate flexibility and to strengthen monetary policy to make their economies more resilient and better able to respond to inflation pressures. Speaking ahead of meetings of the IMF and World Bank in Singapore on Sept. 19-20, Rato said the IMF had also pointed out that flexible currencies could be incorrectly valued. In July, the IMF said the U.S. dollar was overvalued by between 15 and 35 percent."

"'It is not only there is a problem of efficiency and proper value in not totally flexible exchange rates, there are also problems of that in flexible exchange rates,' he added. 'The risk of inflationary pressures, (that have not yet) materialized in a strong way, is certainly a key question for monetary authorities worldwide,' he said."

"Washington Mutual Inc.'s issuance of bonds covered by U.S. mortgages in European credit markets, and potential follow-on activity by other U.S. financial institutions, carries risk should the dollar fall as expected, Merrill Lynch & Co. market strategist Richard Bernstein said in a note."

"WaMu on Monday became the first U.S. bank to issue 20 billion euros worth of so-called covered bonds in Europe. The move, should it prove successful, could encourage other U.S. issuers to tap the European market for covered bonds, which has so far been dominated by German and Spanish issuers, the Financial Times said."

"Covered bonds are considered more secure than mortgage-backed securities, or MBSs, because the purchasers of the bonds have a direct claim on the issuer's balance sheet. Partly for this reason, the costs of issuing covered bonds, especially in Europe, are less than issuing MBSs. In addition, the U.S. housing market has been stumbling faster than expected and issuing MBSs may not be as easy, or as advantageously priced, as before."

"But Bernstein said he sees the move as a risky bet because he expects the dollar to fall, which would raise the issuer's costs to service euro-denominated debt.
The Merrill strategist pointed out that the global economic imbalances stemming from excessive debt in the U.S., namely the current account deficit, have to be corrected by either higher U.S. taxes, higher short-term rates, and/or a lower dollar.
As the first two possibilities seem to be out, policy makers are increasingly relying on a lower dollar, he said."

Friday, September 01, 2006


Markets Quiet Ahead Of Holiday Weekend

The Daily FX has this on the US dollar. "Despite an extremely busy data week, theUS dollar did not budge one iota from its 1.2750 to 1.2925 trading range against the Euro. In fact, even the combination of non-farm payrolls and ISM on the same day failed to result in any meaningful price action for the US dollar."

"Looking beyond the headlines, we see signs of easing growth and inflation. Average hourly earnings rose a meager 0.1 percent while average weekly hours contracted from 33.9 to 33.8. The manufacturing sector also continued to lose jobs which confirm the recent deterioration in the sector."

"Later in the morning, the US dollar lost all of its earlier gains after a sharp drop in construction spending and pending homes sales. The drop in construction spending in the month of July was the biggest in five years. There is no doubt that the housing market is slowing, which is one the Federal Reserve’s major concerns."

"In addition, even though the ISM manufacturing index only moderated slightly, the prices paid component experienced the biggest drop since the beginning of the year confirming other indications of easing inflationary pressures. On balance, today’s reports do little to shift the Fed's game plan to continue pausing."

"Fed fund futures are pricing in a less than 20 percent chance of another rate hike this year. Nothing in the reports had what it takes to push us out of the 1.2750-1.2925 trading range that we have been trapped in since the beginning of the month. Looking at next week’s calendar, aside from non-manufacturing ISM and the Beige Book report, there is little US data."

From MarketWatch. "Gold futures fell Friday but finished nearly $2-an-ounce above the level they closed at a week ago as traders mulled news of moderate job growth in August and moves in the U.S. dollar, wary of potential developments related to Iran's nuclear program and the U.N.'s efforts to suspend it."

"Gold for December delivery fell $1.60 to close at $632.60 an ounce on the New York Mercantile Exchange. The contract closed a week ago at $630.80, so it was up $1.80, or 0.3%, for the week. December silver rose by 4 cents to close at a three-month high of $13.07 an ounce. It gained 4.2% for the week."

"October platinum closed down $3.60 at $1,254.80 an ounce, but it was up 1.8% for the week. December palladium added 90 cents to close at $349.60 an ounce, though it was down 0.7% from last Friday's closing level."

"'The release of the jobs numbers immediately fueled speculation that perhaps the Fed might resume its rate hikes in late September,' said Jon Nadler, an investment products analyst at"

"'The increasing pace of mega-mergers in the gold industry reveals a sector that is really only able to 'find' more gold on the books of competing firms, but not that much in the ground anymore,' said Nadler. 'Statements such as the ones from the head of Goldcorp yesterday, about the prospects for $200 higher bullion prices within the next couple of years, are resonating well with the safe-haven buyers, who are already predisposed to accumulate the metal on rising global angst,' he said."

From Reuters. "Teen-oriented retailers reported sharply higher sales in August as kids flocked to malls ahead of the new school year, but chains targeting adults fared worse, as a slowing housing market and higher energy prices crimped spending."

"'We expect to see a continued slowing in the growth of same-store sales numbers,' said Ken Perkins, president of independent research firm Retail Metrics. 'The housing market, gas prices, heating oil, political instability; these are our biggest concerns. We're not falling off the cliff yet, but if housing prices and the job market go south, look out.'"

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