Monday, October 09, 2006


Nuke Worries Boost US$, Gold

From the Associated Press. "Investors sought safe havens in the U.S. dollar and gold as analysts cautioned that a sharper reaction could develop as world leaders consider their response to North Korea's underground weapon test. The yen hit a seven-month low. The dollar was trading at 119.15 yen from 118.98 yen, earlier reaching as high as 119.29 yen. In London, gold rose to $578.25 per troy ounce in London trading, up from $567.50."

"The euro was barely changed Monday against the U.S. dollar. The euro bought US$1.2602 in afternoon European trading, compared with US$1.2595 late Friday in New York. The British pound fell to US$1.8645 from US$1.8705 as new data showed British producer prices declining by 0.3 percent in September."

From Bloomberg. "A nuclear test is a threat to Japan, as Tokyo is 809 miles (1,295 kilometers) from North Korea's capital of Pyongyang. North Korea's firing of missiles in July sparked a debate on whether Japan should consider pre-emptive strikes, which are banned under current law."

"'Further escalation of the tension in North Korea will weaken the yen,' said Michael Woolfolk, senior currency strategist at the Bank of New York. 'Geopolitical risks in Asia have disproportional impact on currencies.'"

"The yen has weakened 1.1 percent this year against the dollar and 7.1 percent versus the euro. The South Korean won dropped 1.5 percent, the most since December 2004, to 963.85 per dollar and weakened against all 16 primary currencies tracked by Bloomberg News."

"'The reaction in the yen has been muted,' said Meg Browne, vice president of foreign exchange at Brown Brothers Harriman & Co. in New York. 'In the yen, as horrible as it is, the test is done. The real issue is what happens next. Does this escalate? We would bet no. We should start to see these currencies calm down.'"

"'I'm bullish on the U.S. dollar for the next couple of days,' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. The dollar may rise to 119.40 yen this week, Hampton forecast."

"UBS AG expects the euro to gain less versus the dollar during the next month than previously predicted. The world's second-largest currency trading bank estimates the euro will gain to $1.27, compared with its prediction of $1.30 a week ago."

From MarketWatch. "Gold for December delivery closed up $5.70 at $582.50 an ounce. Silver added 24.5 cents to $11.42 an ounce."

Nice move in silver.
"News are not that important to markets Major moves."

Ah... Two answers.

First, the "LOL" was because I thought you were making a general comment about the major moves of markets being affected by "News" in general. I get you now.

But in answer to your more specific question, I'd say this (although I always hate the "single cause" approach): May was the beginning of the end for Japan's ZIRP. That news sent alarm bells ringing all over the hedge fund world that global liquidity would be drying up. The effects of this were twofold: 1) A pending decrease in liquidity decreased inflationary fears to some extent reversing the flight to gold. 2) Because of the "black-box" nature of hedgefunds, the decrease in yen liquidity led to an unwinding of global market positions, particularly in emerging markets which have a heavy commodities component.
... and of course there was the pretty well documented central-bank selling which increased gold supply.
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