Money and Metals

Reuters reports the US dollar was weaker today. "The dollar weakened across the board on Tuesday after a measure of growth in U.S. Midwest economic activity came in lower than expected, fueling expectations that the Federal Reserve may not have much more room to raise interest rates to curb inflation pressures. Investors will now look to other economic indicators to see if the slower-than-expected growth in manufacturing in and around Chicago was a blip or part of a more general slowdown."

"'The dollar rally of recent weeks may have stalled today,' said Axel Merk, manager of the Merk Hard Currency Fund in Palo Alto, California. 'What's important here is that maybe a slowing U.S. economy directly translates into a lower dollar. And we are likely to see more of that as evidence grows that the housing market is in trouble, much of the job growth last year was, very broadly speaking, housing-related,' Merk said."

"The index of Midwest business activity fell to 54.9 in February from 58.5 in January, falling short of analysts' expectations for an unchanged reading. Other data on Tuesday showed that sales of existing U.S. homes fell in January by 2.8 percent to a 6.56 million annual rate, and the inventory of unsold homes was the highest since August 1998."

"The dollar was down 0.8 percent against the Swiss franc at 1.3120 francs and sterling was up almost 1 percent at $1.7540. The greenback was down 0.4 percent against the Canadian dollar at C$1.1358, near its lowest since December 1991."

"Despite some intraday choppiness, broad ranges remain intact. This has helped drive down implied volatility, which measures the anticipated trading range of a currency over a given period of time, to multi-year lows in some cases. 'One has to wonder if the financial markets are underestimating the risk in the financial markets with both currency and bond vols near historic lows,' Thomas Rogers, senior currency analyst at IFR Forex."

"Gold bullion rose in late trade on Tuesday, boosted by U.S. dollar weakness and higher New York gold futures, as a flurry of speculative and technical buying lifted prices above chart resistance at $560 an ounce. Other precious metals markets also advanced on gold's coattails, with platinum rising 1.25 percent from its last close."

"Spot gold gained to $561.30/562.20 an ounce by midafternoon in New York, compared with $554.70/555.50 late on Monday. 'Starting in New York, there was some aggressive buying around that $560 area, and once we broke through there, it was stop-loss buying and fresh technical buying,' said a dealer at a precious metals desk. 'There also was some good physical support during London trading, and now it looks like we're poised to get back above $575' an ounce, he added."

"'It is worth noting that prices are getting little support from the physical markets despite relatively steady prices of late, which suggest that threat of further correction remains,' Barclays Capital said in a note. It said a slowdown in inflows into the exchange-traded funds was a worrying signal for the market. Total gold held by the funds rose by just about 16.5 tonnes in February, compared with 87.5 tonnes in January and 43.7 tonnes in December."

"Platinum rose to $1,050/1,054 from $1,032/1,036 an ounce, while palladium was at $287/291 an ounce from $279/283. Silver was quoted at $9.75/9.78 an ounce from $9.64/9.67."

"Silver traders anxious to know if a proposed silver exchange-traded fund (ETF) will be approved by U.S. regulators probably have to wait a while longer, sources familiar with the matter said."

A reader posted this interview. "We spoke with James Turk of www.goldmoney.com and asked him some key questions about now having silver available. First, is the silver allocated? Yes, all silver in GoldMoney is in allocated storage, just like all gold is in allocated storage. They are stored in the name of the customers of GoldMoney."

"The metals are stored in specialized bullion vaults near London, England, that are owned and operated by Via Mat. In addition, the same governance procedures applied to gold are also applied to silver. These include the regular audits and controls as well as the other measures explained on the GoldMoney website."

"Is the silver insured? Yes, all the gold and silver in GoldMoney is insured by Lloyd’s of London. The total value of this metal is approximately $80 million."

"Can a client actually take delivery of the silver? Yes, provided the customer has at least 1,000 oz. of silver in his/her account. We can deliver silver to the customer in the form of 1,000 oz. bar(s). When a customer requests delivery, the weight of the bar is removed from his account, and is then made available at the Via Mat vault."

"What is the minimum to open an account? There is no minimum. Whether you buy $50 of silver, $50,000 of silver, or for that matter, any amount you purchase, the silver you buy is allocated and insured."

"If a person or company already has a GoldMoney account is it necessary to open a new account for silver? No, both gold and silver are recorded in the same account."

"What is the spread on a silver purchase versus a gold purchase The spread for silver ranges between 2% and just under 5%. For gold it’s 0.97% up to just over 3%. The spread you pay depends on two things, the size of the purchase and whether you are a GoldMoney member. Larger purchases are completed at smaller spreads, and you get preferred member rates for buying if you have at least 2,000 goldgrams or 5,000 oz of silver in your account."

"What is the fee when you sell? There is no fee when you sell. And all customers get the same rate, which is the prevailing spot rate."

"Why is the spread higher on silver than gold? Basically, the economics of silver are different than gold. At current prices it’s approximately 60-times the volume for the same amount of dollar value. That means silver has extra costs you don’t incur with gold. We have to therefore past these costs on to our customers. Nevertheless, GoldMoney offers one of the most economical ways to buy physical silver, and I’m not aware of a more convenient way to buy allocated silver."

"How do you pay for your silver purchase? You can purchase silver in the same, convenient way you now purchase gold. You can have the money debited directly from your bank account. You can also pay for your purchase with a bank wire. Purchases can be made in US dollars, Canadian dollars, British pounds or euros. GoldMoney customers can also use their goldgrams to purchase silver. And you can receive any of these five currencies when you sell your silver."

"Can you spend your silver as an online currency like you can do with gold? No, not at this time, for a couple of reasons. First, we’re not sure whether our customers want this feature. Also, few online merchants are prepared at this time to accept silver. However, as people become more familiar with silver, those things could change. So if our customers want to use silver as an online currency, we would be prepared to give them the same ability they now have with gold, namely, to use it as an online currency."

"Are you bullish on silver? Absolutely. I’m bullish on gold, and I expect silver to do even better. In other words, the gold/silver ratio falls in precious metal bull markets. The ratio now is around 60, which is pretty much the level it’s been stuck at for the past few years. In the years ahead the ratio will I expect fall considerably. Remember, it took only 17½ ounces of silver to buy an ounce of gold at their record highs in January 1980. We should expect a similar performance by silver this time around as the metals move higher in the years ahead."

Reuters reports on what moved the markets today. "Gold slipped on Monday as lower oil prices increased selling pressure and investors booked profits from a recent two-week high, dealers said. 'The market has drifted lower after the spike higher on Friday and it should be well-supported at current levels,' said Yingxi Yu, precious metals analyst at Barclays Capital. 'The attack on Saudi Arabia last Friday will serve to exacerbate geopolitical concerns and make people nervous about holding aggressive short positions at present.'"

"Gold traded to $554.70/555.50 an ounce by midafternoon in New York on Monday, after earlier rising as high as $558.75. That compared with $558.60/559.50 late on Friday when it rose almost 2 percent. Oil prices fell more than a dollar after surging last week on the al Qaeda attack on the world's biggest oil processing plant in Saudi Arabia."

"'They (market players) are trying to push it down to $550s to see if any support around there,' said a precious metals trader in London. 'This Russian-Iranian thing has taken the sentiment off the market a bit,' he added. Officials said on Sunday that Iran had reached a 'basic' agreement with Russia on jointly enriching uranium, but there was no immediate sign that it would suspend homegrown enrichment to allay fears it was developing nuclear weapons."

"Analysts said gold has not shown a clear trend after falling from its recent peak but long-term sentiment was bullish. 'The forward curve continues..implying that markets continue to expect stronger future gold prices,. John Meyer, analyst at Numis Securities, said in a report."

"Analysts said Friday's data showed the net long position on New York's COMEX gold contract was little changed on the week at 15 million ounces. Fresh inflows into the exchange-traded funds almost dried in the past couple of weeks."

"In other precious metals, platinum rose to a two-week high of $1,041 an ounce before easing to $1,032/1,036, compared with $1,033/1,037 in New York. Silver was at $9.64/9.67 an ounce after rising to a three-week high of $9.75, against $9.71/9.74 previously. Palladium rose as high as $288, but fell to $279/283, vs. $285/289."

"UBS Investment Bank cut its one- and three-month forecasts for palladium to $260 and $250 an ounce from $300 and $270 respectively. It projected that palladium prices would average $250 in 2006 and $230 in 2007."

"Newmont Mining Corp (NEM), the world's biggest gold producer, said on Monday that fourth-quarter profit dropped, even as the price of gold rose. Earnings were hurt by higher energy and raw material costs as well as legal settlements and asset write-downs, the company said. It also forecast it would sell less gold in 2006 than last year."

"The results sent Newmont shares sliding 4.6 percent on the New York Stock Exchange. One trader who declined to be named said it was hard to believe its profitability was down when the price of gold was higher than last year."

Bill Fleckenstein has this editorial on inflation. "As regular readers know, I believe that the CPI is woefully understated, for reasons related to hedonics, owner's-equivalent rent and substitution."

"Whatever the actual rate of inflation is in this country, it's higher than the reported year-on-year price increase of 4%. Whether the rate is 5%, 6% or some other higher number, I do not know."

"What gets me to talking about this is a rather glaring inconsistency. On the one hand, there seems to be denial about inflation being a problem, witness the repeated use of 'core inflation,' which is generally used to mean all the things that didn't go up in price. Then, contrast this sanguine view of inflation with the fear that Benny B. is going to get 'tough.'"

"If one wanted to make the case that inflation is not under control in this country and that the men at the Fed are serious and intent on doing something about it, that would be a logical, consistent argument. However, the men at the Fed are avowed inflationists. They blew up a stock bubble and refused to do anything about it. Ditto the real-estate bubble."

"And now, people are worried that the appointment of a Fed chairman whose academic endeavors revolved around fighting deflation means that the Fed will get tough? I'm sorry, but I just don't think that is logical. In fact, to me, it's a disconnect. The Fed has demonstrated over and over again that it cares about one thing and one thing only: The applause meter. The Fed wants to be loved and keep the party going."

"I find it quite incongruous that the markets fear the Fed will push rates up to contain something that everyone has agreed is not a problem. In my opinion, the better question is: Why is no one concerned about inflation? Why do the public at large, Wall Street and the bond market act like there's no inflation? My pet theory: Folks have done so well with their homes' appreciation and all the money-printing that, while prices are up, they've chosen to ignore inflation, as it's been 'good' to them. Thus, rising prices do not bother them."

"A change in psychology will occur when people start to get stung by the fact that their houses aren't going up in price. That will bring their focus to just how fast inflation is climbing. Of course, by that time, no one will really want the Fed to do anything about it because that would mean raising rates at a moment in time when housing prices are likely to be under pressure."

"However, I think a major inflection point is going to occur sometime in the not-too-distant future, when folks realize that the Fed is, in fact, done. Only after the Fed has made that unambiguously clear will it be possible for 'the next time down' to start. I expect the Fed to do so when the 'right' supporting data emerge. If that turns out to be the case, I think there will be quite a big rally in stocks, and an explosion in metals (and currencies). I intend to capture the latter and wait for the former, to take the other side of it."

An analyst at Silver Seek has this column the silver ETF. "I started writing on the Internet, almost ten years ago, about a financial practice, precious metals leasing and forward selling, that I labeled as being as dumb as dirt. In addition to being dumb, the practice, which involved the dumping of huge quantities of physical gold and silver on the market under the guise of legitimate hedging, was also manipulative to prices."

"With the benefit of hindsight, it is easy to see that the practice had a pronounced influence on the price of gold and silver, first pushing prices to historic low points and then allowing prices to rise when the dumping stopped. The practice was as manipulative as it gets."

"What made this leasing/forward selling so dumb? Well, in the case of the mining companies which participated, like Barrick Gold, Placer Dome and AngloGold, in addition to initially lowering the price of what they produced, it left them in the position of being liable for potentially hundreds of millions, if not billions, of dollars in losses if the price of gold rose high enough. Which is precisely what happened."

"To this day, billions of dollars of open losses from these stupid forward sales still haunt these companies. The managements responsible for loss of shareholder wealth should be drawn and quartered. I genuinely believed that the rocket scientists on Wall Street had hit the peak of stupidity when they concocted precious metals leasing/forward selling. I have come to realize that I was wrong. They’ve actually come up with something dumber."

"This proposed silver ETF, as well as any ETF on any commodity, is as dumb as a bag of rocks. Sure, it will make the price explode, and precisely for that aspect virtually all silver investors, including me, look upon it favorably. Suddenly take away a big chunk of any commodity’s supply and there will be a big impact on price. That’s elementary. But there is more to the story than that."

"My main objection with commodity ETFs is that, in addition to artificially altering supply and demand, they turn legitimate commodity law and regulation on its head. The main thrust of commodity law is to prevent concentrated speculative buying and selling from artificially influencing prices. This primary premise and intent of commodity law is obliterated by the concentrated buying (and selling someday) that a commodity ETF insures."

"One of the most basic tools that the Commodity Futures Trading Commission (CFTC) employs to safeguard against manipulation is its Large Trader Reporting Program. This program mandates that traders must report their trades and any affiliated trades in every commodity over a certain number of contracts. In the existing gold ETFs, as well as the proposed silver ETF, there are no reporting or disclosure requirements. Any entity could hold as many equivalent ounces of metal in an ETF, whether ten times or a hundred times Large Trader Reprting levels, and effectively evade any and all disclosure requirements. Additionally, there is zero protection against entities banding together for the express purpose of manipulation."

"I know, perhaps better than anyone, that silver prices have been manipulated for a very long time. But I don’t think two wrongs make it permissible to overcome one manipulation with another. The silver manipulation will end. I question if the means justifies the end, if it involves a different manipulation. What I am taken back about is the lack of free market voices who will proclaim the commodity ETFs to be just what they are, gimmicks and devices that facilitate concentrated buying and selling and manipulation. Sure the ETFs make it easy to buy and hold metals, where they couldn’t be bought before. They also make it easier to evade commodity law and manipulate the price. Is this the government’s intent?"

"I realize that the regulatory authorities are in a serious bind. If they approve the silver ETF and it causes disorderly prices, they will be damned. If they reject the silver ETF, they will face scrutiny on why they allowed the gold ETFs. The reason they are in such a bind is because the very concept of a commodity ETF is seriously flawed. Barclays and others did not think them through completely. No matter what actually transpires, I think we will look back on this whole issue of commodity ETFs as being ill conceived."

Reuters has the latest on gold and oil. "Gold bullion shot up 1.7 percent to a two-week high in late trade on Friday, supported by explosions and gunfire at a Saudi Arabian crude oil facility and surprisingly weak U.S. economic data, dealers said. Saudi Arabia's oil minister said the kingdom's oil and gas production was unaffected by an attempt to storm the huge Abqaiq oil facility."

"Nevertheless, oil had climbed nearly 4 percent to $62.75 a barrel in late trading in New York. Spot gold was at its highest since Feb. 10, at $558.60/559.50 an ounce, up from $548.40/549.30 in New York late on Thursday and $550 before news of the attack."

"'The combination of jumping oil prices and weak U.S. economic data has triggered an end-of-week rally in the precious metals complex, with gold rising to just shy of $559,' said James Moore, analyst with TheBullionDesk.com. Gold has long been considered a safe haven for investors in times of uncertainty."

"'The explosion reports stopped people selling across precious metals, which has provided support,' one London dealer said. Separately, the U.S. government said volatile durable goods orders posted their biggest drop in 5-1/2 years last month, and the 10.2 percent fall far surpassed expectations of a 1 percent drop."

"In other precious metals, platinum rose to $1,033/1,037 an ounce from $1,017/1,021 on Thursday, while silver surged to $9.71/9.74 from $9.49/9.52. Palladium firmed to $285/289 an ounce, compared with 283.50/287.50."

Events again boosted the price of gold. "At least two cars exploded at the gates of Saudi Arabia's huge Abqaiq oil facility on Friday when security forces fired on suicide bombers trying to storm the world's biggest oil processing plant, Saudi officials said. Oil prices jumped $2 a barrel on news of the attack in the world's largest oil exporter."

"Gold fututes climbed as much as $10 an ounce Friday to touch a two-week high, poised to mark a gain for the week as investors fretted over an explosion at an oil refinery in Saudi Arabia."

MarketWatch has the latest trading numbers. "Gold futures lost 1% Thursday to close at their lowest level in a week after chalking up gains totaling nearly $14 an ounce in the past few sessions. Gold for April delivery fell $5.70 to close at $550.90 an ounce, a level not seen since Feb. 16. On Wednesday, the contract closed unchanged, following three sessions of solid gains."

"'With the near-term outlook turning ominous' prices may work back below the Feb. 14 low, with $525 'looking like a logical downside objective basis for the April contract,' said Dale Doelling, chief market technician at Trends In Commodities.
If prices 'break' to the 50-day moving average of $545.50, 'it will just be another attempt to drive the weaker longs from the market and, in turn, put the market back into [an] extreme oversold condition, which would act as a springboard for the next leg up,' he said."

"Meanwhile, the minutes released from former Federal Reserve chief Alan Greenspan's last interest-rate meeting showed that Richmond Fed President Jeffrey Lacker dissented from votes to authorize the Fed's trading of foreign currencies, including the euro and yen, according to Peter Grandich, editor of the Grandich Letter.
This raises two questions: 'Why does the Fed think it must be prepared to intervene ... and if they're willing to intervene in the currency market, how about the stock, bond or gold market?' said Grandich."

"Citigroup's expecting gold to move higher over time, and to test $600 an ounce at some point this year. In the meantime, 'we would not view a correction to the $520-$540 level as any more negative than the eight such episodes greater than $20 per ounce during 2004-2005,' said Hill."

In mining news. "Other metals trading in the futures market followed gold lower Thursday. March silver futures fell 10.8 cents to close at $9.467 an ounce. April platinum lost $7.40 to finish at $1,023 and March palladium eased $2.15 to close at $285 an ounce."

"Barrick Gold Corp. fourth-quarter profit rose to $175m from $156m in the same period a year earlier, and its annual profit swelled 62% to $401m, the gold producer reported Wednesday. The world’s biggest gold producer attributed the increase in quarterly earnings to higher gold prices and sales, lower cash costs and special items."

"Shares of Barrick Gold Corp. (ABX.TO) dropped 6 percent on Thursday after it forecast higher-than-expected costs and disappointing output numbers from its Placer Dome Inc. (PDG.TO) acquisition. Total cash costs are expected to be between $275 and $290 an ounce of gold and about $1.10 per pound of copper."

"Analysts were expecting output of more than 9 million ounces of gold, and cash costs around the $250 an ounce mark. 'People were expecting better news in terms of the production outlook of Barrick and costs seem to be higher than expected,' said Michael Fowler."

Reuters reports on hedging among gold miners. "Big gold companies, under investor pressure, continue to shun hedging but small firms are being forced to sell forward to cover the high risk of their projects, analysts say. The total of global hedging is seen shrinking, albeit at a slower pace, as the rate of project hedging, selling gold in advance at fixed prices, would make little impact on the dehedging by industry heavyweights, they said."

"'The companies have publicly committed to reduce their hedge books, not to increase them, so I don't expect them to start hedging again in the same way in the near future,' Jeremy East, global head of precious metals at Commerzbank, said on Thursday."

"As gold trades near 25-year highs, firms may be tempted to lock in prices at today's much higher levels. But stiff resistance from investors, reluctant to see a cap on potential gains, combined with anti-hedging rhetoric by major producers, have limited the scope. 'It will take a change in approach by the major gold mining companies before we see a material change in the whole de-hedging phenomenon,' said John Levin, head of marketing at Mitsui Global Precious Metals. 'At this stage, while the pace of de-hedging is slowing, there is no sign of a return to hedging by the majors.'"

"The net outstanding position in the global hedge book fell to 1,666 tonnes by the end of 2005 from 1,804 tonnes in 2004, and is seen dropping further to 1,428 tonnes by December. Two-thirds of the hedge book is controlled by big companies like Barrick Gold, AngloGold Ashanti, Placer Dome Inc. and Newcrest."

"In the face of the overall trend toward de-hedging, the last quarter of 2005 saw a rise in overall hedging, coming from small producers. Analysts say that banks, interested in protecting their investments in small but costly projects, are forcing the producers to hedge."

"'You have new projects which are interesting but they are only interesting because of the high gold price,' said Wolfgang Wrzesniok-Rossbach, head of precious metals marketing at Germany's Heraeus. 'Therefore banks are enforcing hedging which makes sense because they need to protect their credit,' he added."

"'Hedge books are essentially insurance against falling gold prices, so are less valuable the higher the price of gold goes,' a Mitsui report on dehedging said. 'There is still a negative stigma associated with hedging,' said Yingxi Yu, analyst at Barclays Capital."

"Barrick Gold remains committed to reduce its forward sales. It holds the biggest hedge book in the industry following its $10.4 billion takeover of Placer, totaling 21 million ounces. 'We are certainly not planning to add any hedges,' Alex Davidson, executive vice president, exploration and development, told Reuters this month. 'The market will forgive a midcap for hedging if a bank requires it to get financing, but if you hedge as a revenue enhancement strategy, the markets aren't so keen about that.'"

"AngloGold said it did not expect to resume most hedging for at least a couple of years. Marketing Director Kelvin Williams said this was due to its bullish view of gold prices."

Reuters has the days' money and metals action. "Gold prices edged lower but held in a narrow band on Wednesday, with the market recovering its poise after a brief dollar-related dip, traders said. Spot gold edged to $553.90/554.80 an ounce in New York afternoon trade, below Tuesday's late quote at $554.70/$555.40. Prices have fallen nearly four percent from their 25-year highs of $574.60 earlier this month."

"Gold momentarily drifted below $550.00 an ounce when the dollar firmed after the U.S. January consumer price index rose 0.7 percent, against forecasts of a 0.5 percent increase. A cheaper dollar often encourages gold buying in foreign currencies, while a stronger U.S. currency can prompt sales for quick profits."

"In other precious metals, silver edged up 4 cents to $9.60/9.63 an ounce, while platinum fell to $1,023/1,027 an ounce from $1,027/1,031. Palladium was quoted at $284/288 an ounce, compared with $290/294."

Reuters got this wrong. "The market also was digesting a World Gold Council report showing fourth quarter 2005 global demand for gold fell 15 percent from the year-earlier quarter." I checked the WGC's web site and here is what they found. "The World Gold Council today announced that demand for gold had hit a record of $53,6-billion in 2005, with a 26% rise in investment demand in tonnage terms in 2005 and a jewellery demand that was 14% higher in dollar terms than 2004 despite the impact of a volatile price in the last quarter."

"Investment in Exchange Traded Funds (ETFs) increased by 79 t during the last quarter of the year alone and it is estimated that other institutional investment in the period approached 200 t."

Morningstar has this report on Freeport. "Production at the world's largest copper and gold mine was suspended Wednesday after illegal miners blocked the road leading to the site in Indonesia's remote Papua province, a company spokesman said. The suspension could cost some 1,800 metric tons of copper and 9,000 troy ounces of gold production a day."

"Around 400 illegal miners have set up wood and stone barricades on the road leading to the Grasberg mine in Indonesia's Papua province, which is run by a local unit of New Orleans-based Freeport-McMoRan Copper & Gold Inc. (FCX), said police spokesman Kartono Wangsadisastra. 'Mining and milling operations have been temporarily suspended as a precautionary measure,' said Freeport spokesman Siddharta Moersjid in Jakarta.' The Indonesian authorities are working to resolve the situation in a peaceful and expeditious manner."

"A week long stoppage could loose 12,600 tons of copper and 63,000 oz of gold,' said analyst John Meyer of Numis Securities Limited. 'This is at a time when the copper market can ill afford to lose production although the supply of gold is far less critical from a market and industrial perspective,' he added."

"The protest followed clashes Tuesday after police and company security guards tried to disperse the miners, who earn their living retrieving gold from waste rock dumped by the mine, said Wangsadisastra."

The CPI report pulled gold slightly lower this morning. "Gold futures fell early Wednesday, pulling other metals with them as traders digested the January consumer inflation report. The Labor Department said consumer prices rose 0.7% in January, led by higher energy, food and housing costs. The core consumer price index, which excludes food and energy prices, increased 0.2%, as expected."

"Gold for April delivery was last trading down $3.30 at $553.30 an ounce, off its low of $549.80. Silver was flat at $9.545 an ounce. Platinum fell $8 to $1,026.50 an ounce and palladium lost $2 to $292 an ounce. Copper fell 2.75 cents to $2.246 a pound."

The futures have since recovered to about even as of this writing.

Dow Jones Newswire has the days metals info. "The precious-metals complex posted gains in New York Tuesday as traders returned from a three-day holiday weekend, lifted by speculative buying on the back of a rise in energy prices, traders and analysts said. April gold settled up $2 to $556.60 an ounce, while March silver added 12.5 cents to $9.545."

"'Some of that was in tandem with the energy complex being higher on the back
of the violence in Nigeria,' said Dave Meger. Militant attacks in Nigeria have led to a 19% reduction in the country's oil output the last two days, and this is showing little signs of abating, with energy analysts calling this the worst crisis there in three years. As gold was closing, March crude oil was leaving an upside gap on an open-outcry chart and was up $1.07 a barrel to $60.95."

"March silver closed just 3 cents below its $9.575 peak, which was its most muscular level since Feb. 10. April gold peaked at $559.50, also its strongest level since Feb. 10, although it then backed down nearly $3. Meger put nearby support in March silver at $9.48 and resistance around $9.60. He put support in April gold at $549 and resistance around $562 to $563."

"April platinum had an especially strong day, surging $23.50 to $1,034.50 an ounce. On a chart for open-outcry trading, the contract left a chart gap between the high of $1,019 on Friday, prior to a three-day weekend in the U.S., and the low so far Tuesday of $1,022."

"Peter Mallin-Jones, a London-based metals analyst for Goldman Sachs Group, said Tuesday he is forecasting bullion prices will hit an average of $550 an ounce this year and $575 an ounce in 2007, up from their previous forecasts of $430 and $400, respectively. 'Gold investment demand increased 114% (to 610 tonnes) in 2005 and recent trading and exchange reports suggest strong trends continuing in 2006 due to a combination of abundant global liquidity, concerns over all major currencies, U.S. current account deficit and U.S. housing market,' he said."

A Kitco analyst is more cautious. "Now that we’ve had a correction in gold, will the metal’s rally resume? My own view is that the current bounce should be viewed with suspicion. The reasons: the US economy, as anticipated, is stronger than expected. That means the Fed will keep hiking interest rates, which makes holding bullion more expensive."

"I expect the yellow metal to stay on the defensive and make a low around May, after which its long term advance will continue. What does that mean for investors? Maintain your core holdings in quality gold mining shares, but wait with initiating new trading positions."

"The dollar will continue to trade on the strong side, but some analysts are starting to focus on the latter part of this year. I’m among them. I believe the greenback will enter a period of profound weakness in the second half of the year, when the Fed’s rate tightening cycle is ends. Likely shelter against a severe dollar decline: the Chinese Yuan, the Japanese Yen, the commodity currencies and gold. In chronically volatile currency markets, the challenge will be to initiate such positions at the right time."

Fitch Ratings has this on Icelands currency. "Fitch Ratings has today revised the Outlooks on the Republic of Iceland's foreign and local currency Issuer Default Ratings (IDRs) to Negative from Stable. The Long term foreign and local currency IDRs are affirmed at 'AA-(AA minus)' and 'AAA' respectively. The Country Ceiling is also affirmed at 'AA' and the Short-term foreign currency rating at 'F1+'."

"'The Negative Outlook has been triggered by a material deterioration in Iceland's macro-prudential risk indicators, accompanied by an unsustainable current account deficit and soaring net external indebtedness,' said Paul Rawkins, Senior Director in Fitch's Sovereign team in London."

"Fitch says that while all the signs of economic overheating, rising inflation, rapid credit growth, buoyant asset prices, a steep current account deficit and escalating external indebtedness, have been evident for a while, the rate at which some of these indicators has deteriorated has exceeded the agency's expectations. Thus, credit growth of over 30% per annum continues unabated, the current account deficit expanded to 15% of GDP in 2005 and net external debt has climbed to well over 400% of current external receipts."

"'In the absence of a more balanced policy response, Fitch believes that the risks of a hard landing have increased, raising concerns about how well the broader financial system would cope in such a scenario and the likely implications for the sovereign,' said Fitch's Rawkins."

"The agency recognises that a wave of structural reforms since the 1990s, including the adoption of a floating exchange rate in 2001 and better financial supervision, have made Iceland's economy more resilient to shocks. Moreover, the public finances continue to go from strength to strength, general government debt is forecast to fall to 25% of GDP in 2006, underpinning the sovereign ratings."

"However, the rest of the economy is significantly indebted now: credit to the private sector, much of it price or exchange rate linked, stood at an estimated 218% of GDP at end-2005, having doubled in three years. Yet Icelandic banks and corporates continue to pursue ambitious expansion plans abroad, accumulating external debt at an unprecedented rate in the process."

"Fitch is critical of the current policy framework, arguing that monetary policy has been left to take the strain, while fiscal policy has been a silent partner. Because households enjoy easy access to long-term housing credit, 12 successive increases in interest rates since May 2004 have succeeded only in driving up the real exchange rate and further worsening the current account deficit."

"Fiscal inaction stems from the government's view that the current imbalances are private sector driven and will be self-correcting over time. As such, it continues to budget for small surpluses over the course of the economic cycle and remains committed to its campaign promise of tax cuts through 2006-07."

"Fitch says that one of the most important lessons to come out of the Asia crisis was that countries with seemingly sound public finances ignore private sector imbalances at their peril. Iceland's net external debt is higher than virtually any other Fitch rated sovereign, while its external liquidity ratio, liquid external assets as a share of liquid external liabilities, is among the weakest, particularly if banks' foreign assets are excluded. Fitch acknowledges that Icelandic banks' foreign assets have expanded considerably, but cautions that the banks remain heavily dependent on foreign funding and could ill afford to be shut out of international capital markets for any length of time."

"Fitch avers that other highly rated countries like Australia and New Zealand display similar, albeit less extreme external financial constraints to Iceland, but the agency argues that the structure and hedging characteristics of these countries external indebtedness is much better documented than in Iceland. Moreover, whereas Australia and New Zealand's economies have been successfully stress tested over a long period of time, Iceland has yet to establish a similar track record in more indebted circumstances. Such uncertainty accounts in large measure for the agency's decision to revise the outlook on Iceland's sovereign rating to Negative from Stable."

Reuters has the latest on metals. "Gold prices moved to 10-day highs on Monday supported by a rise in crude oil and a drop in the dollar, and dealers said the metal was expected to extend gains. Other precious metals followed gold higher after tumbling in the previous week, with platinum rising nearly two percent and silver climbing to its highest in more than a week."

"Gold rose as high as $556.60 an ounce before easing to $554.50 at the afternoon fixing, compared with $551.70/552.60 in New York on Friday. Traders said physical demand was slow, while there was also little investment interest, as the New York futures market is closed on Monday due to the Presidents Day holiday."

"'Obviously, the New York holiday is leaving market conditions quite thin and the trade is looking at the background noise such as the dollar and oil prices,' said James Moore."

"Spot silver was quoted at $9.49/9.52, compared with $9.42/9.45 in New York on Friday. Palladium was up at $288/292 from $285/289."

And Bloomberg had this. "Investors have tripled their holdings in five gold-backed exchange-traded funds, including the U.S. traded StreetTracks Gold Trust, to 429 metric tons since November, according to London-based ETF Securities Ltd."

"Speculators almost doubled their holdings in gold futures since August, reports from the U.S. Commodity Futures Trading Commission show. Hedge funds and other large speculators held net-long positions, or bets prices will rise, totaling 118,914 Comex gold contracts as of Feb. 14, up from 65,569 on Aug. 2, data from the commission showed on Feb. 17. Speculators amassed 177,410 contracts on Oct. 11, the most since at least February 1983."

Political events have given a new boost to gold. "Gold futures closed higher Friday on safe-haven buying amid a fresh threat of violence in Nigeria and Iran's continued defiance of calls to stop its uranium-enrichment program. The metal also found support from data showing a bigger-than-expected rise in wholesale inflation in January."

"Gold for April delivery closed up $5.80 at $554.60 an ounce, its highest level since Feb. 9. After a volatile week, the contract managed to eke out a 0.2% gain from last Friday. A Nigerian group has threatened 'total war' against foreign oil companies operating in that country, according to the BBC."

"Meanwhile, tensions surrounding Iran's nuclear research program are growing ahead of a meeting with Russia scheduled for Monday. The talks will focus on a Russian offer to allow Iran to enrich uranium within Russia. 'The gold market has been looking for more uncertainty and we are seeing it this morning,' said Kevin Kerr. Investors are looking at gold as more of a buying opportunity after its steep decline than a commodity preparing to crash, 'and this is prudent,' he said."

"'After all nothing has fundamentally changed for gold and now technically we have had the correction we needed to see and new buying can pour back in.'"

"Peter Grandich agreed that the bull market is intact. 'Hard as it would be to take it, gold could fall to the high 400s and still not have violated the bull run. But have no fear; I don't think we'll get even close to that.'"

"Other metals were also on the rise Friday. March silver futures ended up 5 cents at $9.42 an ounce. Platinum was up $3.40 at $1,011 an ounce and sister metal palladium rose $11.55 to $288.75 an ounce."

And a platinum miner had a good day. "U.K.-based platinum miner Lonmin PLC soared as much as 34% on Friday after the company said it's had talks on a prospective buyout. Lonmin (UK:LMI), the world's third-largest platinum miner, didn't identify the bidder and stressed that talks were 'very preliminary.'"

"But Lonmin, a component of the FTSE 250 mid-cap index, soared as investors bet that the talks would succeed. The shares ended up nearly 25% higher, and the bid lifted other mining stocks in London as well. Speculation over which companies might be in talks to buy Lonmin included Xstrata (UK:XTA). Anglo American (AAUK) and Goldfields (GFI) also are possible bidders for the company, analysts said."

The Resource Investor has the latest on the silver ETF. "The 21-day public comment period has ended at the Securities and Exchange Commission, regarding Barclays’ proposed silver ETF, iShares Silver Trust, but investors continue to wait for any indication of further progress. On January 25, Christine Hudacko, advisor at Barclays Global Investors, told Resource Investor that the SEC had approved the AMEX listing and initiated the 21-day public comment period, 'indicative of movement at the SEC.'"

"Today, Hudacko told RI that no further movement of the silver ETF has been reported, but the deadline for submitting comments to the SEC expired on Monday. And if comments posted under Resource Investor’s most recent write up indicate anything, it would appear investors are screaming, 'Let the market decide the silver price!'"

"As most of us know by now, the Silver Users Association (SUA) has other ideas, representing the most vocal opponent to Barclays’ iShares Silver Trust. RI intercepted a 4-page letter by SUA Executive Director Paul Miller to SEC Secretary Nancy Morris urging the SEC to block the product. 'If the silver ETF is approved, it will mean higher product costs and lost jobs in our industry,' wrote Miller."

"However, Jason Hommel, Editor of Silver Stock Report, rebuts this assertion vehemently. 'There’s no way they’re going to lose jobs no matter how high the price goes up,' said Hommel. 'It’s all bottom line.'"

"The SUA’s members employ more than 200,000 workers and process 80% of all silver used in the United States. The Association’s biggest argument is that any squeeze in the silver market would cause a loss of jobs by its members. The letter even insinuates that it could have a negative effect on the economy."

"According to the 2005 CPM Group’s Silver Survey, the above ground levels of silver in 2004 were roughly 750 million ounces. The letter states that the creation of iShares Silver Trust would result in the removal of substantial amounts of silver in an already strained market, thus increasing prices for products containing silver. 'Such price pressure threatens to erode our products’ competitiveness, overall price points, and the manufacturing jobs that rely on the stability of silver products,' Miller wrote."

"Hommel said they have it exactly backwards. If the silver price goes up, it will likely open and reopen many mines deemed unfeasible at current prices. This would increase silver production as more deposits became profitable for miners, he said. 'There’s no way the SUA will have enough silver without the silver ETF,' he said."

"According to letter, the ETF would exaggerate silver’s illiquidity given the sheer volume of physical silver needed. And, the SUA is 'concerned that the proposed silver ETF could be a legal way for investors to squeeze the silver market.' Hommel said the SUA is just being shortsighted. 'They’d rather delay this and have the silver price rise to $100 in the long term than have it go to $25 in the short term,' he said."

"Miller also argues that a silver ETF could set the stage for additional ETFs for platinum or palladium. These commodities are in thinner supply and vitally necessary in the refining of oil into gasoline, the automotive industry and many other industrial applications, said Miller. 'I think you can make the same case here,' said Hommel. 'It would increase the liquidity' with the creation of stockpiles. This is a great thing, because 'when you run out, the factories shut down,' Hommel added."

"Even still, Miller concluded the letter in saying 'the Silver Users Associations supports the buying and selling of silver as an investment. There are already several ways to do so.'"

"'They must clearly be in a panic, cause here they are making a bullish case for us,' said Hommel. The fundamentals of a capitalist market require the market to supply whatever is demanded, he added."

Reuters has the currency news. "The dollar drifted lower on Thursday with mixed U.S. economic data outweighing Federal Reserve Chairman Ben Bernanke's latest interest-rate supportive remarks. In a second day of congressional testimony on Thursday, Bernanke reiterated his upbeat assessment of the U.S. economy and an earlier warning about inflation risks, leaving expectations for further Fed rate hikes little changed."

"Meanwhile, the Philadelphia Federal Reserve Bank's survey of business conditions provided only light support for the dollar despite a strong reading."

"'The overall reading is obviously very strong, but I think the market might be hampered a bit by the prices paid index being a bit lower here. That might be keeping a lid on the dollar,' said John Beerling, regional foreign exchange trading desk manager at Wells Fargo in Minneapolis. A measure of prices paid by manufacturers dropped to 30.5 from 44.9 the month before as energy prices eased. A lower prices paid index is usually viewed as dollar-negative since it limits the need for U.S. interest rate hikes."

"In late trading in New York, the euro was slightly higher against the dollar at $1.1892 with traders locking in profits in the late afternoon. The dollar crept 0.1 percent lower to 117.65 yen. The dollar was little changed at 1.3108 Swiss francs while sterling was at $1.7385."

"The biggest mover on the day was the New Zealand dollar, which dropped to near 16-month lows at $0.6668, according to Reuters data, after piercing an options barrier at $0.6700. 'The outlook for the New Zealand economy points to relative weakness,' said Michael Jansen, currency strategist with National Australia Bank in New York. 'From a medium-term perspective, people are really lining up to kill this thing,' he added."

"Some analysts said that price action in the last few days suggested that the dollar's rally may need fresh fuel to keep going since the Fed's Bernanke effectively has given his stamp of approval on the central bank's stance on monetary policy. St. Louis Federal Reserve President William Poole also said he is comfortable with current market expectations for future policy tightening, citing the risk of a pass-through of energy prices."

"'The current phase of the dollar's rally is starting to look mature,' said Nick Bennenbroek, vice president for foreign exchange research at Brown Brothers Harriman in New York. The charts still look constructive for the dollar, but I think $1.18 would prove to be good support for euro/dollar and that a more significant correction in the dollar may not be that far away,' he added."

In metals news. "The German government and the Bundesbank have agreed to end a long-simmering row over the use of Germany's huge gold reserves, the finance ministry revealed on Thursday. Finance Ministry Peer Steinbrueck has dropped proposals to change the existing law regarding the sale of the Bundesbank's gold reserves, the ministry said in a statement."

"There had been plans to alter the existing Bundesbank law so that the German central bank would no longer be obliged to transfer the proceeds from any gold sales directly to the federal budget. The German bank had been concerned that any changes to the law could potentially affect its independence in the matter of gold sales and in its autonomy in the management and investment of its currency reserves."

And from the mining sector. "Precious metals commentator GFMS has indicated that the pace of quarterly de-hedging fell to its lowest level for more than two years. Combined with the 3,96-million ounces reduction in the nine months to September, the full year reduction in the hedge book amounted to a provisional 4,44-million ounces."

"Commenting on the findings, senior analyst Bruce Alway reported that the slow-down in de-hedging does not necessarily suggest that there has been a change in producer sentiment towards hedging. He added that one should bear in mind that two-thirds of the global hedge book is controlled by AngloGold Ashanti, Barrick (and Placer Dome) and Newcrest, who generally speaking, appear intent on reducing their level of hedge cover rather than to commit to fresh hedging."

"From the juniors, the December quarter witnessed an unusually high level of fresh hedging, most of which was related to new mines and development projects. Of the more significant hedges, there were additions from European Minerals, Equigold, Oceana Gold, Resolute Mining, Sino Gold and St. Barbara."

MarketWatch looks at the futures markets. "Gold futures bounced off a six-week low Thursday, with traders determined to recoup much of the previous session's loss of more than $6 an ounce, as the metals market weighed the odds of further hikes in U.S. interest rates."

"In testimony to Congress, Federal Reserve chief Ben Bernanke 'made it clear that he intended to fight any increase in inflation, which was disappointing to those who were bullish on gold,' said Steven Jon Kaplan. 'As a rule, precious metals perform poorly when the Fed is raising interest rates to combat inflation,' he explained."

"Gold for April delivery fell to an intraday low of $538.80 an ounce on the New York Mercantile Exchange, but the contract then recovered to trade up $4.40 at the $547.10 mark. 'News that the German government has deserted plans to invest proceeds from gold sales into a special fund assigned for research and education has given a boost to a weak gold market,' said Peter Spina."

"At the same time, the U.S. dollar retraced some earlier gains made after a batch of strong economic reports showing that the nation's housing market remains robust and that inflation may be heating up, fueling some buying in gold. April gold made a 'successful retest' of the overnight low of $537.80 an ounce set on Tuesday, and that support has been 'holding well,' said Dale Doelling, chief market technician at Trends In Commodities. But for now, 'it's too early to tell whether there's another ambush lurking on the trading floor,' he warned, adding: 'I'll need additional evidence before I'm convinced that its time to sound the 'all clear.'"

"Elsewhere in the metals market, March silver tacked on 10.5 cents to $9.32 an ounce.
April platinum fell $1 to $1,005.50 an ounce after trading as low as $990.20, its lowest since early January. Sister metal palladium saw its March contract trade at $278 an ounce, up $1."

The Lew Rockwell site has this debate on gold versus silver. Highlights, "Unless you are invested in gold and/or silver, the details of this debate may not interest you enough to read a long debate. But you should at least know about its existence. It is a debate over this question: Will above-ground supplies of silver run low before above-ground supplies of gold, gold actually available to the market, run low?"

"It is also a debate over this question: In a time of an unexpected level of price inflation or after a terrorist attack, is the demand for silver likely to exceed the demand for gold? Finally, it is a debate over this question: During a recession, is silver’s price likely to fall by a greater percentage than gold’s price?"

"From 1792 to 1972, silver went essentially nowhere. Then silver began moving up. In 1979, silver spiked upward by 10 to one. It hit $50/oz in January, 1980. Then, beginning in mid-January, 1980, it fell like a stone. It kept falling until 1991, when it bottomed at $3.60. What happened? Bunker Hunt happened."

"Two things happened to stop him. First, the FED reversed policy in October, 1979, from monetary inflation to monetary stability: tight money. Interest rates began to skyrocket. The end of double-digit price inflation was imminent. Second, the commodity exchange changed the rules. Demand for silver futures contracts died overnight."

"Newcomers to the silver market may not remember what has gone before. Silver is approaching $10 now, up from $3.60 in 1991. That is a nice move upward. It began before gold’s move in April, 2001. The two metals have moved up in tandem since then. The question is: Will this continue?"

"I have heard this same argument about silver’s imminent shortage ever since 1973, when I sold silver for a living. When a wise man hears the same argument used over and over, decade after decade, to buy silver, yet the price only once has moved far out of a trading range of a few dollars, then he grows suspicious every time he hears the argument."

"I believe that the dollar price of gold will eventually rise, because the purchasing power of the dollar will decline by a much greater percentage than is presently expected by conventional investors. Price inflation alone will not drive up the price of gold or silver, as we can see in the prices of both metals after January, 1980. There was steady price inflation and also a price collapse of both metals for two decades. Unexpected price inflation is the deciding factor."

"I think the economy is getting closer to a recession. So, I think silver, an industrial metal, is more vulnerable to a decline in price than gold is, which retains its status as money for central banks. Don’t get your hopes up for a killing. Some profits, yes, but not until after the next recession. Is it better than owning fiat money? A few thousand dollar’s worth, yes."

"When recessions loom ahead, it is best to sit on the sidelines unless the FED is pumping hard (as it is today), or unless a major terrorist attack occurs in the United States, or unless some nation bombs Iran. None of this has much to do with an alleged imminent shortage of silver."

Morningstar has the precious metals trading action. "The precious-metals complex turned negative on Wednesday in New York as gold took a lashing due to further fund selling while the U.S. dollar made gains against the euro. The most-active April gold contract settled $6.20 lower at $542.70 an ounce. During the session the contract dipped to a $539 low, just above Tuesday's five week low of $537.80 an ounce."

"Andrew Chaveriat of BNP Paribas said the weekly momentum of the gold market is on the verge of a bearish crossover off an overbought extreme. 'The picture is reminiscent of the December 2004 high, which was followed by a lengthy pullback. This time around, bearish momentum could fuel a deep and sharp drop in gold prices,' Chaveriat said."

"Chaveriat said this week's decline in April gold below $548.50 confirmed a secondary top is in place at $572.30, the Feb. 10 high, joining the $579.50 peak from Feb. 2. 'Secondary tops often exhaust buying power leading to substantial medium-term and potentially longer-term declines,' Chaveriat said."

"Additionally, Chaveriat said the formation of this secondary top has been accompanied by a dramatic increase in short-term volatility. 'A sharp increase in volatility is often associated with a turning point,' Chaveriat said."

"Meanwhile, silver futures followed gold lower with the March contract settling down at $9.215 an ounce, off 10 cents on the day. April platinum settled $12.40 lower at $1,006.50 an ounce. It dipped to a low of $1,001 an ounce during the day. March palladium ended the session $3.90 lower at $277 an ounce."

Reuters reports on the new Fed chairman. "The dollar was higher midsession on Wednesday, boosted as new Federal Reserve Chairman Bernanke signaled further U.S. interest rate increases to contain inflation pressures in a relatively strong economy. The dollar had fallen earlier in the day after U.S. net capital inflows for December were reported lower than expected at $65.7 billion which was not sufficient to cover the month's trade deficit."

"'The initial reaction to Bernanke was positive for the dollar and then the market tried to fade that rally out,' said Shaun Osborne, chief currency strategist at Scotia Capital. 'His speech was hawkish in the sense that there would be more interest rate increases. But again, there's something for everybody in his speech, including dollar bears,' Osborne added."

"By midday, the euro was down 0.2 percent against the dollar from late Tuesday at $1.1886. The dollar rose 0.3 percent against the yen to 117.82 yen. Against the Swiss franc, the dollar was up 0.2 percent at 1.3107 francs."

"In his first congressional testimony before the U.S. House Financial Services Committee, Bernanke said the U.S. economy was running near capacity and warned that it faced heightened inflation. But high energy prices and the possibility of a slowdown in the U.S. housing market after a protracted boom also posed potential risks, Bernanke said."

"The dollar initially rose in reaction to Bernanke's inflation warning and then shed its gains as some analysts said Bernanke's remarks were less hawkish than initially thought. 'My feeling is this is slightly less hawkish than what people were expecting. He seems very even-handed,' said Jason Bonanca, senior foreign exchange strategist at Credit Suisse."

"Currency investors all week have been bracing for a U.S. interest rate-supportive testimony from Bernanke. Some analysts were even speculating the fed funds rate could go above 5 percent, especially in the wake of Tuesday's blockbuster U.S. retail sales report for January."

"Earlier in the session, the dollar fell after U.S. net capital inflows for December came in much lower than expected and not sufficient to cover the month's trade deficit of $65.7 billion. Net capital flows into U.S. assets were $56.6 billion, far below market expectations of $82.3 billion and November's upwardly revised $91.6 billion. 'Stepped-up U.S. appetite for foreign securities and less foreign appetite for U.S. Treasuries have come together to make this a weak number,' said Richard Franulovich, senior currency strategist at Westpac Banking Corp. 'This is dollar negative..since all the positive news on the dollar has already been discounted,' he added."

"Foreign net purchases of U.S. Treasuries slumped to $18.28 billion in December from a revised record of $54.55 billion in November. It was the smallest net purchase of Treasuries since the $16.54 billion posted in June 2005. Lower inflows mean the United States will have a harder time financing its huge trade deficit, which was a factor behind the dollar's three-year decline through end-2004."

Lot's of news in the precious metals sector. "Gold prices bounced on Tuesday, after dropping to a five-week low earlier on heavy selling by speculators and fund managers, as the dip attracted fresh buyers, dealers said. Platinum recovered from a slide below the psychologically important $1,000 an ounce level, while silver and palladium gained after tumbling to their lowest in several weeks."

"'The market is quite thin and choppy. What we have been seeing is exaggerated moves in both directions,' said Peter Hillyard. 'In the past, if somebody was selling 20,000 or 30,000 ounces of gold, the market would move 30 or 40 cents. Now it moves two dollars. When it moves two dollars, somebody else gets a little nervous, and they sell and it moves another two dollars.'"

"Dealers said mounting expectations that the U.S. Federal Reserve would keep raising interest rates after 14 straight rises to 4.5 percent had previously triggered liquidation by funds and speculators, as gold could become less attractive. Oil prices, which extended a two-week retreat to below $60 a barrel, dampened sentiment somewhat. Gold is often seen as a hedge against inflation."

"'Market conditions will remain nervous and there is a general sense of uncertainty over the next big price move,' Barclays Capital said in a daily note."

"Harry Schultz's take on gold's recent action: 'Was the gold price drop last week caused by being over-touted (in the media) and overbought, and with a bearish chart parabolic curve and bearish up wedge? OR by the gold cartel? Yes! Both. The price fixers have chartists too (they run two of New York's biggest banks) and they know when any market..is oversold, technically. So they know when to place their bets.'"

"Schultz went on to give the clearest statement I've seen from him of the theory, widespread among investment letters but recently endorsed in a report by France's Credit Agricole bank, that the official sector has been intervening in gold and other financial markets: 'They (the so-called Plunge Protection Team) subsidize the U.S. stock market when it sags to a major chart support area, which dare not break least weakened public confidence cause a crash. And they know when gold has risen to an overbought level, so they sell it short. They usually make money maneuvering for their de facto CEO, the U.S. government...They also usually make money on their gold shorts, by buying back after substantial falls."

"Schultz's strategy is to trade: 'You should sell when THEY do, or BEFORE, if possible. We told GRCU subscriptions to take profits a full week before this latest fall, in bold terms.' Schultz warns of gold 'mini-crashes,' which don't sound so mini, he means 50 percent-80 percent corrections in the gold stocks."

"But long-term, his view is very clear: 'We're in a major gold bull market thanks to excessive bank and government credit and money creation...$600 is our next target, then $900, on the way to $2,000.'"

And some mining news. "Unhedged, debt free and with $118 million US in cash burning a hole in its pocket, Silver Wheaton (TSX:SLW) is on the hunt for acquisitions, the company told analysts Tuesday. 'We're always looking at opportunities, but we certainly hope it will be sooner rather than later,' said Ian Telfer, a Silver Wheaton director."

"The quest for growth follows an agreement in which Silver Wheaton agreed to pay Goldcorp $150 million US in a deal that will increase production by more than 100 million ounces over the companies' 25-year deal regarding the Luismin mines in San Dimas, Mexico. 'This is a spectacular deal for Silver Wheaton. It will be getting basically an additional four million ounces a year going forward for $150 million,' Telfer said."

"The world's top palladium producer, Russia's Norilsk Nickel, revealed higher-than-expected palladium and platinum reserves on Tuesday, the first time it has disclosed such data to the market. Measured and indicated mineral resources of the division located on the Taimyr Peninsula indicated an additional 141 million ounces of palladium and 40 million ounces of platinum, it said in a statement."

"The statement did not include PGM reserves and resources from Norilsk's deposits on the Kola peninsula in northwest Russia, where another division of the company is based. Norilsk has said it intends to produce 2.90-2.95 million ounces of palladium in 2006, down from 3.133 million in 2005, and 690,000-700,000 ounces of platinum, compared with 751,000 ounces in 2005. It did not explain the expected decline."

Market Watch has this report on metals trading. "Gold futures rose as much as 1% Tuesday afternoon on the heels of a two-session losing streak that amounted to $26 an ounce. Gold for April delivery was last trading up $4.70 at $546.80 an ounce on the New York Mercantile Exchange. The contract touched a high of $548."

"'The overnight action in the gold market has brought the April contract to the 50-day moving average which now stands at $541.70,' said Dale Doelling. 'This very strong support area is holding for now.'"

"From here, traders will look towards the week's end to see if that 50-day moving average 'can hold before they can feel semi-comfortable the worse is behind them,' said Peter Grandich."

"Traders said the correction was helped by the fact that some of the political stories that have been grabbing headlines recently; Iran's nuclear research, the row about editorial cartoons portraying the prophet Muhammad, the U.S. trade deficit; moved off the front pages. Most analysts remain bullish on gold."

"'Longer-term fundamentals remain positive, amid steadily accelerating demand from the major emerging economies and constrained output levels,' said research firm Action Economics."

"Other metals futures mirrored the strength in gold Tuesday. March silver futures traded up 15.2 cents, or 1.7%, at $9.27 an ounce. April platinum gained $5.30 at $1,020 an ounce and March palladium added $4.45 at $279.50 an ounce."

A Financial Times writer sees deflation in the air. "People refer to government fictions such as the PPI (producer price index) and CPI. And if they don’t support their theories they begin conflating the trade deficit into future inflation worries. The implication is that consumers are somehow getting 'choked' by inflation when the reality is quite the opposite."

"Let’s first look at the various soft commodities, such as wheat, soybeans and corn. Wheat futures, currently trading at $360, are significantly lower than their 10-year high of $750, reached in 1996. Wheat is significantly lower than even its five-year high, reached in 2002, at about $425."

"Soybeans were as high as $1,050 as recent as early 2004. Now they are at $584."

"Oats are at $191, down from a high of $280. Hogs are at $58.40, down from a high of $85. Got milk? In 1995 it was at $12.40. Now, it is $12.40."

"What about lumber? Hasn’t there been a huge increase in demand for lumber thanks to the 'bubble' in housing? One year ago lumber was at $460. Now it is $344. Its 10-year high was around $480, reached in 1996."

"Chains such as Costco and Wal-Mart driving mom and pop grocery shops out of business, it is only natural that prices are being cut at the grocery store. In mid-2005, Giant Eagle, from Pennsylvania, announced it was cutting prices on 3,000 items, increasing to 7,700 the number of items on which they have lowered prices this year. 'The supermarket industry today is being chipped away at by a large number of competitors,' Kevin Srigley, Giant Eagle’s senior vice-president of marketing, said at the time. 'To be successful long-term, we must reduce prices and maintain our fresh offerings and quality.'"

"Palladium, with industrial uses ranging from electrical components to automotive, perhaps one of the most important commodities from an industrial point of view, is at $288, down from a 10-year high of $1,100, reached in 2001."

"On a completely anecdotal note, what scares me most is wage deflation. I recently posted a job listing on internet noticeboard Craigslist. The job posted simply said, 'need a researcher. Knowledge of internet, investing, writing.' Of the 300+ responses I received at least two-thirds had higher degrees and most of the applicants had some experience at one of the big banks: Goldman Sachs, CSFB, Morgan Stanley and JP Morgan. So what was so great about this job? The wages; $12 an hour."

Bloomberg covers the days trading action. "Gold prices fell to a three-week low in London and New York after the dollar strengthened against currencies such as the euro, diminishing the metal's appeal to some investors as a hedge against declines in the U.S. currency."

"The dollar rose to its highest in almost six weeks against the euro on speculation U.S. government reports this week will indicate a strengthening economy. Gold has dropped almost 5 percent in seven trading sessions as investors sought to take advantage of a 25-year high reached Feb. 2."

"Gold for immediate delivery in London fell as much as $6.85, or 1.2 percent, to $544.15 an ounce, the lowest compared with intraday prices since Jan. 19. The metal traded at $548.70 as of 1:49 p.m. local time. Gold futures for April delivery fell $1, or 0.2 percent, to $552.50 as of 9 a.m. local time on the Comex division of the New York Mercantile Exchange, after dropping to $546.50, also the lowest since Jan. 19."

"The correlation coefficient for gold and the euro is 0.4. That measures the coincidence of closing daily gains and declines in the past year using a scale from -1, meaning prices move opposite each other, to 1, meaning they move in lockstep. The correlation coefficient was 0.7 in the previous 12-month period."

"Hedge-fund managers and other large speculators decreased their net-long positions in New York gold futures in the week ended Feb. 7, according to U.S. Commodity Futures Trading Commission data. Net-long positions fell by 11,901 contracts, or 9 percent, from a week earlier on the Comex division of the New York Mercantile Exchange."

"Gold's decline through $547 an ounce triggered automatic sell orders that traders place to close a bet that is showing a loss, said Gordon Cheung. 'The selling seems to have come from all over the place, Tokyo, Far East and New York,' he said."

"The metal may rebound this week as investors buy bullion as an alternative to stocks and bonds, a Bloomberg News survey shows. Twenty-two of 40 traders, investors and analysts surveyed from Melbourne to New York on Feb. 9 and Feb. 10 advised buying gold, which fell $17.90 last week to $551 an ounce in London. Nine respondents advised selling gold, and nine were neutral."

"Among other precious metals for immediate delivery in London, silver fell 7 cents, or 0.8 percent, to $9.31 an ounce. Platinum dropped $7.50, or 0.7 percent, to $1,030 an ounce, while palladium slid $1, or 0.4 percent, to $281.50 an ounce."

And the South African mining shares are cheaper. "South African stocks plunged more than 2 percent on Monday as weaker metal prices pummelled miners and Harmony Gold tumbled on disappointing earnings. The top-40 index of blue-chip stocks, which has struck a series of record highs in recent weeks, fell 2.46 percent. Investors sold equities across the board and every stock on the top-40 ended the day in either negative or neutral territory, but miners took the biggest beating."

"'Platinum and gold stocks are underperforming along with the metal and we are following a commodity stock sell-off in Asia and Australia,' said one Johannesburg-based trader."

"Harmony Gold on Monday said higher costs stopped it swinging to a quarterly headline profit as analysts had hoped, sending its stock down 7.18 percent to 97.00 rand. Harmony, which had predicted stronger results for the December quarter, only narrowed its headline loss per share to 75 cents versus a loss of 86 cents in the previous quarter, helped partially by the higher gold price and more production. 'The gold price helped quite a bit to boost profits, but corporate overheads and capital expenditure sliced a lot of that away,' said Nick Goodwin at securities firm T Sec."

"Gold mining companies had been expected to post bumper results but AngloGold Ashanti also missed expectations and ignited fears about rising costs when it reported on Friday. 'All eyes are on the rest of the earnings from the mining sector now after a few disappointments,' the trader said."

Reuters reports on the latest currency development. "Syria has switched all of the state's foreign currency transactions to euros from dollars amid a political confrontation with the United States, the head of state-owned Commercial Bank of Syria said on Monday."

"'This is a precaution. We are talking about billions of dollars,' Duraid Durgham told Reuters. The bank, which still dominates the Syrian market although private banks have been allowed to set up in the last few years, has also stopped dealing with dollars in the international foreign exchange flows of private clients."

"The United States has been at the forefront of international pressure on Syria for its alleged role in the assassination of former Lebanese Prime Minister Rafik al-Hariri a year ago. Damascus denies involvement in the killing. 'It looks like a kind of pre-emptive action aimed at making their foreign assets safer, preventing them from getting frozen in case of any conflict,' said a Middle East economist who requested anonymity."

Market Watch has this report on early metals trading. "Gold futures edged lower Monday morning, but held their ground above the $550-an-ounce level after dropping more than 3% last week. Gold for April delivery was last down $1.80 at $551.70 an ounce on the New York Mercantile Exchange. It fell as low as $550.80, but traded as high as $555."

"'In the last several weeks, gold has dropped 5% from its 25-year high,' said Emanuel Balarie. But 'demand for gold as an alternate currency, global demand from central banks, and the continued demand for jewelry in China, India and emerging economies will continue for several years to come,' he said. Given that, he views recent weakness in gold prices as a 'buying opportunity.'"

"'Longer term, fundamentals are supportive, amid accelerating demand from emerging economies and constrained output levels,' economists at Action Economics said early Monday. In the short term, however, a lot will depend on how investment funds behave after a week in which many trimmed back heavily on their net long exposure. Gold has lost about $25 from its peak level last week."

"'Price action around the previous pivot level of $540 will be interesting in coming sessions,' they said."

"Mark silver futures were last trading up 2.5 cents at $9.404 an ounce. April platinum futures fell $11.10 to $1,029 an ounce and sister metal palladium saw its March contract lose 65 cents to stand at $284 an ounce."

A reader suggested this as a weekend topic: "It would be interesting to get an idea of what the portfolios look like of some of the posters on here. You can get as detailed as you want, or just keep it simple."

To expand on that idea, what does a model portfolio of currencies and precious metals look like?

Dow Jones Newswires reports on another wave of precious metals selling. "For the second time this week, a wave of fund and other speculative long liquidation knocked the New York precious-metals complex sharply lower Friday. Most of the metals managed to hold just above the lows that were reached during a liquidation sell-off that had knocked gold nearly $20 lower on Tuesday."

"However, April platinum futures were an exception as they fell through Tuesday's bottom to its weakest level in three weeks. April gold settled down $14.60 to $553.50 an ounce, while March silver tumbled 28 cents to $9.38 an ounce."

"'There was continued profit taking by those who didn't get out on the first time down,' said Don Tierney. 'But the activity does seem to be spotty.'"

"Much of this liquidation was from funds, he and others reported. 'It's a Friday. Some people wanted to flatten out their positions and take another look at it Monday, which is normal,' said Tierney. 'That was in both gold and silver. They are following each other pretty closely.'"

"Weakness first set in overnight as the Japanese yen strengthened, said George Gero. In response, the Japanese started selling metals and gold hit its daily yen limit-down on the Tokyo Commodity Exchange."

"Selling snowballed during New York hours. 'You had everyone walking through
the same door at the same time, trying to position themselves out first,' said Gero."

"As April gold fell back through $560, he said, 'nobody wanted to be the first
to buy on the way down.' Much of the liquidation may have been because market participants felt traders were already so heavily long, said Gero."

"'It's been over-owned,' said Gero. 'A lot of retail has been coming into the metals. There is concern when you have a lot of retail that the metal becomes over-owned. They (those booking profits) just want to be temporarily out.'"

"April gold bottomed at $550, just above Tuesday's bottom of $548.50. March silver held at a session low of $9.28, a half cent above Tuesday's bottom."

"As was the case earlier in the week, the gold held above the 50% retracement of the rise from the Dec. 21 low of $496.50 to last week's $579.50 high, pointed out Tierney. This support lies around $538. The 50-day moving average lies a short way above this at $540.20."

"In March silver, the 50% retracement of the rally of the December 21 low lies
around $9.12. The 50-day average is at $9.064."

"The Platinum Group Metals also fell sharply on fund liquidation, with the losses accelerating as sell stops were triggered, said a trader. April platinum tumbled $33.80 to $1,040.10 an ounce and March palladium lost $19.80 to $284.65."

"March palladium remained just above Tuesday's $281.50 bottom, holding at $283. However, for the second day this week, it fell through the 50% retracement of the December-February rally, which was just above $287. The 61.8% retracement of the rally from the Dec. 22 low to the Feb. 3 high is around $277.70. It's 50-day average is right around this, at $277.65."

This topic was recommended at the housing bubble blog. "When the housing bubble pops will the price of gold go higher as a result?"

And a morning look at metals trading. "Gold futures fell early Friday, dragging other metals with them, after chalking up gains of more than $14 an ounce the previous day. Gold for April delivery was last trading down $5.30 at $562.80 an ounce on the New York Mercantile Exchange."

"Action Economics said gold was also hit by a strong yen. The yen rallied following strong Japanese data, squeezing out some yen-funded margin long positions in gold."

"Silver futures were last trading down 9 cents at $9.57 an ounce. Platinum was down $10.90 at $1,063 an ounce, while sister metal palladium lost $6.65 to $297.80 an ounce."

So how did precious metals end the day? "Gold futures closed higher Thursday, chalking up a gain of more than $14 an ounce, with strong investment and physical demand for the precious metals revived after prices drop to a three-week low in the previous session."

"'This market is not close to being finished for higher prices,' said John Person. 'The targets of $600 to $625 are more and more a reality and mostly justified as concerns on inflation, geopolitical pressures in the Middle East and now with rates at comfortable levels, central bankers are stuck in a rock and a hard place,' said Person."

"Central bankers 'risk choking off economic growth by raising rates too much, but on the other hand inflation is a genuine threat,' he said. Meanwhile, 'energy prices are vacillating in violent swings [and] consumers don't seem to mind what they are paying at the pumps,' he said, coming to the conclusion that energy prices will continue to rise and thus make gold 'more of a staple in investors' portfolios.'"

"'The market cannot and will not have a constructive foundation and framework if we do not have corrections along the way,' Jon Nadler, an investment products analyst at bullion dealers Kitco.com said. 'People have not bailed out of gold completely and ... there are many who await a fresh opportunity to buy.' Looking ahead, a move to about $533 to $535 an ounce 'is not to be ruled out,' said Nadler. But, at the same time, there a 'staggering amount of liquidity sitting on the sidelines waiting for precisely such a pullback,' he said."

One central banker is concerned. "Overnight interest rates have crossed into neutral territory but may need to be tweaked some more to keep inflation expectations from rising, Chicago Federal Reserve President Michael Moskow said Thursday. 'My view is that inflation will likely remain contained. But..there are risks to the inflation outlook, namely, the potential for energy cost pass-through, pressures from increases in resource utilization, or rising inflationary expectations,' Moskow said."

"'And with inflation near the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern, while a decline in inflation would be beneficial,' he said."

"March silver futures closed up 22 cents at $9.66 an ounce. April platinum finished up $18.50 at $1,073.90 an ounce, while sister metal palladium saw its March contract climb $11.70 to close at $304.45 an ounce."

Market Watch reports on the nervous futures markets. "Gold futures climbed as much as $9 an ounce Thursday morning, after spiking by $10 overnight following a scare at a Senate office building in Washington. Some 200 people were evacuated from the Capitol Hill building late Wednesday following what later turned out to be a false alarm that had indicated the presence of nerve agents."

"In overnight trading, 'the market found strong buying interest by the funds, but also on news that a suspected nerve agent forced the evacuation of the U.S. Senate office building,' said Nell Sloane. Gold held most of its gains 'even though the vapor that caused the alarm tested harmless,' Sloane said, adding: 'The bounce extended to other precious metals as well. This market will probably continue to be quite volatile,' she said."

"The overnight move 'shows just how fast this particular market can move higher when the market is scared,' said Kevin Kerr, a veteran commodities trader. 'Gold seems to also be rebounding from the steep over the cliff type profit taking we have seen in the last two days,' he said. 'Funds wanted to take some cash off the table and gold was due for a correction anyway but now that a healthy cleansing has happened the market can resume its rise.'"

"Elsewhere in the metals complex, March silver futures were last trading up 16.5 cents at $9.605 an ounce. April platinum was up $14.60 at $1,070 an ounce and sister metal palladium saw its March contract climb $9.75 to $302.50 an ounce."

And there was this report from South Africa. "The country's gold production in 2005 declined by 12.8 percent when compared with 2004, Statistics South Africa said on Thursday. In the three months to December 2005 gold output fell by 8.8 percent when compared with the three months to December 2004. Gold production in December 2005 was 3.8 percent lower than output in December 2004."

"The total mining production for the fourth quarter of 2005, after seasonal adjustment, decreased by 3.1 percent when compared with the previous quarter. The decrease was due to a seasonal adjusted decrease of 4.3 percent in the production of non-gold minerals during the fourth quarter of 2005 when compared with the previous quarter."

"The seasonally adjusted decrease of 4.3 percent in the production of non-gold minerals was mainly due to a decrease in the production of platinum group metals (PGMs) by four percent, coal by 0.8 percent and iron ore by 0.2 percent."

For the contrarian uranium bug, there is one firm that's a little cheaper today. "Uranium enricher USEC Inc. on Wednesday said it will stop paying its common stock dividend in order to divert funds toward construction of its $1.7 billion American Centrifuge enrichment plant. The company also said it plans to access the equity markets this year."

"Shares of USEC fell more than 12 percent and were the top percentage losers on the New York Stock Exchange in afternoon trading. USEC, which supplies enriched uranium fuel to nuclear power plants, said in a statement it does not expect to pay a dividend until the plant is completed. The dividend requirement over the next five years would be nearly $250 million, the company said."

"USEC currently operates the only uranium enrichment facility in the United States, a gaseous diffusion plant in Paducah, Kentucky. The company hopes to receive the license to begin construction of the American Centrifuge plant in Piketon, Ohio, late in 2006 or early 2007."

"'We know the cost of deploying the American Centrifuge technology will be significant,' said Chairman James Mellor. 'Every dollar of internally generated cash that we use to build our..plant is one less dollar USEC needs to raise in the capital markets.'"

"Louisiana Energy Services, a partnership of nuclear energy companies and utilities, has also filed to receive a license to build a uranium enrichment plant in New Mexico."

This Forbes piece has some insight on the new Fed chief. "Inflation is going to make the new year look better than it really will be. Excess money initially induces extra spending and more investment. The Federal Reserve will continue raising short-term interest rates, but unless it stops printing an excessive amount of money, it will give us a replay, although a milder version, of the dreadful stagnation experiences of the late 1970s and early 1980s. The nominal cost of money went up and up, and so did prices."

"Alan Greenspan will have left town by the time his inflationary blunders become all too evident. Greenspan & Co. started to turn out excess money more than a year ago. The Fed's blunder is a shame. The economy's fundamentals are astonishingly strong. Ben Bernanke, Greenspan's about-to-be successor, disdains gold as both an indicator and a guide to monetary policy; he won't be prepared for what's going to hit him. He'll look at the Fed's multitudinous measures of money and conclude they haven't grown enough to cause inflation."

"No one has taught him that he can't just look at supply, he also has to look at demand. The world is flush with liquidity. U.S. corporations have nearly $2 trillion in cash, a record high in absolute terms and proportionally. Banks, insurance companies, equity funds, venture capitalists, hedge funds, all are desperately looking for investment opportunities. Bernanke's explanations for the events that are about to unfold will be interesting. Will he blame Arab sheikhs? Rapacious corporations? Budget deficits? Trade deficits? Hedge funds? Sunspots? All of the above? Or will he have the courage, the understanding to point the finger at the institution he will soon be piloting?"

"Given his statements that gold is an obsolete, if not destructive, guide to monetary policy, Bernanke is not likely to recognize the inflation problem until it hits him, and the economy, square in the face. A year from now Greenspan's successor may, unfairly, resemble the ill-starred G. William Miller, whom Jimmy Carter appointed to head the Fed in December 1977 and who proceeded to stoke inflation to record highs."

"Bernanke should let short-term interest rates float and simply mop up the excess liquidity until the price of gold comes down to a tad below $400 an ounce, a price still above the average of the past ten years. Sadly, such a timely, sensible approach is so beyond Bernanke's mind-set, not to mention that of most other economists and policymakers, that he'll never do it."

The gold market is facing some short term challenges. "Gold futures edged higher Wednesday afternoon, as a fall to a three-week low under $550 an ounce sparked renewed physical and investment demand. 'We are undergoing a healthy bull market consolidation, with the likelihood there may be more pain to the downside,' said Peter Spina. 'Should the $540-$545 spot support give way, we should then look for the next strong technical pullback target around $525,' he said."

"Gold for April delivery touched a low of $548.50 an ounce on the New York Mercantile Exchange, a level not seen since Jan. 18. It recently recovered a bit to trade up 50 cents at $555.30. On Tuesday, the contract lost almost $20 an ounce to record its biggest ever one-day decline."

"Traders said the steep fall suggested that the rush of buying that has propelled prices to repeated 25-year highs may have been exhausted, at least for now. Action Economics said a sharp yen rally had added to the momentum as it squeezed out Japanese and other yen-funded margin accounts from long gold positions."

"'The weakness in gold prices is reflective of a broader deleveraging of commodity long exposures,' they said. 'The sharp decline in gold has weakened the technical picture and should keep prices pressured over the near term.'"

"Many analysts are expecting gold to test the $600 an ounce resistance level in the near term. 'From a technical point of view, the current correction is positive for the longer-term bull run and should give the metal the legs to clear the current 25-year high ... and push on towards $600,' said James Moore. Prices will likely see support around the $545-$535 level, he said."

"Former Federal Reserve Chairman Alan Greenspan said on Tuesday that the high price of gold is due to investor concern about major geopolitical conflict. Greenspan, who spoke to an audience of international investors in Tokyo via video link from his apartment in New York, also said cheap oil prices were a thing of the past due to a lack of oil refining capacity."

"Greenspan, who said high gold prices did not reflect inflation or the strength in commodities, added the low probability of a nuclear weapon being detonated within five years would not necessarily stave off a spike in gold prices."

"Other metals traded mainly higher Wednesday. March silver was last trading up 2.5 cents at $9.435 an ounce. A correction back to 'the prior breakout point' of $9.25-$9.30 for silver will 'lend the first level of support here with $9 the next downside target,' said Spina."

"April Platinum was down $1.70 at $1,060 an ounce but sister metal palladium saw its March contract tacked on $1.80 at $291 an ounce after losing 7.5% in the previous session. Over in the equity market, metals-mining indexes traded slightly higher on the heels of hefty losses of over 6% on Tuesday. The benchmarks closed out Tuesday's session around their lowest level in two weeks. 'Metal equities took a thrashing and it appears there may be more weakness in the short term here,' said Spina."