The dollar strengthened against the euro and major currencies last day amid thin volumes on account of the year end transactions, supported by the easing concerns over financial crisis. Strong CPI data has changed the attitude of the traders and that trimmed expectations for further interest rate cuts by the Federal Reserve.
The dollar rallied against major currencies bolstered by a string of US economic reports showing higher-than-expected growth in consumer spending and higher inflation. The data eased some concern that the credit crisis would pull the US economy into a recession.
In the same time the number of people filing for unemployment benefits increased last week, according to the US Labor Department's report released on Thursday.
Initial claims rose 12,000 to 346,000 for the week ended Dec 15. The four-week moving average was 343,000, an increase of 4,250 from the previous week's unrevised average of 338,750.
Continuing claims advanced by 12 k to 2,646,000 in December the 8th week, from revised 2,634,000 claims on the previous weeks.
US consumer price inflation rose to 4.3 percent for the month of November, while the core rate excluding food and energy prices rose to 2.3 percent for the year.
Both retail sales and producer prices for November beat market expectations and strengthened the view that the US economy is getting strong gradually.
Data from the Commerce Department showed US retail sales rose 1.2% in November, the strongest pace since May.
The Federal Reserve had cut its benchmark interest rate by a quarter of a percentage point last Tuesday, as widely expected is also supported the long tern view in dollar.
The Fed had announced a new plan last week, to increase liquidity and ease the global credit crunch situation by injecting billions of dollars in cash to the financial system in the next few weeks. This would be done in association with the European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada.
Medium Term Outlook
1.4841 may act as the major support for the dollar. If dollar sustains below 1.4841 against the euro, more recovery can be expected. Active trading below 1.4530 is the sign of further strengthening of the dollar. Next resistances are 1.4400 and 1.4280. 1.4600 is a support. Continuation of the weakness in dollar can be expected only above 1.4841.
In the spot trading, dollar closed at 1.4318 (1.4377) against the euro, after trading in the range of 1.4391 – 1.4306.
Last day DEUR traded in the range 144.35 – 143.86 and closed at 144.20.
Intra-day trading ranges; supports are 142.53, 142.04. Resistances are 143.79, 144.36.
Tuesday, December 25, 2007
Will US repeg Dollar to Bullion?
Things are bad in mortgage-backed bonds. But they could soon get worse for credit-default swaps... By now pretty much everyone of us can recite how crummy mortgages got packaged into asset-backed securities, and how – after the tastier tranches were sliced off – the meat by-products got sent along to the CDO sausage factory to be made palatable again.
Now the CDO investors are puking up all over town. But there has been another derivatives party going on, where the bubbly is still flowing to a large extent.
This party, as many will relate, is the explosion in credit default swaps (CDS) that has appeared over just the past few years.
Structured finance has been around since the 1980s, but the CDS market is essentially brand new. The CDS was invented in the mid-1990s but it was minor until the last four years. Since 2003, this market has exploded in size by 10 times, to a total notional amount of about $45 trillion.
Yes, that's trillion with a "t".
This market has never been tested in any kind of economic downturn, not even the most recent one of 2001-2002. We might see that test soon, however.
The credit-default swap is insurance against a credit accident. The seller of CDS receives a small monthly payment. If the insured bond fails to perform, the buyer of CDS receives a large one-time payment from the seller. At first, in the 1998-2002 period, this was mostly a way for holders of bonds to insure themselves. However, in recent years, the CDS market has become a way for CDS buyers to wager on credit deterioration, and a way for CDS sellers to act like banks.
Banks are a wonderful business, when everything is working right. They have returns on equity that can range from 15% to as much as 25%. These are the kinds of returns that get hedge funds, and their investors, interested. However, it is difficult to enter the banking business. You need offices, branches, depositors, employees, advertising, and so forth.
Banks traditionally profit on the interest rate difference, or "spread", between the money they borrow, from depositors for example, and the money they lend, to corporations for example. They may lever up ten to one, supporting $100 billion of assets on $10 billion of equity. Thus, if their spread is 2%, and they are levered 10:1, their return on equity is a juicy 20% (actually more like 24% because of the return on the underlying capital).
The CDS contract allowed hedge funds to act like banks. The monthly premium on the CDS is a spread between the equivalent Treasury yield and the implied yield on the underlying bond. This can be considered payment for the risk of default, which the Treasury bond presumably does not have. Imagine you're a fund with $1 billion in capital.
You could try to borrow $9 billion – from whom? – and then buy $10 billion in bonds, and enjoy the spread, like a bank. However, that $9 billion would probably have a higher interest rate than a Treasury bond, because the fund also has risk. And, the maturity of the borrowed money would likely be very short, while the bond has a long maturity, introducing duration risk (this didn't seem to scare the SIVs however).
The CDS solves these problems. You just sell CDS on $10 billion of bonds. This doesn't cost any money. You don't have to put up any collateral. You don't have to hire a single bank teller or loan officer. You just call your broker, put in the order, and start getting your monthly payments, just as if you had borrowed $9 billion (at the same rate as the Federal government) and lent $10 billion.
And the fund manager who made this one single phone call? If we assume a 20% return, and $1 billion of capital, he collects about $60 million per year. Which explains the explosive growth of the CDS market in the last four years.
Ah, there's something. You "call your broker." Actually, you call your dealer. It's not so easy to just find a buyer for your $10 billion notional of CDS. This is an over-the-counter market. This is where the big broker-dealers, like J.P.Morgan, Bank of America, and Citibank step in.
Over-the-counter markets are lovely for dealers because of the fat spreads – there's that magic word again that pricks up bankers' ears – between bid and asked in this market. So, what happens is you sell the CDS to your dealer, such as J.P.Morgan? J.P.Morgan then sells CDS – of its own issuance – to its customers that want to buy CDS.
So, you see that J.P.Morgan now sits in the middle, like a banker should. J.P.Morgan is "long" the CDS you sold to them, and also "short" the CDS it sold to someone else, and is thus theoretically hedged from risk while collecting the spread between the prices it bought and sold at. This is a lot like bankers' traditional business of pocketing the spread between the rate it borrows and the rate it lends.
It should be no surprise that the big broker/dealer banks (JP, BofA, Citi) account for 40% of the CDS outstanding. Hedge funds account for 32%. This reflects banks' monkey-in-the-middle dealer strategy for CDS. The remainder is likely insurance companies, synthetic CDOs, CPDOs, and other weird fauna that will soon become extinct. (Thanks go to Ted Seides of Protégé Partners for aggregating this information.)
Now, that 32% of CDS sold by hedge funds has a notional value of $14.5 trillion. This means that, if all those bonds underlying the CDS were a total loss, the funds would have to pay $14.5 trillion. Not very likely. However, if there were only a 5% loss – not so impossible these days – the CDS-selling hedge funds would still be on the hook for $725 billion.
Hedge funds, all together, have estimated assets of around $2.5 trillion. However, only a small fraction of those are CDS-sellers. Let's take a guess at 10%, or $250 billion of capital. (It's probably less than that.) How do you pay a $725 billion bill with $250 billion of capital?
There's an easy answer to that: you don't. So, who pays? The banks, remember, are in the middle. If the CDS-selling hedge fund doesn't pay up on its $725 billion, then the bank is unhedged regarding the CDS that it sold. In this case, the banks would be liable for $475 billion. This is known as counterparty risk.
That's four-seventy-five billion. More than four times the entire capital of Citigroup – capital which has already come under pressure from losses elsewhere.
So what happens if there is a CDS counterparty-risk event? Do the big banks go bankrupt? Probably not, although there would be much wailing and gnashing of teeth. Instead, they would probably get a nod and a wink from the government to simply ignore their own CDS obligations. The counterparty risk shifts to CDS-buyers.
The CDS buyers can take the hit, because they aren't really out any money. They paid their monthly insurance bills, but never got a payout after the credit market car crash. So, in a sense, this drama would likely end in more of a whimper than a bang. In fact, everyone got off OK: the CDS-selling hedge fund manager made a killing in management fees, before the fund went bust; the bank made a killing in dealer income, before kissing their obligations goodbye, and the CDS-buying hedge fund manager raked in the fees on the enormous mark-to-market profits of his CDS portfolio (20% of the aforementioned $725 billion), before these profits were eventually shown to be uncollectible.
A perfect Wall Street happy ending!
However, the kind of situation in which large banks ignore multi-hundred billions of legal obligations is very extreme. The last time something like that happened was in the early 1930s. At that time, they called it a "bank holiday", which has a nice festive ring. The celebration included a devaluation of the Dollar, the first permanent devaluation in US history.
At least President Roosevelt had the good sense to repeg the Dollar to bullion at a Gold Price of $35 per ounce, a parity it maintained vs. the Gold Market until 1971.
Feel free to make your own guesses as to what Paulson and Bernanke might try.
Formerly a chief economist providing advice to institutional investors, Nathan Lewis is now part of the investing team at an asset-management company. A writer for the Financial Times, Asian Wall Street Journal, Daily Yomiuri, The Daily Reckoning, Pravda, Dow Jones Newswires and other publications, he is also the author – with Addison Wiggin – of Gold: The Once and Future Money, published by John Wiley & Sons in May 2007, as well as the essays and thoughts at New World Economics.
Now the CDO investors are puking up all over town. But there has been another derivatives party going on, where the bubbly is still flowing to a large extent.
This party, as many will relate, is the explosion in credit default swaps (CDS) that has appeared over just the past few years.
Structured finance has been around since the 1980s, but the CDS market is essentially brand new. The CDS was invented in the mid-1990s but it was minor until the last four years. Since 2003, this market has exploded in size by 10 times, to a total notional amount of about $45 trillion.
Yes, that's trillion with a "t".
This market has never been tested in any kind of economic downturn, not even the most recent one of 2001-2002. We might see that test soon, however.
The credit-default swap is insurance against a credit accident. The seller of CDS receives a small monthly payment. If the insured bond fails to perform, the buyer of CDS receives a large one-time payment from the seller. At first, in the 1998-2002 period, this was mostly a way for holders of bonds to insure themselves. However, in recent years, the CDS market has become a way for CDS buyers to wager on credit deterioration, and a way for CDS sellers to act like banks.
Banks are a wonderful business, when everything is working right. They have returns on equity that can range from 15% to as much as 25%. These are the kinds of returns that get hedge funds, and their investors, interested. However, it is difficult to enter the banking business. You need offices, branches, depositors, employees, advertising, and so forth.
Banks traditionally profit on the interest rate difference, or "spread", between the money they borrow, from depositors for example, and the money they lend, to corporations for example. They may lever up ten to one, supporting $100 billion of assets on $10 billion of equity. Thus, if their spread is 2%, and they are levered 10:1, their return on equity is a juicy 20% (actually more like 24% because of the return on the underlying capital).
The CDS contract allowed hedge funds to act like banks. The monthly premium on the CDS is a spread between the equivalent Treasury yield and the implied yield on the underlying bond. This can be considered payment for the risk of default, which the Treasury bond presumably does not have. Imagine you're a fund with $1 billion in capital.
You could try to borrow $9 billion – from whom? – and then buy $10 billion in bonds, and enjoy the spread, like a bank. However, that $9 billion would probably have a higher interest rate than a Treasury bond, because the fund also has risk. And, the maturity of the borrowed money would likely be very short, while the bond has a long maturity, introducing duration risk (this didn't seem to scare the SIVs however).
The CDS solves these problems. You just sell CDS on $10 billion of bonds. This doesn't cost any money. You don't have to put up any collateral. You don't have to hire a single bank teller or loan officer. You just call your broker, put in the order, and start getting your monthly payments, just as if you had borrowed $9 billion (at the same rate as the Federal government) and lent $10 billion.
And the fund manager who made this one single phone call? If we assume a 20% return, and $1 billion of capital, he collects about $60 million per year. Which explains the explosive growth of the CDS market in the last four years.
Ah, there's something. You "call your broker." Actually, you call your dealer. It's not so easy to just find a buyer for your $10 billion notional of CDS. This is an over-the-counter market. This is where the big broker-dealers, like J.P.Morgan, Bank of America, and Citibank step in.
Over-the-counter markets are lovely for dealers because of the fat spreads – there's that magic word again that pricks up bankers' ears – between bid and asked in this market. So, what happens is you sell the CDS to your dealer, such as J.P.Morgan? J.P.Morgan then sells CDS – of its own issuance – to its customers that want to buy CDS.
So, you see that J.P.Morgan now sits in the middle, like a banker should. J.P.Morgan is "long" the CDS you sold to them, and also "short" the CDS it sold to someone else, and is thus theoretically hedged from risk while collecting the spread between the prices it bought and sold at. This is a lot like bankers' traditional business of pocketing the spread between the rate it borrows and the rate it lends.
It should be no surprise that the big broker/dealer banks (JP, BofA, Citi) account for 40% of the CDS outstanding. Hedge funds account for 32%. This reflects banks' monkey-in-the-middle dealer strategy for CDS. The remainder is likely insurance companies, synthetic CDOs, CPDOs, and other weird fauna that will soon become extinct. (Thanks go to Ted Seides of Protégé Partners for aggregating this information.)
Now, that 32% of CDS sold by hedge funds has a notional value of $14.5 trillion. This means that, if all those bonds underlying the CDS were a total loss, the funds would have to pay $14.5 trillion. Not very likely. However, if there were only a 5% loss – not so impossible these days – the CDS-selling hedge funds would still be on the hook for $725 billion.
Hedge funds, all together, have estimated assets of around $2.5 trillion. However, only a small fraction of those are CDS-sellers. Let's take a guess at 10%, or $250 billion of capital. (It's probably less than that.) How do you pay a $725 billion bill with $250 billion of capital?
There's an easy answer to that: you don't. So, who pays? The banks, remember, are in the middle. If the CDS-selling hedge fund doesn't pay up on its $725 billion, then the bank is unhedged regarding the CDS that it sold. In this case, the banks would be liable for $475 billion. This is known as counterparty risk.
That's four-seventy-five billion. More than four times the entire capital of Citigroup – capital which has already come under pressure from losses elsewhere.
So what happens if there is a CDS counterparty-risk event? Do the big banks go bankrupt? Probably not, although there would be much wailing and gnashing of teeth. Instead, they would probably get a nod and a wink from the government to simply ignore their own CDS obligations. The counterparty risk shifts to CDS-buyers.
The CDS buyers can take the hit, because they aren't really out any money. They paid their monthly insurance bills, but never got a payout after the credit market car crash. So, in a sense, this drama would likely end in more of a whimper than a bang. In fact, everyone got off OK: the CDS-selling hedge fund manager made a killing in management fees, before the fund went bust; the bank made a killing in dealer income, before kissing their obligations goodbye, and the CDS-buying hedge fund manager raked in the fees on the enormous mark-to-market profits of his CDS portfolio (20% of the aforementioned $725 billion), before these profits were eventually shown to be uncollectible.
A perfect Wall Street happy ending!
However, the kind of situation in which large banks ignore multi-hundred billions of legal obligations is very extreme. The last time something like that happened was in the early 1930s. At that time, they called it a "bank holiday", which has a nice festive ring. The celebration included a devaluation of the Dollar, the first permanent devaluation in US history.
At least President Roosevelt had the good sense to repeg the Dollar to bullion at a Gold Price of $35 per ounce, a parity it maintained vs. the Gold Market until 1971.
Feel free to make your own guesses as to what Paulson and Bernanke might try.
Formerly a chief economist providing advice to institutional investors, Nathan Lewis is now part of the investing team at an asset-management company. A writer for the Financial Times, Asian Wall Street Journal, Daily Yomiuri, The Daily Reckoning, Pravda, Dow Jones Newswires and other publications, he is also the author – with Addison Wiggin – of Gold: The Once and Future Money, published by John Wiley & Sons in May 2007, as well as the essays and thoughts at New World Economics.
How to Make a Million Dollars
Many years ago, a successful commodities trader told a story I’ll never forget. It was the tale of how he made his first million in the cotton market.
The details are a little fuzzy now -- as I said, this was many years ago -- but the moral of the story is what stuck with me. I’ll give you the Reader’s Digest version here.
At one point in time, this now-wealthy trader was a scrappy young guy with nothing to lose. He had little more than a passion for markets, a modest trading stake and really big dreams.
Our hero didn’t have enough money to be active in multiple markets. His account was just too small to handle big swings like the big boys. So he chose to focus on one market: the cotton market.
He didn’t pick cotton because it was exciting at the time. It was just the opposite, in fact. He went with cotton because it was dull and sleepy, virtually ignored by other traders. Our hero knew that, eventually, cotton would rise and run like so many other commodities had. It was just a matter of time.
After a long stretch of dullness, cotton finally began showing signs of life. Cotton futures broke out to the upside from a choppy sideways pattern that had seemed to last for years. He bought as many contracts as he thought was prudent.
There were a handful of false starts and disappointments before the trade really got going. He was stopped out a few times, and had a few frightening moments where his precious capital reserves seemed to be at risk. But eventually, his patience and persistence paid off. By the time cotton really began to move -- and the big boys finally took notice -- our hero had a strong base position.
From there it was a matter of pyramiding, the discipline of carefully adding to a winning trade. It was also a matter of hanging tough -- not taking profits too early, not losing nerve when the inevitable shakeouts occurred.
Over many months, cotton kept rising, and our hero kept adding contracts at the right time. Never in a rush… never getting too greedy… always picking his spots. Soon enough, he had his first million, and he never looked back.
The moral of the story, the thing that stuck with me, wasn’t to keep an eye on cotton (although interesting things are certainly happening in the cotton market these days). Nor was the big lesson that sleepy markets can turn into massively trending markets over time (although that is certainly true, too).
No, the thing I’ll never forget was how he ended the story.
“You can’t save a million dollars,” he said. “You have to make it.”
Mediocre Is as Mediocre Does
The traditional advice says anyone can be a millionaire; that they can, in fact, save a million… if they’re willing to just chip away for 30 or 40 years or so. (Very little is said about the fact that a million bucks might not be worth a hill of beans by then, thanks to the ravages of inflation.)
The traditional advice says, “Don’t do anything controversial. Forget about being bold or unconventional. It’s safer in the middle of the herd.”
For many investors this is decent advice. But that’s precisely why most investors will never be happy with what the markets hand them. You can’t get above-average performance doing what everyone else is doing.
Find the Biggest Waves and Ride Them
Fortunately, not everyone is satisfied with mediocrity. (If they were, there wouldn’t be a newsletter business.)
Those of us who want more from markets -- and from life -- are challenged to find the big waves and ride them. The most profitable trends aren’t the little blips and squiggles that quickly get lost in the fray. They are the epic monsters, the sweeping waves of change you can see from a distance. (If it doesn’t make its mark on a monthly or even a weekly chart, it’s probably not a major trend.)
There are certain challenges to mastering this task, this odd mix of art and science known as trading and investing. You have to stay cognizant of the big picture and not get bogged down in details, but you also have to pay close attention to what’s happening in real time.
Picking one’s spots is critical… but while trying to do that, it’s all too easy to get distracted. The trick is not losing perspective.
Tying It All Together
I’ve been passionate about markets for nearly 15 years now. In fact, I’ll probably love markets until the day I die. (I know I’ll be writing till that day, too.) It’s even easier to be passionate now, with everything that’s happening.
One of the greatest benefits of this new position I’ve taken on, editorial director for Taipan Publishing, is the chance to coordinate such a powerful stream of investing and trading ideas. I’m very excited about working closely with the Taipan team and communicating those ideas to you more clearly than ever before.
I see a significant part of my job as helping you, the reader, keep track of the big picture. (I am a “macro” guy at heart; the big picture is what I live and breathe.) One of the things Taipan will do in 2008 is focus more on the idea of “themes,” sorting all these trading and investing ideas into various baskets, making them easier to connect and understand.
Some of the themes we see dominating the markets now have been building up for years (and many of us have been writing about them for years). Other themes are just now taking hold. They are all sources of fascination -- and danger -- and potentially great wealth.
Notes From a Friend
To that end, I’ll be writing you on a regular basis for Taipan Daily. That is what we’re calling this e-letter now. You’ll still be receiving the same great content from the Taipan team, of course. My focus will be on connecting the dots. The general idea is that I will write a bit, and then introduce the essay for the day.
Usually my contribution will be shorter. Sometimes I’ll write you a little more, sometimes a little less. But it will always be with a focus on markets -- or investing and trading -- in the casual tone of notes from a friend. My hope is that Taipan Daily will earn an honored spot in your daily routine, like the morning paper or that first cup of coffee.
Let Us Know What You Think
I’m really looking forward to writing you. But I hope you can write to me too on occasion (and not just me, of course, but all of us).
We want to know what you’re thinking -- your questions, your comments, your requests. What topics would you like to hear more about? Are there any specific questions you have? Any market-related concerns? Just curious about something? Now you can let it fly.
We can’t dispense any type of individual advice, of course. But other than that, the reader mailbag is open. I look forward to opening it from time to time and responding to your thoughts.
The details are a little fuzzy now -- as I said, this was many years ago -- but the moral of the story is what stuck with me. I’ll give you the Reader’s Digest version here.
At one point in time, this now-wealthy trader was a scrappy young guy with nothing to lose. He had little more than a passion for markets, a modest trading stake and really big dreams.
Our hero didn’t have enough money to be active in multiple markets. His account was just too small to handle big swings like the big boys. So he chose to focus on one market: the cotton market.
He didn’t pick cotton because it was exciting at the time. It was just the opposite, in fact. He went with cotton because it was dull and sleepy, virtually ignored by other traders. Our hero knew that, eventually, cotton would rise and run like so many other commodities had. It was just a matter of time.
After a long stretch of dullness, cotton finally began showing signs of life. Cotton futures broke out to the upside from a choppy sideways pattern that had seemed to last for years. He bought as many contracts as he thought was prudent.
There were a handful of false starts and disappointments before the trade really got going. He was stopped out a few times, and had a few frightening moments where his precious capital reserves seemed to be at risk. But eventually, his patience and persistence paid off. By the time cotton really began to move -- and the big boys finally took notice -- our hero had a strong base position.
From there it was a matter of pyramiding, the discipline of carefully adding to a winning trade. It was also a matter of hanging tough -- not taking profits too early, not losing nerve when the inevitable shakeouts occurred.
Over many months, cotton kept rising, and our hero kept adding contracts at the right time. Never in a rush… never getting too greedy… always picking his spots. Soon enough, he had his first million, and he never looked back.
The moral of the story, the thing that stuck with me, wasn’t to keep an eye on cotton (although interesting things are certainly happening in the cotton market these days). Nor was the big lesson that sleepy markets can turn into massively trending markets over time (although that is certainly true, too).
No, the thing I’ll never forget was how he ended the story.
“You can’t save a million dollars,” he said. “You have to make it.”
Mediocre Is as Mediocre Does
The traditional advice says anyone can be a millionaire; that they can, in fact, save a million… if they’re willing to just chip away for 30 or 40 years or so. (Very little is said about the fact that a million bucks might not be worth a hill of beans by then, thanks to the ravages of inflation.)
The traditional advice says, “Don’t do anything controversial. Forget about being bold or unconventional. It’s safer in the middle of the herd.”
For many investors this is decent advice. But that’s precisely why most investors will never be happy with what the markets hand them. You can’t get above-average performance doing what everyone else is doing.
Find the Biggest Waves and Ride Them
Fortunately, not everyone is satisfied with mediocrity. (If they were, there wouldn’t be a newsletter business.)
Those of us who want more from markets -- and from life -- are challenged to find the big waves and ride them. The most profitable trends aren’t the little blips and squiggles that quickly get lost in the fray. They are the epic monsters, the sweeping waves of change you can see from a distance. (If it doesn’t make its mark on a monthly or even a weekly chart, it’s probably not a major trend.)
There are certain challenges to mastering this task, this odd mix of art and science known as trading and investing. You have to stay cognizant of the big picture and not get bogged down in details, but you also have to pay close attention to what’s happening in real time.
Picking one’s spots is critical… but while trying to do that, it’s all too easy to get distracted. The trick is not losing perspective.
Tying It All Together
I’ve been passionate about markets for nearly 15 years now. In fact, I’ll probably love markets until the day I die. (I know I’ll be writing till that day, too.) It’s even easier to be passionate now, with everything that’s happening.
One of the greatest benefits of this new position I’ve taken on, editorial director for Taipan Publishing, is the chance to coordinate such a powerful stream of investing and trading ideas. I’m very excited about working closely with the Taipan team and communicating those ideas to you more clearly than ever before.
I see a significant part of my job as helping you, the reader, keep track of the big picture. (I am a “macro” guy at heart; the big picture is what I live and breathe.) One of the things Taipan will do in 2008 is focus more on the idea of “themes,” sorting all these trading and investing ideas into various baskets, making them easier to connect and understand.
Some of the themes we see dominating the markets now have been building up for years (and many of us have been writing about them for years). Other themes are just now taking hold. They are all sources of fascination -- and danger -- and potentially great wealth.
Notes From a Friend
To that end, I’ll be writing you on a regular basis for Taipan Daily. That is what we’re calling this e-letter now. You’ll still be receiving the same great content from the Taipan team, of course. My focus will be on connecting the dots. The general idea is that I will write a bit, and then introduce the essay for the day.
Usually my contribution will be shorter. Sometimes I’ll write you a little more, sometimes a little less. But it will always be with a focus on markets -- or investing and trading -- in the casual tone of notes from a friend. My hope is that Taipan Daily will earn an honored spot in your daily routine, like the morning paper or that first cup of coffee.
Let Us Know What You Think
I’m really looking forward to writing you. But I hope you can write to me too on occasion (and not just me, of course, but all of us).
We want to know what you’re thinking -- your questions, your comments, your requests. What topics would you like to hear more about? Are there any specific questions you have? Any market-related concerns? Just curious about something? Now you can let it fly.
We can’t dispense any type of individual advice, of course. But other than that, the reader mailbag is open. I look forward to opening it from time to time and responding to your thoughts.
Currencies are vulnerable, but Gold is valuable
JOHANNESBURG (Business Day) -- A swinging oil price together with currency vulnerability equals a surge in the gold price. Depending on the direction of the economic air currents, currencies float against each other, which is why many wise investors are exchanging fiat money (banknotes, etc.) for gold.
As gold is bought and sold in dollars, the gold price rises when the dollar and currencies linked to it lose ground. Gold's present longer-term climb began in August 1999 when it stood at $253. It has since put on 211%. From August 1999 to November 2005, the gold price rose 79%. The channel was then broken and a new channel formed. From November 2005 to date, the gold price rose 70%. The latest short-term rise from its August low is 31%. A strong buy signal, when the moving average convergence/divergence plotting crossed its own moving average, came in September.
If gold keeps rising at its present rate, its price could reach $1,100 before the end of next year. At the current rate, by year-end the equilibrium will be $900 and the support $750.
Gold is only slightly higher than its equilibrium and so not currently overbought. There are several counts well into the $800s but the latest count is to $1,104.
As currencies prove vulnerable, calls have been made for an intrinsic commodity, for example gold, against which currencies are valued, rather than each other. But gold was linked to U.S. dollars between 1946 and 1971 when the gold standard was reintroduced with The Bretton Woods System. It pegged gold at $35/oz. Former U.S. president Richard Nixon released it, but then the price remained below $100/oz until 1973. Rising to a high of $184 in 1974, it flopped back to $110 in August 1976, when the massive 673% climb to its record $850 in January 1980 began. As the 87% surge took place over the holiday season, many investors were caught napping.
Former U.S. Federal Reserve chairman Alan Greenspan said that "under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth".
Abandoning the gold standard made it possible for welfare statists to use the banking system "as a means of unlimited expansion of credit". Without the gold standard, there is no way to protect savings from inflation.
With gold flirting above $800/oz and the dollar still looking frail, despite the latest rate cut, it seems Greenspan hit the nail on the head. The nearest currency measuring tool (purchasing power parity) we have today that could vaguely be called a standard is The Economist's Big Mac rating, which compares prices of Big Macs in various countries. But as food prices are spiralling around the world, and while U.S., asset prices (houses) are deflating, Big Mac is a poor currency measuring tool.
The rand gold price reached a record high last month, but the strengthening of the rand pushed it lower. While no sell signal has materialised, it looks vulnerable in the short term, but longer term has a count to R6,563. Newgold is at a triple top, which if broken, will give a count to R7,078.
The gold share index is fast heading for an oversold position, and its Cycle Trends future plotting points further down in the short term, but after setting for a while at a cycle bottom it is likely to head strongly upwards.
Among mining shares, Witsgold [JSE:WGR] has fulfilled all three of its down-counts, and is now heading better. While Witsgold's plotting suggests a further rise, volumes appear too low to keep momentum. Recovering Wesizwe [JSE:WEZ] is trying to confirm a new bull trend, and if its reaches R10 we can make a count to R12.30. Urone is signalling a recovery and has pushed up through its stochastic moving average but volume confirmation is needed.
As gold is bought and sold in dollars, the gold price rises when the dollar and currencies linked to it lose ground. Gold's present longer-term climb began in August 1999 when it stood at $253. It has since put on 211%. From August 1999 to November 2005, the gold price rose 79%. The channel was then broken and a new channel formed. From November 2005 to date, the gold price rose 70%. The latest short-term rise from its August low is 31%. A strong buy signal, when the moving average convergence/divergence plotting crossed its own moving average, came in September.
If gold keeps rising at its present rate, its price could reach $1,100 before the end of next year. At the current rate, by year-end the equilibrium will be $900 and the support $750.
Gold is only slightly higher than its equilibrium and so not currently overbought. There are several counts well into the $800s but the latest count is to $1,104.
As currencies prove vulnerable, calls have been made for an intrinsic commodity, for example gold, against which currencies are valued, rather than each other. But gold was linked to U.S. dollars between 1946 and 1971 when the gold standard was reintroduced with The Bretton Woods System. It pegged gold at $35/oz. Former U.S. president Richard Nixon released it, but then the price remained below $100/oz until 1973. Rising to a high of $184 in 1974, it flopped back to $110 in August 1976, when the massive 673% climb to its record $850 in January 1980 began. As the 87% surge took place over the holiday season, many investors were caught napping.
Former U.S. Federal Reserve chairman Alan Greenspan said that "under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth".
Abandoning the gold standard made it possible for welfare statists to use the banking system "as a means of unlimited expansion of credit". Without the gold standard, there is no way to protect savings from inflation.
With gold flirting above $800/oz and the dollar still looking frail, despite the latest rate cut, it seems Greenspan hit the nail on the head. The nearest currency measuring tool (purchasing power parity) we have today that could vaguely be called a standard is The Economist's Big Mac rating, which compares prices of Big Macs in various countries. But as food prices are spiralling around the world, and while U.S., asset prices (houses) are deflating, Big Mac is a poor currency measuring tool.
The rand gold price reached a record high last month, but the strengthening of the rand pushed it lower. While no sell signal has materialised, it looks vulnerable in the short term, but longer term has a count to R6,563. Newgold is at a triple top, which if broken, will give a count to R7,078.
The gold share index is fast heading for an oversold position, and its Cycle Trends future plotting points further down in the short term, but after setting for a while at a cycle bottom it is likely to head strongly upwards.
Among mining shares, Witsgold [JSE:WGR] has fulfilled all three of its down-counts, and is now heading better. While Witsgold's plotting suggests a further rise, volumes appear too low to keep momentum. Recovering Wesizwe [JSE:WEZ] is trying to confirm a new bull trend, and if its reaches R10 we can make a count to R12.30. Urone is signalling a recovery and has pushed up through its stochastic moving average but volume confirmation is needed.
Gold merry to go through Christmas season
NEW DELHI : The yellow metal continues to attract investors zest globally as the commodity market gains more strength thanks to price performance of select commodities setting new record on reaching multi year highs.
By the end of 2007 credit crisis concerns in global financial markets would be cleared out and the geopolitical tension coupled with additional catalysts has the potential to continue the drive of gold price afresh 28 year high.
Strong physical and investor demand emerging upon price dips should provide a solid footing for prices coupled with sustained ETF positions.
This outweighs the two bearish factors for gold, one, a slowdown in producer de-hedging and pick up in central bank sales and secondly speculative length in gold is high and there is potential for short-term price correction but chances are strong in medium & long term.
Indian jewelry demand rose by 70% during the first half compared with the same period last year. Domestic consumption increased to 387 tones from 227 tones during the same period. Rising disposable income of middle class people and strengthening of the Rupee by around 10% also made the yellow metal more attractive to surge the demand.
Industrial consumption for gold has also increased during this period. Automotive industry adopts breakthrough technology that would allow use of gold to reduce of emission.
Gold is expected to replace platinum in automotive catalysts. According to international projection during 2007, 4.24 million oz or 119 tones of platinum was used in automotive catalysts. Using gold in this sector with nearly half of the price ($800 OZ) will further reduce the use of platinum.
Expecting the overall sentiment remain bullish unless the US markets take some more series to post up side economic growth, the gold price may test around $900 per oz in middle-term.
By the end of 2007 credit crisis concerns in global financial markets would be cleared out and the geopolitical tension coupled with additional catalysts has the potential to continue the drive of gold price afresh 28 year high.
Strong physical and investor demand emerging upon price dips should provide a solid footing for prices coupled with sustained ETF positions.
This outweighs the two bearish factors for gold, one, a slowdown in producer de-hedging and pick up in central bank sales and secondly speculative length in gold is high and there is potential for short-term price correction but chances are strong in medium & long term.
Indian jewelry demand rose by 70% during the first half compared with the same period last year. Domestic consumption increased to 387 tones from 227 tones during the same period. Rising disposable income of middle class people and strengthening of the Rupee by around 10% also made the yellow metal more attractive to surge the demand.
Industrial consumption for gold has also increased during this period. Automotive industry adopts breakthrough technology that would allow use of gold to reduce of emission.
Gold is expected to replace platinum in automotive catalysts. According to international projection during 2007, 4.24 million oz or 119 tones of platinum was used in automotive catalysts. Using gold in this sector with nearly half of the price ($800 OZ) will further reduce the use of platinum.
Expecting the overall sentiment remain bullish unless the US markets take some more series to post up side economic growth, the gold price may test around $900 per oz in middle-term.
'Gold price may get under pressure'
St. LOUIS (ResourceInvestor.com): No one predicts the bust of the global economic bubble better than economist Marc Faber. Faber spoke with Resource Investor about his outlooks for the economy, commodities and the U.S. dollar heading into 2008.
RESOURCE INVESTOR: Hi, this is Jane Louis with Resource Investor Podcasts. We’re here today with everyone’s favourite contrarian economist, Dr. Marc Faber. Marc is the editor and publisher of “The Gloom, Boom and Doom Report”, an economic and financial publication that promotes against the grain investments and cautions against widely accepted investment themes. You can read more at www.gloomboomdoom.com. Marc is known for his realistic, though admittedly pessimistic, views on the state of the global economy. Hi, Marc. Welcome to Resource Investor.
MARC FABER: Hi.
RESOURCE INVESTOR: So let’s go back to September when you predicted in a U.S. Global Investors webcast that the synchronized global economic boom was going to burst. It’s three months later now, and 2007 is coming to an end. How do you feel about the global boom now?
MARC FABER: Well, basically we still have very strong growth in emerging economies. If you travel around the world practically every economy is a boom condition. There’s only one economy really in recession. That’s Zimbabwe, where obviously money printing didn’t work and where we find an example that in the U.S. money printing also will not work in real terms.
It may boost asset prices at some point, but I would imagine that in the U.S. we are already in recession, if inflation - in other words, price increases were measured properly, then there would be no real economic growth at this stage.
RESOURCE INVESTOR: Well, as Alan Greenspan pointed out recently, the U.S. economy might actually be headed for a stagflation. Do you think that’s a possibility?
MARC FABER: Well, basically I don’t listen anymore or never have to Mr. Greenspan since he’s a hopeless forecaster, a hopeless economist and since he denies that he created this huge mess by having kept interest rates artificially low for too long.
So he’s not a person that I would consider to be trustworthy in terms of either economic statements or forecast. But it’s clear that in the U.S. we are already at some kind of a stage of stagflation where say retail sales are strong because grocery prices are rising very strongly. So that boosts essentially grocery sales whereas sales of discretionary items are sluggish, and this is also reflected in the performance of retailers. Retailers that sell essentially necessities of life are performing reasonably well, and the retailers that are selling discretionary items, their stock prices have performed miserably.
RESOURCE INVESTOR: The subprime credit crunch remains a big driver in the U.S. economy. How deep do you think the credit crunch runs?
MARC FABER: I published already in 2006 numerous papers on the subprime lending industry. And it’s not just subprime lending industries because all the banks were involved in it. The subsidiaries of GE Capital and General Motors Acceptance Corp. were involved in it, and in January of last year I wrote a piece called “Irreparable Cracks in the Financial Market”. And that had to do with the whole credit crisis, and in my opinion it took longer for the credit crisis really to sink in.
But when it sank in and it sullied, we’re in 2007 and everybody was looking for stock market crash because it’s 20 years after 1987. We didn’t have a stock market crash, but we certainly had a crash in the bond market, in the CDO market, in lower quality paper. And that, in my opinion, leads to slower credit growth on the side of the marketplace.
In other words, the individuals that borrowed money they find it now harder to get access to credit and the financial institutions. Let’s say you’re a board member of Citigroup or UBS or any of the large banks. As a board member you suddenly tell management, “Now no more lending to lower quality credit. No longer acquiring CDOs, and of course, so the whole credit bubble that we’ve built over the last 25 years, I have to point it out, has now basically come to an end. We will have lower credit growth.
Now opposing this lower credit growth is of course the Fed and also the ECB that are printing money like crazy and trying to create liquidity in the marketplace.
But for a while the private sector may win, and that leads to poor economic conditions. When the Fed will eventually win because they can print an unlimited amount of money, and they can essentially expand their balance sheet by not only acquiring treasury securities, but also lower quality paper, eventually I suppose they’ll win the support at that market, but then at that point I suppose that inflation will become a problem. And so in real terms you will have no economic growth, and you have a real kind of stagflationary environment.
RESOURCE INVESTOR: Now as a contrarian do you think the U.S. dollar is going to be a good investment in the coming year?
MARC FABER: What had happened between 2001 and 2006, international liquidity as defined for foreign official dollar reserves or international reserves, was drawing at an accelerating rate. And now it’s still growing, but no longer at an accelerating rate, so we have international liquidity kind of in a relative tightening mode.
Whenever international liquidity expands, the dollar tends to be weak. And whenever international liquidity tends to kind of contract or when you have relative tightening of international liquidity - in other words, the gross rate slows down or turns negative - at that point you have a period of dollar strength.
And so combined with extremely negative sentiment we had about the U.S. dollar just two, three weeks ago with many leading media publications, like the Economist and the Eagle in Germany. Headlines and front page cover of negative views about the dollar, I think that we may have for the next three months at least a rebound in the U.S. dollar.
RESOURCE INVESTOR: Well you say precious metals, and especially gold, are likely to out perform financial assets for years to come. Now that doesn’t sound very contrarian because a lot of economists are calling for a rally in gold.
MARC FABER: Well, basically right now given the relative international tightening of liquidity and given my relative positive view for the next three months about the U.S. dollar and don’t make the mistake to think I’m foolish about the dollar long-term. I think long-term the dollar is a doomed currency because you have a money printer at the Fed and you have basically Hank Paulson at the Treasury who comes straight out of Wall Street and who has more interest in stabilizing the price of Goldman-Sachs stock than of having a strong dollar.
So, given these things I think long-term I’m negative about the dollar, but short-term bullish about the dollar. That leads to corrections in commodity markets. In particular, in industrial commodities also given my view that the global economy will slow down very considerably over the next six to 12 months.
So I’m not very bullish about commodities right now. I think the price of gold will also come under some pressure. Indeed the timing of tightening of liquidity.
But long-term I think that having Mr. Bernanke at the Fed, you have essentially a friend of gold at the Federal Reserve because he will print money. That will be very supportive of gold prices, whether you have one day inflation or whether you have deflation. In both cases it will be gold supported. So in any weakness I would buy gold.
Then I would like to add to your comments that so many people are bullish about gold. When people talk and when they act is sometimes two different things. I go to a lot of investment conferences, and when I ask the attendants, “How many of you have more than 5% of your assets in gold or gold shares?” Normally it’s about 3 to 5% of the audience; several hundred people frequently have more than 5%. That’s the maximum.
So people have actually very little gold in their portfolio. You go to the Asian central banks, they have 2% of their reserves in gold maximum. You go to the Sovereign Wealth Fund, they have practically no gold exposure.
So I would say if people say that people are bullish about gold, yeah, the gold bugs are bullish about gold, but the other 95% of the world, they have no gold exposure at all.
RESOURCE INVESTOR: All right, well that’s a very good point. Thank you, Mark. We appreciate your time. Again, you can find Marc Faber’s “The Gloom, Boom and Doom Report” at www.gloomboomdoom.com
Courtesy: www.resourceinvestor.com
RESOURCE INVESTOR: Hi, this is Jane Louis with Resource Investor Podcasts. We’re here today with everyone’s favourite contrarian economist, Dr. Marc Faber. Marc is the editor and publisher of “The Gloom, Boom and Doom Report”, an economic and financial publication that promotes against the grain investments and cautions against widely accepted investment themes. You can read more at www.gloomboomdoom.com. Marc is known for his realistic, though admittedly pessimistic, views on the state of the global economy. Hi, Marc. Welcome to Resource Investor.
MARC FABER: Hi.
RESOURCE INVESTOR: So let’s go back to September when you predicted in a U.S. Global Investors webcast that the synchronized global economic boom was going to burst. It’s three months later now, and 2007 is coming to an end. How do you feel about the global boom now?
MARC FABER: Well, basically we still have very strong growth in emerging economies. If you travel around the world practically every economy is a boom condition. There’s only one economy really in recession. That’s Zimbabwe, where obviously money printing didn’t work and where we find an example that in the U.S. money printing also will not work in real terms.
It may boost asset prices at some point, but I would imagine that in the U.S. we are already in recession, if inflation - in other words, price increases were measured properly, then there would be no real economic growth at this stage.
RESOURCE INVESTOR: Well, as Alan Greenspan pointed out recently, the U.S. economy might actually be headed for a stagflation. Do you think that’s a possibility?
MARC FABER: Well, basically I don’t listen anymore or never have to Mr. Greenspan since he’s a hopeless forecaster, a hopeless economist and since he denies that he created this huge mess by having kept interest rates artificially low for too long.
So he’s not a person that I would consider to be trustworthy in terms of either economic statements or forecast. But it’s clear that in the U.S. we are already at some kind of a stage of stagflation where say retail sales are strong because grocery prices are rising very strongly. So that boosts essentially grocery sales whereas sales of discretionary items are sluggish, and this is also reflected in the performance of retailers. Retailers that sell essentially necessities of life are performing reasonably well, and the retailers that are selling discretionary items, their stock prices have performed miserably.
RESOURCE INVESTOR: The subprime credit crunch remains a big driver in the U.S. economy. How deep do you think the credit crunch runs?
MARC FABER: I published already in 2006 numerous papers on the subprime lending industry. And it’s not just subprime lending industries because all the banks were involved in it. The subsidiaries of GE Capital and General Motors Acceptance Corp. were involved in it, and in January of last year I wrote a piece called “Irreparable Cracks in the Financial Market”. And that had to do with the whole credit crisis, and in my opinion it took longer for the credit crisis really to sink in.
But when it sank in and it sullied, we’re in 2007 and everybody was looking for stock market crash because it’s 20 years after 1987. We didn’t have a stock market crash, but we certainly had a crash in the bond market, in the CDO market, in lower quality paper. And that, in my opinion, leads to slower credit growth on the side of the marketplace.
In other words, the individuals that borrowed money they find it now harder to get access to credit and the financial institutions. Let’s say you’re a board member of Citigroup or UBS or any of the large banks. As a board member you suddenly tell management, “Now no more lending to lower quality credit. No longer acquiring CDOs, and of course, so the whole credit bubble that we’ve built over the last 25 years, I have to point it out, has now basically come to an end. We will have lower credit growth.
Now opposing this lower credit growth is of course the Fed and also the ECB that are printing money like crazy and trying to create liquidity in the marketplace.
But for a while the private sector may win, and that leads to poor economic conditions. When the Fed will eventually win because they can print an unlimited amount of money, and they can essentially expand their balance sheet by not only acquiring treasury securities, but also lower quality paper, eventually I suppose they’ll win the support at that market, but then at that point I suppose that inflation will become a problem. And so in real terms you will have no economic growth, and you have a real kind of stagflationary environment.
RESOURCE INVESTOR: Now as a contrarian do you think the U.S. dollar is going to be a good investment in the coming year?
MARC FABER: What had happened between 2001 and 2006, international liquidity as defined for foreign official dollar reserves or international reserves, was drawing at an accelerating rate. And now it’s still growing, but no longer at an accelerating rate, so we have international liquidity kind of in a relative tightening mode.
Whenever international liquidity expands, the dollar tends to be weak. And whenever international liquidity tends to kind of contract or when you have relative tightening of international liquidity - in other words, the gross rate slows down or turns negative - at that point you have a period of dollar strength.
And so combined with extremely negative sentiment we had about the U.S. dollar just two, three weeks ago with many leading media publications, like the Economist and the Eagle in Germany. Headlines and front page cover of negative views about the dollar, I think that we may have for the next three months at least a rebound in the U.S. dollar.
RESOURCE INVESTOR: Well you say precious metals, and especially gold, are likely to out perform financial assets for years to come. Now that doesn’t sound very contrarian because a lot of economists are calling for a rally in gold.
MARC FABER: Well, basically right now given the relative international tightening of liquidity and given my relative positive view for the next three months about the U.S. dollar and don’t make the mistake to think I’m foolish about the dollar long-term. I think long-term the dollar is a doomed currency because you have a money printer at the Fed and you have basically Hank Paulson at the Treasury who comes straight out of Wall Street and who has more interest in stabilizing the price of Goldman-Sachs stock than of having a strong dollar.
So, given these things I think long-term I’m negative about the dollar, but short-term bullish about the dollar. That leads to corrections in commodity markets. In particular, in industrial commodities also given my view that the global economy will slow down very considerably over the next six to 12 months.
So I’m not very bullish about commodities right now. I think the price of gold will also come under some pressure. Indeed the timing of tightening of liquidity.
But long-term I think that having Mr. Bernanke at the Fed, you have essentially a friend of gold at the Federal Reserve because he will print money. That will be very supportive of gold prices, whether you have one day inflation or whether you have deflation. In both cases it will be gold supported. So in any weakness I would buy gold.
Then I would like to add to your comments that so many people are bullish about gold. When people talk and when they act is sometimes two different things. I go to a lot of investment conferences, and when I ask the attendants, “How many of you have more than 5% of your assets in gold or gold shares?” Normally it’s about 3 to 5% of the audience; several hundred people frequently have more than 5%. That’s the maximum.
So people have actually very little gold in their portfolio. You go to the Asian central banks, they have 2% of their reserves in gold maximum. You go to the Sovereign Wealth Fund, they have practically no gold exposure.
So I would say if people say that people are bullish about gold, yeah, the gold bugs are bullish about gold, but the other 95% of the world, they have no gold exposure at all.
RESOURCE INVESTOR: All right, well that’s a very good point. Thank you, Mark. We appreciate your time. Again, you can find Marc Faber’s “The Gloom, Boom and Doom Report” at www.gloomboomdoom.com
Courtesy: www.resourceinvestor.com
Global economy: what is in store for next year
This week the European Central Bank made $500 billion available through money market operations. And only last week $110bn of new money was created by central bank loans with artificially low rates and reduced-quality security. This is money creation on an epic scale.
Why is this happening now? Here's my theory: 31st December is a major day on the financial calendar. If you take a sample of bonds, you'll find that a disproportionate number of them are due for interest and/or redemption on 31st December. Redeeming bonds is very cash intensive, and cash is not freely available in the banking system right now.
So it seems likely that some frantic finance directors will be working long hours to find the cash that will enable them to avoid a default next week.
If that's right the festive season could see the announcement of some nasty shocks. June 30th won't be much fun either, for the same reasons. The credit crunch is deepening, and will go on doing so until at least next summer.
For those of us who like to take responsibility for ourselves (it's called freedom by the way) it's getting just a little tiresome that money creation is diluting our savings, and making us pay - again - for the excesses of the buy-now-think-later generation. Some of us would prefer to see the government react with a shrug and a sympathetic "bad luck" to the losers in the next financial train wreck. But it's not the mood of the nation.
Politicians have begun one of their competitive caring phases, and they're rescuing victims everywhere. Every clapped out bank, every busted pension scheme, every industrial zombie, and absolutely every government department will be nurtured in the warm embrace of the public purse.
This causes a natural backlash. Issuing new money reduces depositors' returns, prompting savers to switch to better stores of wealth. This capital flight should be easy to spot, but modern economic statistics can obscure it. You see, the main way economists measure economic health is by counting the money spent in the economy, and now that savers are dumping currency (and buying better wealth stores) the effect is tough to distinguish from the economist's beloved GDP growth. Our healthy GDP figures are a distortion, and the economy is not making a steady booming noise but an ominous hissing - the noise of savers abandoning the currency.
You can see this at the key entry points to the real economy:
Oil is multiplying in price.
All the grains are multiplying in price.
All the base metals are multiplying in price.
Gold is multiplying in price.
Producer prices are through the roof.
In spite of this, the monetary authorities are racing to issue more money, and economists are clamouring for cuts in interest rates. They're caught 'twixt the devil and the deep blue sea, because although they could address these serious inflationary indicators, doing so risks the revenge of a giant economic threat - a rout in the housing market. And that would mean depression.
So it looks increasingly likely that low rates are staying, and the hot global investment money, sucked in by Britain's recent and comparatively high interest rates, is about to quit Britain and send the currency into a tailspin. This produces higher prices for imported goods. At the same time, our public finances are in a serious mess, and the biggest contributor to our service-based economy - the City - is the main victim of current turbulence. And please don't ask about the trade figures because they're just ugly.
It is becoming genuinely possible that people will refuse to hold sterling for more than a fleeting moment. Inflation could turn so severe that the 'hyper' prefix is justified.
I know - it's too far-fetched to be believable. Or is it? For 150 years the values of Western currencies have stayed way above purchasing power parity levels with Asia. Being a developed country is what drove this premium, as money flowed down a one way street to our advanced economies. These were the only places where sophisticated products could be built or bought.
Today things are different. You could measure circuit board production in two factories in Indonesia and in Britain, and get the output per worker priced in local currency. Multiply both by their conversion rate into US dollars, and the British factory seems to have produced 5 - 7 times more US dollar denominated output. So our GDP looks good, but only through the distorting lens of a western currency conversion. There's another way to measure that same output: simply count the circuit boards. Do that and you'll see there's no material difference in productivity between a British and an Indonesian worker. Perhaps the root cause of western currency premium has evaporated, and the anomaly is now that sterling really is 5 - 7 times overvalued against Asian money.
You could switch to euros. But looking at their policy they're creating as much money as the Bank of England. And the US Federal Reserve is doing it too, while all of Asia is battling to hold down their currencies so that their exports can continue apace. It's a bizarre race to the bottom for the world's currencies.
It's time to sidestep the financial consequences of this largesse. What can we savers do? If you're as bothered as I am, then currency should be struck off your Christmas list and replaced with something more reliably rare. I think gold could soon look so highly priced in sterling that many of us will be too frightened to buy it. But it isn't there yet, so perhaps buy just a little now, and if it makes you a small profit it will be easier to buy a little more next month. If that makes you a profit too, then allow yourself to build a proper stash. I'm not sure we'll ever again be able to buy it for much under £400 an ounce.
I have just instructed my bank to transfer all my remaining cash deposits to BullionVault to Buy Gold, and I look forward to spending 2008 long gold and completely sterling free.
Paul Tustain is the editor of www.Galmarley.com and director of BullionVault.
Why is this happening now? Here's my theory: 31st December is a major day on the financial calendar. If you take a sample of bonds, you'll find that a disproportionate number of them are due for interest and/or redemption on 31st December. Redeeming bonds is very cash intensive, and cash is not freely available in the banking system right now.
So it seems likely that some frantic finance directors will be working long hours to find the cash that will enable them to avoid a default next week.
If that's right the festive season could see the announcement of some nasty shocks. June 30th won't be much fun either, for the same reasons. The credit crunch is deepening, and will go on doing so until at least next summer.
For those of us who like to take responsibility for ourselves (it's called freedom by the way) it's getting just a little tiresome that money creation is diluting our savings, and making us pay - again - for the excesses of the buy-now-think-later generation. Some of us would prefer to see the government react with a shrug and a sympathetic "bad luck" to the losers in the next financial train wreck. But it's not the mood of the nation.
Politicians have begun one of their competitive caring phases, and they're rescuing victims everywhere. Every clapped out bank, every busted pension scheme, every industrial zombie, and absolutely every government department will be nurtured in the warm embrace of the public purse.
This causes a natural backlash. Issuing new money reduces depositors' returns, prompting savers to switch to better stores of wealth. This capital flight should be easy to spot, but modern economic statistics can obscure it. You see, the main way economists measure economic health is by counting the money spent in the economy, and now that savers are dumping currency (and buying better wealth stores) the effect is tough to distinguish from the economist's beloved GDP growth. Our healthy GDP figures are a distortion, and the economy is not making a steady booming noise but an ominous hissing - the noise of savers abandoning the currency.
You can see this at the key entry points to the real economy:
Oil is multiplying in price.
All the grains are multiplying in price.
All the base metals are multiplying in price.
Gold is multiplying in price.
Producer prices are through the roof.
In spite of this, the monetary authorities are racing to issue more money, and economists are clamouring for cuts in interest rates. They're caught 'twixt the devil and the deep blue sea, because although they could address these serious inflationary indicators, doing so risks the revenge of a giant economic threat - a rout in the housing market. And that would mean depression.
So it looks increasingly likely that low rates are staying, and the hot global investment money, sucked in by Britain's recent and comparatively high interest rates, is about to quit Britain and send the currency into a tailspin. This produces higher prices for imported goods. At the same time, our public finances are in a serious mess, and the biggest contributor to our service-based economy - the City - is the main victim of current turbulence. And please don't ask about the trade figures because they're just ugly.
It is becoming genuinely possible that people will refuse to hold sterling for more than a fleeting moment. Inflation could turn so severe that the 'hyper' prefix is justified.
I know - it's too far-fetched to be believable. Or is it? For 150 years the values of Western currencies have stayed way above purchasing power parity levels with Asia. Being a developed country is what drove this premium, as money flowed down a one way street to our advanced economies. These were the only places where sophisticated products could be built or bought.
Today things are different. You could measure circuit board production in two factories in Indonesia and in Britain, and get the output per worker priced in local currency. Multiply both by their conversion rate into US dollars, and the British factory seems to have produced 5 - 7 times more US dollar denominated output. So our GDP looks good, but only through the distorting lens of a western currency conversion. There's another way to measure that same output: simply count the circuit boards. Do that and you'll see there's no material difference in productivity between a British and an Indonesian worker. Perhaps the root cause of western currency premium has evaporated, and the anomaly is now that sterling really is 5 - 7 times overvalued against Asian money.
You could switch to euros. But looking at their policy they're creating as much money as the Bank of England. And the US Federal Reserve is doing it too, while all of Asia is battling to hold down their currencies so that their exports can continue apace. It's a bizarre race to the bottom for the world's currencies.
It's time to sidestep the financial consequences of this largesse. What can we savers do? If you're as bothered as I am, then currency should be struck off your Christmas list and replaced with something more reliably rare. I think gold could soon look so highly priced in sterling that many of us will be too frightened to buy it. But it isn't there yet, so perhaps buy just a little now, and if it makes you a small profit it will be easier to buy a little more next month. If that makes you a profit too, then allow yourself to build a proper stash. I'm not sure we'll ever again be able to buy it for much under £400 an ounce.
I have just instructed my bank to transfer all my remaining cash deposits to BullionVault to Buy Gold, and I look forward to spending 2008 long gold and completely sterling free.
Paul Tustain is the editor of www.Galmarley.com and director of BullionVault.
Barra strikes gold in Australia
Perth based Barra Resources, an exploration and mining company with a focus on targeting and developing high grade gold deposits, yesterday said its deep drilling program had hit an intersection yielding a sensational 10 kilograms - of gold per tonne of ore at its Burbanks mine near Coolgardie in Western Australia.
As a result of the findings shares in Barra Resources surged nearly 23 per cent on Friday. The news sent investors piling into Barra shares, which jumped 6.5 to 35 following the announcement.
Barra managing director Dean Goodwin said the explorer would now intensify drilling around the new discovery. The intersection is a relatively modest 21 centimetres; it is part of a longer 4.69 metre structure.
The hole is the deepest ever drilled on the field, hitting the intersection at 350 metres depth. the intersection was believed to be associated with a totally new reef and was the first of six holes scheduled to drill deep targets.
Barra started the drilling program in a bid to beef up its gold reserves after producing around 27,000 ounces of gold this year. Drilling had been halted for the Christmas break but would start again in the second week of January.
As a result of the findings shares in Barra Resources surged nearly 23 per cent on Friday. The news sent investors piling into Barra shares, which jumped 6.5 to 35 following the announcement.
Barra managing director Dean Goodwin said the explorer would now intensify drilling around the new discovery. The intersection is a relatively modest 21 centimetres; it is part of a longer 4.69 metre structure.
The hole is the deepest ever drilled on the field, hitting the intersection at 350 metres depth. the intersection was believed to be associated with a totally new reef and was the first of six holes scheduled to drill deep targets.
Barra started the drilling program in a bid to beef up its gold reserves after producing around 27,000 ounces of gold this year. Drilling had been halted for the Christmas break but would start again in the second week of January.
Gold council plans big foray into rural areas
In an effort to tap the rural buyers’ potential, the World Gold Council-India is planning to seek the help of micro finance institutions in the country to provide loans to lower income groups to purchase gold in small quantities.
World Gold Council-India officials said the idea came from a project launched in Kerala in collaboration with the Muthoot Group. In that project, around 2,000 individuals from lower income groups were given loans to buy gold and there has been no default till now.
The council is now scouting for MFI partners to launch similar programmes across the country.
In another development, to encourage gold purchase through finance in the urban areas, the council is currently in talks with the ICICI Bank.
The objective is to encourage gold consumption and aptitude for investing in/wearing gold jewellery.
The council is also working on promoting the use of gold jewellery among young girls in the country. The gold consumption by young girls in India is very low as of now. The council is on a mission to bring a mindset shift in the youth about making a fashion statement with gold jewellery.
World Gold Council-India officials said the idea came from a project launched in Kerala in collaboration with the Muthoot Group. In that project, around 2,000 individuals from lower income groups were given loans to buy gold and there has been no default till now.
The council is now scouting for MFI partners to launch similar programmes across the country.
In another development, to encourage gold purchase through finance in the urban areas, the council is currently in talks with the ICICI Bank.
The objective is to encourage gold consumption and aptitude for investing in/wearing gold jewellery.
The council is also working on promoting the use of gold jewellery among young girls in the country. The gold consumption by young girls in India is very low as of now. The council is on a mission to bring a mindset shift in the youth about making a fashion statement with gold jewellery.
Russia to keep oil wealth in bonds
Moscow: Russia will keep its $151 billion Oil and Gas Fund entirely in sovereign bonds next year and will not invest a $19 billion sub-fund in corporate debt or stock, a top Finance Ministry official told Reuters yesterday.
The fund will be split on February 1 into a reserve fund, which will act as an insurance policy to cover any budget deficit caused by a fall in energy prices, and a more growth-oriented National Wealth Fund.
"The National Wealth Fund will be invested in sovereign bonds with a rating not lower than 'AA' in 2008," said Dmitry Pankin, head of the ministry's debt department.
The decision means that Russia will not join this year the ranks of countries like China or Singapore, which have large sovereign wealth funds leading to some concern in the developed world over possible aggressive acquisition strategy and low transparency.
Business
Oil & Gas
Reuters
Gas flares at the Yuzhno Russkoye oil and gas field. The measure, if approved, would bring clarity to rules by which the Kremlin will treat foreign investors.
Russia to keep oil wealth in bonds
Reuters
Published: December 25, 2007, 23:13
Moscow: Russia will keep its $151 billion Oil and Gas Fund entirely in sovereign bonds next year and will not invest a $19 billion sub-fund in corporate debt or stock, a top Finance Ministry official told Reuters yesterday.
The fund will be split on February 1 into a reserve fund, which will act as an insurance policy to cover any budget deficit caused by a fall in energy prices, and a more growth-oriented National Wealth Fund.
"The National Wealth Fund will be invested in sovereign bonds with a rating not lower than 'AA' in 2008," said Dmitry Pankin, head of the ministry's debt department.
The decision means that Russia will not join this year the ranks of countries like China or Singapore, which have large sovereign wealth funds leading to some concern in the developed world over possible aggressive acquisition strategy and low transparency.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The initial plan was to start investing the NWF in corporate paper on February 1,but the government is still struggling to make up its mind about how to use the fund and whether to spend the return on the fund's investment or the fund itself.
The stabilisation fund was created in 2004 to cushion the budget from a fall in oil prices but has since outgrown its original goal, prompting a heated debate about what to do next with the oil windfall.
Key achievement
The government tapped the NWF for 300 billion roubles this year, even before its creation, to capitalise a number of development institutions which for now are mainly being used to provide liquidity for the banking sector.
Ahead of the poll to elect a successor to President Vladimir Putin pressure is mounting to spend some of the oil wealth on improving life for ordinary Russians. Economists see the fund as a key policy achievement of Putin's eight years in office.
The government's leading fiscal hawk and an architect of the fund, Finance Minister Alexei Kudrin, has so far opposed any plans to tap the fund but his position has weakened after his deputy Sergei Storchak was charged with fraud.
Storchak, Russia's foreign debt negotiator and supervisor of the rainy day fund, could face 10 years in jail if convicted of attempting to embezzle $43 million in connection with a failed attempt to recover a debt from Algeria.
Analysts say the prosecution may reflect a struggle between Kremlin factions for control over the state's vast cash hoard.
Pankin said the Finance Ministry proposals, agreed with key ministries and the central bank, have been submitted to the government for review. The Finance Ministry will continue to work on a less conservative investment mechanism.
"We will create a new mechanism when it will become clear to us how and for what the NWF's money will be spent," Pankin said. "As long is there is no timetable for the funds' withdrawal it is not clear which investment strategy will be optimal."
The fund will be split on February 1 into a reserve fund, which will act as an insurance policy to cover any budget deficit caused by a fall in energy prices, and a more growth-oriented National Wealth Fund.
"The National Wealth Fund will be invested in sovereign bonds with a rating not lower than 'AA' in 2008," said Dmitry Pankin, head of the ministry's debt department.
The decision means that Russia will not join this year the ranks of countries like China or Singapore, which have large sovereign wealth funds leading to some concern in the developed world over possible aggressive acquisition strategy and low transparency.
Business
Oil & Gas
Reuters
Gas flares at the Yuzhno Russkoye oil and gas field. The measure, if approved, would bring clarity to rules by which the Kremlin will treat foreign investors.
Russia to keep oil wealth in bonds
Reuters
Published: December 25, 2007, 23:13
Moscow: Russia will keep its $151 billion Oil and Gas Fund entirely in sovereign bonds next year and will not invest a $19 billion sub-fund in corporate debt or stock, a top Finance Ministry official told Reuters yesterday.
The fund will be split on February 1 into a reserve fund, which will act as an insurance policy to cover any budget deficit caused by a fall in energy prices, and a more growth-oriented National Wealth Fund.
"The National Wealth Fund will be invested in sovereign bonds with a rating not lower than 'AA' in 2008," said Dmitry Pankin, head of the ministry's debt department.
The decision means that Russia will not join this year the ranks of countries like China or Singapore, which have large sovereign wealth funds leading to some concern in the developed world over possible aggressive acquisition strategy and low transparency.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The initial plan was to start investing the NWF in corporate paper on February 1,but the government is still struggling to make up its mind about how to use the fund and whether to spend the return on the fund's investment or the fund itself.
The stabilisation fund was created in 2004 to cushion the budget from a fall in oil prices but has since outgrown its original goal, prompting a heated debate about what to do next with the oil windfall.
Key achievement
The government tapped the NWF for 300 billion roubles this year, even before its creation, to capitalise a number of development institutions which for now are mainly being used to provide liquidity for the banking sector.
Ahead of the poll to elect a successor to President Vladimir Putin pressure is mounting to spend some of the oil wealth on improving life for ordinary Russians. Economists see the fund as a key policy achievement of Putin's eight years in office.
The government's leading fiscal hawk and an architect of the fund, Finance Minister Alexei Kudrin, has so far opposed any plans to tap the fund but his position has weakened after his deputy Sergei Storchak was charged with fraud.
Storchak, Russia's foreign debt negotiator and supervisor of the rainy day fund, could face 10 years in jail if convicted of attempting to embezzle $43 million in connection with a failed attempt to recover a debt from Algeria.
Analysts say the prosecution may reflect a struggle between Kremlin factions for control over the state's vast cash hoard.
Pankin said the Finance Ministry proposals, agreed with key ministries and the central bank, have been submitted to the government for review. The Finance Ministry will continue to work on a less conservative investment mechanism.
"We will create a new mechanism when it will become clear to us how and for what the NWF's money will be spent," Pankin said. "As long is there is no timetable for the funds' withdrawal it is not clear which investment strategy will be optimal."
Dollar May Rise to 115.70 Yen on Technical Charts, MUFG Says
(Bloomberg) -- The dollar may strengthen to a two- month high of 115.70 yen in a few weeks, said Masashi Hashimoto, a currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd., citing technical charts.
Resistance at around 115.70 yen represents a 50 percent retracement of the dollar's decline from its June 22 high of 124.13 to its Nov. 26 low of 107.23, according to a series of numbers known as the Fibonacci sequence. The U.S. currency is poised to gain after it rose above the upper side of clouds on the so-called Ichimoku chart, which stayed at 113.53 today. Resistance is a level where sell orders may be clustered.
``The dollar's uptrend is very firm technically,'' said Hashimoto at Bank of Tokyo-Mitsubishi UFJ, a unit of Japan's largest publicly listed lender. ``It will likely challenge higher levels in the coming few weeks.''
The dollar traded at 114.28 yen at 7:45 a.m. in London from 114.29 in New York yesterday, when it advanced to 114.49, the strongest since Nov. 7.
Other Fibonacci levels include 23.6 percent, 38.2 percent and 76.4 percent. A break of one indicates a currency may move to the next. A failure suggests a trend may stall.
An Ichimoku chart analyzes the midpoints of historic highs and lows. A cloud, used to identify levels of support where traders expect buying, or resistance where they expect selling, is the area between the first and second leading span lines.
Moving Averages
The dollar is also likely to rise after it broke through its 65-day and 90-day moving averages. The dollar has risen above the 65-day moving average, which stayed at 113.28 yen today, since Dec. 14. It also climbed above the 90-day moving average today, which stayed at 113.83 yen, signaling the dollar is likely to remain strong in the medium term.
Traders typically look for evidence of a currency's short- term trend by viewing the five-day moving average, and aim to forecast two- to three-week trends with the 21-day moving average and a three-month trend with 65-day and 90-day moving averages. They use moving averages to identify levels of support, where buying is expected, or resistance, where selling is forecast to take place.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
Resistance at around 115.70 yen represents a 50 percent retracement of the dollar's decline from its June 22 high of 124.13 to its Nov. 26 low of 107.23, according to a series of numbers known as the Fibonacci sequence. The U.S. currency is poised to gain after it rose above the upper side of clouds on the so-called Ichimoku chart, which stayed at 113.53 today. Resistance is a level where sell orders may be clustered.
``The dollar's uptrend is very firm technically,'' said Hashimoto at Bank of Tokyo-Mitsubishi UFJ, a unit of Japan's largest publicly listed lender. ``It will likely challenge higher levels in the coming few weeks.''
The dollar traded at 114.28 yen at 7:45 a.m. in London from 114.29 in New York yesterday, when it advanced to 114.49, the strongest since Nov. 7.
Other Fibonacci levels include 23.6 percent, 38.2 percent and 76.4 percent. A break of one indicates a currency may move to the next. A failure suggests a trend may stall.
An Ichimoku chart analyzes the midpoints of historic highs and lows. A cloud, used to identify levels of support where traders expect buying, or resistance where they expect selling, is the area between the first and second leading span lines.
Moving Averages
The dollar is also likely to rise after it broke through its 65-day and 90-day moving averages. The dollar has risen above the 65-day moving average, which stayed at 113.28 yen today, since Dec. 14. It also climbed above the 90-day moving average today, which stayed at 113.83 yen, signaling the dollar is likely to remain strong in the medium term.
Traders typically look for evidence of a currency's short- term trend by viewing the five-day moving average, and aim to forecast two- to three-week trends with the 21-day moving average and a three-month trend with 65-day and 90-day moving averages. They use moving averages to identify levels of support, where buying is expected, or resistance, where selling is forecast to take place.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
Gold Falls in Asia on Speculation Dollar Gain May Reduce Appeal
(Bloomberg) -- Gold fell for the first time in three days in Asia on speculation the dollar may gain, reducing the appeal of the precious metal as an alternative investment. Silver also dropped.
The dollar was little changed at $1.4394 per euro at 3:26 p.m. Shanghai time. A U.S. report this week may show durable- goods orders rebounded, suggesting the economy is weathering the worst housing slump in 16 years.
``Gold's moves will be limited, as trading is sluggish during the holiday, even as the dollar may rise,'' Bill Cai, a gold trader with Bank of China Ltd. in Shanghai, said by phone.
The metal fell $4.80, or 0.6 percent, to $807 an ounce at 2:36 p.m. Shanghai time. Silver dropped 0.5 percent to $14.47 an ounce. Trading on the Comex division of the New York Mercantile Exchange will be closed today for the Christmas holiday.
The dollar has gained against 12 of the 16 major currencies in the past month on speculation that signs of economic resilience and accelerating inflation will discourage the Federal Reserve from cutting borrowing costs next month.
In Japan, gold for December delivery, the most-widely held contract, rose 1.7 percent to close at 2,986 yen a gram ($813 an ounce) on the Tokyo Commodity Exchange.
The dollar was little changed at $1.4394 per euro at 3:26 p.m. Shanghai time. A U.S. report this week may show durable- goods orders rebounded, suggesting the economy is weathering the worst housing slump in 16 years.
``Gold's moves will be limited, as trading is sluggish during the holiday, even as the dollar may rise,'' Bill Cai, a gold trader with Bank of China Ltd. in Shanghai, said by phone.
The metal fell $4.80, or 0.6 percent, to $807 an ounce at 2:36 p.m. Shanghai time. Silver dropped 0.5 percent to $14.47 an ounce. Trading on the Comex division of the New York Mercantile Exchange will be closed today for the Christmas holiday.
The dollar has gained against 12 of the 16 major currencies in the past month on speculation that signs of economic resilience and accelerating inflation will discourage the Federal Reserve from cutting borrowing costs next month.
In Japan, gold for December delivery, the most-widely held contract, rose 1.7 percent to close at 2,986 yen a gram ($813 an ounce) on the Tokyo Commodity Exchange.
Gold May Climb on Demand for Inflation Hedge, Survey Says
(Bloomberg) -- Gold may gain for a second straight week on speculation that the rising cost of raw materials will boost demand for the precious metal as a hedge against inflation.
Fourteen of 27 traders, investors and analysts surveyed by Bloomberg from Mumbai to New York on Dec. 20 and Dec. 21 advised buying gold, which rose 2.2 percent last week to $815.40 an ounce in New York. One said to sell, and 12 were neutral.
Gold is up 28 percent this year as the UBS Bloomberg Constant Maturity Commodity Index has climbed 21 percent. Wheat and rice reached records last week, and soybeans traded at the highest in 34 years.
The majority of analysts surveyed Dec. 13 and Dec. 14 anticipated last week's gain. The survey has accurately forecast prices in 117 of 190 weeks, or 62 percent.
Fourteen of 27 traders, investors and analysts surveyed by Bloomberg from Mumbai to New York on Dec. 20 and Dec. 21 advised buying gold, which rose 2.2 percent last week to $815.40 an ounce in New York. One said to sell, and 12 were neutral.
Gold is up 28 percent this year as the UBS Bloomberg Constant Maturity Commodity Index has climbed 21 percent. Wheat and rice reached records last week, and soybeans traded at the highest in 34 years.
The majority of analysts surveyed Dec. 13 and Dec. 14 anticipated last week's gain. The survey has accurately forecast prices in 117 of 190 weeks, or 62 percent.
Tuesday, December 18, 2007
Gold Little Changed as Commodity Gains Fuel Inflation Concerns
(Bloomberg) -- Gold was little changed in Asia amid speculation that food and commodity costs will accelerate, potentially boosting the appeal of the metal as a hedge against inflation.
Corn traded near a nine-month high and soybeans near the highest in 34 years on speculation that U.S. demand for fuel made from grain and oilseeds will surge. Wheat rose above $10 a bushel yesterday for the first time. Some investors buy gold, which fell in the past three days, to hedge against rising consumer prices.
``Inflation concerns and some physical demand limited further downside,'' said Wang Xinyou, senior gold analyst at Agricultural Bank of China. ``The strength in the dollar also capped gold on the upside.''
The precious metal traded at $792.32 an ounce at 10:09 a.m. Singapore time, after closing at $793.35 an ounce yesterday in New York. Silver was also little changed at $13.82 an ounce.
The dollar traded at $1.4392 per euro at 10:11 a.m. in Singapore from $1.44 yesterday when it touched $1.4331, the strongest since Oct. 26. Gold often moves in the opposite direction to the U.S. currency.
``With dollar strength apparently becoming somewhat entrenched, at least in the near term, gold may head toward our long-standing one-month forecast of $750 an ounce although important support at $772 to $773 needs to break for that to occur,'' John Reade, precious metals analyst at UBS AG said in a report yesterday.
February-delivery gold on the Comex division of the New York Mercantile Exchange fell 0.5 percent to $795 an ounce in after- hours trading at 10:14 a.m. Singapore time.
In Japan, the most active gold futures contract was little changed at 2,908 yen a gram ($800 an ounce) on the Tokyo Commodity Exchange at the 11 a.m. local time break.
Corn traded near a nine-month high and soybeans near the highest in 34 years on speculation that U.S. demand for fuel made from grain and oilseeds will surge. Wheat rose above $10 a bushel yesterday for the first time. Some investors buy gold, which fell in the past three days, to hedge against rising consumer prices.
``Inflation concerns and some physical demand limited further downside,'' said Wang Xinyou, senior gold analyst at Agricultural Bank of China. ``The strength in the dollar also capped gold on the upside.''
The precious metal traded at $792.32 an ounce at 10:09 a.m. Singapore time, after closing at $793.35 an ounce yesterday in New York. Silver was also little changed at $13.82 an ounce.
The dollar traded at $1.4392 per euro at 10:11 a.m. in Singapore from $1.44 yesterday when it touched $1.4331, the strongest since Oct. 26. Gold often moves in the opposite direction to the U.S. currency.
``With dollar strength apparently becoming somewhat entrenched, at least in the near term, gold may head toward our long-standing one-month forecast of $750 an ounce although important support at $772 to $773 needs to break for that to occur,'' John Reade, precious metals analyst at UBS AG said in a report yesterday.
February-delivery gold on the Comex division of the New York Mercantile Exchange fell 0.5 percent to $795 an ounce in after- hours trading at 10:14 a.m. Singapore time.
In Japan, the most active gold futures contract was little changed at 2,908 yen a gram ($800 an ounce) on the Tokyo Commodity Exchange at the 11 a.m. local time break.
Gold futures end slightly higher, but gains capped
(MarketWatch) -- Gold futures ended slightly higher on Monday, though declining crude prices and firmness in the U.S. dollar capped investment demand for the precious metal.
Gold for February delivery gained $1.30 to end at $799.30 an ounce on the New York Mercantile Exchange. Earlier, gold hit an intraday low of $792.50 an ounce.
"Gold's attempts at a meaningful rally were thwarted by a combination of a rising U.S. dollar and falling crude oil," wrote Jon Nadler, an analyst at Kitco Bullion Dealers, in a research note.
"Signs that risk aversion continues to be the year's closing theme among global investors contributed to the selling in metals, but so did the fact that we are running out of trading days and players are getting their logbooks in order," Nadler said.
On Friday, gold closed down $6 and posted a weekly gain of $2.20.
The dollar gave up a few ticks against a few major foreign-exchange counterparts Monday but began the trading week mostly higher, benefiting from U.S. fund inflow data and weak data from the eurozone.
The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.07% at 77.380. See Currencies.
"Weaker oil and a stronger dollar weigh on gold, as a stronger dollar makes gold more expensive for foreign investors and also reduces the appeal of gold as a hedge against inflation," said analysts at Action Economics.
Crude futures declined, as traders locked in gains after Algeria's oil minister said over the weekend that Organization of Petroleum Exporting Countries might increase production at its next meeting. See Futures Movers.
"Interest-rate differentials and the dollar's movements are again likely to be key to gold's price direction in the week ahead, and in addition liquidity may start to become an issue as people break early for Christmas celebrations," wrote James Moore, an analyst at TheBullionDesk.com, in a research note. Moore expects dips to be viewed as buying opportunities.
However, in the short term, "the scale of speculative longs in the market does leave gold vulnerable to selling pressure, and we still expect gold to close the year around $785 rather than above $800," Moore said.
Also on Nymex on Monday, March silver finished virtually unchanged at $13.980 an ounce compared with $13.983 on Friday. January platinum rose $24.40 to end at $1,503.60 an ounce and March palladium gained $3.95 at $361.35 an ounce.
Gold for February delivery gained $1.30 to end at $799.30 an ounce on the New York Mercantile Exchange. Earlier, gold hit an intraday low of $792.50 an ounce.
"Gold's attempts at a meaningful rally were thwarted by a combination of a rising U.S. dollar and falling crude oil," wrote Jon Nadler, an analyst at Kitco Bullion Dealers, in a research note.
"Signs that risk aversion continues to be the year's closing theme among global investors contributed to the selling in metals, but so did the fact that we are running out of trading days and players are getting their logbooks in order," Nadler said.
On Friday, gold closed down $6 and posted a weekly gain of $2.20.
The dollar gave up a few ticks against a few major foreign-exchange counterparts Monday but began the trading week mostly higher, benefiting from U.S. fund inflow data and weak data from the eurozone.
The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.07% at 77.380. See Currencies.
"Weaker oil and a stronger dollar weigh on gold, as a stronger dollar makes gold more expensive for foreign investors and also reduces the appeal of gold as a hedge against inflation," said analysts at Action Economics.
Crude futures declined, as traders locked in gains after Algeria's oil minister said over the weekend that Organization of Petroleum Exporting Countries might increase production at its next meeting. See Futures Movers.
"Interest-rate differentials and the dollar's movements are again likely to be key to gold's price direction in the week ahead, and in addition liquidity may start to become an issue as people break early for Christmas celebrations," wrote James Moore, an analyst at TheBullionDesk.com, in a research note. Moore expects dips to be viewed as buying opportunities.
However, in the short term, "the scale of speculative longs in the market does leave gold vulnerable to selling pressure, and we still expect gold to close the year around $785 rather than above $800," Moore said.
Also on Nymex on Monday, March silver finished virtually unchanged at $13.980 an ounce compared with $13.983 on Friday. January platinum rose $24.40 to end at $1,503.60 an ounce and March palladium gained $3.95 at $361.35 an ounce.
Pound weakens on rate speculation
Fears that trouble in the UK housing market could cause the Bank of England to cut interest rates again sent the pound lower on Monday after a report said that the average price of a house in the UK fell the most in five years this month.
The UK currency was at $2.0155 to the pound in late London trade but traded at $2.0196 to the pound in early afternoon trade in New York, while it traded at €1.4041 to the pound and at ¥228.5579 to the pound.
The US dollar was higher against most major currencies on Monday versus the euro on reduced chances that the Federal Reserve will cut interest rates again next month and after new data showing that the US current account deficit was down in the third quarter.
The dollar traded at $1.4384 to the euro in early afternoon trade in New York after trading at $1.4331 to the euro earlier in the session, but it was down in relation to the Canadian dollar on chances that the Bank of Canada will not cut interest rates any time soon.
The yen and the Swiss franc both gained in relation to the euro as investors sought safe places to put their money rather than in more risky carry trades.
In afternoon trade in New York, the yen traded at ¥162.7837 to the euro and at ¥113.1700 to the US dollar while the Swiss franc sat at SFr1.6566 to the euro and at SFr1.1517 to the greenback.
The UK currency was at $2.0155 to the pound in late London trade but traded at $2.0196 to the pound in early afternoon trade in New York, while it traded at €1.4041 to the pound and at ¥228.5579 to the pound.
The US dollar was higher against most major currencies on Monday versus the euro on reduced chances that the Federal Reserve will cut interest rates again next month and after new data showing that the US current account deficit was down in the third quarter.
The dollar traded at $1.4384 to the euro in early afternoon trade in New York after trading at $1.4331 to the euro earlier in the session, but it was down in relation to the Canadian dollar on chances that the Bank of Canada will not cut interest rates any time soon.
The yen and the Swiss franc both gained in relation to the euro as investors sought safe places to put their money rather than in more risky carry trades.
In afternoon trade in New York, the yen traded at ¥162.7837 to the euro and at ¥113.1700 to the US dollar while the Swiss franc sat at SFr1.6566 to the euro and at SFr1.1517 to the greenback.
Oil declines; metals prices mostly lower
Oil prices fell on Tuesday. Brent crude July contracts dropped back below $70 per barrel as it fell 57 cents in trade on the Intercontinental Exchange in London to $69.92 per barrel. Meanwhile, in early afternoon trade on the New York Mercantile Exchange, June contracts for West Texas Intermediate crude were $1.29 lower to $64.98 per barrel after having traded between $64.85 and $65.95 per barrel during the morning session.
Prices for oil products were lower, as well. Nymex June gasoline dropped 9 cents to $2.31 per gallon, trading between $2.31 and $2.36 per gallon. July heating oil was down 4 cents to $1.91 per gallon, having traded between $1.91 and $1.93 per gallon. July Nymex natural gas fell 10 cents to $7.99 per million British thermal units after trading between $7.98 and $8.06 per mBtu in the morning session.
Precious metals prices were lower on Tuesday in New York. June gold dropped $3.90 to trade at $659.90 per troy ounce. July silver fell 14 cents to $12.99 per ounce, while platinum was $21 lower to $1,298.70 per troy ounce.
Meanwhile, on the London Metal Exchange, most base metals were also lower. The exception was lead, which added $5 on the session to $2,155 per tonne after going as high as $2,215 per tonne during the session. The gains came after China put a 10 percent tax on refined lead exported from June 1. China also imposed a new export tax on zinc.
Copper on the LME fell $10 to $7,270 per tonne. The price of nickel dropped $2,000, or almost 4 percent, to $48,550 per tonne after LME stockpiles were up by 402 tonnes to 5,388 tonnes during the day.
Prices for oil products were lower, as well. Nymex June gasoline dropped 9 cents to $2.31 per gallon, trading between $2.31 and $2.36 per gallon. July heating oil was down 4 cents to $1.91 per gallon, having traded between $1.91 and $1.93 per gallon. July Nymex natural gas fell 10 cents to $7.99 per million British thermal units after trading between $7.98 and $8.06 per mBtu in the morning session.
Precious metals prices were lower on Tuesday in New York. June gold dropped $3.90 to trade at $659.90 per troy ounce. July silver fell 14 cents to $12.99 per ounce, while platinum was $21 lower to $1,298.70 per troy ounce.
Meanwhile, on the London Metal Exchange, most base metals were also lower. The exception was lead, which added $5 on the session to $2,155 per tonne after going as high as $2,215 per tonne during the session. The gains came after China put a 10 percent tax on refined lead exported from June 1. China also imposed a new export tax on zinc.
Copper on the LME fell $10 to $7,270 per tonne. The price of nickel dropped $2,000, or almost 4 percent, to $48,550 per tonne after LME stockpiles were up by 402 tonnes to 5,388 tonnes during the day.
Worldwide Stock Markets Close Down Again
Shares on the world stock markets traded largely down today, continuing the trend of sell-offs through the course of this week.
After moderate trading performances during the day, most exchanges have closed or are trading negatively as the closing bell approaches.
Ongoing unrest in the US sub-prime mortgage lending market, and continuing fears of a global credit crunch continue to play havoc on market confidence, and even the prospect of bargain-basement shares did nothing to regain the passion and interest of the market.
In the US, the Dow Jones leading index was down 82.91 points to 12946.0 after share sales continued to drag down the value of the index. Meanwhile, the more technology-driven Nasdaq was also down, losing 17.04 points to 2482.1.
The S&P 500 index, charting securities in 500 top companies, followed suit losing 10.01 points from its index, taking it to 1416.5.
In Europe, the French Cac Index of top 40 companies lost 35.94 points, down to 5442.7, while the Dax in Frankfurt bucked the overall trend, gaining 20.83 points on the day to close.
The FTSE 100 in London was again on the losing side, down 34.20 points on the day. The FTSE index currently stands at 6109.3.
Investors worldwide appeared to panic after announcements of emergency cash injections from the Federal Reserve, European Central Bank and the Bank of Japan last week, which saw stock values plummet as the credit crunch became more of a real concern.
After further central bank cash pledges, and some rare spells of regeneration, markets have remained largely down throughout the course of this week, reflecting the perpetual fear of the future of the world economy.
With banks worldwide increasing their inter-bank lending interest rates, and bank liquidity high on the agenda of central bank meetings, investors are understandably exercising caution in their investment decisions.
After moderate trading performances during the day, most exchanges have closed or are trading negatively as the closing bell approaches.
Ongoing unrest in the US sub-prime mortgage lending market, and continuing fears of a global credit crunch continue to play havoc on market confidence, and even the prospect of bargain-basement shares did nothing to regain the passion and interest of the market.
In the US, the Dow Jones leading index was down 82.91 points to 12946.0 after share sales continued to drag down the value of the index. Meanwhile, the more technology-driven Nasdaq was also down, losing 17.04 points to 2482.1.
The S&P 500 index, charting securities in 500 top companies, followed suit losing 10.01 points from its index, taking it to 1416.5.
In Europe, the French Cac Index of top 40 companies lost 35.94 points, down to 5442.7, while the Dax in Frankfurt bucked the overall trend, gaining 20.83 points on the day to close.
The FTSE 100 in London was again on the losing side, down 34.20 points on the day. The FTSE index currently stands at 6109.3.
Investors worldwide appeared to panic after announcements of emergency cash injections from the Federal Reserve, European Central Bank and the Bank of Japan last week, which saw stock values plummet as the credit crunch became more of a real concern.
After further central bank cash pledges, and some rare spells of regeneration, markets have remained largely down throughout the course of this week, reflecting the perpetual fear of the future of the world economy.
With banks worldwide increasing their inter-bank lending interest rates, and bank liquidity high on the agenda of central bank meetings, investors are understandably exercising caution in their investment decisions.
Precious metals prices up as base metals decline
Precious metals prices were mostly higher on Monday.
February gold was slightly higher, adding $1 to $799 per troy ounce after the dollar strengthened in relation to the euro.
January platinum added $24.40 to $1,503.60 per troy ounce on demand speculation after hitting a record high of $1,504 per troy ounce earlier in the session while earlier in the session March palladium was $4.60 higher to $362 per troy ounce.
Interest in both platinum and palladium, which are used in the manufacture of pollution-control devices for motor vehicles, was said to be up on increased interest generated by a UN environmental meeting in Bali.
March silver, however, traded even at $13.98 per troy ounce.
Prices for copper and most other base metals declined on Monday on concerns surrounding demand as worries accelerated about the slowing of the global economy.
March Copper dropped 7 cents to $2.89 per pound in New York while three-month copper in London fell $170 to $6,375 per tonne after going as low as $6,357 per tonne earlier in the session, its lowest level there since mid-March.
Aluminium dropped $5 to $2,410 per tonne and was down to $2,393 per tonne earlier in the day while zinc dropped $28 to $2,297 per tonne, lead was down $50 to $2,430 per tonne, tin was $150 lower to $16,050 per tonne, and nickel fell $800 to $25,700 per tonne.
Crude oil prices fell Monday after Algeria’s oil minister said that OPEC could increase production if the market dictates that more oil is needed.
Prices were down even though geopolitical tensions inched upward again both along the Turkey/Iraq border and in Nigeria
West Texas Intermediate crude for January delivery fell 64 cents to $90.63 per barrel by the close of trade on the New York Mercantile Exchange, while January contracts for Brent crude were down $1.10 to $90.59 per barrel on the ICE Futures Europe exchange in London.
Nymex January gasoline prices fell 1 cent to $2.34 per gallon while January heating oil also was down a cent to $2.60 per gallon but March natural gas added 4 cents to $7.21 per million British thermal units.
Wheat prices hit a new high on the Chicago Board of Trade before falling back as worries were raised that global demand could cause a shortage of grains in the United States in 2008, sending food price inflation, up 4.1 percent in the September through November quarter, up even further..
CBOT March wheat closed 13.5 cents lower at $9.66 per bushel, but not before rising to $10.095 per bushel, the highest wheat prices have ever been.
January CBOT soybeans were also lower, dropping a quarter of a cent to $11.5675 per bushel, but March corn added half a cent to $4.3875 per bushel.
February gold was slightly higher, adding $1 to $799 per troy ounce after the dollar strengthened in relation to the euro.
January platinum added $24.40 to $1,503.60 per troy ounce on demand speculation after hitting a record high of $1,504 per troy ounce earlier in the session while earlier in the session March palladium was $4.60 higher to $362 per troy ounce.
Interest in both platinum and palladium, which are used in the manufacture of pollution-control devices for motor vehicles, was said to be up on increased interest generated by a UN environmental meeting in Bali.
March silver, however, traded even at $13.98 per troy ounce.
Prices for copper and most other base metals declined on Monday on concerns surrounding demand as worries accelerated about the slowing of the global economy.
March Copper dropped 7 cents to $2.89 per pound in New York while three-month copper in London fell $170 to $6,375 per tonne after going as low as $6,357 per tonne earlier in the session, its lowest level there since mid-March.
Aluminium dropped $5 to $2,410 per tonne and was down to $2,393 per tonne earlier in the day while zinc dropped $28 to $2,297 per tonne, lead was down $50 to $2,430 per tonne, tin was $150 lower to $16,050 per tonne, and nickel fell $800 to $25,700 per tonne.
Crude oil prices fell Monday after Algeria’s oil minister said that OPEC could increase production if the market dictates that more oil is needed.
Prices were down even though geopolitical tensions inched upward again both along the Turkey/Iraq border and in Nigeria
West Texas Intermediate crude for January delivery fell 64 cents to $90.63 per barrel by the close of trade on the New York Mercantile Exchange, while January contracts for Brent crude were down $1.10 to $90.59 per barrel on the ICE Futures Europe exchange in London.
Nymex January gasoline prices fell 1 cent to $2.34 per gallon while January heating oil also was down a cent to $2.60 per gallon but March natural gas added 4 cents to $7.21 per million British thermal units.
Wheat prices hit a new high on the Chicago Board of Trade before falling back as worries were raised that global demand could cause a shortage of grains in the United States in 2008, sending food price inflation, up 4.1 percent in the September through November quarter, up even further..
CBOT March wheat closed 13.5 cents lower at $9.66 per bushel, but not before rising to $10.095 per bushel, the highest wheat prices have ever been.
January CBOT soybeans were also lower, dropping a quarter of a cent to $11.5675 per bushel, but March corn added half a cent to $4.3875 per bushel.
Gold futures end slightly higher, but gains capped
(MarketWatch) -- Gold futures ended slightly higher on Monday, though declining crude prices and firmness in the U.S. dollar capped investment demand for the precious metal.
Gold for February delivery gained $1.30 to end at $799.30 an ounce on the New York Mercantile Exchange. Earlier, gold hit an intraday low of $792.50 an ounce.
"Gold's attempts at a meaningful rally were thwarted by a combination of a rising U.S. dollar and falling crude oil," wrote Jon Nadler, an analyst at Kitco Bullion Dealers, in a research note.
"Signs that risk aversion continues to be the year's closing theme among global investors contributed to the selling in metals, but so did the fact that we are running out of trading days and players are getting their logbooks in order," Nadler said.
On Friday, gold closed down $6 and posted a weekly gain of $2.20.
The dollar gave up a few ticks against a few major foreign-exchange counterparts Monday but began the trading week mostly higher, benefiting from U.S. fund inflow data and weak data from the eurozone.
The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.07% at 77.380. See Currencies.
"Weaker oil and a stronger dollar weigh on gold, as a stronger dollar makes gold more expensive for foreign investors and also reduces the appeal of gold as a hedge against inflation," said analysts at Action Economics.
Crude futures declined, as traders locked in gains after Algeria's oil minister said over the weekend that Organization of Petroleum Exporting Countries might increase production at its next meeting. See Futures Movers.
"Interest-rate differentials and the dollar's movements are again likely to be key to gold's price direction in the week ahead, and in addition liquidity may start to become an issue as people break early for Christmas celebrations," wrote James Moore, an analyst at TheBullionDesk.com, in a research note. Moore expects dips to be viewed as buying opportunities.
However, in the short term, "the scale of speculative longs in the market does leave gold vulnerable to selling pressure, and we still expect gold to close the year around $785 rather than above $800," Moore said.
Also on Nymex on Monday, March silver finished virtually unchanged at $13.980 an ounce compared with $13.983 on Friday. January platinum rose $24.40 to end at $1,503.60 an ounce and March palladium gained $3.95 at $361.35 an ounce.
December copper fell 6.35 cents, or 2.2%, to end at $2.8730 a pound.
Gold for February delivery gained $1.30 to end at $799.30 an ounce on the New York Mercantile Exchange. Earlier, gold hit an intraday low of $792.50 an ounce.
"Gold's attempts at a meaningful rally were thwarted by a combination of a rising U.S. dollar and falling crude oil," wrote Jon Nadler, an analyst at Kitco Bullion Dealers, in a research note.
"Signs that risk aversion continues to be the year's closing theme among global investors contributed to the selling in metals, but so did the fact that we are running out of trading days and players are getting their logbooks in order," Nadler said.
On Friday, gold closed down $6 and posted a weekly gain of $2.20.
The dollar gave up a few ticks against a few major foreign-exchange counterparts Monday but began the trading week mostly higher, benefiting from U.S. fund inflow data and weak data from the eurozone.
The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.07% at 77.380. See Currencies.
"Weaker oil and a stronger dollar weigh on gold, as a stronger dollar makes gold more expensive for foreign investors and also reduces the appeal of gold as a hedge against inflation," said analysts at Action Economics.
Crude futures declined, as traders locked in gains after Algeria's oil minister said over the weekend that Organization of Petroleum Exporting Countries might increase production at its next meeting. See Futures Movers.
"Interest-rate differentials and the dollar's movements are again likely to be key to gold's price direction in the week ahead, and in addition liquidity may start to become an issue as people break early for Christmas celebrations," wrote James Moore, an analyst at TheBullionDesk.com, in a research note. Moore expects dips to be viewed as buying opportunities.
However, in the short term, "the scale of speculative longs in the market does leave gold vulnerable to selling pressure, and we still expect gold to close the year around $785 rather than above $800," Moore said.
Also on Nymex on Monday, March silver finished virtually unchanged at $13.980 an ounce compared with $13.983 on Friday. January platinum rose $24.40 to end at $1,503.60 an ounce and March palladium gained $3.95 at $361.35 an ounce.
December copper fell 6.35 cents, or 2.2%, to end at $2.8730 a pound.
A Surprise Response: Gold Scrap’s Reaction to Price Moves
It might be expected that, given the surge in the gold price from mid-August, we would have seen a marked acceleration in the volume of old gold scrap being generated. Furthermore, it might be assumed that the reaction would be strongest in traditionally price sensitive regions, such as the Middle East or the Indian sub-continent.
However, recent field trips have shown that the overall response of scrap to the price rise has been comparatively subdued and that some supposedly price insensitive areas, parts of western Europe for example, have demonstrated a relatively strong reaction.
Perhaps the greatest surprise here concerns India. The received wisdom is that India is a highly price sensitive market where higher prices would typically equate to lower jewellery demand and higher scrap volumes. And whilst at times this stylised fact has indeed shown up in the data, scrap volumes in the main have been on a declining trend for much of the bull rally. Consider, for example, that average scrap volumes were over 30 tonnes per quarter in 2003 but, so far this year they have fallen to under 20 tonnes on average. The most simple explanation of this appears to be that, as expectations of higher (and ever higher) prices have taken hold, consumers have reduced the amount of old jewellery they are willing to sell back.
Similarly in the Middle East, the reaction to the rise in the metal prices has been controlled, with current scrap supply supported by the distribution chain unloading slow moving inventory rather than individuals offloading gold assets as was the case for much of 2006. A large portion of individual stocks were shaken out in the first half of 2006 and metal prices would need to return to levels close to $850 to encourage a further surge in recycling. Demand for jewellery in Dubai, the trading hub of the region, has been modest with consumers buying solidly on dips in the gold price but they do not appear at this stage to be selling, or exchanging jewellery, with the expectation of higher prices on the horizon.
In East Asia, both trade and individuals have been active recently in taking advantage of any significant price volatility with scrap flows from the beginning of October notably higher. These markets are typically very price sensitive and with modest margins applied to the retail trade (often below 5%) any significant fluctuation in the gold price allows for a quick turnaround and the recycling of the jewellery item. That said, a lot of the material currently being recycled is “new” gold rather then old jewellery items, with this jewellery (mostly chain) purchased by individuals as a short term investment vehicle with the intention of selling back the item should the price move in an upwards direction.
Having mentioned earlier that the industrialised regions had seen a comparatively strong response, this does not change our view that their scrap supply in 2007 fell. This is largely because this year has seen a lesser clear-out by the jewellery distributive trade and fabricators, especially in Europe, of slow selling or old fashioned stocks, in contrast to the major re-melt that followed the April/May 2006 price spike.
Instead, we have seen a marked build up in the volume of scrap coming back to the market from individuals. There are several drivers behind this. There is, for example, an element of distress selling thanks to the credit crunch and we are beginning to see the start of selling back of inherited pieces, purchased originally when western consumption boomed post-War.
The rise in the gold price, even in euro terms, obviously features but its direct importance should not be overstated, given ongoing consumer ignorance of the gold price and the hefty discount received. This is a clue to perhaps the most important factor, namely the improvement in facilities for the recycling of old jewellery. This in turn stems from both the rise in the gold price and the very buoyant margins currently available, with individuals selling facing a discount that can easily reach 35-40% of the world price.
Such margins have led to new entrants to the business (such as French companies setting up special events in hotels at which they buy old jewellery), to retailers adding the service of buying back consumers’ old pieces (the now ubiquitous ‘compro oro’ - I buy gold - signs in Italian jewellers’ windows being a good example) and to greater marketing efforts by existing players’ (witness the higher advertising spend of US pawnbrokers).
In summary, the greater weighting of the developing world in total scrap and its sluggish response plus the smaller western world trade re-melt mean scrap supply in 2007 could well still show a fall when results are published in Gold Survey Update 2. Looking further ahead, enhanced scrap facilities in the West in conjunction with prices holding at elevated levels should keep this element of scrap at a surprisingly sustained level. Developing world scrap would be highly likely to grow significantly in the event of a marked rally in the price, or greater volatility, though, as shown in 2007, volumes might well undershoot conventional expectations.
However, recent field trips have shown that the overall response of scrap to the price rise has been comparatively subdued and that some supposedly price insensitive areas, parts of western Europe for example, have demonstrated a relatively strong reaction.
Perhaps the greatest surprise here concerns India. The received wisdom is that India is a highly price sensitive market where higher prices would typically equate to lower jewellery demand and higher scrap volumes. And whilst at times this stylised fact has indeed shown up in the data, scrap volumes in the main have been on a declining trend for much of the bull rally. Consider, for example, that average scrap volumes were over 30 tonnes per quarter in 2003 but, so far this year they have fallen to under 20 tonnes on average. The most simple explanation of this appears to be that, as expectations of higher (and ever higher) prices have taken hold, consumers have reduced the amount of old jewellery they are willing to sell back.
Similarly in the Middle East, the reaction to the rise in the metal prices has been controlled, with current scrap supply supported by the distribution chain unloading slow moving inventory rather than individuals offloading gold assets as was the case for much of 2006. A large portion of individual stocks were shaken out in the first half of 2006 and metal prices would need to return to levels close to $850 to encourage a further surge in recycling. Demand for jewellery in Dubai, the trading hub of the region, has been modest with consumers buying solidly on dips in the gold price but they do not appear at this stage to be selling, or exchanging jewellery, with the expectation of higher prices on the horizon.
In East Asia, both trade and individuals have been active recently in taking advantage of any significant price volatility with scrap flows from the beginning of October notably higher. These markets are typically very price sensitive and with modest margins applied to the retail trade (often below 5%) any significant fluctuation in the gold price allows for a quick turnaround and the recycling of the jewellery item. That said, a lot of the material currently being recycled is “new” gold rather then old jewellery items, with this jewellery (mostly chain) purchased by individuals as a short term investment vehicle with the intention of selling back the item should the price move in an upwards direction.
Having mentioned earlier that the industrialised regions had seen a comparatively strong response, this does not change our view that their scrap supply in 2007 fell. This is largely because this year has seen a lesser clear-out by the jewellery distributive trade and fabricators, especially in Europe, of slow selling or old fashioned stocks, in contrast to the major re-melt that followed the April/May 2006 price spike.
Instead, we have seen a marked build up in the volume of scrap coming back to the market from individuals. There are several drivers behind this. There is, for example, an element of distress selling thanks to the credit crunch and we are beginning to see the start of selling back of inherited pieces, purchased originally when western consumption boomed post-War.
The rise in the gold price, even in euro terms, obviously features but its direct importance should not be overstated, given ongoing consumer ignorance of the gold price and the hefty discount received. This is a clue to perhaps the most important factor, namely the improvement in facilities for the recycling of old jewellery. This in turn stems from both the rise in the gold price and the very buoyant margins currently available, with individuals selling facing a discount that can easily reach 35-40% of the world price.
Such margins have led to new entrants to the business (such as French companies setting up special events in hotels at which they buy old jewellery), to retailers adding the service of buying back consumers’ old pieces (the now ubiquitous ‘compro oro’ - I buy gold - signs in Italian jewellers’ windows being a good example) and to greater marketing efforts by existing players’ (witness the higher advertising spend of US pawnbrokers).
In summary, the greater weighting of the developing world in total scrap and its sluggish response plus the smaller western world trade re-melt mean scrap supply in 2007 could well still show a fall when results are published in Gold Survey Update 2. Looking further ahead, enhanced scrap facilities in the West in conjunction with prices holding at elevated levels should keep this element of scrap at a surprisingly sustained level. Developing world scrap would be highly likely to grow significantly in the event of a marked rally in the price, or greater volatility, though, as shown in 2007, volumes might well undershoot conventional expectations.
US gold turns higher but dollar, sentiment weigh
(Reuters) - Gold futures in New York
touched a two-week low early on Monday before rebounding on
bargain hunting, and silver contracts also hit a two-month low,
weighed down by a dollar rise and tepid buying sentiment. Bullion has held up relatively well in spite of a recent
rally in the dollar, but analysts said the strengthening U.S.
currency could drag gold lower in the near term. "It's just a lack of interest in gold right at this
particular time. Euro's getting hit, and crude oil and the stock
market are getting hit pretty good. I think eventually gold's
going to work lower," said Jay Kaplan, COMEX floor trader with
Hudson River Futures in New York. At 10:28 a.m. EST (1528 GMT), most-active February gold
GCG8 on the COMEX division of the New York Mercantile Exchange
was up $1.50 at $799.50 an ounce. It hit a high of $803.60 and a
bottom of $789.60, which marked the weakest level since Dec 3. The dollar rose against the euro on Monday, boosted by
year-end transactions and speculation of less aggressive Federal
Reserve interest rate cuts after last week's U.S. inflation
numbers. The greenback was also supported by an unexpected surge to
$114 billion in U.S. long-term capital inflows in October,
sharply higher than September's inflows of $15.4 billion.
[ID:nN17394150] A higher dollar makes gold, which is denominated in the
greenback, more expensive for investors holding other
currencies. Gold is also viewed as an alternative currency to
the U.S. dollar. John Reade, head of precious metals strategy with UBS in
London, told clients in a note that gold was relatively
supported in overnight trade despite further gains in the dollar
versus the euro, but bullion had fallen by the European
session. "With dollar strength apparently becoming somewhat
entrenched, at least in the near term, gold may head towards our
long-standing one-month forecast of $750 an ounce (spot)
although important support at $772/773 needs to break for that
to occur," Reade said. Spot gold was quoted at $794.50/795.20 an ounce,
compared with $792.70/793.50 in New York Friday afternoon.
London bullion dealers fixed the afternoon spot reference price
at $790.75. The U.S. Commodity Futures Trading Commission said in its
latest Commitments of Traders (COT) report that noncommercial
net long position climbed to 171,774 lots in the week up to Dec.
11, compared with 167,524 lots a week earlier. [ID:nN14181628] "The COT reports remain too extended for us to recommend new
long positions in any of the four precious metals, and we
continue to wait for a correction to initiate tactical longs,"
Reade said. Silver tracked gold to trade weaker. COMEX March silver
SIH8 hit a bottom of $13.650 an ounce, which marked the
weakest level since Oct. 22. It was down 1.80 cents at $13.965
an ounce, after hitting a high of $14.120 in the early
sessions. Spot silver was quoted at $13.81/13.86 an ounce,
compared with $13.80/13.85 late Friday in New York. London
silver was fixed at $13.745. NYMEX January platinum PLF8 was up $17.10 or 1.2 percent
at $1,496.30 an ounce. Spot platinum was quoted at
$1,492/1,497.
touched a two-week low early on Monday before rebounding on
bargain hunting, and silver contracts also hit a two-month low,
weighed down by a dollar rise and tepid buying sentiment. Bullion has held up relatively well in spite of a recent
rally in the dollar, but analysts said the strengthening U.S.
currency could drag gold lower in the near term. "It's just a lack of interest in gold right at this
particular time. Euro's getting hit, and crude oil and the stock
market are getting hit pretty good. I think eventually gold's
going to work lower," said Jay Kaplan, COMEX floor trader with
Hudson River Futures in New York. At 10:28 a.m. EST (1528 GMT), most-active February gold
GCG8 on the COMEX division of the New York Mercantile Exchange
was up $1.50 at $799.50 an ounce. It hit a high of $803.60 and a
bottom of $789.60, which marked the weakest level since Dec 3. The dollar rose against the euro on Monday, boosted by
year-end transactions and speculation of less aggressive Federal
Reserve interest rate cuts after last week's U.S. inflation
numbers. The greenback was also supported by an unexpected surge to
$114 billion in U.S. long-term capital inflows in October,
sharply higher than September's inflows of $15.4 billion.
[ID:nN17394150] A higher dollar makes gold, which is denominated in the
greenback, more expensive for investors holding other
currencies. Gold is also viewed as an alternative currency to
the U.S. dollar. John Reade, head of precious metals strategy with UBS in
London, told clients in a note that gold was relatively
supported in overnight trade despite further gains in the dollar
versus the euro, but bullion had fallen by the European
session. "With dollar strength apparently becoming somewhat
entrenched, at least in the near term, gold may head towards our
long-standing one-month forecast of $750 an ounce (spot)
although important support at $772/773 needs to break for that
to occur," Reade said. Spot gold
compared with $792.70/793.50 in New York Friday afternoon.
London bullion dealers fixed the afternoon spot reference price
at $790.75. The U.S. Commodity Futures Trading Commission said in its
latest Commitments of Traders (COT) report that noncommercial
net long position climbed to 171,774 lots in the week up to Dec.
11, compared with 167,524 lots a week earlier. [ID:nN14181628] "The COT reports remain too extended for us to recommend new
long positions in any of the four precious metals, and we
continue to wait for a correction to initiate tactical longs,"
Reade said. Silver tracked gold to trade weaker. COMEX March silver
SIH8 hit a bottom of $13.650 an ounce, which marked the
weakest level since Oct. 22. It was down 1.80 cents at $13.965
an ounce, after hitting a high of $14.120 in the early
sessions. Spot silver
compared with $13.80/13.85 late Friday in New York. London
silver was fixed at $13.745. NYMEX January platinum PLF8 was up $17.10 or 1.2 percent
at $1,496.30 an ounce. Spot platinum
$1,492/1,497.
How to Make a Million Dollars
Many years ago, a successful commodities trader told a story I’ll never forget. It was the tale of how he made his first million in the cotton market.
The details are a little fuzzy now -- as I said, this was many years ago -- but the moral of the story is what stuck with me. I’ll give you the Reader’s Digest version here.
At one point in time, this now-wealthy trader was a scrappy young guy with nothing to lose. He had little more than a passion for markets, a modest trading stake and really big dreams.
Our hero didn’t have enough money to be active in multiple markets. His account was just too small to handle big swings like the big boys. So he chose to focus on one market: the cotton market.
He didn’t pick cotton because it was exciting at the time. It was just the opposite, in fact. He went with cotton because it was dull and sleepy, virtually ignored by other traders. Our hero knew that, eventually, cotton would rise and run like so many other commodities had. It was just a matter of time.
After a long stretch of dullness, cotton finally began showing signs of life. Cotton futures broke out to the upside from a choppy sideways pattern that had seemed to last for years. He bought as many contracts as he thought was prudent.
There were a handful of false starts and disappointments before the trade really got going. He was stopped out a few times, and had a few frightening moments where his precious capital reserves seemed to be at risk. But eventually, his patience and persistence paid off. By the time cotton really began to move -- and the big boys finally took notice -- our hero had a strong base position.
From there it was a matter of pyramiding, the discipline of carefully adding to a winning trade. It was also a matter of hanging tough -- not taking profits too early, not losing nerve when the inevitable shakeouts occurred.
Over many months, cotton kept rising, and our hero kept adding contracts at the right time. Never in a rush… never getting too greedy… always picking his spots. Soon enough, he had his first million, and he never looked back.
The moral of the story, the thing that stuck with me, wasn’t to keep an eye on cotton (although interesting things are certainly happening in the cotton market these days). Nor was the big lesson that sleepy markets can turn into massively trending markets over time (although that is certainly true, too).
No, the thing I’ll never forget was how he ended the story.
“You can’t save a million dollars,” he said. “You have to make it.”
Mediocre Is as Mediocre Does
The traditional advice says anyone can be a millionaire; that they can, in fact, save a million… if they’re willing to just chip away for 30 or 40 years or so. (Very little is said about the fact that a million bucks might not be worth a hill of beans by then, thanks to the ravages of inflation.)
The traditional advice says, “Don’t do anything controversial. Forget about being bold or unconventional. It’s safer in the middle of the herd.”
For many investors this is decent advice. But that’s precisely why most investors will never be happy with what the markets hand them. You can’t get above-average performance doing what everyone else is doing.
Find the Biggest Waves and Ride Them
Fortunately, not everyone is satisfied with mediocrity. (If they were, there wouldn’t be a newsletter business.)
Those of us who want more from markets -- and from life -- are challenged to find the big waves and ride them. The most profitable trends aren’t the little blips and squiggles that quickly get lost in the fray. They are the epic monsters, the sweeping waves of change you can see from a distance. (If it doesn’t make its mark on a monthly or even a weekly chart, it’s probably not a major trend.)
There are certain challenges to mastering this task, this odd mix of art and science known as trading and investing. You have to stay cognizant of the big picture and not get bogged down in details, but you also have to pay close attention to what’s happening in real time.
Picking one’s spots is critical… but while trying to do that, it’s all too easy to get distracted. The trick is not losing perspective.
Tying It All Together
I’ve been passionate about markets for nearly 15 years now. In fact, I’ll probably love markets until the day I die. (I know I’ll be writing till that day, too.) It’s even easier to be passionate now, with everything that’s happening.
One of the greatest benefits of this new position I’ve taken on, editorial director for Taipan Publishing, is the chance to coordinate such a powerful stream of investing and trading ideas. I’m very excited about working closely with the Taipan team and communicating those ideas to you more clearly than ever before.
I see a significant part of my job as helping you, the reader, keep track of the big picture. (I am a “macro” guy at heart; the big picture is what I live and breathe.) One of the things Taipan will do in 2008 is focus more on the idea of “themes,” sorting all these trading and investing ideas into various baskets, making them easier to connect and understand.
Some of the themes we see dominating the markets now have been building up for years (and many of us have been writing about them for years). Other themes are just now taking hold. They are all sources of fascination -- and danger -- and potentially great wealth.
Notes From a Friend
To that end, I’ll be writing you on a regular basis for Taipan Daily. That is what we’re calling this e-letter now. You’ll still be receiving the same great content from the Taipan team, of course. My focus will be on connecting the dots. The general idea is that I will write a bit, and then introduce the essay for the day.
Usually my contribution will be shorter. Sometimes I’ll write you a little more, sometimes a little less. But it will always be with a focus on markets -- or investing and trading -- in the casual tone of notes from a friend. My hope is that Taipan Daily will earn an honored spot in your daily routine, like the morning paper or that first cup of coffee.
Let Us Know What You Think
I’m really looking forward to writing you. But I hope you can write to me too on occasion (and not just me, of course, but all of us).
We want to know what you’re thinking -- your questions, your comments, your requests. What topics would you like to hear more about? Are there any specific questions you have? Any market-related concerns? Just curious about something? Now you can let it fly.
We can’t dispense any type of individual advice, of course. But other than that, the reader mailbag is open. I look forward to opening it from time to time and responding to your thoughts.
The details are a little fuzzy now -- as I said, this was many years ago -- but the moral of the story is what stuck with me. I’ll give you the Reader’s Digest version here.
At one point in time, this now-wealthy trader was a scrappy young guy with nothing to lose. He had little more than a passion for markets, a modest trading stake and really big dreams.
Our hero didn’t have enough money to be active in multiple markets. His account was just too small to handle big swings like the big boys. So he chose to focus on one market: the cotton market.
He didn’t pick cotton because it was exciting at the time. It was just the opposite, in fact. He went with cotton because it was dull and sleepy, virtually ignored by other traders. Our hero knew that, eventually, cotton would rise and run like so many other commodities had. It was just a matter of time.
After a long stretch of dullness, cotton finally began showing signs of life. Cotton futures broke out to the upside from a choppy sideways pattern that had seemed to last for years. He bought as many contracts as he thought was prudent.
There were a handful of false starts and disappointments before the trade really got going. He was stopped out a few times, and had a few frightening moments where his precious capital reserves seemed to be at risk. But eventually, his patience and persistence paid off. By the time cotton really began to move -- and the big boys finally took notice -- our hero had a strong base position.
From there it was a matter of pyramiding, the discipline of carefully adding to a winning trade. It was also a matter of hanging tough -- not taking profits too early, not losing nerve when the inevitable shakeouts occurred.
Over many months, cotton kept rising, and our hero kept adding contracts at the right time. Never in a rush… never getting too greedy… always picking his spots. Soon enough, he had his first million, and he never looked back.
The moral of the story, the thing that stuck with me, wasn’t to keep an eye on cotton (although interesting things are certainly happening in the cotton market these days). Nor was the big lesson that sleepy markets can turn into massively trending markets over time (although that is certainly true, too).
No, the thing I’ll never forget was how he ended the story.
“You can’t save a million dollars,” he said. “You have to make it.”
Mediocre Is as Mediocre Does
The traditional advice says anyone can be a millionaire; that they can, in fact, save a million… if they’re willing to just chip away for 30 or 40 years or so. (Very little is said about the fact that a million bucks might not be worth a hill of beans by then, thanks to the ravages of inflation.)
The traditional advice says, “Don’t do anything controversial. Forget about being bold or unconventional. It’s safer in the middle of the herd.”
For many investors this is decent advice. But that’s precisely why most investors will never be happy with what the markets hand them. You can’t get above-average performance doing what everyone else is doing.
Find the Biggest Waves and Ride Them
Fortunately, not everyone is satisfied with mediocrity. (If they were, there wouldn’t be a newsletter business.)
Those of us who want more from markets -- and from life -- are challenged to find the big waves and ride them. The most profitable trends aren’t the little blips and squiggles that quickly get lost in the fray. They are the epic monsters, the sweeping waves of change you can see from a distance. (If it doesn’t make its mark on a monthly or even a weekly chart, it’s probably not a major trend.)
There are certain challenges to mastering this task, this odd mix of art and science known as trading and investing. You have to stay cognizant of the big picture and not get bogged down in details, but you also have to pay close attention to what’s happening in real time.
Picking one’s spots is critical… but while trying to do that, it’s all too easy to get distracted. The trick is not losing perspective.
Tying It All Together
I’ve been passionate about markets for nearly 15 years now. In fact, I’ll probably love markets until the day I die. (I know I’ll be writing till that day, too.) It’s even easier to be passionate now, with everything that’s happening.
One of the greatest benefits of this new position I’ve taken on, editorial director for Taipan Publishing, is the chance to coordinate such a powerful stream of investing and trading ideas. I’m very excited about working closely with the Taipan team and communicating those ideas to you more clearly than ever before.
I see a significant part of my job as helping you, the reader, keep track of the big picture. (I am a “macro” guy at heart; the big picture is what I live and breathe.) One of the things Taipan will do in 2008 is focus more on the idea of “themes,” sorting all these trading and investing ideas into various baskets, making them easier to connect and understand.
Some of the themes we see dominating the markets now have been building up for years (and many of us have been writing about them for years). Other themes are just now taking hold. They are all sources of fascination -- and danger -- and potentially great wealth.
Notes From a Friend
To that end, I’ll be writing you on a regular basis for Taipan Daily. That is what we’re calling this e-letter now. You’ll still be receiving the same great content from the Taipan team, of course. My focus will be on connecting the dots. The general idea is that I will write a bit, and then introduce the essay for the day.
Usually my contribution will be shorter. Sometimes I’ll write you a little more, sometimes a little less. But it will always be with a focus on markets -- or investing and trading -- in the casual tone of notes from a friend. My hope is that Taipan Daily will earn an honored spot in your daily routine, like the morning paper or that first cup of coffee.
Let Us Know What You Think
I’m really looking forward to writing you. But I hope you can write to me too on occasion (and not just me, of course, but all of us).
We want to know what you’re thinking -- your questions, your comments, your requests. What topics would you like to hear more about? Are there any specific questions you have? Any market-related concerns? Just curious about something? Now you can let it fly.
We can’t dispense any type of individual advice, of course. But other than that, the reader mailbag is open. I look forward to opening it from time to time and responding to your thoughts.
Indian jewellery exports to US may get hit
As expected, the jewellery manufacturers are feeling the heat now following the US government’s decision in June to lift the generalised system of preferences (GSP) given to Indian jewellery sector.
Several exporters in Surat said they are finding it tough to clear their stocks for Christmas as they are not in a position to contain the price rise caused by the GSP withdrawal and strengthening of rupee against dollar.
The exporters fear that the shipments to the US will come down substantially this year.
However, the traders are trying to modify their products to avoid the rise in prices. As a result, the diamond caratage has been brought down marginally. Gold weight has also been compromised, wherever necessary, to maintain the prices at the same level.
Though the problem has been sorted out between Indian manufacturers and the US importers, consumers are still staying away from fresh buying.
Exporters forecast the realisation to come down at least by 1 per cent.
The domestic gems and jewellery industry had estimated an exports growth of 2-3 per cent this year, which seems unlikely on account of the GSP withdrawal and the strengthening of rupee against dollar.
Anticipating a sluggish US market, exporters have shifted their focus to new markets like Japan, Russian and the West Asia.
With the unsold inventory of the Christmas season piling up, it will be a big challenge for exporters to clear it in the next couple of months. Sales to the US may decline by 5 per cent next year.
Gems and jewellery exports during the first eight months (April-November) of the current financial year increased 14.70 per cent in the rupee terms to Rs 37,104.03 crore compared with Rs 32,348.84 crore in the same period last year.
In the dollar terms, the exports recorded a growth of 28.52 per cent to $9,123.19 million from $7,098.71 million last year. In caratage term, however, the total exports rose by 16.17 per cent to 280.86 lakh carats from 241.77 lakh carats.
Instituted in 1976, the GSP was aimed at promoting economic prosperity of designated under-developed countries.
Under the programme, more than 4,650 products from 144 countries were given a preferential entry into the US.
Since then, the programme has been extended periodically. India was one of the beneficiaries of the GSP programme.
Several exporters in Surat said they are finding it tough to clear their stocks for Christmas as they are not in a position to contain the price rise caused by the GSP withdrawal and strengthening of rupee against dollar.
The exporters fear that the shipments to the US will come down substantially this year.
However, the traders are trying to modify their products to avoid the rise in prices. As a result, the diamond caratage has been brought down marginally. Gold weight has also been compromised, wherever necessary, to maintain the prices at the same level.
Though the problem has been sorted out between Indian manufacturers and the US importers, consumers are still staying away from fresh buying.
Exporters forecast the realisation to come down at least by 1 per cent.
The domestic gems and jewellery industry had estimated an exports growth of 2-3 per cent this year, which seems unlikely on account of the GSP withdrawal and the strengthening of rupee against dollar.
Anticipating a sluggish US market, exporters have shifted their focus to new markets like Japan, Russian and the West Asia.
With the unsold inventory of the Christmas season piling up, it will be a big challenge for exporters to clear it in the next couple of months. Sales to the US may decline by 5 per cent next year.
Gems and jewellery exports during the first eight months (April-November) of the current financial year increased 14.70 per cent in the rupee terms to Rs 37,104.03 crore compared with Rs 32,348.84 crore in the same period last year.
In the dollar terms, the exports recorded a growth of 28.52 per cent to $9,123.19 million from $7,098.71 million last year. In caratage term, however, the total exports rose by 16.17 per cent to 280.86 lakh carats from 241.77 lakh carats.
Instituted in 1976, the GSP was aimed at promoting economic prosperity of designated under-developed countries.
Under the programme, more than 4,650 products from 144 countries were given a preferential entry into the US.
Since then, the programme has been extended periodically. India was one of the beneficiaries of the GSP programme.
Gold Bucked Down But Remain Long-Term Bullish
ATLANTA (ResourceInvestor.com): While it may feel to some traders like gold is down big, the metal actually only registered a decline of $0.83 or 0.1% on the cash market for the calendar week ending December 14. Friday’s last trade of $794.34 rests very close to the popular 50-day moving average and technically minded traders will be watching that line in the sand closely near term. While gold may face near term headwinds, the long term outlook remains decidedly bullish in this report’s opinion.
Gold “feels” like it has sold off more than it has partly because of continued persistent weakness in mining shares (as mentioned below in the Gold Indexes section graphs), because of the large bounce in the U.S. dollar against other global currencies (as shown in the U.S. Dollar section graphs below), and because of a number of large U.S. brokerages calls to take profits and or sell gold and gold stocks over the past two months. (One of the most recent comes from Goldman Sachs after they were probably already net short.)
With the 200-day moving average well below, around $710 currently, the charts must have technically minded gold bears salivating especially with the recent strength in the U.S. dollar to support their gold-should-get-cheaper cause. Gold could sell down another 10% and not even challenge its most popular moving average. The $64 trillion-dollar-credit-market--nervousness question is, then, how low will gold go?
As with anything dealing with the future, the correct answer is we just don’t know, but a very strong case can be made that gold metal will find undefeatable support somewhere between right here ($790s) and $700.
On the right, or Dexter hand, we just witnessed a big jump in the U.S. producer price inflation figures, reportedly the highest since the 1970s (reflecting what most people expected $90 oil would mean) and isn’t higher inflation bullish for gold? We just saw the CRB index mark a new all time high as all commodities adjusted to increased costs and demand. The ongoing credit crises has the FED and the other large global central bankers pumping a flood of yet more liquidity (over $110 billion in one coordinated move) into the global monetary system.
In a few weeks China opens the door to in-country spot bullion trading, opening up a new source of demand. Rumours of very large and concentrated recent gold buying out of the Middle East, Asia, Japan and Russia persist (and are likely true) and we continue to see sizable increases in the amount of gold being held by the world’s gold exchange traded funds (see the Gold ETFs section below). This gold-bullish list could go on for paragraphs, but suffice it to say that demand for gold is on the rise for a gaggle of reasons and the amount of the yellow metal available to serve that demand is relatively constant.
On the left, or sinister hand, in addition to the recent calls by brokerages for their clients to sell gold and gold stocks, we have to note that the largest of the largest gold futures traders on the COMEX boosted their collective gold net short positions even though the metal was a little down in the latest commitments of traders report from the CFTC (detailed in the COT Changes section below). The long overdue bounce in the U.S. dollar (relative to other fiat paper currencies) is underway as the most one-sided trade of 2007 gets unwound.
Mining stocks continue to under-whelm and under-perform and thanks to general Big Market weakness look even worse than they might otherwise, but clearly a contraction of liquidity in the mining sector continued as of the past week. In short, for whatever reasons liquidity has been leaving the metals and mining sectors faster than entering.
What’s the bottom line for this report? Well, the argument between the indicators continues and we have to keep short term caution flags flying. Long term fundamentals for gold are positive, but short term gold has to navigate into some more headwinds.
The short term prospects are for further contraction in the mining sector, but for how much longer? With more and more gold being taken off the market into global gold ETFs, the prospect of more investment into gold from sovereign wealth funds seeking currency safe harbour, more and more investment in the metal coming from China, Japan, Russia and the Middle East (not to mention the U.S.), growing uneasiness with all fiat paper currencies and less gold being dumped onto the market by the world’s central bankers, gold should, repeat should, see a rising floor for the foreseeable future. We’ll see.
Scheduling note: Due to extended out-of-country holiday travel plans this is the last Got Gold Report of 2007. The next report is scheduled for the weekend of January 12-13. Thanks for reading and Happy Holidays!
On to some of the indicators.
COT Changes. In the Tuesday 12/11 commitments of traders report (COT) the COMEX large commercials (LCs) collective combined net short positions (LCNS) INCREASED 5,845 contracts or 2.8% from 204,898 to 210,743 contracts net short Tuesday to Tuesday as gold metal FELL $4.52 or 0.6% from $802.18 to $797.66 on the cash market.
Since Tuesday gold edged another $3.32 lower for a Friday last trade of $794.34 on the cash market, which, despite the weaker “feel” of the market, was actually only down $0.83 for the calendar week. Gold actually turned in higher high ($816.74) and a higher low ($789.35) for the trading week.
As of Tuesday’s COT reporting cutoff, COMEX gold open interest inched lower by 511 to 486,198 total open contracts, but that follows another big 34,073 contract reduction the week prior. Interestingly, since the total open interest peaked on November 6 at 556,856 COMEX 100-ounce contracts, the total number of open contracts has decreased by 70,658 lots or about 12.7%. Over those five reporting weeks the price of gold fell $27.34 or about 3.3%. So while gold pulled back $27 about 220 tonnes worth of gold futures contracts were closed out.
Long term December 2008 and beyond COMEX forwards added a small 706 contracts to 91,405 lots open, which is about 18.8% of open contracts. That is still a little above average, but still no ultra-bearish big jump in long term forwards. Considering the large drop in total open interest and recent dollar strength it is a little surprising there haven’t been more long term forwards put on over the past few weeks.
It wasn’t a large increase in LCNS this week, but the increase in commercial net short positions on slightly lower gold is more bearish than not and it abruptly ends what had been a trend of decreasing LCNS for four consecutive weeks on relatively flat gold. That suggests that COMEX commercial traders are expecting lower gold prices a bit more aggressively once again. It doesn’t necessarily mean they are right of course.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Gold ETFs. Over the past week gold holdings at streetTRACKS Gold Shares, the largest gold exchange traded fund [NYSE:GLD], jumped 13.53 to a new record 615.9 tonnes. As of Friday’s figures that’s equal to $15.6 billion U.S. dollars worth of gold bars held by a custodian in London for the trust.
Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, increased 1.08 to 97.50 tonnes of gold held over the past week. Barclay’s iShares COMEX Gold Trust [AMEX:IAU] gold holdings remained steady at 54.13 tonnes of gold held for its investors.
Over the past week all of the gold ETFs sponsored by the World Gold Council increased their collective gold holdings by a net 16.2 to 751.34 tonnes of the precious metal worth $19.1 billion.
Despite no real advance for gold metal, gold ETFs worldwide continue to see increasing demand and positive money flow (more wealth entering gold ETFs than exiting) as evidenced by the 16-tonnes of new gold metal put away by the gold trading vehicles over the past week. That argues with the action in mining shares over the past week, which acted as though a mining sector liquidity exodus has gotten underway.
Silver ETF: Metal holdings for Barclay’s iShares Silver Trust [AMEX:SLV], the U.S. silver ETF, remained steady at 4,567.03 tonnes after adding 44.32 tonnes the prior week. Silver turned in a decline of $0.55 on the cash market with a Friday last trade of $13.82.
As silver showed a $0.15 gain from COT reporting Tuesday to Tuesday (from $14.30 to $14.45) the large commercial COMEX silver traders (LCs) added a relatively large 3,564 contracts to their collective net short positioning (238 contracts per penny advance) to 53,139 contracts of net short exposure. Since then silver took a $0.63 hit down to its support of $13.82.
Please see the 1-year silver graph and the 2-year weekly version for this report’s technical and market commentary on the graphs themselves.
Repeating from the last Got Gold Report: “Those who have yet to begin building a long term position in physical silver or the silver ETF ought to consider doing so opportunistically, during the next fade, pullback or correction in this report’s opinion. Sooner or later, in this secular silver bull market, the second most popular precious metal will approach or eclipse its historic peak purchasing power barring unforeseen catastrophic geopolitical or natural calamity.”
Gold Charts. Please see the 1-year daily chart for gold and the 2-year weekly version for context as well as this report’s technical and market commentary on the charts themselves.
U.S. Dollar. As expected, the U.S. dollar caught a bid this week, but judging from their positioning ahead of the event the NYBOT commercials missed out on the dollar bullish fun. As the USDX added 59 basis points Tuesday to Tuesday from 75.67 to 76.26 NYBOT commercials actually reduced their net long exposure again by 2,713 to just 6,556 contracts net long. Then, the greenback index mushroomed a whopping 117 ticks higher for a Friday 11/30 last trade of 77.43.
Please see the 1-year daily USD chart and the 2-year weekly USD version for this report’s technical and market commentary on the charts themselves.
Gold Indexes. The AMEX Gold Bugs index, which follows a basket of fifteen of the most popular mining companies that generally do not use hedging and therefore should have more leverage to the gold market, is one of the most popular gold indexes and is the index that this report tends to focus on.
Please see the 9-month daily HUI chart and the 3-year weekly HUI chart for context and this report’s commentary on the graphs themselves.
HUI:Gold Ratio. The popular HUI:Gold Ratio measures the relative performance of mining shares versus gold. When the ratio is rising mining shares are putting in a stronger performance relative to the metal and vice versa.
Please see the one-year daily HUI/Gold ratio chart and the 2-year weekly HUI/Gold version for context and this report’s commentary on the graphs themselves.
Cash Gold-HUI (G-H). This week the G-H comes in at a stratospheric 407.47. Long time readers will know that is a howling warning that a liquidity exodus is underway in mining shares.
It is unsettling that this indicator failed to improve as gold more or less traded sideways over the past two weeks and by itself it is flashing a short term sell signal. That argues with the continued positive money flow into global gold ETFs and some of the downside pressure to mining shares can be attributed to continued general Big Market weakness and multiple profit taking calls by major U.S. brokerages overly focused on dollar strength relative to other fiat currencies.
Repeating from the last Got Gold Report two weeks ago: “Look for this indicator to improve (decline) … as gold nears or marks new support. That will mean mining shares are outperforming the metals. If that fails to show, then gold will probably establish a lower base before the next major up leg of the Great Gold Bull. That’s on the theory that the largest and best informed institutional traders will be pouring in new wealth into the sector ahead of the next bull market romp higher for gold.”
Short-Term Outlook: (Caution flags remain flying for both short-term trading bulls and bears. Trailing stops elevated a couple notches to a “near resistance” strategy. Strong dips, if any, can be bought.)
While short term caution flags have to remain flying for now, meaning the indicators show headwinds short term, make no mistake as to this report’s long term bullish view for gold, silver and mining shares. Liquidity is currently leaving gold and the mining sector faster than entering, but that situation can reverse very rapidly and has reversed quickly in the recent past.
Repeating from the previous report: “For the battle-hardened, strong-stomached, high-risk-loving veterans who know what they’re doing and understand that it’s extremely difficult to peg the exact bottom on any highly liquidity dependent, thinly traded junior miner or explorer, it’s not too soon to go bargain hunting opportunistically on the already beaten up and tax loss pummeled future mining industry consolidation fodder. But think cheap when adding and be prepared to be surprised at how cheap they can go during the next two weeks of peak tax loss selling pressure.
Both sides of the gold market battlefield can and should expect heightened volatility near term. Both short term trading bulls and bears should exercise caution and meticulously manage their respective trailing stop strategies accordingly.
If a harsh pullback materializes for gold, silver and selected mining shares, it is this report’s contention that strong dips can be bought in measured increments provided traders are disciplined in the use and management of new-trade trailing stops for protection.”
Long-Term Outlook: (Continued cautiously bullish, trailing stops normal.)
This report remains long term cautiously bullish, but new positions should only be added into weakness. Strong dips can be bought provided traders are disciplined in the use and management of appropriate new-trade trailing stops for protection.
Long term gold market drivers have not changed: A secular bullish perfect storm trend for precious metals continues. Rapidly escalating global investor demand, easier participation by investors via ETFs, conversion of Middle East petroleum dollars to gold, rising new demand from Asia, possible central bank buying partially offsetting central bank selling, conversion from dollars to gold by large U.S. dollar denominated foreign exchange reserves, declining gold production, increased political and NGO interference to bring new sources on line, rapidly escalating costs to produce, delays and shortages of equipment and manpower, previous two-decade bear-market-induced shortage of intellectual capital for miners, safe-haven buying to hedge strong, reckless, competitive dilution of under-backed fiat paper currencies, probably continued de-hedging and continued troubling global political and religious tensions are just some of the factors contributing to the long-term bullish winds now blowing.
In real terms gold remains undervalued versus nearly all other commodities and strongly undervalued as measured by the world’s fiat paper promises.... The Great Gold Bull has a long way to go. It just won’t go straight up. Got gold?
Gold “feels” like it has sold off more than it has partly because of continued persistent weakness in mining shares (as mentioned below in the Gold Indexes section graphs), because of the large bounce in the U.S. dollar against other global currencies (as shown in the U.S. Dollar section graphs below), and because of a number of large U.S. brokerages calls to take profits and or sell gold and gold stocks over the past two months. (One of the most recent comes from Goldman Sachs after they were probably already net short.)
With the 200-day moving average well below, around $710 currently, the charts must have technically minded gold bears salivating especially with the recent strength in the U.S. dollar to support their gold-should-get-cheaper cause. Gold could sell down another 10% and not even challenge its most popular moving average. The $64 trillion-dollar-credit-market--nervousness question is, then, how low will gold go?
As with anything dealing with the future, the correct answer is we just don’t know, but a very strong case can be made that gold metal will find undefeatable support somewhere between right here ($790s) and $700.
On the right, or Dexter hand, we just witnessed a big jump in the U.S. producer price inflation figures, reportedly the highest since the 1970s (reflecting what most people expected $90 oil would mean) and isn’t higher inflation bullish for gold? We just saw the CRB index mark a new all time high as all commodities adjusted to increased costs and demand. The ongoing credit crises has the FED and the other large global central bankers pumping a flood of yet more liquidity (over $110 billion in one coordinated move) into the global monetary system.
In a few weeks China opens the door to in-country spot bullion trading, opening up a new source of demand. Rumours of very large and concentrated recent gold buying out of the Middle East, Asia, Japan and Russia persist (and are likely true) and we continue to see sizable increases in the amount of gold being held by the world’s gold exchange traded funds (see the Gold ETFs section below). This gold-bullish list could go on for paragraphs, but suffice it to say that demand for gold is on the rise for a gaggle of reasons and the amount of the yellow metal available to serve that demand is relatively constant.
On the left, or sinister hand, in addition to the recent calls by brokerages for their clients to sell gold and gold stocks, we have to note that the largest of the largest gold futures traders on the COMEX boosted their collective gold net short positions even though the metal was a little down in the latest commitments of traders report from the CFTC (detailed in the COT Changes section below). The long overdue bounce in the U.S. dollar (relative to other fiat paper currencies) is underway as the most one-sided trade of 2007 gets unwound.
Mining stocks continue to under-whelm and under-perform and thanks to general Big Market weakness look even worse than they might otherwise, but clearly a contraction of liquidity in the mining sector continued as of the past week. In short, for whatever reasons liquidity has been leaving the metals and mining sectors faster than entering.
What’s the bottom line for this report? Well, the argument between the indicators continues and we have to keep short term caution flags flying. Long term fundamentals for gold are positive, but short term gold has to navigate into some more headwinds.
The short term prospects are for further contraction in the mining sector, but for how much longer? With more and more gold being taken off the market into global gold ETFs, the prospect of more investment into gold from sovereign wealth funds seeking currency safe harbour, more and more investment in the metal coming from China, Japan, Russia and the Middle East (not to mention the U.S.), growing uneasiness with all fiat paper currencies and less gold being dumped onto the market by the world’s central bankers, gold should, repeat should, see a rising floor for the foreseeable future. We’ll see.
Scheduling note: Due to extended out-of-country holiday travel plans this is the last Got Gold Report of 2007. The next report is scheduled for the weekend of January 12-13. Thanks for reading and Happy Holidays!
On to some of the indicators.
COT Changes. In the Tuesday 12/11 commitments of traders report (COT) the COMEX large commercials (LCs) collective combined net short positions (LCNS) INCREASED 5,845 contracts or 2.8% from 204,898 to 210,743 contracts net short Tuesday to Tuesday as gold metal FELL $4.52 or 0.6% from $802.18 to $797.66 on the cash market.
Since Tuesday gold edged another $3.32 lower for a Friday last trade of $794.34 on the cash market, which, despite the weaker “feel” of the market, was actually only down $0.83 for the calendar week. Gold actually turned in higher high ($816.74) and a higher low ($789.35) for the trading week.
As of Tuesday’s COT reporting cutoff, COMEX gold open interest inched lower by 511 to 486,198 total open contracts, but that follows another big 34,073 contract reduction the week prior. Interestingly, since the total open interest peaked on November 6 at 556,856 COMEX 100-ounce contracts, the total number of open contracts has decreased by 70,658 lots or about 12.7%. Over those five reporting weeks the price of gold fell $27.34 or about 3.3%. So while gold pulled back $27 about 220 tonnes worth of gold futures contracts were closed out.
Long term December 2008 and beyond COMEX forwards added a small 706 contracts to 91,405 lots open, which is about 18.8% of open contracts. That is still a little above average, but still no ultra-bearish big jump in long term forwards. Considering the large drop in total open interest and recent dollar strength it is a little surprising there haven’t been more long term forwards put on over the past few weeks.
It wasn’t a large increase in LCNS this week, but the increase in commercial net short positions on slightly lower gold is more bearish than not and it abruptly ends what had been a trend of decreasing LCNS for four consecutive weeks on relatively flat gold. That suggests that COMEX commercial traders are expecting lower gold prices a bit more aggressively once again. It doesn’t necessarily mean they are right of course.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Gold ETFs. Over the past week gold holdings at streetTRACKS Gold Shares, the largest gold exchange traded fund [NYSE:GLD], jumped 13.53 to a new record 615.9 tonnes. As of Friday’s figures that’s equal to $15.6 billion U.S. dollars worth of gold bars held by a custodian in London for the trust.
Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, increased 1.08 to 97.50 tonnes of gold held over the past week. Barclay’s iShares COMEX Gold Trust [AMEX:IAU] gold holdings remained steady at 54.13 tonnes of gold held for its investors.
Over the past week all of the gold ETFs sponsored by the World Gold Council increased their collective gold holdings by a net 16.2 to 751.34 tonnes of the precious metal worth $19.1 billion.
Despite no real advance for gold metal, gold ETFs worldwide continue to see increasing demand and positive money flow (more wealth entering gold ETFs than exiting) as evidenced by the 16-tonnes of new gold metal put away by the gold trading vehicles over the past week. That argues with the action in mining shares over the past week, which acted as though a mining sector liquidity exodus has gotten underway.
Silver ETF: Metal holdings for Barclay’s iShares Silver Trust [AMEX:SLV], the U.S. silver ETF, remained steady at 4,567.03 tonnes after adding 44.32 tonnes the prior week. Silver turned in a decline of $0.55 on the cash market with a Friday last trade of $13.82.
As silver showed a $0.15 gain from COT reporting Tuesday to Tuesday (from $14.30 to $14.45) the large commercial COMEX silver traders (LCs) added a relatively large 3,564 contracts to their collective net short positioning (238 contracts per penny advance) to 53,139 contracts of net short exposure. Since then silver took a $0.63 hit down to its support of $13.82.
Please see the 1-year silver graph and the 2-year weekly version for this report’s technical and market commentary on the graphs themselves.
Repeating from the last Got Gold Report: “Those who have yet to begin building a long term position in physical silver or the silver ETF ought to consider doing so opportunistically, during the next fade, pullback or correction in this report’s opinion. Sooner or later, in this secular silver bull market, the second most popular precious metal will approach or eclipse its historic peak purchasing power barring unforeseen catastrophic geopolitical or natural calamity.”
Gold Charts. Please see the 1-year daily chart for gold and the 2-year weekly version for context as well as this report’s technical and market commentary on the charts themselves.
U.S. Dollar. As expected, the U.S. dollar caught a bid this week, but judging from their positioning ahead of the event the NYBOT commercials missed out on the dollar bullish fun. As the USDX added 59 basis points Tuesday to Tuesday from 75.67 to 76.26 NYBOT commercials actually reduced their net long exposure again by 2,713 to just 6,556 contracts net long. Then, the greenback index mushroomed a whopping 117 ticks higher for a Friday 11/30 last trade of 77.43.
Please see the 1-year daily USD chart and the 2-year weekly USD version for this report’s technical and market commentary on the charts themselves.
Gold Indexes. The AMEX Gold Bugs index, which follows a basket of fifteen of the most popular mining companies that generally do not use hedging and therefore should have more leverage to the gold market, is one of the most popular gold indexes and is the index that this report tends to focus on.
Please see the 9-month daily HUI chart and the 3-year weekly HUI chart for context and this report’s commentary on the graphs themselves.
HUI:Gold Ratio. The popular HUI:Gold Ratio measures the relative performance of mining shares versus gold. When the ratio is rising mining shares are putting in a stronger performance relative to the metal and vice versa.
Please see the one-year daily HUI/Gold ratio chart and the 2-year weekly HUI/Gold version for context and this report’s commentary on the graphs themselves.
Cash Gold-HUI (G-H). This week the G-H comes in at a stratospheric 407.47. Long time readers will know that is a howling warning that a liquidity exodus is underway in mining shares.
It is unsettling that this indicator failed to improve as gold more or less traded sideways over the past two weeks and by itself it is flashing a short term sell signal. That argues with the continued positive money flow into global gold ETFs and some of the downside pressure to mining shares can be attributed to continued general Big Market weakness and multiple profit taking calls by major U.S. brokerages overly focused on dollar strength relative to other fiat currencies.
Repeating from the last Got Gold Report two weeks ago: “Look for this indicator to improve (decline) … as gold nears or marks new support. That will mean mining shares are outperforming the metals. If that fails to show, then gold will probably establish a lower base before the next major up leg of the Great Gold Bull. That’s on the theory that the largest and best informed institutional traders will be pouring in new wealth into the sector ahead of the next bull market romp higher for gold.”
Short-Term Outlook: (Caution flags remain flying for both short-term trading bulls and bears. Trailing stops elevated a couple notches to a “near resistance” strategy. Strong dips, if any, can be bought.)
While short term caution flags have to remain flying for now, meaning the indicators show headwinds short term, make no mistake as to this report’s long term bullish view for gold, silver and mining shares. Liquidity is currently leaving gold and the mining sector faster than entering, but that situation can reverse very rapidly and has reversed quickly in the recent past.
Repeating from the previous report: “For the battle-hardened, strong-stomached, high-risk-loving veterans who know what they’re doing and understand that it’s extremely difficult to peg the exact bottom on any highly liquidity dependent, thinly traded junior miner or explorer, it’s not too soon to go bargain hunting opportunistically on the already beaten up and tax loss pummeled future mining industry consolidation fodder. But think cheap when adding and be prepared to be surprised at how cheap they can go during the next two weeks of peak tax loss selling pressure.
Both sides of the gold market battlefield can and should expect heightened volatility near term. Both short term trading bulls and bears should exercise caution and meticulously manage their respective trailing stop strategies accordingly.
If a harsh pullback materializes for gold, silver and selected mining shares, it is this report’s contention that strong dips can be bought in measured increments provided traders are disciplined in the use and management of new-trade trailing stops for protection.”
Long-Term Outlook: (Continued cautiously bullish, trailing stops normal.)
This report remains long term cautiously bullish, but new positions should only be added into weakness. Strong dips can be bought provided traders are disciplined in the use and management of appropriate new-trade trailing stops for protection.
Long term gold market drivers have not changed: A secular bullish perfect storm trend for precious metals continues. Rapidly escalating global investor demand, easier participation by investors via ETFs, conversion of Middle East petroleum dollars to gold, rising new demand from Asia, possible central bank buying partially offsetting central bank selling, conversion from dollars to gold by large U.S. dollar denominated foreign exchange reserves, declining gold production, increased political and NGO interference to bring new sources on line, rapidly escalating costs to produce, delays and shortages of equipment and manpower, previous two-decade bear-market-induced shortage of intellectual capital for miners, safe-haven buying to hedge strong, reckless, competitive dilution of under-backed fiat paper currencies, probably continued de-hedging and continued troubling global political and religious tensions are just some of the factors contributing to the long-term bullish winds now blowing.
In real terms gold remains undervalued versus nearly all other commodities and strongly undervalued as measured by the world’s fiat paper promises.... The Great Gold Bull has a long way to go. It just won’t go straight up. Got gold?
Dollar gaining ground
FRANKFURT, Germany (AP) -- The dollar edged upward Monday with an increase in U.S. consumer prices diminishing chances of another interest rate cut.
In afternoon European trading, the euro bought $1.4376, down from $1.4425 on Friday in New York. The British pound edged up to $2.0155 from $2.0154, while the dollar slipped to 113.25 Japanese yen from 113.42 yen.
The euro was lower after a U.S. Labor Department report on Friday showed U.S. consumer inflation surged by the largest amount in more than two years in November, led by gasoline prices.
"The dollar is making impressive gains across the board in the face of last week's upbeat inflation data," said James Hughes, a market analyst at CMC Markets.
Last week, the U.S. Federal Reserve Bank cut interest rates by a modest quarter percentage point to 4.25 percent.
The strong pricing report suggests the Fed may now feel less inclined to keep cutting rates as it tries to keep inflationary pressures in check. That would keep the dollar's yield relatively strong compared with those of other currencies.
In afternoon European trading, the euro bought $1.4376, down from $1.4425 on Friday in New York. The British pound edged up to $2.0155 from $2.0154, while the dollar slipped to 113.25 Japanese yen from 113.42 yen.
The euro was lower after a U.S. Labor Department report on Friday showed U.S. consumer inflation surged by the largest amount in more than two years in November, led by gasoline prices.
"The dollar is making impressive gains across the board in the face of last week's upbeat inflation data," said James Hughes, a market analyst at CMC Markets.
Last week, the U.S. Federal Reserve Bank cut interest rates by a modest quarter percentage point to 4.25 percent.
The strong pricing report suggests the Fed may now feel less inclined to keep cutting rates as it tries to keep inflationary pressures in check. That would keep the dollar's yield relatively strong compared with those of other currencies.
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