U.S. crude futures traded down $1.01 to $63.04 a barrel by 1:13 p.m. EDT (1713 GMT) as investors sought safer havens. London Brent crude fell 74 cents to $63.31 a barrel.

“The worries are that the pace of the economic recovery hasn’t materialized the way that people who plunged into the commodity markets thought, and now they are running for the exits,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. “The question is how far they will run.”

Safe-haven currencies such as the dollar gained on the concerns about a potential turnaround to the global economic crisis, while U.S. stocks fell.

Crude prices have dropped from $73 a barrel in late June on worries a rebound in global fuel demand may be far off, after economic optimism helped lift prices from lows under $33 struck in December.

The U.S. Energy Information Administration raised its outlook for global oil demand by 170,000 barrels per day (bpd) in a report released on Tuesday.

“There has been stronger economic activity in Asia than was previously anticipated, and the current forecast reflects higher expected oil consumption in that region,” the EIA said.

Surging demand from China and other developing economies launched oil and other commodities on a six-year rally that sent crude to a record high near $150 a barrel last year, before the economic crisis hit demand.

Weekly U.S. inventory data is expected to show a fall in crude oil stockpiles and a build in gasoline and distillate stocks in the week to July 3, the build up to the long U.S. Independence Day holiday weekend when summer gasoline demand typically peaks.

Data from the American Petroleum Institute is scheduled to be released later Tuesday, with the EIA’s weekly inventory report due out on Wednesday.

Crude has found limited support from OPEC member Nigeria, where militants have launched at least four attacks against oil installations in the past 10 days, helping to underpin prices on Tuesday.

NEW YORK, July 7 (Reuters)

Higher-than-expected U.S. jobless claims and producer prices data helped precious metals erase larger losses from earlier in the day.

This followed a fall in U.S. retail sales data on Wednesday, which dented sentiment that had boosted equity and commodity markets and signalled the economy’s troubles were far from over.

Spot gold was at $925.55 per ounce at 1407 GMT, from $925.45 late in New York on Wednesday, when it touched a six-week high on buying by gold-backed exchange-traded funds.

“The jobs data is worse than forecast,” said James Moore, an analyst at The Bullion Desk.com. “It’s a bit of a reality check that maybe the recession in the U.S. is going to take longer to crawl out of and the markets have got a little bit ahead of themselves.”

U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange were up 10 cents to $926.00 an ounce.

European shares extended losses on Thursday after the jobless claims, though they later flattened out. Losses on the equity markets have benefited gold in recent months, as investors buy bullion as a haven from risk in other markets.

“We think equity markets have overcooked the upturn,” said Michael Lewis, global head of commodities research at Deutsche Bank.

The dollar gave up gains after drifting higher against the euro following the weak U.S. retail data, which kept risk aversion high.

Gold typically moves in the opposite direction to the U.S. currency, to which it is often bought as an alternative investment. However, the usual relationship between the two has recently weakened, as both react to risk aversion.

BULLISH

With the world economy not out of the woods yet, analysts saw higher price prospects for gold.

“We’re bullish for the next couple of months. We feel that these reflationary trades…are now going to be under attack and those sorts of environments do tend to see flows into gold ETFs,” Lewis said, referring to recent gains in copper and oil prices.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust (GLD) , earlier said holdings had risen to 1,105.62 tonnes as of May 13, up 1.53 tonnes from the previous business day for the first gain in a month.

“The inflow is still marginal relative to the massive gold inflows seen in the first quarter this year,” analysts at Commerzbank said in a research note. “In this context, we view the upward potential for gold as limited at present.”

Platinum was at $1,107.50 an ounce from $1,111.00 while silver was at $13.89 from $13.94 and palladium was at $222.50 against $220.50.

May 14 (Reuters)

So much for history.

It makes more sense to focus on the present – and that means taking what the market gives us. With commodities, that’s a hearty dose of volatility…

Another Chance To Go Long On Natural Gas

The natural gas market giveth and then taketh away.

We’ve been bullish on the natural gas market since the price hit a long-term support level near the $4.500 per MMbtu mark a few months back. Since making a new low price of $3.740 (based on the May 2009 futures contract) on March 18, the futures blasted higher by 1,000 ticks and reached a high of $4.750.

But with a surprise Energy Information Administration report last Thursday, which showed a much larger buildup of underground natural gas supplies, the market has sunk right back to its lows of $3.750 per MMBtu.

Although we’re a little disappointed with the current state of this market, we continue to like natural gas for the very long-term – particularly as hurricane season creeps closer and the risk of damage to natural gas operations in the Gulf heightens.

If you’re thinking of initiating bullish trades, you can do it through the natural gas futures options market on the NYMEX, or on the market’s main ETF – the United States Natural Gas Fund (NYSE: UNG).

A Wide Range For Crude Ahead

Crude oil continues to swing in large ranges.

The May futures contract just hit a near-term high of $54.66 per barrel – a significant jump from its low of just under $40 last month. But with a bout of profit-taking in the mix, the contract’s 20-day moving average has moved to support near $49 per barrel.

Depending on the mood of the market, we could see oil hold at this level and head higher again. If it doesn’t hold, though, we could see a drop back down to $40 very quickly.

Regardless, our near-term trading range for oil continues to fall between $30 and $60 a barrel.

Metals Pause For Breath… But Get Ready For The Next Move Higher

With gold and silver having recently tagged highs ($1,000 per ounce for gold and $14.50 per ounce for silver), both have taken a bit of a breather and retraced some of their gains.

This kind of profit-taking is perfectly normal – and is actually a good thing, as it gives the markets a chance to consolidate in preparation for the next leg higher. We still believe this will happen.

For gold: We don’t see the front-month futures contract (June) trading much below $870 per ounce after the current pullback is over.

For silver: We shouldn’t see a price much below $12 an ounce for the May contract.

With the stock markets still unsteady, many investors are sticking with metals as part of a diversified portfolio.

Aside from using limited-risk option strategies to play gold and silver futures options on the COMEX market, you can buy outright shares of the ETFs that track the price performance of gold and silver – the SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV) respectively. You can also play options on these ETFs.

Could Winds Whip OJ Into A Bullish Frenzy?

Keep an eye on the orange juice market. It’s definitely bounced off its yearly lows near $.65 per pound and has trended higher to its current price of $.77 per pound.

Orange juice is a market that heats up towards the late spring/early summer – and is then on full “hurricane watch” from June until November. We’ll continue to post the monthly chart of orange juice as a reference point of where it’s been before – and could potentially go again.

That’s all for this edition. Catch you next time.

Source: Natural Gas: Another Chance to Profit As This Commodity Takes a Tumble

Platinum sank to $760, below the price of gold, in the far East, but rallied from there to a mid-morning high above $820, before finally subsiding to end at $790/oz., down $35. Overnight, platinum is sharply higher.

Silver was the day’s big winner, taking off at the same time as gold and pushing as high as $10.15 before falling back below $10 around noon and trading sideways from there into a close at $9.89/oz., up 70 cents. Overnight, silver has pushed higher. (Click here for charts)

Gold had a solid day yesterday, with silver soaring while platinum continued to bring up the rear. Something of a tailwind was provided by a dollar that slid against the euro and rising oil prices.

The Fed’s rate cut seemed to have little general effect, perhaps because it is widely expected that the European Central Bank, the Bank of England, and possibly even the Bank of Japan will follow suit with rate cuts of their own in the near future.

The Hightower Report wrote of silver’s breakout day: “The silver market mounted a fairly impressive recovery bounce which some players might have attributed to technical short covering. However, with the stock market at times Wednesday adding to the gains from the prior trading session, it would seem like some of the severe deflationary environment was lifting and that in turn helped a number of physical commodity markets like silver rally. It is also likely that strength in gold and copper gave the silver bulls additional confidence during the trade today. Even a slight correction in the stock market after the FOMC rate cut decision failed to severely dent the strength in silver prices.”

As gold rallies, analysts are wondering whether the tipping point is in sight.

“Some are beginning to extrapolate the medium- to long-term consequences of central-bank monetary creation,” said Jeffrey Nichols, of American Precious Metals Advisors. “The flashing lights that they are seeing ahead are the lights of inflation and currency depreciation,” developments which will inevitably push gold higher.

And James Moore, of TheBullionDesk.com, notes that “with the fact gold is considerably lower than at the start of the year and investors may look to further diversify their asset holdings, may allow gold to begin recouping some of its losses.”

Source: Gold rises, platinum falls to near parity -  Silver has a blast-off day

Platinum rose slowly but surely through the whole day, ending just off its intraday high at $2037/oz., up $45. Overnight, platinum has declined.

Silver followed gold’s lead to a T, closing at $16.84/oz., up 28 cents. Overnight, silver is sharply lower.
(Click here for charts)

The precious metals had a strong day, as well they should have, given soaring oil prices and a declining dollar. Traders may have even been a little disappointed that the metals’ performance wasn’t a bit better than it was

After acknowledging the buck’s influence on the day’s action, the Hightower Report went on the say that “with a sharp upward explosion in energy prices and a host of physical commodities, it is just as likely that classic inflationary buying was being seen in the gold trade. With the US equity market at times under significant selling pressure as a result of the sharp price gains being registered in the commodity markets, it is also likely that classic flight to quality buying was taking place. While the Dollar Index was weak some traders suggested that without a decline below the Tuesday low of 73.31, the currency influence on gold prices might not intensify. In the end seeing crude oil prices virtually explode during the session Wednesday probably rekindled investment interest for gold from a broad range of angles.”

Looking down the road, wrote James Moore, an analyst at TheBullionDesk.com, “short-term direction is still likely to be dollar-driven.”

But Moore added that “with inflation on the increase, longer-term investors should continue to look favorably towards gold, with the metal likely to carry out further base building ahead of $850 before rallying back towards $1,000 later in the year.”

Crude oil, which remains at nosebleed levels, is a primary driver of inflation, and after oil’s meteoric rise, gold has a lot of catch-up still to play.

And Matt Zeman, a metals trader at LaSalle Futures Group in Chicago believes that the difference between interest rates on euros and dollars is paramount, leading him to conclude that, “Traders are looking at the difference between rates. You’ve got to believe that people are going to step in and buy gold right now.”

Source: Precious Metals Surge

Why has the price of oil risen so much in the past few months? Is it a supply and demand issue as some believe; or is it because of an out-of-control futures market driven by the proliferation of commodity index funds and rampant speculation, as everyone tries to get in on the rise in commodity prices? This is a very complex issue, with a lot of emotion attached to it.

This week I try to give you an understanding of why oil prices have risen and whether they are likely to stay at such lofty heights or maybe even fall! And we look at a very odd statistic: where are all the tankers? There are some very unusual things happening in the oil patch. If you are currently exposed to the energy or commodity markets, or are thinking about it, I believe you will find this letter of interest. At the end of the letter, I also tell you how you can personally see that help gets to the victims of Cyclone Nargis in Myanmar. It is a desperately needy situation. There is a lot to cover, so we will get to the essay right after this quick note.

I have talked for the past few months about why I feel we may be in for a tough investment environment and a Muddle Through Economy. I think in this type of market cycle it is important to increase your portfolio allocation weighting to noncorrelating investment strategies. I work with Steve Blumenthal and his team at CMG to help investors find managers who can take smaller minimums and who have such alternative strategies. We are creating a platform of managers that you can access for your personal portfolio. I recently completed a special write-up on Eric Leake of Anchor Capital, an investment advisor I am particularly impressed with. For the last 12-1/2 months, he is up 16.77%, in comparison to the S&P 500 index that is down -2.08% (net of fees from April 30, 2007 through May 15, 2008). Equally impressive is that he has generated this return while being uncorrelated to the S&P, and with lower volatility than the market.

You can get this report and others I have written by going to https://cmgfunds.net/public/mauldin_questionnaire.asp and filling out the form. If you are a manager and would like to be considered for the platform, drop a note to PJ Grzywacz at pjg@cmgfunds.net. And if you are an investment advisor and would like to see the managers that are on our platform and determine whether they might fit into your client portfolios, we do have a program to work directly with you.

And as always, if you have a net worth of over $2 million, I strongly suggest you go to www.accreditedinvestor.ws and register there. My partners in the US (Altegris Investments), London (Absolute Return Partners) and South Africa (Plexus) are experts in alternative investment strategies, including hedge funds and commodity funds. We have a very strong selection of funds in a wide variety of styles to help you diversify your portfolio. (In this regard, I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA.) And now, let’s jump into the oil patch.

Those Nasty Index Speculators

Are institutional investors in the form of large commodity index funds the reason behind the current rise not just in oil prices but in the prices of seemingly all commodities? Michael Masters, a long-short hedge fund manager, in testimony before the Congressional Committee on Homeland Security and Governmental Affairs, said:

“You have asked the question ‘Are Institutional Investors contributing to food and energy price inflation?’ And my unequivocal answer is ‘YES.’ In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action.”

You can read the entire testimony at http://www.mcadforums.com/forums/files/michael_masters_written_testimony.pdf, but let’s hear the basics of his argument:

“What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.

“These parties, who I call Index Speculators, allocate a portion of their portfolios to “investments” in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as “Index” Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices – the Standard & Poors – Goldman Sachs Commodity Index and the Dow Jones – AIG Commodity Index.”

These index funds are composed of a number of commodities. While oil is the biggest component of the various funds, they also have exposure to grains, base metals, precious metals, and livestock. When you buy one of these funds you are buying a basket of commodities.

Why would an investor want exposure to a long-only index of commodities? Perhaps for portfolio diversification, as commodities are uncorrelated with the rest of the portfolio, or as a way to play the growing demand for commodities of all sorts from emerging markets, as a hedge against inflation, and so on. Mainline investment consultants began to suggest a few years ago to their clients that they get into the commodity market on a buy and hold basis, just like they do with stocks and bonds.

And they have done so in a very large way. As the chart below shows, at the end of 2003 there was $13 billion in commodity index funds. By March of this year, that amount had grown 20 times, to $260 billion. Masters also shows that this corresponds with the stratospheric rise in commodity prices. In many commodity futures markets, index speculators are now the single largest participant.

Nickel’s woes continued in spades as it struggled to hold the $11 level before giving it up at mid-morning and sliding to a close at $10.5793/lb., down more than 64 cents. Zinc also barely came off its intraday low to end at $0.9503/lb., down more than 3¾ cents. Aluminum showed strength early before it too succumbed to selling that dropped it to $1.3308/lb., down a penny and a quarter, while lead fell precipitously to an intraday low of $0.9139/lb., down almost 5½ cents.

No doubt about it, after yesterday’s selloff it’s clear that traders’ appetite for the industrial metals has all but completely dried up.

The decline was general, as the UBS Bloomberg Constant Maturity Commodity index slumped 0.9, with oil, gold, and coffee all slipping on concern the economy in the U.S. won’t recover anytime soon, slicing into demand.

In terms of copper imports, “April is generally the biggest import month of the year for China,” said Daniel Hynes, an analyst at Merrill Lynch & Co. in London. And although they did rise 1.2% from March to April, the Beijing-based customs office said, shipments declined 31% from the year-earlier period.

Looking for a bright spot, Lehman Brothers analyst Michael Widmer said that, “Imports were lower year-on-year because there was more restocking last year than this, but imports have risen month-on-month … while some market participants expected them to fall.”

Meanwhile, nickel skidded to a two-year low, as it has been in a surplus for the 13 months through March, according to the International Nickel Study Group.

More of the same may be coming. Natixis Commodity Markets predicts that production will outpace demand for a second consecutive year in 2008. Output will increase with today’s opening of BHP Billiton’s Ravensthorpe mine in Western Australia tomorrow. It will produce about 45,000 tons a year, making it the biggest new mine since Voisey’s Bay commenced operations in 2005.

And in company news, Namibia’s biggest zinc producer, Skorpion Zinc declared its Rosh Pinah mine has been in lock-out since Wednesday, following a strike that began May 10. The company declined to comment on the effect of the strike on the mine’s output.

Source: Base Metals Tank Again

Overnight, gold has edged higher in the overseas markets.

Platinum fell as low as $2000 in Hong Kong, but came smartly off that low even though it never made it back to break-even, ending at $2032/oz., down $18. Overnight, platinum has fallen off.

Silver pushed well into the black above $16.80 at the New York open, but then was sold off steadily for the rest of the day, closing at $16.49, down 19 cents. Overnight, silver has been pushing higher.
(Click here for charts)

It was another grind-it-out day for the precious metals, as they struggled to keep their heads above water with both the firm dollar and declining oil moving against them.

The Hightower Report wrote of the day’s tepid action: “The gold market mostly favored the downside in the action on Wednesday which initially seemed to be the direct result of ongoing strength in the US Dollar. However, gold prices did manage to bounce by as much as $6 an ounce off their post report lows with the still mostly Dollar holding in positive ground. The currency trade continues to suggest that a close above the 74.00 level in the June Dollar Index is an extremely critical level and it appears that the gold market is also watching that level as well. In the end, the bull camp in gold might suggest that prices held up relatively well in the face of minor Dollar strength and moderate weakness in oil prices. In fact, a number of physical commodity markets were under pressure Wednesday and even that didn’t seem to add to the initial weakness in gold prices.”

At this point, fundamentals to the contrary, one would have to admit that the bears are pretty much in control.

“There’s no buying interest in gold at the moment,” Matt Zeman, of LaSalle Futures Group in Chicago, stated flatly. And, “The CPI coming in tamer than expected is not going to help,” he added.

And, “I would look for the buck to continue firming,” said Ralph Preston, an analyst at Heritage West Futures in San Diego. “A test of $850 appears to be in the cards for gold on the back of the inflation numbers.”

But on a more upbeat note, Société Générale said in a recent report that while chart analysis shows silver will be little changed to lower during most of May, the price will average $20.25 an ounce in the second quarter. That would be quite a rally.

Source: Precious Metals Slide More

Overnight, gold has slipped slightly lower in the overseas markets.

Platinum fell below $2040 at the New York open, but caught fire from there, moving steadily higher until a slight easing during the Globex, and ending at $2105/oz., up $18. Overnight, platinum has fallen sharply.

Silver enjoyed a steeper rise than gold’s, leaping from a low of $16.70 at the open to nearly $17.30 at noon, before it too slipped in the afternoon hours to close at $17.13, up 34 cents. Overnight, silver has been flat to slightly lower.
(Click here for charts)

A lackluster day for gold was somewhat compensated for by the positive action in platinum and solid strength in silver.

Gold was supported by a falling dollar but undermined by a step back in the crude price juggernaut.

“Gold is watching while the dollar weakens … and is battling to find direction,” wrote Julian Phillips, of GoldForecaster.com, as he expressed disappointment that the market has not responded more strongly to recent record oil prices and to Monday’s skidding dollar.

Additionally, Phillips added, “We are headed into the quiet season for gold [May to the end of August] but at any moment, reports of another systemic fracture in the financial system could liven it up as happened last year when the sub-prime crisis emerged from the shadows.”

“Many of the factors that have supported the bull market for the precious metals remain in place,” say analysts from Natixis Commodity Markets Ltd.

“Inflationary pressures associated in part with the dramatic rise in commodity prices are continuing; uncertainty in the financial markets as the sub-prime crisis continues to unravel remains an issue … [and there is] increasing acceptance of commodities as an asset class,” they said.

Nevertheless, “these positive fundamentals do not necessarily justify a straight progression for precious metals prices,” the Natixis analysts said, adding that they expect prices for gold to average $875 in 2008.

Under that scenario, gold may already have peaked for the year. We doubt that.

According to Business Week, a shocking 80% of the companies in the S&P 500 index watched their market-caps shrink from October through the end the April.

At last count, banks and other financial institutions have written down nearly $320 billion from their books, in a desperate attempt to keep their heads above water. The International Monetary Fund estimates that institutions will write a cool TRILLION off their books before this sub-prime mess finally ends.

And the carnage continues. In just the past week: mortgage lender Fannie Mae posted a US$2 billion loss for the first quarter. Insurance giant American International Group posted a US$7.8 billion loss thanks to a big write down of its derivative holdings (that’s on top of a US$5 billion fourth-quarter loss). Yesterday, Citigroup announced plans to “wind down” about US$400 billion in assets to try to dig itself out of debt. Even Warren Buffett’s beloved Berkshire Hathaway lost a BILLION bucks on derivative investments last quarter.

But few know that while institutions and individuals alike bled funds through these last nine months, a small group of investors quietly reaped the rewards of these unforgiving markets. I can site one particular disparity that bred a much-needed trend change — a change that many were late to recognize.

And while this trend change paid off nicely already — if you were positioned for it — the potential for a second round of gains is quietly approaching. I’ll tell you how to jump on that trend in just a second. But first, let me set the stage…

You Needed a Strong Stomach to
Ride Stocks Last Year

Last year, global stocks experienced quite a rollercoaster ride. Last spring, things were flowing smoothly and markets were shooting higher. Emerging markets were some of the biggest winners, but equities as a whole were sucking up investment capital all over the world.

Then the global credit crunch hit the markets in July 2007. This market shock upset the risk-taking attitude among global traders and shook the life out of stocks.

Since then, the S&P has fallen sharply from its October 2007 highs. Even Chinese stocks, among the largest pre-credit-crunch gainers, are still well off their highs.

The last six months have not been kind to the risk-taking investor class. There have been very few positive developments to support a market rebound. Even still, many stock market participants are holding onto hope in the face of a laundry list of problems.

Too Soon to Raise the White Flag?

But are the warning flags being reined-in prematurely? After all, the risks are not necessarily subsiding:

• Financial firms all over the U.S. and Europe are still struggling to cope with the credit crunch, taking write-offs in the tens of billions of dollars
• Sub-prime mortgage losses and write-downs are expected to grow far larger. Market cuts and bruises are likely to morph into gaping wounds for major lending institutions
• Banks are unable or unwilling to expand lending practices — net losses and ratings downgrades are taking their toll on the banks overall capital

As I said the IMF says institutions will write-down a US$1 trillion from their books before we’re done. Current losses-to-date stand at US$300 billion. So apparently we’re only a third of the way through this mess, I think we can only credit the resiliency of the stock market bulls to the Federal Reserve.

They’ve lowered their Fed funds and discount rates substantially and given investors reason to believe stocks are set to turn back higher, sooner rather than later. It’s a classic case of the “mama-bird-will-save-us” mentality. Investors have expected a hand-fed meal and the Fed is doing what they can to deliver it.

This is One Mess the Fed Can’t Clean Up

Sub-prime mortgage problems in the U.S. morphed into a global credit crisis. And banks got themselves into trouble by investing in what has turned out to be complicated bundles of bad debt tied to sub-prime mortgages. And even though central banks have aimed their focus towards this ultimate concern, they’re dealing with seriously large masses of confusing debt-backed derivatives. And central bank efforts may not be enough to clean up this mess in a timely fashion.

It all started when financial rocket scientists in white lab coats created the most complex investments they could dream up. These irresponsibly contrived investments became known as derivatives.

Turns out, this breed of derivatives act a lot differently in the real world than their creators expected. And now banks are stuck cleaning up losses on investments they don’t understand. The result: Banks have become reluctant to lend money because the need to stockpile extra funds as a sort of “complicated investment insurance” is growing.

Already, hundreds of billions of dollars of bad debt has surfaced on institutions’ balance sheets everywhere. And while the Fed and others have made various efforts, it’s still bad debt and it’s still going to take time to account for the balance of this ill-advised decision making.

It’ll take a while for banks to get back to doing what banks do best — lending money comfortably.

Introducing the Ugly Sister of the FX Markets

Much of last year I focused on a large imbalance that had developed in the foreign exchange market. The British pound had risen substantially to levels well beyond reasonable valuation. And while the pound became exceptionally overvalued versus the U.S. dollar, it was the widening gap between the British pound and the Japanese yen that caught my eye.

As the pound became increasingly overvalued and the yen increasingly undervalued, it became more and more likely that the gap would soon collapse. The agonizing credit crunch became the catalyst that would begin to close this gap.

The chart below compares the British pound to the Japanese yen. Clearly, the British pound has appreciated substantially against the yen over the past seven years. The simple fact that traders and investors shunned low-yielding assets (like the yen) in favor of high-yielding assets (like the pound) explains this major separation.