Reports that China intends to curb excessive investment in a range of industries “hurts the strong global growth outlook and is one of the things moving the dollar today,” said Chuck Butler, president of Everbank World Markets in St. Louis.

Investors tend to buy the dollar and yen as safe havens or unwind trades in higher-yielding assets financed with the U.S. and Japanese currencies when recovery optimism fades.

Two reports offered some encouragement about the health of the U.S. economy. A rise of 9.6 percent in new homes sales in July was the fastest pace in nearly a year.

U.S. durable goods orders also rose in July, but a key measure of business demand — non-defense capital goods, excluding aircraft — fell, reminding investors the economy still faces huge challenges.

Analysts also said traders were using the mixed signals global growth signals to lock in profits booked earlier this week as foreign currencies rose against the dollar.

The euro was last down 0.5 percent at $1.4230 and 0.4 percent at 134.12 yen .

The dollar edged up 0.1 percent to 94.19 yen . Sterling fell to a six-week low against the dollar and was last off 0.8 percent to $1.6215 . The euro hit a 2-1/2-month high against the pound above 88 pence .

High-yielding and commodity-linked currencies such as the Australian dollar also fell after European equities snapped four straight sessions of gains led by commodity stocks.

Some analysts said the recent trend that’s seen the dollar weaken on good economic news may be starting to fade.

“The new home sales data was good, there’s no doubt about it. The question is, are signs that the U.S. economy is starting to bottom good for the U.S. dollar or for other currencies,” said David Watt, senior strategist at RBC Capital Markets in Toronto.

But he also said it will take more evidence that a U.S. recovery is on track to answer this question.

Earlier in the session, the euro got a brief boost after the Munich-based Ifo think-tank’s business climate index rose in July.

Andrew Wilkinson, market strategist at Interactive Brokers in Greenwich, Connecticut, argued that dollar weakness may be a “longer-run certainty,” but it does not seem to fit in the current environment when a global recovery remains shaky.

“We would not be surprised to see more investors throw in the towel on the euro in favor of a dollar that may yet push back below $1.40 before August is through,” he added.

Aug 26 (Reuters)

Spot gold was bid at $925.20 by 1520 GMT after hitting an intra-day low of $922.60, the lowest since June 24. Earlier it hit a high of $944.70.

The precious metal reversed earlier gains when the dollar, which has been under pressure, gained against a basket of currencies after U.S. consumer confidence data.

“Obviously, in these days where everything is linked together, from crude prices to the price of gold, any change to people’s view of the economy and inflation expectations will cause a reaction,” said Ole Hansen, an analyst at Standard Bank.

Adding to the bearish signals for gold prices, crude oil dropped nearly 3 percent.

While investing in gold is usually seen as a hedge against risk, a strengthening dollar makes it relatively more expensive for holders of foreign currencies, weakening its appeal.

“Gold is following the dollar,” said senior trader Michael Kempinski at Commerzbank. “Euro/dollar falling below $1.41 triggered some profit-taking in gold,” he said.

Earlier in the London session, gold slipped after the European Central Bank said gold and gold receivables held by euro zone central banks fell by 96 million euros ($136 million) in the week ending June 26.

INFLATION IN FOCUS?

Matthew Turner, an analyst at VM Group, said gold investors seemed to be focusing more intently on long-term inflation expectations than recession fears, which would strengthen the link between crude and bullion prices.

“But there are no immediate signs of inflation anywhere for now, so investors are looking to the long term, and of course when inflation does start to go up, the price of gold will be rising well ahead of it,” he said.

U.S. gold futures for August delivery dropped by 1.5 percent to $926.90 per ounce on the day.

On the investment front, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings remained at 1,125.74 tonnes as of June 29, unchanged since June 25.

In other precious metals, spot silver was lower at $13.52 against $13.84 on Monday, platinum was unchanged at $247.00.

LONDON, June 30 (Reuters)

Spot gold touched a high of $946.90 in London — last seen in mid-June — up from $938.55 quoted late on Thursday in New York. The metal stood at $946.65 by 1134 GMT.

Global stocks rallied while the dollar fell against a basket of currencies, bolstered by a return to risk-seeking behaviour after remarks by the U.S. Federal Reserve convinced investors that borrowing costs would stay near zero and the debt-buyback programme would continue apace.

The weaker U.S. unit also made dollar-denominated gold cheaper for holders of foreign currencies.

The precious metal, viewed as a potential hedge against inflation, also got a boost from steady oil prices as supply concerns held crude above $70 a barrel.

Analysts said that gold was rallying on the weaker dollar and end-of-quarter deals, despite weak fundamental demand.

“From a fundamental perspective at least, $945 is a very good position for gold to be entering the second half of the year,” said Nick Moore, head of commodity strategy at RBS Global Banking and Markets.

RECOVERY PLAYS

Higher base metal prices, which have soared since the start of the year, could encourage investors to switch out of their holdings in gold to take advantage of higher demand for raw materials ahead of any economic recovery, analysts said.

“I’m concerned there will be more appetite for other things, and gold could get neglected if people want equities, energy and industrial metals,” said Robin Bhar, an analyst at Calyon.

“Next week is a new quarter, which could be associated with fresh investment flows into plays on the recovery,” he added.

Copper prices are up about 60 percent on the year, while aluminium used in transport and packaging is on track for its biggest monthly gain since May 1988.

Inflows into gold-backed exchange-traded funds waned, reflecting weak fundamental demand for gold from retail investors and the jewellery market.

Holdings at the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust , fell 0.5 percent to 1,125.74 tonnes as of June 25, down 5.5 tonnes from the previous business day.

U.S. gold futures for August delivery strengthened to $946.8 an ounce, rising 0.8 percent on the day.

In other precious metals, spot silver firmed to $14.25, against $14.01 quoted late in New York on Wednesday, while platinum climbed to $1,199.00, against $1,186.00 and palladium strengthened to $243.50 from $242.00.

London, June 26 (Reuters)

If you’ve been watching currency exchange rates and yields, you can’t help but notice that world currencies seem locked in a a race to the bottom.

Central banks are slashing interest rates as if they were kudzu. The yen has yielded almost nothing since the 1990s. Then the Feds determined to punish savers for their foresight, thrift and prudence by making dollars yield absolutely nothing. The Brits have followed suit, and even the stodgy folks at the European Central Bank are slashing and burning their interest rates.

Looks like their concerns about inflation have been wrong all along.

Today, the Swiss central bank cut its interest rate close to zero and started buying up foreign currencies to keep the Franken from appreciating too much as deflation looms.

They bought euros and dollars. The Swiss currency dropped as much as 3.2% after the decision. That may sound like nothing to stock investors inured to 5%, 6%, 10% drops by now. But in view of currencies, such rapid devaluation is HUGE.

What does this mean?

The players of the global economy compete mainly on two levels: Cheap labor and cheap currencies. Just as a $8-a-week worker tightening bolts on an assembly line in China is more attractive to manufacturers than a $14-an-hour laborer doing the same job in Jersey, export goods priced in a currency of relatively lesser value are more attractive to international buyers than those that include an exchange-rate premium.

The major players in the global economy understand that… China, Europe, Japan. In times of crisis, they’re letting their currencies become cheaper, slash taxes on exports, and ease labor restrictions.

Unfortunately, the U.S. government still thinks the mechanics of the global economy don’t apply to the new order. Timothy Geithnert opined in January that “a strong dollar is in the interest of the United States” when he won the Senate Finance Committee’s backing to head the U.S. Treasury.

With the competitors out of the gate, we sure hope that the Obama Administration will finish re-arranging the patio furniture before the lights go out…

Source: Currencies: Race to the bottom

I had a front row seat. At the time, I ran a technology-transfer business in Southeast Asia and our central office was in Jakarta, Indonesia.

For a while it looked like the crisis might skirt Indonesia. But it didn’t. And when it hit, it hit with a vengeance. The economy had been expanding at an 8-10 percent clip for several years. Companies were expanding to take advantage of soaring sales. And banks were helping companies expand by giving out loans left and right.

The problem was, those loans were in dollars. That was fine as long as the exchange rate was stable. But the Indonesian Rupiah lost 80-90 percent thanks to the crisis. The cost of converting local currency into dollars to pay back these loans skyrocketed. At the same time, sales plummeted as economic growth screeched to a halt.

The subsequent carnage was inevitable. Companies, including banks, went out of business by the hundreds.

Mind you, these companies weren’t over-leveraged. They had not been engaged in reckless debt-driven expansion. They had not made one wrong-headed business decision after another. They were simply victims of a colossal crisis that struck with lightning speed.

And what was the advice of the IMF and the U.S.? Let them fail … spend less in order to lighten public debt … and remove subsidies.

This was the economic orthodoxy of the time. And it couldn’t contrast more with what we’re doing now: Rescuing banks and companies … increasing our debt … and handing out subsidies to undeserving companies and banks.

My five-star hotel room which used to cost $200 now cost only $60. My meals at Jakarta’s best restaurants set me back less than $10. You could go to a local high-end store and buy the most expensive suit for $40.

Yet none of that matters when your business is going down the drain. One by one, my customers withdrew their orders. Accounts receivable went unpaid. And millions of dollars worth of inventory went undelivered.

I was just one small company. Multiply my plight by the thousands and you get an idea what Indonesia went through. The Philippines, Singapore, Taiwan, Korea, and other countries suffered similar upheavals.

And now it’s happening again to these countries in Asia. Only this time China isn’t escaping the economic turmoil. And it’s happening also in the Middle East, South America, and the subcontinent.

Global stock markets have lost roughly $32 trillion of market value since they peaked in October 2007.

And the countries that were flying the highest back then, have been hit the hardest.

China’s growth engine – exports – has gone away. From a more than 22 percent growth rate in 2008, China’s exports plunged to a negative 2.8-percent rate in December.

The 45,000 factories in China’s major export cities of Dongguan, Shenzhen and Guangzhou were running overtime last year at this time. Now, 15,000 of them have been shut down. And it’s just the beginning. American consumers – their main customers – aren’t in a buying mood.

The Middle East has been hit just as hard. Their markets leaked $2.5 trillion in just the past four months. We were giving them almost a trillion dollars a year for their oil in the greatest wealth transfer the world has ever seen. This year? OPEC should ring up about $440 billion in oil revenue.

Now here’s the thing. Over the past 15 months, the Arab oil countries have been the biggest foreign buyers of U.S. Treasuries. They purchased $245 billion worth.

The next biggest buyer is … yes, you guessed it. China. It bought $233 billion worth.

With the U.S. economy in the dumps, these government bonds aren’t as attractive as they used to be. China has already said they want to diversify away from them, though nobody thinks there will be a wholesale dumping of U.S. bonds.

The U.S. government will be stepping up its issuance of bonds to pay for the bailout’s growing bill. But it’s clear we can’t expect these countries to continue buying our bonds like they have been.

We wouldn’t be facing this dilemma if we chose to follow the advice we gave so freely a decade ago to a dozen Asian countries. Something has to give. The interest offered on these bonds will go up. Or the Fed could step in and start buying bonds. Either or both outcomes point to a further debasing of the U.S. dollar, paving the way for the next inflationary storm. It’s only a matter of time.

Source: Letting the Inflationary Beast Out of the Cage

Copper ended the week on a down note, wrapping up the biggest weekly loss in a month as the strengthening dollar made the metal less attractive to investors holding foreign currencies.

“A firmer dollar appears to be playing a role in base (metals), and with relatively elevated base metals prices, thin trade and no sign of any urgent consumer demand, only renewed US dollar weakness or further production disruptions will keep metal prices supported,” said UBS analyst John Reade.

The reallocation of capital is also playing a clear role, as traders place bets that equities have made their bottom.

“Equity markets are trading in the black this morning as investors increasingly gravitate towards the view that the worst of the financial markets difficulties are behind the main players,” said JP Morgan analyst Michael Jansen.

“A view that the credit market crisis is fading would be broadly U.S. dollar-supportive and help to chip away at the gains made in commodity prices,” Jansen added.

Nevertheless, fundamentals watchers see the bull market running on. “We expect 2008 to be another year of sluggish supply growth,” Barclays Capital analysts wrote yesterday.

And there will inevitably be disruptions such as are now occurring in Chile. State-owned Codelco, the world’s largest producer, has already closed two mines because of strike-related violence, and more closings may follow, the company says.

If “we see a clear risk to people’s lives and safety, we are going to have to halt operations, not just at the request of union leaders but as a management decision,” said Codelco vice-president Daniel Barria.

However, to take one example, big oil still looks cheap. I’m not convinced that oil prices above $100 a barrel will be sustainable for the rest of this year and next, as economic conditions worsen across the globe (though in the long term, peak oil and rising demand may well mean that we one day look back on $100 a barrel as a bargain).

But the truth is that the oil majors’ shares haven’t really risen with the oil price in the past year or so, as they’ve had their own worries. So at these levels, regardless of what happens to the oil price (within reason), both Shell and BP look cheap. The Chinese certainly think so – The Telegraph reports that Beijing has built up a near-1% stake in BP through a sovereign wealth fund.

While the Chinese haven’t exactly shown stupendous judgement (buying Blackstone just as the private equity bubble burst, for example), I wouldn’t want to bet against them on this one.

Turning to the wider markets…

On Friday, the FTSE 100 closed down 63 points at 5,831. Insurer Friends Provident was the main faller after US group JC Flowers said it will pull its proposed offer unless the group enters talks by the end of this week. For a full market report, see: London market report (http://www.moneyweek.com/file/45345/london-close-small-retreat-on-broad-front.html).

Across the Channel, the Paris CAC-40 lost 31 points to end the day at 4,766. And in Frankfurt, the DAX-30 fell 49 points to 6,554.

On Wall Street, US stocks edged lower as the country’s fourth-largest bank Wachovia said it would raise $7bn in capital and cut its dividend sharply, after losing $350m in its first quarter. The Dow Jones slipped 23 points to end at 12,302. The broader S&P 500 fell 4 points, to 1,328, while the tech-heavy Nasdaq slid 14 points to close at 2,275.

In Asia, Japanese stocks headed higher, with the Nikkei 225 closing 73 points higher at 12,990. Trading houses, which generate a large chunk of their profits from commodities trading, headed higher as oil hit a fresh record.

Crude oil was trading at around $112.04 this morning, after hitting a record of $112.48, while Brent spot was trading at $110.06.
Spot gold was trading at around $934 an ounce this morning. Platinum was also higher, at around $2,012, while silver was trading at $17.98.

Turning to forex, sterling was trading at 1.9711 against the dollar, and at 1.2430 against the euro. The dollar was last trading at 0.6308 against the euro and 100.93 against the Japanese yen.

And this morning, Tesco’s full-year results met City forecasts, with an 11% rise in annual profit for the 52 weeks to February 23rd. Like-for-like sales (excluding petrol) were up 3.5%, and up more than 4% in the first five weeks of the new financial year. Chief executive Terry Leahy acknowledged that the tough economy would have an impact on consumer habits, but told Reuters that Tesco tends to “grow market share in this kind of environment”.

Source: http://www.moneyweek.com/file/45379/the-outlook-for-house-prices-is-the-worst-in-30-years.html

And it’s not just in dollars, either.

As the U.S. dollar dropped versus most foreign currencies over the last six years, including the mighty euro, commodities (mostly priced in dollars), have also risen in euro. In fact, commodity prices are rising in ALL of the world’s major currencies. This justifies the bull market.

Commodities Trading: Better than stocks… better than bonds…

And although the broader commodity indices have rallied sharply since 2002, they pale in comparison to some record-breaking individual commodities. These high performers include base metals, precious metals, the energy complex and recently, several soft commodities.

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Since the bear market low of November 2001, crude oil prices have skyrocketed 440% and natural gas has rallied 261%. Copper and lead prices have surged 454% and 352%. Gold bullion has climbed 260%. Silver has gained a cumulative 396% and platinum has surged 407%. Read on to learn more.

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