U.S. crude pricesraced above $71 a barrel, extending a 2 percent gain the day before, after rebel attacks on Nigerian oil facilities disrupted supply. Firmer oil prices supported metal prices, with gold edging above $940 to a one-week high.

Global equities were also in demand, with the MSCI world equity index advancing 0.9 percent and the pan-European FTSEurofirst 300 up 0.2 percent.

The MSCI world equity index is up more than 21 percent this quarter, on track for the biggest quarterly gain in its 20-year history.

“It is clear that the rebound in global equity markets has lost some steam,” Barclays Wealth said in a note.

“It appears to us that stocks are now broadly fairly valued, having erased their previous undervaluation faster than expected. Further share price gains may well relate more closely to the rate of underlying profit growth and the economic cycle.”

U.S. stock index futures were down between 0.2 and 0.3 percent, indicating a softer open on Wall Street.

Tokyo’s Nikkei average added 0.8 percent, shrugging off a record 1.1 percent fall in consumer prices in the year to May — another sign falling demand is pushing the economy deep into its second spell of deflation this decade.

“Most people will agree now that we won’t revisit the low point that we have seen this year any time soon,” said Luc Van Hecka, chief economist at KBC Securities.

“But there are still some problems to be resolved in the financial sector and as long as that is not out of the way in a convincing manner, we could still have intermediate corrections.”

UBS , the world’s largest wealth manager, said it planned to raise about 3.8 billion Swiss francs ($3.46 billion) by selling stock and expected to post a second-quarter net loss. The likelihood of a long road to global economic recovery remained a challenge to companies. Boeing Co , the world’s No. 2 plane-maker, suffered another heavy blow to its Dreamliner project when a major customer, Australia’s Qantas Airways , scrapped and deferred orders for 30 new planes.

DOLLAR SLIPS

The dollar fell against a basket of currencies, extending losses made the previous day after the U.S. Federal Reserve gave no hint of an imminent exit from low interest rates and other bold measures to stoke growth.

The euro was up 0.6 percent against the dollar at $1.4085, while the greenback fell 0.5 percent to the yen.

“Risk sentiment is back in full force,” said Christian Lawrence, currency strategist at RBC Capital Markets. “The dollar is being sold across the board.”

Yields on the benchmark 10-year U.S. Treasury added 2 basis points, while the 10-year euro zone benchmarkbund yield was unchanged at 3.428 percent.

In one measure of how investor sentiment has improved, the CBOE Volatility Index, a gauge of investor anxiety, on Thursday closed at its lowest level since just before Lehman Brothers filed for bankruptcy protection last September.

LONDON, June 26 (Reuters)

The broader markets were of course making year-to-date lows at the same time, and unlike gold stocks, they continued falling after a short intermission. In fact, the Dow fell 2,000 points after Obama was elected. In sharp contrast, the mining stocks went on a tear. Between November ’08 and January ’09, many of our BIG GOLD picks made substantial gains, rising anywhere from 45% to 149%.

This good news isn’t the whole story, of course; many mining stocks saw percentage losses greater than the broader market averages during the Big Selloff. But given the fact that gold stocks started rebounding while the broader markets continued lower, the BIG GOLD portfolio ended the year down 24% while the S&P lost 38%. We were also glad to see our portfolio responded better than the HUI; the broad-based mining index lost 32% on the year. Meanwhile, the demand for physical gold and silver was surging, likely attributed to investors who’d been spooked by the broad meltdown.

We held on to our shares throughout the selloff and advised our readers to do the same – and subsequently watched our stocks rebound mightily. And we fully expect these kinds of surges to repeat as gold pushes higher. Keep in mind that the real mania is yet to come. Once inflation responds to the Federal Reserve’s ongoing monetary foolishness, gold will need a space suit and our miners oxygen masks.

A key point to remember going forward is that gold mining shares constitute a minute fraction of the global equities market, and a small shift in investor interest toward our sector can move gold stocks sharply higher in a big hurry. The market cap of the fifteen largest gold producers in the world — combined — is a paltry $125 billion. That’s barely more than a single company such as General Electric, at $116B; much less than Microsoft ($175B); and waaay less than Exxon Mobil at $400B.

Miners have also had a temporary respite from high energy costs due to the collapse in the price of crude oil. Energy is one of the biggest expenses a miner has to carry. As energy prices came down, the cost of producing gold also declined, fattening the bottom line. Oil is likely to get back to and then beyond $143 per barrel at some point, but not for a while. We doubt it will top $75 this year, which is enormously helpful for our companies.

Recently, gold stocks have outperformed bullion, a trend we’re keeping an eye on and one we’re confident will continue in the future, especially when we see the certain emergence of serious inflation and the dollar resumes its downtrend.

So… what to do now?

What we hope you’ve been doing all along. Our general rules: If you’re already fully committed to this sector, stay the course; you will be well rewarded.

For those with money still to invest, accumulate well-run, sound companies on weakness. Volatility will continue; we expect days and weeks marked by retracement in the prices of even the best companies. The dips will be your buying opportunities. Place below-market bids and let the price come to you. Take positions with half or so of the funds you’ve allotted for this sector, then fill out your portfolio with whatever bargains come your way.

Whether you’re already full-up with gold stocks or are just getting started, you should be well positioned before the all-out mania for gold stocks hits.

The Quandary of Timing

It may surprise some to hear that we are not “all-in” yet with our portfolio. Why? Because our attitude is one of caution, and because we know that our big gains since October could get clawed back, partly or wholly, by another reversal – which would lead to another buying opportunity we wouldn’t want to miss.

But caution can be expensive when the market runs away from you. What if the train has already left the station? In that case, those waiting on a pullback will be disappointed. Just as all below-market bids placed on October 28 of last year went unfilled, so could today’s, or tomorrow’s.

Looking as little as a year out, our money is confidently on our stocks going higher – much higher. We expect the government’s assorted “stimulus” packages to fail to deliver as advertised, and usher in high inflation. This will push gold and gold stocks much higher.

But the question is, if the broader markets head lower, will gold stocks follow them down or ride on gold’s coattails?

That question leaves you in a quandary only if you’re looking at the short term. Or if you get emotional about this stuff. Those with no stomach left after the gut-wrenching selloff into last October probably shouldn’t deviate from the cautious strategy outlined above. If you’re one of those who see the big picture and ignore the gyrations along the way – which is what Doug Casey does – then you’re drawn to the idea of placing a bet when you judge that the odds are in your favor. It’s when you see the price of something is far less than its value that you can have the confidence to load up, whether that’s today or perhaps later this summer.

Whether you buy today or wait in hopes of a pullback, we believe you’ll be looking at profits a year from now. In the big picture, our stocks are still deeply undervalued, even after so many of them have doubled off their lows. But could they retreat again? In a general market pullback, definitely. Could they tread water for a while? Certainly. And could they leave present levels in the dust and double again from here? Absolutely.

There are times when one must put away the crystal ball and simply prepare for more than one scenario. This is one of them. Whether you respond more conservatively or more aggressively, keep your eye on the endgame. We think you’ll be glad you did.

Prudent precious metals strategies for conservative investors – that’s what BIG GOLD is all about. And now that the gold price is going up again, you shouldn’t wait to jump on the bandwagon. Read in our latest report why super-low interest rates mean we could see $1,500/oz gold this year – click here to learn more.

Source: Gold Stocks – the Best Strategy for Portfolio Building

The pan-European FTSEurofirst 300 was down around 1 percent, hitting a lifetime low. Earlier, Japan’s Nikkei ended down just shy of a 26-year.

MSCI’s main world stock index was down 0.2 percent on the day, after having tumbled 4.9 percent on Monday, its worst performance since early December.

Global stocks have been pummelled this year by a left-right combination of poor economic news and continuing travails within banks and the global financial system in general.

The MSCI index is down more than 22 percent on the year so far and has lost around 58 percent of its value since hitting an all-time high in late 2007.

The Nikkei ended down 0.7 percent. The benchmark hovered just short of a 26-year low amid worries about the U.S. financial system. The broader Topix slipped 1.1 percent to 726.80, its lowest close since December 1983.

Gargantuan losses on world stock markets, however, are piquing the interest of investors who see value appearing and the potential for at least a short-term reversal.

“Stocks do appear to be oversold at current levels, meaning there is a possibility for a near-term and significant rally,” Bob Doll, chief investment officer for global equities at BlackRock, said in a note.

But he added: “The downside risks remain troubling.”

WAIT AND SEE

The dollar weakened as traders bought the euro and other relatively higher-yielding currencies after the Reserve Bank of Australia unexpectedly left interest rates on hold.

But activity was subdued as investors took a wait-and-see stance over the financial system and deepening global recession.

The dollar index, a gauge of its strength against a basket of six other major currencies, hit a three-year high in overnight trade as investors sought shelter in the world’s most liquid currency. It was down 0.5 percent on Tuesday.

The euro rose 0.4 percent from late U.S. trade to $1.2629 , recovering losses suffered in the wake of European Union leaders’ rejection of a mass bailout for eastern Europe, which weighed on the single currency the previous day. Euro zone government bond yields pushed higher.

The interest rate-sensitive two-year Schatz yield was up 2 basis points at 1.227 percent. It remained within orbit of a euro lifetime low 1.15 percent struck on Feb. 18.

The 10-year Bund yield was up 3 basis points at 3.061 percent. Bond yields move inversely with prices.

REUTERS (March 3, 2009)

The U.S. dollar fell to two-month lows against the euro and a basket of currencies on Monday, pressured by uncertainty over the fate of U.S. automakers and reduced safe-haven flows.

The dollar was starting to respond negatively to concerns about further weakness in the U.S. economy, analysts said, after a run of weak data caused an exodus from risky positions and increased flight-to-quality buying in the currency.

Investors shunned the greenback amid fears a failure of one or more of the automakers could exacerbate a year-long recession and drag down other companies.

“The uncertain outlook for the U.S. automakers continues to keep investors wary of over exposure to the dollar at this point,” said Omer Esiner, senior market analyst at Ruesch International in Washington.

“We’re starting to see a shift in the market where negative data is starting to actually impact the dollar negatively, which is contrary to what we’ve seen for the better part of the last couple of months,” he added. “We’re seeing a naturally weaker dollar as we get into the year end, so bad news is only exacerbating the need for investors to just exit their long dollar positions.”

In early New York trading, the euro was up 1.5 percent at $1.3570 , after climbing as high as $1.3584, the highest level since Oct. 15, according to Reuters data.

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, hit a low of 82.517, the weakest level since Oct. 20. It last traded down 1.3 percent at 82.606.

A more upbeat tone in the global equities market also helped ease extreme risk aversion, reducing the greenback’s safe-haven appeal and boosting demand for higher-yielding currencies.

The Australian dollar rose 1.1 percent and the New Zealand dollar was up 1.5 percent .

Against the yen, the dollar fell 0.9 percent to 90.31 , after hitting a more than 13-year high of 88.10 yen on Friday. But yen gains were capped on speculation that Japanese authorities could intervene to stem further currency strength.

BAILOUT IN FOCUS

The White House said on Friday it was considering tapping a $700 billion financial industry bailout fund to prevent a collapse of ailing U.S. automakers. That came after the U.S. Senate on Thursday rejected a bailout plan to avert a possible bankruptcy by one or more of the nation’s three automakers.

But U.S. President George W. Bush said on Monday an announcement on a car industry rescue was not imminent, leaving the industry’s fate clouded.

Investors also awaited the outcome of a policy meeting by the Federal Reserve on Tuesday to see how close to zero the U.S. central bank will cut interest rates and what alternative measures it will take to boost the economy. The Fed is widely expected to cut rates by at least 50 basis points from the current 1 percent.

“What the Fed says will likely overshadow its rate move,” currency strategists at Brown Brothers Harriman, wrote in a research note. “Many investors are looking for insight into where the Fed anticipates ending the rate cuts and what other non-traditional steps will the Fed adopt.”

Wanfeng Zhou
NEW YORK, Dec 15 (Reuters)

Gold rose more than 2 percent in Europe on Monday as the dollar slipped to a fresh two-month low versus the euro, boosting interest in the precious metal as a currency hedge.

Gold was held below $830 an ounce for much of the day by technical resistance, but stops were triggered as the rising euro pushed prices higher, leading to a spike to a two-month high of $842.15 an ounce.

Spot gold was quoted at $840.05/842.05 an ounce at 1533 GMT, against $819.90 an ounce in New York late on Friday.

Traders are awaiting an announcement on interest rates from the U.S. Federal Reserve on Tuesday, which will have a significant impact on the foreign exchange market, and consequently on gold.

“On the currency side, the high yield has been dragging euro higher,” said Pradeep Unni, a senior analyst at Richcomm Global Services.

“If the Fed slashes rates again, the yield differentials between the euro zone and Fed would widen further.” The dollar slipped against both the yen and the euro, striking a two-month low against the single currency as traders continued to exit long dollar positions, spooked by uncertainty over the fate of U.S. automakers.

Gold tends to track the euro/dollar exchange rate closely, as it is often bought as an alternative investment to the U.S. currency and tends to move in the opposite direction to it.

The Federal Reserve is widely seen cutting rates by at least 50 basis points on Tuesday after the Federal Open Market Committee’s two-day policy meeting concludes.

“Everyone is banking on a lower interest rate in the U.S.,” said Afshin Nabavi, head of trading at MKS Finance in Geneva. “If the dollar continues to lose value, of course it will benefit gold.”

Oil, the other key external driver of gold, rose nearly 7 percent to $50 a barrel in afternoon trade. Crude prices have been boosted by expectations for a cut in OPEC production later this week.

EQUITIES SLIP

However, equity markets have shed gains, with European shares turning negative in the early afternoon after a lower opening on Wall Street.

U.S. stocks retreated as shares of big-cap tech companies declined while uncertainty over the fate of a possible rescue plan for ailing carmakers also weighed.

Among other precious metals, spot silver tracked gold higher to $10.51/10.59 an ounce, against $10.23 in New York late on Friday.

The platinum group metals benefited from hopes for a bail-out of the U.S. automotive industry. Carmakers are major buyers of PGMs and weakness in the sector has pushed prices sharply lower in recent months.

Major platinum producer Aquarius Platinum said on Monday it will keep its Everest mine in South Africa closed for at least six months.

“A six-month closure would result in 38,000 ounces of lost platinum output and 19,000 ounces of lost palladium output, less than 1 percent of global production of both metals,” said Barclays Capital.

“However, for now the market focus remains firmly centered on demand weakness, which is likely to expose prices to downside risk,” it added.

Spot platinum climbed to $833.50/853.50 an ounce from $805.50 an ounce, while palladium surged to a high of $178, before easing to $173.50/181.50 an ounce, up from $168 late on Friday.

Dollar weakens to two-month low versus euro… Oil climbs nearly 7 percent; OPEC supply cut expected

Jan Harvey
LONDON, Dec 15 (Reuters)

The dollar rose against the euro on thin trade on Friday, as weak equities markets and fears of a deepening global recession led investors to seek the U.S. currency as a haven.

Worries about consumer spending helped weigh on U.S. and European shares, while the low-yielding yen gained ground.

Extreme risk aversion and repatriation flows have been supporting the U.S. currency recently.

The euro weakened against the yen and sterling on growing expectations that slowing euro zone inflation may lead the European Central Bank to cut interest rates more aggressively next week from the current benchmark rate of 3.25 percent.

Trading volumes were lower than usual as U.S. markets reopened for only half a day after Thanksgiving Holiday.

“Trading is very thin, with the dollar getting support from a drop in global equities and fear the start of this shopping season is going to be really bad,” said Greg Salvaggio, a currency trader at Tempus Consulting in Washington D.C. “Euro/dollar is going to be stuck in a narrow trading range between 1.26 and 1.30 for now.”

In mid-morning trading in New York, the euro was 1.1 percent lower at $1.2746 , while the dollar was up 0.7 percent against a basket of six currencies at 86.378.

Some traders also mentioned sizable month-end dollar buy-orders at the London (1600 GMT) currency fixing was adding support to the U.S. unit.

Political jitters may also have helped the dollar after militants killed more than 100 people in Mumbai, India’s financial center, in coordinated attacks.

“It’s another ‘negative’ looming in the markets,” said Salvaggio. “It may also be giving a bit of a lift to Treasuries and the dollar this morning.”

Looking ahead to next week, markets were bracing for interest rate decisions by several central banks next week, including the Bank of England, the ECB, the Reserve Bank of Australia and the Reserve Bank of New Zealand.

Provisional figures showed euro-zone annual inflation slowed to 2.1 percent in November from 3.2 percent in October.

“The ECB seems to be lagging behind the curve. Now that the region has officially hit a recession, it is possible that they will be more aggressive in easing rates,” said Kathy Lien, director for currency research at GFT Forex in New York.

“The only factor holding them back is inflation pressures. Although producer and consumer prices have been easing, the central bank is not entirely convinced that the upside risks to prices have alleviated,” she added.

The euro dropped 1.2 percent to 121.58 yen , while the dollar was little changed at 95.42 yen .

For the UK, economists polled by Reuters on Thursday expect the BoE will follow up November’s 150 basis point interest rate cut with at least a 50 point reduction when it meets next week.

“The Bank of England has been the most aggressive and proactive of the G-10 central banks in their attempts to ease monetary policy,” Lien said. “With the economy in a recession according to UK officials, interest rates could fall as low as 1 percent if the crisis continues well into the New Year.

By Vivianne Rodrigues
NEW YORK, Nov 28 (Reuters)

Right? Well, fact is, the action has actually been greatly muted if we allow for the shocking volatility in gold’s No.1 competitor for “safe haven” funds, the almighty US Dollar.

You see, like so much else, the market action just described only sets Gold in terms of the greenback (against which it has still tripled since July 1999).

Versus pretty much every other world currency, in contrast, gold in fact enjoyed a banner month this October – delivering gut-wrenching volatility plus new record highs – starting right here in London, home to the world’s $60 billion-a-day trade in wholesale Gold Bullion Bars (a.k.a. the “spot market”).

Mid-month, gold also leapt to new record highs for Australian, Canadian, Danish, Estonian, Hong Kong, Hungarian, Icelandic, New Zealand, Norwegian, South African, South Korean, Swedish, Turkish and Russian investors.

Oh, and the 350 million souls in the Eurozone. Plus the 1.1 billion people of India.

Prices of gold have of course slipped back – and sharply – against all major currencies since reaching €685 an ounce for European investors and savers on Oct. 10th. (That marked a near-tripling from the low of Jan. 2000.) In the spot market, gold’s now trading almost 13% lower as the month-end draws near.

And notable by its absence from the rogues’ gallery of fast-sinking currency zones listed above is the Chinese Yuan, as well. More spectacularly, the world-destroying Japanese Yen has squashed the prices of gold since turning sharply higher against everything – real estate, global equities, emerging-market debt, even the Tokyo Nikkei – in mid-July.

But if we really are witnessing a global currency crisis led by the destructive reversal of the Yen Carry Trade (and it certainly looks like it from inside a wallet of Sterling or Ne Zealand Dollars, let alone Forints or Krona), then just what kind of fight is gold putting up as the apparent “ultimate” safe-guard against currency shocks?

Regular visitors to this site may recall a chart we offered in August this year, a chart showing the Prices of gold in terms of the world’s top 10 currencies by economic output. It’s not perfect; the GDP weightings for 2008 will need revising, perhaps, when this year’s full-year data becomes available early next year.

But as a measure of truly globalized gold price, it both softens the US Dollar’s long slide of 2002-2008 on the currency markets, as well as tempering this month’s intemperate highs in gold bullion vs. the Aussie, Loonie, HK Dollar, Forint, Kiwi, Krone, Rand, Won, Lira, Ruble, Euro, Pound Sterling, Rupee and various Kronas.

You can’t help but spot the volatility – otherwise known as “My gold just crapped out!”

The way “quant jocks” figure the violence in asset prices, in fact, the daily volatility in this global gold price has more than doubled since August to a three-decade record.

You might also note, however, that gold really has risen sharply against all major world currencies so far this decade, not just the US Dollar. And no one should imagine it will be an easy ride – whether up or down – from here.

There’s too much at stake when you try to measure that $60 billion daily turnover in physical gold against the $3.2 trillion daily turnover in official government currencies.

Adrian Ash
for The Daily Reckoning Australia

Source: Prices of Gold in the Top 10 World Currencies

This is a remarkable read and re-enforces my view that we are in a “sell in May and go away” summer. This is really a great Outside the Box. Enjoy.

Joining the dark side

It never ceases to amaze me that whenever a major corporate declines the short sellers are suddenly painted as financial equivalents of psychopaths. This is madness, rather than examining the exceptionally poor (and sometimes criminal) decisions that the corporate itself took, the short sellers are hauled over the coals.

As the New York Times recently reminded us, vilifying short sellers is nothing new.

In the days when square-rigged galleons plied the spice route to the East, the Dutch outlawed a band of rebels that they feared might plunder their new-found riches.

The troublemakers were neither Barbary pirates nor Spanish spies — they were certain traders on the stock exchange in Amsterdam. Their offence: shorting the shares of the Dutch East India Company, purportedly the first company in the world to issue stock.

Short sellers, who sell assets like stocks in the hope that the price will fall, have been reviled ever since. England banned them for much of the 18th and 19th centuries. Napoleon deemed them enemies of the state. And Germany’s last Kaiser enlisted them to attack American markets (or so some Americans feared).

Jenny Anderson, NY Times, 30 April 2008

Last week, Albert Edwards took our equity weighting down to its minimum (see Global Strategy Weekly, 8 May 2008), and my own bottom-up valuation work finds little opportunity for investment at the moment (see Mind Matters, 28 January 2008). This suggests to me the main opportunities may lie on the short side in the current market. So I guess I am joining the ranks of the dark side!

This remains anathema to analysts. As the chart below shows the percentage of sell recommendations remains pathetically low. Indeed, the other day my head of research showed me the second chart below showing that SG had the highest percentage of sells amongst investment banks – it makes a pleasant change to see SG at the top of a list on a positive note!

All of this got me to thinking about how to identify potential short candidates. In keeping with my first note for SG (on limited information – see Mind Matters 3 December 2007, I want to focus on just a few key measures that stand out to me as sources of poor underperformance.

Valuation

Most obviously (and unsurprisingly given my value bias) one of my primary sources of underperformance has to be high valuation. There are myriad methods of valuing a stock, of course. However, from the perspective of a short seller, one of the most useful is price-to-sales.

Focusing upon high price-to-sales stocks allows us to hone in on story stocks – those stocks that have lost all touch with reality. During periods of investor enthusiasm there is often a marked tendency to move up the income statement in order to try and keep valuation multiples ‘low’. Indeed during the dotcom years, things were valued on measures such as average revenue per user, clicks and eyeballs!

But then stock markets don’t deal in the present. They are “the great expectation machine” as one author had it. They look as far ahead as they can and try to picture how it will look. Evidently, they see an improving picture later in the year. Sounds encouraging, though as with all forecasts it could prove dead wrong. Much as the Met Office produces long-range weather forecasts using the latest technology which also can go hopelessly awry. Even their short term forecasting can be a disaster for those of us who remember Michael Fish dismissing the wild notion of a hurricane one fateful evening in October ’87.

What financial markets spy in the distance and what the rest of us experience day to day are two different things, of course. Warren Buffett thinks the US recession will be longer and deeper than most expect as consumers struggle with a wealth squeeze from falling house prices coupled with higher expenses from fuel and food prices. The Fed lopped another 25 basis points off the Fed funds rate as new data reveals the US grew in the fourth quarter of last year, but not by much. US interest rates now sit at 2%, about half the rate of inflation.

Recommended

Grab an easy £550 – £1,100 every single week.

Become a part-time Forex profit raider – in no time: in fact within 30 days you’ll be trading an average weekly income of £550 – £1,100, depending on what you stake. That’s between £28,600 and £57,200 per year tax free!

Terry Hodgkinson piled up £1,455 in his first week using stakes no higher than £5…

How much will you make?

Click here to find out more

_______________________________________________________________________________________

Recession is not the central forecast for most analysts of the UK economy but the signs of deterioration continue apace. Most visibly in the housing market, a powerful symbol in our home owning culture, which continues to weaken. British bank HBOS is the latest to report house prices are falling – by 3.7% over the year to April.

Easing commodity prices if sustained will be welcomed by the world’s central bankers. It takes some of the “push” out of “cost-push” inflation – where higher input costs force higher prices – and opens up more wiggle room for further easing in interest rates. The impact of relentless price increases showed up once again in the latest UK factory gate prices this week.

Manufacturers have been paying more for raw materials and charging higher prices on finished goods.Given a slowing global economy, commodity prices should ease up as aggregate demand turns down. But then there’s the elephant in the room in the shape of China. As such a sustained easing of commodity is probably a big ask, at the very least until after the closing ceremony at the Beijing Olympics this summer.

The dollar has rallied from its recent low against the euro. A euro now buys $1.54 against a recent low of $1.60. As for the pound, it buys you a satisfactory $1.98 if you’re flying west and a miserly €1.28 if you’re flying east.

Our currency of choice, gold, has had a tough week down around $90 since its mid-April high. Is it over for gold? Not in our book. The inflation-adjusted high is more than twice its current level and when central banks are done reflating the global economy, we suspect it could go a lot higher yet.

Enjoy your week-end.

Regards,

Rob Mackrill
The Daily Reckoning

London ’s leading index headed straight up at the open adding 69 points at the open to 6,156 following a good day on Wall St. yesterday.

The Dow put on 189 points to close above 13,000 for the first time since the start of the year – no doubt a significant closing level for technical analysts. The gain came as financial stocks made the running and in spite of ExxonMobil shedding 3.6%. Exxon is struggling to up production reports the FT as it falls victim to resource nationalism. African production fell 20% after it was forced to hand over more to host governments and its Venezuelan interests were nationalised.

Continues below …

FLEET STREET LETTER ALERT

3 “Gloom-Loving Stocks” for the Coming Recession

Dark clouds are gathering over the UK economy.

But for contrarian-minded investors, this spells opportunity.

The Fleet Street Letter has just been given permission to share three such money moves with you today.

You can read the full briefing here

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

The bounce in US stocks reverberated around the time zones. The Nikkei was up over 2% to close above 14,000 and China’s leading index, the Shanghai Composite added almost 5% as it breaks out from a six month downtrend. European bourses are up across the board this morning.

So is it over? Or is this premature as the IHT suggests? Stock markets are forward looking by six months or so, so are presumable focused somewhere on the end of this year and the bulls see something better out there. But lest we get too carried away the world can look very different at street level. It was only on Monday that Warren Buffett was warning “ my general feeling is that the recession will be longer and deeper than most people think. This will not be short and shallow. I think consumers are feeling gas and food prices and not feeling they’ve got a lot of money for other things.”

Except perhaps for the one off “tax rebate” cheque sent to US taxpayers in the post this week. But some relief is coming too from a sector that of late has been a chronic thorn in the side of central bank inflation targets – the commodities market. Commodity prices have been falling of late across the board – energy, industrial and precious metals and agricultural commodities. The price of crude is down for a fourth day running with Brent Crude at $110 and West Texas light sweet crude a shade under $112. Lehman Bros said recently there was $20-30 of “hot money” in the crude price.

Why the pull back? It’s all about the dollar says commodity strategist, David Moore of Commonwealth Bank in Australia:

“The demand for investing in commodities as a hedge for U.S. dollar weakness has faded.”

Which gives us a clue as to the nature of the demand. There’s actual physical demand for commodities according to their use and then there’s more speculative investment demand. With the revival of interest in the sector, how much of the price is attributed to each? We don’t know but given the rapid rise in popularity of the commodity exchange-traded fund, we suspect the balance has tilted significantly in recent years towards the speculator.

That fading interest in hedging has helped the dollar claw itself back from a low point at 1.60 to the euro, to 1.54 now. When even central bankers are telling the market it’s not so bad, investors worries are starting to subside. Says Japanese fund manager Tetsu Emori:

“Worries about the financial market turmoil and even an economic slowdown seem to be softening, so that’s why people are selling gold.”

As such gold continues its slide south, at one point unwinding all the way to its $850 price at the start of the year. Just as the dollar stages something of a rally, the Gulf States may finally be coming to the conclusion that pegging to it is not after all such a good idea as dollar weakness adds to their domestic inflation problems. Something even Alan Greenspan actually advised them to do on a visit to the region. Kuwait has been the only one to drop its peg to date and has seen its currency appreciate almost 8% against the dollar since. Its Finance Minister Mustafa al-Shimali seems confident other Gulf Cooperation Council states will follow its lead – “some countries will do what we are doing.”

Here at home, the winds of political change look to have blown pretty hard yesterday. UK government worries about taking a pasting from the electorate in the local elections proved well founded. They did – their worst result for 40 years. With the Mayoral vote still pending, it could prove a very black day for New Labour. Still after 11 years in government you take some wear and tear, mistakes are made, support disintegrates, people get disillusioned or just fed up with the same old faces.

And it doesn’t help when the much touted UK economic miracle that has notched up 60 consecutive quarters of growth is looking a good deal less miraculous. The progressive puncturing of inflated house prices, aided and abetted by a mortgage famine is exposing gradually testing the debt-laden underbelly of once enthusiastic consumers. British bank HBOS announced house prices fell by 3.7% annualised over the year to April. It is the worst housing market performance since 1993 and comes on top of a controversial scrapping of the 10% starter tax rate. Who’s to blame? The government, of course. Much to the delight of the Tories for whom the ERM debacle is now but a fading memory.

Regards,

Rob Mackrill
The Daily Reckoning

Be the first to comment on this article! Now you can post your thoughts, reactions and views on the topics we talk about.
To comment, click here.