From there, prices rose sharply until they got flatlined on the Comex open. Then once the London p.m. fix was in for gold…10 a.m. NY time…both metals really took off. The happiness ended as soon as London closed for the day and the New York boyz had the metals to themselves. The precious metals rally was aided and abetted by a falling US$…and the shares were on fire yesterday.

On Wednesday, gold open interest rose 2,000 contracts and silver o.i. fell 1,956 contracts. The Commitment of Traders will be out later this afternoon. I hope it adds some clarity to the whole situation. I’ll report on it tomorrow morning.

I noted in a Reuters story that “Gold sales by signatories of the Central Bank Gold Agreement could be the lowest since the pact was signed in 1999, the World Gold Council said on Wednesday….Around 319 tonnes of gold have been sold so far by the European central banks that signed the agreement, out of a quota of 500 tonnes allowed in each year…Standard Chartered (LON:STAN) metals analyst Daniel Smith said the low rate of sales demonstrates the importance of gold for central banks as part of their overall reserves.” I wouldn’t be surprised if no gold was sold in the 2009 CBGA agreement that starts on September 27, 2008. Let’s see what they announce next month.

And in another Reuters story…”U.S. consumers should brace for the biggest increase in food prices in nearly 20 years in 2008 and even more pain next year due to surging meat and produce prices, the Agriculture Department said on Wednesday. Food prices are forecast to rise by 5 percent to 6 percent this year, making it the largest annual increase since 1990.”

Talking about inflation, here’s a graph of what the US government is reporting as the CPI…and what John Williams over at ShadowStats.com says it really is. My guess is that John’s numbers are far closer to reality.

The first story today is from Ambrose Evans-Pritchard from The Telegraph in London. The European Central bank is beyond alarmed at the number of banks that are totally “addicted to the liquidity window in Frankfurt.” This is well worth the read and is entitled “Bank borrowing from ECB is out of control”. The link is here.

In today’s second story, The Wall Street Journal published a longish article about the US Mint’s gold coin shortage and actually mentions GATA (Gold Anti-Trust Action Committee, Inc.) at the end of the article. The WSJ story is entitled “The Eagle Has Been Grounded”…and it nearly goes without saying that I think the article is worth the read. The link to the GATA dispatch is here.

The last two days of positive closes on the Dow had the fingerprints of Hank and his ‘merry men’ all over them. Fridays can get pretty ugly. With the Dow not penetrating the 50-day moving average on either Wednesday or Thursday, this rally looks stalled to me. We’ll find out soon enough.

Have a good Friday, and all of us at Casey’s Daily Resource Plus look forward to seeing you on Saturday.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Friday, August 22nd, 2008

Hedge fund manager Crispin Odey has paid himself £28m after his hedge fund made £55m from betting against the sector. And well done to him. After all, plenty of banking executives got hefty bonuses last year for losing money, so people can hardly complain when someone gets a bonus for actually doing his job competently.

Now Mr Odey was apparently a bit early in his call. “We had a very average 2006 because he was positioned and it wasn’t working yet,” Odey Asset Management chief executive David Stewart told The Telegraph.

But it shows that it’s not true that no one saw the credit crunch coming. Sure, we may not have known exactly how the blow-up would manifest itself. But it was obvious to many people in the City and on Wall Street that something had to give.

The bad news for the banks is that it seems Mr Odey reckons there’s still a lot of money to be made from betting against them

There is more weakness ahead for the banks

Sources “close to” Odey Asset Management tell The Telegraph that “we can see why there might be a rally [in banking stocks] in the short term, but in the longer term we see more weakness ahead. Banks will need a lot more capital.”

It is certainly going to be tough out there. HSBC (LON:HSBA), one of the most resilient banks of the past year, reported more write downs yesterday (see: Why there’s more bad news to come from the banks for more). But perhaps the most worrying aspect of its results statement was its warning on the outlook for Asia.

Banks with emerging market exposure have been seen as sheltered from much of the carnage. But as HSBC chairman Stephen Green put it: “I don’t believe the emerging markets have completely decoupled. There is no way a serious downturn in the US will leave Asia immune.”

The group still expects the region to grow, but “with less momentum than in the recent past.” Profits at its Hong Kong unit fell 8% to $3.1bn, where “it is apparent that corporate activity in some sectors is slowing.”

Read the full article

Source: There’s Still Money to Be Made from Banks

Dragged down by the service sector, the fading heartbeat of UK PLC, our national growth slowed to a miserly 0.3% for the first three months of the year. Don’t hold your breath for a turnaround as forecasts for the rest of the year have raised the odds of recession.

And, it’s not just growth. Inflation, pushed by food and oil prices — two things that the government can do little to counter — is also on the up. It presents a very grim reality…

The UK is in stagflation, a rare disorder where people are no richer but prices rise anyway. On the foreign exchange markets things are no better, with the pound carving out a role as “the whipping boy of international currency markets,” as John Authers neatly puts it.

“But the pound is strong against the US dollar.”

Get over it!

Barring Zimbabwean dollars, you’d be hard pressed to find a currency that wasn’t strong against the US. On a trade-weighted basis, the pound is deteriorating. This is a very problematic situation for consumers and for the economy, but it is not universally bad news.

In fact, some well placed investments — away from the risky foreign exchange market — will actually help you take advantage of sterling’s slide.

To understand this, think about multinational businesses.

Exchange rate risk is a problem for these firms. Fluctuations in exchange rates can wildly affect costs. If the value of the base currency goes down, all associated costs go up… the cost of foreign purchases rise and cost of foreign wages rise.

However, this is only one side of the coin.

Many companies actually profit from their foreign currency exposure, and with the help of a forthcoming special report from the Fleet Street Letter’s investment team, it’s a trend we can safely play from the UK markets…

Successful breeds success

Investing in firms that profit abroad provides crucial diversification to a portfolio. The argument was laid out in Friday’s research note:

“These companies have managed to actually grow their profit margins at a time when the UK, the country they are listed in, dwindled. That is because they boast significant operations with increasing customer bases in these [foreign markets].”

But wait, there’s more!

Not only does a savvy investor get the benefit of a ravenous foreign customer base but they get the knock-on effect of investing in a country with a strengthening currency.

Selling a constant amount of products to Brazil creates more and more money if the Brazilian real strengthens or the pound weakens. As Brazilian profits are eventually converted back to the base currency, the firm can lock in a profit that has nothing to do with an increase in sales.

And this is exactly what happened to British American Tobacco (LON: BATS) last month.

The cigarette giant is active in 180 markets and over the past 12 months, most of these markets’ currencies gained against the pound. As a result “currency swings” added £54m to operating profit… more than a third of overall profit growth!

Burberry (LON: BRBY), Inchcape (LON: INCH) and Standard Chartered (LON: STAN) are other such examples of UK stocks that have made sterling’s slide work for them… but looking long-term, which regions are going to continue to gain against the pound.

As with so many other investment questions, the answer is emerging markets.

Emerging market currencies lead the way

Currencies are priced in pairs. In order for the pound to fall against a foreign currency one of following has to happen.

1. Trader sentiment towards the UK worsens and traders sell pounds.
2. Trader sentiment towards the foreign country improves and traders buy foreign currency.
3. Both 1 and 2 happen.

We are seeing the third case here with sentiment toward the UK falling and towards emerging markets improving. But how can that be so when you look at inflation, a major determinant of exchange rates?

Inflation in emerging markets is even higher than in the UK… 7.1% versus 4% according to the OECD. So why is the pound flagging? Well, there’s more to currencies than just inflation.

Emerging markets top the global growth and global surplus rankings. To take China as a case in point, China boasts the world’s largest trade surplus, the government budget is in the black and GDP growth estimates for the year average around 9.6%.

By way of comparison, the UK is deep in the red, on the verge of recession and money is leaving the country faster than it ever came in.

This demonstrates that a bet against sterling is a good idea in most directions, just don’t look at America, they’re even worse than we are.

Theo Casey

Source: Sterling’s Demise Good News for Blue Chips