Platinum bottomed below $1210 late in far East trading, moved slowly higher to mid-morning, then really took off and hung onto its gains, ending at its intraday high of $1239, up $30. Overnight, platinum is trending higher.

Silver also hit its nadir in Hong Kong, at $15.45, then was off like a shot, soaring to $16 in the late morning, sold off until just past the noon hour, but then caught a second wind that carried it back over most of the lost ground as it closed at $15.96, up 37 cents. Overnight, silver has edged higher. (Click here for charts)

A banner day for platinum and silver, but only a modestly higher one for gold, which was probably disappointing since the dollar continued to fall, oil erased nearly all of its early losses, and the equities rally stalled out. The two silvery metals undoubtedly continued to benefit from their dual natures, with some looking at investment potential and others dreaming of an industrial pickup.

Gold traders are caught on a seesaw between the metal’s declining status as a safe haven if the economy really does improve, and the inflation that that improvement will likely drag in its wake.

“The week is likely to be dominated by further developments on the currency market, with the rally possibly slowing down if the dollar holds above 79-78.5” as tracked by the U.S. Dollar index, wrote Andrey Kryuchenkov, an analyst at VTB Capital in London. The index fell as low as 78.393 yesterday.

In a technician’s view, gold “is now testing $988 resistance,” wrote Andrew Chaveriat, of BNP Paribas in New York. “If broken, next resistance is at $1,006.”

The wild card here could be geopolitical tensions, with North Korea at the head of the list. Pyongyang is clearly testing the young American president, to see how he responds to increasingly bellicose actions.

And those who placed bets that the gold/silver ratio had risen too far have been well rewarded. An ounce of gold now buys about 61.5 ounces of silver, the lowest ratio since September. That compares with almost 84.4 in October, the highest since March 1995. That reflects their respective spot price performances, with gold up 11% so far this year vs. 37% for silver.

Source: Gold Shines, but Silver, Platinum Soar

Nickel was flat until early New York trading, then took off, blasting past the $6 mark to close at $6.0267/lb., up almost 30 cents. Zinc was modestly lower at $0.6674/lb., down two-thirds of a cent. Aluminum edged higher, ending at $0.6426/lb., up nearly a half-cent, while lead added two-thirds of a cent, to $0.6428/lb.

Copper led the charge higher, as the big jump in consumer sentiment caused the market mood to turn on a dime. Earlier in the day, the metals had fallen, as the dollar strengthened and investors were worrying that world economies could take longer than expected to recover, driving down demand.

The U.S. Dollar Index, tracking the strength of the buck against 6 other currencies, was up nearly 1%. And that reduces the appeal of commodities as a hedge against inflation.

Overall, Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey, waxed enthusiastic, saying that, “This [report] is very positive, better than expected. I was looking for positive, but this is very solid. This is going to arrest any erosion we’ve seen in the (stock market) rally.”

Kenny added that, “This comes on top of the fairly negative home pricing number, but what comes out on top in terms of momentum is consumer confidence. It’s more relevant and closer to real time. Housing is more backward-looking.”

Stockpile data was supportive, as well. Copper inventories monitored by the LME declined 6,800 metric tons yesterday, to 326,575 tons.

However, some analysts have turned cautious, citing concerns about falling levels of canceled copper warrants, and some indications of slowing demand from China, the world’s leading copper consumer.

Canceled warrants of copper — material earmarked for delivery — fell to 47,625 metric tons from 52,875 tons on May 21 while, according to Bloomberg, “Reuters reported that China’s State Reserves Bureau sold copper in the past month and may put as much as 50,000 metric tons on the market, citing industry sources that said they were offered some of the metal.”

Source: Base Metals Mostly Higher

Front and center to talk about this morning, was the Jobs Jamboree… The mass media would have you believe that the recession has ended, and there are no longer any problems with the credit markets, and liquidity, not to mention the sorry state of financial institutions… Why? Because after the previous month’s job losses were revised up from 663,000 to 699,000 (nobody cared about that!) the April figures came in at, according to the media, “just” 539,000… YAHOO! Let’s have a party, according to what I kept seeing on the TV!

Well… Before we go and buy the party favors and balloons, let’s take a closer look at the number, to see where the jobs were created… Something an old-time journalist would do, before claiming it to be party time! Well, what to my wondering eyes did appear? 72,000 jobs created by the Gov’t. That’s right… Add those back and the civilian job market did add / create some jobs… But not the lofty number of jobs the media would have you to believe. It’s not that I want to see jobs lost, folks… I just want things to be reported correctly, so that investment decisions can be made on facts, not fiction.

So… Here’s how I would have reported it… “April’s job losses finally put a tourniquet around the labor market and created jobs for the first time in 6 months. The “absolute” number of jobs lost remained above 600,000, but, April’s figures do give hope that we will see further gains in future months.”

OK, enough of that! The hoopla over the labor data kick started the risk assets, as, if you recall, I said they would on Friday. Currencies led the way, with commodities in second, and stocks finally getting a clue later in the day. The Big Dog, euro, led the little dogs (the rest of the currencies) off the porch to really chase the dollar down the street. This chase lasted all day, and by late afternoon, I yelled across the desk that the dollar index has moved to the downside of its 200-day moving average! This move really lit a fire under the dollar bears, and they came out to play for the first time in a month of Sundays.

So, the risk assets were kicking some tail and taking names later… What was hurting? U.S. Treasuries! As I’ve said over and over again in the past, holders of Treasuries are growing tired of the paltry yields… And now, the currency the Treasuries were denominated in was getting hammered… The move out of Treasuries drove down the price, and pushed the yield higher… I doubt the Fed and Treasury are happy about that! The Fed will have to start buying more Treasuries to get the yield under control…

Another entity that wasn’t happy about watching their $750 Billion or so, of dollar denominated Treasuries get double whacked like that in one day… The Chinese! How would you like to take on losses like that?

But really folks, yes, the price action in the currencies and Treasuries were violent on Friday, but… This has been happening for about 2 months now… Yes, we’ve seen the back and forth of these assets, but when you put a line on the 2-month performances, you’ll see this wasn’t just a one-and-done!

OK, so the Chinese watched all this and thought they were in a horror picture show! I saw a Chinese official try to wipe out China’s harping about “the need for a replacement reserve currency”… Shoot Rudy, wouldn’t you do the same thing?

So… The “backing off” by the Chinese, has everyone re-thinking Friday’s price action… For if the Chinese are going to balk, the rest of the world needs to stop and take a breather. Again, folks, this is one of the very bad things that I’ve tried to explain to you over the years regarding the imbalances between the U.S. and China… With China doing the “rope-a-dope” regarding their call on the dollar, the euro and other currencies have backed off their lofty figures of Friday… The Big Dog, euro was nearing 1.37 on Friday afternoon, when I left for home… It’s back down to 1.36 this morning…

The move on Friday proved to be just too fast… And the currencies are coming back to fill the gaps they passed up on Friday.

Did you hear that the Fed used a “different” method of valuing the banks? The Fed’s “yardstick” Tier 1 Capital surprised quite a few observers… Many analysts thought that the Fed would use what’s called “tangible common equity”, which would look at the assets and make them accountable for unrealized losses… But NOOOOOOOOO! Had the Fed used “tangible common equity” the total hole the banks would be in would be $68 Billion deeper!

My dad used to tell me… Chuck, figures lie, and liars figure…

Not that I’m accusing the Fed & Treasury of just going through the motions on this… No wait, I guess that IS what I’m doing!

Let’s go back to the mention above regarding the dollar index moving downward through its 200-day moving average… The dollar index is a measure of the value of the dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar’s value compared to the euro (EUR), Japanese yen (JPY), Pound sterling (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF).

It was started in March 1973, soon after the dismantling of the Bretton Woods system. At that time, the value of the Dollar Index was 100.000 and has since traded as high as the mid-160s but also into the low 70s. It currently stands at 82.63…

The dollar index is heavily weighted toward euros…

Many institutional investors use the dollar index as their means of trading the dollar… And to see it fall through its 200-day moving average, was enough proof for them that the dollar is heading south.

The 200-day moving average, for those of you unfamiliar with this term, is a long-term moving average that helps determine the overall health of the asset, which in this case we’re talking about the dollar. It is for all practical purposes a dividing line, if you will, between as asset being healthy and one that is not.

OK, enough of the lessons! I mentioned at the top that the price of Oil was on the rise Friday, and although it has backed off now, with the Chinese comments, for a while there on Friday, you could see the bubbling crude, black gold, Texas Tea, spouting off toward $100 again… Yes, Oil saw a $60 handle briefly on Friday… It’s back down to $57.42 this morning… Now, that’s one thing we DON’T need is a rising Oil price!

The Canadian dollar / loonie on the other hand, loves a rising Oil price! Recall, I told you a few times in the past that the loonie needs a stronger Oil price to really go a tear higher… But even with the move in Oil recently, the loonie has been moving steadily higher VS the dollar. When I say recently for Oil’s move, I’m talking about the last 2 months… In the last two months crude oil is up +31% (since March 1st)… WOW! No wonder the loonie has gained almost 12% since that same March 1st date…

In fact, I just ran a currency scorecard using March 1, 2009 as my beginning date, and the currency moves since that date have been phenomenal! Except for yen, which is flat during the past two months. How do these sound? Kiwi +22%, Sweden +19%, Norway +12%, and so on…

The U.S. data cupboard is empty today, but gets restocked tomorrow with the latest Trade Deficit report… The way the Trade Deficit has been falling in the past 6 months, I might have to say Trade Balance, and not assume it will be a deficit some day! Well, the fall in the Trade Deficit is a direct result of the U.S. recession. U.S. consumers “finally”, taking a breather on spending… The reduction in the Trade Deficit however, has NOT been a result of improving exports, which would be the preferable method of reducing the Trade Deficit. If exports were leading the way, it would mean that U.S. manufacturing was hitting on at least 6 of 8, and that would be good for the economy! But… Instead, we get a reduction from a lack of consumer spending… A combo of both would be great! But that’s pie in the sky stuff!

We’ll also see April’s Retail Sales on Wednesday. March’s Retail Sales were awful (-.9%)… I do expect to see April’s figures to be stronger, according to the BHI… (Butler household index)…

At least all the rate cuts are over for this month. The Bank Stress Tests are a thing of the past, and we can maybe… Just maybe, return to the fundamentals!

Currencies today 5/11/09: A$ .7620, kiwi .6025, C$ .8655, euro 1.3580, sterling 1.5115, Swiss .9020, rand 8.3650, krone 6.4120, SEK 7.7375, forint 205.50, zloty 3.2280, koruna 19.6520, yen 97.80, sing 1.46, HKD 7.75, INR 49.50, China 6.8239, (see when China got spooked on Friday, they weakened the renminbi!) pesos 13.12, BRL 2.06, dollar index 82.63, Oil $57.42, Silver $13.83, and Gold… $912.50

Source: A Huge Rally Gets Stopped!

As you can see from the chart above, the US Dollar Index ($USD) has formed a nice upwards trend line that stretches back to mid-September.

Today, the dollar is hitting that support line. Also, its RSI and Slow Stochastic are both indicating that the stock is oversold and ready for a bounce higher.

Fundamentally, China won’t start dumping dollars unless they want to slam the value of its over $750 billion in treasuries it holds. China also realizes that if it begins dumping dollars, it could trigger a trade war with the US.

Both of those things are bad for China. Yet, that’s not the only reason to suspect that the dollar will remain a reserve currency for some time.

In the G20 meeting coming up on April 1, China plans to make a big deal out of creating a new reserve currency. But, if the US doesn’t want that to happen, it won’t. That’s because for the G20 to adopt a new reserve currency, it would need approval from the US (since it has veto power).

Last time I checked, the US wants to keep its reserve status. And so more than likely, the G20 meeting will be a nonevent (As far as the dollar is concerned).

The play to make is to go long the dollar and ride it back up to its previous highs. But keep a stop-loss around 82.

I guess those were the good old days, before the credit crisis renewed the world’s faith in the dollar.

Today if you take one look at the chart of the U.S. Dollar, the only thing you see is strength.

This is a chart of the U.S. Dollar Index ($USD) which charts the dollar’s strength against six major currencies. The first thing that you’ll notice is the dollar’s 22% move from 71 to around 86.

But the second and more interesting development is a new bullish diversion.

A bullish diversion occurs when an indicator such as the Slow Stochastic is showing a move from overbought (80 or above) to neutral (50 – 80)… while at the same time the stock does not really drop in price.

If you’ll notice, the Slow Stochastic has been dropping since the middle of January. Yet the stock price has remained virtually flat. This is a bullish diversion in its purest form.

Typically when you see this happening, it gives you an early indication that prices will move higher. If this bullish diversion is right, then we could very well see the dollar rally past its peak at 88 and go past 90 by the end of the year.

For you FOREX bugs out there, taking a long-term bullish position in the dollar should pay you greatly by the end of the year.

That could be further from the truth…

Inflation is comprised of three things. One of them, is the velocity of money. If money is moving quickly from one hand to the other, inflation is more likely to pick up the pace. But if the velocity of money is slowing down, it means people are buying less.

As this credit crisis worsens, the velocity of money will continue to shrink. So it doesn’t matter how much credit the Fed creates, banks will refuse to lend because they know they will have bigger losses in the future that they’ll need to cover.

So far, the US Dollar has reacted exactly as you would expect if the velocity of money shrank…

The US Dollar Index Climbing Higher

This is a three-year weekly chart of the US Dollar index (which tracks the dollar’s value against six other major currencies). I chose a weekly chart because longer term charts tend to give clearer buy and sell signals (they just take longer to play out).

If you’ll notice, the USD spiked 22 percent higher beginning in July of 2008 and continued up until November. The fact that the dollar spiked on bad news is a huge bullish signal that shouldn’t be ignored.

And there are now three more reasons why the dollar is primed for a move higher…

1. The USD is finding support at a previous resistance line back formed in May of 2005.
2. The USD is also showing a bullish cross of its 200-week and 20-week moving averages.
3. And lastly, the slow stochastic and RSI both favor a move higher.

The USD could pass 88 in the weeks ahead, but I expect it to make a hike up to 90 – 91.

A good way to play this move is to buy the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP).

If you’re feeling bold and seek to maximize your gain, you could buy shares in the Double Short Euro ETN (NYSE:DRR.IV). So if the euro drops against the dollar by 10 percent, you’d be up 20 percent.

Gold rose to its highest in a week on Monday before trimming gains as the dollar strengthened against the euro and oil prices eased, analysts said.

“It is mostly a story about the U.S. dollar, equity markets and inflation at the moment,” analyst Eugen Weinberg at Commerzbank said.

Gold had little incentive to move higher, with oil prices sliding, but firm buying once prices moved towards $800 an ounce created a floor, he said.

Gold rose as high as $845.55 an ounce, its highest level since Jan. 12, before trading at $831.85 an ounce by 1516 GMT, down 1.2 percent from $841.85 in New York late on Friday, as oil prices reversed course and slipped.

Demand from the jewelry industry was seen weak this year, accounting for 70 percent of total demand for gold, and falling inflation would also cap prices, Commerzbank’s Weinberg said.

Gold is traditionally bought as an inflation hedge and with inflationary pressures diminishing interest could fade.

“Whilst we recognize the likelihood of spikes above $1,000 an ounce during 2009, we believe that weaker physical demand limits the potential for a sustained rally in the metal,” Investec Securities said in a report.

The bank forecasts gold prices at $825 an ounce for 2009, falling to $800 in 2010 and $750 for 2011, the report said.

A firmer dollar weighed on gold as dollar-priced commodities tend to fall as the dollar strengthens because it makes them more expensive for holders of other currencies. The euro eased to $1.3139 against the dollar on worries about the health of the euro zone economy after a ratings downgrade on Spain and grim economic forecasts from the European Commission.

OIL WEIGHS

Oil edged lower to around $34 a barrel, having risen 3 percent in the previous session.

Sinking oil prices weigh on gold as the metal typically moves in line with crude, because it is often bought as an inflation hedge, and the direction of the oil market is an indicator of interest in commodities.

But dealers said record bullion holdings in SPDR Gold Shares supported sentiment. Gold holdings in the world’s largest gold exchange-traded fund jumped another 5 tonnes to 795.25 tonnes last week.

Platinum was trading at $946.50/951.50 an ounce, down from $946.50 late on Friday. More than 60 percent of platinum use goes to autocatalysts to clean exhaust fumes.

More bad news for automakers emerged on Friday as manufacturers in Japan, Europe and the United States all warned their businesses continue to struggle and outlooks remained uncertain.

“Given this negative dynamic, support for platinum metals prices from its most important demand sector is foreseeably going to be missing this year,” precious metals group Heraeus said in a report.

“Despite this, we do not expect a complete collapse in the platinum-metals prices. As we have been seeing for some months now, new production is going to slow down as well.”

Silver eased to $11.06/11.14 against $11.21 and palladium traded at $181/186 versus $183 late on Friday.

New York gold futures added $32.5 an ounce to $846.8.

Source: LONDON, Jan 19 (Reuters)

You see, the dollar began rallying because traders expected the Federal Reserve to signal a stop to interest rate cuts. But once traders got the signal they wanted, what do they focus on next? The fundamentals.

We’ve just undergone our second straight quarter of sub-one percent growth. In an economy like the U.S., we might as well be shrinking.

Then you have an expected budget deficit of over $400 billion this year, a trade deficit that is completely out of control, and what could be the worst financial storm since the great depression. Does that sound like a bullish scenario to you?

When you look at the charts, you’ll notice that the US Dollar Index ($USD) recently found resistance at its 100-day moving average. This average has been resistance since April of 2006. Unless the Federal Reserve signals interest rate increases, it’s hard to see the dollar moving above this resistance.

With that said, it’s time to fade the dollar and get into the PowerShares DB US Index Bearish Fund (UDN) which goes up in value as the dollar drops.

Good trading,

Charles

Source: Time to Fade the Dollar