The Times They Are A-Changin'

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Good Morning,

The new week started out on a firm note in the precious metals complex as a combination of geopolitics and weather boosted crude oil prices by nearly $2.50 and put a slight dent into the dollar. Approaching hurricanes Dolly and Fausto gave oil players a good excuse to bring prices back to near $132 per barrel once again. The Geneva nuclear talks ended in what appears to be a stalemate.

Iran has now been given a two-week window within which it is to give an answer to world powers seeking a solution to the crisis. Iran's President Ahmadinejad referred to the meeting, which included high-ranking senior US officials, as a "step forward" in the impasse - one which has contributed to oil prices soaring of late. The UK's PM Brown, warned Iran about further sanctions and of his country fully backing Israel while speaking to the Knesset. Finally, an unnamed Israeli official bluntly predicted as US-led strike on Iran between election and inauguration day.

New York spot trading opened with an $9.40 gain this morning, quoted at $964.00 per ounce and the market appeared set to rally for at least part of the week on the aforementioned news and as players go through options expiry and rolling over of positions into (largely) the December contract. A raft of earnings from the banking world is sure to keep credit crisis watchers on alert this week, though the first one out of the gate - Bank of America- reported Q2 profits that fell less than analyst estimates. The dollar was trading at 72.14 on the index and near 1.586 against the euro as the Monday trading sessions got underway.

Silver rose 26 cents to $18.37 while the noble metals recouped part of their recent sharp losses with a gain of $14 in platinum (to $1844) and $3 in palladium (to $417). While Iran is seen as stalling as far as it possibly can, a stall of another kind - that of the US economy- is seen as an event that could only take a few months to recover from, in the opinion of Treasury Secretary Paulson, who also sees the current financial crisis as fully manageable and under control of the authorities.

A quick scan of the good and not-so-good news which could impact the commodities niche shows the usual mixed bag as we head out into the waters of the second half of the year. Pivot points are emerging in various asset classes and investment money could be poised for a reallocation phase as certain niches beckon with bargains, while others do not promise too much more in the way of additional gains.

Bloomberg reports that "commodities capped their longest slide since November, dropping as much as 10 percent from a record two weeks ago, on concern slowing global growth will erode demand for energy, grains and metals."

Bloomberg also finds that: " The Reuters-Jefferies CRB Commodity Index fell 7.4 percent this [last] week, led by declines in oil, corn and sugar. The index dropped as much as 1.4 percent today to 426.57, the lowest in six weeks, after reaching a record 473.97 on July 3. Its five- day decline was the longest since the week ended Nov. 30."

Fans of the theory of insatiable demand for 'stuff' out of ChIndia, would be wise to note that: "China's economy in the second quarter expanded at the slowest pace since 2005, a report showed last week."

``All of these commodities are starting to show signs that the big bull market is over and that the things that people have really made the most money with in the past seven years will start to substantially drop,'' said Michael Aronstein, president of Marketfield Asset Management in New York. In June, Mr. Aronstein said commodities were near ``some kind of reckoning'' after surging to records this year because of rising demand and tight supplies. Oil has lost 8.1 percent since the start of July, corn has plunged 17 percent and cocoa is down 12 percent. The CRB index dropped 7.6 percent this month." Sixteen of the nineteen commodities tracked by the CRB index have fell last week.

Commodities and investment guru "Marc Faber, who told investors to bail out of U.S. stocks before 1987's so-called Black Monday crash, said oil prices may fall to $100 a barrel as demand slows in a global economy at the ``tail end'' of its expansion. Accelerating inflation and rising interest rates worldwide are likely to dent the value of commodities including oil, said Faber, who publishes the Gloom, Boom & Doom Report, at an investment forum in Sydney today. Real-estate in India and Cambodia were among his favored Asian investments, he said. ``Global liquidity is under some relative tightening, and that is unfavorable for all asset classes,'' said Faber, 62. There will be ``sharp corrections'' in commodities prices."

In other news, Bloomberg also alerts us that: "The Federal Reserve shouldn't wait until financial and housing markets stabilize to raise interest rates, according to central bank policy maker Gary Stern.

``We can't wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on and so forth, before we reverse course,'' Stern, president of the Federal Reserve Bank of Minneapolis, said in an interview today. ``Our actions will affect the economy in the future, not at the moment.''

The comments by Stern, a voter on the rate-setting Federal Open Market Committee this year, reinforced traders' forecasts for a rate increase by year-end. Stern indicated that Treasury Secretary Henry Paulson's rescue plan for Fannie Mae and Freddie Mac will help prevent a deeper housing and economic slump.

``We're pretty well-positioned for the downside risks we might encounter from here,'' said Stern, 63, the Fed's longest- serving policy maker. ``I worry a little bit more about the prospects for inflation.'' Traders' estimates of a rate increase in October rose to 64 percent after Stern's remarks were published, up from 58 percent earlier.

And now, for a word from the souks. While we reported last Friday that Indian gold demand was down 65 percent in the first half of 2008, the pick-up in activity in Dubai -at least based on last month's reports- shows signs of some hope. The Abu Dhabi National says that:

Demand for gold and jewellery in Dubai surged by 18 per cent last month on lower gold prices, officials with Dubai Gold and Jewellery Group (DGJG) said. Since the start of this year, (jewellery) prices had been down by between 20 and 22 per cent, the DGJG said. Sales had slumped in the first three months of the year as the price of gold and other precious metals soared to record levels. But the price of gold has slipped by 14 per cent since hitting a record high of US$1,030.80 (Dh3,782) an ounce on March 17. In April, the city's gold jewellery sales volume rose by 17 per cent.

Gold consumption in the UAE fell by 19 per cent in the first quarter, compared to the same period last year, despite a 15 per cent increase in revenues, the World Gold Council said. The surge in prices earlier this year impacted markets worldwide, with Saudi Arabia reporting a drop of 20 per cent, and the other Gulf countries down by 30 per cent. The final quarter of last year exhibited similar losses, with gold jewellery consumption down by nine per cent in the UAE, 10 per cent in Saudi Arabia and 11 per cent in other Gulf countries."