Following its worst weekly drop in over 60 days, gold found some old friends in Asia over the weekend - buying of the metal by jewelry fabricators became noticeable, finally. Although gold prices reached for $895 in overnight trade, the going proved a bit more difficult as the calendar pages were turned to Monday in Dubai, Zurich, and London. Gold fixed at $891.25 for the AM price-setting session in London while the US dollar found verbal support from the Treasury's Mr. Paulson, and while the principal product of the countries he is visiting took a further loss of $1.30 to trade at just above $126 per barrel.
New York trading opened the first session of June with a small gain of $0.50 quoted at $886.60 per ounce as the greenback climbed above 73 on the index and as oil broke under the $126 mark. While the economic calendar is not exactly lacking data flows for the first half of the week, the more significant and potentially dollar-moving figures will come Thursday and Friday. In the interim, participants will be looking at numbers and central bank strategy trends coming from the EC in order to gauge what direction the dollar may be heading for in the near-term. Silver was off 23 cents at the open, trading at $16.64 while platinum rose $1 at $2007.00 and palladium fell $7 to $431.00 per ounce. The trend for the day may well be to the upside however, as British lender Bradford & Bingely raised apprehension levels about the state of the housing markets on more than just a US and UK level. Adding to the buoyant tone were reports that the head of Wachovia was handed his own head on a platter by the bank's board.
While various gold discussion groups were prematurely 'celebrating' the possible end of the US dollar's peg to the currencies of the Gulf's oil producing nations (they see such a move as the last nail in the greenback's coffin) Mr. Paulson was on a PR tour for the greenback in the region, and appeared to walk away with a tacit agreement for the peg to remain in place, at the very least, for the next two years. Moreover, he also welcomed any portion of the $4 trillion that the oil producers have amassed in revenues by now, for possible investment in the US. Bloomberg reports on Mr. Paulson's findings:
The comments may spur traders to further trim their bets on a revaluation in currencies such as the Saudi Arabian riyal and United Arab Emirates dirham. While the fixed exchange rates mean that costs of imported goods have increased as the dollar has weakened, Paulson said that the region's inflation is being driven mainly by costs of building materials and food.
``It is an endorsement of maintaining the GCC pegs to the dollar,'' said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut. In addition, ``ending the dollar peg, from the U.S. point of view, would diminish U.S. influence.''
Paulson meet today with Sheikh Ahmed bin Zayed al-Nahyan, managing director of the Abu Dhabi Investment Authority, the world's richest sovereign wealth fund, before giving a speech on open investment. In the speech he urged Persian Gulf countries to reduce barriers to international investment and pledged that the U.S. would remain open to capital from the region.
``As we seek to open new markets abroad, America will keep our markets open at home to investment from private firms and from sovereign wealth funds,'' Paulson said.
Although nothing is ever certain, it might be prudent to go out an buy another few bags of nails for that dollar coffin -assuming one can find any more such fate-sealing devices. The greenback's chances of complete cardiac arrest are now about as promising as Mrs. Clinton's odds for the nomination. But, odds are still odds, many will retort.
Meanwhile, a major flight of rodents was seen from the oil ship S.S. Crude as values went parabolic and as regulators prepared to dissect that market with a very sharp scalpel. Bloomberg fills us in:
Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading, government data show.
So-called speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange in the week ended May 27 from a record 127,491 on July 31, according to a U.S. Commodity Futures Trading Commission report on May 30.
The decline may complicate the CFTC's probe as regulators try to determine how much of the rise in oil to more than $135 a barrel last month was caused by speculators who may have manipulated the market instead of consumer demand. The CFTC, under pressure from Congress, said May 29 it was investigating the doubling of oil prices the past year and said it will consider giving more detail on the types of oil investors and their holdings.
With the above background items in mind, let's see how the oil/dollar saga unfolds this week and how the ECB and US statistics impact the markets. A respite from the declines would be welcome even if the potential gains could meet some profit-taking headwinds near $910.