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-- Posted Friday, 31 August 2007 | Digg This Article
Gold
Spot gold was trading at $670.00/670.50 an ounce as of 1215 GMT.
Gold has shown strength in Asian and European trading after the sideways trade of recent days. Since the start of August gold is in a tight range between $648 to $675 and needs to convincingly breach the $675 mark prior to challenging $700 in the coming weeks. Given the length and strength of the technical consolidation and the very strong fundamentals we believe gold will reach new multi year highs before the end of 2007.
Bush Announcement and the Mortgage Market
President Bush's move to announce relief for hard pressed home owners as Bernanke speaks this afternoon, may help the U.S. dollar and the wider economy in the short term but the structural imbalances facing the U.S. economy will not likely be righted by this intervention. The economist, Thomas Davidoff, an assistant professor at the Haas School of Business at the University of California, Berkeley, rightly noted that the efforts would likely have only a limited impact, given the huge number of loans, valued in the billions, resetting to higher interest rates in the coming months.
With another round of ARMS slated to reset to higher interest rates in the coming months and throughout 2008, industry analysts say the crisis hasn't passed. Nearly $1.12 trillion worth of hybrid and traditional ARMS were originated in 2005 and 2006, while $779.13 billion of interest-only ARMs were issued in that period, according to a survey from the Mortgage Bankers Association. Irresponsible and disastrous lending policies by these companies will not be righted by tinkering by President Bush after the fact.
Many of these loans offered low "teaser" interest rates that will reset through 2009, slamming borrowers with higher rates.
Continuing Liquidity Crisis
The Telegraph reported that Barclays has been forced to tap the Bank of England's emergency lending fund after a major error in the City's trading systems wreaked havoc on the money markets. The bank borrowed up to £1.6 billion from the central bank's standing facility after it failed to settle its positions on the open market. It is the second time in as many weeks it has had to turn to the lender of last resort. The embarrassing move came on a chaotic day in which a major problem with the electronic settlement system, CREST, forced the Bank of England to take the extraordinary step of extending trading for almost an extra hour.
Yesterday's events pushed the pound temporarily lower as traders speculated the lending could be symptomatic of worsening problems facing financial markets. John Anderson of Rensburg Fund Management said: "When people tap into this facility, it can mean only one thing: Liquidity is gone." Neither the Bank of England nor any of the major banks would comment.
The Irish Independent also reports that ordinary borrowers could soon be paying higher interest rates, even if the European Central Bank does not raise its rates, unless something is done to ease the crisis in the international banking market. The warning came from Bank of Ireland chief economist Dan McLaughlin, as eurozone banks were forced to pay around 4.6pc for funds yesterday – more than half a percentage point more than the official 4pc ECB rate. “This cannot continue much longer without banks having to pass on this extra cost to customers,” Dr McLaughlin said. “Some business borrowers whose rates are tied to the market rate are paying more already.”
This is further evidence that we are a long way from out of the woods just yet and serious systemic risk remains in the global financial marketplace.
India
India's economic growth accelerated to annual 9.3% rate in the second quarter of 2007 and first quarter of the country's fiscal year, which bodes well for continuing strong demand from the subcontinent, the world's largest consumer of gold.
Silver
Spot silver is trading at $12.05/12.07 an ounce (1215 GMT).
PGMs
Platinum was trading at $1270/1275 (1215 GMT).
Spot palladium was trading at $328/332 an ounce (1215 GMT).
Forex and Gold
Top of the agenda will be a speech by Fed Chairman Ben Bernanke (1500 GMT) on housing and monetary policy. Markets will be looking for any clues on whether the central bank will soon start cutting interest rates. As well as Bernanke’s speech, U.S. data to watch over the day include the Chicago PMI and the Michigan sentiment survey.
Oil
Oil climbed towards $74 a barrel as investors kept watch on a gathering storm in the Atlantic Ocean and took stock of declining fuel inventories in the U.S., the world's top consumer. U.S. crude rose 37 cents to $73.73 a barrel by 6:20 a.m. EDT, while London Brent was up 35 cents at $72.25 a barrel.
Forbes reported that two of China's largest oil producers may suspend gasoline exports in September to guarantee domestic supply amid surging international crude prices. Sinopec and China National Petroleum Corp slashed gasoline exports to less than 100,000 tonnes in August and will continue to do so, or even suspend exports, next month, the China Securities Journal said.
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-- Posted Friday, 31 August 2007 | Digg This Article
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