The dollar has extended recent losses and the long term downtrend seems to be clearly back underway. The dollar index pushed convincingly below 74.00, on track for a short term test of 72.00. If not for a sharp correction in the high-yielders, we might have attained the latter today. A new wave of risk aversion and carry trade unwinding knocked high yielding currencies such as the AUD, NZD, NOK, SEK off of their recent highs. This served to underpin the dollar somewhat, but given the generally dismal dollar outlook, the other safe haven currencies (yen and Swiss franc) were the primary beneficiaries.

They pushed the dollar to another new all-time low against the Swiss franc at 1.0427. Potential remains toward 1.0355 based on a measuring objective. Meanwhile, USD-JPY fell to a new 3-year low. Thursday's initial break of important support at 104.97 (23-Jan low), puts the dollar back on track for a near term challenge of critical support defined by the 101.67 (Dec-04) and 101.23 (Nov-99) lows. An eventual break of the latter would shift attention to the all-time low at 79.80 (Mar-95).

The move in the EUR-USD rate above 1.5200 has sparked renewed cries from Eurozone exporters for the ECB to cut rates. However, recent data that has suggested that the European economy is slowing at a much more gradual pace than than the US economy, should keep the ECB on hold at least into Q2 as they maintain their focus on price risks. This could drive the euro up to 1.5500 and 1.5624. BMW is already laying off workers and the economic survivability of Airbus has already been called into question. What do you think about the European consortium out-sourcing airliner manufacturing to America for the cheap labor?!

The dollar has been weighed by data piling up that suggests the US is headed for a recession. Yesterday's preliminary Q4 GDP report showed that the economy barely grew (0.6%) in the last quarter of 2007. Additionally, initial jobless claims came in much higher than expectations. Despite recent very strong inflationary indications, the Fed remains squarely fixated on growth risks and is therefore widely expected to cut interest rates for a sixth time at the 18-Mar FOMC meeting. A 50bp rate cut is fully priced in and odds of a 75bp cut are growing.

Lower interest rates make US treasuries less appealing to investors and curtails demand for the dollars that it takes to buy them. As the dollar falls, it increases the attractiveness of gold as a hedge and makes the yellow metal less expensive for holders of the foreign currencies.

Oil set a new record high above 103 on NYMEX, driven by strong fund interest and concerns about supply disruptions. A major pipeline in Ecuador was shut down as a result of a landslide and fire struck a major European natural gas plant. Oil is just one of many commodities contributing to the inflationary spiral. Gold is the classic hedge against inflation, particularly energy-based inflation.

Gold Market Movers:

US personal income for Jan +0.3%, better than the market was looking for, versus 0.5% in Dec. PCE +0.2% with core prices +2.2%.

Chicago PMI for Feb at 9:45ET. Market is looking for 50.0 versus 51.5 in Jan.

Michigan sentiment index for Feb (final) at 10:00ET. Market is looking for 70.0 versus 69.6 in Jan.

Ambac bailout hits significant snag

Credit crisis claims hedge fund

AIG takes $5.3 bln writedown

Stock index futures suggest a lower open on Wall Street.

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Pete Grant is the Senior Metals Analyst and an Account Executive with USAGOLD - Centennial Precious Metals. He has spent the majority of his career as a global markets analyst. He began trading IMM currency futures at the Chicago Mercantile Exchange in the mid-1980's. In 1988 Mr. Grant joined MMS International as a foreign exchange market analyst. MMS was acquired by Standard & Poor's a short time later. Pete spent twelve years with S&P - MMS, where he became the Senior Managing FX Strategist. As a manager of the award-winning Currency Market Insight product, he was responsible for the daily real-time forecasting of the world's major and emerging currency pairs, along with the precious metals, to a global institutional audience. Pete was consistently recognized for providing invaluable services to his clients in the areas of custom trading strategies and risk assessment. The financial press frequently reported his personal market insights, risk evaluations and forecasts. Prior to joining USAGOLD, Mr. Grant served as VP of Operations and Chief Metals Trader for a Denver based investment management firm.

-- Posted Friday, 29 February 2008 | Digg This Article