Gold price slumps as dollar strengthens
The gold price has hit a number of all-time highs in recent weeks
The gold price has slumped after surprisingly good US unemployment data sent the US dollar higher, making gold a less attractive investment.
Gold fell more than $65, or 5%, to $1,161.4 an ounce, down from a record high of $1,226.56 in early trading.
After figures showed the US jobless rate falling, the dollar gained 2% on the Japanese yen and 1.3% on the euro.
Gold has hit a number of record highs in recent weeks as the dollar weakened due to low interest rates in the US.
'Teeth kicking'
Both the dollar and gold are seen as safe investments, but investors have preferred gold in recent months due to the weak dollar.
The US has said it will maintain low interest rates for some time, which makes the dollar less attractive.
But the sudden strengthening of the dollar has now sent the gold price sharply lower.
The dollar rose on the back of data which showed that the US unemployment rate fell in November to 10%, down from 10.2% in October.
In all, 11,000 jobs went over the month - the smallest number since the recession began in December 2007. That was far fewer than the 130,000 expected by most analysts.
The dollar rose against the euro, to $1.4889, and against the yen, to 90 yen.
"So many people have piled into gold, so this pop in the dollar is freaking people out," said Matt Zeman at LaSalle Futures Group.
"The dollar is rocking and gold is getting its teeth kicked in."
http://news.bbc.co.uk/2/hi/business/8396542.stm
Showing posts with label US dollar carry-trade. Show all posts
Showing posts with label US dollar carry-trade. Show all posts
Sunday, 6 December 2009
Saturday, 5 December 2009
Markets and the US Dollar Turn Higher Sign in to Recommend
Markets and the Dollar Turn Higher Sign in to Recommend
By DAVID JOLLY
Published: December 4, 2009
Stocks and the dollar rose Friday and bonds fell after the release of a much-better-than-expected jobs report in the United States.
The Dow Jones industrial average reached a high for the year, gaining 95 points, or 0.9 percent, in late morning trading. The Standard & Poor’s 500-stock index rose 1.1 percent, and the Nasdaq 1.5 percent.
On the year, the Dow is up 19 percent while the S.&P. 500 is 23 pecent.
The Labor Department said in Washington that the United States lost 11,000 jobs in November, less than a tenth of the roughly 125,000 job losses economists had been expecting. The unemployment rate improved to 10 percent from 10.2 percent in October.
While companies are still shedding workers, the pace was the best since the recession began in December 2007, and suggested to some analysts that the economy is headed toward recovery.
Jeffrey Saut, chief investment strategist for Raymond James, characterized the November job-loss number as “an outlier.”
“There’s no doubt the recession is in the rear-view mirror,” he said, “but I wouldn’t be surprised to see the jobless rate ticking up again in the months ahead.”
Unemployment, he added, is a lagging indicator, so investors who wait for the labor market to turn around have historically missed out on major market gains.
Lawrence Glazer, managing partner at Mayflower Advisors in Boston, said would-be stock buyers remained somewhat cautious, despite the surprising data.
“Investors are still seeing a divergence between Wall Street’s gains and Main Street’s malaise,” he said. “The market has been anticipating better data all along. The question hasn’t been ‘is the market pricing in a recovery,’ but ‘is the market pricing in too big of a recovery.’ ”
Mr. Glazer said institutional investors had already begun to close positions and did not want to be reshuffling portfolios toward the end of the year, damping the effect of the positive surprise.
In other economic news, the Commerce Department reported that orders to American factories unexpectedly rose 0.6 percent in October, which was better than the flat reading that economists had expected.
In Europe, the Dow Jones Euro Stoxx 50 index of euro zone heavyweights was trading 1.4 percent higher after the data, while the FTSE-100 index in London was up 0.7 percent. In Asian trading, the Tokyo benchmark Nikkei 225 stock average rose 0.5 percent. European markets had been down before the American jobs report was released.
The yield on the benchmark 10-year Treasury rose one-tenth of a percentage point to 3.5 percent.
The dollar rose against other major currencies. The euro fell to $1.4911 from $1.5053 Thursday, and the British pound fell to $1.6572 from $1.6540. The dollar rose to 89.81 yen from 88.26 yen.
Spot gold fell 2.3 percent to $1,180.20 an ounce.
http://www.nytimes.com/2009/12/05/business/05markets.html?_r=1&ref=business
By DAVID JOLLY
Published: December 4, 2009
Stocks and the dollar rose Friday and bonds fell after the release of a much-better-than-expected jobs report in the United States.
The Dow Jones industrial average reached a high for the year, gaining 95 points, or 0.9 percent, in late morning trading. The Standard & Poor’s 500-stock index rose 1.1 percent, and the Nasdaq 1.5 percent.
On the year, the Dow is up 19 percent while the S.&P. 500 is 23 pecent.
The Labor Department said in Washington that the United States lost 11,000 jobs in November, less than a tenth of the roughly 125,000 job losses economists had been expecting. The unemployment rate improved to 10 percent from 10.2 percent in October.
While companies are still shedding workers, the pace was the best since the recession began in December 2007, and suggested to some analysts that the economy is headed toward recovery.
Jeffrey Saut, chief investment strategist for Raymond James, characterized the November job-loss number as “an outlier.”
“There’s no doubt the recession is in the rear-view mirror,” he said, “but I wouldn’t be surprised to see the jobless rate ticking up again in the months ahead.”
Unemployment, he added, is a lagging indicator, so investors who wait for the labor market to turn around have historically missed out on major market gains.
Lawrence Glazer, managing partner at Mayflower Advisors in Boston, said would-be stock buyers remained somewhat cautious, despite the surprising data.
“Investors are still seeing a divergence between Wall Street’s gains and Main Street’s malaise,” he said. “The market has been anticipating better data all along. The question hasn’t been ‘is the market pricing in a recovery,’ but ‘is the market pricing in too big of a recovery.’ ”
Mr. Glazer said institutional investors had already begun to close positions and did not want to be reshuffling portfolios toward the end of the year, damping the effect of the positive surprise.
In other economic news, the Commerce Department reported that orders to American factories unexpectedly rose 0.6 percent in October, which was better than the flat reading that economists had expected.
In Europe, the Dow Jones Euro Stoxx 50 index of euro zone heavyweights was trading 1.4 percent higher after the data, while the FTSE-100 index in London was up 0.7 percent. In Asian trading, the Tokyo benchmark Nikkei 225 stock average rose 0.5 percent. European markets had been down before the American jobs report was released.
The yield on the benchmark 10-year Treasury rose one-tenth of a percentage point to 3.5 percent.
The dollar rose against other major currencies. The euro fell to $1.4911 from $1.5053 Thursday, and the British pound fell to $1.6572 from $1.6540. The dollar rose to 89.81 yen from 88.26 yen.
Spot gold fell 2.3 percent to $1,180.20 an ounce.
http://www.nytimes.com/2009/12/05/business/05markets.html?_r=1&ref=business
Tuesday, 17 November 2009
Retail Investors Can Take A Worldly Approach To the Dollar
Retail Investors Can Take A Worldly Approach To the Dollar
Published: Wednesday, 28 Oct 2009 | 11:41 AM ET Text Size
By: Chris Taylor,
Special to CNBC.com
If you’re getting a little queasy about the sagging U.S. dollars in your savings account, join the club.
With deficits high and interest rates low, one potential outcome is high inflation, which would eat away at the value of the greenback.
Now it seems banks are sharing the unease: They’re putting almost two-thirds of their new cash into the euro and the Japanese yen, according to Barclay’s Capital. Compare that to a decade ago, when it was the U.S. dollar that garnered two-thirds of that cash. Global reserve currency? Not so much.
So what’s an investor to do about the shakiness of the dollar? Enter currency exchange-traded funds (ETFs), which let even casual investors put a little foreign spice in their cash holdings. There are now a total of 35 on the market, covering everything from the Indian rupee to the Brazilian real.
Other People's Money
“What currency ETFs provide are democratization,” says Bradley Kay, an ETF analyst with research firm Morningstar. “Previously foreign currencies were largely inaccessible to individuals, because of things like minimum investments. ETFs have opened that all up.”
Complete Currency Coverage
In fact they now hold more than $4.5 billion in assets, up $500 million in the third quarter of this year alone. The first currency ETF only opened at the end of 2005. Whereas currency trading used to be the province of institutions and private banks catering to the ultra-wealthy, any investor can now bet heavily on, say, the Chinese yuan or the Swedish krona.
But that doesn’t mean you should put your life savings into foreign currencies, just because you can. When it might make the most sense for investors: If you have significant cash holdings, and want to hedge some of it against a potential fall of the greenback. With the U.S. government massively increasing its balance sheet, a spike in inflation in the next few years is a distinct possibility, which would eat away at the value of the dollar.
In a worst-case scenario there could be a loss of faith among major debt-holders like China and Korea, who could decide to shift their central bank reserves to other currencies.
It’s not so far-fetched: The dollar’s already slid to a 14-month low, partly thanks to such worries.
“If you’re concerned about the dollar, by all means hold some of your cash in another currency,” says Morningstar’s Kay. “Or if you’re going to have major expenses abroad—like a big family trip, or you’re relocating to work in another country—you can fix those costs now, for the $8 cost of a brokerage fee.”
Currencies, however, should not be a core, long-term holding for investors.
“They belong in the trading-risk end of a portfolio,” says Joe Trevisani, chief market analyst for Saddle River, N.J.-based FX Solutions. “They’re not investments in the classic buy-and-hold sense.” Instead, speculative plays should be—as FX Solutions’ own disclaimer says—“conducted with risk capital you can afford to lose."
Remember that big, bad currencies banks have been the undoing of major funds and banks over the years. Do Barings Bank and Nick Leeson ring a bell?
Rules Of The Road
A few caveats about currency investing. Remember that you’re buying cash, not asset-backed vehicles like stocks, bonds or real estate. As such, it’s a zero-sum game—other currencies have to fall, in order for your investment to rise—and appreciation potential is limited.
And if it’s the U.S. dollar you’re worried about, you can reduce your exposure in other ways, such as buying stock in large multinational firms or broad international-equity funds, particularly small-caps, which are very tied to local currencies.
For solid long-term bets, consider baskets of currencies to reduce your risk, suggests Morningstar’s Kay. Make a single bet like the Mexican peso, and you’re taking your chances.
But buy a broad ETF, and you spread your risk appropriately. Consider the PowerShares DB US Dollar Bearish [UDN 28.63 0.13 (+0.46%) ], a basket of developed-market currencies dominated by the euro, or WisdomTree Dreyfus Emerging Currency [CEW 22.40 0.105 (+0.47%) ], a geographically-diversified collection of currencies in emerging-market economies.
For investors looking for a more direct play, there are a number of online trading platforms. GAIN Capital's Forex.com, GFTForex.com, CMS Forex, for example, allow investors to open trading accounts. Minimum investments and other requirements vary, but one thing is always the same. Currency markets trade around the clock and are very liquid, so price swings can be fast and furious.
Of course, the dollar’s slide isn’t guaranteed, since a double-dip world recession, or another international crisis—political or financial—could see investors flooding back to the relative safety of the greenback.
“But it’s primarily the dollar’s weakness that is driving currency markets now,” says FX Solutions’ Trevisani. “This will continue until the Fed makes clear its intention to begin raising rates—and I don’t think that’s likely until the second half of 2010.”
© 2009 CNBC.com
http://www.cnbc.com/id/33289478
Published: Wednesday, 28 Oct 2009 | 11:41 AM ET Text Size
By: Chris Taylor,
Special to CNBC.com
If you’re getting a little queasy about the sagging U.S. dollars in your savings account, join the club.
With deficits high and interest rates low, one potential outcome is high inflation, which would eat away at the value of the greenback.
Now it seems banks are sharing the unease: They’re putting almost two-thirds of their new cash into the euro and the Japanese yen, according to Barclay’s Capital. Compare that to a decade ago, when it was the U.S. dollar that garnered two-thirds of that cash. Global reserve currency? Not so much.
So what’s an investor to do about the shakiness of the dollar? Enter currency exchange-traded funds (ETFs), which let even casual investors put a little foreign spice in their cash holdings. There are now a total of 35 on the market, covering everything from the Indian rupee to the Brazilian real.
Other People's Money
“What currency ETFs provide are democratization,” says Bradley Kay, an ETF analyst with research firm Morningstar. “Previously foreign currencies were largely inaccessible to individuals, because of things like minimum investments. ETFs have opened that all up.”
Complete Currency Coverage
In fact they now hold more than $4.5 billion in assets, up $500 million in the third quarter of this year alone. The first currency ETF only opened at the end of 2005. Whereas currency trading used to be the province of institutions and private banks catering to the ultra-wealthy, any investor can now bet heavily on, say, the Chinese yuan or the Swedish krona.
But that doesn’t mean you should put your life savings into foreign currencies, just because you can. When it might make the most sense for investors: If you have significant cash holdings, and want to hedge some of it against a potential fall of the greenback. With the U.S. government massively increasing its balance sheet, a spike in inflation in the next few years is a distinct possibility, which would eat away at the value of the dollar.
In a worst-case scenario there could be a loss of faith among major debt-holders like China and Korea, who could decide to shift their central bank reserves to other currencies.
It’s not so far-fetched: The dollar’s already slid to a 14-month low, partly thanks to such worries.
“If you’re concerned about the dollar, by all means hold some of your cash in another currency,” says Morningstar’s Kay. “Or if you’re going to have major expenses abroad—like a big family trip, or you’re relocating to work in another country—you can fix those costs now, for the $8 cost of a brokerage fee.”
Currencies, however, should not be a core, long-term holding for investors.
“They belong in the trading-risk end of a portfolio,” says Joe Trevisani, chief market analyst for Saddle River, N.J.-based FX Solutions. “They’re not investments in the classic buy-and-hold sense.” Instead, speculative plays should be—as FX Solutions’ own disclaimer says—“conducted with risk capital you can afford to lose."
Remember that big, bad currencies banks have been the undoing of major funds and banks over the years. Do Barings Bank and Nick Leeson ring a bell?
Rules Of The Road
A few caveats about currency investing. Remember that you’re buying cash, not asset-backed vehicles like stocks, bonds or real estate. As such, it’s a zero-sum game—other currencies have to fall, in order for your investment to rise—and appreciation potential is limited.
And if it’s the U.S. dollar you’re worried about, you can reduce your exposure in other ways, such as buying stock in large multinational firms or broad international-equity funds, particularly small-caps, which are very tied to local currencies.
For solid long-term bets, consider baskets of currencies to reduce your risk, suggests Morningstar’s Kay. Make a single bet like the Mexican peso, and you’re taking your chances.
But buy a broad ETF, and you spread your risk appropriately. Consider the PowerShares DB US Dollar Bearish [UDN 28.63 0.13 (+0.46%) ], a basket of developed-market currencies dominated by the euro, or WisdomTree Dreyfus Emerging Currency [CEW 22.40 0.105 (+0.47%) ], a geographically-diversified collection of currencies in emerging-market economies.
For investors looking for a more direct play, there are a number of online trading platforms. GAIN Capital's Forex.com, GFTForex.com, CMS Forex, for example, allow investors to open trading accounts. Minimum investments and other requirements vary, but one thing is always the same. Currency markets trade around the clock and are very liquid, so price swings can be fast and furious.
Of course, the dollar’s slide isn’t guaranteed, since a double-dip world recession, or another international crisis—political or financial—could see investors flooding back to the relative safety of the greenback.
“But it’s primarily the dollar’s weakness that is driving currency markets now,” says FX Solutions’ Trevisani. “This will continue until the Fed makes clear its intention to begin raising rates—and I don’t think that’s likely until the second half of 2010.”
© 2009 CNBC.com
http://www.cnbc.com/id/33289478
Sunday, 13 September 2009
The dollar carry-trade
Cheap dollars are sowing the seeds of the next world crisis
After years of selling cheap goods to debt-fuelled Western consumers, China now has $2 trillion dollars of foreign exchange reserves. That's 2,000 billion – a reserve haul no less 25 times bigger than that of the UK.
By Liam Halligan
Published: 6:05PM BST 12 Sep 2009
Comments 25 Comment on this article
In a world of systemic instability, reserves mean power. Reserves mean you can defend your currency, stabilise your banking system and boost your economy without resorting to yet more borrowing – or, worse still, the printing press.
More than half of China's reserves are denominated in dollars. So when the dollar falls, China loses serious money. When you're talking about a dollar-reserve number involving 12 zeros, even a modest weakening of the greenback sees China's wealth takes a mighty hit.
In recent years, America has run massive budget and trade deficits, both of which put downward pressure on the dollar – so devaluing China's reserves. Beijing has remained tight-lipped, worried less about diplomatic niceties than the financial implications of voicing its concerns. If the markets thought China would buy less dollar-denominated debt going forward, the US currency would weaken further, compounding Beijing's wealth-loss.
American leaders have relied on this Catch-22 for some time, guffawing that China is in so deep it has no choice but to carry on "sucking-up" US debt. But Beijing's Communist hierarchy is now so worried about America's wildly expansionary monetary policy that it is speaking out, despite the damage that does to the value of China's reserves.
Last weekend, Cheng Siwei, a leading Chinese policy maker, said that his country's leaders were "dismayed" by America's recourse to quantitative easing. "If they keep printing money to buy bonds, it will lead to inflation," he said. "So we'll diversify incremental reserves into euros, yen and other currencies".
This is hugely significant. China is now more worried about America inflating away its debts than about those debts being exposed to currency risk. Economists at Western banks making money from QE still say deflation is more likely than inflation. As this column has long argued, they are talking self-serving tosh.
The entire non-Western world rightly sees serious inflationary pressures down the track in the US, UK and other nations where political cowardice has resulted in irresponsible money printing.
Following Mr Cheng's comments, the dollar fell throughout last week, hitting a 12-month low against the euro. As the dollar's "safe haven" status was questioned, gold surged above $1,000 an ounce to an 18-month high.
The US currency could well keep falling. America's trade deficit grew in July at the fastest rate in almost a decade. Imports exceeded exports by $32bn last month – a gap 16pc wider than the month before. One reason was that as oil prices strengthened, so did the cost of US crude imports.
Oil touched $72 a barrel last week. If the greenback weakens further, prices will keep going up. That's because crude is priced in dollars and global investors will increasingly use commodities as an anti-inflation hedge.
These forces could combine to send the dollar into freefall. US inflation would then soar and interest rates would have to be jacked up. Even if a fast-collapsing dollar is avoided, Fed rates may have to rise quickly if China is serious about dollar-divesting and the US has to sell its debt elsewhere. Under both scenarios, the world's largest economy could get caught in the stagflation trap – recession and high inflation.
Beijing doesn't want the US to stagnate. China has too much to lose. But even if China and US work together to avoid a meltdown, the currency markets could provide one anyway.
The dollar is now being used as a "carry" currency. Traders are using low Fed rates to take out cheap dollar loans, then converting the money into currencies generating higher yields.
"Carrying" credit in this way is currently the source of huge gains. No one knows the true scale, but the world has, of course, been flooded with cheap dollars.
This presents serious systemic danger. A dollar weighed down by Chinese divestment, then suppressed further by carry-trading, could easily spring back. Those who had borrowed in dollars would owe more, while their dollar-funded investments would be worth less. This "unwinding" could send financial shock around the globe.
This is what happened in 1998, when yen carry-trades went wrong, causing the collapse of Long-Term Capital Management and sparking a global slowdown.
So even if the Western world manages to fix its banking system, the Fed's money printing could well be stoking up the next financial crisis. The dollar carry-trade. You heard it here first.
Liam Halligan is chief economist at Prosperity Capital Management
http://www.telegraph.co.uk/finance/comment/liamhalligan/6179482/Cheap-dollars-are-sowing-the-seeds-of-the-next-world-crisis.html
After years of selling cheap goods to debt-fuelled Western consumers, China now has $2 trillion dollars of foreign exchange reserves. That's 2,000 billion – a reserve haul no less 25 times bigger than that of the UK.
By Liam Halligan
Published: 6:05PM BST 12 Sep 2009
Comments 25 Comment on this article
In a world of systemic instability, reserves mean power. Reserves mean you can defend your currency, stabilise your banking system and boost your economy without resorting to yet more borrowing – or, worse still, the printing press.
More than half of China's reserves are denominated in dollars. So when the dollar falls, China loses serious money. When you're talking about a dollar-reserve number involving 12 zeros, even a modest weakening of the greenback sees China's wealth takes a mighty hit.
In recent years, America has run massive budget and trade deficits, both of which put downward pressure on the dollar – so devaluing China's reserves. Beijing has remained tight-lipped, worried less about diplomatic niceties than the financial implications of voicing its concerns. If the markets thought China would buy less dollar-denominated debt going forward, the US currency would weaken further, compounding Beijing's wealth-loss.
American leaders have relied on this Catch-22 for some time, guffawing that China is in so deep it has no choice but to carry on "sucking-up" US debt. But Beijing's Communist hierarchy is now so worried about America's wildly expansionary monetary policy that it is speaking out, despite the damage that does to the value of China's reserves.
Last weekend, Cheng Siwei, a leading Chinese policy maker, said that his country's leaders were "dismayed" by America's recourse to quantitative easing. "If they keep printing money to buy bonds, it will lead to inflation," he said. "So we'll diversify incremental reserves into euros, yen and other currencies".
This is hugely significant. China is now more worried about America inflating away its debts than about those debts being exposed to currency risk. Economists at Western banks making money from QE still say deflation is more likely than inflation. As this column has long argued, they are talking self-serving tosh.
The entire non-Western world rightly sees serious inflationary pressures down the track in the US, UK and other nations where political cowardice has resulted in irresponsible money printing.
Following Mr Cheng's comments, the dollar fell throughout last week, hitting a 12-month low against the euro. As the dollar's "safe haven" status was questioned, gold surged above $1,000 an ounce to an 18-month high.
The US currency could well keep falling. America's trade deficit grew in July at the fastest rate in almost a decade. Imports exceeded exports by $32bn last month – a gap 16pc wider than the month before. One reason was that as oil prices strengthened, so did the cost of US crude imports.
Oil touched $72 a barrel last week. If the greenback weakens further, prices will keep going up. That's because crude is priced in dollars and global investors will increasingly use commodities as an anti-inflation hedge.
These forces could combine to send the dollar into freefall. US inflation would then soar and interest rates would have to be jacked up. Even if a fast-collapsing dollar is avoided, Fed rates may have to rise quickly if China is serious about dollar-divesting and the US has to sell its debt elsewhere. Under both scenarios, the world's largest economy could get caught in the stagflation trap – recession and high inflation.
Beijing doesn't want the US to stagnate. China has too much to lose. But even if China and US work together to avoid a meltdown, the currency markets could provide one anyway.
The dollar is now being used as a "carry" currency. Traders are using low Fed rates to take out cheap dollar loans, then converting the money into currencies generating higher yields.
"Carrying" credit in this way is currently the source of huge gains. No one knows the true scale, but the world has, of course, been flooded with cheap dollars.
This presents serious systemic danger. A dollar weighed down by Chinese divestment, then suppressed further by carry-trading, could easily spring back. Those who had borrowed in dollars would owe more, while their dollar-funded investments would be worth less. This "unwinding" could send financial shock around the globe.
This is what happened in 1998, when yen carry-trades went wrong, causing the collapse of Long-Term Capital Management and sparking a global slowdown.
So even if the Western world manages to fix its banking system, the Fed's money printing could well be stoking up the next financial crisis. The dollar carry-trade. You heard it here first.
Liam Halligan is chief economist at Prosperity Capital Management
http://www.telegraph.co.uk/finance/comment/liamhalligan/6179482/Cheap-dollars-are-sowing-the-seeds-of-the-next-world-crisis.html
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