US Dollar is looking more and more vulnerable
November 1, 2006
Remember, gold is a currency story, not strictly a commodity story now. The US Dollar is looking more and more vulnerable each day we have new economic reports being published showing how rapidly the economy is slowing.
Gold buoyed by weak dollar, decouples from oil
By Ciara Linnane MarketWatch
Last Update: 9:16 AM ET Nov 1, 2006
NEW YORK (MarketWatch) -- Gold futures rallied Wednesday, buoyed by recent dollar weakness, continued reports of robust physical demand linked to the holiday season and buying on the first day of the new month.
Gold for December delivery was up $10.30 at $617.10 an ounce on the New York Mercantile Exchange, its highest level since Sept. 11. The contract fell Tuesday on diminishing geopolitical worry after North Korea agreed to resume six-party nuclear talks, but gained $3 on the month amid worry about a U.S. economic slowdown.
"The recent weakening in the dollar due to last week's poorer than expected U.S. economic figures has pushed up the gold price in dollar terms," said analysts at Numis Securities. They also noted that the close correlation between the oil price and gold price seen since the end of 2005 has weakened this week, with gold prices rising but oil prices falling.
"It is evidence that the stronger driver for the gold price is the strength of the dollar," they said
Analysts at research firm Action Economics agreed. A litmus test "will be if prices can sustain above $610.0 without the backdrop of firmer oil or other commodity prices," they said.
The dollar was last trading slightly higher against the yen but lower vs. the euro and U.K. pound. On Tuesday, the dollar touched multi-week lows against major rivals after weaker-than-expected consumer sentiment and regional manufacturing data.
Oil futures were lower early Wednesday ahead of weekly supply data, expected to show another rise in inventories of crude.
Silver futures were last up 23 cents at $12.50 an ounce, platinum was up $13.30 at $1,099.80 an ounce and palladium rose $5.80 to $328.50 an ounce.
Copper futures bucked the trend, trading down 0.9 cent at $3.336 a pound.
On the supply side, gold inventories were unchanged at 7.57 million troy ounces as of late Tuesday, according to Nymex data. Silver supplies were unchanged at 105.3 million troy ounces and copper supplies rose by 38 short tons to 23,244 short tons.
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