James Turk: Uh-Oh, Look What Happened to the Dollar

Section:

Gold tops $400 for first time in two weeks;
jobs data drags U.S. dollar lower, lifting metals sector

By Myra P. Saefong
CBS.MarketWatch.com
Friday, August 6, 2004

http://cbs.marketwatch.com/news/story.asp?
column=Metals+Stocks&siteid=mktw

SAN FRANCISCO -- Gold futures closed above $400
an ounce for the first time in two weeks Friday, logging
gains of around 2 percent for the session as well as
the week, as disappointing U.S. employment data
sent the dollar sharply lower.

"Gold has been held back on the falsehood that the
U.S. economy was booming; which in turn, would
make interest rates rise sharply; which in turn, would
make the U.S dollar fly; which in turn, could only be
bad for gold," said Peter Grandich, editor of the
Grandich Letter, an investment advisory publication.

However, July's payroll growth of 32,000, "combined
with several recent economic indicators, should put
this fantasy to bed," he said.

That allows "the reality of horrific multiple U.S. deficits,
a worsening energy crisis, a geopolitical landscape
that must get worse before it can get better, and a
polarizing national election ... to give the support gold
needs to go to new highs and challenge $500 in the
next 12 months or less," he said.

U.S. hiring slowed for a fourth straight month in July,
the Labor Department reported earlier Friday. It was
the slowest job growth of the year.

Frederic Panizzutti, an analyst at MKS Finance in
Geneva, called it a "collapse." He said that the dollar's
pullback "acted as a catalyst for gold and silver, and
both rocketed higher within minutes, ignoring any
resistances on their way."

As traders scrambled for a safer investment, gold for
December delivery climbed $7.30 to close at $402.10
an ounce on the New York Mercantile Exchange. The
contract is up $8.40 for the week; it hasn't traded
above $400 since July 22.

The small amount of new jobs created in July "will
make it difficult for the Federal Reserve to raise interest
rates," said Todd Hultman, president of
Dailyfutures.com, a commodity information provider.

A slower climb in interest rates would be "bearish news
for the dollar and bullish news for gold and the euro,"
said Ned Schmidt, editor of Value View Gold Report,
an investment publication of Schmidt Management.

Hultman said prices for gold are likely to reach $450
by the end of this year.

Other metals futures closed mainly higher, taking their
cue from the strength in gold.

"U.S. equities are in for a long, long bear market that
will take out the bear-market low for the Nasdaq," said
Schmidt.

Against such a backdrop, the "only place for North
American investors to find future returns is gold, silver,
and euro-denominated bonds/deposits," he said.

Also on Nymex, September silver rose 2.5 cents to
close at $6.775 an ounce. October platinum closed
at $832 an ounce, up $4.70, and September palladium
gained 60 cents to end at $214 an ounce.

September copper closed little changed at $1.278 a
pound, down 0.2 cent.

Silver and platinum ended higher on the week, but
copper and palladium were lower than their week-ago
levels.

Tracking inventories, copper supplies were down 990
short tons at 75,538 short tons as of late Thursday,
according to Nymex. Silver stocks were down 610,208
troy ounces at 114.3 million, while gold inventories
stood at 4.71 million troy ounces, unchanged from
the previous day.

As for metals equities, key indexes also climbed for
the session, but posted modest losses for the week.

Gains of nearly 7 percent in shares of Apex Silver
Mines and a climb of 5 percent in shares of Newmont
Mining and Placer Dome Gold led the Philadelphia
Gold and Silver Index, which moved up by 2.9 percent
to close at 86.67. The index was just below the
week-ago close of 86.97.

The CBOE Gold Index also rose, adding 2.5 percent to
end at 76.96. For the week, it was down 0.8 percent.

The Amex Gold Bugs Index closed at 183.63, up 2.7
percent for the day, but down 1.3 percent for the week.

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