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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Bobby Yellin who wrote (37483)	7/21/1999 7:23:00 PM
From: Edmund Lee	Respond to of 116779

USA Gold Market report MARKET REPORT (7/21/99): Gold broke to the upside this morning as European currencies strengthened across the boards and the markets continued to digest the big U.S. trade deficit numbers plus the possibility that the U.S. government may have initiated a major change in dollar policy. We could also be seeing some gold short-covering associated with the perception that the playing field has shifted somewhat in the past couple of days. The Clinton administration from the outset has favored a strong dollar but now with producers of all kinds on the ropes due to collapsing commodity prices, the administration may have put the policy in reverse. If commodities were to stay depressed with oil rising, many producers of all types would be pushed to the ropes as expenses rose without a compensating rise on the selling end. Too, the European central bank, as mentioned here yesterday, cannot be looking all that favorably upon the beating the euro has taken at the hands of currency speculators worldwide. The euro has exploded to the upside in the past two days perhaps signalling the "era of benign neglect" toward the new currency may have come to an end. Though it may be too early to put a definitive stamp on these events, it appears that ECB may have joined hands with the U.S. to drive the dollar lower. As for Asia and the yen, another sore spot for U.S. policy makers, Reuters reports this morning that: "While Tokyo favours a weaker yen to support a still fragile economic recovery, Washington is warming to the idea of a weaker bias in the dollar, particularly against the yen, to deal with its explosively large deficit, they said. U.S. Treasury Secretary Lawrence Summers said on Tuesday: 'As for U.S. dollar policy, it is unchanged.' But he dropped the word 'strong' from the Treasury's usual mantra that a strong dollar is in the nation's best interests." Though we do not put much stock in such nuances as to whether or not the Secretary of the Treasury used the word "strong" next to the word "dollar," we do believe that the sudden rise in currencies over the past few days signals that something is going on in international policy circles -- and that something has to do with a decided shift in dollar policy despite Mr. Summers' comment to the contrary. It stands out as a mystery why he would be mum on the subject of a weaker dollar if that indeed is the policy. One would think that a few words of recognition would help the process. A weaker dollar would be good for gold in that most of its problems pricewise have been related to the dollar's inordinate strength, which in turn has encouraged the yen and gold carry trades and kept funds flowing into dollar based investments. Now we may get to test the theory that gold will travel with the new euro -- something postulated here some time ago. If so, we will be able to assess the future direction of gold by analyzing European financial and political trends. We will be watching closely to see if this might be the case. Today the euro and gold did indeed rise together, in the past, the two did indeed descend in tandem. We shall see what the coming weeks and months bring. As an aside, I would also be surprised if the U.S. stock market did not feel the effects soon. The stock market has become a proxy for savings in this country and with international investors-- a quasi currency if you will -- and we should be prepared to watch it act like a currency when officials make noise about what amounts to a devaluation. Perhaps this explains the Secretary's caution. The first wave of selling will likely come from across the waters as the bigger players move to the stronger currency by selling here and buying there. As we said yesterday, this is not a time to get lost in purely summertime pursuits. There is much rumbling beneath the financial surface that needs to be monitored. That's it for today. More later if something crops up. Have a good day, fellow goldmeisters.