Alex:NYTimes:Gold retesting 315 support level .
TA
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October 11, 1999
Gold Price Softens In Europe
REUTERS INDEX | INTERNATIONAL | BUSINESS | TECHNOLOGY
Filed at 8:19 a.m. EDT
By Reuters
LONDON (Reuters) - Gold eased to near $315 in early European business
Monday, helped by news that Ashanti Goldfields Co Ltd was moving
toward a merger with Lonmin.
That cut the chance of a major hedge buy back, dealers said.
London gold fixed at $317.75 a troy ounce Monday, down Friday
afternoon's $323.25, having softened during Asia trade.
Lonmin Plc made an all-share bid for Ashanti conditional on resolving the
Ghanaian mining company's gold price hedging crisis, industry sources said.
Ashanti, Africa's third-largest gold producer, gave little away in a brief
statement to the London Stock Exchange, saying only that it had received a
share-for-share merger offer, subject to certain pre-conditions.
The sources said the Lonmin offer was likely to be at $5.50-6.00 per share,
valuing Ashanti at some $600 million. Ashanti shares had been quoted at
$4 before being suspended earlier in London.
Gold spiked to two-year highs of $338 last Tuesday amid fears raised by
news that Ashanti's hedge book had a mark to market value of several
hundred million dollars in the red.
Closing the book at $325 would have meant taking a loss of $570 million,
triggering margin calls of $270 million from the miner's bullion bank counter
parties.
``One assumes there will not now be panic buy backs. There was talk last
week that if one of the counter parties wanted to push through (with
margin calls) there could be buy backs and that everyone would be a
buyer,' one London dealer said.
GOLD REPEATS PATTERN
Gold moved toward $315 support for the fourth time in a row during early
European business, raising the prospect of the fourth recovery in
succession to $325 during U.S. trade.
``This $315 area has proved to be a major support level. The format has
been for Europe to sell it off and the States to buy it back,' the dealer
added.
``The Ashanti deal could be a sign that things are getting better. If it breaks
$315, there could be a true test of the downside,' he said.
Spot gold was last at $317.00/$319.00 versus Friday's New York close of
$322.30/$324.30.
Platinum was quiet at $420.00/$425.00, just down from Friday's U.S. close,
with lease rates not far off Friday's 70 percent for one month, near the
all-time highs of June 6, 1997.
``It would be wrong to draw too many parallels with 1997 as a number of
things are different this time around but it does serve to remind us of
platinum's upside potential,' Ross Norman of Precious Metals Research
said in a weekly report.
Silver was three cents down at $5.49/$5.52 while palladium was up $4 at
nytimes.com
TA
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Message #42658 from Alex at Oct 11 1999 5:45AM
Interest Rates Will Go Up
Central banks getting their ducks in a row.
The markets had a lucky escape last week when all three big western central banks kept interest rates on hold. But the relief may prove temporary.
The US Federal Reserve, which has tightened monetary policy twice since the end of June, is likely to do so once again on November 16. The Bank of England may even
beat the Americans to the punch. And the European Central Bank is soon expected to raise rates for the first time. With the notable exception of Japan, rates are rising
across the industrialised world.
It is easy to see why central bankers are suddenly on guard. Recovery from last autumn's crisis has been remarkably swift and comprehensive. The US shows few signs
of slowing down. Third-quarter gross domestic product is likely to expand by 4-5 per cent despite a considerable drag from the current account deficit.
Last week's 5.1 per cent surge in German manufacturing orders shows recovery taking hold in the euro-zone. Even Japan is rising from the dead judging by the more
optimistic tone in the latest Tankan business confidence survey.
Put that together, and global growth is likely to surprise on the upside, according to Salomon Smith Barney. The investment bank is forecasting growth of 2.5 per cent
among the industrial economies this year, rising to 2.75 per cent in 2000. But Kim Schoenhoeltz, its chief economist, thinks those estimates will end up looking
conservative.
Improving growth has rekindled inflationary fears. In the US, rising oil prices are pushing up the consumer and producer price indices, though their core measures remain
subdued. Of more concern to Fed chairman Alan Greenspan is the tightness of the labour market, even though last Friday's September employment report - showing a
small drop in the payroll numbers - provided a bit of relief.
The Bank of England's monetary policy committee has also cited the labour market as well as rising house prices and growing consumer confidence to explain its rate
increase last month. Even Europe is beginning to experience a gradual fall in employment, though it remains uncomfortably high.
What should investors make of this mix of rising rates, higher growth and potentially rising inflation? One fairly straightforward conclusion is that it points to dollar
weakness. As growth differentials narrow between the US and the rest of the world, foreign investors will tend to repatriate their money. As they sell American assets, the
US will have increasing difficulty financing its current account deficit, potentially forcing it to raise interest rates higher and thus further dampening growth - a vicious circle
in the making.
This process has already begun; the dollar has weakened dramatically against the yen since July. But at $1.07 to the euro, it has hardly budged against the new
European currency. That probably reflects the fact that international investors were chronically short of yen at the start of the year, while they have been fully weighted in
Europe. Nevertheless, it suggests upside for the euro in the months to come.
Higher growth and inflation is typically bad for bonds, though current yields already reflect much of that. The short end of the yield curve and futures markets are pricing in
up to 150 basis points of tightening in Europe and one or two more US rate rises.
The fact that the central banks appear willing to take strong, pre-emptive action should also increase investors' confidence that any uptick in inflation will be contained.
This is further underpinned by the fact that real yields are already relatively high, balancing expected above-average growth. In the US, for example, they are close to 4 per
cent, given expectations of 2-2.5 per cent inflation and a long bond yield of nearly 6.2 per cent.
Consequently, if central banks end up not having to raise rates by as much as the markets currently expect, bonds should stage a decent rally, especially as fears of a
Y2K liquidity crunch are likely to push money into safe Treasuries, gilts and bunds.
Stocks, meanwhile, ought to benefit from higher growth and the stronger earnings this produces, even though rising rates will dampen this somewhat. The snag here is
valuations, especially in the US where they remain very rich. As the year end approaches, bonds may turn out to be a better bet than equities.
The Financial Times, October 11, 1999 |
