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

To: Crimson Ghost who wrote (64792)	2/28/2001 10:48:07 AM
From: CIMA	Respond to of 116756

Mullins: A golden message? By MARK MULLINS Globe and Mail Update Main Event. The recent rise in the price of gold, if sustained, has many implications for the markets. The history in this regard is not favorable, however, with every rally in the past few years met with renewed selling and new lows. It seems that the gold bugs are always crushed, with visions of $800 per ounce dancing in their heads. This time may be different, the standard line goes, and so let us follow the logic if that indeed comes to be true. The first implication has to do with growth. Gold prices, and in particular gold share prices, tend to lead nominal economic activity by six to nine months. A rise in bullion prices thus points to North America coming out of its slump later this year. Second, gold rarely goes up unless the U.S. dollar comes down. Fed easing and a sluggish economy now are key reasons why that might play out for the greenback. The falling dollar can in turn help ease monetary conditions and build a more sustainable economic recovery later. Finally, there is the safety haven aspect of gold pricing to consider. Further equity-market weakness, which could spill over into the banking sector (see Japan and Bank of Montreal earnings this morning), always holds the potential for a market panic. Today's rise in gold prices is a plausible precursor to such an outcome. On the other hand, as economists say, there is a lot of power behind the idea that this will just be one more failed rally for the gold bugs. You pays your money, you makes your bet. Overnight Recap. Lots of news out overnight. Japan led the way with a monetary policy easing of 10 basis points, no big deal in a quantitative sense but a reflection of gathering worries there. The Bank of Japan highlighted a weakening economy, lower stock prices and a deflation risk in its commentary. European producer prices for January show improvement in both energy and core prices. Germany (for import prices) and Spain both showed a core decline of 0.3 per cent or more, while France had a 0.3 per cent increase. The headline numbers all dropped between 0.3 per cent and 0.8 per cent in the month. Future inflation looks more promising as well, with a deceleration in broad money growth. The ECB reported that M3 grew 4.7 per cent over last year in January, compared to 5.1 per cent in the fourth quarter. Real growth numbers show regional differences in economic activity. Japan's industrial production fell 3.9 per cent in January, while France saw a large 46,000 drop in the unemployed and a reduction in the unemployment rate to 9 per cent. Italian industrial orders were up sharply in December, though this must be put against the gradual decline in industrial confidence there. Markets Right Now. Bond markets are still rising strongly in anticipation of this morning's U.S. Fed testimony. Equities are mostly marking time, after a sharp sell-off yesterday. The U.S. dollar is lower by a bit and the yen has turned down more than usual. Crude oil barely responded to last night's API inventory report, while precious metals and grains are moving in different directions, the latter to the upside. Heads Up. U.S. and Canadian GDP for the fourth quarter are being released today — expectations see U.S. growth at 1 per cent and us at 3 per cent. The February purchasing managers report is out Thursday. It is near a historic low, so a contrarian would like to guess that it will be stronger than expected and therefore provide a risk to the bond market. Fed chairman Alan Greenspan also speaks this morning. A widely distributed comment that he is presenting a revised text speaks volumes about the likelihood that his speech will move markets. Mark Mullins is an economic consultant and financial markets analyst.