New Developments Abroad: Gold Down Sharply as Dollar Extends Recovery

August 15, 2008

Gold hit an intra-day low of $787.1 per ounce and is off 2.7% on balance today and down some 24% from its mid-March record high.  Silver fell even more sharply today than gold.  Copper is way down as well.  Commodity weakness and dollar strength are reinforcing one another.  Dollar uptrend continues to feed off weaker growth in Europe and Japan than in the United States.

Overnight dollar advances amount to 1.1% against the Australian dollar, 0.7% against the euro, yen and sterling, 0.5% against the Swiss franc and kiwi, and 0.3% relative to the Canadian dollar.  Sterling has dropped in 11 straight sessions against the dollar, its longest negative run since January 1971. Even the Chinese yuan dipped slightly today, but only sterling set a new 2008 low.

The Nikkei (+0.5%), Paris Cac (+1.4%), German Dax (+1.1%) and British Ftse (+0.6%) all rose.  Stocks fell in Hong Kong (-1.1%) and Singapore (-0.7%).

10-year Gilt yields slid 4 basis points.  The yield on 10-year JGB’s rose 3.5 bps to 1.465% on profit-taking after hitting a 4-month low of 1.415% this week.

The monthly Tankan proxy indices calculated by Reuters fell sharply in August.  Manufacturing fell 6 points to -16, lowest since March 2003.  Non-manufacturing dropped 3 points to -6, worst since December 2003.  Next BOJ quarterly Tankan gets released on October 1st.

Chinese fixed asset investment rose 29.5% y/y in July, same as in June and up from a gain of 26.8% in 1H08.  Quarterly report of the Peoples Bank of China  promises stable policy that will sustain economic momentum while containing inflation.

There was more hawkish rhetoric from ECB member Juergen Stark (insufficient drop of expected inflation since the July rate hike) and the Finnish prime minister (no sign yet of slower inflation).

Italy is celebrating Assumption Day.

British mortgage repossessions rose 24% y/y and 3.9% on quarter in 2Q08.

The volume of New Zealand retail sales fell 1.5% in 2Q, worst since at least 1995, after dropping by 1.2% in the first quarter.  The data are consistent with a recession in that economy.  The RBNZ cut its cash rate on July 24th to 8.0% from 8.25%.  That was the first rate reduction since November 2001.  The central bank meets next on September 11th.

Hong Kong reported a shocking and unexpected 1.4% decline of real GDP in 2Q08.  On-year growth slowed to 4.2%.

WPI inflation in India accelerated further to 12.44% in the week to August 2nd.

Singapore retail sales were unchanged in June.

Later today, Canada releases the monthly manufacturing survey, and the United States releases monthly capital flows, industrial production and U. Michigan consumer sentiment.


Comments are closed.