海角大神

Gold rises as US interest rates stay down

Gold rises, along with the euro and Australian dollar, after the S&P downgraded its outlook on the US. Gold rises above $1,500 and silver is trading above $44.

Front and center this morning we have a currency and commodity rally going on for the ages! But first鈥� Today is also my long time, good friend, and the Big Boss鈥� birthday! Yes鈥� Happy Birthday, Frank Trotter! YAHOO!

OK鈥� The currency and commodity rally for the ages鈥� It鈥檚 as if the overnight markets guys and gals had the light bulb go on over their collective heads, and inside the light bulb was this thought鈥� 鈥淚nterest rates around the world are going up, but staying down in the US and S&P just downgraded the US鈥檚 outlook to negative, so why are we holding dollars?鈥濃�� The rest is history as they say, with the euro () rallying to 1.45, the Aussie dollar () to $1.0650, and gold at $1,505鈥�

It鈥檚 pretty amazing once the markets figure out something, it鈥檚 like they鈥檙e playing poker, and decide to 鈥済o all in鈥濃�� For all the time before they finally figure something out, they hem and haw around giving this reason or that reason for supporting a sinking asset鈥� In this case it鈥檚 the dollar鈥� Look, I don鈥檛 want this to happen, but, the writing has been on the wall for some time now, and I said it would happen, so there you go!

We also had Sweden鈥檚 Riksbank adding fuel to the fire that鈥檚 burning under the pole that the dollar is strapped to this morning, by hiking their internal interest rate 25 basis points (1/4%) bringing their internal rate to 1.75%鈥� I expect the Riksbank to hike rates quite frequently this year, pushing their rate to 2.5% in the next year鈥� The Swedish krona () received a ton of love after the rate hike, and has finally moved back to its level of 2008鈥� You know, the levels we saw before the financial meltdown, the first of many things that have come along to rescue the dollar, but eventually allow it to be tied to the pole again鈥�

As I said above, gold is trading above $1,500 this morning鈥�and that move is responsible for helping the Aussie dollar reach a 29-year high at $1.0650! And don鈥檛 forget silver! Yes, silver is trading above $44 this morning! And once again, it鈥檚 important to remember that those who think that because gold and silver don鈥檛 pay interest, higher rates around the world would squash their bull market rallies, are wrong鈥� Or at least to me they are鈥� Instead, higher rates around the world squash the dollar, and gold and silver are being used as 鈥渄ollar alternatives鈥濃��

Another thing throwing gas (literally) on the fire burning beneath the pole that the dollar is tied to, is the jump in the price of oil yesterday and overnight鈥� Yesterday, the price of oil had slipped to $106.10, but this morning, it鈥檚 back to $109.80! And don鈥檛 think for a minute that investors aren鈥檛 using oil investments as dollar alternatives too!

With the rise in the price of oil, the 鈥減etrol currencies鈥� of: Canada, Norway, UK, and even Mexico (with their depleting oil reserves) get an extra boost against the dollar. So鈥� it鈥檚 an all-out rout on the dollar this morning鈥� It鈥檚 like the overnight markets ambushed the dollar, captured it, and are now holding it captive!

The Canadian dollar/loonie () got an extra boost after their March inflation rate jumped to 3.3%! Looks like the Bank of Canada (BOC) is going to have to come back to the rate hike table sooner than they had previously thought! I really think that the BOC needs to get their heads on straight here, since they had backed away from the rate hike table, not wanting to attract attention to the loonie, as they didn鈥檛 want the currency to get too strong鈥� But I would think that rather than not wanting to see the currency appreciate, that the BOC needs to accept a stronger loonie, and let it do some of the work of holding down inflation pressures鈥� Look, if oil is going to remain above $100, and food prices continue to be more than 鈥渢ransitory鈥� (as our Big Ben likes to say), inflation is going to remain a problem for the BOC and the Canadian people鈥� So, go ahead, and accept a stronger loonie, BOC, you鈥檒l be happy you did!

I guess that old kiss of death that I put on things from time to time, didn鈥檛 last too long for the New Zealand dollar/kiwi ()鈥� Yesterday, I was disappointed to see kiwi slip after talking about its steady rise in the past month鈥� But today, kiwi has touched 80-cents鈥� The last time kiwi was above 80-cents was three years ago! Kiwi鈥檚 high was reached in February of 2008, topping out at 0.8214鈥� So鈥� If kiwi is to return to its previous high, it still has a ways to go, eh?

The fact that the earnings season has been pretty good so far is weighing on the dollar, this morning, which should be good for the US鈥� But markets are taking it as reason to rally versus the dollar, on the 鈥渂oost to risk sentiment鈥濃�� So鈥� In that vein, today, after the market closes, Apple will announce first quarter earnings鈥� If the 鈥渞isk sentiment鈥� is to remain, and continue to put pressure on the dollar, Apple鈥檚 earnings will need to be strong.

Portugal and Spain were able to auction bonds this morning without major problems, which is a good sign for them, and for the euro. So, watch for this, folks鈥� Today or tomorrow we鈥檒l see the media refocus on restructuring Greek debt, to take the heat off the dollar鈥�

Yes, I don鈥檛 like being so cynical, but what can I do? I see it every time, and it鈥檚 so blatant! Of course, my beautiful bride would probably tell you otherwise鈥� HA! But think about all this for a minute鈥� I just call them the way I see them, and if that鈥檚 being a Smart-A** or cynical, so be it!

Not that too many people noticed it鈥� But I left three zeros off my reporting of the National Debt yesterday鈥� But we all know it鈥檚 $14+ TRIILLION at this point, and going up every second. But I do agree that when someone sees $14 trillion, they get the picture better if they see it as $14,000,000,000,000 鈥� It makes one think about it a little more, rather than just saying $14 trillion, and letting it roll easily off the tongue鈥�

As I look at the currency screens, all the currencies that should be in green are green, and all the currencies that should be in red are in red, except for one鈥� The Japanese yen (), which had been in rally mode for the past couple of weeks, just doesn鈥檛 mix well when the 鈥渞isk on鈥� is in full bloom like it is today鈥�

Then there was this鈥� From channelnewsasia.com鈥�

China is set to designate one bank in Singapore to take on the role of clearing yuan trades as it gradually moves to internationalize its currency.

It is believed that either the Bank of China or the Industrial and Commercial Bank of China will be the clearing bank, according to analysts

Some analysts see this as a move by China to reduce its reliance on the greenback as a reserve currency.

Thio Chin Loo, Senior FX and Interest Rate Strategist with BNP Paribas, said: 鈥淪o with the volatility of the US asset market over the last two years, it has probably caused some pain to the external balance sheets and therefore the need to want to diversify FX reserve holdings with the US dollar.鈥�

China鈥檚 central bank may also grant the Monetary Authority of Singapore a qualifying foreign institutional investor status which allows the MAS to invest in Chinese financial products on the mainland.

The stories on China and their move toward a freely exchangeable currency are becoming more frequent, aren鈥檛 they? I think China is moving more quickly than they had previously planned, because of the things going on in the US.

To recap鈥� Besides it being Frank Trotter鈥檚 birthday, the other big news for today is that we鈥檝e had a currency and commodity rally versus the dollar for the ages! The euro is over $1.45, and gold is over $1,500! Rate differentials, S&P negative outlooks, and pretty strong earnings from US companies are all ganging up on the dollar this morning鈥� Oil has rallied $3 overnight, and the Riksbank hiked rates 25 basis points.

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