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A report from the New Orleans Investment Conference
5:12p CT Sunday, November 14, 2004
Dear Friend of GATA and Gold:
News reports over the weekend, two of which are appended
here, suggest great stress in the currency markets, the
likelihood of intervention, and possibly even competitive
devaluations. If it comes to that, there may not be much
for the currencies to devalue against except gold and oil.
Please forgive the length of these reports but they may
be important.
This comes to you at the conclusion of the New Orleans
Investment Conference, where expert opinion seemed to
favor a "correction" decline in the gold price before a
resumption of the upward trend. Certainly it's hard to
imagine sentiment on the U.S. dollar being more
negative than it is, and yet with the central bankers
and finance ministers seeming frantic about the
imbalances in the world economy, perhaps anything may
happen.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
European Union Mulls Options
to Counter Surge of Euro
By Agence France-Presse
Sunday, November 14, 2004
http://story.news.yahoo.com/news?
tmpl=story&cid=1518&ncid=1518&e=3&u=/afp/20041114/bs_afp/eu_eurozone_e
conomy_041114050635
BRUSSELS -- Finance ministers from the 12-nation eurozone
are to meet Monday for talks clouded by the euro's record
surge against the U.S. dollar, which is adding to high oil
prices in threatening Europe's fragile recovery.
Some sources suggest they could issue a declaration aimed
at curbing the euro's rise, which saw it surge above the
symbolic 1.30 dollar mark last week, although they may hold
off on such a statement.
"Several ministers are concerned about the very high level of
the single currency and the situation on exchange markets, in
particular the Asian dimension," said one EU source.
Ministers are gathering amid signs that the appreciation of the
euro is starting to eat into growth, already threatened by surging
world oil prices in recent months.
Provisional figures from EU statistics office Eurostat Friday
showed eurozone GDP was up a mere 0.3 percent in the third
quarter from the second quarter.
Italy's Domenico Siniscalco last week claimed that "a
coordinated intervention is being talked about again," while his
boss Silvio Berlusconi warned that eurozone growth "won't get
any better unless there is a supranational intervention that
alters the euro's value."
Equally, German economics minister Wolfgang Clement has
called on the ECB "to do its part to calm the situation."
For all the mounting political pressure for ECB intervention,
EU sources were wary of predicting the outcome of Monday's
talks.
"What is possible ... is that there will be a declaration on the
euro," one source said.
The Asian angle on the euro's rise against the dollar is also
causing concern in Europe.
EU monetary affairs commissioner Joaquin Almunia warned
last week that the undervaluation of China's currency -- which
is pegged to the greenback -- was an economic headache for
Europe.
"The fixed exchange rate between the U.S. dollar and the
renminbi (yuan) is creating problems. ... We have to remind
some Asian countries that they have to create more flexible
exchange rates," the Spanish commissioner said.
Foreign critics have long argued that the yuan's decade-old
peg to the dollar has now left the Chinese currency seriously
undervalued, giving Chinese exporters an unfair advantage in
global markets.
The European Commission has said it and EU member
states share European Central Bank President Jean-Claude
Trichet's concerns over the "brutal" rise of the currency.
"Excess volatility and disorderly movements in exchange
rates are undesirable for economic growth," spokesman
Gerassimos Thomas said.
On Tuesday the eurozone ministers will be joined by their
counterparts from the rest of the 25-member EU.
Agenda items will include the decisions on structural reforms
taken at a November 5 summit, plans to reform the budget
rules underpinning the euro, and Greece's massive deficit
overrun.
At the summit, leaders endorsed a report by former Dutch
prime minister Wim Kok calling for swifter implementation
of the so-called Lisbon reform program, ambitiously aimed
at making Europe the worlds most dynamic economy by
2010.
The debate on budget rules -- enshrined in the EU's
Stability and Growth Pact -- will center on the commission's
proposed reforms to introduce budgetary flexibility at times
of economic downturn.
And on Greece, ministers will discuss the reasons behind
the massive revisions to its official figures, postponing any
decision on disciplinary action until December, sources
said.
* * *
Dollar Falls Most in Five Weeks;
Treasury Seen Tolerating Slide
By Monee Fields-Whitee
Bloomberg News Service
Friday, November 12, 2004
http://quote.bloomberg.com/apps/news?
pid=10000006&sid=aHHH3lmW.Plo&refer=home
The dollar fell the most in five weeks against the yen and
weakened against the euro on speculation the Bush
administration doesn't share the concern of Japanese and
European officials about the U.S. currency's slide.
Global currency, equity, emerging-market debt, and other
financial markets are operating in an orderly and favorable
way, a U.S. Treasury official said, declining to comment
about Bush administration dollar policy or the dollar's level
or direction. The official spoke in Washington on condition
of anonymity.
"Deep down in their hearts, they want it fall to try to restore
some order with all of the trade imbalances," said Enrico
Caruso, chief trader at Tempest Asset Management, a
currency hedge fund in Newport Beach, California. "But
that's the Catch-22, because you can't come out and say
that as the leading official."
Against the yen, the dollar dropped 1 percent today and
4 percent in the past month, dropping to 105.51 at 2:50
p.m. in New York from 106.63 late yesterday, according
to electronic currency dealing system EBS. The dollar
was at $1.2982 per euro, from $1.2906, down 5 percent
in the past month.
The U.S. currency fell to $1.3006 two days ago, the
weakest since the euro's 1999 debut. It will trade between
$1.2820 per euro and $1.3120 next week, Caruso said.
Against a basket of currencies tracked by the Federal
Reserve, the U.S. currency has shed 21 percent since
President George W. Bush took office in 2001 and
reached a nine-year low on Nov 8. Goldman Sachs
Group Inc. cut its dollar forecast, saying the U.S. won't
protest a decline because it wants to narrow its trade
gap.
BASF AG and Viscofan SA are among Europe's biggest
manufacturers that have said the euro's advance to a
record may hurt business. "The euro may become a
major issue if we have a substantial deterioration," BASF
Chief Executive Officer Juergen Hambrecht said yesterday.
The decline in the dollar boosted third-quarter sales at Avon
Products Inc. by one percentage point, to 11 percent.
The dollar remained lower against the yen, erasing a weekly
gain, even after the Commerce Department said retail sales
advanced 0.2 percent in October. The median forecast of
economists surveyed by Bloomberg was for a gain of 0.1
percent. The University of Michigan's consumer confidence
index climbed to 95.5 this month from 91.7.
"The market is not trading on the economic data. It's a
much more policy-charged environment," said Sophia
Drossos, a currency strategist in New York at Morgan
Stanley who used to work at the Fed. "Until we get more
clarity on the policy front, economic data are going to
continue to take a back seat."
The dollar will trade between $1.2850 per euro and $1.30
per euro heading into next week, and it will remain
between 105 yen and 107 yen, Drossos said.
U.S. Treasury Secretary John Snow, who hasn't spoken
about the dollar since Oct. 28, travels to Europe next
week for a meeting in Berlin of finance ministers from the
20 largest countries.
The Fed's Trade-Weighted Major Currency Dollar Index
has fallen 4 percent since the last week of September,
reaching a nine-year low of 81.36 on Nov. 8.
The Bush administration hasn't changed its "strong-dollar
policy," Treasury spokesman Rob Nichols said today,
adding the Treasury doesn't comment on daily "market
fluctuations."
"We believe that currency values are best set in open,
competitive markets," Nichols said.
Japanese Vice Finance Minister Hiroshi Watanabe said
yesterday currencies are moving rapidly and the dollar's
slump deviates from economic fundamentals. Watanabe,
who is in charge of currency policy at the finance ministry,
told reporters in Tokyo that Japan will "take aggressive
action" if necessary.
The yen gained to a seven-month high against the dollar
on Nov. 8.
European Central Bank Vice President Lucas Papademos
said "excess volatility is not desirable" in the currency
market because it hurts economic growth, at a press briefing
in Tokyo today. At least six other ECB policy makers, including
bank President Jean-Claude Trichet, made similar comments
this week.
With U.S. officials "not saying anything at all, investors are
making up their own minds about the merits of the dollar," said
Ryan Faulkner, a currency strategist in London at Lehman
Brothers Holdings Inc., the most accurate currency forecaster
in a quarterly Bloomberg survey. "I don't know what a
strong-dollar policy means."
Lehman predicts the dollar will fall to $1.34 per euro in 12
months and to 99 yen.
The Bush administration will tolerate a weaker dollar, the
Nikkei Financial Daily newspaper said, without citing
anyone. The report echoed a Wall Street Journal article
two days ago that said, without citing a source, the United
States is comfortable with a falling dollar, which may help
to narrow the U.S. deficit in the current account, the
broadest measure of trade.
A cheaper currency may make exports more competitive by
allowing U.S. companies to lower prices.
"As more influential papers report a shift in U.S. currency
policy, that augments simmering suspicion that the U.S.
strong- dollar policy is becoming a mantra," said Tsutomu
Soma, a currency and derivatives trader in Tokyo at
Okasan Securities Co. The dollar may drop to 103.50 yen
this year, he said.
Goldman Sachs lowered its forecasts for the dollar to 98
yen in three months, from a previous projection of 105.
Against the euro, the bank, the sixth-largest currency
trader according to Euromoney magazine, now predicts
the dollar will fall to $1.35 in three months, compared with
$1.27 before.
The gap in the current account, which includes some
investment flows, was a record $166.2 billion in the second
quarter, equivalent to 5.7 percent of gross domestic product.
The United States must attract about $1.8 billion in foreign
capital a day to compensate for the deficit and maintain the
dollar's value, according to Bloomberg calculations.
The yen's advance against the dollar accelerated after it
passed through 106.30 and 106, where so-called stop-loss
orders were placed, said Takashi Toyahara, executive
director of foreign-exchange trading at Nomura Securities
Co. in Tokyo.
Traders sometimes place such pre-set orders to limit
losses in case their bets go the wrong way.
Stronger currencies may damp economic growth by making
exports more expensive abroad. A government report today
showed Japan's economy unexpectedly slowed in the third
quarter. Growth in the 12-nation euro region also slumped
in the July-to- September period, a European Union report
showed.
"It's more evident that the outlook for export-led recoveries
in Japan and Europe is becoming dimmer,' said Shimpei
Uike, who invests in overseas debt at Asahi Life Asset
Management in Tokyo. "It's only natural there will be some
more discomfort that we'll hear from the regions."
Japan's economy expanded at a 0.3 percent annualized
pace, less than the 1.1 percent growth rate in the previous
quarter and below the 2.1 percent median forecast in a
Bloomberg survey.
"The failure for the yen to fall after the GDP numbers just
highlighted the weak sentiment for the dollar," said
Toyahara at Nomura.
Economic growth in the 12-nation euro region slowed in
the third quarter to 0.3 percent, after the economy expanded
0.5 percent in the previous three months. The median
forecast was for a 0.4 percent expansion.
----------------------------------------------------
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----------------------------------------------------
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----------------------------------------------------
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