-- Posted 8 June, 2006 | | Source: SilverSeek.com

Note: A varied format of the Gold Seeker Report will be presented this week as Peter Spina assumes reporting privileges. 

Market Recap:

Volatility remained the theme Thursday with the markets plunging by mid-day, lower by over 173 points before staging a rally into the close, finishing slightly positive on the DOW.

"The global anti-inflation theme has intensified," said Alan Gayle, senior investment strategist for Trusco Capital Management. "It's clearly a sign that central banks are very focused on inflation, and that they're going to raise interest rates so both inflation and inflation expectations are contained."

The U.S. Dollar was strong as oil weakened, adding onto prior day’s gains as the ECB raised rates by 25 basis point as some observers had been looking for a possible 50 basis point hike.  Bonds rallied  sending the 10 year Treasury bond under 5%.

Markets & Economy:

ECB Raises Benchmark Rate to 2.75 Percent to Counter Inflation

“The European Central Bank increased its benchmark interest rate for the third time in six months to restrain inflation as economic growth accelerates.

…

``Inflationary pressures are rising,'' said Elga Bartsch, European economist at Morgan Stanley in London. ``So the ECB will have to go again this year. I don't think another increase is on the cards for July though. It would cause too much upheaval in the markets.''

Stocks tumbled around the world on concern interest rates will keep rising as crude at $70 a barrel and growing economies give companies room to raise prices. South Korea's central bank today unexpectedly increased its benchmark rate to a three-year high. In the U.S., Atlanta Federal Reserve Governor Jack Guynn was the fourth official this week to say inflation is a concern.”

US surge in unsold homes may herald cooling market

“The number of unsold homes on the American market has risen by more than 1m over the past year, a gain of a third, increasing the prospect of a rapid cooling of the US property market.The inventory of new and existing homes waiting for buyers is now approaching 4m.

..

The total value of US residential property is now around $19,000bn (€15,000bn, $10,000bn), according to the Joint Center for Housing Studies at Harvard University. The US Census Bureau calculates that there are around 123.9m housing units in the US.”

States looking to cash in assets

“Illinois hopes to get at least $10 billion by selling its lottery and an additional $15 billion for leasing all or part of the 274-mile Illinois Tollway. Missouri plans to auction its student loan portfolio. Pennsylvania is considering leasing its highways, and Chicago is studying a plan to lease Midway Airport to private investors.

The deals would let governments collect billions of extra dollars without raising taxes but would reduce their future revenue.”

CFO Optimism Drops as Risks Multiply

“Only 24 percent of finance chiefs are more optimistic about the U.S. economy than they were last quarter; rising wages, falling consumer demand, and increased fuel costs top their lists of concerns. ”

Market Statistics:

Gold & Silver Statistics:

Global Gold ETF Holdings

[WGC Sponsored ETF’s]

COMEX Gold Trust (IAU)

Silver Trust (SLV)

Gold & Silver Commentary:

Gold and silver continued to sell-off with spot gold moving to below $610 an ounce and silver briefly moving under $11 before lifting some in electronic trading. The metal equities were weak again, breaking support levels before staging an late-day rally moving higher with the general equities.

“You did not stop inflation by jumping up and down on the gold price, the major barometer of inflation in the 1970s, nor can you in 2006.

Gold has always been a primary barometer of inflation whose price has been depressed from time to time by concerted action of central banks. They do this in hopes of killing inflationary psychology. Rather than doing that they have announced a more serious inflation presence, not its cure.

They have invited major interests into gold at more comfortable prices rather than keeping them out.

What you are seeing is nothing new at all. Similar action in the 1970s did not prevent inflation, dollar weakness, or create any change in the gold price bull market.

…

In conclusion do not fall for the concerted action presently in place to break inflationary expectations. It did not work in the 70s and will not now.” – More

-         Jim Sinclair, JSMineset.com

June Gold closed down 18.3 at 609.1. This was 0.6 up from the low and 10.4 off the high.

July Silver finished down 0.815 at 11.075, 0.625 off the high and 0.025 up from the low.

The bearish developments stacked up at the beginning of the session seemed to intensify as the session progressed and with the stock market in a full washout, oil prices crumbing and the industrial metals under a wave of selling it is not surprising that gold fell through a series of critical chart support levels. We suspect that the ECB rate hike and the fear of an over tightening by the US Fed later this month contributed to the selling wave. It goes without saying that the geopolitical anxiety level declined dramatically with the events in Iraq and Iran over the last 24 hours. Some traders suggested that seeing stocks down for the 5th straight session created more of a deflationary condition than an inflationary condition. In the end the Press continued to document what they called long term positioning unwinding and that type of dialogue certainly seemed to embolden the bear camp and in the process undermined already vulnerable spec longs.

A major range down washout in silver certainly undermines the structure of a market that was recently documented to be moderately net spec long. Like gold, the silver market was undermined by the rising rate environment that was entrenched by the ECB rate hike. With the Dollar also rising sharply, copper and many physical commodities under aggressive selling pressure the just wasn't anything that would be bulls could hand onto. As suggested in the gold recap today, there was more of a deflationary condition present in the market than an inflationary condition and that seemed to give the sellers a greenlight.

-         The Hightower Report, Futures Analysis and Forecasting

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-- Posted 8 June, 2006 | |

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