Dollar Sags, Gold Rises

U.S. 10-year Treasury bond prices rose today,
after unexpected demand for 3-year notes at a $16 billion government auction.
Bonds have now risen for 3 straight days, after falling steadily since the
beginning of December on a string of positive, turn-around reports from the U.S.
Bond prices usually fall on economic strength and rise on weakness. Bond
prices shot higher last June, when the Fed initiated a rate-pause to deal with
slowing growth and moderating inflation. Bonds rose consistently through
the second half of 2006, as weak economic reports continued to roll in.
However, since the beginning of December, U.S. economic reports have been
characterized by high-growth and a positive spin, which has helped to push bond
prices lower.

The dollar fell against both the yen and the euro
today, despite comments by Secretary Paulson which hinted that there will be no
G-7 committee intervention for the yen. The G-7 committee has hinted that
the group will focus time during this week’s meeting to focus on yen weakness,
to address any significant unbalance in the global currency market. The
currency market has favored currencies backed by inflationary, positive-growth
economies, which puts the euro at a significant advantage over the yen and
dollar. Weak reports from Japan have contributed to the yen reaching
record lows against the euro and yearly lows against the dollar. Since
December, the U.S. has been producing positive economic numbers, which helped
propel the dollar off recent lows against the euro.

Crude oil fell fractionally today, on speculation
that U.S. supplies can easily handle any spike in demand stemming from winter
weather. Cold weather usually equates to higher energy prices across the
board, because more heating oil and natural gas is needed to heat homes.
However, supplies are well above the 5-year average, giving investors some
wiggle room in case of a demand explosion. A late-arriving winter helped
to push prices lower through the first few weeks of January, but prices have
been on the rebound lately. Natural gas futures fell about 1% on similar
speculations that supplies can easily handle any spike in demand.

Gold futures rose nearly 0.5% today, on
expectations that the dollar will weaken in the future, and oil will continue to
rise. Gold usually trades inversely to the dollar and with oil.
Investors turn to the metal as a safe-haven against dollar weakness; investors
are speculating that the dollar weakness which was evident in today’s trading
will lead to more weakness in the future. Copper prices rose over 3% today
on a decline in stockpiles in the U.S.

Grain prices traded mixed today. Soybeans
closed down fractionally. Corn fell over 1%, and wheat fell 1.6%.


No major economic
news to report for the U.S.

John Lee

Associate Editor