Gold Falls with Oil

U.S. 10-year Treasury bond prices rose today,
extending last week’s gains, ahead of tomorrow’s CPI report and this week’s
multi-billion dollar auction of U.S. 2- and 5-year notes. Bond prices
surged last week after Fed Chief Bernanke said that inflationary pressures
should moderate into the future, which spurned speculation that the Fed will be
forced to cut rates before the year is out. Bond prices tend to fall on
economic strength and rise on weakness, so investors took Bernanke’s dovish
comments as a negative for the economy. Housing continues to be a major
factor in bond prices and the overall economic picture; last week’s weak housing
numbers helped to propel bonds even higher. Tomorrow’s CPI report should
shed more light on the economic health of the U.S.

The yen fell against the dollar and the euro
today, on anticipation of a rate announcement to come later this week from the
BoJ. The yen has been under major pressure lately in the market, trading
near record lows against the euro and yearly lows against the dollar.
Relatively weak-growth economic reports have helped to push the yen to lows, and
the BoJ has seen little reason to lift rates to battle inflation. The
international currency market has favored inflationary, positive-growth
economies, which puts the euro in the best light. The dollar was boosted
at the beginning of 2007 on a string of positive reports, but recent comments
from Bernanke and a weak housing report has allowed some dollar doubt to creep
back into the market.

Crude oil fell nearly 2% today on warm weather in
the U.S. Crude has been trading within a fairly tight range just below $60
a barrel for more than two weeks now, testing resistance and consolidating.
Crude fell more than 30% from record July highs, and then bounced in mid-January
when cold weather finally arrived in the U.S. Cold weather usually equates
to higher energy prices, as more fuel is needed to heat homes. Natural gas
also fell today on warm weather, down about 1%.

Gold futures fell off of recent highs today, to
close down nearly 2%. Gold fell on a rising dollar and falling oil.
Gold usually moves inversely to the dollar and with oil, which is exactly what
happened today. Investors dumped gold in favor of dollar strength.
Copper futures fell over 2% on lower demand expectations and high supply levels.

Grain futures traded mixed today. Soybeans
rose about 0.6%, wheat fell about 0.6% and corn fell fractionally.


Economic
News

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

John Lee

Associate Editor

johnl@tradingmarkets.com