Oil, Gold Erase Losses To Close Higher

U.S. Treasury bond prices traded fractionally
lower today. The U.S. government sold $20 billion in 2-year notes today in
an auction, which drew a yield of about 4.9%. Bond prices have been
trading within a fairly tight range for the past two weeks, after falling
steadily since the beginning of December. Bond prices usually fall on
economic strength and rise during weakness. Bonds initially shot higher
last June, when the Fed initiated a rate-pause on the grounds of slowing U.S.
growth and moderating inflation. Bond prices moved consistently higher
during the second half of 2006, on continued weak housing, confidence and other
economic reports. However, the beginning of December saw a dramatic shift
in housing numbers, as well as other consumer, sales and confidence indicators.
Bond prices have been falling since the beginning of December when the
turn-around reports started to appear. Speculators will be paying close
attention to any future housing reports, which are used as key indicators to the
broad economic health of a country.

The yen gained dramatically against the dollar
and the euro today, on a Reuters report that suggested that a G-7 meeting next
month could focus on the yen’s recent declines. Extreme continued weakness
in the yen has led global leaders to feel that the playing field is not
balanced, which could lead to major disruptions and upsets in the currency
market in the future. Investors have been selling the yen heavily against
the dollar, euro and other foreign currencies on Japan’s slow-growing economy.
Sentiment across the board led to record lows against the euro and yearly lows
against the dollar, but today’s report by Reuters of international opposition to
yen weakness led to a significant bounce off of those lows.

Crude oil closed with fractional change today.
Crude prices reacted initially to rising inventories by selling off, but erased
those losses to close barely green on the day. Crude stockpiles rose by
about 750,000 barrels last week, and crude supplies are well-above their 5-year
averages. Crude has fallen over 30% from record July highs, and OPEC has
called for massive international output reductions to curb the falling prices.
Just recently crude prices have turned around and started to push higher; price
strength can be seen in crude’s rebound after selling off on a strong inventory
report. Natural gas fell nearly 3% on speculation that strong inventories
could easily handle any spike in demand.

Gold erased early losses to close up fractionally
today. Gold initially sold off with energy, and on relative dollar
strength, but the late-day crude rally helped to spark gold buying. Gold
usually trades inversely to the dollar and with oil, and it was oil action that
lifted gold off the day’s lows to close slightly green. Traders turn to
gold as a safe-haven in the face of rising energy costs and dollar weakness.
Copper prices continued to rise today, closing up nearly 1% on speculation that
inventories have fallen in China.

Grains fell across the board after President Bush
signaled last night that ethanol will not be the only source for alternative
fuels, and that new sources aside from grains will be explored in coming
research. Wheat fell nearly 3%, corn fell nearly 2% and soybeans fell just
over 1.5%.

Economic News

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

John Lee


Start your trading day with

Futures Trend Matrix
designed to help you define the short-, intermediate-, and long-term trend for
more than 40 active futures contracts.