Gold and Central Bank Dollar Holdings

123jump.com Staff
21 Apr, 2006
Metals

Central Bank around the world have decreased theri gold holding since the beginning of the decade. U.S. dollar volatility, persistent and growing trade and current account deficit in the U.S. may pormpt Central BAnks around the world to begin diversification of their holdings. The U.S. trade deficit is likely to reach above $900 billion by the yeaar end. Total gold holding of the U.S. is only $160 billion.

[R]Central Bankers may diversify U.S. dollar reserves into gold.[/R]
Gold closed up $12 or up 2% at close of the week. Since the beginning of the year yellow metal has gained close to 20% and in the last 52 weeks has added 46%. Market analysts are quick to predict gold’s climb to $700 in the coming months. Several factors are conspiring to convince traders that gold will continue to keep climbing. Central banks around the world need to diversify their foreign reserves holding. Sweden announced today that it will begin to diversify its holdings away from U.S. dollar. Sweden’s Central Bank reported that it has reduced its dollar holding to 20% from 37% and raised its holding in Euro from 37% to 50%. South Korean Central Bank made similar commitment to diversify its holding as well in February of last year.

China, Japan, Taiwan, Singapore and India are one of the largest holders of U.S. dollar. China and Japan will soon have to diversify their holdings. The current trade surplus enjoyed by Asian nations has increased their vulnerability to U.S. dollar price volatility. Total U.S. dollar reserve of these five nations is now approaching $1.6 trillion. Middle Eastern countries have established similar U.S. dollar reserve of more than $500 billion and Russia now holds $220 billion in its foreign currency and gold portfolio. Russian Finance Minister Alexei Kudrin questioned the U.S. dollar’s status as “absolute” reserve at the Finance Minister’s meeting among G7 countries in Washington. He went on to add that considering the volatility in the U.S. dollar value and size of its trade deficit with its trading partners in the world, the U.S. dollar does not deserve such a status.

The U.S. dollar fell 30% among a basket of foreign currencies between 2002 and 2004 on widening trade deficit. The deficit since then has grown more. In the year 2005 annual trade deficit has grown to $725 billion and is likely to cross $900 billion this year, yet dollar rallied in the last eighteen months. Federal Reserve Bank has raised interest rates fifteen times in the last two years supporting the advance of dollar. Once interest rate charged by the Fed crosses 6.5% the future of dollar may be uncertain. Then depreciation in dollar may accelerate at a rapid rate if large trade deficit persists. If current oil prices are maintained for the next eighteen months U.S. dollar is certain to take a hit if Fed fails to hike rates.

According to the latest IMF data the dollar forms more than 65% of total reserves among Central Bankers and euro constitutes 25%. According to World Gold Council 90% of gold consumption is driven by demand for jewelry and industrial needs and the rest is by the demand from investors. Recently demand for investors has jumped from historic average of 400 tons to 650 tons and is rising at rapid rate.

[R]6:00PM Oil at $75, gold at $635 and copper at $3.14[/R]
Iran’s hawkish comments that rich nations with billions of dollars in income can pay ‘real oil price’, boosted oil to a new high. Barrel of oil now trades above $75. Iran, fourth largest oil exporter, exports 3.9 million bpd and is a member of OPEC cartel with daily production of 27.81 millions of barrel per day. Iranian President did not suggest what is appropriate price of oil but Iranian lawmakers in the past have suggested a price north of $100 per barrel. Gasoline price are on the move at pump stations across the nation. According to the AAA.com web site of the largest motorist organization gasoline price at the pump are up 12% for the month and whopping 60% from a year ago. Last registered high price of $3.05 a gallon during Hurricanes Katrina and Wilma has been shattered in many regions of the country.

Several market analysts project that a new may be registered during the driving season in Memorial Day weekend. Nigerian rebel have refused to negotiate, Iran is suggesting higher prices and U.S., China and India continue to grow their oil demand. Oil price during this hurricane season may spike and score a new high if offshore-refineries are damaged for a sustained period of time. Even after six months of Katrina, according Minerals Management Services, a government agency, 22% of nations of Gulf of Mexico oil facility and 13% of natural gas producing capacity remains closed. In the last eight 27% of oil production and 20% gas production has been lost.

[R]4:30PM Earnings, Oil and gold dominate trading in stocks.[/R]

-Dow up 4.56%, Nasdaq down 19.69 and S&P down 0.18 points.
-Crude oil up $1.48 per barrel to $75.17 and gasoline closed up 3 cents to $2.20.
-Gold up $12.40 to $635.50 per ounce and silver up 44 cents to $12.96.
-Copper reached a new high to $3.14 up 18 cents.
-Yield on ten year bond rose to 5.010% and 30-year bonds to 5.095%.

Market averages rose early in the morning trading hours but lost momentum as tech stock declined and oil rose above $75 a barrel. Gold, silver rose but copper closed at a record high. Market averages meandered for the rest of the day. In New York and Nasdaq trading volume crossed 2.3 million shares. On New York Stock Exchange 290 stocks reached new highs and 88 stocks reached new lows. On Nasdaq 222 stocks reached new highs and 34 stocks reached new lows.

Earnings dominated trading sentiment for the rest of the day. Google rose as much as 8% before settling at 5.3% on 60% earnings growth and 79% revenue growth in the first quarter of this year. 3M reported earnings per share of $1.17 beating the estimate of $1.13. The stocks rose 3% at close. General Motors ((GM)) rose 3.8% after rising 10% on Thursday and Ford Motor lost 8% on weak earnings. Dell and Hewlett Packard lost after Citigroup lowered its rating to “Sell” on Dell. Dell lost 4.4% and Hewlett Packard lost 3% at close.

Getty Images, SanDisk and Satyam dropped on earnings news. Getty Images ((GYI)) dropped 13% on earnings miss of a penny and lowered guidance for the rest of the year. The company also mentioned during the conference call that market environment is too “promotional” and gross margin will suffer for the rest of the year.

SanDisk ((SNDK)) closed 8% lower on earnings worries and lower than expected gross margin. The company also warned that the average selling price for its removable memory products will keep declining at 20% or more every quarter for the rest of the year. During the conference call the company also reiterated that in the second half of the year manufacturing capacity in the industry is likely to double for NAND type of flash memory.

Satyam Computer ((SAY)) lost 12% at close on lowered revenue and net margin guidance. The company reported earnings of 39 cents per ADS on revenue growth of 34% for the Q4. The company guidance of 24% to 26% in revenue growth and earnings growth of 20% to 22% spooked investors.

[R]3:30PM Emerging markets remain a favorite destination of international investors.[/R]
Emerging markets closed mostly lower across the world but Korea, Mexico, Argentina, Philippines and Singapore gained during the day advancing close to 1% each. Emerging markets witnessed steady stream of fund flows from the domestic and international investors. Liquidity driven rally propelled many of these markets around the world to record levels. Indonesia, India, Russia and Mexico are trading at record levels.

India registered 7% gain for the week and was close to unchanged at close on Friday. Market dropped as much as 160 points at mid-day and recovered most of the losses on strong buying from domestic mutual funds. Metal stocks such as Tata Steel, Hindalco and Sterlite registered sterling gains in the week. Daily turnover in the market has steadily grown to $1.3 billion from $700 million in the beginning of the year. The Sensex Index in India is up more than 27% for the year.

Indonesia has scaled more than 25% gain for the year so far and has become one of the hottest destinations for the international investors. Funds have been pouring money as bond yields are one of the highest in the world. The index lost a fraction to close at 1,459. Bank Permata, Berlian Laju Tanker and AStra Agro Lestari rose more than 0.5% at close.

Russia closed lower as the main index RTS closed at 1,617 down 0.07% with daily turnover of $714 million. Market dropped more than 1.4% in the morning trading and made a recovery near close but oil and metals stocks rose. NorNickel and Sibneft closed up 1.5%. Russian Index is up 36% for the year so far.

Mexico and Argentina led advancers in Latin American region. Mexico closed up 0.8% and IPC index closed up at 21,140. The index has been recording new highs for the last three weeks as oil and copper prices have moved upwards in the international markets. The Bank of Mexico cut the overnight interest rate to 7% from 7.25% and lowered the rate for the ninth time in nine months. The Bank also signaled that more cuts are not likely in the near future. American Movil ((AMX)) and Femsa ((FMX)) rose a fraction but Cemex ((CX)) fell a fraction on earnings news. Grupo Mexico added 5% at close. Mexican index IPC has gained 400% in the last five years, 100% in last two years and 12% since the beginning of the year.

Argentina’s Merval Index gained 1.4% to close at 1,918 and close up 24% for the year and has averaged $29 million daily turnover for the year. Tenaris, the largest energy tube manufacturing company, closed up 4% to close at peso 69.40 and closed up $14 in New York to $230.80.

Brazil index Bovespa lost 0.4% to close at 39,774. Mining and oil stocks continued their ascent. The mining giant CVRD ((RIO)) rose 4% in New York trading to close at $51.50 and Petrobras in New York closed higher $2.65 to close $99.60.

[R]12:30AM European stocks advanced.[/R]
European markets extended early gains to close in the positive, boosted by strong U.S. markets start on the back of upbeat news from Google and 3M. All sectors advanced, except for the tech sector, dragged by disappointing quarterly results from Sweden’s Ericsson and Britain’s WPP. The German DAX 30 gained 0.5%, the French CAC 40 rose 0.9%, while London’s FTSE 100 climbed 0.8%.

[R]11:30AM The Dow and S&P advanced. The Nasdaq dropped.[/R]
The U.S. stock markets turned mixed in late morning trading after posting strength in early hours. The Nasdaq failed to sustain gains and moved into the negative territory, while the Dow and S&P remained above the flat line. U.S. blue-chip stocks rose on Friday to a fresh six-year high on stronger-than-expected earnings by Google Inc. ((GOOG)), but chipmaker Broadcom Corp. ((BRCM)) and computer company Dell Inc. (((DELL)) pulled the Nasdaq Composite Index lower. Broadcom fell 4% on analyst concerns about the outlook for the chip maker's margins and profits. Del fell 3.2% on brokerage downgrade, saying the company is losing its price advantage.

Gold stocks posted the most notable advance compared to other stocks which showed only modest gains. The sector showed a 3.2%, rebounding from 6.7% decline in the previous session on rising price of the precious metal. Gold for June delivery was last traded at $628 an ounce. Other metal prices also gained some ground after coming under pressure in the previous session. Bargain hunting helped the energy sector move to the upside, with the oil and oil service sectors both currently up about 1%. Meanwhile significant weakness was seen among disk drive stocks, with the sector currently showing a 3.9% decline. SanDisk ((SNDK)) and Hutchinson Technology ((HTCH)) dragged the sector down on lower quarterly earnings. The loss shown by the Nasdaq was also contributed by other tech stocks. Some semiconductor and networking stocks posted notable declines, with weakness also visible among biotechnology stocks.

[R]10:30AM Sensex closed above 12,000 and up 7% for the week.[/R]
Sensex closed at 12,030 down 9 points and gained 7% for the week. Volatile trading, rising metals prices and profits of software export companies and mutual funds investments all contributed to the positive sentiment towards the market. Market sentiment also improved as rating agencies raises the debt rating for India and Reserve Bank left the short-term interest rate unchanged.

After rising more than 9% in yesterady’s trading Reliance Industries dropped Rs 20 to close at Rs. 974 on trading volume of 3.3 million shares. Hindustan Lever, ITC and NTPC were other volume leaders with more than one million shares changing hands. Reliance Communication Ventures, Hindalco and Satyam Computers traded more than four million shares. Satyam closed lower at Rs. 808 on earnings guidance of 18% to 20% for the year disappointing the market. Mahanagr telecom was the most actively traded stock on the exchage with trading volume of 6.37 million shares and closed at Rs. 210. Tata Steel closed Rs. 654 up Rs. 8 after rising 6% on Thursday and Tata Motors closed at Rs. 977 after rising 3% in previous session. Tata Motors had faced volatile trading in the last ten days of trading on rising price of petrol and crude oil.
[R] 9:45AM Stocks opened in the positive.[/R]
The major U.S. equity indices advanced at the start of trading on Friday. The early strength resulted from positive sentiment generated by strong earnings from Google ((GOOG)) and 3M Co. which overshadowed concerns about another record for oil prices. A rebound by gold stocks also contributed to the upward trend. Gold stocks recovered after sharp declines yesterday after the price of the precious metal regained some ground. Energy stocks also benefited from bargain hunting, despite weakness in oil price. Crude for June delivery was down $0.55 at $73.14 a barrel. Among stocks, SanDisk Corp. ((SNDK)) dropped 6% after reporting Q1 profit fell almost 47% to 17 cents a share, on $623 million in revenue, blaming acquisition of Matrix Semiconductor and compensation expenses. Getty Images ((GYI)) slipped 11% after Piper Jeffray and Bear Stearns downgraded the company. The provider of stock images reported Q1 earnings rose 15% to 61 cents a share on 13% revenue growth. Satyam Computer Services ((SAY)) reported 36% profit jump in Q4, but the stock fell 9% on disappointing Q1 sales growth target of around 4%. In the first hour of trading, the Dow Jones industrial average gained 37.94, or 0.33%. The Standard & Poor''s 500 index was up 3.76, or 0.29%, and the Nasdaq composite index slipped 1.47, or 0.06%. Bonds rebounded slightly, with the yield on the 10-year Treasury note falling to 5.01% from 5.04% late Thursday.

[R]9:00 AM Stock futures indicated a positive opening on Google.[/R]
U.S. stock futures pointed to a higher opening, following a mixed performance on Thursday. The Dow finished at a six-year high, lifted by General Motors which reported a quarterly loss but much narrower than the loss a year ago. The Nasdaq finished in the red on weakness among tech stocks with eBay and Juniper networks falling notably down on disappointing guidance. On Friday, investors are expected to focus their attention largely on earnings reports as no economic news is due out today. S&P 500 futures were up 2.60 points, above fair value. Dow Jones industrial average futures were up 16 points and Nasdaq 100 futures rose 4.50 points.

Google ((GOOG)) was one of the strongest drivers in pre-market trading after reporting better than expected earnings growth. Google ((GOOG)) reported 60% earnings jump for Q1, citing revenue growth of 79%. Earnings for the quarter came in at $1.95 vs. $1.29 a year ago on gross revenue of $2.29 billion. Google generated 58% of sales from ads on its own site and 41% from its advertising partners. Google said that the international revenue accounted for 40% of revenue with the UK revenue forming 15% and AdSense revenue rose 59% in the quarter. The company reported net cash position at the end of the quarter at $8.4 billion and net cash from operating activities were at $825 million approximately 36% of revenue. This net cash balance does not include $2.2 billion from recent public offering and $1 billion payment to be made for the AOL deal.

Crude oil prices hovered over $73 on concerns about Iran’s nuclear program and declining gasoline stocks. Light sweet crude June delivery climbed to $73.30 a barrel. Gasoline fell 3 cents to $2.1870 a gallon, while heating oil lost 2 cents to $2.1870. Natural gas dropped 11 cents to $7.945 per 1,000 cubic feet. London Brent traded at $72.52. Gold further extended gains over $600. Gold jumped $4.9 to $628 per ounce on the Nymex. Copper rose 4 cents to $3.005 a pound. Silver dropped 12 cents to $12.40. The U.S. dollar traded higher vs. major currencies. The euro traded at $1.2349, down from $1.2380. The dollar bought 117.55 yen, up from 117.28. The British pound was quoted at $1.7831,down from $1.7915.

McDonald's Corp, ((MCD)), fast-food restaurant operator, reported that Q1 profit dropped to 49 cents a share, from 56 cents a year earlier, matching analysts' estimate. Revenue in Q1 advanced to $5.1 billion from $4.8 billion in Q1 last year. Global same-store sales advanced 5.2%.

Royal Caribbean Cruises, ((RCL)), travel firm, reported Q1 net income of 55 cents a share, down from 64 cents a share in the year-earlier period on decline revenue to $1.1 billion from $1.2 billion. Q1 included a net gain of 16 cents a share for a previously disclosed partial settlement of a lawsuit. The company topped analysts’ forecasts for earnings of 48 cents a share. The company expects Q2 earnings of 50-55 cents a share on higher fuel costs, down from analyst target of 73 cents a share.

Arch Coal Inc, ((ACI)), coal company, reported Q1 net income of 84 cents a share, up from 7 cents a share in the year-ago period on 6% revenue growth, topping analysts’ forecasts for earnings 58 cents a share. Arch lifted the bottom end of its prior earnings outlook to between $3.75 and $4.25 a share.

Sensient Technologies Corp., ((SXT)), maker of colors and flavors for food, reported Q1 net income of 34 cents a share, up 22% from 27 cents a share in the year-earlier period, topping analyst estimate of 32 cents a share. Revenue grew 5% to $263 million. Sensient added it expects 2006 earnings per share to be between $1.35 and $1.40 a share, topping analyst view of $1.28 a share.

McDonald's Corp, ((MCD)), fast-food restaurant operator, reported that Q1 profit dropped to 49 cents a share, from 56 cents a year earlier, matching analysts' estimate. Revenue in Q1 advanced to $5.1 billion from $4.8 billion in Q1 last year. Global same-store sales advanced 5.2%.

Royal Caribbean Cruises, ((RCL)), travel firm, reported Q1 net income of 55 cents a share, down from 64 cents a share in the year-earlier period on decline revenue to $1.1 billion from $1.2 billion. Q1 included a net gain of 16 cents a share for a previously disclosed partial settlement of a lawsuit. The company topped analysts’ forecasts for earnings of 48 cents a share. The company expects Q2 earnings of 50-55 cents a share on higher fuel costs, down from analyst target of 73 cents a share.

Ingersoll-Rand Ltd., ((IR)), diversified industrial manufacturer, reported that Q1 profit advanced to 76 cents a share, from 64 cents a year earlier on revenue growth to $2.71 billion from $2.46 billion in Q1 last year. The company topped analysts’ forecast earnings of 72 cents a share. The company expects Q2 earnings at 90 cents to 95 cents a share, bracketing analysts' view for 93 cents.

3M Co, ((MMM)), diversified industrial and consumer products maker, reported Q1 net income of $1.17 a share, up vs. 97 cents a share in the year-ago period, topping analysts’ forecasts for earnings of $1.14 a share. 3M added that sales grew 8.3% in Q1. The company raised its sales outlook and its earnings forecast to $4.55 to $4.65 a share from $4.45 to $4.60 a share in 2006.

OptionsXpress, ((OXPS)), options broker, reported Q1 net income of 29 cents a share, nearly double the 16 cents a share profit a year-ago on 64% revenue growth, matching analysts’ forecasts for earnings of 29 cents a share.

Ford Motor, ((F)), automaker, reported a Q1 loss of 64 cents a share, vs. earnings of 60 cents a share in the year-ago period on 9% revenue decline due to a 6% decline automotive sales. If not for non-recurring items, earnings would have been 24 cents a share. The company beat analysts’ views for earnings of 25 cents a share.

Prosperity Bancshares Inc, ((PRSP)), loans and deposit products services company, reported Q1 net income of 46 cents a share, up from 43 cents compared with the same period the previous year. Net interest income totaled $29.2 million from $24.5 million, as average earning assets advanced 19%. Q1 loans topped $1.56 billion, up 4.1% from the prior date period. The company was in line with analysts’ estimates.

RadioShack Corp, ((RSH)), consumer electronics retailer, posted Q1 net income of 6 cents a share, down from 34 cents a share a year earlier. The company added that write-downs in connection with its turnaround plan cut its pre-tax income by around $10 million. Sales advanced 3% to $1.16 billion. The company also added that weaker-than-expected wireless sales hurt its Q1 results. RadioShack missed analyst estimate for earnings of 17 cents a share. Same-store sales for Q1 shed 1% from year-earlier levels. Gross profit margins for Q1 dropped to 48.3% from 50.4% a year ago, on account of an unfavorable merchandise mix, more promotional activity and higher-than-average sales growth of its lower margin kiosk channel.

Schlumberger Ltd, ((SLB)), oilfield-services company, reported that Q1 net income advanced 38% to 59 cents a share, from 43 cents in the year-ago period on 34% higher revenue. Earnings before charges and credits were 59 cents against 32 cents. The company beat analyst estimate of 55 cents. Both more drilling services and higher pricing drove Q1 results, the company added.

[R]8:15AM European averages advanced at mid-day.[/R]
European markets advanced at mid-day trading, supported by six-year-high close of the Dow Jones index which offset disappointing news from Sweden’s Ericsson and Britain’s WPP. The German DAX 30 gained 0.5%, the French CAC 40 rose 0.5%, while London’s FTSE 100 climbed 0.6%, lifted gains for the second biggest department store Debenhams PLC. The company announced plans to return to the LSE by means of initial public offering to raise $125 billion amid hard trading conditions in the retail sector.

[R]7:45AM Asian markets closed mixed.[/R]
Asian-Pacific benchmarks closed mixed, following a decline in commodities prices and optimism about strong corporate releases which boosted key export-related stocks. South Korea’s Kospi led advancers, reaching a historic high with support provided by tech conglomerates. The Nikkei closed higher by 0.5% to 17,403.96, lifted by strength in blue-chip stocks like Sony, up 3.5%, Canon, higher by 4.6%, Honda Motor, up 4.6%, and Nissan Motor, up 2.2%. The Japanese index erased some of the early gains on partial skepticism about strong earnings. China Shanghai surged to 2.2%, led by Sinopec. Among regional decliners, Hong Kong’s Hang Seng lost 0.2% as profit taking in China-related stocks offset a rise in property shares. Taiwan Weighted index was down 0.1% as investors locked in gains. Australia’s All Ordinaries dropped 0.5%, dragged down by metals stocks Rio Tinto and BHP Billiton.