Metals reach new highs and Oil jumps on gasoline worries

Thurday Mar 30, 2006 3:47 PM ET
By Atul Prakash and Zach Howard

LONDON/NEW YORK (Reuters) - Records tumbled in precious metals markets on Thursday as gold raced to a new 25-year peak, platinum hit a record high and silver spiked to its highest in more than 22 years. Traders said fund managers pumped more money into commodities before the end of the quarter, further feeding a long-running bull market.

"We had a good showing yesterday in gold and silver and they continued to rally today on fund buying and short covering," said a broker at a futures commission merchant in New York. "But this isn't that different from a year ago, really," he added. "These are long-term bull markets and they just keep on moving higher."

Precious metals garnered support also from technical buying, strong base metals and a softer dollar, with prices seen heading toward their next big upside targets.

"We have multiyear highs and it's driven by investors' interest in commodities. I think funds are happy to have a strong quarter-end close for all these commodities," said a precious metals dealer in London.
Gold climbed to $586.70 an ounce, its strongest since January 1981, before trading to $586.20/587.10 late in New York -- a rise of 2.3 percent. That compares with $573.10/574.00 late on Wednesday.

Gold has jumped 14 percent since the start of 2006.

Analysts said funds were diversifying into commodities as they saw stronger returns there than in other asset classes such as bonds and equities.

Silver has soared by 66 percent in the past 12 months, while gold and platinum have jumped by 36 percent and 27 percent, respectively, during the same period.
Analysts said the metal would now target $600.

"It is possible for gold to push through $600 an ounce," John Meyer, analyst at Numis Securities, said.
"Short covering may cause prices to spike toward $650 but there is a significant risk of profit-taking."
The metal got some support from the dollar that slipped on Thursday, succumbing to profit-taking after scoring gains earlier this week. A weak dollar makes gold cheaper for holders of other currencies and lifts gold buying.
"If the fund buying is strong enough, it could lift prices to that target ($600) a lot quicker than we think," said Robin Bhar, analyst at UBS Investment Bank.

Traders said that signals of increasing inflation pressures also attracted investors to the yellow metal.
An inflation gauge favored by the Federal Reserve -- the price index for personal consumption expenditures excluding food and energy -- rose to a 2.4 percent annual rate in the fourth quarter, versus 2.1 percent estimated a month ago.

SILVER SURGES
Spot silver hit $11.70 an ounce, the highest since September 1983, and was last at $11.62/11.65 -- up 4.8 percent on the day -- buoyed by hopes that an exchange-traded fund (ETF) will soon be launched.
Silver has risen more than 13 percent since early last week when the U.S. Securities and Exchange Commission cleared the way for final approval of the first ETF.

But no registration statement has yet been approved that would allow the shares to be publicly issued, said a Barclays spokeswoman on Thursday.

Barclays also called "incorrect" a newswire report that the American Stock Exchange may begin listing shares of a proposed silver-backed investment vehicle as soon as next week.
Analysts feel that silver could reach $12 or even $15 in the medium-term, if the ETF eventually attracts copious buying by consumers and speculators.

Silver mainly is used in jewelry, photography and electronics.
ETFs are designed to track a commodity and trade like listed shares on an exchange. Some analysts said the fund had potential to attract up to 4,000 tonnes of silver, which would equal nearly two months of consumption.
Platinum surged to its highest-ever level of $1,090 an ounce, ending at $1,088/1,092, against $1,071/1,075 previously.

Palladium strengthened to $347 an ounce, the highest in more than three years, before closing at $343/347, versus $333.50/337.50.

Crude, Gasoline End Higher / Excerpt
Oil prices closed near two-month highs Thursday as Iran refused to back down from its plans to develop nuclear energy and traders focused on low gasoline inventories.

Crude for May delivery zoomed up 70 cents to settle at $67.15 a barrel on the Nymex. The contract has risen 5% this week on reduced gasoline supplies, supply disruptions in Nigeria and the ongoing nuclear tussle with Iran.

In a government report on Wednesday, gasoline inventories fell 5.4 million barrels to 216.2 million barrels last week. The drop was the largest since Aug. 2003, but inventories still remain slightly above last year.

Low levels of distillates propped up the price of heating oil, which rose 3 cents to settle at a five-month high of $1.88 a gallon. Although inventories dropped 2.5 million barrels to 124.2 million barrels in the Energy Department's report, they remain 15% above last year thanks to a warmer-than-usual winter.

Read the entire energy article at TheStreet.com:
http://www.thestreet.com/_tscrss/markets/energy/10276498.html

Look for volatile Oil prices this week

By Benjamin Train
Sunday, March 13, 2006

Due to the new al'Qaida warning and Iran's position on using oil to leverage their position before the U.N., I believe we may see strong volatility in both, the oil, and gasoline futures pricing this week.

Precious Metals should continue their consolidation toward their support levels and the March 17th options expirations period. However, with World affairs in an unstable condition, PM's may remain above their lower support numbers. MACD trend continues to be negative, pointing to a lower trend. Base metals like steel, copper and zinc have been showing an uptrend. May I suggest that this may be a good time to look for a point to re-enter the PM market.

U.S. Budget Deficit Hits Record High and Growing

U.S. Budget Deficit Hits Record in Feb 2006

Update - Wednesday, March 15, 2006

NEW YORK (MarketWatch) -- The dollar weakened against its major rivals Wednesday as growing concerns over the U.S.'s ability to finance its widening deficit outweighed a stronger-than-expected manufacturing report.

Capital flows into the U.S. rose to $66.0 billion in January as private investors increased their purchases of U.S. equities, the Treasury Department said. The trade deficit rose 5.3% to a new record of $68.5 billion in that month.

"The number is not good for the dollar," said Ashraf Laidi, chief currency analyst at MG Financial Group, noting that it is the second month that capital flows are lower than the deficit. "There is increased difficulty for the U.S. to finance its swelling trade deficit."

In New York trading, the euro rose to $1.2067, the highest level since March 7, before paring gains to trade at $1.2039, up 0.4% from late Tuesday. The dollar changed hands at 117.24 yen, down 0.4%. The dollar weakened 0.5% to 1.2964 Swiss francs.

Waning interest in Treasuries

The dollar sold off after the Treasury International Capital System (TICS) report showed diminished foreign demand for U.S. Treasuries.

Foreigners bought a net $4.4 billion in US Treasury bonds, down from $18.3 billion in December.

Private foreign investors sold $4 billion in Treasuries in January, after buying fewer Treasuries in December. See full story.

Michael Woolfolk, senior currency strategist at the Bank of New York, pointed out that for the second consecutive month, the shortfall in the January TICS was concentrated in US Treasuries.

"This can no longer be viewed as a one-off event associated with the year-end," he said.

Japanese holdings of U.S. Treasuries fell in January, while Chinese holdings rose.

Major Foreign Holders of Treasury Securities

http://www.treas.gov/tic/mfh.txt

(in billions of dollars)

HOLDINGS AT END OF PERIOD

2006 2005 2005 2005 2005 2005

Country Jan Dec Nov Oct Sept Aug

Japan 668.3 684.9 682.6 681.5 687.2 684.5

Mainland China 262.6 256.7 249.8 247.6 252.2 248.0

United Kingdom 244.8 234.4 223.0 187.7 183.0 174.8

Caribbean Banking 97.9 111.2 115.2 107.6 100.8 100.7

OPEC 77.6 66.5 67.6 63.7 54.4 53.6

Taiwan 71.6 71.1 71.2 71.8 71.8 71.6

Korea 68.3 65.4 65.3 60.2 60.6 58.9

Germany 65.2 67.0 65.7 64.4 63.5 65.0

Canada 54.9 53.1 53.8 51.6 47.7 48.3

Hong Kong 48.3 44.0 46.5 47.7 48.1 47.4

Norway 42.9 37.0 39.5 34.9 33.4 41.8

Luxembourg 39.5 39.9 40.9 40.9 41.3 42.3

Mexico 39.4 37.9 39.5 37.8 34.9 35.7

Switzerland 36.4 36.6 36.5 38.3 37.5 38.2

Brazil 28.5 27.4 27.4 25.7 26.2 23.7

France 27.7 26.6 27.0 25.7 24.2 24.2

Singapore 27.1 27.2 27.6 28.1 28.1 28.6

Sweden 20.0 18.8 19.7 19.3 19.3 19.3

Turkey 17.5 16.0 17.1 14.3 13.2 14.0

Belgium 17.3 17.5 16.2 16.0 16.2 16.3

Italy 16.0 17.1 17.8 16.4 15.5 16.1

Thailand 13.4 12.6 12.7 12.6 11.2 12.2

India 13.1 12.6 14.4 14.0 14.5 16.7

Ireland 12.7 11.3 14.5 13.6 10.6 10.6

Netherlands 11.3 11.4 12.6 14.7 13.9 14.4

Israel 11.2 11.1 9.4 10.6 10.5 10.1

Poland 10.4 12.7 12.5 12.2 11.9 11.1

All Other 143.7 145.7 145.3 140.6 131.9 134.2

Grand Total 2187.6 2173.7 2171.3 2099.5 2063.6 2062.3

Of which:

Foreign Official 1265.8 1248.8 1256.2 1237.4 1228.0 1240.2

Treasury Bills 210.5 201.9 214.9 199.8 195.4 205.4

Treasury Bonds & Notes 1055.3 1046.9 1041.3 1037.6 1032.7 1034.8

Excerpt from The Department of the Treasury/Federal Reserve Board

3/15/2006

1/ Estimated foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notes reported under the Treasury International Capital (TIC) reporting system are based on annual Surveys of Foreign Holdings of U.S. Securities and on monthly data.

2/ United Kingdom includes Channel Islands and Isle of Man.

3/ Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama.

========

Friday March 10, 9:20 pm ET

By Martin Crutsinger, AP Economics Writer

Record Amount of Spending in February Pushes U.S. Budget Deficit to $119.2 Billion

WASHINGTON (AP) -- Record spending in February pushed the federal deficit to the highest level ever for a single month.The government had a budget deficit of $119.2 billion after having run a surplus in the two previous months, the Treasury Department said Friday.

That reflected a big jump in outlays, which totaled a record $232.1 billion last month, surpassing the old record for spending of $230.9 billion set in December. Spending normally increases sharply in February, a month when the government is mailing out tax refund checks to early filers.

"You have a lot of refunds going out at this point in the tax filing season," said Treasury spokeswoman Brookly McLaughlin. She said that taxpayers who owe money to the government tend to wait until closer to the April 15 deadline to file their returns.

Government revenue totaled $112.9 billion in February, up 11.8 percent from February 2005. The old monthly deficit record of $113.9 billion was set in February 2005.

For the first five months of the current budget year, revenues totaled $873.1 billion, an increase of 10.5 percent over revenue collections during the same period a year ago. Spending during this period totaled $1.09 trillion, an increase of 7.6 percent from the same period a year ago.

The Bush administration is forecasting that the budget deficit for the 2006 budget year, which will end Sept. 31, will hit a record $423 billion, surpassing the old mark, in dollar terms, of $413 billion set in 2004. However, private forecasters believe the actual deficit this year will be below the administration's February forecast.