Dollar's temporary "come-back" creates strong buying opportunity in gold.

Crude-oil futures also dropped sharply.

by Polya Lesova
Last update: 2:49 p.m. EDT March 31, 2008

NEW YORK (MarketWatch) -- Pressured by a firmer dollar, gold futures finished down sharply on Monday and for the month of March, but the precious metal advanced 10.3% during the first quarter.

Sunday March 30, 8:05 pm ET

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With Gold Prices reaching new historical highs, investors are flocking to gold as a safe-haven amid inflation fears and global uncertainty, including the worldwide sub-prime mortgage crisis. Investors in China and other Asian countries are diversifying with physical gold investments as a hedge against the inflationary pressures on the booming Chinese economy.

In China, the Shanghai Gold Exchange and the Shanghai Futures Exchange are reporting new record volumes of gold investment activity amid rising gold prices worldwide. Jonathan Rose, CEO of Capital Gold Group, is a recognized speaker for worldwide gold markets, including Hong Kong, Singapore, China, Europe and the USA.

U.S. Shares in Longest Funk Since 1970s; Credit Crunch Could Prolong Weakness

by E.S. Browning

Over the past 200 years, the stock market's steady upward march occasionally has been disrupted for long stretches, most recently during the Great Depression and the inflation-plagued 1970s. The current market turmoil suggests that we may be in another lost decade.

The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

A look at stocks during downturns

The Standard & Poor's 500-stock index, the basis for about half of the $1 trillion invested in U.S. index funds, finished at 1352.99 on Tuesday, below the 1362.80 it hit in April 1999. When dividends and inflation are factored into returns, the S&P 500 has risen an average of just 1.3% a year over the past 10 years, well below the historical norm, according to Morningstar Inc. For the past nine years, it has fallen 0.37% a year, and for the past eight, it is off 1.4% a year. In light of the current wobbly market, some economists and market analysts worry that the era of disappointing returns may not be over.

Until last fall, many investors had viewed the bursting of the tech-stock bubble as a nasty but short-term setback. The market had resumed its upward march, reaching new highs in October.

Then the credit crisis began weighing on stocks, as did the possibility of a recession. By March 10, the S&P 500 was down 18.6% from its Oct. 9 record close, nearing the 20% decline that signals a bear market. It has rebounded since then amid the Federal Reserve's efforts to stabilize the financial system, but it remains 13.3% below its October record.

Conventional stock-market wisdom holds that if investors buy a broad range of stocks and hold them, they will do better than they would in other investments. But that rule hasn't held up for stocks bought in the late 1990s or 2000.

Over the past nine years, the S&P 500 is the worst-performing of nine different investment vehicles tracked by Morningstar, including commodities, real-estate investment trusts, gold and foreign stocks. Big U.S. stocks were outrun even by Treasury bonds, which historically perform much less well than stocks. Adjusted for inflation, Treasurys are up 4.7% a year over the past nine years, and up 5.8% a year since the March 2000 stock peak. An index of commodities has shown about twice the annual gains of bonds, as have real-estate investment trusts.

Stocks also underperformed other investments during the 1930s and the 1970s. During both of those periods, stocks would rally strongly, only to fade. It took well over a decade in each case for stocks to move lastingly upward.

Righting the Ship

So far, the current decade hasn't featured the high inflation of the 1970s or the high unemployment of the 1930s. That makes some analysts and economists hopeful that the stock troubles won't be as bad or last as long as they did back then, despite the housing crisis and the breakdown in parts of the mortgage and lending businesses. Many of them hope that the Federal Reserve will do a better job of righting the ship than it did in those prior decades.

Finance professor Jeremy Siegel at the University of Pennsylvania's Wharton School has written about stock behavior back into the 19th century. During the past decade, he points out, the worst years were from 2000 through 2002, when stocks fell sharply. Although the S&P 500 has been inconsistent since then -- rising strongly in 2003, then registering single-digit gains in 2004, 2005 and 2007 -- he considers the bad times largely past. Other optimists agree.

The Pessimistic View

But Yale economist Robert Shiller, who predicted the market trouble in his 2000 book "Irrational Exuberance," warns that the market still hasn't shaken off its excesses. He and some other analysts think the latest volatility is a symptom of more trouble to come.

"I have to say that this isn't a great time to be in the stock market," says Prof. Shiller. "The housing crisis that we are going through is going to put a damper on the economy that is longer than a recession. I don't see the stock troubles ending as quickly as many people are imagining."

Historically, stocks rise about two years out of every three, for an average gain of 7% a year when controlled for inflation, according to Prof. Siegel. Stocks have shown gains for almost every 10-year period since 1925 -- 98.6% of the time, according to Ned Davis Research.

But when stock investing becomes a mania, as it did in the 1920s, the 1960s and the 1990s, it leads to prolonged periods of subpar performance, according to financial historian Richard Sylla of New York University's Stern School of Business.

Prof. Sylla has examined stock booms and busts back to 1800. He found periods of exceptional strength in the late 1810s and early 1820s, the 1840s, the 1860s and the early 1900s. Those periods were followed by lengthy weakness in the 1830s, the 1850s, the 1870s and before 1920. In a 2001 paper, he forecast a 10-year period of stock weakness.

"When you have extraordinary returns, as we did from 1982 through 1999, then usually the next 10 years aren't very good," says Prof. Sylla. His research suggests that exceptional booms steal gains from the future. When the booms end, returns become subpar, so that average returns over the longer term fall back to the 7% norm. Economists call this "reversion to the mean," the idea that exceptional performance can't last forever.

Bullish investors believed that the bad days were over late in 2002, when stocks rebounded following the technology-stock wreck, the Sept. 11 terrorist attacks and the collapse of Enron Corp.

The S&P 500 rose 26% in 2003, amid hopes for a quick victory in Iraq. In 2004, the S&P 500 rose only 9%. It was up 3% in 2005, 14% in 2006 and 3.5% in 2007. The index is down 7.9% so far this year. Those numbers are not adjusted for inflation, which would lower annual returns by a few percentage points.

The Dow Jones Industrial Average, which had fewer technology stocks than the S&P 500 and suffered less in the bear market from 2000 to 2002, has held up better, but not a lot better. It has risen less than 1% a year since January 2000.

Role of Individuals

Prof. Sylla expects to see stocks turn more lastingly upward some time in the next two years. The market's direction will depend partly on the individual investor. The 1990s stock bubble and the bear market that followed came at a time when more individuals were managing their own retirement savings through 401(k) accounts, individual retirement accounts and the like.

Individual investors helped create bubbles in the markets for technology stocks and for real estate. In recent years, investors have been putting far less money into U.S. stocks than they did during the stock-investing boom. In 2000, at the height of that boom, Americans added $260 billion to U.S.-stock mutual funds, according to the Investment Company Institute, a trade group. Last year, investors took more money out of those funds than they put in -- a net outflow of $46.4 billion.

America's shift toward self-managed retirement could soften some of the stock-market volatility. People appear to be much less likely to move money around in retirement accounts than in other investment accounts, according to economist John Ameriks at mutual-fund company Vanguard Group.

Many 401(k) participants leave their allocations alone for long periods of time, says Mr. Ameriks. If they set up their accounts to send money into stocks each month, those accounts tend to keep doing so through bull and bear markets alike. That may provide some support to stocks.

Some investment advisers say passive contributions like that actually make some sense. People whose retirement accounts have bought stocks each month, year in and year out, haven't done nearly as badly as those who bought in the late 1990s and stopped buying, Prof. Sylla says. While the S&P 500 is down since 1999, it is up since mid-2001, meaning that most stock purchased since then by retirement accounts shows a gain.

Stock Fundamentals

A big problem for the market right now is what analysts call stock fundamentals. Strong corporate-profit gains and low inflation have supported stocks since 2002, but they are becoming harder to sustain.

In a typical year, Prof. Sylla says, corporate profits run at about 5% or 6% of total economic output, after tax. In 2006, that number was 9%, a record. Historically, this number tends to revert to the mean, suggesting that profits now could weaken. "Profits may fall to 3% or 4%" of economic output, Prof. Sylla says.

Spending by ordinary people could have an effect on those profits. Consumer borrowing and spending kept the economy afloat after the stock bubble popped in 2000. Emboldened by high home values, people borrowed at levels rarely seen, pushing down the national savings rate to zero.

That's what worries Prof. Shiller. After studying the housing market, he sees home values continuing to weaken for years. He expects consumers to borrow and spend less, and to rebuild their savings.

A consumer pullback would hold back economic growth and corporate profits, putting a damper on U.S. stock gains and giving investors an incentive to continue putting money into commodities or stocks in Brazil, Russia, India and China. Baby boomers concerned about retirement income could look for safer investments with guaranteed returns, such as Treasury bonds and bond-like products offered by mutual-fund companies.

On the Horizon

"We have to accept that this is no longer a nation of 4% real economic growth. This is a mature nation that no longer has a strong manufacturing base," says Steve Leuthold, chairman of Leuthold Weeden Research in Minneapolis. He believes that another bull market is on the horizon, perhaps following some additional stock declines. But that future bull market, he contends, could be followed by another bear market that could bring stocks back close to where they are today.

Before another lengthy bull run can begin, stocks need to overcome two problems: the hangover from the high prices of the late 1990s, and the continuing effects of the exceptionally low interest rates instituted by the Federal Reserve in 2001 and again today. Those low interest rates helped push corporate profits higher, but also fueled borrowing excesses that led to today's economic problems.

To some analysts, stock prices still look inflated. Prof. Shiller calculates that the S&P 500 traded in the late 1990s at more than 40 times its component companies' profits -- far above the historical norm of 16. (To avoid distortions, he uses average profits over a 10-year period.) Today, the S&P 500 still trades at more than 20 times profits -- still far above average.

"The S&P 500 never got back down to its long-term trend line" after the 1990s, says Jeremy Grantham of Boston money-management firm Grantham, Mayo, Van Otterloo & Co. Mr. Grantham, who has long warned of a prolonged period of subpar stock performance, says exceptionally low interest rates temporarily propped up the indexes.

There are reasons to hope that things won't be as ugly this time as they were either in the 1970s or in the 1990s in Japan, which went into a prolonged slump after bubbles in its housing and stock markets.

For one thing, although inflation has been running above 4% this year, it remains well below the double-digit rates of the 1970s. That's made it easier for the Fed to stimulate the economy without worrying about sparking runaway inflation.

One big question is how much worse investor confidence will get. The bearish Mr. Grantham expects investors to become gloomier, but not as pessimistic as they were during past bad stretches.

"I think the global economy will stay, on balance, not so bad," he says. "There is no reason for people to become as pessimistic as they did even in Japan, and certainly not as pessimistic as in the Depression."

Capital Gold Group, gold, gold prices, gold demand, S&P 500, housing bubble, inflation hedge, Federal Reserve, recession, bull run, precious metals bull run, Standard & Poors

By Atul Prakash and Bate Felix

LONDON (Reuters) - Gold fell more than 2 percent in a broad commodities sell-off on Friday, with a rise in the dollar and softer oil prices dampening the metal's allure as an alternative investment.

Other key precious metals, base metals and major soft commodities traded lower, with investors pocketing profits before the end of the quarter.

Gold fell to $926.50 before rising to $933.30/934.20 an ounce at 11:40 a.m. EDT, against $951.80/952.60 in New York late on Thursday. Last week, it hit a record high of $1,030.80 an ounce before tumbling to a one-month low of $904.70.

"The market is really correcting itself, but it's a general move out of commodities. It's not just gold," said Jeremy East, head of metals trading at Standard Chartered Bank.

The market witnessed a heavy sell-off last week before rebounding on technical buying. Now it was witnessing a continuation of the downward trend, with people liquidating their positions and running for cash, East said.

"But I don't think the bullish trend is over. There is still buying interest, but in the short term the market has probably overdone on the upside. We are in a consolidation phase and gold may break back down below $900 again."

The dollar edged higher but hovered not far from record lows against the euro after U.S. data showed inflation pressures were tame in February, affirming expectations of further interest rate cuts by the Federal Reserve to boost a weakening economy.

A firmer dollar makes gold costlier for other currency holders and often lowers demand. Lower oil prices reduce the metal's appeal as a hedge against inflation.

Oil fell more than $2 to near $105 a barrel as crude flows through Iraq's pipeline system were restored after disruption by a bomb attack on Thursday.

"I would expect gold to continue bouncing around in the range of about $955 on the upside and down to about $915," said Tom Kendall, metals strategist at Mitsubishi Corporation.

"It's going to take until the second half of the next week before the market is going to be ready to make a more convincing push upward again."

U.S. gold futures for April delivery fell $16.6 an ounce to $932.20 -- off last week's record of $1,033.90.

LONG-TERM POSITIVE

Analysts were positive on the metal's outlook in the medium to long term.

"The sudden price pull-back across the precious metal complex during March has raised concerns that the bull run in this sector has drawn to a close. We disagree," said Michael Lewis, global head of commodities research at Deutsche Bank.

"We believe weakness in the U.S. dollar has not been exhausted and with U.S. real interest rates expected to move deeper into negative territory, we are maintaining our bullish outlook towards gold and silver prices," he said in a report.

In other metals, spot platinum rose to a one-week high of $2,040 an ounce before falling to a low of $1,980. It was last at $2,010/2,020, versus $2,023/2,033 in New York. It struck a record high of $2,290 on March 4 on supply fears driven by mining disruptions in top producer South Africa.

Platinum gained around 50 percent in 2008 after a power crisis in South Africa forced gold and platinum mines to shut down for five days in January, driving platinum prices.

But the metal, mainly used in jewelry and auto catalysts to clean exhaust fumes, tumbled to a six-week low at $1,805 an ounce last week.

Silver fell to $17.93/17.98 from $18.50/18.55 an ounce -- off a 27-year high of $21.24 hit on March 17. Palladium dipped to $439/446 an ounce from $445/450.

(Reporting by Atul Prakash; editing by Chris Johnson)

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03.27.08, 9:48 AM ET

LONDON (Thomson Financial) - Gold extended earlier losses as the dollar gained ground against the major currencies on relief that the revised US GDP reading for the fourth quarter did not yield any nasty surprises.

The Commerce Department said earlier the US economy grew at a 0.6 pct annualised pace in the fourth quarter, the same rate as reported in the previous estimate.

The reading was in line with analysts' estimates, leading the dollar to extend an earlier rebound from sharp losses yesterday, and leading gold lower in turn.

Gold usually moves in the opposite direction to the dollar as it is seen as an alternative asset to the US currency. Also, a stronger dollar makes dollar-priced gold more expensive for holders of other currencies.

At 1.27 pm, spot gold was trading at 946.45 usd an ounce against 949.00 usd in late New York trade yesterday.

In other data releases, the number of first time jobless claims filed in the week ending March 22 dropped unexpectedly, falling by 9,000 to 366,000. Economists were expecting new jobless claims to total up to 370,000.

'Spot gold was quoted down 10.00 usd at 944.00 usd bid per ounce as participants deemed the US data to be dollar-positive,' said Kitco analyst Jon Nadler.

He added the 0.6 pct growth reported for the US economy in the fourth quarter was giving some participants another excuse to sell on fears that a US recession will crimp commodities demand going forward.

Commodities declined sharply last week as these fears were temporarily re-ignited. They have recovered some of their losses this week however, as funds dip back into oil, metals and gold.

Most analysts expect the recovery to continue, with gold the best placed amongst all the metals to benefit from the view that it is a safe haven asset that holds its value in times of economic turmoil.

'Given the renewed pressure on the dollar and inflationary pressures created by rising oil prices we expect gold to continue its recovery,' said TheBullionDesk.com analyst James Moore.

He added that given the likelihood of further rate cuts by the Federal Reserve, and given the ongoing financial market turmoil, he sees gold eventually establishing fresh highs above the recent record of 1,032 usd.

Elsewhere, platinum dipped to 1,992 usd an ounce against 1,994 usd, silver was down at 18.14 usd an ounce against 18.33 usd, while palladium fell to 440 usd against 454 usd.

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GOLD RISES AS DOLLAR WEAKNESS CONTINUES TO SPUR BUYING

LONDON, Mar. 26, 2008 (Thomson Financial delivered by Newstex) -- Gold rose while the dollar remained weak, oil prices ticked up and fund money returned to the commodity sector.

Bullion fell over 10 pct last week from record highs above 1,000 usd as players took profits but gold's main drivers -- a weak dollar, persistent economic weakness and high oil prices -- remain supportive for the metal.

'The weakening dollar and the rise in oil prices as well as firmer prices across the agricultural sector supported gold's recovery yesterday and ongoing inflationary concerns coupled with safe-haven buying are likely to underpin gold prices over the forthcoming months,' said Barclays (NYSE:BCS) Capital analysts.

Gold moves in the opposite direction to the dollar, as it is seen as an alternative asset, and in line with oil prices, as bullion is bought as a hedge against energy-led inflation.

The dollar dropped against the euro after the German Ifo business climate index in March boosted the euro, adding to the evidence the economy is bearing up surprisingly well against an adverse global environment.

At 1.54 pm, spot gold was trading at 945.53 usd per ounce, against 934.70 usd in late New York trade yesterday.

Analysts also noted physical gold buying has picked up since the price eased from record levels.

'Near-term upside potential has returned to the gold market,' said Standard Bank analyst Walter De Wet.

Gold had risen some 25 pct since the start of 2008, hitting a record 1,032.50 usd per ounce on March 17 before retreating amid slightly calmer market conditions and as players took profits.

But economic woes are far from over and any major falls in equity markets are likely to spark fresh risk aversion, which should see the price of gold, a traditional safe haven, rise again.

'For now, we shall sit tight, convinced that the long-term bullish trend for gold remains fully intact and is all the healthier because of the liquidation last week, but concerned about the future prospect for equity prices,' said Dennis Gartman, editor of daily trading note The Gartman Letter.

Elsewhere, platinum was trading up strongly at 1,978 usd per ounce against 1,879 usd, silver was up at 17.97 usd per ounce against 17.75 usd and palladium was down at 449 usd against 451 usd.

Looking ahead, players will keep an eye on potentially dollar-moving data that could nudge precious metals. US data today includes February revised building permits, February durable goods orders and February new home sales.

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By Pham-Duy Nguyen

Last Updated: March 24, 2008 09:20 EDT

March 24 (Bloomberg) -- Gold rose in New York on speculation the dollar's advance against the euro will stall. Silver increased.

The euro climbed as much as 0.2 percent against the dollar before paring gains. The euro slumped 1.6 percent last week versus the U.S. currency, while gold tumbled 8 percent after reaching a record $1,033.90 an ounce on March 17.

``Gold is looking to the dollar for direction,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``All these funds that invested in commodities need to figure out if they're coming back in or selling more.''

Gold futures for April delivery rose $2.80, or 0.3 percent, to $922.80 an ounce at 9:17 a.m. on the Comex division of the New York Mercantile Exchange. Before today, the metal gained 9.8 percent this year.

Silver futures for May delivery climbed 12.5 cents, or 0.7 percent, to $16.95 an ounce. Before today, the price gained 13 percent this year. The metal plunged 18 percent last week.

 

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03.20.08, 9:29 AM ET

 

LONDON (Thomson Financial) - Gold fell over 25 usd on the day as it continued to correct lower from recent record highs, with a stronger dollar and weaker oil prices pushing prices down ahead of the Easter break.

At 1.02 pm, spot gold was trading at 920 usd an ounce against 945.50 usd in late New York trade yesterday, having at one point dipped as low as 904.05 usd before recovering on bargain hunting.

Gold hit an all-time high of 1,032.50 usd an ounce on Monday after the fire sale of Bear Stearns (nyse: BSC - news - people ), but has since been pressured sharply lower in the wake of the US Federal Reserve's smaller-than-expected rate cut on Tuesday.

The Fed's 75 basis point cut has boosted the dollar, with many currency traders having priced in an even bigger drop. With gold acting as an alternative to the greenback, prices have come off.

'The smaller-than-expected Fed Funds rate cut and the emphasis on inflation risk in the Federal Open Market Committee statement have effected a reassessment of the further outlook for US monetary policy,' said analysts at Dresdner Kleinwort. 'As the market regards the potential for another rate cut as small, gold and other metals are under pressure,' they added.

The stronger dollar has also pressured oil and other commodities lower, stripping support from gold which investors use as a hedge against inflation concerns.

Gold's sharp sell-off after rallying above 1,000 usd was perhaps to be expected according to some analysts, though few are prepared to call an end to the precious metal's bull-run, given the potential for further shocks in the current economic climate.

'Given the strong gains seen across the complex this quarter and the aggressive influx of investor hot money in recent weeks, it comes as no great surprise that the metals correction has been just as swift and aggressive,' said James Moore at TheBullionDesk.com.

'Given that gold has rallied considerably since breaking above 850 usd an ounce with little in the way of a correction, the current pullback may be better for gold long term and could entice physical demand back into the market,' he added.

Demand from jewellers has been hit hard by the recent rise in gold prices, but pent-up buying interest is expected to provide good support for the precious metal as the price comes down.

UBS (nyse: UBS - news - people ) has reported strong buying interest out of Asia since prices have come down to lower levels.

Among other precious metals, silver fell to 17.26 usd an ounce against 18.41 usd. On Tuesday, the metal hit a 27-year high of 21.36 usd, but gold's sell-off has dragged silver sharply lower.

Platinum also fell, trading down at 1,806 usd an ounce against 1,908 usd. The stronger dollar has pressured prices, while hopes the power crisis could be easing in top producer South Africa, which has propelled prices to a series of record highs in recent weeks, has also weighed on the white metal.

South Africa's government has backed an application by state-owned power company Eskom to raise tariffs by 60 pct to help meet rising electricity production costs and fund energy conservation programs.

Power shortages have reduced the amount of electricity available to the energy intensive mining industry, leading to short-fall fears in the platinum market as almost 80 pct of the metal comes from South Africa.

Sister metal palladium tracked platinum south, falling to 422 usd an ounce against 456.75 usd.

 

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LONDON — The global platinum market is likely to witness a huge deficit this year and in 2009 as a power crisis in top producer South Africa hits output, while industrial demand remains strong, a Reuters survey showed.

The poll of 11 analysts and traders forecast on Wednesday that the median deficit for platinum, used in jewellery and to clean vehicle exhaust fumes, is likely to widen to 470,000 ounces by the end of 2008.

The deficit is seen at 422,500 ounces in 2009.

In 2007, total global platinum demand of 6.925 million ounces surpassed supply of 6.660 million, leaving a market deficit of 265,000 ounces. The market had a surplus of 65,000 ounces in 2006 after seven successive years of deficits.

Analysts said tight market conditions were expected to put an upward pressure on the price, which hit a record high of $2,290 (U.S.) on March 4. It was quoted at around $1,933 on Wednesday.

“Electricity supply problems in South Africa have altered the outlook for platinum dramatically,” said Walter De Wet, precious metals analyst at Standard Bank.

“The electricity deficit will be wiped out but, unfortunately, additional capacity doesn't expand in a smooth line, but rather step-wise. For now, demand will outstrip supply,” Johannesburg-based Mr. Wet said.

South Africa accounts for 80 per cent of the global output.

The electricity grid supplying Africa's biggest economy came close to collapse in January, forcing mines to shut down for five days. Since then mines have been operating below full power, driving up prices and raising fears of job losses.

The power crisis follows years of under-spending by state electricity firm Eskom. The company carried out emergency countrywide rolling black-outs this week because of a rise in demand due to cold weather and after some generators tripped.

“Driven by the continued power-induced supply disruptions in South Africa, we forecast a sizable deficit of 470,000 ounces on the platinum market in 2008,” said Michael Widmer, metals analyst at Lehman Brothers.

“Given the relative low levels of commercial stocks, it is likely that this will give strong support to prices. On the demand side, the ETFs will likely further add to marginal demand, which should help the appreciation,” Mr. Widmer said.

Platinum has surged 50 per cent this year to a record high before slipping on profit-taking. It jumped 37 per cent last year on supply worries and increased investor interest.

“It seems likely that underlying structural problems will persist for the time being and so we are looking for prices to tend higher to average $2,300 in the second quarter of this year,” said Dan Smith, analyst at Standard Chartered Bank.

“After this we expect evidence of weakening demand to start to weigh on prices which will help take prices lower by the year end, before prices resume their uptrend once more in 2009.”

Production problems in South Africa were likely to continue.

Anglo Platinum, the world's top platinum producer, said last month power problem alone would cut output by 120,000 ounces in 2008. This year's flooding at its second-largest mine would cut a further 60,000 ounces.

Impala Platinum, the world's second biggest producer, has said its output in the year to end-June would fall to just under 2 million ounces from 2.026 million in 2007.

“Any movement in the platinum price is likely to be driven by additional supply side shocks out of the South African platinum majors,” said Justin Froneman, analyst at Macquarie First South Securities.

“With additional power supply unlikely to surface, the power situation is likely to result in further output losses and this will be commodity price positive.”

On the demand side, platinum use in autocatalysts soared 135 per cent in nearly a decade to 4.24 million ounces in 2007, mainly due to stringent emission norms and growing vehicle production. Analysts say the trend is likely to continue.

Strong prices have attracted investors into exchange traded funds (ETFs), taking away significant volumes from the supply chain and tightening a market that is already squeezed.

Platinum held by ETF Securities doubled in less than two months to hit a record high of 338,120 ounces on Tuesday.

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Monday, March 17th, 2008

Goldman Sachs Follows Money Morning Prediction That Oil Prices Could Approach $200 a Barrel

By William Patalon III
Executive Editor
Money Morning/The Money Map Report

Just days after Money Morning Investment Director Keith Fitz-Gerald reiterated his prediction that oil prices would reach $187 a barrel within 36 months, Wall Street giant Goldman Sachs Group Inc. issued a report predicting crude oil prices would reach $175 in the next few years.

Money Morning first mentioned Fitz-Gerald’s belief that the $187 price target was a possibility in an article back in December when oil was trading at $90 a barrel. Fitz-Gerald then reiterated his prediction in an interview with Money Morning two weeks ago. When oil prices took off on their record run, we published the prediction as part of an in-depth analysis of the crude-oil market.

The article ran last Thursday, and the response has been stunning: It’s been picked up by other news services, and posted on Web sites all over the world.

Then, just last Friday, Goldman Sachs followed suit and said that crude oil prices could hit $175 a barrel in the next few years as the commodities sector experiences “explosive rallies” that are spurred by supply constraints. The prediction was contained in an investment research report that concluded that political decisions on money flows, labor and technology were “substantially constraining supply growth” of commodities, Bloomberg News reported.

A significant under-investment in refineries, mines and land was helping fuel the leap in commodity prices.

“This will likely support the ongoing structural bull market in commodities until these policy-driven investment constraints are removed and/or demand is adjusted,” Goldman Sachs said.

Pain and Profit

Although rising oil and gasoline prices are extremely painful for consumers to deal with, Money Morning’s Fitz-Gerald contends that they also represent one of the greatest profit opportunities investors will see for a long time.

“Many people think high oil prices are a bubble. Maybe, but not for long and certainly not given the growth in global demand,” Fitz-Gerald says. “Of course, prices will not stabilize anytime soon. Savvy investors [will realize that] we are still in the very early stages of a generational game with the potential to be played for great profits.”  

Oil prices spiked to a record level of $111 a barrel on Thursday as the U.S. greenback hit a 12-year low against the Japanese yen and an all-time record low against the euro. A key cause for the dollar’s weakness: Investors continue to question whether the U.S. Federal Reserve’s strategies for restoring order to the sputtering financial markets have any real long-term validity.

On Friday, gold spiked to a key historic high of more than $1,000 an ounce – eclipsing a psychologically significant barrier – as investors continued to turn to the yellow metal and other commodities as a way of hedging against the plunging greenback.

Goldman Sachs said $175 a barrel crude "represents the price level required to maintain trend economic growth against our anaemic supply growth forecasts, assuming growth in the U.S. [economy] re-accelerates early next year.”

Late last month, Matthew R. Simmons, chairman of the Houston-based investment bank Simmons & Co. International, actually predicted that oil prices could climb as high as $378 a barrel – characterizing current prices in the $100 range as “preposterously cheap.”

To underscore his point, Simmons told the Arabian Business news service that in the United Kingdom capital of London, gasoline can sell for as much as $9 a gallon. And even that doesn’t deter motorists from driving their cars.

Prices at that level don’t “seem to have slowed anyone down. It works out as much as $378 a barrel. Yes [I can see it reaching that high]," he told the news service.

Just last week, the International Energy Agency (IEA) warned last week the era of cheap oil had ended. In fact, only a sustained global recession could send oil back down below the $60 a barrel level for any length of time.

The Four Factors Fueling Higher Prices

Back in early 2002, oil was trading at less than $20 a barrel. Before it began its northward march from that point, Fitz-Gerald conservatively predicted that oil prices would reach $100 a barrel within 10 years. His price prediction was right on target.

Once crude prices hit that psychologically key “century mark,” Fitz-Gerald reassessed the market and ultimately boosted his target price to the $187 a barrel level. But Fitz-Gerald sees oil-and-gasoline prices going higher – much higher. And he’s very clear about just why that’s going to happen, listing four key catalysts:

• Obfuscation by OPEC: Members of the Organization of the Petroleum Exporting Countries have been misrepresenting their reserve capabilities for years. The key players have reported no new discoveries for decades.

• Terrorism Threats: The odds that a terrorist act will interrupt oil supplies – in the near term or the long term – are higher than most security experts would ever publicly confirm, Fitz-Gerald says. And this is especially problematic because of the double-whammy effect: Damage to a major pipeline or a strategic refinery could crimp supplies just as demand is continuing to escalate.

• The Dollar Doldrums: Oil is priced in dollars. And the dollar is in the dumper. Indeed, rising inflation and falling interest rates have put the greenback into a steep downward spiral. And if prices keep rising, and if Federal Reserve policymakers keep cutting short-term interest rates, the dollar will continue to lose altitude against other key global currencies. OPEC members will counter the greenback decline by marking up the price of crude, causing prices to increase still more in dollar-denominated terms.

• Cruising Goes Global: As an increasing number of households in China, India and other advancing overseas economies join the world’s middle class, they’ll start making such basic purchases as electronic goods, houses – and automobiles. The fact that China’s oil imports jumped 18% in one month is evidence enough that this is happening. And the fact that leading India automaker Tata Motors Ltd (TTM) has unveiled a $2,500 car, the Nano, underscores that international carmakers are looking to recruit a whole new group of motorists. The fallout: For U.S. refiners, oil will first get lots more expensive, and then supplies will start to dry up as countries opt to halt exports and keep the precious black gold for themselves.

Oil Becomes a Strategic Asset

Oil prices have made a major move in the past five years – just as the emergence of China, Russia and several other key economies transformed crude-oil pricing into much more of a global game. High prices have sent cash pouring into the coffers of oil-producers in Asia and the Middle East. Many countries have used that capital to finance global investment initiatives, creating government-controlled "sovereign wealth funds" to do their bidding.

Little wonder crude oil has become a strategic asset – as well as an energy source.

"As oil and other fuels become a more and more precious resource, OPEC countries, China, Russia and others will begin holding back oil, instead of putting it into the market," Fitz-Gerald says. "That’s going to be devastating in the short-run.”

Some big oil consumers such as the United States have lobbied OPEC to boost production in order to bring market prices down. But it’s done no good: Members of the OPEC have said over and over that market supplies are adequate and that the surging prices are not something that they can control.

China – a growing consumer of oil – has embraced a different strategy: To create captive supplies of crude, China has demonstrated that it’s more than willing to endure controversy and cut deals with countries U.S. refiners either can’t or won’t deal with. China Petroleum & Chemical Corp., and PetroChina Company Ltd. – two of China’s biggest oil companies – have invested in such political hot spots as Africa and Iran.

The Chinese government, desperate to lock down supplies of such crucial natural resources as metal ores and crude oil, has sealed deals with Sudan, Chad and the Congo. African Business reports that trade between Africa and China has advanced at a rate of 40% a year since 2001. In 2006, bilateral trade between the two was $50 billion.

Already, 14% of China’s oil imports come from Angola. About 60% of Sudan’s oil goes to China.

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The panic in world financial markets has led to sharp falls in share prices and led to the contraction of credit markets. BBC News looks at how key indicators around the world have moved as recession fears grow.

Twelve months ago interest rates were 5.25%. By 30 January they had dropped to 3%. They are now 2.25%, as of 18 March.

Wall Street bank Bear Stearns collapsed when other banks lost confidence in the value of its investments in sub-prime mortgages. It was bought by JPMorgan Chase in March.

Underlying the financial market wobblies is a real decline in US house prices nationwide for the first time since the 1930s.

Tue, Mar 18 2008, 18:22 GMT

FXstreet.com (Barcelona) – The Federal Reserve’s Monetary Policy Committee has decided to cut interest rates by 0.75 basis points to 2.25%, after their monetary policy meeting.

The rate cut, which has been approved by 8 votes against 2, and it follows a 25 basis points surprise rate cut approved on Sunday.

This decision was widely expected by the analysts, although there were differences about the extent of the rate cut, as the Bank has taken a strong commitment to help the Banks to avoid a major scale liquidity crisis, as it has been seen earlier this week when the Bank supported financially the acquisition of the Bear Sterns Bank by JP Morgan Chase & Co.

The Central Bank has already cut interest rates from the 5.25% level in September to the actual 2.25% in order to mitigate the effects of a crisis in mortgages that has already turned into a great scale credit crisis, which has made the major figures of US economy swift their language from the “economic slowdown” speech to openly acknowledge that US economy is going through a serious recession.

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03.18.08, 11:33 AM ET LONDON (Thomson Financial) - Gold continued to tread water midafternoon as investors stuck to the sidelines ahead of the rate-setting meeting of the Federal Open Market Committee later today.

The FOMC is widely expected to cut rates by up to a percentage point at the talks, which could send the dollar still lower against the major currencies. A softer greenback boosts gold's appeal as an alternative investment, and could send prices higher.

'Precious metals markets stabilized somewhat overnight and were confined to a fairly narrow range as anticipation was building ahead of today's Fed meeting,' said Kitco Bullion Dealers analyst Jon Nadler. 'The coming rate cut should still provide fuel for tests to higher levels.'

At 3.02 pm, spot gold was trading at $1,005.90 per ounce against $1,002 in late New York trade yesterday.

Weakness in the dollar and fears over rising inflation, against which bullion is typically bought as a hedge, are currently keeping the yellow metal well-supported.

But analysts warn while investment demand remains strong, the physical side of the market, represented by buying from jewellers and other consumers, has been significantly dampened by higher prices.

According to figures released by the Bombay Bullion Association today, gold imports into India, the precious metal's biggest consumer, fell to 10 tonnes in February from 59 tonnes a year ago, analysts said.

'With prices showing no signs of cooling, March is not expected to be any better as physical buyers are not comfortable buying the yellow metal at such high prices,' said Nadler.

Meanwhile, silver was trading virtually flat at $20.14 per ounce against $20.24. Yesterday morning, it hit a 27-year high of $21.36, encouraged by gains in gold, before easing back in later trade.

Among other precious metals, platinum was trading slightly firmer at $1,988 per ounce against $1,972 after South African state power utility Eskom said it may be forced to declare force majeure over its electricity supply to South Africa's industrial users.

An electricity shortage in the country, which supplies almost 80 pct of the world's platinum, pushed the white metal to new record highs ealier this year and could crimp supply for years to come.

Sister metal palladium was slightly firmer at $477 per ounce against $472.

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March 17 (Bloomberg) -- JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about $240 million, less than a 10th of its value last week, after a run on the company ended 85 years of independence for Wall Street's fifth-largest securities firm.

Shareholders of New York-based Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the two companies said in a statement today. The U.S. Federal Reserve will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns's ``less-liquid assets.''

JPMorgan Chief Executive Officer Jamie Dimon bought Bear Stearns, once the biggest underwriter of U.S. mortgage bonds, for less than the value of its real estate after clients, alarmed by rumors of a cash shortage, withdrew $17 billion in two days. Faced with the prospect of bankruptcy, Bear Stearns CEO Alan Schwartz was forced to accept the deal as part of an effort by the central bank to stave off a broader market panic.

``Bear Stearns shareholders are at the short end of the stick,'' said CreditSights Inc. analyst David Hendler. ``This was done in the market's best interests. They had to get this done or they would risk runs on other companies.''

Without a resolution this weekend, the company's situation would have continued to deteriorate when markets resumed trading, according to analysts and investors. Yet the value placed on Bear Stearns, which employs about 14,000 people, raised questions about share prices for the rest of Wall Street.

``This is a serious crisis,'' said David Goldman, portfolio strategist at Asteri Capital. ``For Bear's stock price to go to effectively zero, contrary to market expectations, even at the close on Friday, tells us that something is systemically very wrong and we're at a very dangerous moment.''

Eight-Month Slide

If a sale hadn't been announced, Bear Stearns probably couldn't open its doors for trading, Goldman said.

Founded in 1923, Bear Stearns survived the Great Depression and first sold shares to the public in 1985, under then-CEO Alan ``Ace'' Greenberg. Today's fire-sale to JPMorgan caps an eight- month slide in the company's fortunes that began last July with the collapse of two of its hedge funds, which invested in securities linked to subprime mortgages. Those failures caused investors to doubt the value of any asset linked to the mortgage market, the biggest business at Bear Stearns.

``The past week has been an incredibly difficult time,'' Schwartz, 58, said in the statement. ``This transaction represents the best outcome for all of our constituencies based upon the current circumstances.''

Schwartz, an executive with more than 30 years of experience at Bear Stearns, became CEO less than three months ago, as the hand-picked choice of his predecessor, James ``Jimmy'' Cayne, 74.

Reduced Fortunes

Cayne, who remains non-executive chairman, stepped down after reporting an $854 million fourth-quarter loss, the first in the company's history. He was at a bridge tournament in Detroit last week as speculation about the firm's cash position pummeled the stock.

Cayne ranked as Wall Street's richest CEO, with $1.3 billion of assets, according to Forbes magazine's 2007 billionaire survey. His stake in the firm approached $1 billion last year when the shares reached their peak price of $170. Under the terms of the JPMorgan acquisition, his holdings are now worth about $12 million.

Joseph Lewis, Bear Stearns's second-largest shareholder, has spent more than $1 billion on the firm's stock since September, paying as much as $150 a share. Lewis, a 71-year-old billionaire, wasn't planning to reduce his stake, a person close to him said March 11. He's now entitled to $22 million of JPMorgan shares.

Shareholders Wiped Out

``To see a situation involving a bailout lead to shareholders getting pretty much wiped out is a pretty significant event for the market,'' said Ben Wallace, who helps manage $800 million, including stock in JPMorgan, for Grimes & Co. in Westborough, Massachusetts. ``It's going to raise concerns'' about the value of financial stocks, he said.

JPMorgan will give investors 0.05473 shares of its common stock for every one share of Bear Stearns stock they own. Including shares in an employee-incentive plan, the purchase price would be as high as $270 million. JPMorgan may not be buying those shares.

``JPMorgan Chase stands behind Bear Stearns,'' Dimon, 52, said in the statement. ``Bear Stearns's clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns's counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner.''

Crisis of Confidence

The Fed's attempt to rescue Bear Stearns last week with a cash infusion failed to avert a crisis of confidence among the company's customers and shareholders, who drove the stock down a record 47 percent on March 14, when the emergency funding was announced.

Bear Stearns's profit exceeded $2 billion in 2006, yet the price JPMorgan is paying is about one quarter the value of the securities firm's headquarters building in midtown Manhattan. The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per- square-foot that comparable office space in the city is currently fetching.

JPMorgan Chief Financial Officer Mike Cavanagh said on a conference call after the sale was announced that the bank was comfortable with the values Bear Stearns had assigned to the mortgage-related assets on its books. Asked to explain why JPMorgan was paying about $2 a share for a company with a book value of $84 a share, Cavanagh said the price reflected the risk the firm was taking.

It ``gives us the flexibility and margin of error that's appropriate given the speed at which the transaction came together,'' he said. JPMorgan said it was confident Bear Stearns shareholders would approve the sale.

Counterparty Risk

``If you're buying equity for free and the liabilities are pretty well capped, it sounds like it's good for JPMorgan shareholders,'' Wallace at Grimes & Co. said. ``The thing that everybody's been worried about has been the counterparty risk and if this gives people more confidence, that will be good for the markets.''

Minutes after the deal was announced, the Fed, in an emergency move, cut the rate on direct loans to commercial banks by a quarter percentage point.

Bear Stearns's prime brokerage unit, which provides loans and processes trades for hedge funds, generated $1.2 billion in revenue last year. That business is probably the only piece left of the company with value after the mortgage market collapsed last year, analysts said.

`A Lot of Value'

The prime brokerage was the third-largest behind Goldman Sachs Group Inc. and Morgan Stanley as of April 2007, according to Sanford C. Bernstein & Co. About a sixth of the firm's income came from packaging and trading mortgage bonds, a market that has been almost completely frozen since July.

``As bad as things are at Bear Stearns, this is still a franchise with a lot of value, particularly the prime brokerage business, which is what JPMorgan is after,'' said William Fitzpatrick, who helps manage $1.6 billion at Optique Capital Management, including JPMorgan shares. ``That's the crown jewel, and that would fit into JPMorgan's business extremely well.''

Dimon's New York-based company has suffered fewer losses than rivals during the credit-market contraction, which has prompted $195 billion of writedowns and losses by Wall Street's biggest banks and securities firms.

JPMorgan, the third-largest U.S. bank by assets, has posted $3.7 billion in writedowns, a fraction of the $22.4 billion reported by New York-based Citigroup Inc., the biggest U.S. bank.

Paulson Involved

Treasury Secretary Henry Paulson defended the Fed's bailout today, saying policy makers will do whatever is needed to prevent disruptions in financial markets from hurting the economy. Paulson said he was involved with the discussions on Bear Stearns's future this weekend, without elaborating.

``There's always a decision to be made to say what's best for the stability of the marketplace, the orderliness of the marketplace,'' Paulson said. ``I think we made the right decision.''

When Bear Stearns invited potential buyers for detailed presentations by department chiefs yesterday, only JPMorgan and private equity firm J.C. Flowers & Co. showed up, according to people familiar with the talks.

Other potential buyers, such as Royal Bank of Scotland Group Plc and HSBC Holdings Plc, which had expressed interest in the past, didn't send representatives. Hundreds of Bear Stearns employees went to work yesterday to help with the sale process and the presentations.

Bear Stearns has offices in cities including London, Tokyo, Hong Kong, Beijing, Shanghai, Singapore, Milan and Sao Paulo, according to its Web site.

JPMorgan's participation in the bailout follows a long tradition at the bank of stepping in to rescue financial markets from crisis, according to Charles Geisst, the author of ``100 Years on Wall Street.''

The bank has also profited from its intervention. JPMorgan got at least $725 million of revenue for taking on half the energy trades from collapsed hedge fund Amaranth Advisors LLC in 2006.

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Gold's Standard: $1,000
Key Futures Contract Briefly Breaches Mark; An '80s Feel to Trading

Gold hit a grand, at least a key contract did -- but like oil's first run at the century mark, it didn't sit there long.

The most-active futures contract on the metal hit an intraday high of $1,001.50 a troy ounce yesterday as the dollar plumbed fresh lows, inflation fears ran wilder, oil soared and other investments continued to hold lackluster appeal.

The contract, for April delivery, closed at $993.80 on the Comex division of the New York Mercantile Exchange.

The benchmark, nearby-month contract for March, no longer trading heavily, never broke the $1,000 mark and settled up $13.50, or 1.4%, at $992.30 -- a Comex settlement high. Gold is up 19% for the year to date.

The latest sprint started about three weeks ago amid dour news about job losses, the deepening funk in U.S. real-estate and credit markets, and the Federal Reserve's determination to fight these economic ills before tackling rising inflation.

An added push is coming from oil, which has soared this year despite recession fears, closing up 41 cents, or 0.4%, yesterday at $110.33 a barrel, a Nymex record. As with gold, investors are snapping up oil as its value, denominated in dollars, moves up as the greenback keeps sinking.  

The gold market hasn't been this heated since 1980. Then, as now, inflation was rearing its head -- at nearly 14%, compared with today's rate of 4.3% -- and the dollar was diving in value and losing its appeal as a world currency. Prices for an array of energy and industrial commodities were hitting records, and investors were pulling out of traditional markets to hoard precious metals.

"In 1980, you had extremely hostile economic, political and financial conditions. You have them again today. In some cases, the conditions are worse today," said Jeffrey Christian, managing director at CPM Group, a precious-metals-research firm that publishes the widely watched Gold Yearbook, an annual report on the gold market.

The U.S. budget deficit and debt have become much larger since then. Also, the U.S. dollar turned around in 1980 and began a long period of strengthening. Now, many investors are more pessimistic about the American currency, since the U.S. already may be in a recession and the Federal Reserve is one of the only major central banks cutting interest rates. Yesterday, the dollar fell below the psychologically key 100-yen mark in intraday trading for the first time since 1995.

In other ways, today's economy is more benign. Inflation, for one, is far lower.

But many investors believe comparatively lower inflation is a key reason why gold and silver have a lot of room to run. Gold is still less than half its inflation-adjusted peak on Jan. 21, 1980, of $2,239.67. Silver's nominal peak of $48.70 in January 1980 still isn't close to being breached and amounts to $132.13 when adjusted for inflation; it closed yesterday at $20.339 a troy ounce, up 42.8 cents, or 2.2%.

Jim Estipona, a 45-year-old software-services entrepreneur in Iowa, made his inaugural gold purchase last week. "I looked at gold when it was close to $900 and thought it might be too late. Then, it went above $900, then above $950. I said, 'I'd better do something.' I bought my gold at $969." He now has roughly 10% of his assets in gold.

Through the centuries, this untarnishable metal has had a mesmerizing appeal as a show of prosperity, display of beauty and sign of greed.

Europe long used gold as a basis for its monetary systems. In the 1800s, Britain, followed by Europe and later the U.S., took additional steps to peg their paper currencies to a set amount of gold. Central banks began abandoning the gold standard in the 1930s, in part because countries in economic crisis experienced runs on their treasuries to convert paper to gold. In 1971, President Nixon abandoned a fixed gold-dollar conversion price and let the dollar float freely against other currencies. Gold's 1970s bull run was followed by a crash in 1980.

Because gold has few industrial uses -- small amounts are consumed in dentistry and electronics -- it occupies a peculiar place in today's commodities bull market. Unlike copper or oil, almost all gold that has ever been mined is still around, in jewelry or bars stored in vaults.

Total available supply of gold rose 6.2% in 2007, according to CPM's Gold Yearbook. Although new mine output is dropping, high prices led more people to sell scrap such as old jewelry. Central banks also have been selling large volumes of gold, boosting supply.

Yet investors are once again grasping at gold's value in record numbers, ignoring predictions of another crash. Wall Street has created ever-easier gold-investment tools such as exchange-traded funds; such funds trade like a stock, and shares are backed by physical gold.

Peter Schiff, president of Euro Pacific Capital, a brokerage in Darien, Conn., that advises individual investors on non-U.S. and non-dollar-denominated investments, said he sells about $10 million of gold coins a month, compared with a couple hundred thousand dollars monthly in 2002 and 2003. He also said he is doing a brisk business helping investors purchase available gold at the Perth Mint in Australia.

Jon Nadler, a gold analyst with Kitco Bullion Dealers Montreal, which runs a gold-information Web site, defected from communist-controlled Romania in 1972 with gold coins sewn into his clothing. His stash allowed him to pay for his U.S. education.

But he said gold bugs who hoard gold to the exclusion of other assets, predicting prices will reach $4,000 or $5,000 an ounce, are missing the point. The financial system would have to break down for gold to rise to those levels. It would "mean complete ruin for everything you own," he said, in which case "you'd better invest in lead, for bullets."

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Thursday March 13, 2008 14:43:00 EDT

(RTTNews) - Gold topped $1,000 an ounce for the first time on Thursday in U.S. trading and closed at another record high. April gold finished the session at $993.80, up $13.30 on the session. The precious metal first hit the key $1,000 mark at around 8:25 a.m. ET and later reached as high as $1,001.50.

The precious metal's hedge appeal was boosted as the dollar continued to drop against other major currencies. The greenback added to its record lows versus the euro and hit a 12-year low against the yen. Gold usually moves in the opposite direction as the dollar because of the precious metal's hedge value. Crude oil prices, which moved past $111 for the first time, also boosted gold's value.

The price of gold was up $4.50 on Wednesday. The metal had dipped as low as $969.50 in electronic movement, but bounced back before the open. The precious metal pared most of its gains on Tuesday after the Fed pumped $200 billion into financial markets in an effort to ease Wall Street.

Stochastics and the RSI continued to show over-bought levels for April gold. The $1,000 mark could provide psychological resistance for the metal. Should prices turn lower, support could be found at Wednesday's low crossing of $980.50.

On the economic front, data released by the Department of Commerce on Thursday revealed that retail sales unexpectedly fell in the month of February, with decreases in auto and gasoline sales contributing to the drop in overall sales. The report showed that retail sales fell 0.6 percent in February following a revised 0.4 percent increase in January. The decrease came as a surprise to economists, who had expected sales to increase by about 0.2 percent.

Also Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended March 8th, showing that jobless claims unexpectedly came in unchanged compared to a revised reading for the previous week. The report showed that jobless claims came in at 353,000, unchanged from the previous week's revised figure of 353,000. Economists had been expecting jobless claims to edge up to 355,000 from the 351,000 originally reported for the previous week.

 

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Antique store owners in lower Manhattan, ticket vendors at India's Taj Mahal and Brazilian business executives heading to China all have one thing in common these days: They don't want U.S. dollars.

Hit by a free fall with no end in sight, the once mighty U.S. dollar is no longer just crashing on currency markets and making life more expensive for American tourists and business people abroad; its clout is evaporating worldwide as foreign businesses and individuals turn to other currencies.

Experts say the bleak U.S. economic forecast means it will take years for the greenback to recover its value and prestige.

Negative dollar sentiment is growing in nations where the dollar was historically accepted as equal or better than local currency — and dollar aversion is even extending to some quarters in the United States.

At the Taj Mahal, dollars were always legal tender, alongside rupees, for entry into the palace. But because of the falling value of the dollar, the government implemented a rupees-only policy a month ago. Indian merchants catering to tourists have also turned bearish on the dollar.

"Gone are the days when we used to run after dollars, holding onto them for rainy days," said Vijay Narain, a tour operator in the city of Agra where the Taj Mahal is located. "Now we prefer the euro. It gives us more riches."

In Bolivia, billboards feature George Washington's image on a $1 bill alongside a bright pink 500 euro note, encouraging savers to turn to the euro to tuck away money earned abroad or sent home in remittances.

"If the dollar's going down ... save it in Euros!!!" say the signs popping up around La Paz for Bolivia's Banco Bisa.

And in neighboring Brazil, the Confidence Cambio money-changing service was the first to start offering yuan so travelers to China no longer have to change the money into dollars first. The service is already a hit because Brazil does big business with China, and lots of Brazilians are heading to the Olympics this summer.

"Now we tell people not to take dollars when they go abroad, it's better to change it directly to the local currency," said Fabio Agostinho, one of the firm's managing partners. "If people leave here with dollars and go abroad, they lose when they exchange them. It's the same thing whether they're heading to China, Europe or even Argentina."

In Manhattan's Bowery district, Billy LeRoy, the owner of Billy's Antiques & Props, prefers payment in euros so he can stockpile the currency for his annual antique buying trip to Paris.

"Whip out dollars at the French flea market now, and they'll shoo you away," he said at his store near apartment buildings where Europeans are snapping up units because they've become dirt cheap. "Before it was like the second coming of Christ, but now they don't want it or if they do take dollars, they're going to take their pound of flesh."

The dollar has steadily eroded in value against the euro and other currencies since 2002 as U.S. budget and trade deficits ballooned, but fears of an American recession and credit crisis have sent the dollar to stunning lows amid predictions the slump will continue for a long time.

The euro traded for a record $1.5625 before declining to $1.5586 Thursday while the dollar dropped below 100 Japanese yen for the first time since November 1995. It traded as low as 99.75 yen before recovering some ground to 101.68 yen. The dollar also recently hit a 10-year low against the Chilean peso, and fell to its lowest level against Brazil's real since the nation floated its currency in 1999.

While low dollar cycles have come and gone for decades, experts caution that it's now much more difficult to predict when this one will end because the euro didn't exist as competition for the dollar before.

During previous U.S. economic downturns, big foreign funds typically snapped up U.S. treasuries, helping to shore up the dollar to a certain degree. But the euro and currencies from other nations are now seen as legitimate options, and interest rates are higher outside the United States — meaning the funds can get better returns on investments elsewhere.

"You have the U.S. still holding this trade deficit, but now you have the possibility of a U.S. led recession, and you have a weakening currency. So it's a very dark outlook for the dollar," said Gareth Sylvester, senior currency strategist with the British firm HIFX Inc., which executed $40 billion in currency trades last year.

Nations that were once seen as incredibly risky for investments — such as Brazil — are now seen as good long-term bets. And countries such as China and Russia, with burgeoning coffers of money to invest abroad, are thought to be shifting some of their reserves or diversifying fresh income to destinations and currencies outside the United States.

It used to be important for most countries "to accumulate dollars as a precautionary element against rainy days, but the accumulation of reserves has become so large in most emerging market countries that the balance is way beyond what's needed for precautionary reasons," said Eliot Kalter, a fellow at Tufts University's Fletcher School of Law and Diplomacy and a former International Monetary Fund official.

While most experts believe the dollar will eventually regain strength, no one is willing to predict when that will happen.

"I think the factors that are affecting the weakness of the dollar will be reversed, but no time soon," Kalter said.

The problem right now, is that "people just don't want to be holding U.S dollars and U.S.-based equities," Sylvester added. "If you are an investor with a million dollars to invest, you look for the highest yield — you're looking at South Africa, Australia, New Zealand."

And it's not only the big time investors that are looking for other options.

In Peru, where savings in U.S. dollars were long a popular hedge against inflation, many citizens are closing dollar accounts in favor of Peruvian soles.

At the same time, businesses like supermarkets, movie theaters and cable TV companies that used to accept dollars are now demanding soles.

Edwin Figueroa, a 29-year-old systems engineer, switched his checking account from dollars to soles seven months ago as the dollar's decline started worrying him. He doesn't think he'll be going back anytime soon.

The Peruvian sol "is stable now," he said. "And maybe in a year, the dollar will even go lower."

____

 

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