Dollar Sags, Gold Rises

By John Lee

U.S. 10-year Treasury bond prices rose today, after unexpected demand for 3-year notes at a $16 billion government auction. Bonds have now risen for 3 straight days, after falling steadily since the beginning of December on a string of positive, turn-around reports from the U.S. Bond prices usually fall on economic strength and rise on weakness. Bond prices shot higher last June, when the Fed initiated a rate-pause to deal with slowing growth and moderating inflation. Bonds rose consistently through the second half of 2006, as weak economic reports continued to roll in. However, since the beginning of December, U.S. economic reports have been characterized by high-growth and a positive spin, which has helped to push bond prices lower.

The dollar fell against both the yen and the euro today, despite comments by Secretary Paulson which hinted that there will be no G-7 committee intervention for the yen. The G-7 committee has hinted that the group will focus time during this week's meeting to focus on yen weakness, to address any significant unbalance in the global currency market. The currency market has favored currencies backed by inflationary, positive-growth economies, which puts the euro at a significant advantage over the yen and dollar. Weak reports from Japan have contributed to the yen reaching record lows against the euro and yearly lows against the dollar. Since December, the U.S. has been producing positive economic numbers, which helped propel the dollar off recent lows against the euro.

Crude oil fell fractionally today, on speculation that U.S. supplies can easily handle any spike in demand stemming from winter weather. Cold weather usually equates to higher energy prices across the board, because more heating oil and natural gas is needed to heat homes. However, supplies are well above the 5-year average, giving investors some wiggle room in case of a demand explosion. A late-arriving winter helped to push prices lower through the first few weeks of January, but prices have been on the rebound lately. Natural gas futures fell about 1% on similar speculations that supplies can easily handle any spike in demand.

Gold futures rose nearly 0.5% today, on expectations that the dollar will weaken in the future, and oil will continue to rise. Gold usually trades inversely to the dollar and with oil. Investors turn to the metal as a safe-haven against dollar weakness; investors are speculating that the dollar weakness which was evident in today's trading will lead to more weakness in the future.

Copper prices rose over 3% today on a decline in stockpiles in the U.S.

Grain prices traded mixed today. Soybeans closed down fractionally. Corn fell over 1%, and wheat fell 1.6%.

Economic News
No major economic news to report for the U.S.