Your Economy (No Politics)

[Bullwinkle]

Most likely reasons Gold corrected so severely...


Gold price riding high on fear of terrorism, says Greenspan
Leo Lewis, Tokyo
February 09, 2006

ALAN Greenspan, who stepped down last week as chairman of the US Federal Reserve after 18 1/2 years, has blamed the threat of terrorism for the high gold price, in his first private sector speech since being let off the leash of officialdom.

According to members of his audience of international investors - watching a holographic image in Tokyo as he spoke in New York - Greenspan said the high cost of gold did not reflect inflation or the strength of commodities, but rather a fear among investors of a major geopolitical conflict. There were people who believed that a nuclear weapon could be detonated within five years, the former American central bank supremo said.

The low probability of such an event occurring would not necessarily avert a spike in the gold price, he added.

Greenspan went on to discuss a range of topics, including the problems created by a lack of investment in refining capacity by the oil industry. He said this failure by the oil majors meant that the era of cheap energy was almost surely over.

The former Fed chairman is also said to have indulged in a moment of self-criticism over the central bank's failure to prevent the market bubble in the late 1990s.

He admitted that at the time he and his colleagues could not see that the notion that they could deflate a bubble with incremental rises in rates was an illusion.

Greenspan's decision to appear in public so soon after stepping down from the Fed clearly demonstrates that the revered figure in central banking is not one to revel in retirement, after almost two decades at the Fed.

http://www.theaustralian.news.com.au/common/story_page/0,5744,18084883%255E643,00.html


Dollar Advances as Greenspan Suggests Rates May Rise Further
Joshua Krongold in New York

Feb. 8 (Bloomberg) -- The dollar advanced to a one-month high against the euro and rose versus the yen as former Federal Reserve Chairman Alan Greenspan bolstered speculation the central bank will continue raising interest rates.

Greenspan suggested at a dinner yesterday that low long-term rates were limiting the Fed's ability to manage the economy, according to a person briefed by a participant at the meeting. The U.S. currency's gains accelerated on the report, helping the dollar post its biggest advance in a week against the yen.

``Apparently he spoke very hawkishly and suggested the market isn't pricing in as much as they should as far as future interest-rate hikes,' said John Cholakis, a currency trader at Natexis Banques Populaires in New York. ``That's been one of the reasons why the dollar is so bid,' or in demand, today, he said.

The dollar strengthened to $1.1964 per euro at 5 p.m. in New York, from $1.1981 yesterday, reaching the strongest since Jan. 3. It rose to 118.49 yen, from 117.95 yen yesterday.

Greenspan made his comments to about a dozen clients of Lehman Brothers Holdings Inc. in New York, according to the person, who declined to be identified. Kerri Cohen, a spokesman for Lehman in New York, declined to comment. Greenspan's office in Washington also declined to comment.

http://www.bloomberg.com/apps/news?pid=10000101&sid=aOMcgLmSGE.E&refer=japan


AND THOSE COMMENTS MOST LIKELY TRIGGERED THIS...

Commodities find their feet after fund sell-off
February 08, 2006 02:32 PM ET

CHICAGO (Reuters) - U.S. commodity markets found their footing on Wednesday, with some eking out gains one day after a sell-off by investment funds that toppled everything from gold to oil to grains from their lofty perches, traders and analysts said.

Grain and oilseed futures at the Chicago Board of Trade were higher in midday trading, recovering from Tuesday's sharp declines triggered by the New York gold market's biggest one-day fall in dollar terms in more than a decade.

http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=OBR&Date=20060208&ID=5488....