The US dollar posted its biggest decline against the yen in almost two months as a slowdown in hiring raised concern that US economic weakness will spread globally. The US currency also declined against the Euro and Indian Rupee as traders priced in a more than 50% chance the Federal Reserve will cut borrowing costs by a half-percentage point on January 30.

Ø      US employment posted its smallest increase in over four years last month while the jobless rate hit a two-year high, indicating a weak finish for the US economy in 2007. Non-farm payrolls rose by 18,000 in December, the job market’s worst performance since a decline of 42,000 in August 2003. The unemployment rate rose to 5%, the highest level since November 2005, from 4.7% in the previous month.

Ø      US factory orders surged in November, rising far above expectations even though demand for expensive goods was revised to show a decline. Orders for manufactured goods increased 1.5%, following a revised 0.7% climb in October.

Ø      The euro zone's services sector growth slowed in December, weighed by uncertainty in financial markets. The purchasing managers' index for the sector was revised down marginally to 53.1 in December from 53.2 and compared with 54.1 in November.

Ø      Manufacturing PMI from the Institute for Supply Management slumped to a recessionary level of 47.7 in December, its lowest level since April 2003, fuelling expectations that the US Federal Reserve will be cutting borrowing costs quite aggressively in the months to come.

Ø      British banks curbed home loans materially and cut debt to companies significantly in the past quarter, according to the central bank's quarterly survey. Fewer mortgages available to consumers may further weaken the housing market as it heads for its worst annual performance since 1995.

World Markets in motion:

Precious metals ended higher during the 1^st week of 2008 as Gold & Silver futures notched up gains of 2.60% & 3.76% respectively. During the week, the greenback witnessed a setback against its major counterparts particularly against the Euro, Yen & the Indian Rupee but pared gains against the Sterling pound. Analysis and comments from some of the experts in the field are as under:

Ø                  The gold price is headed for $1,000 per troy oz with $900 the next big target after it broke the 27-year-old record of $850 on Wednesday because of global financial and political turmoil, while fundamental issues are providing positive underpinnings, said GFMS executive chairman Philip Klapwijk. The all-time high in crude oil prices of $100 per barrel, the sub-prime mortgage crisis, mounting fears about inflation and a weakening US dollar, with political turmoil in Pakistan after the assassination of Benazir Bhutto on 27th December stirred in has created ideal conditions for the gold market to forge higher. Gold hit $868 on Thursday, well above the $850 high set in 1980, and continuing the upward trend that marked 2007 when it gained more than 30%, its largest advance in nearly three decades. With the clear breach of $850-level, the next target at $900 could be taken out quite soon, Klapwijk opined. It is very difficult to put a time frame on the price movements because it entails a number of factors including the pace of US interest rate cuts, how far the dollar might fall from the current level and whether Pakistan, which owns nuclear weapons, will stabilise. However, such a price rise and the volatility in the market in recent months bodes ill for jewellery demand, one of the key offtake markets in the sector. Gold jewellery demand from China, particularly ahead of the Chinese New Year on 7 February, could have the air knocked out of it, if the price moves up to $900, Klapwijk said. Western jewellery demand is also likely to hit hard, not only because of the price but an economic slow down in those nations. The factors that drove the gold price higher in 2007 are still in place, with the fundamentals providing a positive backdrop and an underpin that kept prices falling off too sharply last year. Part of the fundamental issues providing support to the market is the fact that mined gold is not really growing significantly as producers struggle to find sizeable deposits to replace their diminishing resources. Central bank gold sales could start slowing in the medium term, Klapwijk said. The current market is primarily driven by economic concerns causing investors to seek safer places and sound returns for their money. Speculators are also catching a ride on the gold market. The price we are seeing is due to concerns about financial stability because of the ongoing credit market crisis. There are growing concerns about inflation with the huge amount of liquidity created by central banks to keep the financial system working. Inflation rates are starting to get to worrying levels in most countries, not just the US and European economies, but China where inflation rates close to seven percent. There’s also the prospect of further dollar declines. The consensus view is the dollar could weaken further, certainly given the high probability of significant short term US interest rate cuts in the next few months as the US economy does seem to be headed towards recession.

Ø                  According to the monthly precious metals report by Scotia Mocatta, the run up in Gold prices to near record levels is likely to have hit demand from the jewellery industry. Demand in some Middle East regions has dropped between 40% and 60% in October and November and it may take some time for buyers to get accustomed to these higher prices again. Any pull-back in gold prices would be a welcome development for the market, but as usual it would take the combination of lower prices and less volatility to entice a pickup in physical interest. On the same theme, the near record high prices have attracted a surge in old jewellery being sold for scrap, with some refiners reporting a two fold increase in their melt rates. The market will need to absorb this extra supply before prices head higher again. Likewise as jewellery shops take in scrap gold, their level of fresh purchases is likely to decline. Looking at the ETF position, two points stand out. Firstly high prices failed to attract liquidation selling and secondly, the dip following the peak has attracted scale down buying. Since prices peaked on 7th November, the combined position in the ETFs has climbed 13 tonnes to 795 tonnes. This suggests that the recent run up in price has whet investors’ appetite again. It also highlights that the ETF investors are longer term in nature compared to the more speculative investors who trade the futures markets. On the other hand, the big picture outlook for the US still looks dangerous as it seems a chain reaction of events has started that will lead to deterioration in conditions in 2008. There is a possibility that with 2008 being an election year in the US all that can be done will be done to prevent a crisis from unfolding; but if that is the case then it may just delay the onset of trouble. At present, bad economic data is cushioned as it raises the chances of interest rate cuts, but it is questionable in these inflationary times whether the US can spend its way out of trouble again. The overall long term outlook for gold prices remains bullish as there are numerous issues that are likely to keep investors nervous about other markets. But perhaps the biggest concern facing investors is the state of the dollar and the implications this could have on the structure of the global financial markets. A dollar crisis is likely to have nasty consequences that would negatively affect most individuals, companies and economies. As such it would not be surprising to see a concerted effort made to do whatever is needed to prevent a dollar crisis from unfolding catastrophically. This is likely to lead to some trend reversals in an effort to cause a soft landing for the dollar, which in turn could see gold prices consolidate further.

Ø                  The Japanese Yen is on a tear versus its currency rivals in the first days of 2008, much like an athlete who sprints at the start of a long-distance race to take the early lead. But the pace-setting rabbit rarely has much stamina and after a few laps falls behind those runners with more endurance. The yen’s fate in 2008 is likely to be rabbit-like. Its early strength, many analysts say, could last a bit longer, but will ultimately prove unsustainable. From a 12-month perspective, the yen is probably a shakier bet than most other major currencies, opined Dustin Reid, a currency strategist at ABN Amro Bank. So, far, however, the yen is looking good. It hit a five-week high against the dollar this week amid a string of soft US economic data and after $100-abarrel oil became reality, which scared investors away from the greenback. The euro fell below Y160 against the yen on Thursday for the first time since November while sterling fell to a 17-month low amid continued global aversion to risk that tends to steer traders towards Japan’s currency, which is often seen as a safe-haven bet. Analysts say the yen, despite its early success, might turn out to be among the weakest of the major currencies by year-end.

Xchange Communication:

The Training Department at DGCX is pleased to announce the introduction of its new course in 2008 – DGCX Technical Analysis Program (DTAP) – a four day course (first batch commencing from Jan 23 - Jan 26) designed to help investors, traders, brokers, analysts & portfolio managers to learn technical analysis in a structured manner. Using technical analysis tools, one can ascertain the current price trend of various financial assets and can anticipate what is likely to happen to prices over a period of time. For further details, please visit: http://www.dgcx.ae/content/Home.Training.Courses.aspx or call the Training Department at +9714 3611616.

Hurry!!! Register before 18^th January to avail early bird discounts. Discounts for Corporate and Educational Institutions also available.

The next 2-day training session for DGCX members & representatives will be held on 6^th and 7^th February 2008. Members interested to participate may call the Training Department at +9714 3611616 or e-mail at training@dgcx.ae.