Oil Rises to Record, Gold going to 1000

Global Market

By many measures, confidence in the dollar has never been lower, and some fear more Federal Reserve interest rate cuts will make matters worse by swelling inflation and undermining long-term U.S. economic health.
The Fed has cut benchmark interest rates from 5.25 percent to 3 percent since September, and the central bank's Chairman Ben Bernanke has signaled he would reduce them further to boost an economy that many on Wall Street and beyond fear is already in recession.
That's pushed the dollar to an all-time low against a basket of currencies and the euro to $1.5275 for the first time in its nine-year history. The Fed's own broad trade-weighted dollar index fell to a 12-year low.
But whether the central bank succeeds in forestalling recession is of little consequence to dollar investors these days. The most optimistic forecasts call for little more than anemic growth even if the Fed succeeds.
More troubling is the fear that whatever success the central bank achieves will have been bought at the expense of future inflation, shattering confidence in the dollar.
A weakening dollar increases the cost of imported goods for Americans and tends to perpetuate rising oil prices because it makes energy cheaper for non-U.S. consumers, prompting more consumption.
The Fed's rush to cut interest rates contrasts with the European Central Bank's approach, which has been to hold rates at 4 percent to fight uncomfortably high inflation. It's also at odds with central banks in Australia and the emerging markets that have recently raised rates.
That has erased the dollar's yield advantage against the euro and other major currencies, sending it sharply lower.
But some investors worry that it can be hard to get the inflation genie back in the bottle once he's escaped. In the 1970s, it took a massive tightening campaign that pushed rates past 16 percent before the Fed regained control.
Underlying U.S. consumer inflation is running at 2.47 percent in the 12 months to January, the highest since February 2007. Investors have poured into commodities as a hedge against inflation, sending oil to a record above $103 a barrel and gold near $1,000 an ounce.
If foreigners start selling dollar holdings, a problem because the United States relies on foreign inflows to fund its trade deficit, some fear interest rates would spike, rattling the economy and raising the government's borrowing costs.
Still, there are plenty of investors and economists who are not ready to sound the alarms.
Some of the world's biggest dollar holders, Asian central banks and oil producing countries, have fresh incentive to sell dollars.
Bernanke's reduction in the target rate for overnight loans between banks to 3 percent has spurred a rout in U.S. stocks and gains in oil and gold prices.
The U.S. is now in a ``de-leveraging'' phase where banks make fewer loans, stunting economic growth.
Further interest-rate cuts may spur inflation and reduce the value of 10- and 30-year Treasuries calling the bonds ``a disaster waiting to happen.'' Ten-year notes fell to a four-year low of 3.44 on Jan. 22.
Sugar is inexpensive relative to other commodities and said stocks in emerging markets are more vulnerable than U.S. equities because speculation has created larger asset bubbles.

Stock Market

U.S. stocks gained the most in a week as a rally in commodity producers overshadowed speculation that Ambac Financial Group Inc.'s plan to raise $1.5 billion will fail to salvage the bond insurer.
Chevron Corp. and Freeport-McMoRan Copper & Gold Inc. led oil and mining shares to their biggest gains as crude climbed to a record and metal prices advanced. Bank of America Corp. and JP Morgan Chase & Co. declined, sending financial shares to their fifth straight drop. Ambac slumped the most in almost two months.
The Standard & Poor's 500 Index added 6.95 points to 1,333.7. The Dow Jones Industrial Average increased 41.19 to 12,254.99. The Nasdaq Composite Index increased 12.53 to 2,272.81. Three stocks rose for every two that fell on the New York Stock Exchange. The dollar touched a record low against the euro.
Shares also gained after the Institute for Supply Management's non-manufacturing gauge rose almost 5 points to 49.3. The index of service businesses overshadowed an industry report showing an unexpected decline in jobs and government data that showed a drop in factory orders.
Chevron climbed $2.06 to $88.79. Oil for April delivery advanced $5 to close at $104.52 a barrel in New York. Futures touched $104.95 a barrel. Natural gas futures rose 39 cents to $9.741 per million BTU.
Freeport-McMoRan rallied $5.15 to $104.08. Gold futures rose $22.20 to $988.50 an ounce. Silver prices climbed to as much as $20.97 an ounce and copper rose to a 21-month peak of $3.985 a pound.
The dollar touched a record low of $1.5303 per euro. Commodity prices, denominated in dollars, have risen to compensate sellers for the currency's depreciation.
Deere & Co. and Microsoft Corp. led industrial and technology shares higher today on speculation the dollar's decline will boost sales of U.S. products overseas and add to their earnings when foreign profits are converted to dollars.
Deere, the biggest manufacturer of farm tractors and excavators, added $2.59 to $89.28. Microsoft gained 53 cents to $28.12. About 39 percent of Microsoft's sales come from overseas.
Ambac Financial slumped $2.02 to $8.70. The company plans to raise $1.5 billion through public offerings to be managed by Credit Suisse Group, Citigroup Inc., Bank of America and UBS AG, Ambac said in a filing.
Ambac shares have dropped 90 percent in the past year as it seeks to prevent a downgrade of its AAA rating following record losses on subprime guarantees. The loss of Ambac's top rating would exacerbate losses on $556 billion of municipal and asset- backed securities insured by the company, forcing some investors to sell the debt and others to reduce their holdings.
MBIA, Ambac's larger rival, tumbled 80 cents to $12.18.
Bank of America, the second-largest U.S. bank by assets, lost 59 cents to $37.55. JP Morgan, the third-biggest, slumped 45 cents to $38.74.
Big Lots Inc. climbed $3.85 to $21.23. BJ's Wholesale Club Inc. advanced adding 6.7 percent to $35.52.
Tyson Foods Inc. rose $1.27 to $16.19. The biggest U.S. meat producer advanced after JBS SA, the world's largest beef producer, agreed to pay $1.27 billion in cash and stock for assets in the U.S. and Australia, including the beef unit of pork producer Smithfield Foods Inc. Smithfield rose $1.07 to $28.95.

Currencies

The yen may decline for a second day against the dollar after gold and crude oil surged to records, boosting traders' appetite for higher-yielding assets.
The dollar fell to a record low against the euro and declined compared with Brazil's real as investors sold the U.S. currency to buy assets in countries with higher growth rates. The Bank of Japan is forecast to maintain interest rates at 0.5 percent, the lowest among developed nations, at its meeting this week giving traders the confidence to put on carry-trade purchases funded by cheap loans in Japan.
The yen traded at 103.93 per dollar from 104.01. The dollar traded at $1.5268 per euro, touching a record low of $1.5303 per euro yesterday.
The yen yesterday sank compared with all 16 of the most- active currencies after the Institute for Supply Management said its non-manufacturing index improved to 49.3 last month, from a record low of 44.6 in February.
Crude oil jumped to a record $104.56 a barrel. Gold futures in New York rose as much as 3 percent to $995.20 an ounce, the highest ever.
The yen pared some losses after Ambac Financial Group Inc. said it will sell common stock and equity to bolster its capital. The bond insurer is seeking to stave off a downgrade of its AAA rating, the loss of which would cast doubt on $556 billion of municipal and asset-backed securities insured by the company, forcing some investors to sell the debt.
The Federal Reserve yesterday said in its Beige Book survey that growth has slowed in eight of 12 U.S. regions since the start of the year, hurt by faltering retail sales and manufacturing and a continued decline in housing. A report from ADP Employer Services showed businesses lost 23,000 workers in February, after a gain of 119,000 in January. The median forecast in Bloomberg survey was for an addition of 18,000.
The dollar yesterday lost 0.9 percent against the real and 0.8 percent against the Australian dollar.
Investors borrowing at Japan's cheap rates can buy commodities and securities in Brazil and Australia, where the main rates are 11.25 percent and 7.25 percent, respectively. Swings in exchange rates can erase profits from these rate differences.
The euro yesterday fell earlier on speculation European Central Bank President Jean-Claude Trichet will signal after a policy meeting today the region's common currency is too strong.
European finance ministers said this week they are ``increasingly concerned'' about the euro's 16 percent gain against the dollar in the past year.
A gauge traders use to measure the momentum of currency moves suggests the euro is poised to drop.
The euro's 14-day relative strength index, a gauge of the speed of the currency's rally against the dollar, is was 70 for the sixth straight day yesterday, indicating a pull-back in the euro may be imminent. The last time the gauge held above 70, the euro fell about 3 percent against the dollar in the following three weeks.
The ECB will keep its main rate at an almost-six-year high of 4 percent today, according to economists surveyed by Bloomberg News. Futures show traders see about a 50 percent chance the Fed will cut its target rate 0.75 percentage point to 2.25 percent on March 18. The Bank of England is forecast to leave its benchmark at 5.25 percent tomorrow. The balance of bets in the U.S. is on a half-point cut.
New Zealand's dollar advanced after the central bank said the nation's benchmark interest rate will remain at a record high, boosting the appeal of the South Pacific country's higher- yielding assets.
The local dollar gained 0.8 percent against the yen as Reserve Bank of New Zealand Governor Alan Bollard kept the rate unchanged at 8.25 percent for his sixth successive monetary policy review today.
He said inflationary pressures will ensure borrowing costs stay at the ``current levels for a significant'' time. New Zealand's rate is the highest after Iceland's among AAA rated economies, making it a favorite for the so-called carry trade.

Commodities

Oil
The Organization of Petroleum Exporting Countries agreed to maintain production targets at a meeting today in Vienna. U.S. supplies fell for the first time in eight weeks, the Energy Department said. Venezuela activated the country's navy and air force in addition to 10 tank battalions being mobilized.
Crude oil for April delivery rose $5 to settle at $104.52 a barrel. Futures touched $104.95 a barrel. Prices are up 74 percent from a year ago.
Brent crude for April settlement rose $4.12 to $101.64 a barrel. Futures reached a $102.29 a barrel on March 3.
Saudi Arabian Oil Minister Ali al-Naimi, who sets policy in the world's largest oil exporter, said earlier that supply and demand are stable. Naimi said that OPEC's aim was to keep stockpiles near the five-year average.
Gasoline for April delivery rose 11.3 cents to close at $2.6421 a gallon in New York. Futures touched $2.7325 on March 3.
Venezuelan President Hugo Chavez on March 2 ordered the battalions to the border in response to a Colombian air raid against a guerrilla camp in Ecuador the day before. Venezuela and Ecuador are the only members of OPEC in the Western Hemisphere.
Crude-oil supplies fell 3.06 million barrels to 305.4 million in the week ended Feb. 29.
Supplies of distillate fuels, a category that includes heating oil and diesel, fell 2.33 million barrels from 117.6 million barrels last week.
Heating oil for April delivery rose 15.13 cents to $2.9431 a gallon. The contract touched $2.9491.
Crude-oil prices also rose because the dollar dropped to an all-time low against the euro, increasing the appeal of commodities as an alternative investment. The dollar touched $1.5303 per euro, the weakest since the euro's start in 1999.
Gold and corn also rose to records today. Gold futures for April delivery climbed as much as 3 percent to $995.20 an ounce.

Gold
Gold futures rose to a record in New York as the dollar touched an all-time low against the euro and crude oil topped $104 a barrel, fueling inflation concerns. Silver rallied to the highest since 1980.
Crude oil surged as OPEC ministers agreed to hold production steady at a meeting today in Vienna. Gold climbed 31 percent last year as oil rose 57 percent and U.S. consumer prices accelerated at the fastest pace since 1990. The dollar dropped 14 percent against the euro in the past year, including a 4.4 percent decline since Dec. 31.
Gold futures for April delivery rose $22.20 to $988.50 an ounce. The metal earlier reached $995.20. Gold has advanced 18 percent this year.
This year, gold will probably rise more than twice as fast as last year. The price will probably average $934 an ounce in 2008 and probably average $1,100 an ounce in 2009.
Some investors buy precious metals, including gold and silver, to preserve value.
Silver futures for May delivery rose 94.5 cents to $20.785 an ounce. Silver has jumped 39 percent this year.
The euro traded at $1.5258, up from $1.5217 yesterday.