A New Record for Gold!

And now…today’s Pfennig!

A New Record for Gold!

Good day… And a Terrific Tuesday to you! And congratulations to LSU, winners of College Football’s National Championship Game last night. I would still love to see a Tournament in college football, and I think the people from USC, Georgia, Kansas and Missouri would too, after their respective seasons!

We traded in a tight range yesterday all day long, with a bias toward buying dollars. The euro (EUR) moved below 1.47 on the day, and the Canadian dollar (CAD) moved to below parity with the green/peachback. There was little in the way of data or “other stuff” to move the currencies, so I found the bias toward buying dollars as interesting.

Interesting because of all the stuff that keeps stacking up against the dollar… But, I’m sure there were some “feel good stories” on TV! We’ll have to pull up the waders today, because U.S. Treasury Secretary Paulson will be dishing out the manure.

And interesting is the fact that we saw some saber rattling yesterday between the United States and Iran at the Strait of Hormuz. Geopolitical hotspots are not “kind” to the dollar these days… So watch out for those, as they will normally bring about a knee-jerk reaction in the currencies.

Meanwhile, back at the ranch, the euro popped back over 1.47 in Asian, overnight, trading.

Oh… Here’s an interesting tidbit… The IBD economic optimism index is expected to have reached a post-Katrina low, and part of this falling optimism is the housing meltdown. Now watch this segue… Pending Home Sales are expected to disappoint as the data prints this morning.

Sales of pending homes in November probably declined for the first time in three months, which doesn’t paint a pretty picture for the housing meltdown. This further deterioration in housing is a big fat albatross around the U.S. economy’s neck… And anything that size weighing down the economy, will also drag the dollar along.

Hey! The U.S./Iran confrontation at the Strait of Hormuz yesterday did push gold up to a record high. The confrontation drove oil prices higher, and that alone was enough to put the giddy-up in gold prices for the day. The move was a moon shot! Gold rose $17.84 on the day, or 2.1% to $876!

And don’t look now, but Eurozone inflation is rising… Of course, I told you it would, given oil prices, and that the European Central Bank (ECB) would have to drag its feet to cut interest rates… (I also tried to say that on CNBC, right?) Anyway, inflation for the 13-nations that make up the euro rose 3.1% in November… Whoa Nellie! That’s way too high, given the ECB’s ceiling of 2%!

Does this mean the ECB will have to go back and raise rates again? It’s possible… What else can they do? They have a mandate from the Maastricht Treaty to maintain price stability… Not promote growth, like some willy-nilly central bank might want to do…(read Fed Reserve) This really puts ECB President Trichet on the hot seat.

The one thing to think about here is that, should the ECB decide to raise rates, and the Fed decide to keep cutting rates (recall the discussion about the possibility of 50 BPS this month from the Fed) The euro would be enjoying a positive rate differential. You think the euro was popular as an offset currency to the dollar before? Wait till that happens (if it does of course!)!

In the United Kingdom this morning, the latest retail sales report printed, and it wasn’t a pretty sight. Retail sales in the U.K. rose at their slowest pace since March 2006… A wicked piece of data for the Bank of England to digest… I would look for a rate cut from the Bank of England (BOE) at their next meeting.

The Fed Speak began yesterday with the Fed Atlanta’s Lockhart telling his audience that “negative signs on the economy are increasing” and that he expects “weak” growth in the first half of this year. Hmmm… Nice to see Mr. Lockhart has returned from his trip to Neverland… He should have been telling the people this stuff six months ago!

And that’s the problem with the Fed… These guys see things too late! They are always late to the game… And yet the markets think they are wise… I don’t get it… And neither should the markets!

OK… I’m still feeling under the weather this morning, but I’m going to attempt to go to work… So… Time to go to the Big Finish!

Currencies today: A$ .88, kiwi .7705, C$ .9990, euro 1.4710, sterling 1.9790, Swiss .8960, ISK 61.91, rand 6.8925, krone 5.3620, SEK 6.3770, forint 173.17, zloty 2.4460, koruna 17.74, yen 109.50, baht 29.75, sing 1.43, HKD 7.80, INR 39.28, China 7.2675, pesos 10.90, BRL 1.7640, dollar index 76.11, Oil $95.62, Silver $15.55, and Gold… $875.20

That’s it for today… It’s time for Chuck’s annual continuing education today… Our fave economist comes to visit! I’m so excited! Seriously… I am! A lot of you sent emails asking me about my last visit to the doctor last week… It went well. I’m going back on the cancer meds as a precaution, maybe the last time, and I was told to “slow down” which is exactly what I did yesterday, as I slept all day! All day! That’s not right! But I did it! Oh well… That will teach me to not eat just “anything”… Time to go… Hope you have a Terrific Tuesday!

Chuck Butler
January 8, 2008

The Daily Reckoning