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1. OPEC Abandons U.S. Dollar
2. Realtors: New Home Sales to Fall in 2007
3. Experts: Gold Is Cheap
4. Official: OPEC Split Over Further Oil Cuts
1. OPEC Abandons U.S. Dollar
Oil-producing countries have reduced their dollar holdings to the lowest level
in two years and shifted oil income into other currencies, according to the Bank
for International Settlements.
Members of the Organization of Petroleum Exporting Countries and Russia reduced
their dollar holdings from 67 percent in the first quarter to 65 percent in the
second quarter.
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At the same time, they increased their holdings of euros from 20 percent to 22
percent, the BIS said. They also boosted holdings of the yen and British pound.
Eighteen months ago, the oil-producing countries' exposure to the dollar was
above 70 percent.
"The revelation in the latest BIS quarterly review … confirms market speculation
about a move out of dollars and could put new pressure on the ailing U.S.
currency," the Financial Times reports.
The BIS, the central bank for the developed world's central banks, disclosed
that OPEC's dollar deposits fell by $5.3 billion, while euro and yen-denominated
deposits rose $2.8 billion and $3.8 billion, respectively.
The last time oil-exporting countries reduced their exposure to the dollar — in
late 2003 — it pushed the euro to an all-time high against the dollar.
The BIS noted: "While the data are not comprehensive, they do appear to indicate
a modest shift over the quarter in the U.S. dollar share of reporting banks'
liabilities to oil exporting countries."
According to the Times, "the dollar has suffered weakness because of concerns
about global imbalances and the future course of the Federal Reserve's interest
rate policy."
Editor's Note:
2. Realtors: New Home Sales to Fall in 2007
New home sales will continue to fall in the first three months of 2007 while
existing home sales are expected to recover, says the National Association of
Realtors (NAR).
The NAR's latest forecast says new home sales will fall 17.7 percent to 1.06
million in 2006. That's the fourth highest total on record, according to the NAR.
And sales will fall an additional 9.4 percent in 2007 to 957,000.
According to the NAR, lack of supply will be the main factor behind lower new
home sales. Builders cut back on building new homes in order to maintain higher
prices. Plus, high construction costs have been eating into builder's bottom
lines, forcing them to reign in building efforts.
Housing starts, which are the number of homes builders break ground on, are
expected to drop 12.3 percent to 1.82 million units in 2006. Starts will then
fall another 15.1 percent to 1.54 million units in 2007, says the NAR.
Existing home sales are forecast to drop by 8.6 percent to 6.47 million in 2006.
That's the third best year on record, according to the NAR. However, existing
home sales are expected to recover in 2007 from the current cyclical low to
sales of 6.40 million or 1 percent lower than this year's total sales.
"By the fourth quarter of 2007, existing home sales will be 4.6 percent higher
than the current quarter," says NAR chief economist David Lereah.
Though home prices have shown signs of weakness lately, the NAR says prices of
existing homes will rise 1.4 percent to $222,600 in 2006 and they'll gain
another 1 percent in 2007, rising to $224,700.
New home prices, on the other hand, will be mixed. The NAR is predicting prices
will ease by 0.5 percent to $239,700 in 2006, but will edge up 0.8 percent in
2007 to $241,700.
"Keep in mind that overall home prices were still appreciating at double digit
rates in the first quarter of this year — prices in this buyer's market are
temporarily a little below a year ago when we were in a strong seller's market,"
Lereah said. "This correction is one of the factors drawing buyers into the
current market, but most sellers are still seeing very healthy long-term gains,"
notes Lereah.
Overall, the NAR is not expecting a repeat performance of the past three or so
years.
"Roughly three-quarters of the country will experience a sluggish expansion in
2007, while other areas should continue to contract for at least part of the
year," he said. "Most of the correction in home prices is behind us, but general
gains in value next year will be modest by historical standards."
The housing market certainly has reached a plateau this year, and time will tell
if the NAR's predictions come true. The wild card will be interest rates and the
economy. If the economy were to, for example, slip into recession, all bets are
off as to how far the housing market could fall.
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3. Experts: Gold Is Cheap
Gold, which has undergone a correction, is undervalued right now, say experts
including analysts for Deutsche Bank, JPMorgan Chase, Merrill Lynch, and a
former head of research at Citigroup.
The experts point to gold's role as an inverse play against the fragile U.S.
dollar. In other words, as the U.S. dollar falls, gold should rise.
"Gold is the purest play against the dollar," Louise Yamada, managing director
of Yamada Technical Research Advisors, tells Bloomberg. Yamada, who is the
former head of technical research at Citigroup, is forecasting $730 gold next
year, and says gold will reach $3,000 per ounce within a decade. When she was at
Citigroup, Yamada correctly said gold was cheap when it traded at $279 in 2001.
Yamada argues that central banks are diversifying away from the dollar and are
buying gold instead.
"Gold is probably the most straightforward investment to go with in this
environment because of its consistent inverse relationship to the dollar," said
Yamada, voted Wall Street's best technical analyst from 2001 to 2004 in surveys
by Institutional Investor magazine. "Other countries are trying to diversify
their dollar holdings. They're buying gold and anything they can to get out of
the dollar."
Deutsche Bank's chief metals economist, Peter Richardson, recently proclaimed
gold his favorite pick for 2007. "If you can only make one commodity
investment," Richardson tells Bloomberg, gold is the "choice for 2007."
JPMorgan Chase analysts John Normand and Jon Bergtheil said gold was only second
to corn as the best bet based on tight supply and the flailing dollar. Normand
and Bergtheil predict gold prices will rise 11 percent to $678 an ounce in 2007
and to $725 an ounce in 2008.
"Gold is the only metal, base or precious, which will see no meaningful increase
in mining supply next year," the analysts wrote, estimating that supply will
grow by 1 percent.
Merrill Lynch analyst Michael Jalonen upped his price target for gold through
2010. Jalonen expects gold to reach $650 an ounce in 2008, up from a previous
prediction of $600. He also raised his 2009 projection from $600 to $625. And
Jalonen maintains his 2007 prediction that gold will rebound to $675 in 2007.
Jalonen tells Bloomberg the 2007 rally will be "due to a rebound in gold
fabrication demand for bullion, lower central bank sales, and continued growth
in investment demand."
Editor's Note:
4. Official: OPEC Split Over Further Oil Cuts
A narrow majority of OPEC members want to cut the group's oil output further
when they meet in Abuja on Thursday, a top OPEC official said on Monday.
Hasan Qabazard, OPEC's director of research, said his view was OPEC should wait
to judge the full impact of its existing 1.2 million barrels per day reduction
before cutting again.
Asked how many countries backed supply curbs, he told Reuters in an interview:
"I put it at 60/40."
"I see mixed signals. Some ministers believe there should be cuts but some other
ministers believe the market is balanced."
He listed Saudi Arabia, Algeria, the UAE and Qatar among those countries
favoring supply curbs of at least 500,000 barrels per day. At an emergency
meeting in October, OPEC decided to remove 1.2 million bpd from the market after
a 25 percent drop in the oil price from its $78.40 mid-July peak. "I would
prefer that we wait until January to see how our cuts in Doha take effect ...
prices have gone up a little bit."
He raised the possibility of price spikes during the northern hemisphere winter
when demand peaks.
"You don't want to have the price go up drastically. That might be harmful for
economies," he said.
Prices have rallied from a low of $54.88 on Nov. 17 for U.S. crude to more than
$61 a barrel, above OPEC's undeclared price target of $60 a barrel — $55 for
OPEC's basket of crude.
Sixty A Barrel Fair For All
Qabazard said a $60 a barrel price did not risk harming the world economy and
enabled OPEC countries to invest in oil infrastructure.
"$60 for WTI seems to be a good price. This price has also promoted investments
in the upstream, in the refining sector."
While price is significant, he said OPEC's real concern was balancing supply and
demand. He said estimated excess supply of between 500,000 and 700,000 bpd —
assuming full compliance with curbs agreed in October — was not a worry now.
It could swell to 1.2 million bpd and become a problem when demand falls during
the second quarter, especially if non-OPEC producers come close to meeting
expectations of 1.8 million bpd growth.
"The worry is that in the second quarter of 2007 we'll have a lot more supply
than demand," the OPEC official said.
Cuts in place have gone some way towards draining oil stocks in the
industrialized world that rose to 2.76 billion barrels, equivalent to 55 days of
demand, in September versus 2.64 billion the previous year, or 53 days of
demand.
Qabazard said he considered 52 days of forward supply reasonable.
Stocks in industrialized nations are about 100 million barrels above the
five-year average, he said, while U.S. commercial inventories were 20 million
barrels above the five-year average. U.S. stocks of distillates, including
heating oil, were bang on the five-year average for the season.
Some OPEC members have expressed concern at the weakness of the dollar. The
dollar has fallen 11 percent this year versus the euro, eroding the purchasing
power of OPEC's revenues from the dollar-denominated oil market.
"The decline of the dollar is a concern because the U.S. economy is a concern.
Normally the world economy follows the U.S. economy, but we have seen evidence
of a decoupling of the European and Asian economies from the United States so
the worry is less," Qabazard said.
"We see lots of risks in the U.S. economy next year but we also see positive
signs, so we hope that next year the dollar will come back up. It's at very low
levels and I don't think it will decline more than it already has."
© 2006 Reuters.
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