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JOHN PARTRIDGE

Thursday, March 16, 2006

You don't have to put on your crash helmet just yet, but you might want to paint it gold.

Less-than-stellar U.S. economic news is continuing to drive down the mighty greenback against pretty much every other major world currency, and this in turn is continuing to help drive up the price of the world's favourite precious metal. There's nothing on today's economic news docket -- which includes consumer price index data and housing starts and building permits for February -- to suggest a quick reversal is about to materialize.

Strategists at BNP Paribas in London have given us all another insight into just how turned off the U.S. dollar investors are growing.

They said in a note yesterday that their March survey of investment managers' expectations shows there has been a "huge change in sentiment" about the U.S. dollar among real-money fund managers, who are now "the most bearish on the dollar since March, 2005." Indeed, what the strategists call their Overall USD Expectations index has "collapsed," plunging to minus 30 from minus 14.7 in February.

Weaker-than-expected economic news, most recently foreign purchases of U.S. securities in January yesterday, along with February retail sales numbers and a record current account deficit unveiled Tuesday, let more air out of the greenback's tires. It fell against the euro, for example, closing at €1.2074, compared with €1.2013 Tuesday and, closer to home, against the Canadian dollar, dipping to $1.1545 (Canadian) from $1.1566.

The U.S. securities purchases are worth noting because for the second month in a row they came in below the level Washington needs to make up for the current account deficit and prop up its dollar. Foreign buyers picked up $66-billion (U.S.) of U.S. stocks, bonds, Treasury notes and so on in January, up $12.2-billion from December. However, according to Bloomberg, the United States needs to bring in about $75-billion a month to maintain the status quo.

Gold, which almost always grows more appealing to investors as the greenback grows queasier, has responded to all this by resuming its climb. Futures for April delivery of the yellow metal rose to $554.40 an ounce yesterday, up $1.40 from Tuesday, although still below their Feb. 2 high of $572.20.

U.S. investment commentator Dennis Gartman said in yesterday's edition of The Gartman Letter that there is currently "insurmountable resistance" to gold breaking through the $550-to-$575 range and that "it will take egregiously bad economic news and/or even more egregiously bad geopolitical news to push [it] through this resistance in the next several days or weeks . . . or even months."

Still, Brian Hicks, who helps manage the global resources fund at U.S. Global Investors Inc., figures that the $600-an-ounce projection for gold with which he entered 2006 may need to be revised up.

"That . . . could be conservative if we see material weakness in the economy," he said.

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