Trade ideas...lets see what we can come up with

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YAY [img]/images/graemlins/smile.gif[/img]

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Gold, Silver Fall as Higher Interest Rates May Pare Demand

By Choy Leng Yeong

June 12 (Bloomberg) -- Gold fell, resuming a decline that sent prices last week to their lowest level since March, on concern that higher global interest rates may cut demand for the metal as an alternative investment. Silver also dropped.

Gold fell 3.9 percent last week, the biggest drop in three months, after the European Central Bank and the Reserve Bank of New Zealand raised rates. Holding gold becomes less attractive when rates rise because the metal has no fixed returns. U.S. Treasury yields rose today after China and Japan showed consumer and producer prices rising, renewing speculation that faster global inflation may prompt central banks to raise rates.

``The climbing Treasury yields could keep gold prices a little lower,'' said Michael K. Smith, president of T&K Futures and Options Inc. in Port St. Lucie, Florida. ``Higher rates might bolster the dollar and keep inflation away. No inflation is bad for gold.''

Gold futures for August delivery fell $5.90, or 0.9 percent, to $653.10 an ounce on the Comex division of the New York Mercantile Exchange, after dropping as low as $649.50. The price on June 8 touched $647.80, the lowest since March 16.

Silver for July delivery fell 18.5 cents, or 1.4 percent, to $13.09 an ounce. The metal plunged 3.3 percent on June 8, the biggest decline for a most-active contract since March 2. It fell 5.1 percent last week.

The yield on the 10-year bond rose 6 basis points to 5.22 percent at 1:29 p.m. in New York, according to bond broker Cantor Fitzgerald LP.

Dollar Rising

The dollar rose to near a two-month high against the euro today and has climbed for a fifth day, the longest winning run since October, as speculation increased that the Federal Reserve will hold interest rates steady this year.

``You're going to make more money in agriculture than in gold,'' Jim Rogers, chairman of Beeland Interests Inc., said yesterday in an interview. ``I would worry about gold.''

Traders assigned a 44 percent chance that the Fed will raise rates 25 basis points by December as of yesterday, compared with no chance a month ago, according to options on Fed funds futures.

``If the interest rates get high enough, people would just go for the guaranteed rate of return versus the speculative one, gold,'' Smith said. ``Until the market absorbs all the negative information, I won't start recommending silver and gold again. Grain is where the action is for me.''

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net .

Last Updated: June 12, 2007 14:15 EDT

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Barron

EDIT: i think it would only be gentlemanly of me to offer you a buy out of $75 this early on. global rates are sooo unlikely to fall in the next 6 months (while chinese & other emerging mkt inflation will only push rates higher) that i should offer you the buy out option. lemme knwo Mr. Now [img]/images/graemlins/smile.gif[/img]

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Mr Now,

to help you in your decision, if you have a 50% chance of being right, your expectation would be:

$48.82 (assuming 5 % interest rate and the time from june 12th to dec 8th 2007)

so you should be indifferent between paying that amt or taking the 50/50 gamble.

at $75 payout, you would be indifferent between paying me that amt and gambling wiht me if your expected probability of being wrong was 76.82% (note: i picked a $75 buyout without doing the simple math so that # was the probability i just backed out).

so if you feel that your probability of being wrong is less than the above %, you should'nt take my buyout offer.

if you feel you are more likely to be wrong than the above figure indicates, you should ship me the $75 now.

(note: this assumes you are 100% risk neutral...you may, however, enjoy the uncertainty of the gamble for such a small friendly wager and turn down the buyout offer on that account

further, it assumes that you agree with a 5% interest rate.

finally, each day that passes amounts to about a 1cent change in the total amt at stake)

Barron