Harry Potter's Pirates

Money Morning: Harry Potter's Pirates - at Moneyweek.co.uk - the best of the week's international financial media.

*** Festive cheer? Not for the retailers...

*** Blue chips hit a two and a half year high

*** Gold tumbles...silver's down too...what's gotinto the dollar...and more...

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------------------ The festive season at Woolworths seems to have cometo an abrupt end. According to the toys-to-sweetschain yesterday, same-store sales over the crucialChristmas period were flat, as sales at its music andentertainment stores fell around 5%

Festive season profits at Woolworths will amount tonearly £70m well below analyst expectations of£77m. According to the 100-year old chain, DVDpiracy knocked the sales of kids' blockbusters likeHarry Potter. Woolworth's share price fell nearly 6%,to close as one of the top FTSE losers.

Despite the retail jitters, investors pushed theFTSE100 to two and a half-year highs. The blue chipindex closed a strong 32-points into the black, at4,847. And the mid-cap 250 index traded 0.7% up, toclose at 6,983. In fact, the FTSE250 is now only 17points off 7,000 a level only triggered oncebefore in the past decade.

Back on the High Street, Woolworths' poor festivesales must have other retailers fretting. In fact,analysts reckon that higher interest rates and highlevels of consumer debt have finally taken their tollon British consumers. And this means the strugglingretail sector up only 13% last year will not belooking forward to 2005.

'I'd take [Woolworths' poor figures] as a sign thatquite a few others will have struggled as well,'Seymour Pierce's Rhys Williams said yesterday. Whoelse is looking likely to take the plunge?

Well, both Marks & Spencer and sport retailer JJB,up 0.3% and 4% respectively on Tuesday, are lookingthe most likely victims.

Not clothes and gadget retailer Next, however. TheHigh Street store is expected to issue an upbeattrading statement today. Next closed 2% up at £16.81.

Drug maker Shire closed atop the FTSE leaderboardyesterday. Britain's third largest pharmaceuticalsgroup gained 5%, after announcing a deal to develop anew drug for hyperactivity. The deal, with US firmNew River, should allow Shire to prevent patientsfrom switching to cheaper hyperactivity drugs fromShire's own top-selling treatment.

Fellow pharmaceutical group AstraZeneca traded 1%up despite withdrawing its application for Europeanapproval for its drug Iressa. According to a clinicalstudy last month, the drug failed to help lung cancerpatients to live longer.

As it is, AstraZeneca's anticoagulant pill Exanta,and cholesterol fighter Crestor have both come undersafety scrutiny despite being labelled potentialmultibillion-dollar sellers. ------------------ Last year's top blue chip performer, Cairn Energy,closed as one of the biggest fallers on Tuesday.Cairn tumbled 4%, as the crude price fell over 2%.Dated Brent traded at $39.40 per barrel by London'sclose.

Miners Xstrata and Antofagasta both fell nearly 5%- also atop the FTSE loser board yesterday. Xstrataclosed 45p down as its Australian target WMCResources told the group it's worth at least 30% morethan Xstrata's initial hostile bid. In fact, themining sector as a whole plunged 3%, as metal pricespulled back on Tuesday.

Gold tripped its way into 2005, falling to twomonth lows on Tuesday. We mentioned in yesterday'sMoney Morning the sixteen-year highs reached by goldlast year...but yesterday the shiny stuff tumbled 3%,to trade at $426 per ounce by London's close.

What's going on? Well, the dollar strengthened 1%versus the euro on Tuesday, boosted by growing USmanufacturing data out yesterday. It traded at $1.330against the euro by London's close. And eurozonersweren't happy as this made dollar-denominated goldmore expensive for buyers using euros.

So is the precious metals bear back? Well, gold'stremendous 2004 bull-run came largely in dollarterms. While the gold dollar-price traded 5.5% upduring last year, it actually fell 2% in sterlingterms, and nearly 2.5% in euro terms. But this is notnecessarily a bad thing.

On the contrary, the falling price of gold incurrencies other than the dollar means onething...gold's bull market is yet to take off.And 2005 may just be that year. Gold will be anespecially handy investment against the fallingdollar, let alone a range of other economic andgeopolitical uncertainties. And the pundits largelyagree.

'There should not be too much downside unless weare in for a period of protracted US dollar strength,which we do not expect,' UBS investment bank's JohnRead said yesterday.

Instead, gold bugs could see the commodity's priceplummet as the perfect buying opportunity.

And don't forget silver. Gold's price plummetpulled silver down to three-month lows yesterday, totrade 7% down at $6.35. But this means onething...that an oversold silver could be nearing itsnext rebound soon Until tomorrow Heather D'AltoMoney Mornin