Good morning …
Gold started falling as soon as London opened on Monday, and continued down into the first hour of New York trading, hitting its low for the day at $845, then rallied, sold off to the noon hour, and rallied again through the rest of the Comex and the Globex, finishing at $858.30/oz., down $26.60 from Friday. Overnight, gold is sharply lower.
Platinum dropped to its intraday low of $915 early in New York, then staged a strong rally that carried it nearly to $950 before it eased late in the day to end at $943/oz., up $3. Overnight, platinum is slightly lower.
Silver greeted the new year by following gold, albeit with sharper declines and stronger rallies, all of which left it with a close in the red at $11.22/oz., down 31 cents. Overnight, silver has fallen off.
Although platinum held steady, gold and silver began 2009 with a resounding thud. Soaring oil prices did lend some support, but were unable to counter the effect of a sharply rising dollar. Equities that dropped off after three straight sessions of gains didn’t help, either.
The Hightower Report wrote of the day’s action: “In its recent pattern February gold forged an aggressive early washout and then fought its way out from under the selling tide. While prices generally remained ultra weak throughout the trading session, at times February gold had managed to bounce by as much as $18 an ounce off the early lows. Clearly the ultra strong US Dollar was a major negative for gold during the Monday trade but one also got the feeling that gold was also seeing flight to quality long liquidation. Since the stock market wasn't definitively higher throughout the trading session Monday, it seems a little suspect to suggest that improved macro economic psychology was present in the marketplace.”
UBS analyst John Reade wrote that, in his opinion, gold may trade back to the $800 level in the next one to three months.
“Unless the dollar remains weak, gold could succumb to some profit-taking,” Reade said. “Any short- term traders who caught the recent move higher should take profits here.”
Meanwhile, analyst Dan Norcini, writing on jsmineset.com, chipped in with a technician’s viewpoint, saying that: “Support near the $850 level gave way early in [yester]day’s session before buying showed up in sufficient size to push the market away from that zone. This initial support did hold but barely. The next level of support, should $850 give way, and one that gold must hold in order to keep the technicals friendly, is the $830 level. Two consecutive closes below that level and a short term top will be in (at least for gold priced in Dollar terms). Resistance still lies at the very stubborn $880 level. It is obvious that a seller/sellers of size are making a stand there.”
Currencies and Economic News
In the currency market, the dollar rallied strongly against the euro in its opening shot across the bow for 2009. Late Monday, the euro was trading at $1.3588 vs. $1.3869 on Friday.
“[The] dollar was boosted in part by ongoing talk of a big fiscal package from the incoming Obama administration, and we think gains will be sustained in 2009,” wrote currency strategists at Brown Brothers Harriman.
That government handout is looking as if it might be huge. According to MarketWatch.com, “Obama plans to spend about $775 billion over two years, putting people to work on infrastructure projects and giving aid to states. In all, the tax cuts or breaks would account for about 40% of the value of the stimulus.”
Though the buck put a smackdown on the euro, it lost ground, nearly 1%, vs. the British pound.
“Although the [Bank of England] is expected to cut rates this week, there is more chatter, particularly following last week's sobering credit conditions survey, about other policy measures by the BoE and the U.K. government to attempt to spur bank lending,” said David Watt, of RBC Capital Markets.
The day’s hard data came from the Commerce Department, which reported that outlays for construction projects in the US fell by a seasonally adjusted annual rate of 0.6% in November. That drop was “surprisingly small,” wrote Mike Englund, chief economist for Action Economics.
In the energy market on Monday, oil broke out to the upside, with crude for February delivery closing at $48.81/barrel, up $2.47 from Friday. February reformulated gasoline gained 7.19 cents, to $1.1824/gallon.
Israel’s invasion of Gaza was most often cited by analysts as responsible for the rally.
But MF Global analyst Michael Fitzpatrick noted that while the prospect of violence in the Middle East “must be taken into account whenever considering oil prices … it must be remembered that neither side [Israel or the Palestinians] controls any oil.”
Fitzpatrick added that rising oil prices acknowledge investors' realization that demand does not warrant prices at current levels, particularly if stimuli under consideration involve considerable investment in infrastructure.”
Nevertheless, with an Iranian Revolutionary Guard commander on Monday urging Islamic nations to use crude as a weapon to exert pressure on nations supporting Israel, according to the Associated Press, geopolitics is bound to play its part.
The base metals were mostly in the red on Monday. Copper sank during the pre-dawn hours, but rallied through most of the New York session before slipping a little late in the day to finish at $1.4251/lb., down less than a quarter-cent. Nickel pulled back a bit after last week’s charge, closing at $5.6283/lb., down 11 1/3 cents. Zinc was up and down, with a final late upthrust taking it to $0.5651/lb., up nearly a half-cent. Aluminum was off during the pre-dawn hours but rallied back the rest of the day to end at $0.6854/lb., down three-quarters of a cent, while lead regained most of its early lost ground, but still shed better than a half-cent, to $0.499/lb.
It was a desultory day for the industrial metals. Reuters summed up: “U.S. copper futures ended with marginal losses on Monday, after an overnight test of both ends of the trading range held, leaving prices in a mostly sideways drift for the remainder of the session.”
Although there was a bout of short-covering, any potential sustained rally was snuffed by news of stockpiles that continue their inexorable rise. Copper inventories monitored by the LME gained another 1500 metric tons yesterday, to 342,050 tons, raising them to the highest level since February 6, 2004.
Aluminum stocks kept pace, as well. Yesterday, LME inventories of that metal soared by 6,925 metric tons, to 2.34 million, the most since way back on September 23, 1994.
John Gross, publisher of the Copper Journal, injected a modestly optimistic view into the discussion. While conceding that “year-end book squaring, and commodity index re-weightings [are] all contributing to copper's steadier tone in the new year,” Gross also cited what are in his opinion “severely oversold market conditions.”
But a big turnaround is unlikely, says Kevin Tuohy, of MF Global in London. “People are still in a state of flux not knowing what their order books will be,” Tuohy said. “I can’t see money flowing in at this point. It’s too early.”
China also weighed in yesterday, with the Ministry of Commerce saying that it will allow tax-free imports of copper, nickel and cobalt concentrate, beginning February 1, provided that the finished products are re-exported.
That’s what’s happening … see you tomorrow!
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