Good morning ...
Gold held in positive territory until the second hour of New York trading on Wednesday, but it nosedived to below $840 by mid-morning, then saw a mild rally back to $850 killed off at the noon hour, after which it was nearly all downhill to a finish at $842.00/oz., down $21.50. Overnight, gold has been flat.
Just after the Comex open, platinum surged to the $1,000 mark for the first time since mid-October, but it failed to hold there, bouncing around during the rest of the trading day and ending at $967/oz., up $6. Overnight, platinum has been pushing higher.
Silver peaked near $11.60 just after New York opened, hit a waterfall decline that beat it back to $10.90 at mid-morning, but then perked up a bit to close at $11.02/oz., down 42 cents. Overnight, silver is trending lower.
While platinum managed to finish in the green, both gold and silver took a pounding, as a slipping dollar failed to provide enough support to counteract plunging oil prices and a weak equities market.
Speculators were betting that the economic stimuli on the way will brighten the picture for platinum, despite the truly awful sales numbers coming out of the auto industry with somber regularity.
The more-industrial metals have been beaten up, and they're going to benefit from the infrastructure plan, said Frank McGhee, of Integrated Brokerage Services in Chicago. Platinum got down to even with gold, and that's historically cheap.
It's a theory that doesn't seem to be applying to silver, which also has a strong industrial sales component. Or perhaps silver has begun to recast itself as almost entirely an investment metal. We shall see.
In any case, Dan Norcini, writing on jsmineset.com, had some harsh words, laying off the day's action to hedge and index funds that trade by throwing money en masse into whatever markets their algorithms tell them to or withdrawing it all at once should the same computer command them to do so the very next day.
Norcini goes on to sneer that we now have the Pac-Man crowd and the Mortal Kombat generation who are manning the trading desks at these firms. Maybe they are looking for the combination of the right keys to press to produce a power move that will allow them to gobble up all the competition. Nothing else can explain this display of such ineptness and clumsiness.
Fortunately, Norcini says, and we agree, if you really know the fundamentals of a market and if those fundamentals are bullish, then you can take advantage of the short-sighted stupidity of the funds as their actions present opportunity for traders of convictions who are also well-capitalized.
Currencies and Economic News
In the currency market, the dollar slipped against the euro. Late Wednesday, the euro was trading at $1.3618 vs. $1.3529 on Tuesday.
The buck was undermined by the day's horrendous job number. The ADP Employment Services report, generally seen as a leading indicator for the official Labor Department data due on Friday, said yesterday that private companies cut 693,000 jobs in December, far more than the 500,000 economists were projecting.
The report paints a shockingly weak picture of the labor market, said economists at RDQ Economics. The labor market is on track for the largest quarterly decline since 1945, they added.
In addition, for all of 2008, companies announced a total of 1.2 million job reductions, the most since 2003 and 59% more than in 2007, according to outplacement firm Challenger Gray & Christmas.
Analysts now await with trepidation the Friday nonfarm payrolls report, with many predicting a jump in unemployment from 6.7 all the way to 7.1%.
The ADP figures confirmed the dollar bears' worst nightmare, nearly hitting the minus-700K barrier, suggesting that the U.S. labor situation has deteriorated significantly over the past month, wrote Boris Schlossberg, director of currency research at GFT.
However, Schlossberg argued, given the negative sentiment already prevailing in the currency market any reading close to minus-500K could be seen as dollar-positive, and the greenback could actually gain as a result.
In the energy market on Wednesday, oil plummeted to the biggest one-day percentage loss in 7 years, with crude for February delivery closing at $42.63/barrel, down $5.95. February reformulated gasoline fell 11.28 cents, to $1.0764/gallon.
In its weekly inventory survey, the Energy Information Administration reported that the nation's crude stocks shot up by 6.7 million barrels in the week ended January 2. Gasoline inventories increased 3.3 million barrels, while distillate stocks rose by 1.8 million barrels. Refineries were operating at 84.6% of capacity last week, up from the prior week's 82.5%.
The stock build should be enough to chase the bulls back into the barn, said James Williams, of WTRG Economics. The substantial builds in crude oil, gasoline and distillates ought to bring the bears back from a short hibernation.
Also helping oil lower was an easing of Middle East tensions after reports of a temporary truce in the Gaza Strip to allow shipments of humanitarian relief, plus the announcement of an Egyptian proposal for a more permanent end to the conflict.
The base metals were all deep in the red on Wednesday. Copper fell from the pre-dawn hours straight through the New York day, finishing at its intraday low of $1.4696/lb., down more than 6 cents. Nickel also plunged daylong, just coming off its intraday lows late to close at $5.4242/lb., down 42 1/4 cents. Zinc was steady until mid-morning, but then sagged to its intraday low of $0.5538/lb., down 2 3/4 cents. Aluminum dropped slowly but steadily, ending at $0.705/lb., down just under a penny and a half, while lead also plummeted, giving up nearly 2 2/3 cents, to $0.5139/lb.
Copper skidded the most in two weeks after the weak jobs data generated some major cracks in the optimism that had been lately felt about a possible economic recovery. The recent rally, which was linked to the rebalancing of commodity indices, was stopped cold, analysts said.
Index rebalancing is not going to be a viable substitute for end-user metal demand, which is still flat on its back, and neither will it make a dent in rising LME stock levels, which were up again today, said Edward Meir of MF Global.
Indeed they were. As if to confirm the paucity of any new demand, copper inventories monitored by the LME rocketed higher by another 7,825 metric tons yesterday, to 351,325 tons, a level not seen in nearly 5 years.
Commenting on the day's numbers, Matthew Zeman, of LaSalle Futures Group in Chicago, said: The data that's continuing to come out is extremely lousy ... We're losing more jobs. It's not a pretty economic picture.
Zeman added that, We've been seeing a runup in optimism on Obama's plan ... [But] It's likely to be fairly short-lived. Until we see a turnaround in some of the economic data, copper will have a hard time making a sustainable move higher.
Michael Gross, of OptionSellers.com in Tampa, Florida, caught the grim mood by saying that, Any rallies we see now will just be a correction in a somewhat sluggish market.
On the production front, Chile's state copper commission, Cochilco, said it was holding to its 2009 average copper price forecast of around $1.60/lb. The commission also trimmed its output forecast for the year to 5.473 million metric tons.
And Reuters reported that: Spot fees paid to Chinese smelters to convert copper concentrate to finished metal are rising more after jumping by two-thirds in the fourth quarter last year, as term fees are set to rise and smelters worry about domestic copper demand.
That's what's happening ... see you tomorrow!
NEWS YOU CAN USE:
The Gold Report - Jack Lifton: The Age of Technology Metals
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