Good morning …

Precious Metals

Gold was flat until the opening of the New York session on Thursday, at which point it suddenly went vertical, bursting to a high of $864 before settling into a $5 trading range for the balance of the day that carried it to a finish at $856.90/oz., up $14.90. Overnight, gold is little changed.

Platinum fell just short of the $1,000 mark in Hong Kong, retreated to near $960 at mid-morning, then rallied slowly but steadily to end at $987/oz., up $20. Overnight, platinum has edged lower.

Silver was off early, bottoming at $10.79 at the mid-point of London trading, but it spiked from there through New York’s first hour, peaking at $11.32 before falling gently over the course of the day to close at $11.10/oz., up 8 cents. Overnight, silver is trending higher.

Gold rose the most in a week and led the precious metals higher on a solid day, as traders ignored another decline in crude and shaky equities, and focused instead on a sinking dollar.

The advent of today’s nonfarm payroll report likely also played a part, with investors factoring in yet more ghastly numbers after ADP’s earlier grim report.

“If it’s the case that there’s not a currency people trust, then the metals are going to hold their value,” said Tom Hartmann, a commodity analyst at AltaVest Worldwide Trading in Mission Viejo, California. “People would start looking at gold as an alternative investment.”

“It looks like deflation might be holding on as a theme,” Hartmann added.

And looking at the bigger overall picture, economists at Action Economics wrote that, “It's expected that external factors will continue to be the main driver for gold … Safe haven buying could feature on dips, with foreign exchange market volatility and geopolitical risk making gold a safer alternative investment.”

The geopolitical risk is probably intensifying as the Middle East threatens to come even more unraveled with rocket attacks from Lebanon against Israel raising the possibility that a second front could open in the current bloody conflict.

As strong as gold’s prospects seem to be, analysts warn that silver and platinum, with their wider industrial applications, could trail gold’s performance in the upcoming year, as they did in 2008.

Currencies and Economic News

In the currency market, the dollar slipped again vs. the euro. Late Thursday, the euro was trading at $1.371 vs. $1.3618 on Wednesday.

The buck declined despite a rare bit of good news, as the Labor Department reported that initial jobless claims unexpectedly fell by 24,000, to 467,000, in the week ending January 3. That marked the lowest level in almost three months.

But continuing jobless claims, an indication of the difficulty in finding a new job, rose 45,000 to 4.47 million, the highest level since November 1982.

Sterling also gained ground on the dollar, in the wake of the Bank of England’s Monetary Policy Committee cutting interest rates by 50 basis points, to 1.5%. That’s an all-time low for the benchmark rate, stretching back to the BoE's founding in 1694.

Despite the cut, the pound benefited because the BoE “claimed that the pound's significant drop and falling inflation will provide stimulus to the economy,” wrote John Rivera, currency analyst at DailyFX. “The comments were somewhat hawkish and left doubts of further easing, which sent the pound up.”

And in outlining his coming massive stimulus proposal, president-elect Obama said that “if nothing is done, this recession could linger for years.” Obama added that, “I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible,” and he told congressional leaders he wants to work with them to get a plan passed “in the next few weeks.”


In the energy market on Thursday, oil slid again, with crude for February delivery closing at $41.70/barrel, down 93 cents. February reformulated gasoline rose just over a penny, to $1.0882/gallon.

“With most of the world either at, or in, recession, the case for a sustainable rally in commodities looks unpersuasive,” wrote Edward Meir, of MF Global.

Crude had risen overnight, after the rocket attacks on Israel out of Lebanon, but it promptly got whacked back down again as economic negativity is trumping Middle Eastern tensions for the moment.

And, hopefully, gas will begin flowing to western Europe again soon. Russia’s Gazprom said it will resume supplies through Ukraine as soon as international monitors are deployed and have full access to gas-transport facilities in Ukraine and Russia

Base Metals

The base metals were all stuck in the red once again on Thursday. Copper had a day of numerous fits and starts, but mostly fits, as it fell to just off its intraday low at $1.4696/lb., down 4 1/2 cents. Nickel declined through most of the day, rallying just a bit off its intraday lows late to close at $5.109/lb., down 31 1/2 cents. Zinc was in the green until the noon hour, but then plummeted to its intraday low of $0.5356/lb., down more than a penny and three-quarters. Aluminum was weak, ending at $0.6891/lb., down a penny and a half, while lead was little changed, dropping a third of a cent, to $0.5107/lb.

Copper led the sector lower for the second straight day as hopes for a strengthening economy are firmly on the back burner again.

The metals fell back into weakness “as the market returns its focus to demand-side woes amid a deteriorating macro-economic environment,” wrote analysts at Barclays Capital in London.

The relentless drumbeat of soaring stockpiles picked up its pace yesterday, as copper inventories monitored by the LME surged 6,375 metric tons, to 357,700 tons, their highest level since January 1994.

What passes for optimism was expressed by Malcolm Southwood, of Goldman Sachs JBWere in Melbourne, who forecast that the average price of most metals will be “sharply lower” this year compared with last, with copper averaging $1.89 a pound in 2009. That’s 40% lower than last year’s average of $3.12, but nearly 30% above yesterday’s close.

“Copper has the strongest fundamentals of the major base metals,” Southwood wrote. “With a 12-month view, copper has the best potential for a large price rebound.”

Still, copper production will top demand by 107,000 metric tons this year, Goldman Sachs analysts estimate. That compares with consumption that exceeded output by 117,000 tons last year.

And in company news, Teck Cominco announced yesterday that it will eliminate 1,400 jobs—roughly 13% of its worldwide workforce—in the face of persistently weak commodity prices, with the hope of annual savings of about $85 million.

That’s what’s happening … see you tomorrow!


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