Good morning ...

Precious Metals

Gold had a real rollercoaster day, dipping in early London trading on Friday, recovering into the New York open, declining to a low of $845 at mid-morning, rocketing up to a peak of $868 at the noon hour, then falling off again through the rest of the Comex and the Globex to finish at $853.60/oz., down $3.30. For the week, gold was off 2.4%.

Platinum was off sharply at mid-morning, but made up all of the lost ground after that, ending at $989/oz., up $2. For the week, platinum was up 5.2%.

Silver followed gold's path closely, bouncing off its mid-morning low of $11.00 to soar to $11.60 at noon, then easing for the rest of the day to close at $11.25/oz., up 15 cents. For the week, silver lost 2.4%.

The precious metals were lackluster yesterday, with gold suffering its first weekly loss in five weeks, but the results might have been even worse given that the usual suspects were fully lined up in opposition, with oil and equities falling and the dollar moving sharply higher against the euro.

The Hightower Report wrote of the day's action: The gold market initially managed to hold well above the prior session's lows on Friday and that suggests somewhat negative US macro economic information wasn't a major negative to prices. In fact, despite the evidence of more slowing, a generally higher US Dollar and weaker oil prices the gold market performed somewhat impressively. Clearly lingering Middle East uncertainty and comments from the US President Elect that Iran was a threat to US national security probably provided the gold market with some of the buying that initially help to lift prices off their morning lows. Given the comments from the Fed's Lacker during the session the gold trade could have downgraded flight to quality concerns as the Fed member hinted at some form of recovery in 2009. In fact, the Fed's Lacker also suggested that deflation wasn't a major risk at the current time.

Taking a cautionary tack, The balance is tipped toward the downside, based on our outlook for disinflation, said Tom Pawlicki, an analyst at MF Global in Chicago. We see a decreased need for inflation hedging, which should keep pressure on gold prices in the longer term.

No way, says Adrian Day, the president of Adrian Day's Asset Management in Annapolis, Maryland, who noted that, Further out, the massive amounts of dollars created will have an impact ... Once they get into the economy, that will lead to some inflationary pressure as well as a deteriorating dollar.

Currencies and Economic News

In the currency market, the dollar soared against the euro. Late Friday, the euro was trading at $1.3452 vs. $1.371 on Thursday.

The buck climbed as yesterday's nonfarm payroll data, from the Labor Department, was utterly dismal yet not as dismal as it might have been.

Labor said that the economy shed 524,000 jobs in December. That brought the loss for all of 2008 to 2.6 million, with 1.9 million coming in just the past four months. It's the biggest drop for a calendar year since 1945, as the wartime economy was demobilizing.

The speed and the breadth of the deterioration in the U.S. economy since September are staggering, wrote Richard Moody, chief economist for Mission Residential.

The unemployment rate also shot up, racing past the 7% mark to settle at 7.2%. That exceeded economists' expectations for a rise to 7.1%, and was the highest in 16 years. Still, the numbers were not as bad as the ADR report from earlier in the week, which saw nearly 700,000 jobs lost, and thus the dollar rallied.

Politicians dueled over what to do. It is now beyond rational debate that we need a significant infusion of public funds to work with the private sector so that we can restore economic growth, said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

But House Republican Leader John Boehner of Ohio had this rejoinder: America cannot buy its way to prosperity with more and more government spending.


In the energy market on Friday, oil's slide continued for a fourth straight day, with crude for February delivery closing at $40.83/barrel, down 87 cents. February reformulated gasoline rose 2.3 cents, to $1.1112/gallon.

The foul unemployment rate coupled with this week's build in inventories, the supply/demand functions should put pressure on the crude complex, said Burton Schlichter, of New World Trading.

OPEC is working hard to support prices. Saudi Arabia, the cartel's biggest oil producer, yesterday notified Asian refiners of cuts in February supplies. This move follows similar notification from other OPEC members including Iran, Venezuela, Kuwait and the United Arab Emirates

Heading forward, what we're going to have is a battle between OPEC and an ever weaker economy, said James Williams, of WTRG Economics.

Base Metals

The base metals were all in positive territory on Friday. Copper was flat until the late morning, but then went on an up run that took it to a finish just off its intraday high at $1.517/lb., up 5 3/4 cents. Nickel mirrored copper, with its late morning rally to a close at $5.2745/lb., up 16 1/2 cents. Zinc followed the same path, ending at its intraday high of $0.5671/lb., up more than 3 cents. Aluminum posted a modest gain, adding two-thirds of a cent, to $0.6959/lb., while lead pushed higher all day, tacking on better than 3 cents, to $0.542/lb.

Copper moved higher, helping cap a second straight weekly gain, on expectations that forthcoming government spending will give a much-needed shot in the arm to the sickly jobs market.

Industrial metals are getting support as the jobs report didn't give us any significant surprises, said Frank McGhee, of Integrated Brokerage Services in Chicago. The market is looking forward to the injection of funds from the stimulus package and is hoping for a recovery in the economy.

President-elect Obama has urged Congress to act quickly on his stimulus package, which includes considerable spending on infrastructure such as roads and electrical grids. That should boost demand for copper and other metals, McGhee said.

He added that China is still a factor. There's still a lot of infrastructure in China that needs to be built, McGhee said. China will definitely end up being a buyer of copper.

Providing further impetus for copper was fund buying ahead of the reweighting of the Dow Jones AIG Index and the S&P GSCI index. The index rebalancing resulted in $634 million of buying in COMEX copper, according to J.P. Morgan.

About the only damper to the market mood was the daily stockpile report. Copper inventories monitored by the LME surged 5,875 metric tons yesterday, to 363,575 tons, hitting a fresh 15-year high.

And analysts at RBS Global Banking & Markets warned against overconfidence, writing that, As index-related buying activity subsides, prices could ease further from this week's highs in the face of the bleak demand environment and inventory overhang.

Meanwhile, The Australian reported: Analysts expect the oversupply in the zinc market evident over 2007-08 to continue this year. Goldman Sachs said it was encouraging that production cuts amounting to almost 500,000 tonnes had already been announced. Further, with the zinc price having dipped well below the 75th percentile of the industry cost curve during October-November last year, there is now evidence of closures among the smaller Chinese producers.

That's what's happening ... have a great weekend and see you Tuesday!


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