Good morning …

Precious Metals

Gold had a very quiet day on Tuesday, following Monday’s plunge, as it never strayed as much as $10 from the $820 mark and finished close to where it began, at $820.30/oz., up 40 cents. Overnight, gold is trending higher.

Platinum fell off in the overseas markets and only gained back a little in New York, ending at $937/oz., down $15. Overnight, platinum is sharply higher.

Silver took a hit right at the New York open, falling to $10.40, but it rallied strongly from there, inching back into positive territory and holding there to close at $10.71/oz., up 9 cents. Overnight, silver has edged higher.

It was a pretty lackluster day for the precious metals, with platinum falling off, silver making a little headway, and gold spinning its wheels. There was not much from the usual suspects to provide any sense of direction, as equities were mixed and crude little changed, though gold did fight off a sharp up move by the dollar vs. the euro.

Even though gold didn’t do much, that was a welcome relief from recent trading, which has seen the yellow metal tumble 7% so far in 2009, with much of that loss having to do with unexpected strength from the US dollar.

Frank Lesh, of FuturePath Trading in Chicago summed it up by saying that, “Ultimately, the dollar is the driver … The dollar push is holding gold back. It looks like the ECB will be easing, and there won’t be any more interest-rate reductions out of the U.S.”

And the downtrend may well continue, says Tom Pawlicki, a metals analyst at MF Global, citing “weak levels of physical demand, easing in credit-market tightness, a disinflationary environment and technical factors.”

But Lesh pointed out that, “Gold is not as weak as some of the other commodities … Volatility in other markets and the geopolitical tensions are always supportive for gold. A good dip in prices is a buying opportunity.”

There’s no consensus about that, though. One analyst, UBS’s John Reade says investors should look to purchase the metal below $800, while Dennis Gartman, editor of the Gartman Letter, advises instead to buy gold should the metal rally above $890.

Currencies and Economic News

In the currency market, the dollar was strong against the euro. Late Tuesday, the euro was trading at $1.3187 vs. $1.3373 on Monday.

The Commerce Department reported that the U.S. trade balance plunged by 29% to $40.4 billion in November, largely on a record decline in oil prices, assisted by much weaker demand for imports. At the same time, exports dropped 5.8% to $142.8 billion, led by weakening foreign demand for industrial supplies and capital goods.

“Trade flows have been crushed by the credit crunch, which has reduced demand for traded goods and services and made it more difficult for exporters and imports to obtain trade finance,” wrote Ian Shepherdson, of High Frequency Economics..

Ashraf Laidi, chief market strategist at CMC Markets, wrote that, “The 6% decline in U.S. exports is another sign of slowing global growth in the face of weakening global currencies against the US dollar.”

Traders still have one eye on Thursday’s European Central Bank meeting. Currency markets turned sour on the euro “at the start of 2009, and the credit headlines on European governments only reinforces this euro-skeptic market attitude,” wrote strategists at KBC Bank in Brussels.

And technicians at Brown Brothers Harriman wrote that, “Euro sentiment deteriorated further on the break of $1.3240, which points to a retest of the October low of $1.2331.”


In the energy market on Tuesday, oil eked out a small gain, with crude for February delivery closing at $37.78/barrel, up 19 cents. February reformulated gasoline added 6.5 cents, to $1.1489/gallon.

Crude is picking up some momentum “on news that Saudi production cuts will exceed their quota in February,” said Phil Flynn, of Alaron Trading.

Flynn referred to remarks by Saudi Arabian Oil Minister Ali Naimi, who said that country will cut its February production by more than the target. Naimi left open the possibility that the Saudis will further cut production in March.

“We are working very hard to bring markets in balance,” Naimi said. “We will do whatever it takes to bring them back in balance.”

And the Energy Information Administration said yesterday in its monthly report that global oil consumption is projected to fall by 800,000 barrels per day in 2009. That's 400,000 barrels more than the previous month's forecast.

Base Metals

The base metals were mixed on Tuesday. Copper declined during the pre-dawn hours, falling below $1.38, but then rallied through the day, just coming off its intraday highs late to finish at $1.4846/lb., up nearly 5 2/3 cents. Nickel’s chart looked very similar, and it closed barely off its intraday high at $4.8769/lb., up 25 1/2 cents. Zinc had a strong day, ending at $0.5725/lb., up more than 2 cents. Aluminum didn’t recover quite as well from its lows and wound up shedding three-quarters of a cent, to $0.6645/lb., while lead also edged lower, dropping nearly a half-cent, to $0.5138/lb.

The industrial metals were mixed yesterday, with copper setting the pace for the advancers. Analysts said there was a good measure of short covering based on technicals, when the metal rebounded from below its 20-day moving average.

Also helping support copper was an imports report out of China.

That country’s imports of copper and related products jumped 32% in December from November, to 286,576 metric tons, the Beijing-based customs office said.

However, analysts at Barclays Capital threw some cold water on the report, saying that, “These strong import levels are a reflection of difficult supply-side conditions as opposed to an improvement in demand … Lower prices have constrained scrap availability,” forcing a greater reliance on imports.

On the stockpile front, there was no letup in the buildup, with copper inventories monitored by the LME advancing by 5,350 metric tons yesterday, to 374,850 tons, another fresh 5-year high.

In company news, aluminum giant Alcoa posted a bigger-than-expected fourth quarter loss. The company showed a net loss of $1.19 billion, for the three months ended December 31, compared with net income of $638 million, a year earlier.

Alcoa says it is aggressively managing its cash reserves and has scaled back production to meet falling demand. But the company is noncommittal on the question of eliminating its dividend as a way to cut costs.

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


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