Good morning …
Gold was flat until New York opened on Thursday, bumped up about $8 in the first hour, then sold off until after noon, bottoming at $802 before turning things around again and rallying strongly into the Globex, then slipped a little to finish at $816.70/oz., up $6.60. Overnight, gold is sharply higher.
Platinum was modestly down all day, but did manage to bounce decisively off the $900 mark, regaining some of the lost ground, and ended at $919/oz., down $10. Overnight, platinum has pushed higher.
Silver had a very erratic day that followed gold very closely, but with more striking peaks and valleys that ultimately resulted in little change, as it closed at $10.58/oz., up just 3 cents. Overnight, silver is trending higher.
It was a day without any major moves in the precious metals, as gold managed to hold onto a modest gain, platinum eased a bit, and silver was nearly unchanged. But investors couldn’t have been too disappointed, what with the dollar gaining slightly on the euro and crude prolonging its slide.
The Hightower Report saw some good things in silver’s performance, writing: “The silver market was mostly under pressure until mid session when the March contract saw the beginning of a very impressive recovery effort. Apparently the silver market was able to break the tight track with the energy complex as the energy complex remained weak while the silver market was able to bounce. All things considered the action in the silver market on Thursday was impressive considering the overt weakness of the US numbers and the initial sharp slide in equity prices.”
Ira Epstein, the president of Ira Epstein & Co. in Chicago, is not very optimistic, writing that, “There is no inflation yet for gold to hang its hat on.”
Epstein went on to say that, “Until inflation shows signs of surfacing, gold has a better chance of holding value off of shocks to world economic woes than inflation … That will change if the stimulus package and other moves world governments are initiating take hold. Inflation will return in a serious way but that time is not now.”
But can it be far off?
Since the second quarter of 2007, banks worldwide have posted more than $1 trillion in losses and writedowns related to investments in sub-prime mortgages. The U.S. government’s response, as of November, has been to pledge $8.5 trillion to rescue financial companies and help the country recover from a recession. If that isn’t inflation, what is?
Currencies and Economic News
In the currency market, the dollar moved higher against the euro again. Late Thursday, the euro was trading at $1.3149 vs. $1.3176 on Wednesday.
Though there were some poor economic numbers out of the US, traders’ eyes were looking across the pond, where the European Central Bank cut interest rates a half-point to 2%.
Members of the ECB’s rate-setting Governing Council meet February 5, but the next important rendezvous won't occur until the panel's March 5 meeting, President Jean-Claude Trichet told reporters, adding that “we didn’t say that it was now the limit and we wouldn’t move any more.”
While Trichet offered his standard warning that policy makers never pre-commit to a rate decision, reading between the lines the remarks were a clear rate signal, says Aurelio Maccario, chief euro-zone economist at UniCredit MIB in Milan.
In Maccario’s view, Trichet was not only indicateing a February pause but effectively delivering a “pre-announcement of a March move.”
“The ECB is still behind the curve,” said Henrik Gullber, a currency strategist at Deutsche Bank in London. It will “have to go below 1 percent.”
Meanwhile, at home, initial jobless claims rose by 54,000 for the week ended January 10, to 524,000, the Labor Department said. “The experience of previous deep recessions suggests claims are nowhere near their peak, and we doubt that peak will be reached before the fall of this year,” said Ian Shepherdson, of High Frequency Economics. He expects a peak of 750,000.
In the energy market on Thursday, oil continued to fall off, with crude for February delivery closing at $35.40/barrel, down $1.88. February reformulated gasoline added two-thirds of a cent, to $1.1742/gallon.
“People without jobs are turning down their thermostats,” said James Williams, of WTRG Economics. “They will drive less and they didn't buy as much from retailers, and then shipments of goods by truck is down and with it diesel consumption.”
In its monthly report, OPEC said it predicts global oil consumption will fall 200,000 barrels a day this year, vs. a 100,000 barrel drop in 2008, the first year of negative growth since 1983.
“The huge decline” in the Organization for Economic Cooperation and Development, particularly in the U.S., “is expected to offset weaker growth in non-OECD” countries, the cartel wrote.
The base metals were mixed on Thursday. Copper declined during the pre-dawn hours, but recovered well during the day, moving into the green to finish at $1.4709/lb., up a penny and a half. Nickel had a day of broad, sweeping ups and downs, to little ultimate effect as it closed at $4.6501/lb., down 4 1/2 cents. Zinc had a weak day, ending at $0.5477/lb., down a penny. Aluminum was little changed, shedding a half-cent, to $0.6493/lb., while lead was even less changed, adding a tenth of a cent, $0.5029/lb.
Copper held up but the industrial metals were generally weak, hurt by news that machinery orders in Japan were down 16.2% in November over October. That was more than twice the anticipated decline.
Further downside pressure was supplied by news of a contraction in New York state manufacturing production. The Federal Reserve Bank of New York reported that manufacturing contracted for a ninth straight month in January, and a gauge of expectations for six months from now was negative for the first time.
Manufacturing in the Philadelphia region also shrank, for the 13th time in the last 14 months, a separate report showed. It was down for a fifth straight month in January.
And stockpiles ran their usual dance number. Yesterday, copper inventories monitored by the LME raced higher by 5,175 metric tons, to 387,325 tons, yet another fresh 5-year high.
“Further big builds in LME stocks [yesterday] will add to the downside on prices,” wrote analysts at Barclays Capital in London. “Relentless build in metal inventories is a clear signal of growing market surpluses and weak physical demand.”
“Copper is in a very dire situation,” said Gijsbert Groenewegen, a fund manager at Gold Arrow Capital Management in New York.
“The next thing to worry about now is deflation,” Groenewegen added. “With the economy imploding, the threat of deflation means that consumer spending will fall and demand for goods will fall dramatically. For the base metals, this will have a significant impact.”
In company news, Rio Tinto reported that its fourth-quarter global iron-ore production output was down 18% in the fourth quarter output, vs. the same period for 2007. That was “in line with expectations”, CEO Tom Albanese said yesterday.
The diversified miner also said that the group’s earnings for the fourth quarter would be negatively impacted by the “sharp” decline in the aluminum price, while provisional copper pricing was expected to reduce the group’s underlying earnings by about $360 million for the second half of 2008.
That’s what’s happening … see you tomorrow!
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