Good morning …
Gold had an unusual day on Friday, as it rose slowly and steadily, in a most orderly fashion, from late Hong Kong trading straight through the Globex, finishing at $842.40/oz., up $25.70. For the week, gold lost 1.4%.
Platinum was up in the foreign markets, then traded near flat through the New York day, ending at $943/oz., up $24. For the week, platinum dropped 4.7%.
Silver started up at the London open, and shot higher more steeply but as determinedly as gold, closing at $11.22/oz., up 65 cents. For the week, silver was unchanged.
It was a nice cap to a week that had been mostly down for the precious metals, as they received a boost from all of the usual suspects, with oil rallying, equities moving higher, and the dollar slipping against the euro.
Kitco’s Jon Nadler summarized the day’s action, writing that, “Advancing global stocks offered some relief to gold buyers and the government guarantees on toxic bank assets gave further room to maneuver in riskier assets.”
The ongoing economic downturn and the threat of inflation “should prove highly supportive for gold” in 2009, said precious-metals consultancy GFMS, in its annual gold survey. Prices could move well above $1,000 during the course of the year, GFMS said.
GFMS also reported that gold production from South Africa plunged by an estimated 14% in 2008, the sharpest percentage drop in 107 years.
With South Africa's output at its low point for the past century, the country declined to the #3 position among the world's producers, falling behind the U.S. China claimed the top spot in 2007, and extended its lead last year, with an estimated 3% increase in output.
And Dan Norcini, of jsmineset.com, wrote that: “Gold was the recipient of ‘reflation’ flows as money flowed back into the commodity sector today on news that the remaining $350 billion in the TARP was going to be released. That served to undercut safe haven flows into the dollar and definitely into the bonds, with commodities as a sector generally benefiting ... Hats off to those fund managers who actually bought into the weakness in gold for a change instead of selling downward momentum.”
Currencies and Economic News
In the currency market, the dollar slipped against the euro. Late Friday, the euro was trading at $1.3287 vs. $1.3149 on Thursday.
The buck was hurt by the latest bailout move from Washington.
As reported by MarketWatch.com, “the U.S. Treasury announced it would inject $20 billion into Bank of America Corp. It also will provide a backstop against losses on some $118 billion in assets as the banking giant struggles to digest its acquisition of troubled brokerage Merrill Lynch.”
Of the bailout, Kathy Lien, director of currency research at GFT, said that, “The additional funds provided to B. of A. is the only reason why the dollar is rallying against the Japanese yen, and why we are seeing a recovery in all of the higher-yielding pairs such as the euro/dollar and pound/dollar.”
Across the pond, the Irish government said it would nationalize Anglo Irish Bank, the country's third-largest lender.
That led analysts at HBOS to write that such relief “is positive for growth-sensitive currencies and broadly negative for the U.S. dollar.”
Back at home, the Labor Department said the consumer price index fell 0.7% in December, the third monthly decline in a row. Core CPI was unchanged. Both numbers were in line with economists’ expectations.
In the energy market on Friday, oil rallied, with crude for February delivery closing at $36.51/barrel, up $1.11. February reformulated gasoline lost three-quarters of a cent, to $1.1672/gallon.
Analysts said traders short-selling February oil bought the contract to cover their positions before February futures expire on Tuesday, leading to a tightening of the spread between the February and March contracts.
Despite the shrinking spread between February and March, the price difference was still big, maintaining the state some have termed a super-contango.
That contango has created an opportunity for arbitrage, where investors bought the February contract, taking the physical oil delivery and storing it, and at the same time sold the much higher-priced March contract. When that expires, they can deliver the oil they've held in storage since February.
The arbitrage has pushed oil inventories at Cushing, Oklahoma -- delivery point for Nymex oil futures -- to 33 million barrels last week, the highest level since April, 2004, and close to the operable storage capacity at Cushing, about 34 million barrels.
The base metals were all glowing green on Friday. Copper rose from the pre-dawn hours to the New York open and tailed off from there, but still hung in positive territory to finish at $1.5089/lb., up 3 3/4 cents. Nickel shot up in the pre-dawn hours, then traded flat through most of the day, closing at $4.8376/lb., up 18 3/4 cents. Zinc had a lot of ups and downs, but ended at $0.5542/lb., up two-thirds of a cent. Aluminum was little changed, adding less than two-tenths of a cent, to $0.651/lb., while lead was modestly higher, tacking on a penny, to $0.5129/lb.
Copper led the industrial metals higher, rising the most in a week after the Bank of America bailout raised hopes that government stimulus plans might help to revive the economy.
Rising equities also helped. “Everything in copper is about the U.S. stock market, the government recovery packages and foreign demand,” said Frank McGhee, of Integrated Brokerage Services in Chicago. “Those three factors are going to continue to drive the price.”
The rally ran counter to stockpile growth, as copper inventories monitored by the LME advanced by 4,200 metric tons yesterday, to 391,525 tons, another 5-year high.
There was quite a lot of company news yesterday, beginning with an announcement by UBS that “Barclays Capital has agreed to terms for transferring the risks associated with UBS' Base Metals, Oil and US Power & Gas businesses, divesting UBS all of its commodities businesses with the exception of precious metals and the index and exchange-traded commodities activities.
From Russia came word of talks about the creation of a super-miner, by way of merging Norilsk Nickel, Rusal and Metalloinvest. Such a company would be a major competitor for BHP Billiton and Rio Tinto, and would likely be supported by the Kremlin.
In Ecuador, President Correa said he will not back down from a recently approved law that encourages mining, and lifts a nine-month ban on exploration, though it has sparked protests by Indians and environmentalists.
And Barrick CEO Peter Munk warned that Canadian miners shouldn’t expect any support from the country’s government. “The ills and the problems of the mining industry are such today that they cannot be corrected by any kind of government action, be it Canadian or a global government,” Munk said. “We just have to wait until the world economy improves.”
That’s what’s happening … have a great weekend, enjoy the holiday Monday if you’re in the US, and see you back here on Wednesday!
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