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Precious Metals

Gold reacted to Tuesday’s historic inauguration by prolonging the rally begun last week, as it pushed higher from the London open straight through to the noon hour, peaking at $865 before easing in the afternoon to finish at $855.80/oz., up $14.30 from Friday. Overnight, gold is trending higher.

Platinum peaked at $952 just after the Comex opened, but it was all downhill from there, as it gave up all its gains and then some, ending at $933/oz., down $10. Overnight, platinum has edged lower.

Silver rode the rollercoaster yesterday, beginning with a strong move higher, continuing with some sharp ups and downs, and capping the day with a swift decline late in the Comex that led to a close at $11.17/oz., down 6 cents. Overnight, silver has pushed higher.

It was a mixed day for the precious metals as silver and platinum, the more industrial of them, fell off, but gold managed to turn in a solid performance despite cratering equities, a firm dollar and shakiness in crude.

The Hightower Report summed up: “The gold market was supposedly rising sharply off the idea that turmoil was mounting in the world banking system. Clearly the financial sector turmoil seemed to be primarily originating from the UK banking sector from over the weekend, but some traders were also concerned that further troubles were evolving in the US financial system behind the festivities in Washington. However, because the focus wasn't specifically trained on the US financial sector during the Tuesday trade that seemed to give the US Dollar the capacity to fully embrace a flight to quality focus of its own volition. Therefore the positive correlation between gold prices and the Dollar wasn't totally out of character, (as some might have suggested) but instead both gold and the Dollar seemed to be rising off the same type psychology. In fact, with the US equity market remaining under noted pressure during most of the trading session Tuesday, that in turn seemed to add yet another flight to quality angle to the equation.”

Gold watchers have been waiting for some time for the metal to detach itself from the usual influences. Is this the moment? Some think it might be, or at least that the moment may be near.

One is Julian Phillips of, who wrote that, “Gold is now coming more into its own now despite a strong $ this week. The economic woes just seem to get worse. With the stimulation now being given to economies of the world, prudence demand gold has a place in long-term portfolios. This was seen in the growth of the gold Exchange Traded Funds. Sales from Central banks are back to just a trickle and even COMEX is positioning for a higher price. But first the base building must do more for the gold price could dip again. But large investors are using such to ‘buy-the-dips’.”

Currencies and Economic News

In the currency market, the dollar rallied against the euro. Late Tuesday, the euro was trading at $1.2856 vs. $1.3287 on Friday.

Sterling took an especial hammering, falling below the $1.40 mark for the first time since 2001 as evidence mounted that the British banking system is in tatters. That led legendary investment biker Jim Rogers to urge investors to get rid of sterling assets.

“It's finished. I hate to say it, but I would not put any money in the U.K., Rogers said.

Also sagging was the Canadian loonie, after the Bank of Canada cut interest rates by a half-point and hinted it might not be done. In addition to that, “the loonie is expected to remain under selling pressure on softening economic fundamentals and falling crude oil prices,” said Michael Woolfolk, of the Bank of New York.

While many celebrated, the U.S. stock market “fell more on Barack Obama's Inauguration Day than any other President over the past 50 years. Since currencies are taking their cue from equities, we have seen a sharp slide in almost all of the major currency pairs,” wrote Kathy Lien, director of currency research at GFT.

“The dollar has outperformed the euro and British pound but it declined against the Japanese yen, indicating that the dollar's rally is a reflection of pessimism and not optimism,” Lien added. “We are seeing a flight to safety into U.S. dollars but bonds are the instruments of choice and not equities.”


In the energy market on Tuesday, oil erased early losses that drove it below $33, with crude for February delivery closing on its last day as front-month contract at $38.74/barrel, up $2.23 from Friday. March crude debuted at $40.84. February reformulated gasoline lost nearly 3 cents, to $1.14/gallon.

The day’s volatility was largely due to the contract expiration, with “a lot of last-minute positioning,” said Phil Flynn, of Alaron Trading.

There was some Obama-related optimism in the market, with Edward Meir, of MF Global, remarking that, “Markets might start to stabilize as they tee off the fact that a new administration is now solely in charge of policy, and will likely usher in much more radical measures to confront the macro crisis at hand.”

And in some good news from across the pond, Russian gas delivery to Europe via Ukraine was finally re-started after a 13-day disruption, as Russia and Ukraine reached a resolution to their energy dispute.

Base Metals

The base metals were mixed on Tuesday. Copper fell during the pre-dawn hours, and a rally in New York wasn’t quite enough as it finished at $1.4837/lb., down 2 1/2 cents from Friday. Nickel was also down in the pre-dawn hours, but shot higher after New York opened and made it back to the green, closing at $5.0538/lb., up 21 2/3 cents. Zinc had a modestly down day, ending at $0.5424/lb., down less than a penny and a quarter. Aluminum sagged through most of the day, dropping 4 3/4 cents, to $0.6132/lb., while lead meandered widely but wound up just over a tenth of a cent higher, at $0.5142/lb.

Copper declined on a number of factors, including recession gloom and the big sell-off in the equities markets.

But the biggest driver was probably a huge runup in stockpiles. Copper inventories monitored by the LME skyrocketed by 15,425 metric tons yesterday, shooting past the 400,000 mark to reach 409,100 tons, the highest level since January of 2004.

“We expect continued inflow of metal into LME warehouses in 2009, and that this should keep a cap on prices,” said Greg Barnes, an analyst at TD Newcrest in Toronto. “Demand is expected to weaken at a faster pace than the miners can respond to.”

Output may top usage by 360,000 tons this year, Barnes said, predicting that the metal will drop to an average $1.40 a pound this year from 2008’s average of $3.12.

Supply exceeded demand by 50,000 metric tons in October, the International Copper Study Group said yesterday. The accumulated surplus came in at 159,000 tons for the 10 months ended October 31, up from 119,000 tons in the year-earlier period.

Also factoring in were concerns about China. That country’s urban unemployment rate rose last month for the first time since 2003, according to a government spokesman in Beijing, and that doesn’t bode well for industrial demand going forward. Nevertheless, China's top copper refiner, Jiangxi Copper, announced that it plans to lift refined copper output 12% in 2009.

In company news, Zambian nickel miner Albidon, once a market darling, is reportedly on the verge of collapse as it struggles to reduce cost of production from the present $7/pound to $4 in an attempt to regain profitability.

And the juicy rumor du jour was speculation that BHP Billiton might announce the closure of its new $US2.8 billion Ravensthorpe laterite operation in Western Australia in its quarterly production report. Stay tuned on that one.

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


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