Good morning …

Precious Metals

It was a second lackluster day in a row for gold on Thursday, as it remained mostly rangebound between $850 and $860 again, with nothing much in the way of strong moves one way or the other, as it finished by merely erasing Wednesday’s small loss at $855.60/oz., up $2.40. Overnight, gold is sharply higher.

Platinum had an extremely tight trading range, not budging above $930 or below $920, to end at $922/oz., up $3. Overnight, platinum has edged higher.

Silver was flat until the second hour of Comex trading, at which point it got a boost that carried it to $11.50, but it failed to hold there, slipping back to close at $11.39/oz., up 9 cents. Overnight, silver is trending higher.

Another blah day for the precious metals, as they all posted the most modest of gains. There was little in the way of impetus provided by the usual suspects, as equities took a beating, the dollar eked out a small gain vs. the euro, and oil crept slightly higher.

That gold held steady was probably all that could be hoped for.

However, “There is still some good fear buying, which could persist,” said Stephen Platt, of Archer Financial Services in Chicago. “Gold may retest the $1,040 area within a year,” an opinion with which we concur.

Also expressing optimism was Peter Spina, of, who said that, “Even with a firm U.S. dollar, gold is benefiting from a host of factors, but among the ones in today's spotlight is the destruction of the banking sector.”

And anyone who thnks that’s going to go away anytime soon can have some of our Arizona waterfront property on the cheap.

Spina expanded on his contention, adding that, “With Citigroup resuming its plunge, anxiety levels are increasing once again … The fear of additional losses, bailouts and collapses of major financial institutions are returning to the forefront.”

Even skeptic Jon Nadler, of Kitco, noted that, “Gold has shown somewhat of a disconnect with the greenback and with oil -- a potential sign that safe-haven demand might be able to keep it above $800…”

Currencies and Economic News

In the currency market, the dollar edged upward against the euro. Late Thursday, the euro was trading at $1.3007 vs. $1.3031 on Wednesday.

“The dollar does seem to be finding some renewed support of late, although with the economic situation deteriorating across the board, this move does seem to be one that is being driven more by fear and the general herd mentality,” said James Hughes, a strategist at CMC Markets.

It certainly doesn’t have to do with an improving US economy, as Thursday’s hard numbers pointed out.

First, the Labor Department reported that first-time applications for state unemployment benefits rose 62,000 to a seasonally adjusted 589,000 in the week ending January 17. Initial claims are up 82% from the same period a year ago, and are at levels last seen during the last recession, in November 1982.

Labor also said that the number of people collecting benefits as of 1/10 rose 97,000 to 4.61 million, 72% higher than in the prior year. The four-week average of continuing claims, a good indicator of the difficulty in finding new jobs, rose 58,750 to 4.56 million, also a high November of ’82.

In addition, the Commerce Department reported that housing starts fell more than 15% in December to a seasonally adjusted 550,000 pace, the lowest on record. That was well below economists’ expectations that starts would reach 600,000. For all of 2008, starts fell 33% to 904,000, the lowest pace since recordkeeping began in 1959.

“The financial market shockwave felt in the fall has clearly brought the housing industry to its knees,” wrote Stephen Stanley, of RBS Greenwich Capital. “Builders have essentially closed up shop for a while until the storm blows over.” And that may take a while.


In the energy market on Wednesday, oil reversed early weakness and scratched out a small gain, with crude for March delivery closing at $43.67, up 12 cents. March reformulated gasoline plunged 8 cents, to $1.12/gallon.

In its weekly inventory report, the Energy Information Administration said that crude supplies added 6.1 million barrels during the week ended January 16. The EIA also reported a rise of 6.5 million barrels in gasoline supplies and a rise of 800,000 barrels in distillates.

The findings swamped analysts’ estimates, which were calling for a build of only 1.9 million barrels in crude, and the same for gasoline. Distillates were actually expected to fall by 2.5 million barrels.

That led analysts at Action Economics to conclude that, “The huge crude and gasoline inventory builds are expected to bring sub-$40 prices near term, as demand and supply remain well out of balance.”

Yep, “Prices should be dropping like a rock,” said James L. Williams, of WTRG Economics.

Base Metals

The base metals were mostly in the red again on Thursday. Copper declined from the late pre-dawn hours straight through, only just coming off its intraday lows late in the day to finish at $1.3906/lb., down 6 2/3 cents. Nickel had a nice runup from the late pre-dawn hours to mid-morning, and though it fell back closed in the green at $4.8837/lb., up 3 cents. Zinc had a modest down day, dropping to $0.5005/lb., down less than a half-cent. Aluminum continued weak, shedding a third of a cent, to $0.589/lb., while lead gave up Wednesday’s gains and a lot more, ending at $0.476/lb., down nearly 6 cents.

Copper led the general downtrend in industrial metals, as runaway stocks continue to bedevil the metal.

Copper inventories monitored by the LME advanced by another 4,975 metric tons yesterday, to 422,450 tons and a fresh 5-year high.

Also weighing on the sector were the dismal housing starts numbers, along with slowing economic growth in China. China’s economy grew 6.8 percent in the last quarter, the slowest pace in seven years and a disappointing result for the world’s leading copper user.

Thomas Benedix, an analyst at Tiberius Asset Management in Stuttgart, Germany, summed up the gloom across the pond, saying that, “We’re still not so positive on metals in the first half because of inventory buildup … [and] Demand is really bad.”

In company news, BHP Billiton continues to contract. The company followed up previously-announced mass layoffs at its giant Escondida mine in Chile by saying that it will delay $6.75 billion in projects at Escondida.

And zinc miners continue to struggle just to stay in business. Yesterday, Belgium's Nyrstar, the world's biggest producer of zinc, said that it has booked an impairment charge of €575 million ($741.7 million) and scrapped its 2008 dividend.

The moves were triggered by the fall of the company's market capitalisation below its net asset value, coupled with the adverse market conditions in the second half of 2008, the group said.

Nyrstar hastened to add that it continues to maintain a solid financial position, with a net cash position in excess of €150 million. It also said that it is comfortable with its debt financing covenants.

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


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