Good morning …

Precious Metals

Gold moved above $900 late in the Hong Kong session on Monday, traded between there and $910 all day long, with only one brief peep above and below, and finished at $902.30/oz., up $4.00. Overnight, gold has slipped lower.

Platinum pushed higher in the overseas markets, reaching $970, and that was the peak for the day although the metal did cling to positive territory in the end at $959/oz., up $8. Overnight, platinum is trending lower.

Silver reached the $12 mark early in the London session, then it too got trapped inside a tight range, vacillating between there and $12.10, when it too caught fire and spiked 80 cents over the next two hours, topping out at $12.07 before settling right on the nose at $12.00/oz., up 6 cents. Overnight, silver is little changed.

It was a breather of a day for the precious metals, as we might have suspected after Friday’s moonshot action. The heartening news is that, with a pullback that might have been anticipated, buyers met sellers on a near 50/50 basis through the session.

Among the usual suspects, gold—which notched a 4-month high—may have gotten a small boost from rising equities and a dropping dollar, but the effect of these was counterbalanced by slumping oil prices.

Is this rally sustainable? It’s hard to say, but it sure has happened fast. Gold has risen nearly a hundred dollars an ounce in less than two weeks, while silver is up 14% over the same period.

Those who love paper are casting their votes for gold, as well. Investment in the SPDR Gold Trust (NYSE: GLD), the biggest exchange-traded fund backed by bullion, rose 4.7% last week, to 832.6 metric tons, or 26.77 million ounces. GLD’s vaults now hold a record amount of metal.

Many analysts are taking the precious metals’ strong performance as a precursor of inflation. For example, “Massive injections of liquidity into the global banking system will serve to drive gold prices higher,” said Dennis Gartman, editor of the Gartman Letter.

And another factor, wrote Ashraf Laidi, of CMC Markets in London, is “widespread global economic gloom and ultra-low global interest rates … As the price of money [interest rates] is held down by central banks, the price of its competitor [gold] pushes higher on the lack of yield reward in monetary alternatives.”

Currencies and Economic News

In the currency market, the dollar slid lower against the euro. Late Monday, the euro was trading at $1.3187 vs. $1.2977 on Friday.

Analysts cited a report that Barclays said it won’t need further capital increases, reducing demand for the dollar as a haven from the global financial crisis.

The Barclays news is having a short-term impact on risk appetite,” said Vassili Serebriakov, of Wells Fargo & Co. in New York. “It’s somewhat of a relief.”

Among the day’s hard numbers, the National Association of Realtors said sales of existing homes rose 6.5% in December, led by a big rebound in the West, where prices have fallen more than 30%. Sales in December were down 3.5%, year over year.

The figure reflected widespread pain in the housing market, as about 45% of the transactions in December were considered distress sales, either a short sale or a home in foreclosure, the NAR said.

Elsewhere, the Conference Board said its index of leading economic indicators rose 0.3% in December. But the Board cautioned that the increase was mainly due to huge injections of cash into the money supply by the Federal Reserve.

Looking ahead, “Expect declines in output and employment over the next several quarters, with unemployment possibly rising to 9%,” wrote Conference Board economist Ken Goldstein.


In the energy market on Friday, oil sank, with crude for March delivery closing at $45.73, down 74 cents. March reformulated gasoline was off 2.69 cents, to $1.1531/gallon.

Analysts cited concerns that the global economic downturn will dampen energy demand, as approximately 50,000 job cuts were announced yesterday by U.S. companies and overseas firms.

“There is a tug of war going on between the bulls and the bears in the crude pit,” said Burton Schlichter, of New World Trading. “On the bearish side we have growing supplies and weaker demand,” while on the bullish side there are “the weak dollar, strong equity markets and continuous talks of production cuts by OPEC.”

However, there is widespread skepticism about the probability of OPEC's compliance with its announced production cuts.

“It remains to be seen whether the cartel can maintain these cuts in the face of a prolonged price slump and not give in to cheating,” wrote Edward Meir, of MF Global. “The jury is still out on this, but we have our doubts the group will be able to hold steady for an extended period of time.”

Base Metals

The base metals were mostly in the green on Monday. Copper turned in a second strong day in a row, rising from the pre-dawn hours to the noon hour, before tapering off to finish at $1.5404/lb., up 15 cents. Nickel was erratic, but with a slight down bias, closing at $5.0583/lb., down just under 10 cents. Zinc moved up modestly, ending at $0.5209/lb., up a tenth of a cent. Aluminum had a good day, adding more than a penny and a third, to $0.6119/lb., while lead tacked on less than a penny and a quarter, at $0.5241/lb.

Analysts attributed copper’s strong day to an extension of the short-covering rally begun late last week, as well as the surprising existing home sales data.

“There’s some bullishness coming back to commodities and copper is following that trend,” said Donald Selkin, of National Securities Corp. in New York. “People felt that the economy is going to start to turn around and that’s going to help out copper prices.”

Whether it’s a fool’s rally, only time will tell. Many traders were quick to jump on any positive sign regarding economic growth, but others warned that prices may be distorted this week by thin volumes associated with the Chinese Lunar New Year holiday.

For certain, yesterday’s stockpile numbers couldn’t have had many jumping for jot. Copper inventories monitored by the LME blasted higher by 14,800 metric tons, to 439,425 tons. You’d have to go back to December, 2003, to find a comparable stock level.

And the news from the business end of things was hardly encouraging, either. Caterpillar Inc., the world’s largest maker of construction and mining equipment, cut 20,000 jobs yesterday, citing declines in U.S. construction work, while Home Depot, the biggest home-improvement retailer, eliminated 7,000 jobs because of falling consumer spending.

Freeport-McMoRan, the world’s largest publicly traded copper producer, added to the gloom by posting a $13.9 billion fourth-quarter loss yesterday, and the company wrote down the value of some mines and other assets. It also predicted that sales of copper will be 9% less this year than previously forecast.

While Freeport CEO Richard Adkerson admitted that, “Business is weak because of the global economic situation,” he said he remains confident that infrastructure development in the U.S. and China will buoy copper prices in the longer term.

But Michael Jansen, of JPMorgan Securities in London, estimates that the construction industry, the biggest user of copper, won’t rebound until 2010 in residential housing and not for at least six months in non-residential markets. Jansen was the most accurate forecaster on copper for last year.

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


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