Good morning …

Precious Metals

Gold held above $905 until late in the Hong Kong session on Tuesday, dropped off in London trading, and remained rangebound between $895 and $900 virtually all day, finishing at $898.00/oz., down $4.30. Overnight, gold is sharply lower.

Platinum sank from late in Hong Kong straight through to mid-morning, where it bottomed below $930 before rallying back past $950 just after noon, then went flat from there, ending at $945/oz., down $14. Overnight, platinum is flat.

Silver fluctuated from just below $11.90 to just above $12.10 all day, with lots of rallies and retreats, closing finally on an upmove at $12.05/oz., up 5 cents. Overnight, silver is little changed.

It was a second straight breather of a day for the precious metals, as the market continues to digest last week’s strong move higher.

The usual suspects weren’t particularly supportive, with equities erratic, oil slumping again, and the dollar, though it finished down vs. the euro, regaining much of the ground it lost early in the session.

Whither gold goes from its breach of the $900 barrier is the question of the day, with Matt Zeman, of LaSalle Futures Group in Chicago, noting that, “You’re seeing some selling after the run-up from $800,” and, “You’re going to see buyers continue to come into the market on dips.”

“The metal appears to be well-supported as the lack of alternatives continues to motivate investment.” said Kitco’s Jon Nadler. But, “The metal's immediate task is to attempt to maintain [$900] and perhaps build upon it before it can embark on a journey to higher ground,” he added.

Some, though, are looking well past that. The next threshold for gold is the $930 mark, in the opinion of Mark O'Byrne, of Gold & Silver Investments.

“A daily or weekly close above that level would likely lead to gold retesting the psychologically important mark of $1,000 an ounce again,” O’Byrne wrote.

And Zeman concluded his analysis by remarking that, “You will have people buying gold with the gut feeling that there is still a lot of tough times ahead … All the money that went into notes and bonds is now going into gold and other hard assets because yields are ridiculously low.”

Currencies and Economic News

In the currency market, the dollar slipped slightly against the euro. Late Tuesday, the euro was trading at $1.3218 vs. $1.3187 on Monday.

Dollar bulls probably were feeling fortunate the buck didn’t take a worse beating, considering that the day’s numbers were dismal.

The Conference Board reported that its index of consumer confidence slid to 37.7 from an upwardly revised 38.6 in December. That was worse than economists’ expectations for a reading of 38, and is the lowest on record, dating back to 1967.

“It appears that consumers have begun the new year with the same degree of pessimism that they exhibited in the final months of 2008,” said Lynn Franco, of the Board's Consumer Research Center. “Consumers remain quite pessimistic about the state of the economy and about their earnings.”

Separately, Standard & Poor’s Case-Shiller 20-city home price index fell 2.2% in November, with home values in all the cities falling at least 1%. For the year, prices are off 18.2%, and are down 25% from their peak in mid-2006.

“Housing wealth is falling by some $380 billion per month, or about $370 per adult per week,” wrote Ian Shepherdson, of High Frequency Economics. “No wonder people are miserable.”

Any relief in sight? No, says Joshua Shapiro, chief economist for MFR Inc., who wrote that, “It is unlikely that we are anywhere near a bottom in nationwide home prices.”


In the energy market on Tuesday, oil plunged, with crude for March delivery closing at $41.58, down $4.15. March reformulated gasoline was off 4.46 cents, to $1.1085/gallon.

The market reacted to the ongoing grim stream of economic data, raising worries that demand for petroleum products isn’t going to turn upward anytime soon.

Also playing in was widespread sentiment that inventory figures, due out today, are going to show heavy builds.

Hoarding continues. The price of oil for delivery next December is 29% more than for the current month, creating a larger-than-normal contango, the opportunity for traders to profit from storing crude for later use.

“Inventories will continue to rise as long as the contango is in place,” said Bill O’Grady, of Confluence Investment Management in St. Louis. “It pays to purchase oil now and put it away.”

However, “We are seeing some oil being removed from floating storage, which is a sign of tightness in the market,” said Lawrence Eagles, of JPMorgan Chase in New York. “The OPEC cuts have brought supply and demand close to balance.”

Base Metals

The base metals all fell back into the red on Tuesday. Copper peaked in the late pre-dawn hours and it was all downhill from there, as it barely came off its intraday lows late to finish at $1.4483/lb., down 9 1/4 cents. Nickel fell until the New York open, but staged a strong rally through the rest of the day that returned it almost to break-even, closing at $5.0296/lb., down less than 3 cents. Zinc slumped all day, ending at its intraday low of $0.5006/lb., down 2 cents. Aluminum had a weak day, shedding nearly 2 cents, to $0.5924/lb., while lead dropped a penny and two-thirds, to $0.5079/lb.

Copper pointed the way for the industrial metals to move lower, as the brief euphoria stemming from Monday’s housing numbers evaporated, and stockpiles which continue to swell dominated the market.

Copper inventories monitored by the LME followed up Monday’s gain of nearly 15,000 metric tons by rocketing higher by another 12,375 tons yesterday, to 451,800 tons, a fresh 61-month high.

The inventory gluts are “no doubt weighing on sentiment,” wrote Edward Meir, of MF Global. “We still seem to be firmly mired in recessionary conditions.”

Yesterday’s sobering number from the Conference Board on consumer confidence also did market sentiment no good.

“Things really need to start to fall into place for the economy before we can start to see any real kind of turnaround for copper,” said Michael Gross, an analyst in Tampa, Florida. “Prices will continue to languish.”

In company news, Freeport-McMoRan followed Monday’s red ink hemorrhage by announcing that production from its Morenci copper mine in Arizona, already reduced, will be cut back even further.

But Platts injected a smidgeon of optimism, writing that, “Spot premiums for copper cathode imported into China from Japan have inched up … this month, which may suggest a demand recovery in China, Japanese smelter and trade sources said.”

Platts went on to say that, the “sources said buying interest from Chinese traders and consumers increased in January,” and “there was a constant flow of inquiries throughout the month, although this week was quiet as Chinese businesses are closed for Lunar New Year holidays.”

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


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