Good morning …

Precious Metals

Gold had a choppy day, rising to near $900 late in the Hong Kong session on Wednesday, but that would prove to be the high for the day as it dropped sharply at the London open, then endured a series of rallies and selloffs in New York to finish at $886.40/oz., down $11.30. Overnight, gold has fallen further.

Platinum also fell as European trading began, but it fought its way back into the noon hour, after which it eased but still held positive territory at $949/oz., up $4. Overnight, platinum is little changed.

Silver had a very jagged day, flirting with the $12 all through, with lows in London and highs in New York that led to an eventual close at $11.95/oz., down 9 cents. Overnight, silver is trending lower.

For the most part, it was a continuation of the previous two days’ action for the precious metals yesterday, with few dramatic moves and a generally lower tone to the market, although platinum did finish slightly higher.

The usual suspects tried to help out, with equities rallying and oil moving higher, but they weren’t enough to offset the effects of a strengthening dollar.

Despite the slack day, Julian Phillips, of, has lost none of his enthusiasm as he asks, “can we say the $:Gold link is breaking? It looks to be so! Gold was consolidating as the $ fell but rose previously as the $ rose. Gold is looking more like the place to be both in deflation [and uncertainty] and in inflation. Long-term investors have been buying well over 50 tonnes of gold in the last three weeks, confirming this. This amount of buying is certainly swamping central banks gold sales and is showing investors the way forward.”

In other news, Germany, the world's second-largest holder of gold after the U.S., has denied rumors that it is selling gold from its vaults to make up for its growing deficit. The rumor had been circulating that the Bundesbank was selling gold, possibly to help fund a second fiscal stimulus worth about €50 billion.

The ruling Christian Democratic Union party had earlier advanced the proposition that the Bundesbank should sell some of its gold reserves, which amount to about 3,400 tons, to help reduce debt.

But Finance Minister Peer Steinbrueck rejected that proposal in Wednesday's Berliner Zeitung newspaper, and Bundesbank spokeswoman Madleen Petschmann reiterated that the rumors were unfounded.

Currencies and Economic News

In the currency market, the dollar moved higher against the euro. Late Wednesday, the euro was trading at $1.315 vs. $1.3218 on Tuesday.

This month’s Federal Open Market Committee policy meeting was far less anticipated than earlier ones have been. Interest rates can’t be shoved any lower, and any rise in rates won’t come until inflation picks up. So the accompanying rhetoric was parsed.

To no one’s surprise, the Fed did leave interest rates alone, and in its remarks said that it will remain committed to a credit easing path and is prepared to buy U.S. Treasuries if that seems warranted.

Further, the Fed admitted the economy is weakening, and that it is worried about deflation, but it still expects a recovery in the second half of the year.

Traders felt the statement was more significant for what it didn't say that what it did. The Fed did not detail any of the non-conventional easing methods under consideration.

That was significant, according to Marc Chandler, of Brown Brothers Harriman, who wrote that, “We had anticipated that any new details on quantitative easing would have been dollar-negative.”

Kathy Lien, director of currency research at GFT, added that, “In the long run, the Fed's lack of commitment is still dollar bullish. More action will be needed and delaying the inevitable could hurt more than it helps.”


In the energy market on Wednesday, oil staged a mild rally, with crude for March delivery closing at $42.16, up 58 cents. March reformulated gasoline was 7.5 cents, to $1.1835/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks shot up 6.2 million barrels, to their highest level since August 2007. That was nearly twice expectations.

Gasoline supplies fell 100,000 barrels, the EIA said, while distillates were off by 1 million barrels. Refinery utilization was at 82.5% of capacity vs. 83.3% a week ago.

Traders overlooked the supply glut in favor of optimism over the Fed’s outlook for a recovering economy later in the year, leading James Williams, of WTRG Economics, to remark that, “It's a good example of the way this market has been trading for some time, up with good economic news and down with the bad.”

However, Williams added, “The reality is that in the short term the Fed decision will have little real impact on oil consumption.”

Base Metals

The base metals were mixed on Wednesday. Copper pushed higher until the late morning, peaking just short of $1.51, then slid through the afternoon before settling in the green at $1.4733/lb., up 2 1/2 cents. Nickel built up a head of steam early as it bounced off the $5 mark, then held off some late selling to close at $5.2343/lb., up 20 1/2 cents. Zinc was on positive ground until late morning, but fell straight down from there, ending at $0.4971/lb., down 2/3 of a cent. Aluminum was modestly higher, finishing at $0.6009/lb., up more than three-quarters of a cent, while lead sagged, shedding a third of a cent, to $0.5047/lb.

Copper led the gainers among the industrial metals, with the metal rising, as Reuters wrote, “in sympathy with rallying equity markets as investor optimism for the Obama administration to work quickly on a plan to mop up toxic assets from banks lifted sentiment.”

Reuters also reported that it conducted a survey of 57 base metals analysts, and the consensus was that the worsening global recession can be expected to slash copper prices by up to 50% this year.

For the moment, though, many traders were waiting until after the Fed had its say on the economy, which came in the late afternoon, so we should learn their judgment today.

The market is certainly not in for any support from stockpiles. Copper inventories monitored by the LME saw gains slacken from Friday and Monday, but they were still up 3,125 tons yesterday, to 454,925 tons.

The proposed Obama plan had some turning optimistic, however. Frank McGhee, of Integrated Brokerage Services in Chicago said that “copper is going to benefit from the U.S. stimulus spending on infrastructure projects … We could see increased demand over the next three to six months.”

Chiming agreement was Michael Pento, of Delta Global Advisors in Holmdel, New Jersey, who wrote that, “Infrastructure plans and monetary inflation should put a floor on base metals … Copper should have already bottomed.”

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


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