Good morning …

Precious Metals

Gold was lower from the foreign markets to mid-morning in New York, but then it was off to the races as it jumped $25 from there to the Comex close, and continued to build on its gains through the Globex, plowing back over $900 to finish at $907.70/oz., up $21.30. Overnight, gold shot higher.

Platinum took off at just the same time although it got capped around noon, trading sideways from there and ending at $973/oz., up $24. Overnight, platinum is trending higher.

Silver fell as low as $11.65 in the early London session, but it was lights out once New York opened, jetting from near $11.70 at that point all the way to $12.40 in the Globex, before finally tapering off just a bit to close at $12.37/oz., up 42 cents. Overnight, silver is sharply higher.

It was a banner day for the precious metals yesterday, with gold rising for the first session in three, as grim economic news sent investors fleeing en masse to the world’s only legitimate safe haven.

Among the usual suspects, even sliding equities and oil couldn’t hold gold back, and the relatively small slip in the dollar hardly accounts for the stampede to quality.

“We’re seeing a bit of bounce in gold because of what the equity markets are doing now,” said Matt Zeman, of LaSalle Futures Group in Chicago. “Investors are backing out of equities and going to gold and other assets that are viewed as safer.”

It may turn out to be more than ‘a bit of a bounce’ if the ugly numbers keep piling up.

As Peter A. Grant, of USAGOLD, put it, “The dismal durable goods and new home sales numbers along with the rise in initial jobless claims have undoubtedly eroded risk appetite today, driving flows into gold.”

Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, was nil yesterday, but GLD has been adding substantially to its vaults lately, and reached a record 832.9 metric tons on Tuesday.

The only cautionary note was sounded by Tom Pawlicki, of MF Global in Chicago, who said, “Trade will be sensitive to the inflationary aspects of the stimulus plan making its way through Congress … The risk is if the stimulus causes the stock market to rise, which could draw investment away from gold.”

Currencies and Economic News

In the currency market, the dollar dropped against the euro. Late Thursday, the euro was trading at $1.315 vs. $1.315 on Wednesday.

Well, the litany of bad news continued yesterday, and in fact may be picking up speed.

First, the Labor Department said jobless claims rose by 159,000 in the week ending January 17, to a seasonally adjusted 4.78 million, the most since the government began keeping records in 1967.

Then the Commerce Department reported that orders for U.S.-made durable goods slumped 2.6% in December, with weaker demand shown for almost all products except defense-related items. (I.e., without government spending, who knows how much worse it would’ve been?)

And separately, Commerce said that new home sales fell 14.7% in December, to a seasonally adjusted annual rate of 331,000. That far exceeded economists’ expectations to the downside, and marked the lowest level since the series began in 1963.

All told, “The fear is that the slowdown spills over well into 2009 putting expectations of a second half rebound into question,” wrote David Watt, senior currency strategist at RBC Capital Markets.

Nevertheless, over in Davos, Switzerland, where the World Economic Forum is meeting, Indian commerce minister Kamal Nath said Thursday, “There is no sense of doom here,” although he allowed that, “There is a sense of gloom.”


In the energy market on Thursday, oil sagged, with crude for March delivery closing at $41.44, down 72 cents. March reformulated gasoline bucked the trend, gaining 4.7 cents, to $1.2309/gallon.

In Davos, during a panel discussion on the energy outlook for the year ahead, OPEC Secretary General Salem El Badri said the cartel “will not hesitate to take (some more) out of the market” in coming months if prices and global demand don't stabilize.

El Badri added that oil prices may or may not have bottomed, but warned that a price of $40 or even $50 a barrel doesn't provide producing countries with enough revenue to ensure adequate future investment.

“We are seeing that 2009 will be a very difficult year,” El Badri conceded. OPEC’s next formal meeting is in mid-March.

But BP CEO Tony Hayward, on the same panel, warned that when demand returns, it could do so quickly, and that could cause supply constraints “unless we can invest through the downturn.”

Base Metals

The base metals were mixed again on Thursday. Copper fell from the pre-dawn hours to just after the New York open, and though it rallied from there, failed to reach the green at $1.4432/lb., down 3 cents. Nickel followed a very similar path to copper, closing at $5.0689/lb., down 16 1/2 cents. Zinc was modestly lower, ending at $0.4914/lb., down more than a half-cent. Aluminum rallied late to escape the red, finishing at $0.6026/lb., up less than a quarter-cent, while lead had a decent day, adding a penny and a quarter, to $0.5172/lb.

Copper slipped again, as traders were forced to confront stockpiles that seem to be spiraling out of control.

It was the same old, same old, as copper inventories monitored by the LME skyrocketed by 22,750 metric tons yesterday, to 477,675 tons, marking their highest level since November of 2003.

It was also the “biggest one-day increase in London Metal Exchange copper warehouse stock levels since August 2004,” noted analyst Edward Meir of MF Global, one of the 12 companies that trades on the floor of the LME.

“We expect metal producers to scale back production for most of this year, as in addition to the credit issues, the cost pressures they face are enormous,” Meir wrote. “Deteriorating demand is still outpacing the rate at which production is being slashed.”

The day was filled with company news. First, Vale Inco said it has stopped shipping nickel concentrate from the giant Voisey's Bay mine in Eastern Canada until it reaches agreement with the provinces over a proposed nickel processing plant.

Then Xstrata, the world’s #2 miner, announced a rights issue, intended to raise $5.9 billion, that will cause massive dilution as it runs shares in issue from 978 million to 2.9 billion. Xstrata is also suspending its dividend.

And Reuters reported that, “Mexico's biggest copper miner Grupo Mexico will probably post a sharp decline in fourth-quarter revenue,” with sales dropping “40 percent to $932 million in the October-December period, from $1.56 billion in the same period of 2007, according to the average forecasts of four analysts consulted by Reuters.

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


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