Good morning …

Precious Metals

Gold had another strong day, shooting higher at the London open that carried through to mid-morning in New York, then rebounding from a short, sharp selloff to push higher the rest of the day, finishing at $926.30/oz., up $18.00. For the week, gold tacked on 3%.

Platinum rose slowly but steadily through the day, ending at $987/oz., up $14. For the week, platinum added 3.8%.

Silver followed gold’s path to a T, closing at $12.65/oz., up 30 cents. For the week, silver advanced a robust 5.9%.

After a weak start, it proved to be a very good week for the precious metals, capped by the last two days’ excellent gains. Best of all, from a bug’s point of view, was that gold surged to a 6-month high fully in the face of a strengthening dollar. Perhaps the decoupling that has long been predicted, has arrived.

Certainly, the recent rise in gold suggests that increasing numbers of investors are concluding that the metal is a better parking place for their money than anything denominated in US dollars.

As Joel Crane, of Deutsche Bank in New York, put it: “Central banks are going to start printing money and it’s not an ideal place for investors to be … People don’t have faith in currencies at the moment. There is still an underlying faith that gold will go higher.”

Meanwhile, the Hightower Report had this take on the day’s action: “As suggested in the mid day coverage today even the US President admits that conditions in the US are severe and with the ‘Bad Bank’ plans seemingly calling for backing of up to $1 trillion the flight to quality argument clearly remains in the forefront of market psychology. Some players in the gold market even suggested that the not as bad as expected US GDP reading was another reason to buy gold and that highlights the bulls capacity to spin most of the data flow into a positive. Some traders even suggested that the fear of labor problems and subsequent strikes at US and UK refineries were serving to lift energy prices and that in turn could also be another anxiety issue that serves to push buyers toward gold.”

Naturally, the bulls are celebrating. “Demand remains very high internationally for ETFs, gold certificates and bullion coins and bars,” said Mark O'Byrne, of Gold and Silver Investments. He’s seen “continuing safe haven demand for gold” due to the “sharp deterioration in the global economy.”

Currencies and Economic News

In the currency market, the dollar moved higher against the euro. Late Friday, the euro was trading at $1.2805 vs. $1.2952 on Thursday.

“The main driver in foreign exchange remains overall investor sentiment, with stock market movements as the primary barometer of risk appetites. When stocks are up and sentiment is positive, the U.S. dollar, the Japanese yen and gold are typically sold, and when shares start falling, the U.S. dollar, Japanese yen and gold are all bought,” wrote Brian Dolan, of Gain Capital.

“The flip side of strength in the U.S. dollar is weakness in the euro and there appears to be growing momentum to more aggressively test the downside of the European single currency,” Dolan added.

And, well, the data yesterday were not so hot, either. The Commerce Department reported that the U.S. economy contracted at a 3.8% seasonally-adjusted annual rate in the fourth quarter of 2008, marking the worst reading since 1982.

Analysts pointed out that the GDP reading would have been even worse if not for the fact that the government counts an unwanted buildup of goods on store shelves as growth. Minus that input, the economy contracted at a 5.1% pace.

Separately, the University of Michigan/Reuters consumer sentiment index was up in January to a final reading of 61.2 from 60.1 in late December. Still, that failed to meet analysts’ expectations for a rise to 61.5.


In the energy market on Friday, oil moved slightly higher, with crude for March delivery closing at $41.68, up 24 cents. March reformulated gasoline prolonged its recent rally, gaining 3.78 cents, to $1.2687/gallon.

Traders were somewhat heartened by the GDP figure, as the drop was still below economists' expectations of a 5.5% decline.

Brenda Sullivan, an analyst at Sucden Financial Research sounded an optimistic note, writing that, “While crude-oil markets may remain vulnerable to further disappointments in the economic conditions, there is also the potential for a price base to be forming.”

Of note was that about 30,000 U.S. refinery workers could go on strike if they don't renew a union contract that expires early Sunday. The dispute is between the United Steelworkers union and refiners.

That had Edward Meir, of MF Global, concerned. “If things take a turn for the worst, a nationwide strike could affect as much as two-thirds of the country's refining capacity, and it remains to be seen whether the majors will be able to cope with replacing striking workers with non-union personnel,” Meir said.

Base Metals

The base metals were all modestly lower on Friday. Copper declined into the New York open, and though it rallied from there, came off its highs late to finish at $1.4318/lb., down more than a penny. Nickel fell below the $5 mark and, though it struggled mightily to regain it, fell just short at $4.9986/lb., down 7 cents. Zinc was off through most of the day, ending at $0.4835/lb., down three-quarters of a cent. Aluminum was weak, closing at $0.592/lb., down a penny, while lead sank to $0.5082/lb., down almost a penny

While copper was down in late trading, the early rally was enough for Michael Gross, an analyst in Tampa, Florida, to comment that, “With the oil moving up and gold being higher, that got people into copper today … A lot of traders didn’t want to go home over the weekend short on copper.”

But Gross hastened to add that, “It’s mostly a technical play, based on gold and oil. The fundamentals are still weak.”

That was certainly borne out by the stockpile situation, as copper inventories monitored by the LME shot up by 13,850 metric tons yesterday, to 491,525 tons. That brought the gain for January to a stunning 150,000 tons.

Also factoring in, said Pete Sorrentino, of Huntington Asset Advisors in Cincinnati, was that, “There were some unrealistic expectations about what the stimulus plan was going to mean” for copper, and he predicted that prices will remain depressed.

That’s also the view of Chip Hanlon, of Delta Global Advisors in Huntington Beach, California, who maintains that, “The global economy is entrenched in such a deep deleveraging and slowdown that it’s going to be a few months at least before we can see a recovery.”

In company news, on Thursday we reported that Vale Inco had stopped shipping nickel concentrate from the giant Voisey's Bay mine in Eastern Canada. Yesterday, Vale announced it had reached agreement with the province of Newfoundland and Labrador, and that shipments are ready to resume.

And from Chile comes word that its copper output fell 8.9% in December and 4.2% for all of 2008, as the world's biggest copper producer suffered supply disruptions and saw ore grade fall at some of its biggest mines.

That’s what’s happening … have a great weekend and see you Tuesday!


Brent Cook: Turning Rocks Into Money - The Gold Report Geologist Brent Cook, editor of Exploration Insights newsletter, has earned a reputation for recognizing which juniors have the best chance of beating the odds and where rocks have the greatest potential for producing profit. In this exclusive interview with The Gold Report, Brent shares some of his insights about which juniors have upside potential in this volatile market. Brent has examined properties in more than 60 countries and learned the investment side of the business from master Rick Rule. Read the full interview here...

The Daily Resource has been brought to you by our friend's at Casey Research.
For a great overview of the commodity sector we offer the 'Casey's Daily Resource Plus'.
Inquire Here