Good morning ...

Precious Metals

Gold endured a succession of sharp declines on Monday, the first coming in Hong Kong trading, the second in London just before New York opened, and the final one from noon on through the rest of the Comex and Globex, and while there were rallies interspersed when all was said and done the metal finished at $904.80/oz., down $22.30. Overnight, gold has been flat.

Platinum traded essentially between $965 and $975 all day long, ending at $970/oz., down $17. Overnight, platinum is slightly lower.

Silver was down in the far East, dipped again in the last hour before New York, then shot higher to the noon hour but with its peak still in the red, and finally slid through the afternoon before a little late Globex buying led to a close at $12.43/oz., down 24 cents. Overnight, silver is trending lower.

There was little in the way of direction supplied by the usual suspects yesterday-with oil easing, the dollar just off vs. the euro, and equities mixed-so for whatever reason the sellers decided to cash in some of their chips on the precious metals after last week's solid gains.

Gold's was the biggest daily loss in three weeks.

The seven-day relative strength index for gold futures topped 70 on January 30, a signal that prices may drop in the near term, however investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, held steady at its current record levels.

Gold is overextended to the upside and we've sold some calls against our gold ETF, said Dennis Gartman, editor of the Gartman Letter. There is growing interest in gold and we remain bullish of it. We were a bit concerned at the overbought nature of the market.

As for silver, investment in its biggest ETF, Barclays IShares Silver Trust, also remains at record levels. SLV's vaults held 7,453.2 metric tons of the metal on January 27.

The search for safe havens is still a major factor driving investor decisions, said James Turk, founder of Goldmoney.com. Gold is the safest haven of all. Gold will continue to benefit from all the monetary turmoil and worries about insolvent banks. Goldmoney's vaults stored $548 million in gold and silver for investors at the end of January.

Currencies and Economic News

In the currency market, the dollar edged lower against the euro. Late Monday, the euro was trading at $1.284 vs. $1.2805 on Friday.

The day's most significant number came from the Institute for Supply Management, which reported that its manufacturing index inched higher to 35.6% in January from 32.9% in December. Analysts had been looking for a flat reading.

That's still a negative number-readings below 50% in the ISM diffusion index indicate that more firms are contracting than growing-but it was the best showing since November.

Norbert Ore, chair of the ISM factory survey committee, said the report simply says we're finding ourselves somewhere near the bottom, although he stressed that any recovery in the factory sector will be slow.

Others were more skeptical, thinking that the numbers might only reflect the inventory build-up reflected in the most recent GDP numbers.

Separately, the Commerce Department said that consumer spending for December, on an inflation-adjusted basis, fell for the sixth time in seven months, down 1%.

Energy

In the energy market on Monday, oil dropped off, with crude for March delivery closing at $40.08, down $1.60. March reformulated gasoline plunged after its recent runup, shedding 12 cents, to $1.1492/gallon.

Oil, which had been on a tear that took it above $48 on January 26, largely due to OPEC production cuts, is back in the doldrums again.

OPEC's compliance continues to be impressive but may be prolonging their own economic pain by creating more demand destruction, said Phil Flynn, of Alaron Trading.

And Edward Meir, of MF Global, wrote that, The bearish macro backdrop should cap any sharp rallies above $50, while the OPEC cutbacks seem to have stopped -- at least for now -- the worst of the recent downward spiral ... Of the two variables, the macro element is by far the more important.

Elsewhere, the United Steelworkers union agreed to extend talks on a new contract for thousands of workers at U.S. refineries, thereby avoiding a strike, at least for the moment.

Base Metals

The base metals were mixed in listless trading on Monday. Copper was higher from the pre-dawn hours to mid-morning, but subsided back into the red from there, finishing at $1.4262/lb., down more than a half-cent. Nickel climbed, and hung precariously in positive territory at $5.0175/lb., up less than 2 cents. Zinc traded mostly sideways, ending at $0.4924/lb., up just under a penny. Aluminum pushed higher and held its gains, closing at $0.607/lb., up a penny and a half, while lead sank to $0.501/lb., down three-quarters of a penny

Copper failed to hold its early gains as the December decline in spending on construction projects dampened hopes for any kind of economic revival.

The basic fundamentals and pressure of the economy are still negative, and there's nothing that's really going to drive this price higher, said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey.

With US construction spending falling 5.1%, the most since records began in 1993, O'Neill added that, I don't see anything within the housing sector, autos or manufacturing in general that points to any imminent turnaround ... There's not going to be any rush of copper demand anytime soon.

On the stockpile front, however, there was surprising news. They declined for the first time since December 10! Granted that they didn't subside by much, but any halt to the flood into warehouses is sure welcome. By the numbers, copper inventories monitored by the LME dropped by 325 metric tons yesterday, to 491,200 tons.

Sounding a mildly optimistic note was John Gross, publisher of the Copper Journal, who said that, Benchmark March copper's ability to remain buoyed above the $1.40 a lb level is an encouraging sign.

Yesterday also marked the day that Chinese markets reopened after the week-long Lunar New Year holiday. While they ended lower on the day, analysts expect that the return of Chinese traders will help to paint a clearer picture of market direction going forward.

Finally, there was potentially significant supply news from way down South. Peru's largest federation of mining unions said over the weekend it has agreed to call a nationwide strike starting on March 15.

That's what's happening ... see you tomorrow!



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