Good morning …
Gold remained in the doldrums until the New York open on Wednesday, after which it perked up a bit through the rest of the day, but not to any great extent as it finished at $905.90/oz., up $5.30. Overnight, gold is sharply higher.
Except for an equal bump and retreat in the morning New York hours, platinum remained stuck in a very tight range all day, ending near the top of that range at $965/oz., up $4. Overnight, platinum has vaulted higher.
Silver was in the red until the New York open, but moved sharply upward from there to mid-morning, peaking at $12.60 before retracing its way back to a close at $12.54/oz., up 9 cents. Overnight, silver is much higher.
If gold turned in a lackluster performance on Tuesday, with the usual suspects lined up pretty much in its favor, then yesterday was the opposite, with a slight gain put in despite declines in equities and oil, and a rising dollar.
There’s no point in trying to make any short-term sense of it all. As Dan Norcini, writing on jsmineset.com, sagely commented: “Yesterday the Euro was in – today the Euro is out. Yesterday the Swiss Franc was in – today the Swiss Franc is out. Yesterday the Dollar was out – today the Dollar is in.
“Translation – more hedge fund madness.”
Of more interest was a report out of the European Central Bank stating that reserves of gold and gold receivables held by euro-zone central banks rose last week for the first time in two months.
The Eurosystem has not been a net buyer of gold since the week of November 7, 2008, but during the week ended January 30, gold and gold receivables increased by a modest 1 million euros. That reflects the net purchase of gold coins by one Eurosystem central bank, the ECB said.
And paper gold continues to soar in popularity. Holdings of SPDR Gold Trust, the largest exchange-traded gold fund, now stand at an all all-time high of 853.37 tons, an addition of almost 10 tons this week.
“Worldwide, gold is seen as a safe place to be,” said Frank Lesh, a trader at FuturePath Trading in Chicago. “It’s one of the few assets that made money last year. Everybody wonders: Where should I go with my money this year? When you look around, gold is one of the few recipients.”
Currencies and Economic News
In the currency market, the dollar rose against the euro. Late Wednesday, the euro was trading at $1.2846 vs. $1.3044 on Tuesday.
The dollar got a lift against the euro after credit-ratings agency Fitch Ratings downgraded Russia's long-term foreign and local currency ratings, or IDRs, to BBB from BBB+.
The downgrade puts pressure on the euro because Russia will likely be forced to sell euros to rebalance its currency basket.
“The Russian debt-downgrading once again highlights the strains within the European financial system with weaker commodity prices playing no small part,” said Andrew Wilkinson, of Interactive Brokers Group in Greenwich, Conn.
“Russia as an important trading partner means that this downgrade cannot do one jot of good for the larger eurozone in the grand scheme of things,” Wilkinson added.
“There is no respite for the ruble at the moment,” wrote strategists at Brown Brothers Harriman. “In turn, none of this is particularly supportive for the euro which fell to a session low on the back of the Russian news.”
Today’s European Central Bank meeting will be closely monitored. While everyone expects the ECB to leave its key interest rate unchanged at 2% when the rate-setting Governing Council meets in Frankfurt, the accompanying rhetoric will be scrutinized for clues as to the bank’s future direction.
In the energy market on Wednesday, oil slipped lower, with crude for March delivery closing at $40.32, down 46 cents. March reformulated gasoline added 5.14 cents, to $1.2184/gallon.
In its weekly inventory report, the Energy Information Administration said that crude supplies shot up 7.2 million barrels in the week ended January 30, much more than analysts’ expectations for a build of only 2.9 million barrels.
That’s “very bearish for crude oil,” said James Williams, of WTRG Economics. “The only thing for the bulls is the prospect that OPEC will make additional cuts in March.”
The EIA also reported that gasoline inventories rose by 300,000 barrels while distillate stocks fell by 1.4 million barrels. Refineries were operating at 83.5% of capacity last week, up from the previous week's 82.5%.
Despite OPEC’s cuts, some see further downside in the sector. Analysts at Morgan Stanley said yesterday they expect oil prices to average $35 a barrel in 2009 and fall to a low of $25 a barrel in the second quarter, “as global demand is poised to post its largest year-on-year contraction since 1982 on a sputtering global economy.”
The base metals were little changed on Wednesday. Copper held up well through mid-morning, but declined when it counted, slipping to near its pre-dawn intraday low and finishing at $1.4922/lb., down a penny. Nickel also experienced a late-day letdown, but not enough to bleed red as it closed at $5.214/lb., up 2 1/3 cents. Zinc had a modestly positive day, ending at $0.5244/lb., up three-quarters of a cent. Aluminum was steadily higher through most of the day, adding more than a penny to $0.6228/lb., while lead also edged higher, tacking on a penny at $0.5305/lb.
Copper was only a little bit off its highs on Wednesday, as reports of increased Chinese buying and general optimism kept the metal buoyed for a second straight day.
The metal responded positively to reports that China has started buying copper from domestic bonded warehouses and overseas markets, in a move expected to triple its state reserves to about 1 million metric tons.
China’s Purchasing Manager’s Index, a manufacturing gauge, rose in January from the previous month, the China Federation of Logistics and Purchasing said. The index was up to 45.3 in January from 41.2 in December and a record 38.8 in November, the group said. Although a reading below 50 indicates a contraction, the trend is positive.
As analysts at Barclays Capital in London put it, “The improvement versus the previous two months at least offers a sign of some bottoming out.”
Also sounding a cheery note was BNP Paribas, which predicted yesterday that China’s stimulus package will boost copper demand 6.2% this year, while spending in the U.S. will increase use of the metal by 4.1%.
But once again, stockpiles served as an effective cap on any breakout to the upside. Copper inventories monitored by the LME were up yesterday, adding 4,650 metric tons, to 499,950 tons. That’s the highest level since November 2003.
Regarding nickel, warehouse stocks fell 114 tons yesterday, but are still up over 7% for the year.
“Inventories of nickel are not rising as sharply as the other metals, suggesting the supply-demand balance for nickel has stabilized a bit,” said Daniel Smith, of Standard Chartered in London. “We’re not looking for a huge surplus this year because supply has been cut back so sharply.”
On the other hand, Smith conceded that nickel demand is “awful,” with first-quarter stainless-steel consumption expected to decline more than 20% from a year earlier.
That’s what’s happening … see you tomorrow!
NEWS YOU CAN USE:
MAX intercepts 50 feet of 0.1212% Mo, 100 feet of 0.0706% Mo at Gold Hill Molybdenum/Copper/Gold project in Alaska.
MAX Resource Corp. (TSX.V: MXR; OTCBB: MXROF; Frankfurt: M1D) has now received all assays from a ten hole diamond drill program (7,664 feet) completed at the Gold Hill molybdenum/copper/gold project in Alaska in September 2008. (News Release February 2, 2009) The 2008 ten hole drill program in Alaska followed up on a five hole drill program MAX conducted in 2007 that intersected significant molybdenum mineralization over long intervals starting at surface and ending in mineralization at depth in four of the holes. For the complete results from MAX’s 2008 drill program and a map showing the 2007 and 2008 drill site locations is now available on our web site at www.maxresource.com.
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'.