Good morning …

Precious Metals

Gold hit its high in late Hong Kong trading on Monday, then declined slowly but steadily to the late Comex, where it bottomed at $890 before rallying a bit through the Globex to finish at $895.00/oz., down $16.40. Overnight, gold has been flat.

Platinum plunged from Europe through the first hour in New York, bottoming below $975, clawed its way back to $995 at noon, but then eased a bit the rest of the day to end at $989/oz., down $12. Overnight, platinum is sharply higher.

Silver held gamely above the $13 mark until noon on a down day, but then succumbed to afternoon selling that drove it down to close at its intraday low of $12.83/oz., down 13 cents. Overnight, silver is trending higher.

It was an inauspicious start to the new week for all of the precious metals, especially disappointing as the dollar was sliding against the euro. But oil was also falling and equities finished mixed as traders await Treasury Secretary Geithner’s announcement of yet another bank bailout, re-scheduled from yesterday to today.

Gold fell the most in four weeks.

“Gold maintained a supportive tone, but did succumb to profit taking,” said analysts at Action Economics. “Momentum was limited as the market awaited the outcome of the U.S. stimulus package.”

Today could also be the day the Obama stimulus bill gets voted on in the Senate. With both that and the bank plan on everyone’s mind, many traders were simply keeping their powder dry.

Gold was also hurt by fears that when Congress finally does get around to passing a stimulus package to revive the economy, it will come in smaller than expected. That could ease the risk of accelerating inflation, tarnishing gold’s allure as a safe haven amid rising prices elsewhere.

Tom Pawlicki, an analyst at MF Global in Chicago, took note of this when he wrote that, “Every day that the size of the stimulus grew last week, the gold market seemed to trade higher. That could unwind this week.”

Still, the fact of the matter remains that the Fed, Treasury, and FDIC have lent or spent almost $3 trillion in the past two years and are on the hook to provide as much as $5.7 trillion more.

Nothing could be more gold bullish.

Currencies and Economic News

In the currency market, the dollar sank against the euro. Late Monday, the euro was trading at $1.3056 vs. $1.2932 on Friday.

Like everyone else, currency traders awaited the Treasury Secretary’s comprehensive financial rescue plan, the sequel to the Troubled Asset Relief Program.

“With the focus on the Senate [stimulus package] vote and details of Treasury Secretary Geithner's TARP plan [due Tuesday], the currency markets are likely remain cautiously negative on the dollar,” wrote Marc Chandler, of Brown Brothers Harriman.

Obama's chief economic advisor Lawrence Summers tipped Americans to what is coming on Sunday, saying that the bank plan “can't all be private capital, but with the right kinds of government guarantees and the right kinds of financing, strategic approaches, Geithner believes we can bring in substantial private capital.”

One thing under consideration is creation of a bad bank, or aggregator bank, that would buy illiquid mortgage securities. It could be partly funded by some of the remaining money from the existing $700 billion Troubled Asset Relief Program fund, but the majority of the funds would come from the private sector, according to a Wall Street Journal report.

And wrote that, “The Treasury is reportedly considering using a chunk of the remaining $350 billion in bank bailout funds to make capital injections using a form of preferred security that would pay interest like bonds but would be convertible into common shares after a set period of time, perhaps seven years.

“Banks would have an incentive to buy out the government's stake before the conversion because once they become common shares the investment would dilute existing common shareholders, lowering the value of the bank's shares.”


In the energy market on Monday, oil drifted lower, with crude for March delivery closing at $39.56, down 61 cents. March reformulated gasoline lost just a third of a cent, to $1.2471/gallon.

Traders were clearly uneasy that the stimulus plan under debate won’t be enough to spur new demand for oil.

A measure of how pessimistic is the oil pit these days is that there was zero response to a statement from Abdalla Salem el-Badri, secretary general of OPEC, who said yesterday that the cartel’s nations have collectively postponed 35 oil-drilling projects among the 150 that had been in various stages of development.

El-Badri also said that OPEC has so far achieved 80% compliance with the production cuts mandated for January 1. Members agreed at that time to reduce production by a record 2.2 million barrels a day, adding to previous cuts of 2 million barrels.

Over the weekend, oil minister al-Shahristani of Iraq, which is not currently bound by OPEC's production quota, said the group is likely to agree to further production cuts when its members gather next month. “We do believe that the price should be no less than $70 for a barrel,” he said.

Base Metals

The base metals were on little changed on Monday. Copper fell from the pre-dawn hours to the New York open, but rallied from there through the rest of the day, finishing at $1.6116/lb., up more than a penny. Nickel peaked in the pre-dawn hours and gave ground from there, closing at $5.1785/lb., down nearly 5 cents. Zinc was up early, gave most of it back, and traded dead flat through the New York day to end at $0.5267/lb., up a quarter of a cent. Aluminum was weak, shedding more than a half-cent, to $0.6374/lb., while lead eked out a small gain, tacking on a third of a cent, to $0.5334/lb.

Copper sloughed off a lot of its early gains after Geithner put off announcing the U.S. financial-recovery plan, spurring concern the recession will be prolonged.

That led Michael K. Smith, of T&K Futures & Options in Port St. Lucie, Florida, to comment that, “Anything like this delay is just going to hurt copper … It puts a damper on the global economy and puts a hold on copper.”

Traders are also “holding their positions in copper” as they wait to see if the Senate approves President Obama’s economic stimulus plan, said Matthew Zeman, of LaSalle Futures Group in Chicago. The Senate may vote this week on a plan totaling at least $780 billion, which would then have to be reconciled with the House version.

Meanwhile, the beat went on for stockpiles. Copper inventories monitored by the LME rose again yesterday, adding 3,150 metric tons, to 507,775 tons, a fresh 62-month high.

In company news, the West Australian newspaper reported that, “BHP Billiton’s chief executive Marius Kloppers has ruled out a cash bid for Rio Tinto plc on technical grounds while conceding BHP’s decision four years ago to build the recently shelved Ravensthorpe nickel mine was flawed …

“[Kloppers’] comments came after reports emerged Rio Tinto was in discussions with major shareholder, China’s state-backed aluminium group, Chinalco about a capital injection and asset sales in an effort to pay down some of its $57 billion of debt …

“But Mr. Kloppers was keeping mum on the nature of talks with Rio Tinto over Chile-based Escondida, the world’s largest copper mine, of which BHP has 57.5 per cent.”

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


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