Good morning …

Precious Metals

Gold noodled around break-even until about an hour before the New York open on Tuesday, then suddenly went vertical, adding $18 over the next two hours, after which a couple of brief selloffs were met by immediate buying, and the metal continued to rise through the late Comex and Globex, finally settling at $915.30/oz., up $20.30. Overnight, gold is pushing higher.

Platinum also went ballistic, but at the end of Hong Kong trading, peaking right at the New York open, after which it stayed rangebound between $1020 and $1030, ending at $1033/oz., up $44. Overnight, platinum is sharply higher.

Silver nicely completed the trifecta, shooting up 45 cents between the London and New York opens, then holding steady through the day to close at $13.14/oz., up 31 cents. Overnight, silver has shot higher.

It was a banner day for the precious metals, as markets appeared to turn a big thumbs down to Washington’s responses to the economic crisis and sent equities crashing into the cellar.

Gold rose the most in a week. More importantly, and unusually, it ran counter to a strengthening dollar and falling oil prices, as well as benefiting from a general flight to quality among the fearful.

Traders are clearly beginning to price in the inflation that is expected from such DC “fixes” as Treasury Secretary Geithner’s bank bailout program, announced yesterday.

“This program should ultimately provide up to $1 trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works,” Geithner said in introducing the measure.

A typical reaction came from Matt Zeman, of LaSalle Futures Group in Chicago, who said that, “There’s a lot of investor anxiety out there and people are turning to gold for its perceived safety … With all the money the government is planning to spend or print, at some point in the future, we’re going to hit the inflationary wall.”

Kitco’s Jon Nadler put it as succinctly as possible, noting that, “The [Geithner] program has but one outcome: inflation.”

Still, the ever-cautious Dennis Gartman, editor of the Gartman Letter, sees resistance ahead, writing that, “The gold futures speculators may be buying gold but the public is selling gold, perhaps to meet living expenses or simply because gold has gotten rather expensive … High prices have drawn scrap to the market. Until this wave of scrap gold selling is finished, the price of gold shall struggle to make its way through the resistance at $925 to $930.”

Currencies and Economic News

In the currency market, the dollar rallied against the euro. Late Tuesday, the euro was trading at $1.2867 vs. $1.3056 on Monday.

Concurrent with Geithner’s presentation, the Senate voted approval of President Obama’s economic stimulus package, which he touts will save or create up to 4 million jobs.

The $838 billion Senate bill is a mixture of tax cuts, targeted spending on infrastructure projects and money infusions for cash-strapped states, and it must be reconciled with the House’s marginally less costly version before final passage.

The markets don’t think much of this. “Traders have plowed right back into the U.S. dollar on the fear that the U.S. government is rolling the dice once again,” said Kathy Lien, director of currency research at GFT.

The buck’s rally continued the recent trend whereby the currency tends to rise after downbeat news. Lower-yielding currencies such as the dollar will benefit from risk aversion, the reasoning goes. On the flip side, the dollar falls whenever there is more willingness among investors to buy riskier, higher-yielding assets.

The euro was stung when Anatoly Aksakov, head of the Russian Association of Regional Banks, said that domestic banks will ask foreign financial institutions to reschedule loans worth up to $400 billion. High European exposure to Russia makes the euro vulnerable to signs of stress in their eastern neighbor.


In the energy market on Monday, oil tanked, with crude for March delivery closing at $37.55, down $2.01. March reformulated gasoline lost just a third of a cent, to $1.2439/gallon.

It was schizophrenia in the oil pit, as traders drove the price up 5.7% early on, only to slam it back to a 5.1% loss by day’s end.

Most were laying the blame for the selloff at the Treasury Secretary’s feet. “The credit crisis is a millstone weighing on this market,” said Peter Beutel, president of Cameron Hanover Inc., in New Canaan, Connecticut. “There was some hope that Geithner would say something to make the worries go away, but that obviously didn’t happen.”

Alan Ruskin, of RBS Greenwich Capital, elaborated on the theme, writing that the government's efforts are “worryingly short of new initiatives; short on detail on the main fresh initiative; and, short on the confidence factor that this will all work out fine.”

Traders await today’s inventory figures from the Energy Department, with sentiment leaning towards a continued build. “The contango at the front of the New York Mercantile Exchange crude oil futures curve will provide the incentive to continue storing barrels,” said Platts senior oil analyst Linda Rafield.

Base Metals

The base metals were all red-soaked on Tuesday. Copper fell from the pre-dawn hours to the New York open, rallied back to break-even by late morning, but then slid again to finish at $1.5663/lb., down 4 1/2 cents. Nickel was down all day, falling back through $5 and closing near its intraday low at $4.8519/lb., down 32 2/3 cents. Zinc was a slow and steady daylong decliner, ending at $0.5151/lb., down more than a penny. Aluminum held up until late morning, but then tumbled to its intraday low of $0.6147/lb., down 2 1/4 cents, while lead, after a couple of sharp swings up and down, wound up shedding a penny and two-thirds, to $0.5172/lb.

Copper led the industrial metals lower, as traders expressed their low opinion of the stimulus package approved by the Senate.

That led Gijsbert Groenewegen, a fund manager at Gold Arrow Capital Management in New York, to sum up market sentiment: “This is really going to be too little, too late,” he said. “The economy is still going to suffer.”

Frank McGhee, of Integrated Brokerage Services in Chicago, was a shade less pessimistic, describing copper as “in a holding period right now … People are waiting to see that the stimulus plan actually goes forward,” McGhee said.

Meanwhile, those stockpiles just keep on piling up. Copper inventories monitored by the LME shot higher again yesterday, adding 6,650 metric tons, to 514,425 tons.

Underscoring the precarious situation was word that world industrial output fell 5.3% in December, year-over-year, according to BNP Paribas. “The breakdown of global industrial production growth highlights that activity has been underperforming in all the key metals consuming regions,” the bank said.

On the production front, Chile is taking strong steps to help bolster its mining sector. The Mining Ministry announced that the government has boosted by 50% the amount of loans available to small copper miners to shield them from low prices for the metal as a result of the global economic crisis.

The size of the country’s copper price stabilization fund has been raised to around $39 million from $26 million, the Ministry said.

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


First Majestic Silver Corp is committed to building a senior silver-producing mining company based on an aggressive acquisition and development plan with a focus on Mexico. The Company presently owns or operates three silver mines in Mexico: The La Parrilla Silver Mine; The San Martin Silver Mine and the La Encantada Silver Mine. Annual production from these three mines is anticipated to be 5 million ounces. Learn more about First Majestic.

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