Good morning …

Precious Metals

Gold rocketed higher in early Hong Kong trading, and continued on an upward path with few detours all through London and New York as it sloughed off the blahs of late last week and finished a solid day at $969.50/oz., up $27.90 from Friday. Overnight, gold has edged lower.

Platinum was a slow, steady gainer until noon on the Comex, after which it went flat to end at $1087/oz., up $26. Overnight, platinum is trending higher.

Silver was modestly higher when New York opened, then jumped 40 cents into the noon hour, busting past the $14 mark, backed off a bit, but rallied again through the Globex to close at $14.11/oz., up 44 cents. Overnight, silver has been flat.

It was a banner day for the precious metals after several days of consolidation, with gold hitting a seven-month high as it edges back toward the $1,000 mark. Especially encouraging was that gold advanced despite some headwind from the usual suspects as the dollar strengthened and crude fell off.

With a scenario like that, gold is obviously moving up on its safe haven status rather than as an inflation hedge. And that interest is by no means limited, as gold blasted to alltime record highs in the euro and British pound yesterday. People worldwide are increasingly losing confidence in their countries’ currencies and in their governments’ abilities to somehow pull a snowy rabbit out of the present bottomless economic hat.

Brian Hicks, co-manager of the U.S. Global Investors Global Resources Fund, summed up by saying, “I think $1,000 is pretty much almost in the cards here just given how strong the trend has been.”

The demand for gold is “a reflection of just how concerned investors are becoming about the ongoing volatility in the equity market as well as the financial crisis,” Hicks added.

The SPDR Gold Trust also advanced again on Friday, adding 1.6% to stocks to reach another new record of 985.86 metric tons, or 31.7 million ounces. GLD has added 5.8 million ounces in the past month.

Thanks to everyone who took the time to write in answer to my query about where GLD is getting its gold. Judging from responses, there’s a lot of skepticism out there that GLD actually has their bullion. For readers who also subscribe to Casey Research’s Big Gold, look for an in-depth consideration of this question in our March issue.

Currencies and Economic News

In the currency market, the dollar rose sharply against the euro. Late Tuesday, the euro was trading at $1.2622 vs. $1.2887 on Friday.

The buck continues to be the go-to currency around the world, and benefited yesterday from increasing worries about the euro, as Moody's warned that euro-zone banks are highly exposed to the financial turmoil unfolding in Eastern Europe.

Austria, Italy, France, Belgium and Germany were among the countries singled out by Moody’s as most likely to be affected.

Whereto for dollar/euro from here? “It is unlikely that the euro will make it through the week without printing below the October low at $1.2330 as investors collectively work out that, no matter how bad the U.S. economy looks, Europe is behind - how far, we can't say,” wrote Andrew Wilkinson, of Interactive Brokers Group in Greenwich, Conn.

For a change, the dollar as safe haven got no competition from the yen.

The “U.S. dollar was the king of the castle, as (the) Japanese yen, which has tended to outperform during outbreaks of stress, felt the sting of an unraveling economic and political situation” at home, wrote David Watt, senior currency strategist at RBC Capital Markets.

And Wilkinson added that, “The jump in risk aversion as illustrated by the decline in equities over the last 48 hours serves as a timely reminder that the dollar and not the euro is the world's reserve currency.”


In the energy market on Tuesday, oil turned south again, with crude for March delivery sinking to close at $34.93, down $2.58 from Friday. March reformulated gasoline also dropped, losing 9.6 cents, to $1.11/gallon.

With some analysts openly predicting sub-$30 oil, Edward Meir of MF Global wrote that, “Whether the December low of $32.40 holds remains to be seen, but given that OPEC is working hard to institute cutbacks, while at the same time signaling that another cut in March could be imminent, we suspect that prices should sustain themselves above the $30 mark at least for a little while longer.”

But Iraq's oil minister, Hussain al-Shahristani, reiterated yesterday that OPEC is of course weighing new output cuts to prop up prices.

“At $40 per barrel, very few investors will be willing to invest in developing oil fields. And that's going to create a big shortage in the world supply, which is not healthy,” al-Shahristani said.

Base Metals

The base metals were all leaking red on Tuesday. Outside of a brief morning blip up, copper declined from the pre-dawn hours straight through, finishing at its intraday low of $1.4256/lb., down 11 cents from Friday. Pretty much the same story for nickel, which closed at its intraday low of $4.4006/lb., down more than 20 cents. Zinc fell off pre-dawn then went flat, ending at $0.4894/lb., down a penny and three-quarters. Aluminum was a steady decliner to $0.5863/lb., down two cents, while lead was weak as well, shedding a penny and three-quarters, to $0.4965/lb.

Copper led the industrial metals lower, cratering the most in three months as the dismal economic numbers continue to roll in.

“Prices were softer across the metals complex as concerns over global growth prospects were exacerbated,” wrote analysts at Barclays Capital in London, climbing stockpiles are “offering little change in the market-surplus dynamic.”

Indeed, stockpile growth has barely paused for breath over recent months, and yesterday was no exception as copper inventories monitored by the LME advanced by 3,100 metric tons, to 526,425 tons, a fresh high since October of 2003. Stocks are now up 55% just so far this year.

Looking near term, Gijsbert Groenewegen, of Gold Arrow Capital Management in New York, said that, “Copper has further downside to go. All the exporting countries are being hit, and manufacturing is coming down. That’s going to bring copper down. The two main usages for copper, housing and autos, are also struggling.”

And with GM and Chrysler carrying hats in hand to Washington this week, “Upcoming decisions with respect to the automakers will likely be the most dominant price influence for copper over the short-term,” said MF Global's  Ed Meir.

In company news, Teck Cominco released Q4 numbers that were mixed. Although the diversified miner saw revenues rise by 13% year-over-year, lower prices and carrying charges dragged the net into the red to the tune of C$600 million.

And in Mongolia, bidding on the prized $2 billion Tavan Tolgoi coal mine promises to be spirited, with all the big names reportedly in on it, including Vale, Xstrata, Rio Tinto, BHP Billiton and China’s Shenhua Energy. Tavan Tolgoi, which has a coal reserve of 6.5 billion metric tons, is also drawing bids from consortiums of Japanese, Russian and Korean firms, sources say.

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


Toronto-based Inter-Citic Minerals Inc. (TSX: ICI) is a gold exploration and development company, developing what could be one of China’s largest open-pit gold deposits. Inter-Citic’s 279 sq km Dachang Gold Project in Qinghai Province, China, with 50,000 meters of drilling underway in 2008. The total NI 43-101 compliant Inferred Mineral Resource Estimate at Dachang now stands at 2.9 million oz Au contained (approximately 25 million tonnes with an average grade of 3.6 gpt Au), with more drilling underway on the DMZ to further define the existing 43-101 inferred mineral resource estimate in preparation for a scoping study, as well as additional drilling in highly prospective new areas focused on resource expansion. Gold mineralization in the Dachang Main Zone begins at surface and has not been significantly drilled below 150 meters, and numerous known areas of surface gold mineralization on adjacent and other parts of the property have the potential for further discoveries. The Dachang Main Zone itself remains open at depth and along strike. Under a 30-year joint venture agreement with the Qinghai Geological Survey Institute (QGSI – the provincial geological survey body), Inter-Citic has a fully-vested 83% interest in the property, with 17% belonging to QGSI. Inter-Citic has a further option to increase its total interest to 90% at pre-feasibility. The Dachang property consists of several exploration license areas. They have all been renewed by the Company as they have come due in regular course. The business license for the Dachang Gold Project is currently valid to December 26, 2033. Click here to learn more...

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