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Precious Metals

Gold hovered around the break-even $970 mark through Hong Kong, London and the New York session past the noon hour, but then suddenly shifted gears and rose through the rest of the Comex and the Globex, finishing a second straight solid day at $983.50/oz., up $14.00. Overnight, gold has slipped lower.

Platinum broke past $1110 in European trading, then toyed with $1100 for the rest of the day, finally ending just short of it at $1099/oz., up $12. Overnight, platinum has fallen off.

Silver was in positive territory for nearly the whole day, wobbling between $14.10 and $14.30, before finding firm ground in the afternoon hours and closing at $14.34/oz., up 23 cents. Overnight, silver is trending lower.

The precious metals followed Tuesday's banner day with another strong effort, with all of them well into the green. And again, as on the previous day, gold advanced despite lack of cooperation from the usual suspects, as the dollar strengthened and crude slipped slightly lower.

Gold appears to be setting an emphatic punctuation point on its safe haven status as it decouples from the influences that have been its driving factors for such a long time.

Bulls are yakking it up. With gold now within spitting distance of its alltime high of $1003, the chat can become self-reinforcing. As Kitco's Jon Nadler put it, talk of gunning for the $1,000 level should keep buyers at the helm.

Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, is still going gangbusters, too. GLD holdings shot past the 1,000 metric ton mark yesterday, to a record 1,008.8 tons, or better than 32.4 million ounces.

Overall, worldwide gold demand surged 26% to 1,036.5 metric tons (more than 33.3 million ounces) in 4Q08 as the financial crisis spread and every other asset tanked, the World Gold Council said yesterday in its quarterly report.

The WGC also reported that for all of 2008, the flight to quality pushed dollar demand for gold past the $100 billion mark for the first time ever, to $102B. That was a 29% increase over year-earlier levels.

As stock markets shed an estimated $14 trillion in '08, identifiable investment demand for gold, which incorporates exchange traded funds (ETFs), bars and coins, was 64% higher than in 2007, the WGC said, and gold's price averaged out to $872 over the year, up 25% from '07's $695.

Currencies and Economic News

In the currency market, the dollar rose against the euro. Late Wednesday, the euro was trading at $1.255 vs. $1.2622 on Tuesday.

The buck benefited from a flight to safety, as equities were unable to gain any traction after Tuesday's big selloff.

In addition, With trouble brewing in Europe, the new programs announced by the Obama administration should keep the U.S. dollar attractive to investors over the medium term, said Kathy Lien, director of currency research at GFT.

Perhaps with fingers crossed, Fed Chair Ben Bernanke said yesterday that the extraordinary measures taken by the Fed to restore the flow of credit vital to the U.S. economy won't stoke inflation.

A significant shrinking of the balance sheet can be accomplished relatively quickly, Bernanke said, noting that many programs are designed to automatically disappear once market conditions improve, though others will require more active intervention.

At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time, Bernanke summed up.

The day's hard numbers, though, were dismal. The Commerce Department reported that housing starts plunged 16.8% in January, to far below the weakest levels of construction in the post-World War II era. Starts have dropped at double-digit rates for three straight months, falling at an 86% annual rate over that period.

Separately, the Fed reported that U.S. industrial production declined for the fifth time in six months, dropping 1.8% in January. Capacity utilization in the factory sector fell to 68% in January, a record low for the index that goes back to 1948. The good news is that the data were in line with economists' projections.


In the energy market on Wednesday, oil slipped slightly lower, with crude for March delivery sinking to close at $34.62, down 31 cents. March reformulated gasoline continued its slide, losing 4.5 cents, to $1.0652/gallon.

Oil tried to get up off the mat after the brutal beating that it took [Tuesday], said Phil Flynn, of Alaron Trading. But inventory expectations and bad economic data have oil stumbling and dizzy and going down again.

In addition, Energy bulls have to contend with the March expiration coming up Friday, which usually generates nervousness down the curve, wrote Edward Meir, of MF Global.

As the March contract expires, investors who want to avoid physical oil delivery have to sell the contract, putting downward pressures to prices. Meanwhile, those who have shorted -- or sold without owning -- oil futures have to buy the paper contract to cover their short positions. The results can be quite volatile.

Base Metals

The base metals were directionless on Wednesday. Copper seesawed its way through a lot of ups and downs, but with an ultimate bias to the upside as it finished at $1.4462/lb., up two cents. Nickel also had some sharp reversals, but eventually fell to its intraday low of $4.2887/lb., down 11 1/4 cents. Zinc sank in the pre-dawn hours but fought its way back to just off its intraday high at $0.4939/lb., up a half-cent. Aluminum was closely rangebound and wound up unchanged at $0.5863/lb., while lead was weak, shedding more than a penny and three-quarters, to $0.4781/lb.

Copper clawed its way up from a 2 1/2-week low, edging into positive territory as stockpile data turned positive for a change.

Inventories monitored by the LME posted their first decline in two weeks, falling by 1,125 metric tons, to 525,300 tons. Though it was a relatively modest retreat, it still represented the biggest percentage drop since early December and the first 1,000+-ton decline since last October.

Traders were able to put aside early concerns brought on by the weak housing data, as well skepticism engendered by the Obama Administration's plan to help stem foreclosures.

The housing starts came out this morning much lower than expected, wrote Miguel Perez-Santalla, of Heraeus Precious Metals Management in New York. But copper, which had already fallen out of bed, is still standing after the bad news.

MF Global's Meir believes the reason is that eyes are elsewhere. Of the two sectors -- housing and autos -- the focus will be more on Detroit, and on what exactly the government intends to do after it reviews the various restructuring proposals being submitted to it, Meir said.

Some technical buying could also be coming in, as prices approach $3,000 support, Meir added. Copper for delivery in three months has been testing the $3,000/ton level, and settled yesterday at $3,235. That's so far from the record of $8,940, set last July 2, that many analysts see decent support here.

In production news, the Chilean government expressed its pleasure that China's state-owned Chinalco has taken a stake in the world's biggest copper mine, Escondida.

We are very satisfied that a company like Chinalco, a Chinese company of such great size, has decided to invest an important amount of money in our country, Mining Minister Santiago Gonzalez 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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