Good morning …

Precious Metals

Gold stuck tight to a trading range between $980 and $995 on Monday, and when all was said and done the metal was parked near to where it started, finishing at $991.70/oz., down $1.50. Overnight, gold has edged lower.

Platinum was in positive territory until early in the New York session, when it suddenly dropped $15 in a half-hour and, though it recovered a bit from there, ended at $1075/oz., down $6. Overnight, platinum is little changed.

Silver had a wild and woolly day to zero effect, falling sharply from the New York open to mid-morning, then shooting up to add 45 cents by the noon hour, falling into the Globex, rallying one last time, but selling off again to close at $14.41/oz., unchanged. Overnight, silver has been flat.

The precious metals were all little changed yesterday, as they consolidated amid profit taking off of last week’s strong push higher.

Some of the doom and gloom generated by crashing equities undoubtedly rubbed off, and the usual suspects provided little support, with the dollar strengthening and April crude opening its run by falling below $40.

A bit of backing and filling is also to be expected as gold hovers around the psychologically-important $1,000 level.

“That $1,000 level stopped gold,” said Frank Lesh, of FuturePath Trading in Chicago. “Gold is overbought. This isn’t the end of the bull run. You’d rather see a slower, steadier build.”

Technicians checked in, noting that gold’s seven-day relative strength index topped 80 on February 20, when the metal broke past $1,000. They contend that a reading above 70 often signals a price drop in the short term.

“We continue to be wary of a bear-market rally in equities as profit-taking could see gold correct,” wrote John Reade, a UBS metals strategist in London. “We merely highlight the risks that large, long-gold positions on the Comex pose to investors here.”

Speculative long positions outnumber short positions by 165,921 contracts on the Comex, the Commodity Futures Trading Commission said last week. That’s the highest level since July 29.

Still, “Gold is about the only commodity that’s going higher,” Lesh said. “There’s a lack of confidence in paper assets. Right now, the gold ETF is getting a lot of capital that would normally go to a bank or equities. There’s a perception that gold is going to hold its value.”

Currencies and Economic News

In the currency market, the dollar rose against the euro. Late Monday, the euro was trading at $1.2718 vs. $1.2824 on Friday.

Traders supported the buck after the government said it would start a stress test on banks this week but would keep nationalizations at bay for now.

Also of interest was a Wall Street Journal story reporting that the government may take a 25% to 40% stake in Citigroup's common shares to bolster the giant bank's financial strength in the face of mounting loan losses.

Citing people familiar with the situation, the Journal said that while the talks could still fall apart, discussions center on the government converting a lot of its current $45 billion preferred equity stake into Citigroup common stock.

The deal could leave the government with 40% of the shares, but bank executives hope the stake will be closer to 25%, the Journal was told. Citigroup made the proposal to its regulators, according to the report, which also noted the Obama administration hasn't yet indicated whether it supports the plan.

A stock conversion “would help boost the company's low tangible equity ratio (currently 1.5%), which we believe is too low given Citi's asset base,” wrote Stuart Plesser, of Standard & Poor's Equity Research.

“Such a move would be more psychological than tangible, as no real capital would be added to Citi,” Plesser added. “But it might help ease investors' concerns over the banking space.”


In the energy market on Monday, crude for April delivery arrived as front-month contract by falling off to close at $38.44/barrel, down $1.59. March reformulated gasoline dropped 2 2/3 cents, to $1.0433/gallon.

Oil traders were seen as voting no confidence in the government’s ability to shore up the banking system and get the economy rolling again.

The trading in oil has been mimicking stocks in the past few sessions, as economic concerns weighed on both markets, said Burton Schlichter, trade director at New World Trading.

Edward Meir, of MF Global, wrote that oil could trade in a broad range -- between $32 and $50 a barrel -- in the coming weeks. “The upside remains sticky above $50 given the dreary macro situation, while the downside will be kept in check by OPEC's ongoing efforts to cut production,” Meir said.

Base Metals

The base metals were mixed on Monday. Copper was still in the green at mid-morning, but then skidded, dropping just into the red and finishing at $1.4496/lb., down a quarter of a cent. Nickel hit a late morning slump that dropped it from positive territory to its intraday low of $4.2139/lb., down 3 2/3 cents. Zinc showed little movement in either direction, ending at $0.4855/lb., up three-quarters of a cent. Aluminum had a daylong slide, giving up nearly a penny and a quarter, to $0.5618/lb., while lead survived a late-day slump to close at $0.4562/lb., up a tenth of a cent.

Copper managed to close out a day of listless trading without much of a loss, as stockpiles played a major role in stabilizing the metal’s price.

Inventories monitored by the LME posted their second decline in the past week, falling by 950 metric tons yesterday, to 544,650 tons. That was just a drop in the bucket compared with Friday’s build of 17,350 tons, but the slightest good news is seized upon in this market.

The industrial metals were also helped by financial regulators’ pledge to inject additional funds into the nation’s major banks to prevent their collapse.

People do seem to like the bank plan,” said Donald Selkin, the of National Securities Corp. in New York. “It helps bring some enthusiasm. If they can inject enough liquidity and get banks lending again, it could start to move the economy.”

But any optimism was effectively capped by the broad selloff in the equities markets yesterday.

Quite the opposite, “a sizable rally in the U.S. equity markets,” is needed “to shake copper out of the doldrums,” said MF Global’s Meir.

However, China's imports of refined copper shot up in 2008, climbing 41%, year over year, thanks to attractive margins and possible buying by the State Reserves Bureau.

On the other hand, China, the world's top copper consumer, saw January’s imports fall off by 14.7% from December's all-time record, according to official customs data.

And imports may continue to ease as Chinese smelters ramp up production after problems in the past couple of months and domestic supply increases, putting pressure on metals markets in Shanghai and London. Chinese smelters slowed production in the past two months due to increased stocks of sulphuric acid, a by-product of copper smelting, says Shi Lin, an analyst at UK-based consultantcy CRU in Beijing.

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


The Gold Report Richard Russell: The Verdict Is In - It's a Bear Dow Theory Letters . . .the great bear market remains in force. . .The government is at all-out WAR against deflation and possibly at war with rising gold. Read the full article here...

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