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Precious Metals

Gold traded sideways through Hong Kong and most of London but fell through the floor mid-morning in New York then remained range-bound between $960 and $970 the rest of the day through the Globex, finishing at $962.70/oz., down $29.00. Overnight, gold is sharply lower.

Platinum lost more than $60 before noon in New York but gained some back later in the day, ending at $1041.00/oz., down $34. Overnight, platinum has fallen off.

Silver followed gold’s path to a T, closing at $13.76/oz., down 65 cents. Overnight, silver is trending lower.

After a strong performance last week, it proved to be a very bad day for the precious metals.

The sell-off occurred partly in reaction to a congressional appearance by Federal Reserve Chairman Ben Bernanke coupled with back-and-fill movement that often occurs in a market that has seen considerable bullish enthusiasm, said Dave Meger of Alaron Trading.

Additionally, Meger said, the gold market underwent the kind of retracement that often occurs after a surge such as the one that took April gold to the $1,000 level Friday for the first time since July. There was a significant amount of demand from small retail investors over the last several days, he said. As gold hit $1,000, it started becoming the talk of the town once again. That created an explosive rally. A bit of a retracement off of that level is normal market trading.

Before sliding on Tuesday, gold's seven-day relative-strength index had topped 70 since Feb. 17, a signal that prices may drop in the short term. Additionally, for the first time since Jan. 28, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, was unchanged for three straight sessions. The assets rose 4.4% last week to a record 1,029 metric tons.

``The gold ETF is reflecting the same wait-and-see attitude.'' Still, a drop in prices may encourage investors seeking a haven from financial turmoil to buy precious metals, said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago.”

``Gold and other precious metals should continue to receive inflows of investment due to their ongoing outperformance of other asset classes,'' Pawlicki said. ``Support will continue to come from disappointment in efforts to stem the financial crisis, and the weakness in the stock market that has resulted.”

Currencies and Economic News

In the currency market, the dollar lost some ground against the euro. Late Tuesday, the euro was trading at $1.2868 vs. $1.2718 on Monday.

Despite the improved stock market sentiment, Tuesday's economic data offered few signs that any U.S. upturn is in the offing. The Conference Board said consumer confidence plunged in February to a record low as concerns about jobs, income and the economy worsened considerably. The consumer confidence index fell to 25, well below the reading of 35 that economists surveyed by MarketWatch had been looking for, from a downwardly revised 37.4 for January.

Meanwhile, home prices in 20 major cities dropped 2.5% in December from the prior month and were down a record 18.5% from the final month of 2007, according to the Case-Shiller home price index published by Standard & Poor's.

Also on Tuesday, Fed Chief Ben Bernanke told the Senate Banking Committee the economy is likely to keep shrinking in the first six months of this year after posting its worst slide in a quarter of a century at the end of 2008. Bernanke said he hoped the recession will end this year, but that there were significant risks to that forecast.

Big Ben conjectured that any economic turnaround will hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again. “Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.

“To break that adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilize financial institutions and financial markets,” Bernanke said. This sounds nice, but it will likely exacerbate the problems in the long run.


In the energy market on Tuesday, crude for April delivery gained $1.52 to close at $39.96/barrel. March reformulated gasoline rose 4 cents, to $1.0837/gallon.

Chances are high that OPEC will move again to put through more cuts when it next meets on March 15, wrote Edward Meir of MF Global. The weakness in the U.S. stock market had weighed on commodity sentiment in the previous session, when oil slumped 4%, he added.

OPEC has already agreed to cut cartel quotas by 4.2 million barrels a day since September, equivalent to about 5% of global oil demand.

The 11 OPEC members with quotas, all except Iraq, reduced output 3.8% to 25.3 million barrels a day in February, consultant PetroLogistics Ltd. of Geneva said yesterday. That’s down from 26.3 million barrels in January, according to Conrad Gerber, founder of PetroLogistics. Members have a quota of 24.845 million barrels a day.

Additionally, the Energy Information Administration will release data on U.S. petroleum supplies at 10:30 a.m. Eastern on Wednesday. Analysts surveyed by Platts expect an increase in crude inventories of 2.25 million barrels in the week ended Feb. 20. The analysts also expect a decline of 300,000 barrels in gasoline stocks as well as a drop of 1.8 million barrels in distillate stocks.

Base Metals

Except for lead, the base metals were all higher on Tuesday. Copper jumped more than 4 cents from yesterday’s close to $1.4872/lb. Nickel tacked on just under 14 cents to finish at $4.3522/lb. Zinc was little changed, ending at $0.4868/lb. Aluminum rose by almost 2 pennies, closing at $0.5848/lb., while lead sank to $0.4530/lb., down one-third of a cent.

Copper had its biggest gain since Feb. 3 in New York as a rebound in U.S. equity indexes revived optimism for metals demand.

Copper has added 6.4% so far in 2009 based on speculation that government spending will loosen knotted credit markets and boost the economy. “Copper is trading solely on the stock market today,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said after S&P 500 futures climbed as much as 1.4 percent. “The next wave in copper will depend on equities.”

The global economic slump and rising metal supplies mean that copper prices may continue to fall this year, UBS AG analysts led by Daniel Brebner in London said yesterday in a report e-mailed today. “We do not think copper prices have bottomed,” Brebner said. The recent rally “is not sustainable.”

Inventories of the metal monitored by the London Metal Exchange, which have surged 61% percent this year, rose 0.4% Tuesday to 546,600 metric tons, the highest since October 2003.

Brebner said that trend will continue. Supplies in LME warehouses are “likely to rise to over 1 million tons,” UBS forecast. “This would imply copper prices of between 85 cents and $1.30 a pound.” Still, it may be “unrealistic” to forecast copper prices of less than $1 because producers face higher costs than during previous downturns, Brebner said.

UBS expects the metal to average $1.30 this year. Copper for delivery in three months rose $54, or 1.7 percent, to $3,285 a metric ton ($1.49 a pound) in London. The price reached a record $8,940 on July 2.

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


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