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Precious Metals

Gold traded mostly range-bound in the Far East between $910 and $915 then showed more volatility in London where it hit an intraday high above $920. Surprisingly, gold's intraday low below $900 was reached after the Comex closed. It then gained some back later in electronic trading, finishing at $905.90/oz., down $9.90. Overnight, gold is up sharply.

Platinum hit its intraday low of $1025 at noon in New York then skyrocketed upward above $1045 during the next two hours where it stayed, ending near its intraday high at $1046.00/oz., up $15.00. Overnight, platinum has moved higher.

Silver didn't move much through Hong Kong trading, staying mostly between $12.70 and $12.80. It then shot above $13.10 early in New York before settling down later in the day, closing at $12.91/oz., up 8 cents. Overnight, silver is way up.

Numerous factors have contributed to gold's decline since Feb. 23, according to Jeffrey Nichols, managing director of American Precious Metals Advisors. The market has had to absorb a large amount of old scrap as record high prices in local currencies around the world - along with falling income and rising unemployment - has prompted many people to cash in their old gold jewelry.

The combination of rising prices, growing secondary supplies, and surging investment buying created a simply unstable and unsustainable situation as higher prices attracted ever-greater volumes of scrap to be absorbed by investors, Mr. Nichols said in a report. Only an ever-increasing volume of investor purchases could keep prices near $1000 an ounce. As investor buying relaxed, prices just had to come down.

It's important for gold-market participants to remember that long-term trends are always rational but short-term volatility is often emotional and sometimes just meaningless noise, he added. Although we remain bullish for the long-term and foresee more than a doubling of the gold price in the next few years, the immediate picture is less rosy... and the yellow metal remains vulnerable to further short-term selling.

Although the yellow metal hasn't made gains since it shot above the $1000 mark on Feb. 20, and has since lost about $90, we agree with Mr. Nichols' assessment for the longer-term.

Currencies and Economic News

In the currency market, the dollar sunk against the euro. Late Wednesday, the euro was trading at $1.2651 vs. $1.2560 on Tuesday.

The dollar declined against most major currencies yesterday, losing ground as equity markets shifted to the black.

In economic news, it appears investors were encouraged by details of a government program designed to help as many as 9 million borrowers stay in their homes through refinanced mortgages or loans that are modified to lower monthly payments, as stocks broke a five-day losing streak.

Virtually everyone was expecting some sort of a bounce, we just didn't know exactly when that would occur, said Randy Frederick, director of trading and derivatives at Charles Schwab. You can't go down forever.

That's a pretty stupid way to look at things in our view. Nothing has changed in the real world and this bounce is based not on fundamentals but lunacy.

Also reported on Wednesday (and not surprisingly) the U.S. labor market worsened in February, as private sector firms cut 697,000 jobs last month, according to the ADP employment index.

Another report from Challenger Gray & Christmas showed layoff plans rose 158% compared with a year earlier.

The reports come two days before the Labor Department reports its estimate for nonfarm payrolls. Economists are looking for the worst job loss in nearly 60 years.

This drop in the ADP index was the largest ever, dating back to 2001. Furthermore, January's loss was revised sharply lower to 614,000 from 522,000 reported a month ago.

The recession has spread aggressively to small-size businesses, said Joel Prakken, chairman of Macroeconomics Advisers, the economic consulting firm that computes the ADP index from anonymous payroll data provided by ADP. Small businesses (those with less than 50 employees) cut 262,000 jobs in February.

FYI: Macroeconomic Advisers computes the index using anonymous payroll data collected by ADP. Automatic Data Processing Inc. provides payroll and human-resources services to about one in every six U.S. workers, serving more than 500,000 companies.


In the energy market on Wednesday, crude for April delivery jumped $3.73 to close at $45.38/barrel. April reformulated gasoline finished at $1.3816/gallon.

Part of the gain in crude is being attributed to newly released data that showed a surprising decline in U.S. crude inventories and investors' anticipation of a new stimulus plan from China, the world's second-biggest oil consumer.

U.S. crude inventories, excluding those in the Strategic Petroleum Reserve, fell by 700,000 barrels in the week ended Feb. 27, the Energy Information Administration reported. Analysts surveyed by Platts had expected an increase of 2.2 million barrels.

Inventories at Cushing, Okla., the delivery point for Nymex crude futures, fell for a third straight week from their record high, down 500,000 barrels to 34 million.

The unexpected reduction in crude inventories is supportive to oil prices, wrote Hussein Allidina, an analyst at Morgan Stanley, in a note to clients. He also noted that despite the decline, inventories remain at very high levels.

Meanwhile, the American Petroleum Institute reported that crude supplies fell by 463,000 barrels in the week ended Feb. 27. The API also said that gasoline supplies dropped by 642,000 barrels, while distillate stocks rose by 1.64 million barrels.

The possibility of additional Chinese stimulus also boosted demand hopes.

Chinese Premier Wen Jiabao is considering new stimulus measures, adding to a $585 billion spending plan to revive the country's economy, former statistics bureau chief Li Deshui said in Beijing ahead of today's National People's Congress.

Crude prices were higher on increased optimism the Chinese economy would recover swiftly from the current downturn, wrote Nimit Khamar, an analyst at Sucden Financial Research.

Unfortunately, this optimism is likely misplaced.

Base Metals

Base metals had somewhat of a banner day on Wednesday. Copper rose 9.31 cents from Tuesday's close to $1.6741/lb. Nickel gained more than 15 cents to finish at $4.5163/lb. Zinc tacked on more than 3 and one-half pennies, ending at $0.5364/lb. Aluminum increased slightly more than 1 cent and one-half, closing at $0.5945/lb., while lead moved to $0.5148/lb., up 3.55 cents from the previous session.

Copper, the base metal whose price movements reflect industrial activity, has gained over 12% in a week. The bounce in prices has been linked to falling inventories and (once again) growing hopes for a new stimulus package in China.

Copper stocks in LME warehouses fell 4850 metric tons to just over 526,000 tons, notching up a fall of more than 22,000 tons since February 25, and seemingly reversing a trend in which inventories had doubled since October last year.

Furthermore, the number of cancelled warrants - metal earmarked for delivery - jumped nearly 10,000 metric tons overnight to 64,400 tons and implied more inventory declines were on the horizon.

Copper investors were also encouraged by reports of possible measures by Chinese authorities to prevent a higher pace of declining growth, as experienced in the last few quarters. There are mounting expectations that China is expected to announce another stimulus package in the country's annual legislative meeting due to start today. Also, the Chinese Investment Corporation is likely to invest $22 billion in miners and producers of commodities like copper in order to soften the adverse effect of a steep plunge in these commodity prices.

This however does not change the fundamental backdrop which points towards a tame scenario for prices in coming quarters. While higher volatility due to hedge fund activities cannot be ruled out, the underlying trend for industrial commodities is still bearish, said Praveen Singh, research analyst at Sharekhan Commodities.

That's what's happening... see you tomorrow!


New Pacific Metals Corp. is a Canadian public company listed on the TSX Venture Exchange with a trading symbol, NUX and on the OTC Pink Sheet with a trading symbol, NUXFF. The company is exploring in China for high grade gold-polymetallic metals in the Doyao mountain range located in the Guangdong province and for Permian Noril'sk Ni/Cu + PGM (Platinum Group Elements) deposits in the Paxi Rift Belt, in the Sichuan Province. The company is well financed, has a management team with operating experienced in China and a strong shareholder base. Silvercorp Metals Inc. (SVM on TSX Exchange), the largest silver producer in China, owns 23% of the company's shares outstanding.Learn more and request information through their profile on KitcoCasey.

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