Good morning …
Gold declined slowly but steadily from $920 in Hong Kong to $890 at the end Comex trading on Tuesday, and got but a slight lift on the Globex to finish at $897.30/oz., down $24.70. Overnight, gold has edged higher.
Platinum held up until New York opened, dropped off from there to the noon hour, then rallied back late in the day to end at $1041/oz., down $18. Overnight, platinum is trending higher.
Silver recapitulated gold’s chart, falling from above $12.90 in Hong Kong to below $12.50 as the Comex shuttered, then rallying a bit to close at $12.57/oz., down 37 cents. Overnight, silver has moved higher.
The precious metals took one to the chin again yesterday, with no sharp moves but just a steady price erosion.
While a dollar that slipped against the euro might have been supportive, retreating crude played against the metals, and an irrationally exuberant flood of money into equities likely drained enthusiasm as well.
And gold is battling a jewelry slump. “The Gold and Jewelry Group in Abu Dhabi has said that gold sales there slumped in January and February by 70% year-on-year,” Commerzbank analysts said. “While the group assumes that demand will pick up again if gold prices decline further, this could take several months more given the economic climate.”
Technicians were quick to jump on the day’s action, as they believe it important that gold has fallen beneath its 50-day moving average, which it had not done so far this year. That is a bearish signal, in their opinion, and sets up a test to see whether gold can recapture and hold the m.a. in the next few days. If not, the bears are calling for a prolongation and deepening of the downturn that’s been in place since the metal broke past $1,000/oz. just over two weeks ago.
“Gold is under pressure as money flows back into the broader market,” according to Kevin Kerr, editor of Global Commodities Alert.
In addition, Kerr said, “It seems that for the moment the inflation fears and systemic risk fears are starting to diminish and investors who have access to funds are starting to see opportunities in the other commodities as well as equities.”
But looking ahead, Kerr noted that, “Inflation remains a major problem down the road and all of this stimulus and printing of money is going to exacerbate it,” creating the strongest possible conditions for a prolonged gold bull market.
Currencies and Economic News
In the currency market, the dollar fell against the euro. Late Tuesday, the euro was trading at $1.2679 vs. $1.2602 on Monday.
Some analysts were surprised that, given the huge rally in equities, the dollar didn’t take more of a beating, especially given that the buck’s rally in recent months has been largely taken to be a flight to safety.
“The fact that the dollar held up despite the surge in optimism supports our view that it's no longer just about the safe haven flows for the dollar,” said currency analysts at Brown Brothers Harriman.
Fed Chair Bernanke did his part to happy up faces by saying, in a speech to the Council on Foreign Relations, that major financial institutions will not be allowed to fail given the fragile state of financial markets and the global economy.
Other news of the day was not so pretty, as wholesale inventories slumped 0.7% in January, and wholesale sales fell 2.9%.
And hiring plans by U.S. employers for the second quarter dropped to a record low, according to a private survey by Manpower Inc., the world’s second-largest provider of temporary workers.
Manpower’s seasonally adjusted employment gauge for April through June plunged to minus 1 from 10 in the first quarter, the first time the measure has ever gone negative.
In the energy market on Monday, oil reversed field dramatically, with crude for April delivery giving up strong early gains to close at $45.71/barrel, down $1.36. April reformulated gasoline fell by 3.8 cents, to $1.2972/gallon.
In its monthly report, the Energy Information Administration kept revising its demand forecast downward. World oil consumption is projected to decline by 1.4 million barrels a day in 2009, the EIA said. That's 200,000 barrels a day more than the EIA had estimated a month earlier.
The EIA also predicted that oil will average $42 a barrel this year and $53 next year, a slight downward revision to the month-earlier forecast for prices to average $43 and $55, respectively.
Of OPEC’s Sunday gathering in Vienna, Edward Meir, of MF Global, said that, “We are seeing the usual mixed signals ahead of the OPEC meeting,” and he predicted that the more hawkish camp will likely succeed in pushing through another cut of 500,000 to 1 million barrels a day.
The base metals were awash with green on Tuesday. Copper slumbered during most of the pre-dawn hours, then rallied through the New York morning, easing late to finish at $1.6637/lb., up 4 cents. Nickel also moved sharply higher in New York before a late day slump led to a close at $4.3787/lb., up 6 3/4 cents. Zinc was up straight through with a slight dropoff at the end, to $0.5552/lb., up a penny and three-quarters. Aluminum pushed steadily higher for most of the day, tacking on a penny and three-quarters, to $0.5815/lb., while lead also had a good day, adding a penny and two-thirds, to $0.5733/lb.
Copper led the sector higher on speculation that import data from China will come in strong.
China will release copper trade data today, and it is widely projected to report an increase from 232,700 metric tons in January. The metal jumped 9.8% last week on expectations that China’s economy will rebound. That’s supportive on the demand side, as is the 6.6% decline in LME stocks over the past two weeks.
That dropoff continued yesterday, as inventories monitored by the LME fell 6,675 metric tons, to 512,025 tons.
“Governmental infrastructure projects and China imports are very supportive for medium- to long-term copper prices,” wrote Bayram Dincer, a commodity analyst at Dresdner Bank in Zurich.
China’s copper buys represent “a strategic intention for their longer-term plans as opposed to just a temporary support for the market,” said Catherine Virga, senior base metals analyst with CPM Group in New York.
They may well need to boost imports, as refined copper output is likely to fall 90,000 metric tons in the first quarter of 2009 vs. 1Q08, due to a shortage of scrap.
Metalease, a Shanghai-based nonferrous metals information provider, said that lack of copper scrap resulted in a loss of 30,000 metric tons of refined copper output in both January and February, or 8% of china's average monthly copper output in 2008.
In company news, Zambia has asked Glencore to surrender to the government two copper mines that Glencore planned to shut down due to unprofitability. The minister of mines and minerals said the government would not accept the closure of the Mufulira and Nkana mines, and is prepared to take control.
That’s what’s happening … see you tomorrow!
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