Good morning …

Precious Metals

Gold was dead flat from Hong Kong to mid-morning in New York on Tuesday, after which it staged a modest rally to finish at $907.90/oz., up $10.60. Overnight, gold is pushing higher.

Platinum traded very tightly, never straying much from the $1040-1050 range, and ending at $1051/oz., up $10. Overnight, platinum is little changed.

Silver mirrored gold for the second straight day, taking off higher from the same flat mid-morning point and pushing into positive territory to close at $12.77/oz., up 20 cents. Overnight, silver is trending higher.

The precious metals had been doing a good bit of backing the first two days of the week, and yesterday turned around to do some filling.

The usual suspects played little part in providing a sense of direction, with both the dollar and oil falling and equities rallying for a second day. But there is probably more than a little sentiment out there that gold has been oversold, and many are likely looking at $900 as a psychological floor.

The Hightower Report wrote of the day’s action: “The gold market came back alive after a retest of the vicinity of the prior session's lows. With a reversal in the equity market and a noted slide in the Dollar perhaps the gold bulls are regaining some sway. Given the periodic retest of the 88.00 level in the March Dollar Index recently, that level might be considered a key point for the gold bulls in the coming trading sessions. Clearly the gold market was emboldened by the weaker Dollar, especially since the gold market managed the gains in the face of a serious setback in energy prices. Some traders suspect that comments from the US Treasury Secretary that the global recession was deepening rekindled some flight to quality buying of gold. Perhaps seeing talk of implementing mark to market accounting the second quarter increased concerns that even more financial sector problems would be found.”

Technicians are cautious. “Given improvement in risk appetite and absence of significant ETF inflows we could see the metal extend lower to target technical chart support around $883,” wrote James Moore, analyst at TheBullionDesk.com.

While long-term gold fundamentals appear sound, fund participation may be required to give the metal any kick-start going forward. The recent rally to $1,000 “exhibits the unmistakable footprints of speculative hedge funds,” said Jan Nadler, senior analyst at Kitco Bullion Dealers.

Nadler came to that conclusion because “the buying stopped suddenly, and ETF holdings grew no further -- this, despite no material change in global macro conditions.”

Currencies and Economic News

In the currency market, the dollar was lower against the euro. Late Wednesday, the euro was trading at $1.2783 vs. $1.2679 on Tuesday.

“The U.S. dollar is largely trading sideways against the major currencies after surviving yesterday's attempt to take the euro higher,” wrote currency strategists at Brown Brothers Harriman.

The euro was strong as its equities markets rebounded, and it fought off dismal data from Germany's economics ministry, which reported a steeper-than-expected plunge in January factory orders.

Orders plunged 8% from December, the ministry said, and compared with a year ago, they were down 38%. Economists had been looking for only a 2.2% monthly decline.

Sterling was steady, even though Britain’s National Institute of Economic and Social Research estimated yesterday that British gross domestic product shrank by 1.8% in the December-to-February period.

Energy

In the energy market on Tuesday, oil slid for a second straight day, with crude for April delivery plummeting to close at $42.33/barrel, down $3.38. April reformulated gasoline was down 4.6 cents, to $1.2512/gallon.

In its weekly inventory report, the Energy Information Administration said that crude supplies rose by 750,000 barrels for the week ended March 6. That surprised analysts, who had been expecting a decline of about a million barrels.

Gasoline stocks declined by 3 million barrels, more than 2 1/2 times expectations, while distillates rose by 2 million barrels, 10 times as much as projected. Refineries were operating at 82.7% of capacity, down from 85%.

The EIA also reported on falling demand. Total petroleum use over the past four weeks, including gasoline, jet fuel and diesel, averaged 19.3 million barrels a day, down by 2.1% from a year ago.

“On a fundamental basis the oil market remains very bearish,” said James Williams, of WTRG Economics. “With an OPEC meeting scheduled for the 15th, it increases the probability that they will cut [production].”

OPEC President Jose Botelho de Vasconcelos, of Angola, remarked that the cartel “is ready to take the decisions that will result in the stability of the oil market.”

Base Metals

The base metals were mostly in the red on Wednesday. Copper slumped from the late pre-dawn hours straight through New York, with only a small late uptick near the finish at $1.6153/lb., down more than 4 3/4 cents. Nickel was in positive territory just before New York opened, but then it fell steadily to close at its intraday low of $4.322/lb., down 5 1/2 cents. Zinc had a lot of ups and downs, but ended at $0.5442/lb., down better than a penny. Aluminum was well in the green into the afternoon, but then slid to $0.5838/lb., up only a quarter-cent, while lead slumped by more than three-quarters of a cent, to $0.565/lb.

Copper failed to follow up on its nice Tuesday rally, despite the widely-anticipated strong movement higher in Chinese imports.

Traders were apparently muddled by the mixed data out of China. On the one hand, the country's total copper imports surged 41.5% to a record 329,000 metric tons in February, exceeding expectations on state-backed strategic buying and stronger in-country prices.

Analysts had predicted a boost after the arbitrage for importing copper from London Metal Exchange warehouses gapped wide on restocking by end-users and repairs at some Chinese smelters. But the size of the increase surprised to the upside.

On the other hand, though, China’s overall trade suffered a major smackdown. February exports dropped 25.7% in February, year-over-year, while imports were down 24.1%, the General Administration of Customs said.

That led to a shocking collapse in China's trade surplus, to a three-year low of $4.84 billion in February, from $39.1 billion in January, vs. expectations of a slide only to $27.3 billion.

“The collapse in exports is yet another indication that economic activity in China is slowing, despite some tentative signs to the contrary,” wrote Edward Meir, of MF Global.

In supply news, London stocks continued to drop yesterday, as inventories monitored by the LME fell 10,150 metric tons, to 501,875 tons.

Looking ahead with mild optimism, “Global copper prices will trade between $1.50 and $1.80 per pound this year, underpinned by Chinese buying and lower production in major mining centers such as Chile,” said CESCO Executive Director Juan Carlos Guajardo at Reuters’ Global Mining and Steel Summit.

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


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