Good morning …

Precious Metals

Gold was in positive territory through Hong Kong and London on Wednesday and, though it fell off into the second hour of New York trading, bottoming at $907, it spiked sharply higher from there, peaking at $930 at mid-morning, then drifted along little changed for the rest of the day, finishing at $927.10/oz., up $19.20. Overnight, gold is trending lower.

Platinum was in the red until mid-morning, when it suddenly spiked almost $20 in a half-hour, but gave it all back just as quickly, and settled into a flat trading pattern that left it unchanged on the day at $1051/oz. Overnight, platinum has been flat.

Silver followed gold to a T for the third straight day, pushing above $13 and holding there until noon, after which it slipped just a little to close at $12.95/oz., up 18 cents. Overnight, silver is unchanged.

Buyers were ready to move in on the precious metals yesterday, and with all the usual suspects—falling dollar, rising oil and equities—lining up in support, they were not about to be denied.

Also chipping in on gold’s behalf was were SPDR Gold Shares (GLD), whose holdings of the metal blasted to another alltime high yesterday. GLD added 9.18 metric tons (295,144 ounces) of gold to its vaults, bringing its total to 1038.17 tons, or 33.38 million ounces.

If GLD, the seventh-largest holder of gold bullion in the world, has one more day like yesterday, it will overtake Switzerland for sixth place.

The Swiss, meanwhile, are probably wishing their currency were still gold-backed. Switzerland's central bank said it will intervene to bring down the value of Swiss franc, and that’s very gold bullish, especially since if one of the world’s most solid currencies is going to be revalued downward, that could set off a chain reaction in which other countries may follow suit.

All of this had the bulls ready to stampede.

Typical was Zachary Oxman, senior trader at Wisdom Financial, who proclaimed that, “Gold has flushed out some of the weak speculators that needed to be cleaned out … I think we are now due for our next leg up over $1,000.”

Currencies and Economic News

In the currency market, the dollar was lower against the euro. Late Thursday, the euro was trading at $1.2818 vs. $1.2783 on Wednesday.

The story of the day in the currency market was the crash of the Swiss franc, which fell at least 3% against the euro, pound, and USD. As Dan Norcini wrote on, “The big stunner of [yesterday] was massive intervention by the Swiss National Bank into the Forex markets which absolutely obliterated the Franc. They caught everyone flatfooted and achieved maximum shock value.

“The Swiss cut their 3 month Libor target by 25 basis points but they also stepped into the bond market and purchased substantial amounts of Swiss franc bonds. That in combination with them buying large amounts of foreign currency is in my view what shoved gold up so sharply today. The strategy of the Swiss is pretty clear – undercut their own currency to remain export competitive especially against the Euro and the US Dollar and provide substantial amounts of liquidity in the process.”

Among the day’s hard data, the Commerce Department said that retail sales dropped 0.1% on a seasonally adjusted basis in February. Hardly something to crow about, but it was a whole lot better than the 0.4% decline expected by economists. January's sales gain was revised up, to a 1.8% growth rate from the 1% increase estimated.

“How about that!” exclaimed economist Jennifer Lee of BMO Capital Markets. But she added that, “Consumers are fighting a good fight, but with such a terrible job market, it is tough to imagine how they can keep it going for long.”

Her skepticism is surely well-founded. The Labor Department reported yesterday that first-time applications for unemployment benefits rose by 9,000 last week to 654,000, up 88% from a year earlier. The number of people collecting jobless benefits also increased, up 193,000 to a record 5.32 million, Labor said.


In the energy market on Wednesday, the price of oil soared more than 11%, with crude for April delivery closing at $47.03/barrel, up $4.70. April reformulated gasoline rose almost 9 1/2 cents, to $1.3457/gallon.

“It's all about OPEC,” said Phil Flynn, of Alaron Trading. Flynn also noted rumors that Russia is pressuring OPEC into a production cut. Russia, the second-biggest oil producer, is reportedly saying it will go along with any OPEC action to reduce supply.

“Of course the reality is that Russia probably has to cut back anyway to do maintenance, but the rumors do have influence,” Flynn said.

OPEC, which will meet in Vienna on Sunday, is experiencing some internal debate about whether or not to cut output further. Some members are apparently pushing for full compliance with their earlier cuts, rather than announcing more reductions.

However, “if nothing more substantial than pledges of vigilance come from the weekend's meeting, the markets will show their disappointment,” said John Kilduff, of MF Global.

Base Metals

The base metals were mixed on Thursday. Copper was off from the pre-dawn hours to the New York open, but then rallied through most of the day to finish at $1.6214/lb., up a half-cent. Nickel sank through the day, just coming off its intraday low late to close at $4.2411/lb., down more than 8 cents. Zinc followed copper down and then up, but failed to regain the green at $0.5411/lb., down a third of a cent. Aluminum had a good day, adding a penny to $0.5935/lb., while lead slumped, dropping nearly a penny, to $0.5565/lb.

Copper pared its early losses and managed to find positive territory late in the day, as it got a boost from rising equities and oil, but some analysts think that a pair of rose-colored glasses may be involved.

“Copper and oil do tend to move together as benchmarks for the economy,” said Gijsbert Groenewegen, of Gold Arrow Capital Management in New York. “People are clinging to any sign of stabilization.”

Groenewegen added that, “It’s going to be much worse than what people are hoping for … As soon as anybody looks at what is really happening in China and elsewhere, they’ll see copper is going to go lower.”

Stockpile numbers served as a brake on any major increase in price. Inventories monitored by the LME rose 2450 metric tons yesterday, to 504,325 tons, reversing two weeks of declines.

Also hurting was word out of China that that country’s annual industrial output growth slowed to 3.8% in January and February, as opposed to 5.7% in December, according to the National Bureau of Statistics.

And China's steel products exports in February hit a 52-month low of 1.56 million tons, down 62% from the same period last year, and 18% from January, according to customs data released yesterday.

But all the gloom could dissipate as a continued surge in Chinese bank lending in February is spurring optimism that the economy could soon rebound.

“[We see] Chinese industrial activity picking up again as early as the second quarter,” said Patricia Mohr, commodity market specialist with Scotiabank Group.

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

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