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Precious Metals

Gold was down slightly through Hong Kong and the first half of the London session on Monday, fell off another $10 in the first hour of New York trading, bottoming at $915, but inched slowly higher for the rest of the day, finishing at $923.10/oz., down $6.30. Overnight, gold is slightly lower.

Platinum started at $1055, traded as much as $13 higher and as much as $17 lower, but wound up right where it began, at $1055/oz., unchanged. Overnight, platinum has edged lower.

Silver was at break-even at the end of Hong Kong trading, but declined from there to mid-morning in New York, before bouncing off the $12.80 level and rallying modestly through the rest of the day, closing at $12.89/oz., down 29 cents. Overnight, silver has been flat.

The precious metals spun their wheels during a second straight day of consolidation, with a bias to the downside.

There perhaps should have been more upward pressure on the gold price, since the dollar was pushed below $1.30 against the euro, and crude edged higher. But markets are always full of shoulda beens, and the fact is that it didn’t happen.

Analysts said that global equities rising in the wake of the G20 meeting served to lessen gold’s appeal. Kitco’s Jon Nadler noted that “investors cautiously diverted some funds into equities following determined statements from various G20 summit attendees,” including a promise to restore bank lending.

And Fed Chair Ben Bernanke, speaking on 60 Minutes, went a bit warm and fuzzy, reiterating his prediction that the U.S. recession will come to an end “probably this year.” Of course, he qualified that by saying that assumes multilateral efforts to stabilize the financial system succeed.

And over on the equity side, JP Morgan Chase analysts said that gold bulls should be placing bets on the mining companies.

The miners have underperformed spot gold for about a year, as rising costs of production, combined with the collapse of global stock markets, have pushed the mining indexes to near a record low relative to the gold price.

But now that has turned, and margins have gotten a whole lot healthier.

“Every dog has its day,” Morgan’s analysts wrote. “South African gold equities will have their day in 2009. We expect shares to outperform physical gold during the next six months as the market starts to reward expanding free cash flow and margins.”

Currencies and Economic News

In the currency market, the dollar continued to fall against the euro, breaking below the $1.30 mark. Late Monday, the euro was trading at $1.3022 vs. $1.2907 on Friday.

Ashraf Laidi, chief market strategist at CMC Markets, summed up the action by saying that, “Rising risk appetite and a falling dollar continue to go hand in hand.”

The common currency was also boosted by a statement out of the G20 meeting, saying that there is an “urgent need to increase [International Monetary Fund] resources very substantially.” The statement didn't specify by how much, only that details would be worked out during the G20 summit in April.

Of the meeting, Treasury Secretary Geithner commented that, “You are seeing the world move together at a speed and on a scale without precedent in modern times. All the major economies are putting in place substantial fiscal packages … The stronger the response, the quicker recovery will come.”

Additionally, “The fact the euro-zone nations have been able to avoid making any fresh commitments to spend even more money should, at the margins, prove encouraging to investors in Europe and, as a result, the euro,” said Simon Derrick, of the Bank of New York Mellon.

Finally, the Fed reported that U.S. industrial production dropped 1.4% in February. Production has now been down for four straight months, in five of the past six, and in 10 of the past 12. Capacity utilization fell to 70.9% in February from 71.9% in January, matching the lowest level on record, set in December 1982.


In the energy market on Monday, the price of oil moved higher, with crude for April delivery closing at $47.35/barrel, up $1.10. April reformulated gasoline rose 1.4 cents, to $1.3673/gallon.

“Strong stock markets help support crude,” said Phil Flynn, of Alaron Trading. “G20 and Bernanke's comments give people hope that the economy will recover and oil demand will rise again.”

Zachary Oxman, of Wisdom Financial, added that, “The markets in general seem oversold and I think people are taking the opportunity to bottom fish anywhere they can, crude included.”

There was little effect from OPEC’s decision at its weekend meeting in Vienna to leave production alone. OPEC said that there was nearly 80% compliance with its decision last December to reduce output by 4.2 million barrels a day, and “emphasized its commitment to comply fully with its decision of December 2008, in order to further contribute to market stability.”

“The outcome of this meeting pretty much fulfills the Saudi Arabian agenda ... the need to help reflate the world economy, and pressure on the OPEC freeloaders to pull their weight,” wrote analysts at JP Morgan. “At the moment getting the world economy back on its feet is more important than lifting the oil price by a further $10 a barrel.”

Base Metals

The base metals were all on a roll on Monday. Copper started up in the pre-dawn hours and never quit, pushing higher straight through the day and finishing at its intraday high of $1.7295/lb., up nearly 8 1/2 cents. Nickel followed the same path, but had a few setbacks that left it just off its intraday high at $4.5299/lb., up 27 1/4 cents. Zinc also blasted to its intraday high of $0.5578/lb., up 2 1/4 cents. Aluminum had a modestly higher day, adding just under than a penny, to $0.6041/lb., while lead showed good strength, tacking on better than two cents, to $0.5876/lb.

Copper soared, leading all the base metals through a major up day, as China reported a record jump in imports.

Imports of copper and alloys surged 55%, to 283,461 metric tons, from January to February, the Beijing-based customs office said. That’s the highest level since at least 2004. Combining January and February, imports are up 53.5%, year over year.

“We’re looking at places in the world like China that are going to be the leader going forward,” said Paul Baiocchi, senior market strategist at Delta Global Advisors in Huntington Beach, California. “These are the types of imports that will drive commodities.”

Adding to the day’s optimism were stockpile numbers. Inventories monitored by the LME fell by 2,775 metric tons yesterday, to 494,850 tons. That marks a drop of more than 50,000 tons since late February.

Copper is suddenly back in favor, no doubt about it. Among 19 raw materials in the Reuters/Jefferies CRB Index, copper has outgained every commodity except gasoline in 2009. Shares of Freeport-McMoRan Copper & Gold, the world’s largest publicly trader copper producer, have jumped 56% so far this year, making them the third-biggest gainer in the S&P 500. And the benchmark May contract is up 13% since the beginning of March.

Additionally, “A lot of today’s move for copper has to do with Bernanke,” said Donald Selkin, of National Securities Corp. in New York, who noted the Fed chair’s reassuring words. “It looks like there’s a little bit of light at the end of the tunnel.”

In company news, Rio Tinto’s largest Australian shareholder said the company’s proposed deal with China’s Chinalco should be revised. Ross Barker, managing director of Australian Foundation Investment Co., said the $19.5B deal gives Chinalco “significant influence” over the company, and that Rio should “consider the views of their shareholders to see whether they can come up with something that’s more acceptable.”

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

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