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Precious Metals

Gold noodled along near break-even through Hong Kong and the first half of the London session on Tuesday, but fell off during the first hour of New York trading and never recovered, finishing at $914.90/oz., down $8.20. Overnight, gold has edged lower.

Platinum declined from Hong Kong into the first hour of the Comex session, then traded sideways for the rest of the day, ending at $1045/oz., down $11. Overnight, platinum is slightly higher.

Silver held in the green until mid-morning, but dropped precipitously from there through the Comex, before a small late upmove carried it to a close at $12.69/oz., down 20 cents. Overnight, silver has fallen off.

The precious metals plowed through a third straight day of little in the way of major moves, but with a bias to the downside yet again.

Rising equities and oil provided no noticeable lift, nor did a dollar that was only marginally higher against the euro provide much of a drag. That made for a pretty blah day all the way round.

In fact, the stock market rally is clearly working against gold. Rising equity markets are still seen as diverting some portions of the investment funds previously earmarked for gold, said Kitco's Jon Nadler.

Nor are chart watchers able to work up much enthusiasm at the moment.

Given the failure to clear above $940 last week the metal could look to test toward $890, as further stale long liquidation emerges, wrote James Moore, a precious metals analyst at

However, buyers are still flocking to paper gold. SPDR Gold Shares set yet another record on Monday, as it added 12.23 metric tons (393,000 ounces) of yellow metal to its vault. GLD now holds 1,069.05 tons (34.37 million ounces).

GLD's popularity notwithstanding-it's up 37% for the year-the pessimists are writing things like this: Government spending could eventually decrease the need for gold as a hedge against financial uncertainty, according to Tom Pawlicki, of MF Global.

Quite the opposite of what common sense would suggest.

Currencies and Economic News

In the currency market, the dollar edged slightly higher against the euro. Late Tuesday, the euro was trading at $1.3013 vs. $1.3022 on Monday.

In the day's big number, the Commerce Department reported that U.S. housing starts surged 22% in February, to a seasonally adjusted annual rate of 583,000. That marked the largest percentage gain in 19 years and was the first increase in eight months in the sector.

That tiny ray of light brought out the optimists. The 22% rise in starts is very impressive and leaves open the possibility of a bottom in the housing market, wrote Kathy Lien, of GFT in New York.

Separately, the Labor Department said the producer price index rose 0.1% in February, driven by a 1.3% gain in energy prices, with core prices-excluding food and energy-up 0.2%. Analysts had been expecting PPI to rise 0.4%, and for the core to gain 0.1%.

While the strength in core prices was broad-based last month, we expect price increases to become scarce, given the intensifying global recession, which should exert substantial downward pressure on input prices, Barclays analysts wrote prior to the data's release.

And in an ominous note on, Jim Sinclair wrote: The mark to market rule of FASB 157 appears as if it is going to be modified so that value will be computer modeled according to assumptions of lines of income to maturity of SIVs, OTC derivatives.

Sinclair cites no source, but if he is correct and this change comes to pass, it will mark the end of any semblance of validity to a company's balance sheet.


In the energy market on Tuesday, the price of oil moved higher, with crude for April delivery closing at $49.16/barrel, up $1.81. April reformulated gasoline rose 5.65 cents, to $1.4238/gallon.

The fundamental picture for oil is looking a little better, largely due to OPEC's efforts, but more still needs to be done to counter the weakening demand and to reduce the glut of crude in storage, said Nimit Khamar, analyst at Sucden Financial Research.

The expiration of options on the front-month April futures contract added extra volatility to yesterday's trading, as traders scrambled to cover their option positions before they expired, said Phil Flynn of Alaron Trading.

Flynn termed it option expiration madness, and added that, [Tuesday was] really about finding out what put or call players do to cover and protect their positions.

Market optimism was tempered a bit by supply expectations. Analysts surveyed by Platts predict about a 2-million-barrel increase in U.S. commercial crude stockpiles when the Energy Information Administration releases its survey this morning.

Base Metals

The base metals were mixed on Tuesday. Copper rose and fell in small fits and starts yesterday, with the final move being to the downside as it finished at $1.702/lb., down 2 3/4 cents. Nickel was in positive territory to start the New York day, but fell off sharply to mid-morning, after which it regained a little lost ground to close at $4.5185/lb., down just over a penny. Zinc ended modestly lower, at $0.5496/lb., down better than three-quarters of a cent. Aluminum had a modestly higher day, adding a third of a cent, to $0.6077/lb., while lead pushed higher, tacking on a penny and a third, to $0.6006/lb.

Copper eased off of the four-month high reached on Monday as investors decided to book profits from the recent runup, and despite the encouraging housing starts numbers that offered a smidgeon of hope to that embattled sector. There was some technical selling associated with the $1.75 mark.

Traders were also concerned that canceled warrants-copper set to be taken out of warehouses monitored by the London Metal Exchange-have plunged by 58% in the past six days. That's a signal that stockpiles, which have been declining, may start rising again soon.

Yesterday's change in stockpile numbers was tepid. Inventories monitored by the LME did fall, but only by 325 metric tons, to 494,525 tons, nowhere near the kind of drop that has characterized stocks of late.

Copper may begin to lose momentum as canceled warrants are falling fast and physical activity in Asia has slowed, said Alex Heath, of RBC Capital Markets in London. Traders aren't sure whether the fundamental demand in China will be high enough yet to absorb all the additional copper imported and produced recently.

One of the prime movers for copper lately has been the surge in Chinese imports. However, the concern is that it would be bearish for copper if it was the case that the metal was going to stockpiles in China, rather than used in manufacturing or infrastructure projects, said Patrick Chidley, of Barnard Jacobs Mellet in Stamford, Connecticut.

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


First Majestic Silver Corp is committed to building a senior silver-producing mining company based on an aggressive acquisition and development plan with a focus on Mexico. The Company presently owns or operates three silver mines in Mexico: The La Parrilla Silver Mine; The San Martin Silver Mine and the La Encantada Silver Mine. Annual production from these three mines is anticipated to be 5 million ounces. Learn more about First Majestic.

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