Good morning ...

Precious Metals

Gold traded mostly sideways with a slightly downward sloping trend since its close yesterday on the Globex. The yellow metal finished at $952.60/oz., down $6.40. For the week, gold is up 2.6% from last Friday's close.

Platinum's graph looks almost as uneventful as gold's, ending down $10 at $1113/oz. For the week, platinum is up 5.5% from last Friday's close.

Silver traded mostly sideways with a slightly upward sloping trend since its close yesterday on the Globex. The precious metal closed at $13.73/oz., up 16 cents. For the week, silver is up 4.0% from last Friday's close.

What stood out most regarding the precious metals was the lack of volatility they showed yesterday compared to any other day in recent memory; and the fact that gold and silver didn't finish in the same color. The last time gold closed in the red and silver ended in the black on the same day (on the Globex) was March 4, when gold lost $9.90 and silver gained 8 cents.

According to a Reuters report, gold edged down on Friday as the dollar rebounded against the euro, prompting profit taking in the precious metal after its rally to a three-week high earlier in the session.

But prices are firmly underpinned by interest in the metal as a haven from inflation and broad dollar weakness in the wake of the U.S. Federal Reserve's move towards quantitative easing, which increases money supply.

The past two days' worth of upside puts us back in bullish territory, said Alan Plaugmann, head of futures and options at Saxo Bank. There is some resistance at $958.50. A sustained break of that level, and we could see some more upside.

Prices have risen sharply since the Fed announced plans on Wednesday to buy $300 billion in longer-dated Treasuries, flooding the market with dollars. The move prompted a sharp drop in the U.S. currency and an increase in inflation fears.

When you look at the gold market, there is a huge dynamic in place, which is an increasing loathing of currencies, said Nick Moore, an analyst at RBS Global Banking & Markets. The only true currency, which is gold, is the beneficiary of that.

If central banks around the world are keen to avoid deflation, then by definition they must have inflation, and that plays straight into gold's hands, he added.

Mr. Moore's analysis is spot on in our view.

Currencies and Economic News

In the currency market, the dollar gained a little ground back against the euro. Late Friday, the euro was trading at $1.3582 vs. $1.3671 on Thursday.

MarketWatch reported that the U.S. dollar rebounded Friday but remained in line for a huge weekly loss against major rivals following the Federal Reserve's decision this week to massively pump up the supply of dollars in a bid to jumpstart the economy and avert a deflationary spiral.

Commodity currencies, as well as the euro, are among the week's biggest beneficiaries after investors and traders rushed into gold and other commodities following the Fed's decision to begin aggressively buying Treasury notes and increase purchases of other debt.

The European unit was still on track for a weekly gain of nearly 6%, though some analysts say its topside is heavy.

The euro is now trading on anti-dollar flows alone and therefore a move to $1.4000 will necessitate further bad news from [the] U.S., said Boris Schlossberg, director of currency research at GFT.

For now the markets appear to want to consolidate this week's massive move before taking their next directional cue, he said in emailed comments.

In economic news, U.S. equities slid on Friday and the Dow Jones Industrial Average had its steepest decline since March 5 after FDIC Chair Sheila Bair commented on future bank failures and traders tried to further digest the Federal Reserve's latest actions.

This quote from a MarketWatch report sums up traders' angst: Despite hundreds of billions of dollars in commitments to add liquidity to mortgages and other bank lending programs from the Federal Reserve and the Treasury, many banks are on their knees. They are laden with mortgage securities and other assets that nobody wants to buy, and likely facing more trouble recouping consumer and business debt in a deepening recession.

Energy

In the energy market, crude oil for April delivery, which expired Friday, fell 55 cents, to close at $51.06/barrel. April reformulated gasoline closed at $1.457/gallon.

Investors sold the front-month contract before expiry to avoid physical oil delivery, helping push prices lower. Meanwhile, they rolled over investment to the next month's contract, pushing up May futures.

Crude for May delivery, which drew higher trading volume, rose slightly to end at $52.07/barrel.

With little fresh fundamental input expected today, trading may be governed by technicals and position-balancing before the weekend, wrote Brenda Sullivan, an analyst at Sucden Financial Research, in a note.

But for now, crude looks set for the fifth week in a row of gains and a possible climb out from the previous range. With the economic optimism and stronger oil technical picture, it is increasingly likely that we have seen crude prices move to a new structure, she continued.

Sullivan then added that a new trading range between $40 and $60 may develop in the next several weeks.

Base Metals

Base metals were all in the red on Friday. Copper lost 1.5 cents to close at $1.7678/lb. Nickel fell by more than 9 cents to finish at $4.4119/lb. Zinc dropped by almost half a penny, ending at $0.5572/lb. Aluminum declined by about one-fourth of a cent, closing at $0.6467/lb., while lead moved to $0.5994/lb., down slightly from the previous session.

Bloomberg reported that copper fell from a four-month high in New York on renewed concern that the global recession will curb demand for the metal used in pipes and wires.

Inventories monitored by the LME jumped 2.1% yesterday, the most in a month, to 503,950 metric tons. European industrial production dropped 17% in January, the most since at least 1986. Copper plunged 54% last year as the widening recession slashed consumption and stockpiles climbed.

The global economic system is still not out of the woods yet, Edward Meir, an analyst at MF Global, said in a report on Friday. We think copper is overdone at current levels and due for a pullback.

The key to this week has been the Fed announcement, said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. They're cranking up the old printing press, so a lot of people are buying up commodities to protect against future inflation.

Copper picked up on the expectation of demand receiving a speedy boost from the spending plans, analysts at Societe Generale said in a report yesterday. However, the near-term fundamentals continue to paint a negative picture across the base-metals spectrum, suggesting sentiment is running ahead of reality.

The price will average $3,600 per metric ton [$1.6329/lb.] this year, Societe Generale forecasts.

On the supply side of the equation, copper exports from Chile, the world's largest producer of the red metal, will likely come in at similar rates this year as in 2008, Mine Minister Santiago Gonzalez said on Friday.

Chile produced 5.33 million metric tons of copper in 2008, 4.1% less than in 2007. According to the state copper commission Cochilco, Chile exported 5.405 million tons of copper last year, or 4.7% less than in the previous year.

Have a great weekend... see you on Tuesday!



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