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Precious Metals

Gold was mostly range-bound between $950 and $955 through trading in the Far East, London, and on the Comex in New York. Late in the day on the Globex, however, the yellow metal fell off a cliff and lost about $15 in an hour to close at $938.20/oz., down $14.40. Overnight, gold is down sharply.

Platinum traded at a loss early in the Far East then was on the up-and-up from there to close at $1123/oz., up $10. Overnight, platinum is little changed.

Silver showed extraordinary volatility yesterday. The precious metal was generally up in the Far East and London then took a big dive at the Comex open before clawing back only to fall off again late in the day on the Globex to close at $13.66/oz., down 7 cents. Overnight, silver is down sharply.

The Obama administration on Monday offered a raft of incentives for private investors to rid banks of up to $1 trillion in toxic assets, raising hopes for greater stability in the financial system, but hitting gold's safe-haven status.

Analysts said that fears of inflation fanned by Federal Reserve plans to buy long-dated U.S. Treasuries, announced last week, still linger even if they have temporarily eased a little.

Traders are probably focusing more on how the U.S. Treasury is going to clear up the toxic debts in the financial system, said Adrian Koh, an analyst at Philip Futures.

However, on a longer-term view, inflation concerns will remain a main driver for gold and commodities, Koh said.

The temporary dip in interest in gold was also evident in the holdings of gold-backed exchange traded funds. The world's largest gold-backed ETF, the SPDR Gold Trust, said its holdings nudged down about a third of a metric ton to 1,114.29 tons on March 23 from their record-high 1,114.60 tons.

It was the third time the SPDR's holdings have pulled back this year, but each time it has slipped a mere 0.3 metric tons or so, and the overall amount is still up more than 330 tons so far in 2009.

Investors are likely to keep watching U.S. government steps [or more likely failures] aimed at pulling the economy out of a recession.

I think we'll see (gold) range bound for a little while until we see whether the economy is really improving, Ronald Leung, director of Lee Cheong Gold dealers in Hong Kong, said.

Currencies and Economic News

In the currency market, the dollar fell once again against the euro. Late Monday, the euro was trading at $1.3633 vs. $1.3582 on Friday.

MarketWatch reported that the U.S. dollar held gains against the yen but lost its edge against most other rivals, as traders absorbed long-awaited details of the U.S. Treasury Department's plan to remove hundreds of billions of dollars worth of toxic assets from bank balance sheets.

The program will use $75 billion to $100 billion in capital from the Troubled Asset Relief Program, or TARP, and capital from private investors.

Despite the dollar's mostly weaker tone, analysts were encouraged that its losses weren't more dramatic, in light of a surge on Wall Street.

The real take away from the price action is the relative resilience of the dollar. Even if there is little follow through dollar buying today, it appears that once again the demise of the dollar has been exaggerated, wrote strategists at Brown Brothers Harriman, in a note to clients Monday.

The plan was viewed as a dollar-supportive factor by some strategists, as it creates a floor for some of these toxic assets, which helps to reassure foreign investors, said Kathy Lien, director of currency research at Global Forex Trading.

On the economic data front, the National Association of Realtors said sales of U.S. pre-owned homes rose 5.1% to a seasonally adjusted annual rate of 4.72 million in February, boosted by deep price discounts. It was the largest percentage gain since July 2003.

Sales are down 4.6% in the past year, the industry trade group reported. February's sales increased in all four regions as tracked by the NAR. Sales of foreclosed properties or short sales accounted for about 45% of transactions last month the real estate trade group said. Distressed homes are selling for 20% below normal market prices, the realtors said.

Economists surveyed by MarketWatch had been expecting sales to drop to a pace of 4.45 million units from January's 4.49 million annual rate.

Energy

In the energy market, crude oil for May delivery rose $2.74 from Friday to close at $53.80/barrel. April reformulated gasoline gained more than 3 cents to finish at $1.4881/gallon.

The government's plans raise investment sentiment and optimism, said Phil Flynn, vice president at Alaron Trading. People start thinking maybe the economy will recover.

The details of this plan may be key for the market's views on the dollar and on economic recovery, and so impacting price views of crude oil and other commodities, said Brenda Sullivan, analyst at Sucden Financial Research.

Last week, crude prices rallied 10%, boosted by a weaker dollar as the Federal Reserve's decision to purchase long-term securities pushed down the greenback.

As long as the U.S. dollar shows persistent weakness, oil prices should still have more upward potential, said analysts at Commerzbank in a research note.

We anticipate much higher oil prices toward the end of the year, they said. However, without stabilization of demand in the major oil-consuming countries, it is hard to imagine a sustained turnaround towards a higher price level.

But some investors were worried that a stronger dollar may end oil's recent rally.

In the near term, the rise in oil isn't based on demand but because it is getting an artificial lift from the Fed, said Alaron's Flynn.

Base Metals

Base metals were mixed on Monday. Copper gained 4.57 cents to close at $1.8135/lb. Nickel fell by nearly 4 cents to finish at $4.3749/lb. Zinc rose by almost 2 pennies, ending at $0.5770/lb. Aluminum declined by about 1 and one-fourth cents, closing at $0.6339/lb., while lead moved to $0.6022/lb., up slightly from the previous session.

Reuters reported that copper touched a 4-1/2 month high before easing back on Monday, as a U.S. plan to cleanse the banking sector of toxic assets boosted the outlook for the economy and demand, and after data showed robust Chinese import demand.

An equities rally also lifted sentiment. Investors were drawn back to riskier assets, including shares, on the U.S. plan to rid banks of up to $1 trillion in toxic assets -- bad loans and securities that thwart lending -- to aid the economy.

A lot of positive sentiment is washing through the markets, Calyon metals analyst Robin Bhar said. It is clearly helped by the news that the U.S. government is now adopting a different tactic to rid the banks of the toxic assets.

But Bhar added copper could fall again as demand concerns return to the forefront of investors minds. It may just again be initial euphoria which, after some time, may start to disappear again, he added.

Meanwhile, stocks of copper at LME warehouses rose by 4,375 metric tons, adding credence to the demand concerns voiced by Bhar, especially after Friday's massive jump of 10,500 metric tons.

Recent rises in LME cancelled warrants -- material earmarked for delivery -- had helped boost sentiment in copper in recent months -- but stock drawdowns in the red metal appear to have run out of steam.

In company news, prospects may dim for Rio Tinto's $19.5 billion proposed link-up with Chinalco if strong markets boost the attraction of a rights issue and investors believe a new chairman is more willing to consider alternatives.

A buoyant share price could embolden disgruntled shareholders to vote down the deal that would see China's top aluminum maker double its Rio stake and buy portions of key mines.

Although political opposition has grown in Australia to the prospect of Rio linking up with a Chinese state-owned firm, a more serious threat might be a recovery in metals markets, analysts and shareholders say.

A higher share price would make dilution from a rights issue less painful while an upturn could mean that Rio has more chance to sell non-core assets and raise cash to trim its heavy debt.

A lot depends on how positive the markets are feeling. The more positive it feels about an area, the less likely it is to want the company selling assets and the more prepared it will be to fund and keep a 100% ownership, said an official at a top-10 shareholder of UK Rio shares, who asked not to be named.

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



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