Good morning …

Precious Metals

Gold was higher Hong Kong and still even with Monday at the London open, but it then declined through the first hour in New York, falling below $920 before edging back over the mark and trading sideways through the Comex and Globex to finish at $926.10/oz., down $12.10. Overnight, gold is trending lower.

Platinum was also higher in the far East, declined to near $1100 in the late morning, but rebounded to cut its losses and end at $1117/oz., down just $6. Overnight, platinum is unchanged.

Silver peaked above $13.70 early in Hong Kong, then dropped steadily to mid-morning, bottoming below $13.30 before it too found some legs and rose back to close at $13.44/oz., down 22 cents. Overnight, silver has fallen off.

The precious metals encountered a third straight day of selling as optimism over the new economic bailout package maintained some of its luster and plucked away a bit of the safe haven money that had fled to gold last week.

Among the usual suspects, a late rally in the price of oil may have helped, but it was more than offset by the strength in the dollar.

But the stampede into SPDR Gold Shares continues unabated. After slipping from its alltime high on Monday, by shedding 0.3 metric tons (9,645 ounces) of gold from its vaults, yesterday GLD added a mammoth 10.69 tons (343,691 ounces), to reach a new high of 1124.99 tons (36.17 million ounces).

Others’ sentiment aside, investing legend Richard Russell has become supremely bullish. Last Friday he said: “I've written in the past that if you want to make 'BIG' money in the market, you have to take an over-sized position and be dead right on the trend. The last time I did that was in late 1958. ... I did extremely well on that fateful ride, and I never again had the nerve to take that large a position -- until now.

“I started building my gold position in 1999 ... My gold position now is comparable to my market position back in 1958 ... maybe 30% of my total worth. Why have I done this again?

“(1) I believe gold is in a major or primary bull market. I believe the gold bull market is currently in its second phase. This is the phase where sophisticated and seasoned investors and the funds enter the market. ...

“(2) If there is only one bull market in progress, it will attract broad new coverage and attention -- just as Thursday's $70 rise in gold did.

“(3) I believe the bear market in stocks will continue erratically and the deflationary trends will persist. ... Bernanke will stop at nothing (including massive printing of dollars) in his effort to halt deflation.”

Currencies and Economic News

In the currency market, the dollar rose strongly against the euro. Late Tuesday, the euro was trading at $1.3464 vs. $1.3633 on Monday.

“The main driving force seemed to be the disappointment and frustration of short-term speculators who had bought the dollar following last week's decision by the Federal Reserve to dramatically increase its balance sheet, expecting a sharper sell-off on grounds that the US was purposely debasing its currency,” wrote strategists at Brown Brothers Harriman.

Also factoring in was strong demand at the Treasury Department's $40 billion auction of two-year notes, which indicates that demand for U.S. fixed-income assets remains and, by implication, that the buck is still viewed favorably.

The euro got no boost from the Markit March purchasing managers index for the euro-zone manufacturing sector, which rebounded from a record low of 33.5 in February to a reading of 34.0.

Problem is, the index readings still point to steep contractions in activity across the euro-zone. A PMI reading of less than 50 means a majority of managers saw a contraction in activity.

Marco Valli, an economist at UniCredit MIB, believes the numbers could be a sign of a “tentative recovery.” That is, “The March figures signal that momentum has 'improved' somewhat at [the end of the first quarter], but in the coming months we need to see the resumption of a more convincing upward trend to feel more confident with our forecast that the pace of recession in [the second quarter] will ease to about -0.6% quarter-on-quarter,” Valli wrote.

Energy

In the energy market on Tuesday, the price of oil came well off its lows but still ended negative, with crude for May delivery closing at $53.98/barrel, down 18 cents. April reformulated gasoline added a penny and a half, to $1.5026/gallon.

Most of the market talk centered around the Energy Information Administration’s inventory report, due out this morning and expected to show a drop in stockpiles.

There was also a bit of buoyancy supplied as a carry-over from Monday’s optimism over the potential impact of the Treasury plan.

However, while the announced measures “are positive, a lot of uncertainty remains over how quick and how effective these measures will be,” wrote Nimit Khamar, analyst at Sucden Financial Research. “Oil fundamentals are still far from rosy and oil inventories are still at elevated levels.”

Khamar added that, “Demand is still weakening and once focus switches back to the current oil fundamental picture, crude prices could once again come under pressure.”

Base Metals

The base metals all sank into the red on Tuesday. Copper declined from the early pre-dawn hours to mid-morning, and rallied only modestly from there, finishing at $1.775/lb., down more than 3 3/4 cents. Nickel nosedived in the late pre-dawn hours, then traded sideways through the day, closing at $4.3348/lb., down 4 cents. Zinc was off early and rallied late, ending at $0.5628/lb., down nearly a penny and a half. Aluminum was weak, dropping a half-cent, to $0.6286/lb., while lead crumbled, falling to its intraday low of $0.5652/lb., down almost 3 3/4 cents.

Copper retreated from Monday’s close above $1.80 as the rally in the dollar pushed down demand for commodities as an inflation hedge.

The breach of that mark also triggered a spate of profit-taking.

Looking ahead, Ralph Preston, of HeritageWestFutures.com in San Diego, predicted that the “benchmark May copper contract needs to hold above $1.76 (a lb) to maintain its bullish momentum.” The bulls have driven up the price by nearly 30% this year.

On the stockpile front, copper inventories monitored by the LME dropped by a substantial 2,900 metric tons yesterday, to 505,425 tons.

Traders were probably also concerned that they may have reacted overenthusiastically to the Geithner plan for relieving banks of their toxic assets.

That didn’t dampen the positive view of Matthew Zeman, of LaSalle Futures Group in Chicago, who said that, “We’ve had a lot of things helping to boost the market lately, including this Treasury play … We’re having a healthy pullback [on Tuesday], but in the intermediate term, the trend is still up.”

But Edward Meir, of MF Global, cautioned that demand from manufacturers is “still absent, making oversized rallies vulnerable.”

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


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