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Precious Metals

Gold declined from Hong Kong through to the New York open on Wednesday, falling below $920, but as it did on Tuesday rallied from there, working its way back into positive territory and holding there to finish at $933.80/oz., up $7.70. Overnight, gold is slightly higher.

Platinum stayed within a tight $10 range all day long, but ended at the top of it, at $1121/oz., up $4. Overnight, platinum is sharply higher.

Silver tumbled as low as $13.00 as the Comex opened, but shot sharply higher by mid-morning, then held onto its gains for the rest of a sideways day, closing at $13.51/oz., up 7 cents. Overnight, silver has edged higher.

It wasn’t a very spirited day for the precious metals, but they managed to come back from early selling to all post small gains.

The usual suspects provided no sense of direction, with the price of oil slipping, the dollar edging back a bit, and equities unable to make up their minds, with a sharp late rally following a slide for most of the day.

Analysts said the price of gold rose after the dollar weakened due to remarks by Treasury Secretary Geithner with regard to a proposal by China that would replace the dollar as the world's reserve currency.

Geithner initially said he was “quite open” to China's suggestion of moving toward a currency system linked to the International Monetary Fund's Special Drawing Rights (SDRs), a basket of dollars, euros, sterling and yen, as a super-sovereign reserve currency.

That spooked investors who envisioned massive selloffs of countries’ dollar reserves, and raised gold’s profile as the ultimate hedge against any such development.

But the rally was effectively capped as Geithner later clarified his terms, and some better-than-expected economic data were rolled out.

“Increased risk appetite following the tackling of toxic assets and surprisingly strong economic data weighed further on precious metal sentiment,” wrote James Moore, of TheBullionDesk.com.

Moore predicted that gold could remain around $900 to $965 for the time being, “with scrap sale curbing rallies while invest demand provides support.”

Currencies and Economic News

In the currency market, the dollar eased against the euro. Late Wednesday, the euro was trading at $1.358 vs. $1.3464 on Tuesday.

The buck was whacked even worse earlier in the day, as Geithner responded to the Chinese suggestion by calling People's Bank of China Gov. Zhou Xiaochuan “a sensible man.” Geithner added that “everything he said deserves consideration.”

But later on, Geithner backtracked by insisting that the dollar remains the main global reserve currency, and that he does not see a change in that status in the foreseeable future. He also further clarified official U.S. policy by reiterating the Treasury's long-held stance that a strong dollar is in America's interest.

“But the damage was done,” said Michael Gregory, of BMO Capital Markets. “There are theoretical merits to a non-country specific reserve currency such as the SDR, but two wrongs don't make a right and this is not a university lecture.” Gregory added that, “Perhaps Geithner was attempting to give the Chinese an olive branch after his early-in-term politically-incorrect comment that China is manipulating the yuan.”

Among the day’s data, the Commerce Department reported demand for machinery and other capital goods climbed in February, driving orders for durable goods up 3.4%. It was the first rise after six straight monthly declines.

Separately, Commerce also reported that sales of new homes nationwide rebounded by 4.7% in February after hitting a record low in January. That’s still the second lowest level since record keeping began in 1963, and represents a drop of 43.8% compared with February 2008.

Energy

In the energy market on Wednesday, the price of oil dipped, with crude for May delivery closing at $52.77/barrel, down $1.21. April reformulated gasoline shed three-quarters of a cent, to $1.495/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks rose 3.3 million barrels for the week ending March 20. That was more than double expectations.

Gasoline supplies, however, fell by 1.1 million barrels, while distillates, which include diesel and heating oil, declined by 1.6 million barrels. Refineries were operating at 82% of capacity, down marginally from a week earlier.

“While some may view the drop in gasoline stocks as bullish, the data comes out on the side of the bears,” said James Williams, of WTRG Economics. “The overall picture in crude inventories is still gloomy.”

The EIA also said that total petroleum products supplied over the past four weeks averaged 19.1 million barrels a day, down 3.2% from a year ago.

Base Metals

The base metals were mixed on Wednesday. Copper fell as low as $1.74 in the late pre-dawn hours, perked back up during the New York morning, but faded again late to finish at $1.7695/lb., down three-quarters of a cent. Nickel nosedived in the pre-dawn hours for the second straight day, tried to rally back but gave it up after noon, closing at $4.2547/lb., down 8 cents. Zinc bottomed at the New York open, but put in a spirited rally that kept it in the green despite some afternoon selling, as it ended at $0.5642/lb., up just over a tenth of a cent. Aluminum was modestly lower, dropping a third of a cent, to $0.6249/lb., while lead had a good day, tacking on a penny and a half, to $0.5803/lb.

Copper held up fairly well in the face of weak interest because of the dismal economic reports trickling in from around the globe.

For example, German business confidence slid to the lowest in more than 26 years this month, Munich’s Ifo institute said yesterday.

And Malaysia’s central bank said that that nation’s economy, Southeast Asia’s third-largest, is likely to undergo a “significant” contraction in this year’s first half.

“We still are not seeing more important evidence of demand picking up, which is why we think metals prices could head back lower,” said Edward Meir, of MF Global.

William O’Neill, of Logic Advisors in Upper Saddle River, New Jersey, was a bit more upbeat, saying that, “The combination of the durable goods and the housing report has been good for copper … We’re having a bit of rebound in market psychology now that we’ve seen some better economic data.”

And Tom Hartman, of Altavest Worldwide Trading in Mission Viejo, California, suggested that the “data are not a clear signal that economic recovery is already underway, but perhaps signal a bottom being laid out.”

In company news, Aluminum Corp. of China has won approval from Australia’s competition regulator, clearing a major hurdle for the Chinese state-controlled company’s proposed $19.5 billion investment in Rio Tinto.

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


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