Good morning …

Precious Metals

Gold held up until the end of the Hong Kong session on Friday, then declined steadily to just after the New York open, bottoming at $920 before trading within $5 of that mark for the rest of the day and finishing at $923.10/oz., down $11.10. For the week, gold lost 3.1%.

Platinum also peaked in the far East, then sold off through most of the day to end near its intraday low at $1124/oz., down $18. For the week, platinum added 1%.

Silver’s chart mirrored gold’s, but it rallied from its early New York low a little better than its sister metal before going flat to close at $13.34/oz., down 18 cents. For the week, silver shed 2.8%.

Another day for the precious metals that was not disastrous, but that featured determined selling pressure that proved impossible to overcome. There was also no help to be had from the usual suspects, with oil and equities falling and the dollar rallying.

As the buck continues to show strength, gold may be stuck in a range between $920 and $940, says Kitco’s Jon Nadler. Perhaps. But the pressure under gold is continuing to build, and nothing Washington is doing will release any of it. Au contraire.

At last week’s Casey Crisis Summit in Las Vegas, one of the most dynamic speakers was Peter Schiff, of Euro Pacific Capital, whom many may know for his dust-ups with the serially-wrong financial guru, Jim Cramer.

Yesterday Schiff summed up our situation in words worth repeating: “President Obama and the majority of our leadership on both sides of the aisle are confident that the right mix of monetary and fiscal policy can restart the spending party that defined America for a generation. And as the bleary-eyed revelers wisely reach for a cup of black coffee or stumble into a rehab center, Obama is pouring grain alcohol into the punch bowl hoping to lure the walking zombies back onto the dance floor. Europe and Asia fully understand that Obama will ask them to lend the booze.

“Washington is telling us that our problems result from a lack of consumer spending. Therefore, the solution is for government spending to pick up the slack. However, if Americans are too broke to spend, then how can our government spend for us? The only money they have is taken from us through taxation. To postpone immediate tax hikes (adding interest for good measure), Washington plans to borrow more from abroad. However, if our foreign creditors refuse to pony up, much of the money will simply be printed instead.

“Printing money is merely taxation in another form. Rather than robbing citizens of their money, government robs their money of its purchasing power. Many people assume that if government provides the funds we can spend our way back to prosperity. However, it's not money we lack but production. If the government simply prints money and doles it out, we will not be able to buy more stuff; we will simply pay higher prices. The only way to buy more is to produce more. It is production that creates purchasing power, not the printing press!”

Currencies and Economic News

In the currency market, the dollar soared against the euro. Late Friday, the euro was trading at $1.3289 vs. $1.352 on Thursday.

“A shift in market sentiment in Europe overnight prompted a reduction in short U.S. dollar positions against the euro and pound that carried over into the New York session,” said Michael Woolfolk, of the Bank of New York Mellon.

The euro got hammered after German Finance Minister Peer Steinbrueck warned that the common currency could suffer if members of the eurozone fail to respect the European Union's stability and growth pact.

The agreement requires governments to keep budget deficits below 3% of gross domestic product except in extreme circumstances.

Back home, the Commerce Department said real consumer spending, representing outlays adjusted for inflation, fell 0.2% last month, a big about-face after rising by a three-year high of 0.7% in January.

And the University of Michigan/Reuters consumer sentiment index rose to 57.3 in late March from 56.3 in February.

But that number remains near record lows, which caused Richard Curtin, director of the survey, to comment that, “The good news is that the free fall in confidence has ended. The bad news is that consumers expect their financial situation to remain dismal for the rest of 2009.”

Energy

In the energy market on Friday, the price of oil fell, with crude for May delivery closing at $52.38/barrel, down $1.96. April reformulated gasoline dropped 4.33 cents, to $1.4879/gallon.

The rising dollar spooked traders already concerned that crude’s recent rally may have been overdone.

“We think the markets will encounter rather stiff resistance between $55 and $60, as we suspect this band will cap the top end of the trading range for most of 2009,” said Edward Meir, of MF Global.”

Venezuela's oil minister said yesterday that OPEC could further cut crude output when it meets on May 28 in Vienna.

But the demand destruction could have serious implications going forward, according to a report released yesterday by Cambridge Energy Research Associates, which said the collapse in prices could end up cutting in half the growth in future oil supply.

The decline in oil prices has not been matched by an equal decline in the cost of production, which means the economics of potential future oil supply growth have deteriorated to the point where it risks “being slowed down, postponed, or cancelled altogether,” the report said.

Base Metals

The base metals were mostly in the red on Friday. Copper declined from the pre-dawn hours to shortly after the New York open, then went essentially flat, finishing at $1.7918/lb., down 3 2/3 cents. Nickel was off from the pre-dawn hours to late morning, then gained back a little lost ground but closed at $4.2728/lb., down nearly 6 cents. Zinc also fell until late morning, but then rallied strongly to claw back into the green at $0.5962/lb., up a quarter of a cent. Aluminum sagged, ending barely off its intraday low at $0.626/lb., down a penny and a half, while lead was also weak, giving up a penny and three-quarters, to $0.5736/lb.

Copper led most of the metals lower, as traders feared the dollar rally would reduce their appeal as a hedge.

There was also a measure of position-squaring at week’s end, after copper touched a nearly 5-month high overnight.

However, some analysts see copper’s runup continuing, even in the near term. “Market momentum could carry prices to an upside target of $2.00 a lb. by next week,” said Larry Young, of Infinity Futures in Chicago. But Young added that, “Profit-taking can be expected to pull the market back from that level.”

On the supply front, copper inventories monitored by the LME dropped by 3,150 metric tons yesterday, to 500,750 tons.

The China factor: Shanghai inventories fell by 20% during the past week. But what that means is guesswork.

“You have a lot of people buying copper now because of the idea of demand coming out of China,” said Gijsbert Groenewegen, of Gold Arrow Capital Management in New York. “But people don’t know yet if China is buying copper to add to their stockpiles or because it’s really being consumed. Until you have more sustained signs that the actual consumption is going up, the price will struggle.”

In company news, Australia surprisingly rejected Chinese state-owned Minmetals' $1.7 billion bid for miner OZ Minerals yesterday, citing national security concerns as one of OZ’s mines is close to a weapons-testing facility. The two parties say they will look to revise the deal.

That’s what’s happening … have a great weekend and see you Tuesday!


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