Good morning …

Precious Metals

Gold really mounted the rollercoaster on Monday, with an initial huge drop at the end of Hong Kong trading that took it down nearly $15, followed by a $23 rally that took it to a peak of $932 by mid-morning, followed by another selloff that sent it skidding back to $915 just after noon, and then finally some relative calm as it traded sideways into a finish at $915.80/oz., down $7.30 from Friday. Overnight, gold has been flat.

Platinum declined in a more orderly fashion, from Hong Kong straight through the Comex, after which it stabilized to end at $1113/oz., down $11. Overnight, platinum has edged higher.

Silver had the same spikes—one up, two down—as gold, but they came earlier and were sharper, before the metal leveled off shortly after the noon hour and glided to a close at $13.06/oz., down 28 cents. Overnight, silver is slightly higher.

The precious metals submitted yet again to a pattern that is becoming monotonous, yielding a day that is bad but not horrible, with all attempts to break out to the upside capped, yet with solid downside resistance.

In fact, fanciers might have come away barely dissatisfied, since the usual suspects were offering no support, with equities crashing, oil sliding back below $50 and the dollar maintaining strength.

The Hightower Report had a lot of ideas about yesterday’s action, writing: “The June gold contract forged a series of wild gyrations during the session Monday with the market coming under early morning pressure, regaining its footing around mid morning and then failing again in the early afternoon trade. The bears seemed to have to worry about a number of themes with the soaring Dollar at the head of the lot. Also seemingly undermining the gold market and a host of physical commodity markets was a fear of a return to deflation or significant deflation. Apparently the renewed fears of major ongoing problems in the US auto sector has left the market fearful of more sustained slowing and that in turn might be pushing the prospect of inflation out into the future. In the end, the gold market was unable to garner the usual flight to quality support and that had to disappoint the gold bulls. While the market has periodically feared IMF gold sales, it is possible that the proximity to the upcoming G20 meeting gave central bank sales fears a fresh focus.”

And Dan Norcini, writing on jsmineset.com, asks an interesting question about the trading: “Today was a ‘weird’ day in terms of market price action across some of the various indicators that I like to watch. Bonds for example were sharply higher as the US equity markets broke down but they came sharply down from off their session highs as the buying just flat dried up. Where did the safe haven flow go to flowing??? If you ask me, the safe haven flow must be going into ammunition because it sure ain’t going into any market that I can see.”

Currencies and Economic News

In the currency market, the dollar kept on rising against the euro. Late Monday, the euro was trading at $1.3185 vs. $1.3289 on Friday.

The dollar “is starting the week with all cylinders firing, as risk aversion returns,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.

John Rivera, currency analyst at DailyFX concurred, stating that “as banking sector concerns and the prospect of GM falling into bankruptcy have fueled risk aversion … the greenback has seen significant gains against most of the major currencies during overnight trading and with an empty economic docket we may see it continue to trade higher on the broader theme.”

Traders are also expecting G20 leaders to produce little in the way of specific measures designed to promote global growth at their London meeting Thursday.

Risk aversion plus the “potential of failure of any significant (growth positive) outcome at the G20 meeting this week are U.S. dollar positives,” wrote Ashley Garvin, a currency strategist at Bank of Scotland.

The euro was harmed after the European Commission reported that its monthly Economic Sentiment Indicator for the 16-nation euro zone dipped to 64.6 in March from 65.3 in February, marking another record low since the survey began in 1985.

Energy

In the energy market on Monday, the price of oil plummeted, with crude for May delivery closing at $48.41/barrel, down $3.97. April reformulated gasoline dropped 10.8 cents, to $1.3799/gallon.

“There is little, if any, fundamental data that justifies the price increases over the last few weeks,” said James Williams, of WTRG Economics.

Of major importance was words out of the White House, which forced the ouster of GM chief Rick Wagoner, and said a structured bankruptcy plan for the two automakers could give them their “best chance at success.”

“Oil is trading lower today due to the shocking news out of the auto industry and the implications for demand if GM or Chrysler fall within the next 60 days,” said Zachary Oxman of TrendMax Futures. “I think the market sees that this recession is nowhere near over.”

Also factoring in was a leak of drafts of the G20 meeting's final communiques, which featured remarks by politicians, including President Obama, indicating that a push by the United States and Britain for a further round of global stimulus seems unlikely to bear fruit.

Base Metals

The base metals were all leaking red on Monday. Copper declined from the pre-dawn hours straight through the day, just barely coming off its intraday lows to finish at $1.7328/lb., down nearly 6 cents from Friday. Nickel came off its lows during the pre-dawn hours and rose fitfully during the day, but not enough to reach the green, closing at $4.2396/lb., down 3 1/3 cents. Zinc also hit an all-day downer, ending fractionally above its intraday low at $0.5757/lb., down more than 2 cents. Aluminum followed suit, shedding more than a penny and a third, to $0.6132/lb., while lead was also weak, giving up a penny and a quarter, to $0.561/lb.

Copper led the industrial metals lower, falling the most in six weeks as traders feared that more turmoil in the auto industry, including the ouster of GM’s CEO, augurs ill for any upturn in the coming months.

“A cold dose of reality has stripped away some of the euphoria that built up over the last week,” wrote Alex Heath, of RBC Capital Markets in London. The economic news is “underscoring skepticism about an economic recovery.”

Flagging equities also put some weight on the sector, as indexes fell worldwide. While the S&P 500 was tailing off as much as 4.1%, the MSCI World Index did even worse, slipping as much as 4.3%.

On the supply front, copper inventories monitored by the LME reversed field from Friday, adding 650 metric tons yesterday, to 501,400 tons.

There’s not much doing, looking ahead. “Not until there is a concrete improvement in consumer demand will price gains be sustainable, and we don’t expect this until much later this year,” analysts at Barclays Capital in London wrote yesterday.

Cash-copper prices will average $1.82 a pound this year on the LME as supplies outpace demand by 404,000 tons, the Barclays analysts forecast. That compares with an average of about $3.16/lb. in 2008.

And of zinc, one trader told Platts: “There's truckloads being traded here and there, hundreds of ton-pieces here and there, but the really big, end consumers -- who are the steel companies -- they're just not there; they're closed.”

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


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