Good morning …

FLASH—Just as I was about to post, silver suddenly rose $5/oz. in a half-hour in London. Traders are scrambling for an explanation, with rumors swirling that the Hunt brothers have come out of retirement and started buying all the bullion in sight. Others are certain the long-awaited bankruptcy of JP Morgan is at hand, and it's going to default on its massive short positions. We’ll know soon enough, but it looks like an exciting day ahead. In the meantime, here’s the rest of yesterday’s news.

Precious Metals

Except for a very brief dip below $915 in the late morning, gold was stuck fast between there and $925 all day, finally finishing an uninspiring day at $918.00/oz., up $2.20. Overnight, gold is trending higher.

Platinum peaked in Hong Kong at $1130, declined into an $1115-1125 range, and stayed there for the rest of the day, ending at $1125/oz., up $12. Overnight, platinum has been flat.

Silver noodled along little changed until the second hour in New York, when it bumped up about 15 cents, to $13.25, but then it hit an abrupt and savage waterfall decline that shoved it all the way down to $12.60, after which it was able to cut some but not all of its losses, as it clawed back to a close at $12.97/oz., still down 9 cents. Overnight, silver is little changed.

Yeah, ok, the news flash is a hoax, but we do have to have some fun around here occasionally. Have a happy April 1!

In the real world, it was a mixed day for the precious metals, as gold and platinum eked out gains but silver was whacked on the head like poor Wile E. Coyote. Gold fanciers surely hoped for a better result as the dollar weakened and oil staged a bit of a comeback, but it was not to be.

What to make of silver. It continues to struggle in the face of enormous physical demand from investors. The U.S. Mint has released its quarterly figures, and in 1Q09 it stamped out a staggering 7,157,000 1 oz. Eagles. Folks, that is a lot. It took 222.6 metric tons of silver to make that many coins. In the past, there have been whole years in which the mint didn’t produce as many.

Here’s the odd thing. Despite this massive infusion of Eagles into the market, they’re still hard to find. Demand remains so high that dealers, such as our own Kitco, are charging an average of around 35% over spot for the things. And expect shipment delays, Kitco warns on its own website.

On eBay, our purest free market trading platform, the situation is even more frantic, with buyers willing to pay, in some instances, more than 50% over spot to land a roll of 20 Eagles.

That’s no joke. So what on earth is going on here? Obviously, the paper-controlled Comex silver price is completely out of synch with the action on the ground. If you can afford it, the smart move would seem to be to buy a silver contract on the Comex (5,000 ounces) and stand for delivery.

Currencies and Economic News

In the currency market, the dollar backed off against the euro. Late Tuesday, the euro was trading at $1.3249 vs. $1.3185 on Monday.

Analysts said the buck was pressured by light position-squaring ahead of this week’s G-20 nations meeting.

However, the dollar's outlook “remains one of strength and stability against the majors, despite the ongoing deluge of negative U.S. economic data,” said Michael Woolfolk, of the Bank of New York Mellon.

The latest iteration of that negative data came yesterday in the form of Standard & Poor’s Case-Shiller 20-city home price index, which fell a record 2.8% in January. Prices are down 29% from the peak in mid-2006, and have fallen to September 2003 levels.

“There are very few bright spots that one can see in the data,” understated David Blitzer, chairman of the index committee at S&P.

Economists for Bank of America's Merrill Lynch concurred, writing that, “Looking ahead, depressed demand, tight credit, rising default rates and excess inventories will continue to lead prices lower … We estimate that an additional 10%-15% in downside is still in store.”

Separately, the Conference Board said its index of consumer confidence inched up to 26 in March, from an upwardly revised 25.3 in February. But it still came in under economists’ expectations for a reading of 28.

Energy

In the energy market on Tuesday, oil rallied, with crude for May delivery closing at $49.66/barrel, up $1.05. May reformulated gasoline debuted as front-month contract at $1.40/gallon.

“The rally in the crude oil market is stemming from market influences outside the energy arena,” said Burton Schlichter, of New World Trading. “Strength in the equity market and the weakness in the dollar are dragging the crude oil market higher.”

Analysts at Commerzbank concurred, writing that oil's recent gain “was largely driven by the financial markets and sentiment, based on hopes that demand would pick up again later on in the year … From a short-term perspective, though, the fundamentals remain difficult, meaning that oil prices were vulnerable to setbacks as witnessed right now.”

If only supply/demand fundamentals are considered, says James Williams of WTRG Economics, oil should be trading below $35 a barrel.

Base Metals

The base metals were all in positive territory on Tuesday. Except for a mid-morning lull, copper advanced from the pre-dawn hours straight through the day, barely coming off its intraday highs late to finish at $1.8167/lb., up more than 8 1/3 cents. Nickel was down until around noon, when it went vertical, to close at $4.3484/lb., up almost 11 cents. Zinc had a lot of ups and downs, but ended in the green at $0.5856/lb., up a penny. Aluminum was listless, adding just a tenth of a cent, to $0.6143/lb., while lead had a good day, adding just over a penny, to $0.572/lb.

Copper led the industrial metals higher, concurrently turning in a quarterly gain of 30%, its biggest percentage rise since the second quarter of 2006, as traders responded brightly to the weakening dollar and rising equities.

“We’re getting a bounce in copper and the rest of the metals today based on the weaker dollar,” said Matthew Zeman, of LaSalle Futures Group in Chicago. “We could see copper continue to move higher if the dollar stays at weaker levels.”

In addition to the dollar and equities, Zeman added that he saw “copper buoyed by quarter-end positioning … and a positive tone at the 8th annual CRU World Copper Conference and CESCO Week.”

But he warned that the “market is likely in for a test of the $2.00 level … There is a floor under copper prices right now and it does have the potential to move a little higher, … [but] we’re going to need to see a real rebound in the economy before we can go much higher than $2.”

On the supply front, copper inventories monitored by the LME fell below the 500,000 metric ton mark yesterday, shedding 1,775 tons, to settle at 499,625.

Joining in the optimists’ choir was Jose Pablo Arellano, CEO of Chile’s state-owned Codelco, the world’s biggest copper producer. U.S. copper demand may have reached bottom, Arellano said yesterday, citing unspecific signs that declining consumption will be arrested by growth-inducing government spending.

The market may also have been affected by word that Grupo Mexico will close down its giant Cananea copper mine due to damage to the facility caused by a 20-month strike. The company is said to be seeking a ruling from a labor tribunal that would allow it to fire the striking workers at the mine following the closure, but there was no indication as to when the mine might reopen.

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


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