Good morning …

Precious Metals

Gold had an erratic day on Wednesday, lying flat until the mid-point of the London session, then spiking sharply higher to the day’s peak at $932 during the first hour of New York trading, giving it all back by late morning, but rallying a second time to go out on an uptrend that carried through the Globex and a finish at $927.40/oz., up $9.40. Overnight, gold is sharply lower.

Platinum also endured a series of peaks and valleys, but ended on a peak, just off its intraday highs at $1135/oz., up $10. Overnight, platinum has been flat.

Silver spent the day essentially in a narrow range between $12.90 and $13.10, and rode a late-day upmove over the $13 mark and into a close at $13.03/oz., up just 6 cents. Overnight, silver is trending lower.

After a desultory April Fool’s Eve in which the joke was on the precious metals, as they failed to respond to supportive developments in other markets, at least gold made a nice comeback on the day itself. Platinum was less responsive, while silver was a disappointment yet again.

Little might have been expected with the dollar slightly higher and oil lower yesterday, but gold delivered a solid return nevertheless.

On the whole, trading remains cautious as investors have been looking ahead to today’s G20 meeting, when the dollar's status as the global reserve currency is expected to be discussed. Any signs that change is coming—regarded as ranging between slim and none, with Slim having skipped town—would have a profound effect upon all markets, including the precious metals.

Thus Wednesday’s “moves to higher ground were still seen as range-bound and not as the turning of a new page,” said Kitco’s Jon Nadler.

Some have been concerned about the effect on the gold price if the IMF gets Congressional approval to go ahead with its proposed plan to sell 403 tons of gold to diversify its revenue and strengthen its balance sheet.

The fund itself, though, has said it plans to coordinate closely with Central Bank Gold Agreement signatories to minimize the impact of such a large gold sale. The CBGA caps central bank gold sales at 500 tons per year.

And Morgan Stanley analysts downplayed the threat yesterday, writing that any IMF gold sales are likely to be made “off-market.” That is, the fund could sell direct to countries with huge dollar reserves, such as China, Japan and Russia, to help them diversify their reserve portfolios without disrupting the gold markets.

Currencies and Economic News

In the currency market, the dollar was a bit higher against the euro. Late Wednesday, the euro was trading at $1.3212 vs. $1.3249 on Tuesday.

As expected, there was no consequential currency movement ahead of today’s G-20 meeting in London.

But at the G20, there was enough unease that, as MarketWatch reported, “U.S. President Barack Obama and British Prime Minister Gordon Brown, in a joint news conference ahead of the London gathering, downplayed rifts within the G20 over fiscal stimulus measures and regulatory reforms, after French President Nicolas Sarkozy's threats to walk out of the summit unless there is a stronger commitment to strengthening international financial regulations.”

There were also sparks between Japan and Germany, as Japanese Prime Minister Taro Aso criticized Germany for resisting calls to further boost its own spending plans. “There are countries that understand the importance of fiscal mobilization and there are some other countries that do not -- which is why, I believe, Germany has come up with their views,” Aso said.

“Developments over the past couple of days suggest that the group will do well to convey unity, let alone conjure a coordinated plan of action,” said Neil Mellor, of the Bank of New York Mellon. “Specifically, a polarization in [views] surrounding the need for further fiscal stimulus has grown.”

Back home, optimists seized upon a couple of encouraging economic numbers First, the Institute for Supply Management's index of U.S. manufacturing activity rose to 36.3 in March, from 35.8 in February. That beat economists’ expectations for an advance only to 36.

In addition, U.S. pending home sales rose 2.1% in January from December, the National Association of Realtors said.

But at the same time, ADP Employment Services said private employers slashed an ugly 742,000 jobs in March. The ADP report generally signals what’s to come in the jobs report from the Labor Department, due out tomorrow.

Energy

In the energy market on Wednesday, oil slipped lower, with crude for May delivery closing at $48.39/barrel, down $1.27. May reformulated gasoline fell 4.96 cents, to $1.3717/gallon.

In its weekly inventory report, the Energy Information Administration said crude stocks rose 2.8 million barrels in the week ended March 27, to remain at their highest level since July 1993.

Gasoline supplies increased 2.2 million barrels, while distillates were up by 300,000 barrels. Refineries were operating at 81.7% of capacity, down from 82% a week earlier. Total demand for petroleum over the last four-week period averaged 18.9 million barrels a day, down by 4.4% compared to the similar period last year. Gasoline demand averaged 9 million barrels a day, down by 0.2% from a year ago, while distillate fuel demand slumped by 9.1%.

“The increase in gasoline and crude stocks, combined with falling consumption, should put downward pressure on the entire petroleum market,” said James Williams, of WTRG Economics. “The impact of the recession is clear in the petroleum data.”

Base Metals

The base metals were mixed on Wednesday. Copper sank from the pre-dawn hours to mid-morning, but then broke sharply to the upside, heading higher the rest of the day, and finishing just off its intraday highs at $1.8172/lb., essentially unchanged. Nickel was flat until after noon, when it went suddenly vertical for the second day in a row, to close at $4.4928/lb., up 14 1/3 cents. Zinc had a similar ups and downs day to copper’s, ending at $0.5826/lb., down less than a third of a cent. Aluminum also followed the same path, adding just a tenth of a cent, to $0.6154/lb., while lead sagged, dropping more than a penny and three-quarters, to $0.5532/lb.

Copper shook off its early losses and finished flat for the day, as the relatively upbeat factory activity and housing market economic news buoyed the metal along with the equities markets.

“We have had some little signs of hope in the economy,” said William O’Neill, of Logic Advisors in Upper Saddle River, New Jersey.

But O’Neill hastened to add that the manufacturing and housing reports didn’t “change the overall picture that conditions are very weak,” and added that, “I really don’t see the justification from a demand standpoint for any sort of major rally.”

John Gross, publisher of the Copper Journal, essentially concurred, saying that, “The data are signaling some stabilization, but more positive readings are needed to develop any level of confidence in economy.”

The supply numbers reinforced a cautionary approach, as copper inventories monitored by the LME pushed back above the 500,000 metric ton mark yesterday, jumping 2,150 tons, to 501,775.

In other words, “No one is in any doubt that the market is in sizeable supply-demand surplus,” wrote Alex Heath, of RBC Capital Markets in London. “It simply must be, given the astonishing collapse in demand for industrial metals.”

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


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