Good morning …

Precious Metals

Gold was higher in the far East on Tuesday, went flat to slightly lower into the New York session, then rode a very moderate but steady uptrend through the day, finishing at $881.10/oz., down $13.00. Overnight, gold is pushing higher.

Platinum shot higher in Hong Kong, fell off into the New York open, but then rallied again, reaching as high as $1168 before some late-day selling pulled it back to end at $1163/oz., up $22. Overnight, platinum has fallen off.

Silver was up in Hong Kong, tumbled between the London and New York opens, but bounced decisively off of the $12 mark and forged its way to $12.30 just past noon before easing through the Globex to close at $12.22/oz., up 11 cents. Overnight, silver has edged higher.

Support for the precious metals reappeared in the far East after Monday’s carnage, and held up through the rest of the day as they regained some, albeit not a lot, of the lost ground.

That they did at all well is probably a good sign, in the face of skidding equities, falling oil, and a firming dollar. But investors likely felt the selloff of the previous three days was overdone. And there may have been some reaffirmation of gold’s safe haven status as first quarter earnings, widely expected to be dismal, start to come in.

The fizzling out of the stock market runup is likely working in gold’s favor, too. “People are starting to question the equity rally,” said Matt Zeman, of LaSalle Futures Group in Chicago. “We’re not halfway through the credit crisis and that could put a floor [under] gold prices.”

Investors had to be a little more risk-averse yesterday, after an unconfirmed report out of London that the International Monetary Fund is going raise its toxic-debt estimate to $4 trillion. The IMF will raise estimates for U.S.-originated bad debt to $3.1 trillion from a January prediction of $2.2 trillion, with estimates of another $900 billion of toxic assets from Europe and Asia, the report said.

“The problems in the financial markets have not gone away and neither are they likely to anytime soon,” wrote analysts at Scotia Capital. “The trend to diversify risk is likely to remain strong and that should underpin good long-term demand for gold, especially into dips.”

But James Moore, of TheBullionDesk.com, offered a cautionary note, saying that while “bargain hunters are lifting gold prices … the metal is still at risk to further pressure short term and could look to challenge the $845 to $850 area.”

Currencies and Economic News

In the currency market, the dollar rose strongly against the euro. Late Tuesday, the euro was trading at $1.3267 vs. $1.3408 on Monday.

“Tuesday's trade has a strange sense of drawing asset classes and global investors back on to the same page,” said Andrew Wilkinson, of Interactive Brokers Group in Greenwich, Conn.

“A magnificent equity market rebound has come to a crashing end while the words and actions of many different sources give the impression that economic momentum has once again found an unambiguous central direction,” Wilkinson added.

Legendary hedge-fund manager George Soros added another dash of ice water, saying in an interview that the banking sector remains “on life support,” and dismissing recent gains by stocks as a “bear market rally.”

The euro took a beating after Eurostat, the European Union statistics agency, said the region's record economic contraction in the final three months of 2008 was even deeper than previously thought, a revised 1.6% drop in GDP compared to the third quarter vs. the previously-estimated 1.5% contraction.

And economists say that preliminary data from 1Q09 point to a first-quarter shriveling of eurozone gross domestic product that will be close to equally as bad.

Energy

In the energy market on Tuesday, oil fell, with crude for May delivery closing at $49.15/barrel, down $1.90. May reformulated gasoline dropped a penny and a half, to $1.4604/gallon.

“Expectations of [a further] inventories buildup” is weighing on crude prices, said Burton Schlichter, of New World Trading. In addition, “The stock market is fragile as earnings aren't likely to be nice.”

How right he was.

Investors had been anxiously awaiting earnings from Alcoa, the first major firm to report in. The numbers, projected to show a loss of 50 cents a share on revenues of $4.68 billion, were not released until after market.

When they did arrive, they were even worse than expected, as Alcoa carded a loss of 61 cents a share, on revenue that slumped to $4.15B. What effect that has on markets remains to be seen today.

Base Metals

The base metals were mixed on Tuesday. Copper pushed as high as $1.98 in the pre-dawn hours, then bounced around through the rest of the day, finally settling at $1.9505/lb., up nearly 2 1/2 cents. Nickel peaked at $4.90, then it too was up and down through the day, closing at $4.7839/lb., down a penny. Zinc was on the decline for most of the day, ending at $0.5931/lb., down more than three-quarters of a cent. Aluminum was all over the place to little effect, finishing at $0.6492/lb., up a third of a cent, while lead was modestly higher, adding three-quarters of a cent, to $0.6009/lb.

Copper made yet another run at $2, falling short but winding up in positive territory as traders moved to narrow the gap that had opened between the London and Shanghai markets.

Copper rose 5% in Shanghai yesterday, and the premium for copper in Shanghai over London has increased by about half over the past month. Futures in China have added 50% percent this year, well above the 43% advance in the U.K.

“You have got arbitrage buying taking prices higher,” Leon Westgate, an analyst at Standard Bank Group in London. However, Westgate noted the underlying fundamentals: “That prices have rallied on both bourses is a testament of the strength of Chinese demand.”

Stockpile data also factored in, as inventories monitored by the LME dropped by 2,925 metric tons yesterday, to 501,900 tons. And canceled warrants—metal earmarked for delivery—continued to soar, running to 60,850 tons yesterday, a 140% leap from a week earlier.

The jump in canceled warrants means more copper is leaving LME warehouses bound for China, Westgate said. “The differential in the regional premium basically means it is profitable now,” he said. “It pays for the freight.”

And Frank Holmes, chief investment officer of U.S. Global Investors, has turned bullish on copper, suggesting a rise to $2.25 a pound as infrastructure spending and increased U.S. and Chinese money supplies fuel demand for raw materials.

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


NEWS YOU CAN USE:

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