Good morning …

Precious Metals

Gold was up early in the overseas markets, fell off into mid-morning in New York, rallied back to peak at $890 just before the end of the Comex, then declined again through the Globex, finishing at $880.00/oz., down $1.10. Overnight, gold is slightly higher.

Platinum had a decent day, rising into the second hour in New York, before pulling back a little and trading sideways for the rest of the day, ending at $1175/oz., up $12. Overnight, platinum is sharply higher.

Silver traded all day between $12.20 and $12.40, zigging and zagging before closing with a slight gain at $12.26/oz., up 4 cents. Overnight, silver is little changed.

It was a very blah day for the precious metals as nothing much showed up to provide a sense of direction, with equities posting mild gains, oil bouncing back over $50, and the dollar static.

The reason why investors are buying gold, “fears of longer- term inflation and currency debasement, remain intact,” wrote John Reade, the head UBS AG metals strategist in London. Once gold prices have stabilized, “we expect bottom-fishers to begin the next cycle of investment.”

But in the meantime, opposing forces are contending.

As Dan Norcini, writing on jsmineset.com, put it: “Gold is still caught in the tug of war between risk and risk aversion with traders unsure exactly how to trade it. Physical buying of gold from overseas, especially India, is strong below the $900 level but that is insufficient in and of itself to push prices higher. It can serve to put a floor under the market but to take gold higher, it is going to require strong investment interest. Interestingly enough, the reported holdings of the gold ETF, GLD, have remain fixed for some time now.”

As far as silver goes, many are looking for it to break out at some point this year, and the key may lie in some New York warehouses.

As Norcini wrote: “Silver drawdowns out of the Comex continue on their torrid pace with another 2 million ounces coming out yesterday. Whoever is taking the silver out of the HSBC warehouses has managed to draw down stocks from near the 80 million ounce mark (registered category) in December of last year to yesterday’s 63 million ounce mark. That is no small feat.”

Norcini goes on to speculate, “I think it no coincidence that the reported holdings of the silver ETF, SLV, have also shown a reported increase since the first of this year of some 52 million ounces.” If there is a connection, that would be most interesting.

Currencies and Economic News

In the currency market, the dollar was essentially unchanged against the euro. Late Wednesday, the euro was trading at $1.327 vs. $1.3267 on Tuesday.

The buck got a bit of a lift after the release of the minutes of the Federal Open Market Committee's March 18 policy meeting.

The notes showed that members saw a worsening economic environment  in mid-March, with all agreeing that “substantial additional purchases of longer-term assets ... would be appropriate … Members agree that the monetary base was likely to grow significantly.”

There was little debate in the FOMC on the question of buying longer-term Treasuries, with the major disagreement coming over how much to buy. Some members said the prospect of deflation argued for “very substantial purchases,” while others said some of the heavy lifting could be accomplished by other Fed programs, particularly the new Term Asset-Backed Securities Loan Facility.

“What happened to a solid recovery in 2010? As it stands, the minutes provided ample justification for the Fed's decision to engage aggressive quantitative easing,” wrote Matthew Strauss, of RBC Capital Markets.

The euro was also harmed when the Irish government estimated that its budget deficit will soar to 10.8% of GDP this year, in spite of emergency budget plans to slash spending and increase taxes.

Energy

In the energy market on Wednesday, oil rebounded slightly, with crude for May delivery closing at $49.38/barrel, up 23 cents. May reformulated gasoline dropped just over 2 cents, to $1.4396/gallon.

In its weekly inventory report, the Energy Information Administration said that crude supplies rose 1.7 million barrels in the week ended April 3, which was lower than analysts’ expectations.

The EIA also reported that gasoline inventories rose 600,000 barrels while distillate stocks declined by 3.4 million barrels. Refineries operated at 81.8% capacity, up slightly from a week earlier.

“Crude stocks didn't increase as much as anticipated but stocks remain well above the high end of the normal range,” said James Williams, of WTRG Economics..

“On the consumption side the U.S. is using less of everything … The data is a clear indicator that the recession has changed consumer behavior,” Williams added.

Base Metals

The base metals were mixed on Wednesday. Copper ran at $2 again, and again was turned away at $1.98 right around noon, after which it fell to finish at $1.9483/lb., down a quarter-cent. Nickel was down in the pre-dawn hours but rallied through the rest of the day, closing at $4.8368/lb., up 5 1/4 cents. Zinc was sharply higher through most of the day, ending at its intraday high of $0.603/lb., up a penny. Aluminum was modestly higher, adding a quarter-cent to $0.652/lb., while lead was modestly lower, shedding a half-cent, to $0.5956/lb.

Copper continues to struggle to close over $2, carding a fractional loss yesterday after it fell short of what is proving a formidable barrier once again.

Analysts said the metal’s run early in the day followed the stock market. “A little bit of buying has crept through on the back of the Dow,” said James Roberts, of Sucden Financial in London. “The turnaround in prices is equity-driven.”

But the upturn in the dollar likely put a lid on things.

“We expect the currency markets and technical signals to continue exerting a strong influence over short-term price direction,” wrote analysts at Standard Bank.

Stockpile data was non-supportive, as inventories monitored by the LME rose by 2,300 metric tons yesterday, to 504,200 tons. But canceled warrants—metal earmarked for delivery—continued to soar, advancing to 59,825 tons yesterday, up from 27,675 tons a week earlier.

Inventories are still up by 48% this year, but with a lot of metal heading out for China, some see improvement ahead.

Analyst Judy Zhu was somewhat optimistic, writing that, “Data related to consumption of industrial commodities lead us to believe that the worst time for China’s demand may have passed, though we still believe that an immediate, strong rebound is unlikely.”

It’s not only copper that’s streaming toward China, either. As Platts wrote, “The wide spread between Chinese refined zinc prices and those quoted on the London Metal Exchange has led to an increase in zinc imports over the past three months, as local importers make huge profits.”

While supplies are tight now, “Industry participants, however, expect zinc imports to slow down by mid-May, when the buying season ends. Zinc end-users in China, such as zinc alloy producers, usually buy materials between February and May every year once they are back from the Lunar New Year break end January,” Platts wrote.

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


NEWS YOU CAN USE:

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