Good morning ...

Precious Metals

Gold was right at its base for the day, $905, when the New York session opened on Wednesday, but the metal went near-vertical from there, pushing above $935 before a slight easing in the afternoon hours took it to a finish at $934.00/oz., up $18.60. Overnight, gold has pushed higher.

Platinum got hammered in the European markets, falling as low as $1980, but it too stormed back in New York, to end at $2026/oz., down just $2. Overnight, platinum has edged higher.

Silver matched gold's run, dropping as low as $17.36 just before London opened, but rocketing northward in domestic trading, soaring almost to $18.40 before pulling back to close at $18.17, up 50 cents. Overnight, silver has been trending higher.

A very good day for gold and silver, although platinum lagged, as investors thronged back in.

Of course, it didn't hurt that the price of oil skied to new heights. The dollar lent only mild support as it drifted slightly lower.

It's the prospect of further declines in the currency that had Frank McGhee, of Integrated Brokerage Services in Chicago, saying that, The euro wants to go to the moon ... We could have gold and silver come back and make up a lot of ground.

Gold garnered some additional support when Gold Fields Mineral Services projected that 2008 gold production was going to be flat. Many traders are likely to take such a suggestion as tantamount to an admission that we are in for a tightening of the world gold supply.

That the IMF wants to sell 14.3 million ounces of gold had some analysts looking at sales figures for the Central Bank Gold Agreement (CBGA), under the terms of which the European central banks have agreed to sell a maximum of 500 metric tons of gold per contract year (Sept.-Sept.).

Though hard figures are difficult to come by, it appears that CBGA signatories have sold in the neighborhood of 200 tons of gold seven months into their year. If they maintain that pace, they would sell less than 400 tons by September, well under the limit.

Of course, the IMF is proposing the sell an amount equal to 442 metric tons, which if it happens would make the U.S. a bigger net seller than all the CBGA banks combined. Can the market absorb such a flood of metal? Many analysts think so, and so do we.

Currencies and Economic News

In the currency market, the dollar eased against the euro. Late Wednesday, the euro was trading at $1.5756 vs. $1.5731 on Tuesday.

It was again a day of little action ahead of today's announcements from the European Central Bank and the Bank of England with regard to interest rate policy.

Traders were still digesting the minutes of the Federal Reserve's last meeting on interest rates, and they weren't sitting well since they said that a more 'prolonged' and 'severe' downturn could not be ruled out.

Meanwhile, the IMF is putting the chance that global economic growth will drop to recession levels in 2008 and 2009 at one in four. If the financial markets were a twin-engine plane, both engines would be on fire, the agency said.

The IMF is now projecting world economic growth will slow to a 3.7% rate in 2008, down from 4.2% forecast previously, and it says that we will have to depend on the emerging economies, particularly China and India, to prop up the global economy.


In the energy market Wednesday, crude for May delivery skyrocketed to a new alltime high, closing at $110.87/barrel, up $2.37 after hitting an intraday high of $112.21. May reformulated gasoline rose 2.38 cents, to $2.7742/gallon.

Crude surged after the Energy Information Administration came in with some inventory surprises.

In its weekly stockpile report, the EIA said that crude was down 3.2 million barrels for the week ended April 4. That stunned analysts, whose consensus was for a 2.7 million barrel build.

The hefty fall in crude oil stockpiles was a major shock for a market which was expecting the opposite, wrote Martin Slaney, of GFT Global Markets U.K. As we head into driving season in the U.S. the tumbling inventories data is particularly significant.

Meanwhile, U.S. gasoline supplies fell 3.4 million barrels, while distillate supplies dropped 3.7 million barrels. Analysts had been anticipating declines of 2.3 million barrels for gasoline and 1.3 million barrels for distillates. Also, refineries operated at 83% of capacity last week, up from the previous week's 82.4%.

Base Metals

The base metals were all in positive territory on Wednesday. Copper was flat until just before the New York open yesterday, but then it was off to the races for most of the day, with the metal coming barely off its intraday high to finish at $4.0123/lb., up 10 cents. Nickel had a similar pattern, although it eased more than copper, and closed at $13.1496/lb., up 22 1/3 cents. Zinc had a decent day, ending at $1.0642/lb., up a penny and a quarter. Aluminum went gangbusters, shooting to its intraday high of $1.3802/lb., up more than 5 1/2 cents, while lead soared to its intraday high of $1.3308/lb., up 4 1/2 cents.

Copper surged the most in seven weeks, closing above $4 for the first time and approaching its alltime intraday record price of $4.04, set in May of 2006.

While the uptrend was not completely unexpected, it caught many offguard.

Although global copper demand remains strong and there are challenges to the industry to provide supplies of copper, said Richard Adkerson, chief executive officer of Freeport-McMoRan Copper & Gold, To have copper approaching $4 a pound is remarkable.

Yes, as Citigroup reported this week, a tidal wave of $70 billion has poured into commodity markets this year from hedge funds and other investors.

And there are many who agree with Tobias Levkovich, Citigroup's chief U.S. equity strategist, who claims there is a commodity bubble that is poised to burst.

But it is physical demand, not speculative investment, that is driving copper prices, says Bret Clayton, CEO of Rio Tinto Group's copper division. We see a very strong market, Clayton says. We are in a very finely balanced market, with very low stock levels.

Maybe we should just split the difference.

The main drivers for copper have been in place for some time, says Ron Goodis, a of Equidex Brokerage Group in Closter, New Jersey. There's continuing global growth that's been pushing demand. When you combine that with the push from speculators, you have this huge move.

In company news, rumors continued that Baosteel, China's biggest steelmaker, was on the prowl to acquire a muti-billion dollar stake in BHP Billiton.

And the country's state-owned aluminum giant, Chinalco, fresh off its partnership with Alcoa in grabbing a major stake in Rio Tinto, said it is not done. It's actively looking to pick up some more mining assets, particularly in copper.

Asked if Chinalco was looking in South America or Africa for mining projects, Xioaling Ren, the company's vice president of marketing replied simply: Wherever possible.

That's what's happening ... see you tomorrow!


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