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Precious Metals

Gold pushed as high as $940 just before the open of the New York session on Thursday, then fell off until the noon hour, but then reversed field once again, moving higher to finish at $929.40/oz., down $4.60. Overnight, gold has edged lower.

Platinum was higher in the European markets, but declined in New York, to end at $2026/oz., unchanged. Overnight, platinum has slipped lower.

Silver peaked at $18.40 in early London trading, fell off until mid-morning in New York, then traded sideways for the rest of the day, closing at $17.95, down 22 cents. Overnight, silver has been flat.

It was a mixed day for the precious metals, with early weakness giving way to a spate of buying later in the day, and no major changes by the end.

There was little likelihood that support was going to emerge, given that the dollar strengthened against the euro and oil prices declined after their record run on Wednesday.

Also factoring in was declining sentiment in the markets that further substantial interest rate cuts are on the way. Futures traders are now pricing in a 56% chance the Fed will lower rates to 2% by April 30, compared with an 80% chance just a week ago.

Actually, Lowering U.S. rates has had some hefty effects already, argues Jon Nadler of Kitco. Speculators left the dollar and bought commodities. Now, with room for further cuts running out and the prospect of a sharp slowdown, the game is proving more difficult. On the basis of the euro record today, gold should have been up near $1,050.

But despite the modest decline in gold's price, the market remains strongly biased to the upside at this point, counter-argues Zachary Oxman, of Wisdom Financial.

I'd treat this dip as another proxy to buy as the market breaks up to $960, Oxman added.

Currencies and Economic News

In the currency market, the dollar strengthened slightly against the euro. Late Thursday, the euro was trading at $1.5741 vs. $1.5756 on Wednesday.

The news of the day-if it can be called that-was that, as universally expected, the European Central Bank held the line on interest rates, maintaining its benchmark steady at 4%. ECB President Jean-Claude Trichet said that it was a unanimous decision.

Trichet's accompanying rhetoric was firmly hawkish. While he acknowledged facing a protracted period of economic uncertainty stemming from the global credit crisis, he nevertheless warned of strong, upward short-term inflation pressures.

Specifically, Trichet said that the level of uncertainty resulting from the turmoil in financial markets remains unusually high and tensions may last longer than initially expected, but against this background, we emphasize that maintaining price stability in the medium term is our primary objective in accordance with our mandate.

As eurozone March consumer inflation came in at 3.5%-substantially above the ECB's goal of keeping inflation below 2%-the chances of a rate cut were slim and none, with Slim out of town for a while.

The ECB will remain reluctant to soften its hawkish stance until inflation pulls back from current 16-year highs, wrote wrote Benjamin Reitzes, economist at BMO Capital Markets.

Separately, the Bank of England cut its key interest rate by a quarter-point, to 5%. That was expected, but it drove sterling down to $1.971.

And, while the buck may have held up against the euro and pound, on the other side of the other pond, things were deteriorating. The People's Bank of China set the central parity rate for the U.S. dollar at 6.9920 yuan, down from 7.0025 yuan Wednesday. It was the first time ever that the dollar was allowed to fall below the 7-yuan mark.


In the energy market Thursday, crude for May delivery took a breather after its record-setting runup a day earlier, closing at $110.11/barrel, down 76 cents. May reformulated gasoline, however, went in the other direction, rising 1.79 cents, to $2.7921/gallon.

The decline was less than might have been expected after crude pushed past $112 intraday on Wednesday.

But, Supply concerns continue to dominate, despite worsening economic performance and consequent evidence of softening demand, said Michael Fitzpatrick, of MF Global.

Base Metals

The base metals all fell deep into the red on Thursday. Copper pushed as high as $4.04 in the pre-dawn hours, but then hit the wall and dropped off to finish near its intraday low at $3.9532/lb., down nearly 6 cents. Nickel dove below the $13 mark before recovering late to close almost on it at $12.9969/lb., down 15 1/3 cents. Zinc sank throughout the day, ending at $1.0439/lb., down 2 cents. Aluminum barely made it off its intraday low, shedding more than a penny and a quarter to $1.3674/lb., while lead had a down day, losing more than 3 3/4 cents, to $1.2923/lb.

Copper declined as the $4 resistance level ruled the day, with traders reluctant to commit to prices beyond that level.

The market's struggling here with this $4 area, said Stephen Platt, of Archer Financial Services. People are still a little bit sensitive to what the general economy is doing here.

Platt added that there is concern that the U.S. economy is still rather weak, and that is limiting upside initiatives in the metal.

There is also concern about Chinese demand for the metal as the nation's exports could be negatively impacted by the projected slowdown in U.S. economy. In addition, there has been criticism about China's export quality and the country is embroiled in criticism of its human rights policies, Platt said.

However, looking forward, traders are concerned about a deepening power crisis in Chile, producer of 40% of the world's copper. Chile's domestic users are looking at possible supply cuts because a drought has caused dams feeding hydro-electric generators to run critically low. On top of that, Argentina continues to deny the country gas supplies.

Taking that into account, analysts at the World Copper Conference in Santiago said there was no immediate end in sight to the current short-term bull run in copper.

And Goldman Sachs analysts in New York predicted the price of copper will continue at about $4.10/lb for the rest of 2008 before climbing to $4.54 next year. Credit Suisse is even more bullish, predicting that copper will reach $5.44/lb this year.

Bloomberg energy, shipping and commodity markets business manager Josh Eastright told the World Copper Conference that, Copper has room to run, based on fundamentals. I don't see the speculators driving the market. There is no outright appearance that manipulation is going on, Eastright said.

In company news, BHP Billiton tried to quash market rumors by saying that it is unaware of any move by Chinese interests to acquire a stake in the world's biggest miner.

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


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