Good morning …

Precious Metals

Gold was in positive territory until just before the New York open on Tuesday, when it dropped about $10, then proceeded to trade sideways all the way through the Comex and Globex, finishing at $889.30/oz., down $3.30. Overnight, gold has been pushing higher.

Platinum started the day down in the far East, and only prolonged its losses on a long, slow slide through the whole rest of the day, ending at its intraday low of $1203/oz., down $24. Overnight, platinum is trending higher.

Silver was down until mid-morning in New York, rallied back to break-even in listless trading, and wound up where it started at $12.73/oz., off just a penny. Overnight, silver is sharply higher.

It was another one of those blah days that have become common for the precious metals of late, as traders have been unable to find much of a sense of direction. But fanciers probably took a bit of heart from the fact that there wasn’t more damage, as the usual suspects were not generally supportive, with equities and oil down and the dollar strengthening.

Some of the flight to quality impetus may have slid away as Fed Chair Ben Bernanke said there are signs that the “sharp decline” in the economy may be easing, and President Obama said the stimulus package is beginning to “generate economic progress.”

Guess you just have to know where to look.

Inflows into SPDR Gold Shares have also fallen back, at least for the moment. “Further resistance [in gold prices] is expected at $900,” said James Moore, of “With ETF investment demand still slow, further significant gains may be curtailed.”

More pressure was applied via an upbeat earnings report from Goldman Sachs, raising hopes that the financial crisis may have bottomed, and concurrently reducing gold's appeal as a safe asset.

“Ostensibly positive news from the financials has lifted [stock] markets in recent days,” commented Mark O'Byrne, of Gold and Silver Investments. “But there are concerns that the positive results may have had more to do with government largesse and innovative accounting rather than any meaningful return to profitability.”

“The rest of the reporting season is unlikely to be so positive as companies and sectors not bailed out and supported by government are set to struggle which will likely see stocks under pressure again,” O’Byrne added.

Currencies and Economic News

In the currency market, the dollar gained ground vs. the euro. Late Tuesday, the euro was trading at $1.3285 vs. $1.3363 on Monday.

Analysts said that currency traders unwound their yen positions as the stock market fell, and retreated into dollars.

In addition to his upbeat comments on the economy, Bernanke said that the U.S. should make sure its currency stays strong. He noted that the U.S. dollar remains the dominant currency in the world, and he sees it remaining that way.

Among the day’s hard numbers, the Commerce Department said U.S. retail sales dropped a seasonally adjusted 1.1% in March, after two months of gains. That was much worse than the 0.3% gain projected by economists.

Separately, the Labor Department said that, following two consecutive months of gains in the producer-price index, it fell 1.2% in March, driven by a 5.5% decline in energy prices. Over the past 12 months, the PPI is down 3.5% -- the largest 12-month decline since a drop of 3.9% in 1950.

“For some reason, people have gotten optimistic about short-term inflation but … the prospect of further price declines as we enter warmer months is very real and that prospect has not abated at all,” wrote Dan Greenhaus of the equity strategy group at Miller Tabak. “For now, producer prices continue to contract and as best as I can tell, they will continue to do so for the immediate future.”


In the energy market on Tuesday, oil retreated back below the $50 level, with crude for May delivery closing at $49.41/barrel, down 64 cents. May reformulated gasoline fell just over a half-cent, to $1.4576/gallon.

“The oil market is surprisingly resilient considering the bearish report released by the IEA pointing to weakening global demand,” said Shane Wisdom, president of Wisdom Financial. “Oil is caught in a choppy trading range at the moment and is building a base at the $50 level.”

The IEA predicted that world oil consumption is likely to drop by 1.35 million barrels per day in 2009 compared with a year ago.

However, “The correlation between the equity market and oil at this time is very high and I'd expect this to continue,” Wisdom added.

Traders await today’s inventory figures from the Energy Department, with the consensus favoring a further retreat in stockpiles of about 2.5 million barrels.

Base Metals

The base metals were mixed on Tuesday. Copper was off steeply during the pre-dawn hours, rallied a couple of times through the day, but always met with selling pressure and finished at $2.0791/lb., down just under a penny and a half. Nickel was up slowly but steadily straight through the day, closing at its intraday high of $5.2284/lb., up 12 3/4 cents. Zinc had a choppy day, but with a slight upward bias to end at $0.6325/lb., up less than a half-cent. Aluminum sank through most of the day, easing off its lows at mid-morning to move to $0.6638/lb., down a penny and three-quarters, while lead pushed strongly higher, adding a penny and two-thirds, to $0.6548/lb.

Copper slipped from its 6-month high, but not by a great deal, as the falling stock market and weak retail sales numbers dampened recent optimism and pushed the metal back after it had briefly touched $2.20 overnight.

“The data is a dose of reality that the economy is not out of the woods just yet, and that there is probably more poor data and hard times to go before we can see the light at the end of the tunnel,” said Matthew Zeman, head of trading with LaSalle Futures Group in Chicago.

Analysts said there was also a good measure of profit-taking as traders believe the metal may have gotten ahead of itself in recent days.

On the brighter side, stockpiles continue to fall. Inventories monitored by the LME declined by 4,775 metric tons yesterday, to 492,000 tons.

Also supportive were canceled warrants – metal earmarked for delivery – which totaled 14% of total LME copper stocks at 66,700 tons, compared with 60,850 tonnes early last week. Warrants are up about 130% from the end of March.

Donald Selkin, the chief market strategist at National Securities Corp. in New York, noted that, “Copper has really been following the outside forces of the stock market and the bigger economic picture.” However, he added that price declines may be limited by receding inventories and optimism about continued robust demand in China.

Picking up on that theme, Bloomberg wrote: “China’s surging imports of copper are being fueled by a shortage of scrap material and government buying, with refined shipments to the world’s largest consumer likely to be a record in March, Scotia Capital Inc. said.

“Supplies of copper from scrap dropped by 80,000 metric tons a month from an average of 139,000 tons over 2007 and 2008 on falling imports, lower domestic output and reduced smuggling, Na Liu, an analyst with Scotia Capital, wrote …”

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


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