Good morning …

Precious Metals

Gold looked like it was off to the races when Hong Kong closed on Wednesday, as it jumped $8 in London, but it was taken down hard at the New York open, giving up all its gains and then some, before it turned again in the late morning and clawed its way back just into the green at $890.60/oz., up $1.30. Overnight, gold is slightly lower.

Platinum was stuck between $1210 and $1225 for the whole day, ending in mid-range at $1217/oz., up $14. Overnight, platinum has been flat.

Silver also got charged up in London trading, edging past $12.90 before New York rained in its parade, too, shoving it back down until near noon, after which it traded sideways to close at $12.76/oz., up 3 cents. Overnight, silver is trending lower.

In what is becoming something of a broken record, it was still another blah day for gold and silver, although platinum did notch a decent gain. But aficionados were likely not displeased, as the metals held their own in the face of falling oil prices and a slightly rising dollar.

Burton Schlichter, senior market strategist at Daniels Trading, summed up recent doldrums, saying that, “Gold is struggling with $900 an ounce … As long as it stays under this level, trading is going to remain quiet.”

Gold was probably capped by the tame CPI number released yesterday. That would generate speculation that inflation (at least in the way government calculates it) will remain slight, thereby eroding some of gold’s hedge appeal.

“The lower CPI print is certainly not friendly to gold,” said Brian Kelly, of Kanundrum Research. But he immediately qualified that judgment, saying that “the strength in gold suggests the safe haven bid may be returning.”

Is gold stuck, and preparing for a correction back below $900, as some believe? Or is the spring just steadily tightening, awaiting that one big event that will release it, sending the gold price rapidly skyward, as others maintain?

We shall see. But Dennis Gartman, publisher of the Gartman Letter, who seems to hop in and out of gold like some skittish bunny in the backyard, is now recommending that his followers sell gold near the spot price of $891.

“The uptrend that extends back into the lows of last November and December has been decisively broken, and since then, the most recent rally attempts have failed at progressively lower levels, while the lows are steadily lower too,” Gartman says.

Currencies and Economic News

In the currency market, the dollar gained a little ground vs. the euro. Late Wednesday, the euro was trading at $1.3222 vs. $1.3285 on Tuesday.

There was a spate of economic data released yesterday which, on balance, traders obviously reasoned to be dollar-positive.

The day’s ugliest number came from the Federal Reserve, which reported the nation's factory output fell 1.5% in March. Industrial production is now down 13.3% since the recession began in December 2007. That’s the largest percentage decline since the end of World War II.

Separately, the Labor Department said consumer prices fell 0.1% in March, lower than economists’ expectations for a rise of 0.1%. Core CPI, excluding energy and food, rose 0.2% for the third consecutive month.

Finally, the Fed’s Beige Book report said that the economy continued to worsen across the country in March and early April, even as a few small indicators hinted that the pace of the decline was lessening in some regions.

The Fed summarized reports from thousands of business sources across the country, writing that, “Overall economic activity contracted further or remained weak … However, five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”

Energy

In the energy market on Wednesday, oil moderated slightly, with crude for May delivery closing at $49.25/barrel, down 16 cents. May reformulated gasoline fell just over a penny, to $1.4468/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks shot up by 5.6 million barrels in the week ended April 10, far higher than expectations for an increase of 2.5 million. Supplies are now at their highest level since September of 1990.

Other categories declined, with gasoline inventories falling by 900,000 barrels and distillates coming off 1.2 million barrels. Refineries were operating at 80.4% of capacity, the lowest level since last September, and total petroleum demand over the past four weeks is down by 5.2% from a year ago.

“The EIA reports don't get much more bearish than this,” said James Williams, of WTRG Economics. “Stocks of crude, gasoline and distillates are far above the high end of the normal range and consumption is lower.”

Despite the glut, any down move in crude was dampened by rising equities. “This [oil] market is looking to the stock market before it makes a move,” said Phil Flynn of Alaron Trading.

Base Metals

The base metals all blasted higher on Wednesday. Copper was flat until the late pre-dawn hours, when it took off and pushed steadily higher straight through the day, finishing at its intraday high of $2.1813/lb., up 10 1/4 cents. Nickel followed an almost identical path, closing at its intraday high of $5.5459/lb., up 31 2/3 cents. Zinc was a solid gainer, adding 3 1/2 cents, to $0.6687/lb. Aluminum moved modestly higher, ending at $0.6697/lb., up just over a half-cent, while lead had a very strong day, tacking on almost 4 cents, to $0.6935/lb.

Copper failed to reach the $2.20 mark touched earlier in the week, but led the industrial metals in a broad-based rally that resulted in solid gains across the board.

The big driver of copper came from the supply side as stockpiles showed a huge drawdown. Inventories monitored by the LME declined by 11,600 metric tons yesterday, to 480,400 tons. It was the biggest fall-off since last October.

Reflecting the optimism that has gripped at least a part of the market, Michael Cuggino, CEO of Pacific Heights Asset Management, predicted that the price of copper will continue to climb as demand increases in emerging economies, especially China.

“What’s happening in copper now is a reflection of the broader global economic story,” said Cuggino. “We’re still expecting to see long-term global growth that’s going to drive demand for copper and the other commodities.”

As usual, Gijsbert Groenewegen, of Gold Arrow Capital Management in New York, was cautious, particularly given clear indications that U.S. economic growth remains stagnant.

“Copper may be able to get as high as $2.25, but after that it is going to meet resistance,” Groenewegen said. “Levels that high do not seem sustainable given the weakness that is still present in the economy.”

Meanwhile, zinc advanced for a fourth straight day, forging its highest level in six months, also on speculation that demand is increasing in China, the world’s largest producer and consumer of the metal.

“We’re getting anecdotal evidence of orders picking up in recent weeks, and this has given the bulls a reason to push prices higher,” Shenzhen Rongtuo Trading Co. analyst Pang Ying said yesterday.

Pang also noted that “the widening spread between London and Shanghai prices encourages overseas purchases.”

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


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