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Precious Metals

Gold was little changed until mid-morning in New York on Friday, when it got briefly taken down below $865 before settling into a tight $5 range through the rest of the Comex and the Globex, finishing at $868.70/oz., down $5.60. For the week, gold lost 1.2%.

Platinum sold off in European trading, but righted itself in New York to edge back into positive territory, ending at $1205/oz., up $2. For the week, platinum tacked on 1.5%.

Silver was down in Hong Kong, down a little more in London, then had every New York rally attempt thwarted as it went essentially nowhere for the rest of the day, closing at $11.89/oz., down 33 cents. For the week, silver shed 3.6%.

Gold and silver were under assault again yesterday, with both taking hits, although platinum continues to defy the bears and hold its own.

The metals might have gotten a lift from equities and oil, both of which finished the day higher, but they didn't. Traders are clearly looking more toward the rallying dollar and receding inflation fears at the moment.

As James Moore, of TheBullionDesk.com, put it: Further signs of investor and economic confidence emerged. Financial earnings gave rise to speculation the worst of the banking crisis is over and perhaps the global recession is easing.

Demand for paper gold has also fallen off a bit. The SPDR Gold Trust reported that its holdings fell to 1,119.43 tons (36 million ounces) on Thursday, a drawdown of better than 265,000 ounces. It was the biggest drop since April 3.

The correction may have further to run, as a lot of optimism has suddenly appeared after a few small signs that the US economy is not quite as bad off as it might have been, a rather shaky basis for any good cheer.

Further strength in equity markets would signal an increasing risk appetite, which would be detrimental to precious metals, which have relied on safe-haven demand, wrote Toby Hassall, an analyst at Commodity Warrants Australia.

Over the longer term however, Hassall hastened to add, unprecedented fiscal and monetary stimuli have increased inflationary expectations, which will be constructive to gold prices.

Currencies and Economic News

In the currency market, the dollar continued to advance against the euro. Late Friday, the euro was trading at $1.3024 vs. $1.3177 on Thursday.

It's primarily a question of market positioning and risk management rather than a newfound bullish outlook for the dollar, said Marc Chandler, of Brown Brothers Harriman.

Short-term, momentum traders got frustrated with the lack of upside progress in the foreign currencies, Chandler added, and the relationship between equity markets and currencies seems to be weakening.

The common currency also took a hit after remarks by European Central Bank President Jean-Claude Trichet.

Trichet said yesterday that the euro was not weak at current levels and that he appreciated remarks by top U.S. officials affirming a strong dollar is in the interests of the United States.

In our economy, banks play such a dominant role that non-standard measures need to be implemented - first and foremost - through the intervention and with the active participation of banks. This is why I have sometimes referred to our non-standard measures as those of enhanced credit support, Trichet said.

Also factoring in was concern about Ireland after Moody's Investors Service placed the country's AAA government bond ratings on review for possible downgrade.

Energy

In the energy market on Friday, oil was slightly higher, with crude for May delivery closing at $50.33/barrel, up 35 cents. May reformulated gasoline rose 1.84 cents, to $1.4927/gallon.

Shane Wisdom, president of Wisdom Financial tried to puzzle out the market, saying that, Traders seem to be focusing on somewhat more upbeat prospects of an economic recovery further down the road.

However, he added, the news remains bearish, pointing to weaker demand and building supplies.

Justifiably anxious over the global economy, now in the throes of the most serious economic calamity since the 1930s, [the energy market] attaches to the slightest glimmer of hope signs of a nascent recovery, said Michael Fitzpatrick, of MF Global.

Certainly there are signs,Fitzpatrick added, noting that Citigroup and GE results-bad, but not as bad as expected-contain very hopeful elements, but are still in negative territory.

And natgas continues to languish, with gas for May delivery falling 9.4 cents, or 2.5%, to $3.599 per million BTUs.

Base Metals

The base metals were mostly higher on Friday. Copper was down from the pre-dawn hours to the New York open, but rallied strongly through the day to finish just off its intraday high at $2.1585/lb., up more than a penny and three-quarters. Nickel eased only a little in the pre-dawn hours, then it too took off, closing at its intraday high of $5.7274/lb., up 14 3/4 cents. Zinc followed much the same path, ending at $0.6846/lb., up a penny and three-quarters. Aluminum couldn't hold in the green, shedding more than a half-cent, to $0.6507/lb., while lead was very strong, adding 2 2/3 cents, to $0.6931/lb.

Copper led the bulk of the industrial metals higher, as the metal notched its fifth straight weekly gain, the longest rally in a year.

Among supportive elements were the positive tone on Wall Street, some budding optimism about the US economy, significant short covering, and a strong underlying Chinese presence.

While improvement in the equity markets and a bit of economic optimism is driving copper momentum, said Bill O'Neill, of LOGIC Advisors in Upper Saddle River, New Jersey, there's no question that there is a real Chinese factor to it. Copper looks to me like it wants to go higher.

The China factor, according to Reuters: Large copper shipments into China last month are likely to have pushed record imports above China's own production for the first time, as local smelters failed to produce enough to satisfy government buying.

China has filled a vacuum in world metals demand by buying metals to prop up its own ailing smelters. Although global demand has collapsed and China is a major copper producer, as well as the top maker of aluminium, lead and zinc, it has attracted a flood of metals in recent months.

Stockpile drawdowns continued to be bullish. Copper inventories monitored by the LME dropped again yesterday, shedding 5,575 metric tons to 469,625 tons, the lowest level in more than 12 weeks.

Not everyone is banging the gong, however. Copper has significantly exceeded expectations, wrote UBS London analysts. We believe that prices have likely overshot fair value given the extent to which global demand deteriorated.

That's what's happening ... have a great weekend and see you Tuesday!



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