Good morning …

Precious Metals

Gold was flat to slightly higher through Hong Kong and the first half of the London session on Monday, but caught ignition once New York opened, shooting up nearly $20 by just past noon, before easing into the Globex and finishing at $884.80/oz., up $16.10. Overnight, gold is slightly higher.

Platinum was hammered through the far East and European trading, leveled off into the noon hour, but then plunged again before inching back up on the Globex to end at $1161/oz., down $44. Overnight, platinum has been flat.

Silver’s sojourn below the $12 line lasted only a day, as it broke past the mark early in London, then traded within a tight 20-cent range for the rest of the day, closing in the middle at $12.10/oz., up 21 cents. Overnight, silver is little changed.

Although platinum took a serious hit yesterday, gold and silver moved contrary to the usual suspects, rising sharply in the face of plummeting oil and equities, and a strengthening dollar.

As the Hightower Report saw it: “The gold market managed to reject some minor weakness in the early morning action and then the market impressively extended the strength throughout the trading session. In fact, considering the magnitude of the gains in the Dollar, the strength in gold prices at the start of the new week was really impressive. With a sharp down day in the equity market and weakness in a host of physical commodities, the gold market had to be garnering some flight to quality interest. However, seeing the prospect of a labor dispute in the South African mining sector and the presence of US bank sector turmoil rumors was evidently more than enough fodder to send gold prices soaring. With the gold market (at least temporarily) rising above the 100 day moving average, it is also possible that some technical based buying was in motion during the trade Monday.”

James Moore, of TheBullionDesk.com noted that gold “has been prevented from further weakness by bargain hunters as well as physical jewelry interest. But Moore has been consistently cautious, and he quickly added that “gold is likely to be at risk to further pressure short-term, particularly with more ETF redemptions expected.”

“The metal may test down to the $820 area before finding sufficient support,” Moore predicted.

Elsewhere, labor problems in South Africa have the potential to push gold higher. That country’s National Union of Mineworkers said it will ask for a 15% pay increase for its 190,000 members who work in gold and coal mines. The union is also demanding improved living allowances and health benefits

Whether companies can afford to go along remains to be seen.

Currencies and Economic News

In the currency market, the dollar continued to advance against the euro. Late Monday, the euro was trading at $1.2924 vs. $1.3024 on Friday.

Analysts said the buck benefited from safe haven status amid a further stock market breakdown, and that the euro was hurt by hints that the European Central Bank may be readying another rate cut.

“Risk appetite has quite literally gone back to [at least] neutral this week, following the extended risk appetite rally which carried into last week,” said Stephen Gallo, of Schneider Foreign Exchange Ltd. in London.

ECB President Jean-Claude Trichet said of a rate cut in May that, “I said it would be very measured, very measured,” and repeated that the bank could cut rates another 25 basis points, as it did at its last meeting.

“We have decided already to embark on nonstandard measures to cope with the situation … As regards to possible new nonstandard measures, we will have our next meeting on 7 May. That day, I will explain in detail what we will have decided.”

The day’s one number was the Conference Board saying its index of leading economic indicators fell 0.3% in March, following an upwardly revised dip of 0.2% in February. The Board said the recession could continue through summer, though its intensity might ease.

Energy

In the energy market on Monday, oil posted its biggest one-day loss in seven weeks, with crude for May delivery plunging to close at $45.88/barrel, down $4.45. May reformulated gasoline fell 8.08 cents, to $1.4119/gallon.

With the May contract losing front-month status today, there will likely be additional volatility in the market as speculators who don't want physical oil have to sell the contract before expiration to avoid taking delivery.

Phil Flynn, of Alaron Trading, sees “more choppiness” as expiration approaches, however “if the stock market stabilizes, we'll see the price of oil start to come up,” he said.

“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.

Analysts at Goldman Sachs disagreed, writing that they expect oil prices to fall to $45 a barrel in the near term, “as lower prices will be required to shore up demand while keeping supply off the market.”

Base Metals

The base metals were all gushing red on Monday. Copper was down from the pre-dawn hours straight through the day with only minor interruptions, finishing at its intraday low of $2.061/lb., down 9 3/4 cents from Friday. Nickel followed the same path, closing at its intraday low of $5.4758/lb., down more than 25 cents. Zinc was slammed, ending at $0.6506/lb., down nearly 3 1/2 cents. Aluminum was weak, shedding just under 2 cents, to $0.6316/lb., while lead completed the rout, dropping almost 3 1/2 cents, to $0.6591/lb.

Copper led the industrial metals lower, falling the most in two months as the metal followed equities downward and ran counter to the rising dollar, which raises the cost of commodities transactions conducted in the currency.

“Of all the five broad commodity sectors, industrial metals have tended to have the strongest positive correlation to the S&P,” wrote Michael Lewis, an analyst at Deutsche Bank in London.

Analysts said copper slid after a surge in troubled loans at Bank of America rekindled worries about the struggling banking sector and sent investors scurrying for whatever safe haven they could find.

“Flight to quality indicators -- bonds, treasuries, gold, and the dollar -- all up in the same direction as fear about the economic outlook creeps back into the market,” said Frank McGhee, of Integrated Brokerage Services in Chicago.

At the same time, stockpile drawdowns continue to flash bullish signals. Copper inventories monitored by the LME dropped again yesterday, plummeting 7,300 metric tons to 462,325 tons. Stocks have declined by nearly 80,000 metric tons since mid-February.

But the big boys have moved heavily against copper. Commodity Futures Trading Commission data showed that hedge funds and other large speculators increased their net-short position in Comex copper futures by 8.4 percent for the week ending April 14. Speculative shorts outnumber long positions by 18,861 contracts.

Meanwhile, China has helped support the market by announcing a reserve-building plan will purchase 1 million tonnes of aluminum, 400,000 tonnes of copper and 400,000 tonnes of lead and zinc over the next three years.

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


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