Good morning ...

Precious Metals

Gold had a very quiet day during which it recuperated from Friday's losses and, except for a brief blip up at the open of the New York session on Monday, traded within a tight $10 range, finishing at $917.10, up 90 cents from Friday. Overnight, gold has edged higher.

Platinum was above $2040 as New York opened, declined from there back to the $2000 level, but then rebounded modestly to end at $2012/oz., down $41. Overnight, platinum is off sharply.

Silver had a very volatile day, rising as high as $17.95 right at the open, then taking a shot to the chin for the second straight day and collapsing to as low as $17.25 before a mild rally raised it to close at $17.42, down 42 cents. Overnight, silver is trending higher.

Gold investors hoping for a big bounce from bargain hunters after Friday's nosedive were disappointed at not getting it, while fanciers of silver and platinum had to be even more troubled.

It was especially disconcerting since the usual suspects, the declining dollar and rising oil, lined up in the metals' favor. But they were clearly caught up in the broad-based commodity selling that took place yesterday.

The lower weekly close in gold was bearish from a technical point of view, wrote Mark O'Byrne, of Gold & Silver Investments Ltd., but with oil and the dollar remaining near record highs and record lows respectively and with physical demand internationally and particularly in Asia and China remaining strong, gold is unlikely to fall below $900 per ounce.

A while back, we alerted readers of a gambling nature that Jim Sinclair of was willing to wager a million bucks that gold will trade at $1650 on or before the close of the COMEX open outcry session at the end of the 2nd week of January 2011.

Now it appears that Sinclair has found a taker. He announced that it appears an agreement will be concluded shortly between myself and a Canadian hedge fund as counsel for both parties.

Sinclair has not as yet named the other bettor, but he promises to release all details once the deal is finalized. For our part, we're inclined to believe that Jim will make himself a cool million.

And the wire service Interfax reported that, For the first time, the Central Bank of Russia purchased gold for its international reserves from gold producers, a source in banking circles [says]. Previously the Central Bank had always purchased gold on the interbank market.

Currencies and Economic News

In the currency market, the dollar gave up last week's gains against the euro. Late Monday, the euro was trading at $1.5913 vs. $1.5804 on Friday.

Last week, Citibank's woes inexplicably pushed the buck higher, but that was not the case yesterday. When Bank of America reported that first-quarter profit fell 77% and credit-loss provisions jumped $4.78 billion, the market decided it was hearing bad news.

Are traders coming to terms with reality? Ashraf Laidi, of CMC Markets US, thinks so.

Last week's strong earnings were largely a reflection of relatively robust foreign demand and of the weak U.S. dollar. In the event that equities continue to rally simply on the notion that the 'worst is behind us,' they will risk diverging with the stark macroeconomic reality that is highlighted by soaring energy costs and rising unemployment, Laidi wrote.

For its part, the euro got a boost when European Central Bank Governing Council member Axel Weber said that inflation is likely to remain elevated and hinted that the ECB might have to hike rates.

However, with the euro so far unable to post new record highs, and the market seen as a bit overextended on the long side of the ledger currently, downside potential may be on the rise in the near term, wrote currency analysts at Action Economics.


In the energy market Monday, crude for May delivery hit a record intraday high of $117.76, before also closing at a record $117.48/barrel, up 79 cents. May reformulated gasoline dropped 1.02 cents, to $2.9791/gallon.

Crude rose as the dollar is down again and the Nigerian rebels MEND made good on their threats to have more attacks in Nigeria, said Phil Flynn of Alaron Trading.

The Movement for the Emancipation of the Niger Delta, or MEND, said its members blew up two more oil pipelines in southern Nigeria, leading Royal Dutch Shell to say it will cut oil production by 169,000 barrels per day in Nigeria. MEND said the pipelines attacked belonged to Shell and Chevron.

And OPEC President Chakib Khelil said there is no need for the cartel to raise its production now... any increase in output will not affect oil prices because there is a balance between supply and demand.

Base Metals

The base metals were all mired in the red on Monday. Copper retreated some more from the $4 level, falling from the pre-dawn hours straight through to late morning, then coming just off its intraday lows to finish at $3.918/lb., down 3 1/3 cents from Friday. Nickel held above $13 until the late morning, but then plummeted to close at its intraday low of $12.814/lb., down 18 1/4 cents. Zinc's slide continued, as it fell below the $1 mark to end at $0.9942/lb., down 2 1/4 cents. Aluminum declined slowly but steadily, giving up just over a penny, to $1.3603/lb., while lead also had a very weak day, shedding nearly 4 cents, to $1.2641/lb.

Copper sank for the third session in a row, as traders expressed fear that the price level will discourage Chinese buyers.

Copper has lost its nearby premium, said George Gero, Vice President with RBC Capital Markets Global Futures in New York. There's stories out there now that China wants to cool its economy and people are concerned about whether they want to hold on to copper for prompt delivery or not.

If that concern persists, said Ron Goodis, a futures trading director at Equidex Brokerage Group in Closter, New Jersey, It may trigger a short-term sell-off.

Still, that scenario is playing out against a backdrop of potential supply problems. Inventories monitored by the LME fell by 475 metric tons yesterday, to 113,725 tons. Stocks are now down 42% on the year.

Low inventory levels means that there is little buffer against supply-side disruptions, so we expect prices to remain high and volatile, wrote analysts at Barclays Capital.

And Chilean production has been affected by a subcontract workers' strike that is entering its 6th day. Three of state-owned Codelco's mines in that country have been closed, with no end in sight.

The potential effects of the strike led Eric Wittenauer, of Wachovia Securities in St. Louis, to comment that, This is a market that is already tight and cannot afford to lose production.

Bucking the trend in the base metals was tin, which rose to yet another record high yesterday, as the LME said inventories were off by another 75 tons. Stocks have declined by a third since the first of the year.

Traders are deeply concerned that tightening supply from major producers China and Indonesia could cause stockpiles to contract even further as the year goes on. China has been a net tin importer since last September, and in January began levying a 10% export tax on the metal in an effort to safeguard domestic supply.

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


First Majestic Silver Corp. is committed to building a senior Silver producing mining company based on an aggressive acquisition and development plan with a focus on Mexico. The Company presently owns or operates three silver mines in Mexico: The La Parrilla Silver Mine; The San Martin Silver Mine and the La Encantada Silver Mine. Annual production from these three mines was anticipated to be 5 million ounces in 2007.

Learn more about First Majestic.

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