Good morning …

Precious Metals

Gold was flat until the noon hour on Wednesday, when it finally made a modest upmove and held in positive territory despite easing on the Globex to finish at $890.70/oz., up $7.40. Overnight, gold has inched higher.

Platinum made its big move just after Hong Kong closed, adding about $25, then leveled off and did little for the rest of the day, ending at $1169/oz., up $16. Overnight, platinum is sharply higher.

Silver had a strong day, rising from unchanged at the beginning of the New York session to a peak just short of $12.40 on the Comex, before sliding on the Globex to close at $12.32/oz., up 26 cents. Overnight, silver is trending higher.

There were no really major moves among the precious metals yesterday, but all posted decent gains against a backdrop of wildly volatile equities, declining oil prices, and a weakening dollar.

Analysts cited rising demand for a store of value after a gloomy projection from the International Monetary Fund that foresees a significant contraction in the global economy this year.

Yesterday, the IMF forecast a 1.3% decline in the world economy this year, compared with a 0.5% expansion estimated in January, and said growth is likely to be slower next year than previously expected, 1.9% vs. January’s 3% figure.

“What is supporting gold is the continued uncertainty in the global economy,” wrote John Gross, the president of J-E Gross & Co., a metals-industry consulting company in Cranston, Rhode Island. “We are in the midst of a ‘sea change’ where gold is the safe haven for investors.”

Further, “The market is divided between those who see inflation, due to the massive infusion of liquidity into the financial system, versus those who expect a deflationary environment going forward,” said Gross, who is also publisher of the Copper Journal.

“I believe the market is in a consolidation phase, where it has been moving sideways over the past two weeks between $900 (resistance) and $865 (support),” Gross concluded. “If the $865 level fails to hold, the next level of support is $825. Conversely, if gold can get past $900 resistance, it may challenge the double top at $1,000.”

And platinum stayed strong as imports into China surged 35% in March from a year earlier. The Chinese government increased the amount it will spend on subsidizing purchases of new vehicles from 600 million to 1 billion yuan, the Ministry of Commerce and Ministry of Finance said yesterday.

Currencies and Economic News

In the currency market, the dollar fell against the euro. Late Wednesday, the euro was trading at $1.3001 vs. $1.2957 on Tuesday.

Sterling took a beating, falling 1.2% versus the dollar, from $1.4671 to $1.4489, as the Office for National Statistics reported that unemployment claims rose less than expected in March but still hit a 12-year high. Overall, the British unemployment rate surged from 6.1 to 6.7%.

At the same time, the Office for National Statistics reported that government borrowing in March rose more than expected, putting the total for the recently completed fiscal year at £90 billion, or 6.2% of gross domestic product. That's up from £34.6 billion in the previous fiscal year, and far above the government's November forecast for a rise to £78 billion.

Domestically, the Federal Housing Finance Agency said its home prices index rose for the second straight month in February, though it still slipped 6.5% annually.

And General Motors continues to flounder, as the company announced yesterday it plans to skip a $1 billion debt payment due June 1.

GM CFO Ray Young admitted that bankruptcy is probable, although the company, with the backing of the U.S. government, will right the ship “in court or out of court,” he said.

Energy

In the energy market on Wednesday, crude for June delivery inched higher, closing at $48.85/barrel, up 30 cents. May reformulated gasoline fell 2.38 cents, to $1.3906/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks rose 3.7 million barrels, about 25% more than expectations. They’re currently at the highest levels in nearly 19 years.

In addition, the EIA reported gasoline supplies rose by 800,000 barrels, while distillates were up 2.7 million barrels. Analysts had been predicting declines in both. Refineries were operating at 83.4% of capacity vs. 80.4% a week earlier.

The EIA also said that total demand for petroleum products in the past four weeks fell 6.5% from a year ago. Gasoline demand fell 0.4% while distillate consumption slumped 9.4%.

“This [government] data are too bearish for the market to ignore. If this doesn't chase the bulls back into the barn, there is little that will,” said James Williams, of WTRG Economics.

Base Metals

The base metals were mixed again on Wednesday. Copper was down in the pre-dawn hours, falling below $1.99, but pulled itself back over the $2 mark as the day wore on, and finished at $2.0133/lb., down 2 cents. Nickel was also down early, rallied during the New York morning, but fell off again late to close at $5.146/lb., down 5 1/2 cents. Zinc followed a similar path, ending at $0.6443/lb., down a half-cent. Aluminum did make it back into positive territory, adding just short of a penny, to $0.6452/lb., while lead was little changed, adding less than a quarter-cent, to $0.6674/lb.

Copper tried to fight its way back to green numbers, but wound up with the biggest cumulative 3-day loss since January, as Wall Street’s very choppy day set the stage for wild swings in the industrial metals and, ultimately, recession fears prevailed.

Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut, put it simply: “The major reason that copper is falling is that people are just worried about the economy.”

Also factoring in was a report released yesterday by the International Copper Study Group which foresaw a global surplus of refined copper that will widen through at least 2010 as use drops “significantly.”

World copper use will fall by at least 4.3% this year, led by declines averaging 14% percent in the U.S., Europe and Japan, the ICSG said. However, in China, the group predicts that demand will rise 3%.

Recent Chinese data has been very bullish. Imports of refined copper by the world's largest consumer—at about 30% of global demand—rose to a record high of 296,843 metric tons of refined copper in March. That’s an increase of 137.6%, year over year.

And the ongoing stockpile drawdown continued. Copper inventories monitored by the LME plunged again yesterday, falling by 7,200 metric tons to 450,100 tons. That’s a three-month low, and a decline of more than 20% since February.

In company news, Freeport McMoRan reported that first quarter profit dropped more than 90%. There have been “very weak market conditions in the U.S. and the rest of the developed world” for copper use, Freeport CEO Richard Adkerson said.

But while Adkerson sees “volatility in the near term” for prices, he expressed confidence that in the long term, “the world is going to have strong demand” as emerging economies build infrastructure and expand.

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


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