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Precious Metals

Gold held around $920 until just after London trading began, then went on a nosedive that took it below $900 in the third hour of the New York session Wednesday, after which it did manage to rally back a bit, finishing at $904.80, down $11.40. Overnight, gold has edged lower.

Platinum pushed as high as $2040 in the far East, but then it too was taken down, before bouncing off a low of $1990 in New York trading and ending at $2001/oz., down $24. Overnight, platinum is slightly lower.

Silver got sledgehammered down from its high of $17.80 in early London trading, falling all the way to $16.90 before some late buying shoved it back to a close at $17.00, down 51 cents. Overnight, silver has inched higher.

After two straight days of disappointment, during which the metals were supported by the falling dollar and rising oil, when those two markets turned against them, they took a severe licking.

About all that can be said for sure is that there was a wave of liquidation, for whatever reason.

Stephen Platt, a futures strategist at Archer Financial Services in Chicago was led to say that, Some of it is linked to a pullback in crude and pressure on the euro ... But, In terms of upside potential, gold is limited.

Silver, which has been beaten down more than gold, is already down 5.7% in the past five sessions, and that has some bears growling. The price may drop to $15.50 over the next 12 months, Goldman Sachs Group said.

Kitco's Jon Nadler warned that the usual upward forces may not come through for gold.

Fed watchers no longer expect a half-point cut next week and even a quarter-point cut is beginning to look less than certain, Nadler said. Participants continued to be frustrated by the metal's recent lack of response to outside drivers and by investor apathy.

While the current pause is still seen as a period of consolidation, the risk of a breach of the $900 level remains in place and could take bullion to the $880/$890 area, Nadler added.

Looking at the bigger picture, Zachary Oxman, of Wisdom Financial noted that there has been a significant decline in gold open interest since January, while holdings in gold ETFs have been stagnant since peaking in mid-March.

Currencies and Economic News

In the currency market, the dollar was sharply higher against the euro. Late Wednesday, the euro was trading at $1.5881 vs. $1.5993 on Tuesday.

There was no particular data to drive the price action on the day.

Some analysts cited comments from Bank of France Governor Christian Noyer, who told French radio that comments about the ECB being ready to take any necessary steps to bring inflation back down to its 2% target by 2009, were misinterpreted.

Noyer amended his remarks, saying that, Movements can go both ways ... I would never engage in a discussion about the future path of interest rates, simply because nobody knows.

Today's release of the key IFO business survey from Germany will be a big test for the euro, according to Ashraf Laidi, currency strategist at CMC Markets. That survey has historically been the key dynamic that determined the euro's moves higher.


In the energy market Wednesday, crude for June delivery debuted as the front-month contract by rising slightly to close at $118.30/barrel, up 23 cents. May reformulated gasoline gained 3.23 cents, solidifying its place above $3 at $3.0424/gallon.

Yesterday marked the first week in a while where the Energy Information Administration's weekly numbers didn't surprise to the downside.

The EIA reported that crude stockpiles rose by 2.4 million barrels for the week ending April 18, which was slight above analysts' expectations for a 2 million barrel increase.

The EIA also reported that U.S. gasoline supplies fell by 3.2 million barrels, vs. expectations for a drawdown of 2.25 million barrels, while distillate stocks fell by 1.4 million barrels as against projections for a buildup of 250,000 barrels.

U.S. refineries really ramped up production, operating at 85.6% of capacity, more than 4% higher than the previous week's 81.4%, the EIA reported.

Analysts went fishing for a sense of direction. With little in terms of resistance 'signposts' to guide us, we would need the market to define a top for us, presumably by moving to new highs followed by a same-day reversal to daily lows, speculated Edward Meir, of MF Global.

Base Metals

The base metals were primarily in the red on Wednesday. Copper faced its bugaboo, the $4 mark, almost making it there in the pre-dawn hours before declining through most of the trading day to finish at $3.9376/lb., down more than 4 cents. Nickel fell back through the $13 mark, yet again, closing at $12.8639/lb., down 17 3/4 cents. Zinc fell below the 99 cent mark in the early morning, but managed to rally back over a buck, ending at $1.0032/lb., down two-thirds of a cent. Aluminum was a modest gainer, adding more than a third of a cent, to $1.3745/lb., while lead lost just over two cents, to $1.2685/lb.

Copper fell by the most in two weeks, as demand concerns took precedence over supply worries on this particular day.

The metal skidded despite some strength in the equities markets and the positive trading in the dollar, which makes commodities denominated in dollars more expensive for holders of other currencies.

It's not just metals. The whole commodity sector is weaker. The dollar is a little bit stronger in comparison with where it was yesterday. People are taking some chips off the table, said Eugen Weinberg, a commodities analyst at Commerzbank.

The metal was also affected by a report out of Chile quoted a leader of striking workers at Codelco, the world's largest copper producer, as saying that government-mediated meetings with the state-owned company may resume.

The report said a settlement had been reached with unions representing striking workers at the Teniente mine, and that the Chilean Mine Minister has called for a quick resolution to the problem.

There is a real incentive to get it done ... to try and move the copper out as quickly as possible rather than sitting on it, said Steve Platt, a futures analyst with Archer Financial Services in Chicago.

That certainly will affect sentiment. At this juncture, I think the dollar, questionable demand from China, and the prospects of a resolution are probably all combining to make for a weaker tone, Platt added.

Meanwhile, aluminum bucked the downtrend by remaining firm.

The metal's strength is being driven by news from China that power stations' coal reserves have dropped to only 12 days' worth of supplies, down from 15 days in March, Weinberg said. The government's minimum guideline is 14 days.

Almost 80% of China's electricity is generated from coal and that a shortage would mean a big hit to production of aluminum, the most energy-intensive metal.

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


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