Good morning …

Precious Metals

Gold rose in Hong Kong on Friday, then spent the whole day cruising leisurely within a range between $905 and $915, with a slight bias to the upside late in the day that resulted in a finish at $913.10/oz., up $9.30. For the week, gold was strong, adding 5.1%.

Platinum also experienced no sharp moves, trading tight between $1170 and $1180 all the way through, and ending in the middle at $1175, down $4. For the week, platinum slipped 2.5%.

Silver was as listless as its sister metals, trading inside a 20-cent range for most of the day before edging above it at the noon hour and leveling off through the rest of the Comed and the Globex to close at $12.90/oz., up 8 cents. For the week, silver rose a robust 8.5%.

The precious metals obviously spent yesterday digesting the gains of the previous several days, and the fact that this didn’t lead to more profit taking and a descent into red numbers for gold and silver had to be heartening to aficionados.

As gold marked its first week of gains in the past five, any potential selling was likely muted by news that China has nearly doubled its gold reserves since 2003, surging to become the world's fifth largest holder.

The official Xinhua News Agency reported that, according to the head of the State Administration of Foreign Exchange, China has increased its gold reserves by 76% over the six-year period, to 1,054 metric tons (nearly 34 million ounces), mainly through domestic buying and scrap refining.

That makes a great deal of sense in light of China’s repeated assertions that it needs to diversify its nearly $2 trillion stockpile of foreign exchange reserves. Bullion buying clearly reflects efforts in that direction.

“This news is highly significant for the gold market,” wrote John Reade, UBS AG’s head metals strategist in London. “It will raise expectations of further Chinese purchases. It may also trigger purchases from other central banks.”

“Gold has been given a further boost on the back of the China reserve news,” added James Moore, of TheBullionDesk.com. “But the metal now needs to clear trend-line resistance around $916 to confirm the return of more bullish sentiment and target the $940 area.”

“Bear-trending forces are still in control of the gold market,” said Ralph Preston, a Heritage West Futures commodity analyst in San Diego. However, he admitted, Friday’s action could “reinvigorate the bulls and should spark a rally to test $930 an ounce resistance,” since the price topped $910.

Currencies and Economic News

In the currency market, the dollar fell again against the euro. Late Friday, the euro was trading at $1.3247 vs. $1.3145 on Thursday.

Analysts attributed the continuing weakness to anxiety among traders over what finance ministers and central bankers from the Group of Seven nations gathering in Washington may say regarding their countries' reserves.

Officials from the G7 met yesterday afternoon ahead of the weekend spring meetings of the IMF and World Bank. The G7 gathering will be followed by a meeting of the broader G20, which includes China and other powerful emerging economies.

At issue will be discussions with Chinese officials over calls by China's central bank chief for replacement of the U.S. dollar as the world's premier reserve currency by IMF special drawing rights.

The day’s hard numbers came in weak. The Commerce Department reported that durable goods orders fell 0.8% in March, marking the seventh decline in the past eight months.

Inventories fell 1.1%, a sign that manufacturers are bringing supplies of unsold goods in line with demand. But shipments fell faster than inventories did, suggesting that production will need to be reduced further.

Separately, Commerce reported that new home sales fell 0.6% in March, but added that sales in the first two months of the year were stronger than initially reported.

Energy

In the energy market on Friday, crude for June delivery rose, closing at $51.55/barrel, up $1.93. May reformulated gasoline added 4.6 cents, to $1.4475/gallon.

It was the fourth straight session of gains for crude, as traders liked the fact that Ford reported a smaller-than-expected quarterly loss.

In addition, “A weaker U.S. dollar and rising stock markets provided support” for oil prices, said analysts at Commerzbank. “Crude prices are not currently being supported by fundamentals with [high] crude inventories in the U.S.”

Oil also benefited from equities that fought back from early losses to post gains for the day, and from the general uptrend in commodities.

And natgas continues to struggle, with gas for May delivery falling to $3.286 per million BTUs, down 31 cents on the week.

Base Metals

The base metals were mostly higher on Friday. Copper was little changed until New York opened, then took off down the track, riding an almost uninterrupted surge through the day and finishing at its intraday high of $2.0413/lb., up more than 9 1/4 cents. Nickel pushed higher and, though it eased late, still closed above the $5 mark at $5.1256/lb., up better than 13 3/4 cents. Zinc was off early, but recovered to end at $0.6293/lb., up a half-cent. Aluminum was modestly higher, adding a third of a cent, to $0.6439/lb., while lead dropped less than a quarter-cent, at $0.6458/lb.

Copper had a grand resurgence yesterday, terminating a four-day slide and storming back over the $2 mark as another dramatic falloff in inventories persuaded traders that demand is picking up.

On the stockpile front, copper inventories monitored by the LME plummeted yesterday, falling by 10,525 metric tons to 429,550 tons. LME stocks have fallen for 10 straight sessions and are now down 14% just this month.

Much of the outflow has been heading for the far East, due to the difference in premiums between London and Shanghai, but China’s stockpiles have yet to reflect much input. Inventories monitored by the Shanghai Futures Exchange plunged 34% this week, to 15,051 metric tons.

The industrial metals also benefited from the declining dollar, which gave them a boost as an inflation hedge. And they responded to the housing and manufacturing data, which, although continuing to be dismal, came in better than expected.

Looking ahead, copper will average $1.90 a pound this year as production outpaces demand, analysts at RBS Global Banking & Markets wrote. Output of the metal will top demand by 700,000 metric tons in 2009 as use declines 6 percent, Edinburgh-based RBS forecast.

While William O’Neill, of Logic Advisors in Upper Saddle River, New Jersey noted that “the weaker dollar is certainly helping copper … [and] the mildly encouraging economic numbers are also supporting the price,” he cautioned that, “The big negative that’s still hanging over copper is the production surplus that we’ll have this year … Demand has fallen a lot.”

That’s what’s happening … have a great weekend and see you Tuesday!


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