Good morning …

Precious Metals

Gold was initially lower in Hong Kong but traded flat through to the New York open on Tuesday, at which point it plunged about $13 in a half-hour, before riding a gently rising uptrend for the rest of the day, to finish at $893.30/oz., down $12.90. Overnight, gold is slightly higher.

Platinum fared very poorly again, falling from the overseas markets through the first hour in New York, to as low as $1070 before catching a slight updraught, then trading sideways for the rest of the day, and ending at $1091, down $49. Overnight, platinum has been flat.

Silver also traded sideways through Hong Kong after an early plunge, then got taken down through London to late in the New York morning, when it finally perked up to the tune of only about 10 cents, and was flat to a close at $12.49/oz., down 41 cents. Overnight, silver is little changed.

The precious metals all took a serious beating yesterday, with platinum (down 4 1/2%) and silver (off better than 3%) leading the way. That wasn’t very good news to fanciers, since the dollar moved lower, which usually creates expectations that gold in particular is going to move higher.

Thus it wasn’t so much a rush into the dollar as it was simply a desire to raise cash on the part of many market participants.

“Cash conservation seems to be foremost in traders' minds,” said George Gero, a precious-metals trader for RBC Capital Markets. “Sellers in gold, crude, and copper appeared from funds interested in raising cash, concerned with swine flu hurting economies and more uncertain outcome of automobile bailouts.”

The World Health Organization raised a global alert to the highest ever and said swine flu can no longer be contained after spreading to the U.S., Canada, Europe and New Zealand from Mexico.

It may be a little counterintuitive that gold wouldn’t maintain its safe haven status in the face of economic disruptions brought about by the flu outbreak, and it may yet reassert itself in this regard. But the same is not true of silver, which is more tied to industry..

But John Reade of UBS in London pointed out the flip side, that “considering Mexico’s position as the second-largest producer of the metal … supplies could be interrupted if the virus continues to spread.”

Platinum, even more industrial than silver, took the worst beating. “[Yesterday’s] fall-off-a-cliff move in platinum’s price has done serious damage to bull-trending forces,” wrote Ralph Preston, of Heritage West Futures in San Diego. “A push under $1,069 an ounce projects a move down to $1,039 and sets the stage for a test of $1,002 … Only a close over $1,194 an ounce reinvigorates the bulls. Until then, the bears are free to run wild.”

Currencies and Economic News

In the currency market, the dollar slipped against the euro. Late Tuesday, the euro was trading at $1.3141 vs. $1.3039 on Monday.

Traders were squaring long U.S. dollar positions ahead of Wednesday's Fed decision and first-quarter GDP release, according to Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

“The event risk of these events may limit appetite for fresh U.S. dollar exposures, with renewed U.S. dollar buying likely to resume if first-quarter GDP disappoints or the Fed announces further QE [quantitative easing] measures,” Woolfolk said.

The day’s numbers provided some support for an expansion of risk.

The Conference Board reported that its U.S. consumer confidence index jumped to a reading of 39.2 in April from 26.9 in March. The month-over-month gain was the fourth-largest ever in the 32-year history of the survey.

At the same time, Standard & Poor’s Case-Shiller home price index declined in February, as home prices in 20 major cities fell 2.2%. But that was good news of sorts, since it was less than the 2.8% drop in January. It was also the first time in 16 months that the year-over-year decline in prices did not set a record.

For what it may be worth, prices are “no longer falling off a cliff,” wrote Patrick Newport, of IHS Global Insight. “Instead, they are rolling down a steep hill.”

Energy

In the energy market on Tuesday, crude for June delivery backed off, slipping below $50 to close at $49.92/barrel, down 22 cents. May reformulated gasoline dropped just under a penny, to $1.3995/gallon.

Analysts said the day’s action was all about fear once again, as the concern is that a spreading swine-flu outbreak will curtail travel and delay recovery in the global economy, in turn reducing oil demand.

“The disease brings SARS and the resulting collapse in Asian oil demand to mind,” wrote Hussein Allidina, a commodities analyst at Morgan Stanley.

Allidina added that, “Oil's recent rally has been fueled by the green shoots of economic recovery, and the outbreak will draw attention to the fragility of the recovery, and hence the basis for oil's rally.”

However, “if the outbreak remains contained, its impact will be much less significant than SARS,” Allidina said.

Base Metals

The base metals were all in the red again on Tuesday. Copper declined from the pre-dawn hours straight through, save only for a brief late morning bump, and finished just off its intraday lows at $1.8922/lb., down 7 1/3 cents. Nickel plunged in the late pre-dawn hours, falling below $5, and stayed below the mark through a rally at the New York open, then was hit with more late day selling to close at $4.867/lb., down 15 1/3 cents. Zinc had a moderately down day, ending at $0.5935/lb., down two-thirds of a cent. Aluminum was little changed, shedding just over a tenth of a cent, to $0.6339/lb., while lead continued to plummet, giving up another 2 1/2 cents to its intraday low of $0.5825/lb.

Copper led the industrial metals down, falling to a 3-week low yesterday, as a second day of swine flu worries, added to ongoing concerns about the health of the economy, weighed down the market after last week’s breakout of optimism.

“Sentiment in the market seems to have soured a bit,” said Tom Hartman, of Altavest Worldwide Trading in Mission Viejo, California. “We went from a great rally in the first quarter of the year to just a bear market rally ... there's a lot of turmoil out there.”

Gayle Berry, an analyst at Barclays Capital in London, added that, “The concern on the economy that the swine flu has created really dented investors’ sentiment … We’ve also seen much lower LME volume, indicating the flurry of buying we’ve seen in the past has cooled down.”

While Matthew Zeman, of LaSalle Futures Group in Chicago, could write that “copper is a great example of a market that had gotten way ahead of itself,” the stockpile data continue somewhat to belie that assertion. Inventories monitored by the LME declined again yesterday, falling by 5,000 metric tons to 420,275 tons. LME stocks have fallen for 12 consecutive trading sessions, the longest such streak since March, 2008.

Additionally, canceled warrants -- material earmarked for delivery -- rose to 70,125 metric tons from 67,600 tons on Monday. “Copper stocks are dropping substantially so this is still positive,” said Andrey Kryuchenkov, of VTB Capital. “And canceled warrants are holding up -- there's still support from the physical side.”

Latest data from the International Copper Study Group show a world copper a surplus of 155,000 metric tons in January, however “the current surplus should be smaller if we look at falling stockpiles at LME and Shanghai Futures Exchange,” said Judy Zhu, an analyst at Standard Chartered.

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


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