Good morning ...
Gold got whacked down again yesterday, declining steadily from the far East clear through the New York session on Monday, and finishing at $871.10, down $20.80. Overnight, gold has fallen off.
Platinum was likewise savaged, with numerous rallies through the day met with determined selling, and the metal ending just off its intraday low at $1926/oz., down $49. Overnight, platinum has edged lower.
Silver took its lumps into the first hour of the New York morning session, then traded sideways for the balance of the day, closing at $16.56, down 43 cents. Overnight, silver is trending lower.
A gloomy day for precious metals investors ahead of today's interest rate announcement by the Federal Reserve, with gold down 2.3 and silver 2.5%.
The usual suspects lined up against gold, with the dollar firming and oil sliding in price, but that probably doesn't explain the broad-based selloff. The selling resembled March's washout of weak hands.
But there could be another factor in play. The market is behaving as if the Fed announcement will be gold-negative no matter what. This could indicate a belief that the Fed will stand pat, rather than lower rates yet again.
Or it could signal that the market believes that, if indeed another quarter point is lopped off, that will be the last such cut. Fundamentally, it makes little difference whether interest rates remain steady or drop a little more. In both cases, increased inflation is baked in the cake. Gold cannot long remain depressed.
Jim Sinclair, writing on jsmineset.com, has nailed it, in our opinion, saying that, The following is what has pressured gold and caused short covering in the dollar/euro: Media has convinced the public that the Fed will go hawkish, first by decelerating the drop in interest rates. The deceleration has been attributed to the Fed having done the right thing.
Media has convinced the public that the ECB will reduce interest rates now faster than the Fed, thereby boosting the dollar versus the euro. Although the business statistics are negative, the media has held out the carrot that it takes six months for the Fed's action to materialize in the economy so all will be well in six to nine months.
The idea that the credit crisis is over is the message that firming financials are communicating as media supports that position. Media has declared gold as DEAD.
Most of that, Sinclair says, is raving BS, and we agree.
Currencies and Economic News
In the currency market, the dollar rose against the euro. Late Tuesday, the euro was trading at $1.5566 vs. $1.5642 on Monday.
Well, it's Alice in Wonderland time again. The big news of the day was another tumble in the Conference Board's consumer confidence index. The index fell to 62.3-the lowest level in more than 5 years-from a March reading of 65.9.
Accompanying the numbers, Lynn Franco, director of consumer research at the private Conference Board, wrote that, This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further.
Bad news, right? Um, not exactly. Because analysts had been looking for a drop to 61.0. Therefore, the Red Queen says, it's good news!
Elsewhere, Standard & Poor's Case/Schiller home price index for February was released yesterday, and showed home prices down 2.6% compared with January for 20 key cities. Prices are down a record 12.7% over the past year.
There is no sign of a bottom in the numbers, said David M. Blitzer, chairman of the index committee at Standard & Poor's.
Nevertheless, traders were grasping at the Fed straw, hoping for rhetoric that would indicate today's cut, if it comes, will be the end of the line.
In the energy market Tuesday, crude for June delivery plummeted, falling to $115.63, down $3.12. June reformulated gasoline fell 9.15 cents, to $2.9392/gallon.
As opposed to dollar speculators, oil traders took the gloomy economic news for what it was, gloomy.
Also, in the no news is good news category, there was no further report of violence out of Nigeria yesterday.
Further, prices are correcting from yesterday's record high of $120 per barrel as BP Plc prepares to restart its Forties pipeline after a two-day shutdown, said analysts at Action Economics. The 700,000 barrel-a-day crude oil pipeline system in the North Sea should be back on line within a few days.
The base metals were all in the red on Tuesday. Copper held up until New York opened, then dipped sharply and never regained the lost ground, finishing at $3.9253/lb., down 4 1/4 cents. Nickel fell from the pre-dawn hours through much of the day, breaking back under the $13 mark and closing just off its intraday low at $12.8866/lb., down 30 2/3 cents. Zinc fell to its intraday low of $1.0043/lb., down 2 1/4 cents. Aluminum sagged to $1.3238/lb., down 2 cents, while lead barely scraped itself off its intraday low at $1.2209/lb., down nearly 2 1/2 cents.
Copper led the industrial metals lower as the strengthening dollar sapped their appeal as a hedge against currency losses.
A lot of it is dollar related, said Kevin Tuohy, of MF Global in London. It basically stopped any flow of fresh fund money into the market.
As Bloomberg pointed out: Copper had a correlation of 0.63 to the dollar in the past month, more than triple the reading for last year. A figure of 1 would mean the two moved in lockstep. The dollar headed for its first monthly advance against the euro and yen since December.
Nevertheless, stockpiles continue to dwindle. Inventories monitored by the LME dropped by 675 metric tons yesterday, to 109,650 tons. Adding in Shanghai and New York, global inventories are at their lowest level in a year and a half.
Metal availability right now is extremely poor, said Dan Brebner, an analyst at UBS AG in London.
BHP Billiton said its copper production fell 8% in the first quarter, year over year, because of declines at Escondida, the world's largest copper mine, and Olympic Dam.
And the current unrest in Chile is also affecting the amount of metal coming to market, as state-owned Codelco closed its Teniente mine which had been re-opened over the weekend. Andina and Salvador remain shut.
This is not called a strike, it is called violence, said Codelco CEO Jose Pablo Arellano. We have lost a total of around 19,000 tonnes in production due to this, and that has a cost of around $100 million.
That comes on top of a decline in first quarter output of 3.9% from the year-eariler period, a shortfall Arellano attributed to a drop in ore grades at Codelco's flagship Norte division.
However, We are supplying our clients normally within the lower production that has been registered, Arellano said.
That's what's happening ... see you tomorrow!
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