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Precious Metals

Gold took it on the chin after holding near $880 in the far East, falling in London and through most of the New York session on Thursday, before finally finding a bottom at $850 and trading sideways for the afternoon hours, finishing at $851.90, down $24.70. Overnight, gold has been flat.

Platinum also took a pounding, just coming off its intraday low to end at $1865/oz., down $68. Overnight, platinum has edged lower.

Silver's decline was even sharper than gold's, but it did bounce off the $16 mark and rebound up to close at $16.15, down 69 cents. Overnight, silver is trending higher.

The bloodletting in the precious metals continued with a vengeance yesterday, but with gold finding support at $850 and silver at $16, is the worst over? It's way too soon to tell, as yet.

One thing for certain is that this is entirely counterintuitive. The Federal Reserve's quarter-point cut on Wednesday is inflationary, without question, which should be gold-positive. But traders seem to be grasping at the straw that the Fed may be done, based on little evidence.

If this is indeed the end of this round of interest rate reductions, then that could be seen as very slightly dollar- and equity-positive. But not to the extent we saw yesterday, with stocks booming and the buck strong.

The truth of the matter, though, is that the Fed wouldn't have acted if it felt that the economy had been given enough of a cash infusion to perk it up. And it is also true that serious inflation is baked into the cake.

That the market can ignore those important factors in favor of a wispy hope that things maybe, possibly, might not be quite as bad as they seem is a good indication of just how daffy this market is.

Whatever, gold will remain at risk to further corrections in the coming sessions, wrote James Moore, of

Perennial pessimist Jon Nadler of Kitco goes farther, saying that, Despite the lack of a clear pause signal in yesterday's Fed announcement, the markets are treating May/June as the pivot point beyond which they can no longer reliably depend on ever cheaper dollars to fuel speculative binges in commodities.

But what then will they spend those eroding dollars on?

Currencies and Economic News

In the currency market, the dollar was sharply higher against the euro. Late Thursday, the euro was trading at $1.5457 vs. $1.5612 on Wednesday.

Currency traders fell all over themselves trying to put a happy face on the Fed's interest rate decision. With most of the rate cuts behind us, the greenback, which has been battered relentlessly due to unfavorable interest rate differentials, may now find some reason to rally, wrote Boris Schlossberg, of Forex Capital Markets.

Well. Let's see if we get this right: The buck has been battered by an unfavorable interest rate differential, but it's cause for a rally when that differential becomes yet more unfavorable. Does that make one's head spin?

Let's look at the day's hard numbers to try to get a better grip on reality. The Institute for Supply Management said its manufacturing index held steady at 48.6% in April, matching March. Bad news, right, because readings under 50% indicate contraction? Oops, nope, because the projection had been for a fall to 48%.

Elsewhere, the Commerce Department reported the largest decline in outlays for residential construction projects in 26 years in March, with total spending falling 1.1% after an upwardly revised 0.4% increase in February.

The Labor Department said first-time filings for state unemployment benefits surged 35,000 to 380,000 last week -- the highest level in a month.

And Commerce also said consumer prices rose 0.3% in March, matching the 0.3% rise in incomes, and in line with expectations. At the same time, consumer spending increased 0.4%, yielding a net gain of just 0.1% after adjusting for the rising prices, much worse than the projected 0.3% rise in spending.


In the energy market Thursday, crude for June delivery fell for the third straight day, dropping to $112.52/barrel, down 94 cents. June reformulated gasoline declined 2.81 cents, to $2.8782/gallon.

The combination of the weak U.S. economy and a strengthening dollar continues to put downward pressure on oil, said James Williams, of WTRG Economics.

Supply worries have eased after the re-start of a major Scottish refinery following resolution of a two-day strike on Tuesday. And Exxon said that upstream affiliates in Nigeria confirmed they're in the process of production start-up following resumption of services by the senior staff workers union.

Base Metals

The base metals all took a big red bath on Thursday. Copper started down late in the pre-dawn hours, then plunged from the New York open through to early afternoon, when it edged just back up from its intraday low to finish at $3.7869/lb., down 16 cents. Nickel was near $13 at the open, then it too plummeted, and a late morning rally wasn't enough to get it back into the black as it closed at $12.7694/lb., down 6 3/4 cents. Zinc hit the skids, falling well below the $1 mark to $0.9744/lb., down 2 3/4 cents. Aluminum was steadily down all day, ending at $1.2722/lb., down 3 1/2 cents, while lead was hammered, beaten down to $1.147/lb., down 7 1/2 cents.

Copper was down the most in nearly six months as the market essentially took two conflicting ideas and found in them a common outcome.

On the one hand, Wednesday's rate cut is coming to be perceived as the end of the line. That caused the dollar to strengthen, even though the cut itself was dollar-negative, and reduced the appeal of metals as a hedge against the inflation each reduction will cause.

On the other hand, the fact that the Fed acted rather than standing pat is a clear indication that serious economic weakness remains with us, which means that demand for industrial metals is likely to weaken further.

In addition, inventories monitored by the LME, which have fallen by 44% this year, may be stabilizing. There are expectations that the downward decline in LME stocks is going to start to taper off, said Catherine Virga, an analyst at CPM Group in New York.

Canceled warrants, or inventory earmarked for withdrawal on the LME, fell to the lowest level since the first week of the year. That's an indication that demand for exchange-tracked supplies may begin to decline, Virga said.

In company news, the credit ratings of both BHP Billiton and Rio Tinto were confirmed by Moody's Investors Service yesterday after being placed on review for potential downgrades in February, due to questions over the impact of Billiton acquiring Rio, should that happen.

But both companies were given a clean bill of health.

And Mexico's National Statistics Institutes report the country's copper production fell 36% in February, year over year, largely due to the ongoing strike at Cananea. But silver production was up 29% over the year earlier period.

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


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