Good morning …

Precious Metals

Gold had about as lackluster a day as possible on Friday, trapped between $880 and $890 from the far East clear through the Globex, with every attempt to break out in either direction quickly thwarted, and it finished where it started, at $885.80/oz., down 40 cents. For the week, gold dropped 3%.

Platinum plunged from early New York trading to mid-morning, turned abruptly and shot higher to just past the noon hour, then eased for the rest of the day, ending at $1089, down $14. For the week, platinum fell by a steep 7.4%.

Silver was down from Hong Kong to the mid-point of the London session, falling almost to the $12 mark, moved higher through most of the Comex, peaking at $12.80 just after noon, then slipped a bit through the Globex to close at $12.50/oz., up 13 cents. For the week, silver lost 3.1%.

While gold was dead flat, silver posted a gain on the day, presumably because of its role as an industrial metal in an economy that is supposedly on the mend.

“We are seeing some people abandoning gold in favor of equities as they seem to believe that the worst of the financial woe is over,” said Philip Gotthelf, of Equidex Brokerage Group in Closter, New Jersey.

However, longer term, “I am still bullish on gold,” Gotthelf added. “If the financial woes continue through June, the June contract will probably reach $1,000 an ounce. If the problems continue through July, we will see the October gold contract at $1,200 an ounce if not $1,500.”

There is still some overhang from the IMF gold sale threat, says investment biker Jim Rogers. “I own some gold, but I am not buying at the moment because the IMF, which is one of the largest owners of gold in the world, is desperate to sell its gold,” Rogers said. But although not buying, “I’m not selling my gold,” he added.

The deal is that the IMF “is trying to get permission from everybody,” Rogers said. “If and when they sell their gold, they may set a bottom. Who knows? It may go down to $700. They got a lot of gold to sell. If it does, I hope I’m brave enough and smart enough to buy more.”

But for the moment, with gold holding pretty well where it is despite the market negatives, analysts believe strong near-term support exists at the $860 level.

Currencies and Economic News

In the currency market, the dollar was down against the euro. Late Friday, the euro was trading at $1.3268 vs. $1.3224 on Thursday.

Among the day’s it-coulda-been-worse numbers, fhe factory sector contracted again in April, but the pace of decline slowed, according to the Institute for Supply Management index. The closely-watched ISM rose to 40.1% from 36.3% in March, the high point since September.

Of course, readings below 50% mark show most firms think business is still getting worse. Thus, while 40% “shows a significant improvement,” said Norbert Ore, chairman of ISM's survey committee, there is still a large gap that must be closed before manufacturing begins to grow once again.”

Also yesterday, the University of Michigan/Reuters April consumer sentiment index came in at 65.1--also the highest since September--vs. 57.3 in March.

“Two-thirds of all consumers anticipated that the economic policies of the Obama administration will be effective in improving national economic conditions, with most of the gains anticipated over the next several years,” said Richard Curtin, director of the consumer survey.

“What would really cement into place further gains in confidence would be a significant decline in pressures arising out of the labor market,” wrote analysts at research firm RDQ Economics. “Rising consumer and business sentiment, however, is a very good signal that the recession may draw to a close in the second half of the year.”

Energy

In the energy market on Friday, crude for June delivery pushed to a 5-week high, closing at $53.20/barrel, up $2.08. June reformulated gasoline gained 5.16 cents, to $1.5174/gallon.

Traders made the day about the continuation of hope for an economic recovery, buoyed by the consumer and manufacturing numbers, and that overrode the obvious supply glut.

But analysts remained skeptical. “Market participants are taking solace from any optimistic signs the economy shows,” said Michael Fitzpatrick, of MF Global, but “we are more convinced than ever that the market is being set up for a short sharp reversal lower, perhaps to $40.”

The natgas arena showed a spark of life for the first time in a while, with gas closing yesterday at $3.538 per million British thermal units. That’s up almost 25 cents on the week.

“We are still wary of this market until a significant sell-off, possibly to $40, occurs,” said Fitzpatrick.

Base Metals

The base metals were all flashing green on Friday. Copper moved higher in the pre-dawn hours, went flat until late morning, then shot up again to finish barely off its intraday highs at $2.0954/lb., up 7 1/4 cents. Nickel crashed from the late pre-dawn hours to late morning, but then moved up sharply to regain positive territory and close at $5.3093/lb., up 5 1/2 cents. Zinc was up steadily all day, ending at $0.6705/lb., up 4 1/2 cents. Aluminum had a good day, adding a penny and a third, to $0.6762/lb., while lead was strong as well, tacking on just under 3 cents, to $0.6271/lb.

Copper led the industrial metals higher, prolonging its recent strong run to a 2-week high as the somewhat upbeat economic numbers combined with continually dwindling supplies to give the metal a shot in the arm.

Inventories monitored by the LME were off sharply again yesterday, falling by 7,075 metric tons, to drop below the 400,000 mark for the first time since January 21 and end at 398,700 tons. Since late February, stocks have shed some 140,000 tons, about 25%.

In addition, inventories held in Singapore and South Korea were the lowest since 2005, showing that “Chinese buying has been particularly strong this first quarter,” said Leon Westgate, of Standard Bank Group in London.

“To me, it all suggests that the stars are starting to align for a global recovery,” said Bart Melek, of BMO Nesbitt Burns in Toronto. “We certainly look like we are bottoming,” he added, projecting the U.S. economy to experience positive growth by as early as the third quarter.

Jesper Dannesboe, senior commodities strategist Societe Generale, noted particularly that, “The ISM data that came out was much better than expected, especially the new orders component, strongest since August 2008 … The manufacturing data gave the market a real boost in the afternoon.”

Amid the euphoria, a damp towel was thrown by Daniel Brebner, head of commodity research at UBS AG in London, who said that, “China has been the only buyer really in the copper market.”

Brebner predicted that, “You are going to see less demand from China in the second quarter,” and said that copper is likely to fall 20% over the next three to four months.

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


NEWS YOU CAN USE:

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