Good morning …

Precious Metals

Gold started up in the far East on Wednesday and continued higher to mid-morning, eased a bit to the noon hour, but then resumed the uptrend through the rest of the Comex and the Globex, finishing at $911.00/oz., up $15.10. Overnight, gold has edged higher.

Platinum moved into positive territory late in the Hong Kong session and held there for the day, trading rangebound between $1130 and $1140 and ending at $1135, up $8. Overnight, platinum is much higher.

Silver had a very good day, consolidating recent strength by moving sharply higher just before the New York open, hitting peaks above $13.80 twice during the session, then easing later in the day to close at $13.73/oz., up 41 cents. Overnight, silver is pushing higher.

Gold and silver both turned in solid performances yesterday, with platinum lagging a bit behind but still finishing to the plus side. The usual suspects provided some lift, with oil pushing higher and the dollar dropping off.

The metals also benefited from a more general commodities rally that saw the UBS Bloomberg Constant Maturity Commodity Index of 26 futures rising as much as 2.9, to push it above the 1,000 mark for the first time since November.

“Gold has caught a whiff of a broad-based commodity rally on the back of today’s better-than-expected ADP report,” said Ralph Preston, of Heritage West Futures in San Diego. “However,” he quickly added, “trend forces are neutral and gold bulls are being held in the corral as they are unable to overcome $915 resistance in today’s trade.”

As always, the currency factor underpins everything.

“Spot gold has been up for the last day or two on a weak dollar,” said George Gero, vice president, RBC Capital Markets Global Futures, along with “concerns over the U.S. bank stress test results,” which will be released today.

Pre-release scuttlebutt has seen various figures published on the amounts needed to comply with the government-administered test, with the New York Times claiming that Bank of America alone will need more than $30 billion in additional capital.

Summarizing the present outlook, Miguel Perez-Santalla, of Heraeus Precious Metals Management in New York, wrote that: “The precious metals market remains guardedly bullish … It appears that only investment money with no home in the capital markets has found its way into precious metals, and once something looks good on the other side, it could pull the rug out from under these prices.”

Currencies and Economic News

In the currency market, the dollar sank against the euro. Late Wednesday, the euro was trading at $1.3341 vs. $1.3319 on Tuesday.

The influential data of the day was ADP’s jobs number, which showed that U.S. private-sector employment fell by 491,000 in April. While hardly good news, that was the smallest decline since October.

The number beat expectations and raised hopes that economists’ gloomy predictions for the Labor Department’s jobs report, due out on Friday, may not be fulfilled. Consensus projection is for a decline of 580,000.

“By any measure except the past few months, a 491,000 drop in private payrolls is disastrous, but at least it is less disastrous than before,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Gains by the euro were capped, though, after Standard & Poor's cut its ratings for five out of six rated German Landesbanks, financial institutions owned by regional government and local community savings banks.

The downgrade “contributed to risk aversion and pushed up the dollar,” said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.

Energy

In the energy market on Wednesday, crude for June delivery pushed to a six-month high, closing at $56.34/barrel, up $2.50. June reformulated gasoline rose 5.58 cents, to $1.628/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks increased by 600,000 barrels in the week ended May 1, far less than analysts’ expectations for a 2 million barrel buildup.

Gasoline supplies fell by 200,000 barrels, while distillates increased by 2.4 million barrels. Refineries were operating at 85.3% of capacity, a sharp increase from 82.7% a week earlier.

“The market is likely to fade this morning's bearish report as it has in recent weeks with fund flows and sentiment remaining positive,” wrote Hussein Allidina, an analyst at Morgan Stanley.

Many analysts are skeptical about what’s happening with the oil market. “Although there was a less than expected build in crude, fundamentals are still bearish,” said Tariq Zahir, of Tyche Capital Advisors. “There is a tremendous amount of oil floating.”

Base Metals

The base metals were all solidly in the green on Wednesday. Copper started moving higher early in the pre-dawn hours, and continued the trend pretty much straight through the day, just coming off its intraday highs to finish at $2.1725/lb., up more than 12 1/2 cents. Nickel was flat until mid-morning, then it too caught fire and shot up to close at its intraday high of $5.7516/lb., up more than 43 cents. Zinc made a strong upmove, ending at $0.713/lb., up nearly 4 cents. Aluminum was solid, adding over a penny and three-quarters, to $0.6926/lb., while lead posted a modest gain to $0.6453/lb., up just under a penny.

Copper led the industrial metals higher, making a powerful move that took it up the most in a month after the better-than-expected jobs data left traders with hope that the economic worst is in the rear-view mirror. It was the metal’s fifth positive session in the past six.

“I think people are feeling pretty confident that the economy is in fact bottoming and we are starting to see the light at the end of the tunnel,” said Matthew Zeman, of LaSalle Futures Group in Chicago.

“It's just one in a long line of more encouraging economic data that has been coming out in the last couple of weeks,” said Gayle Berry, an analyst at Barclays Capital.

The jobs report notched another positive in a week that has featured less-than-dismal numbers from the service industries in the U.S., manufacturing in China, U.S. construction spending, and the housing market.

Berry added that market participants are coming around to “the view that global output may now be starting to pull itself out of the hole it fell into at the end of last year.”

Oddly on such a strong day, the supply situation failed to be supportive. Copper inventories monitored by the LME were up sharply yesterday, rising by 7,225 metric tons, to 402,150 tons.

That could signal a slowing of the movement of copper from Europe to China, since the price differential has narrowed of late.

“Because the arbitrage halved over the past couple of weeks and physical premiums have come off, maybe we'll see less European metal going into China,” Berry said. “But [we don’t want] to read too much into one day's trend.”

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


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