Good morning ...
Gold had a very choppy day that saw it peak short of $880 in the far East, then decline steadily during London and the first hour of the New York session on Wednesday, but then bounce off an $865 low three times by noon, after which the trend was gently upward, to a finish at $867.80, down $7.90. Overnight, gold has been edging higher in London.
Platinum also skidded into New York's first hour, but it then fought its way back to neutral, ending at its intraday high of $1961/oz., up $1. Overnight, platinum is sharply higher.
Silver followed gold's lead almost exactly, falling as low as $16.45 before rallying back to a close at $16.60, down 24 cents. Overnight, silver has been flat.
Although the metals got some support from still-rising oil prices, the dominant factor was the dollar, which strengthened enough to drag gold and silver down after three straight positive sessions.
Also factoring in were reports out of India that gold sales during Akshaya Tritiya, the Hindu religious festival considered an auspicious time to buy gold, have been disappointing.
Julian Phillips, an analyst at GoldForecaster.com, admits that the finance ministers from the G-7 industrialized nations have made it clear that they do not like a weak dollar and will do something about it, which could be why the dollar is stronger against the euro.
However, We believe the gold price will soon reflect a bigger picture than simply the euro/dollar exchange rate, Phillips said.
And with supply disruptions continuing to push oil to higher levels, gold looks set to benefit from further inflation-related hedging in the short term, while strong physical demand helps provide a strong base, wrote James Moore, of TheBullionDesk.com.
That physical demand isn't likely to abate, as even one member of the Fed talked openly about inflation yesterday.
The real current threat to the economy is inflation, as food and fuel are taking a big bite out of everyone's wallet, said Miguel Perez-Santalla, of Heraeus Precious Metals Management in New York. With this kind of mixed news [strong dollar vs. rising inflation], the market is sure to be choppy in metals and any big dips may be considered good buying opportunities.
Currencies and Economic News
In the currency market, the dollar was sharply higher against the euro. Late Wednesday, the euro was trading at $1.5404 vs. $1.5525 on Tuesday.
The buck fought off the latest bad economic news. The National Association of Realtors reported that its index of sales contracts on previously owned homes, considered a leading indicator of existing home sales, declined by 1.0% in March. It is now more than 20% below the March 2007 level.
But that was overridden by signs of weakness in the European Union. The European Commission trimmed its forecast for eurozone growth, saying it now expects a 1.7% rate in 2008 and an even weaker 1.5% rate in 2009. 2007 growth clocked in at 2.6%, and as recently as February EU growth for 2008 was projected to be 1.8%.
The European Central Bank and Bank of England both meet today, and they're widely expected to keep interest rates at 4% and 5%, respectively.
Meanwhile, Federal Reserve Bank of Kansas City President Thomas Hoenig publicly spoke the I word yesterday, saying that inflationary pressures now stand at unacceptably high levels.
In the energy market Wednesday, crude for June delivery continued on its rocket trajectory to a new closing record, finishing at $123.53/barrel, up $1.69, after an intraday peak of $123.75. June reformulated gasoline gained a penny, to $3.13/gallon.
The Energy Information Administration released its weekly inventory report yesterday, and it showed crude supplies climbing for the third straight week, up 5.7 million barrels for the week ended May 2. The three-week build is now nearly 12 million barrels.
Gasoline supplies rose 800,000 barrels, the EIA said, while distillate stocks were down 100,000 barrels. Refinery utilization fell to 85.0% of capacity from 85.4% a week earlier.
This report is bearish, although it remains uncertain how much [it] will influence prices given the ebullient sentiment in the oil market, wrote Chris Lafakis, of Moody's Economy.com.
It will be hard for the bulls to put horns on this bearish report, said James Williams, of WTRG Economics, and he wryly suggested that maybe we ought to call this the Goldman effect, referring to Goldman Sachs' projection for a $150-200/barrel oil price in the near future.
The base metals were all in the red on Wednesday. Copper couldn't hold on to Tuesday's gains, as it fell in fits and starts through the day, finishing at $3.8915/lb., down 4 cents. Nickel had a directionless day, eventually easing to $12.82/lb., down 5 2/3 cents. Zinc traded with a down bias, falling below $1 at one point before climbing back to close at $1.0089/lb., down two-thirds of a cent. Aluminum declined slowly but steadily to end at $1.3002/lb., down more than a penny and three-quarters, while lead continued weak, shedding 5 3/4 cents, to $1.0916/lb.
Base metal buyers backed off as easing supply fears and a strongly firming dollar combined to limit their appeal.
The end of the 3-week strike at three of Codelco's copper mines in Chile, which had helped underpin the market, finally made its effects felt yesterday, a day after workers settled with the company. The biggest mine, El Teniente (25% of output), reopened Tuesday afternoon, Andina mine is back at 80% of capacity, and El Salvador could restart by the end of the week.
However, some analysts believe the resolution may not hold. Alex Heath of RBC Capital Markets warned that: An agreement to a bonus award does not address the underlying issue of hiring contract workers onto the permanent workforce that was at the root of the industrial action ... Given that this has still not been addressed, it may prove to be only a temporary solution.
And supplies do still remain constricted, as copper inventories monitored by the LME reported a drop of 625 metric tons yesterday, to 109,025 tons.
The deciding factor determining copper's direction will likely be China, and although Shanghai inventories fell for a third straight week, the demand picture is fuzzy. Chinese copper imports fell by 19% in Q1, and observers are expecting further declines in April's data, due out next week.
Demand seems to be softening somewhat on a global basis, and Chinese use has come down, said John Gross, publisher of the Copper Journal. There's some concern demand will continue to slow.
Finally, those of a certain age will remember collecting 1943 pennies as kids, that year being the only one in which the penny was made of steel rather than copper. Now, with the cost of fabricating a penny at 1.25 cents, Congress is debating bring back, yes, the steel penny. Of course, it'd be simpler to get rid of the coin entirely, since it no longer has any real utility. But when has the government ever opted for the simple solution?
That's what's happening ... see you tomorrow!
NEWS YOU CAN USE
First Majestic Silver Corp is committed to building a senior Silver producing mining company based on an aggressive acquisition and development plan with a focus on Mexico.
The Company presently owns or operates three silver mines in Mexico: The La Parrilla Silver Mine; The San Martin Silver Mine and the La Encantada Silver Mine. Annual production from these three mines is anticipated to be 5 million ounces in 2007.
The Daily Resource has been brought to you by our friend's at Casey Research.
For a great overview of the commodity sector we offer the 'Casey's Daily Resource Plus'.