Good morning …

Precious Metals

Gold was flat until Hong Kong closed on Thursday, then it pushed higher, peaking at $925 during the first hour of the New York session, but that was it as it fell back into a $910-$915 trading range and stayed there through the Globex, finishing an uninspiring day at $910.00/oz., down $1.00. Overnight, gold is pushing higher.

Platinum soared as high as $1165 in early New York trading but then it too fell off, eventually getting stuck between $1140 and $1150, and ending at $1145, up $10. Overnight, platinum is little changed.

Silver prolonged its string of positive days and, although it too peaked around 9 a.m., after pushing past $14 to $14.13, it rebounded from a fall to $13.70 to take back a chunk of the lost ground and close at $13.79/oz., up 6 cents. Overnight, silver is trending higher.

While yesterday was pretty much about consolidation until the market can digest the bank stress test reports, silver and platinum still managed to post positive numbers even as gold got a serious case of the blahs.

Precious metals fanciers had cause to be a little disappointed, as equities fell off, oil gushed higher and the dollar weakened. But that was apparently insufficient to overcome investor indifference.

With gold a bit in the doldrums, this is a good time to consider some larger issues. Yesterday, longtime gold watcher Julian Phillips, writing for Goldforecaster.com, pondered the implications of the recent revelation that China has been quietly bulking up on gold.

Wrote Phillips: “The fact that China is a buyer for reserves is far more important than how much it currently holds. There is no other conclusion we can reach other than China recognizes its worth as a reserve asset! .

“On the bigger global screen, this revelation stops the concept of gold as a ‘barbarous relic’ as bankers had hoped it would become in the last 50 years and brings it back into a monetary role, even if it is minor at this point … If China buys a larger percentage of local production going forward, then it is probable that central bank buying will overtake central bank selling in the years to come. This alone takes gold away from the perception of its being an archaic relic. More than that it brings gold back to a particularly valued asset ‘in extremis’, the times we are now living in.

“This has to force a rethink of the role of gold by unwilling bankers and the recognition that selling it will not elevate the value of paper money any more. The confidence lost in the last two years cannot be shored up by such foolish practices. It is now time to recognize the dangers not only of today’s crises, but of the dangers that lie ahead, even if the world economy returns to the halcyon days of early 2007 [which appears to be the aim of central bankers and governments now]. The dangers that led to the ‘credit crunch’ will return, if successful. So prudence demands recognition of gold’s value when life gets painful.”

Obviously, we concur.

Currencies and Economic News

In the currency market, the dollar prolonged its slide against the euro. Late Thursday, the euro was trading at $1.3403 vs. $1.3341 on Wednesday.

The common currency got a boost, as MarketWatch.com wrote, “after the European Central Bank announced minimal actions that would hurt the region's shared currency while stabilizing the region's financial markets and economy.

“The European Central Bank cut borrowing costs and said it would buy up to 60 billion euros ($80 billion) in covered bonds, a security popular in Europe and backed by mortgages or public-sector loans ...

“As ECB President Jean-Claude Trichet discussed details of the plan’s size and timing, traders became more comfortable with the notion it was a targeted move and would not be immediate, relieving fears that it was similar to quantitative easing maneuvers that are generally corrosive to a currency.”

The euro’s gains were capped, though, after the Labor Department said initial jobless claims fell 34,000 to 601,000 in the week ending May 2. That’s an awful number, but the lowest level since January.

At the same time, continuing claims reached a new record high, adding 56,000 to reach 6.35 million in the week ended April 25. Continuing claims are a broad indicator of the difficulties of current job searching. Now, today, come April’s unemployment numbers, with most analysts expecting a slowing.

Energy

In the energy market on Thursday, crude for June delivery continued to rise, closing at $56.71/barrel, up 37 cents. June reformulated gasoline added 3.75 cents, to $1.6655/gallon.

It was an up and down day in the energy sector, as traders initially drove crude as high as $58.57/barrel on economic optimism, but then turned nervous and watched as it gave up most of the day’s gains.

The jobless claims report contributed to the early euphoria, along with better-than-expected April same-store sales from retailers and word from the Fed that large financial institutions undergoing stress tests will be granted a 30-day period to develop plans for how they will raise any new required capital.

But investors in the end could not ignore burgeoning stockpiles, as analysts continue to see the recent rally as getting rather frothy in light of few signs that demand is going to be picking up anytime soon.

Base Metals

The base metals were mixed on Thursday. Copper flirted with the $2.20 mark in the late pre-dawn hours, but then fell off through the day, finishing at its intraday low of $2.1135/lb., down nearly 6 cents. Nickel pushed above $6 in the pre-dawn hours and then again at mid-morning, before backing off a bit to close at $5.8423/lb., up more than 9 cents. Zinc peaked at 73 cents but then hit the skids, ending at $0.695/lb., down a penny and a half. Aluminum was modestly lower, shedding just over a third of a cent, to $0.6889/lb., while lead moved slightly higher, adding three-quarters of a cent, to $0.6532/lb.

Copper headlined a day of mixed results by pulling back from a three-week high of $2.217, as traders decided that was a lofty enough level to take some profits ahead of the release of the bank stress tests and today’s jobless numbers out of Washington.

The industrial metals were also not helped by equities, as the S&P 500 slid 1.3% on the day.

The stock market is cooling off now and that’s taking its toll on copper,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York. “Commodities have been moving in lock-step with stocks on the theme of economic expansion.”

On the supply front, though, copper turned around and resumed its downtrend, giving back all of Wednesday’s gains and then some. Inventories monitored by the LME plummeted by 8,250 metric tons, to 393,900 tons.

Joel Crane, an analyst at Deutsche Bank AG in New York, is skeptical about the recent rally. “People have been encouraged by some of the economic reports, but it still isn’t convincing me that there’s any improvement in the fundamentals,” Crane said. “The reports have showed that things aren’t as bad as people expected, but the economy is still weak.”

But Vale CEO Roger Agnelli is convinced that the turnaround is for real.

“The first quarter was the bottom in terms of all types of problems we could face right now,” Agnelli said during comments about the company’s first quarter results.

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


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