Good morning ...
Gold was limp through the early London trading, but just before the New York session began it started up and continued higher through the early afternoon, peaking above $885 before easing to finish at $881.50, up $13.00. Overnight, gold has continued upward.
Platinum took off in Europe and never quit, rising steadily to end barely off its intraday high at $2021/oz., up $60. Overnight, platinum is sharply higher.
Silver was up sharply following its bottom below $16.50 in Hong Kong, moving steadily higher and easing only in the afternoon to close at $16.80, up 20 cents. Overnight, silver is trending higher.
It was a welcome day for metals fanciers, as the objects of their affection fought off the negative effects of a strengthening dollar and rode the rising oil tide higher.
Despite recent dollar strength, I am seeing [it] catch a new wave of selling, which [will] push gold higher, said Zachary Oxman, of Wisdom Financial. I also think we can't discount the strong moves in crude and their staying power so far.
Indeed, the oil bull run has persisted in the face of deteriorating fundamentals, and the longer it continues, the higher it will push inflation. Which, needless to say, is gold-positive.
The oil moon shot has another effect, as well. Gold is undervalued, said Nick Ruggiero, a trader at Eagle Futures in New York, in that it is cheaper to buy than crude right now.
Also, despite some early returns that were downbeat, the Akshaya Tritiya celebration in India should see physical buying and provide background support, wrote James Moore, of TheBullionDesk.com.
However, Moore doesn't believe it's time to break out the noisemakers as yet. From a technical viewpoint, he says, gold appears to be capped by a downtrend-line resistance around $879.50, which is preventing the metal from making a move to retake the $900/ounce level. Since gold did break through that resistance level yesterday, then presumably we're on our way to $900.
Meanwhile, streetTRACKS Gold Trust backed yesterday's action by elevating the amount of bullion it holds in its vaults by 1%. The fund was forced to sell 9.6% of its stockpile in April.
A final word from steadfast gold pessimist Dennis Gartman, editor of the Gartman Letter. He asks what will happen to gold when crude oil does eventually top out and head lower? And answers the question by saying, The trend for gold remains down.
Currencies and Economic News
In the currency market, the dollar gave back most of its early gains but remained slightly higher against the euro. Late Thursday, the euro was trading at $1.5396 vs. $1.5404 on Wednesday.
The buck came off its strong early highs after both the European Central Bank and the Bank of England stood pat on interest rates, in line with expectations. The ECB Governing Council decision was unanimous.
Jean-Claude Trichet, the ECB's president, adopted a rather hawkish tone in his accompanying rhetoric, which is always scoured for its inner meaning, as he stressed that inflation risks remain.
As we have said on previous occasions, inflation rates are expected to remain high for a rather protracted period of time, before gradually declining again, Trichet said.
Unlike the Fed, the ECB has an explicit mandate to fight inflation, and it's looking at unacceptable numbers. EU CPI in March was 3.3%, far above the ECB's target of close to 2%.
The British pound got little support from the Bank of England's stance, as it is widely considered temporary. Given the lackluster economic data from U.K., most currency traders are anticipating more easing from the BOE as the year progresses, said Boris Schlossberg, of Forex Capital Markets LLC.
In the energy market Thursday, crude for June delivery pulled well back from a new intraday record of $124.57, although not far enough that it didn't set a new closing record at $123.69/barrel, up 16 cents. June reformulated gasoline gained three-quarters of a cent, to $3.1378/gallon.
A combination of tight supplies, the weak dollar and investors searching for value in this unstable economic climate have fueled the rally, said Rachel Ziemba, an analyst at RGE Monitor in New York. The dynamic we are looking at is that of oil behaving as a financial asset.
Among others searching for answers was James Ritterbusch, president of Ritterbusch & Associates, in Galena, Illinois, who noted that, There's huge diesel demand growth in Asia, which is going to keep pressure on supplies ... Whenever there's a big rise in one energy market there's an impact on the psychology of the other markets. Also, demand for crude oil will rise as refiners boost distillate output.
And Peter Beutel, president Cameron Hanover in New Canaan, Connecticut, added that, We had a number of stories over the last week that were bearish and ignored by the market, and I don't expect this cherry picking of the news to end anytime soon.
The base metals were all in the red on Thursday. Copper backed down for a second straight day, dropping from the pre-dawn hours to late morning, after which it recovered slightly to finish at $3.844/lb., down 4 3/4 cents. Nickel hit the skids, falling throughout the day and closing at $12.3362/lb., down more than 48 1/2 cents. Zinc dropped back below $1, ending at $0.9901/lb., down nearly two cents. Aluminum was weak, shedding better than a penny and three-quarters, to $1.2821/lb., while lead tumbled off a cliff in the late morning, plunging to its intraday low of $1.0486/lb., down 4 1/3 cents.
Whatever expectations of economic turnaround may have been generated by the Fed's most recent rate cut seem to have evaporated from the industrial metals market, at least for the time being. The bears are fully in charge right now.
Metals seem to be caught among various crosscurrents for the moment, but having moved up so quickly when the dollar was weakening, a re-surging greenback seems to be working its magic in reverse, said Ed Meir, of MF Global.
The metals took their cue from the buck's morning strength, rather than the weakening in the afternoon hours. Chinese buyers also appear to be sitting on the sidelines for a while, hoping to help drive prices lower before jumping back in.
But conflicting factors remain.
The internal fundamentals for copper and a number of the metals remain bullish, but not bullish enough at present to counter the selling as commodity trades are closed as hedges against dollar weakness are unwound, said William Adams, an analyst at BaseMetals.com.
Supply problems are still out there, even after this week's settlement of the copper strike at Chile's Codelco mines.
In the offing are more potential walkouts. Next up, Peru, where union workers at mines throughout the country are ready to strike next week to demand better labor benefits.
We have 33 unions supporting us, said Luis Castillo, leader of Peru's biggest mining union federation. We will go on nationwide strike on May 12 no matter what.
Peru is the world's leading silver producer, ranks second in copper and zinc, and fifth in gold.
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.
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