The Daily Resource 05/12/2009

Precious Metals

Gold rose to $917 at the mid-point of the Hong Kong session, but that would be the high for the day as it fell into the first hour in New York, then traded choppily through the rest of the day to finish at $913.30/oz., down $2.90. Overnight, gold is pushing higher.

Platinum moved progressively lower in the overseas markets, but really hit the wall just after New York opened, falling $20 in an hour before going flat for the rest of the day and ending at $1115, down $32. Overnight, platinum has edged higher.

Silver suffered a precipitous drop, from $14.03 in the far East to $13.67 at the New York open, but amazingly it nearly clawed its way back into the green by day’s end, closing at $13.94, down 5 cents. Overnight, silver is sharply higher.

Though platinum got slammed, gold and silver both eased only mildly yesterday, which would probably have been expected as oil backed off and, more importantly, the dollar rebounded against the euro.

“Gold prices eased as risk appetite made a comeback and was seen as a hunger for stocks and certain currencies,” wrote Kitco’s Jon Nadler. He noted that, “Demand from exchange-traded funds “has gone into drought mode since reaching a record high last month.”

True enough. Holdings of the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, went gangbusters through last month, reaching a record of almost 1,128 metric tons (36.27 million ounces) last month.

Since then the vaults have been lightened, so that now 1104 metric tons (35.5 million ounces) remain.

“The safe-haven play is becoming less relevant at the moment, largely because we are beginning to see more positive economic signals,” said David Wilson, an analyst at Societe Generale in London.

But perceived positive economic signals, coupled with the precariousness of world politics, has many analysts thinking as gold bulls.

This week’s trade in gold is expected to progress in a generally higher direction, with prices potentially reaching $935.80 an ounce,” wrote Tom Pawlicki, of MF Global. “Support will come from worries that inflationary pressures are growing, from increased tensions in northwestern Pakistan, and from Venezuela’s seizure of oil assets.”

Currencies and Economic News

In the currency market, the dollar moved higher against the euro. Late Monday, the euro was trading at $1.3589 vs. $1.3627 on Friday.

The buck gained amid a modestly growing risk aversion, as appetite for equities and other less safe options eased.

“Today we have seen some profit taking after strong moves leading into the [New York] close ... The move does not appear to be news driven, but more simply a rest after Friday,” wrote Camilla Sutton, of Scotia Bank in Toronto.

Even though the dollar broke below important support levels last week, some analysts were warning that it may well have further to fall as the idea that the global economy is beginning to bottom out takes hold.

Strategists noted that the euro and several other currencies broke through important resistance at their 200-day moving averages versus the dollar on Friday. “This is an important milestone and foreshadows that even if there are pull backs there is renewed downward pressure on the U.S. dollar,” Sutton said.

Meanwhile, March industrial production data for France and Italy showed larger-than-expected declines, reinforcing expectations for a steep drop in first-quarter euro-zone GDP.

“The upshot is that the euro-zone economy will contract much more sharply this year than the consensus forecast of 3.4%, probably to the tune of 5%,” said Daniele Antonucci, European economist at Capital Economics.

Energy

In the energy market on Monday, crude for June delivery slipped, closing at $58.50/barrel, down 13 cents. June reformulated gasoline fell 2.53 cents, to $1.6802/gallon.

With trading listless, there was little to say about the day’s action, though some blamed nervousness that inventories will continue to rise. Many believe crude is already overbought.

“It has been a long time since any economic data signaled a near-term rise in petroleum demand, and there isn't any now,” said James Williams, of WTRG Economics. “It is difficult to see prices staying near the current level for more than a few weeks or months.”

But gasoline continues to rise and analysts believe the trend will continue as summer driving season unfolds. Average regular gas prices have jumped nearly 9% over the past two weeks, to $2.226 a gallon yesterday, according to the AAA.

That’s just 5 cents below the price of diesel, which gasoline is expected to surpass by summer. But most consider it unlikely that gasoline will reach last summer's high above $4 a gallon.

Base Metals

The base metals were all a bit red on Monday. Copper fell from the pre-dawn hours to mid-morning, bottoming at $2.04 before inching its way back through the rest of the day to finish at $2.0629/lb., down more than 6 1/2 cents. Nickel had a day of sharp ups and downs to little ultimate effect, closing at $5.8241/lb., down just over 3 cents. Zinc was down big during the pre-dawn hours and didn’t get enough back in New York to make the green, ending at $0.6873/lb., down a penny and a half. Aluminum was little changed, shedding a third of a cent, to $0.68/lb., while lead fell sharply, rose all the way back to break-even, then eased late, dropping a quarter-cent, to $0.6479/lb.

Copper led the industrial metals lower, as traders responded to sinking equities markets and chose to book some profits after recent gains, but the fact that it held well above the $2 mark was a positive for some.

It’s “Just solely tracking equities. It's a tick-for-tick expectation,” said Frank McGhee, of Integrated Brokerage Services in Chicago.

Yet, while fundamentalists may have been stock watching, the technicians were also persuaded to sell after copper failed to take out the 200-day moving average.

And China factored in, as demand from the world’s biggest user may be easing. Analysts noted that inventories monitored by the Shanghai Futures Exchange jumped 45% last week, the most since February.

Copper lost “momentum as arriving inventory eases” tight supplies, wrote Alex Heath, of RBC Capital Markets in London. But he added that, “The change in sentiment also has much to do with China’s new bank lending easing.” New lending fell in April.

“People are questioning Chinese demand and whether it is sustainable,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York.

And also yesterday, Beijing Antaike Development, the state-run nonferrous metals information provider, said that China's State Reserve Bureau plans to purchase 400,000 metric tons of lead and zinc in the next three years to keep in line with the Chinese government's metals revitalization plans to control supplies.

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

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