Good morning …

Precious Metals

Gold was marginally higher through the first hour of New York trading on Wednesday, but then took off, adding $12 in under an hour, to its intraday peak of $940, then eased only slightly through the rest of the Comex and the Globex, finishing at $937.20/oz., up $12.20. Overnight, gold has edged higher.

Platinum was down in the far East, rallied nearly to $1160 by mid-morning in New York, then declined to end at $1143, up $4. Overnight, platinum has moved higher.

Silver was also down in Hong Kong, rose from there to its intraday high of $14.38 near the noon hour, then tailed off to close at $14.25, up 10 cents. Overnight, silver is slightly lower.

The precious metals kept on riding their uptrend yesterday, as the usual suspects continued to play ball, with the dollar dropping once again and oil advancing.

In addition, scrap sales have slowed. Gold owners sold a record 558 metric tons (17.9 million ounces) of metal to market in the first quarter of 2009, when gold rose to an 11-month high, according to a World Gold Council report.

Now, however, “We don’t see a lot of scrap coming out because people already sold into the market on the first rally,” said Bernard Sin, head of currency and metals trading at Swiss refiner MKS Finance SA in Geneva. “We are inching up bit by bit” as investors are hanging onto their metal rather than selling, he said.

The World Gold Council also reported that investment purchases more than tripled in the first quarter, to 595.9 tons (19.16 million ounces), even as jewelry demand was falling 24%, to 339.4 tons (10.9 million ounces).

“Investment flows in the first quarter of this year were unprecedented and, based on an analysis of the past 30 years of the gold market, probably unsustainable in the long term,” wrote UBS analyst John Reade.

But, Reade added, “Investors are turning to gold because of fears of long-term inflation and major currency debasement due to fiscal deficits, government debt issuance and quantitative easing. All of these concerns are likely to continue for the next year or so.”

Currencies and Economic News

In the currency market, the dollar plummeted against the euro. Late Wednesday, the euro was trading at $1.3829 vs. $1.3633 on Tuesday.

The buck is now at its lowest vs. the euro since January. The dollar index, which plots the geenback against a basket of currencies, also took a big hit, sinking to 80.002. That’s a 7-month low .

The Fed helped pound the dollar, as the release yesterday of minutes of its April 28-29 meeting contained a statement that purchases of long-term assets “might well be warranted at some point to spur a more rapid pace of recovery.”

That’s a problem, because increased Fed purchases of dollar-denominated debt could lower the value of the currency since the Fed pays for those purchases by printing more funny money.

“Even the allusion to the possibility that the Fed was even thinking of expanding those programs and putting more dollars into the system is going to weigh on investor perception of where the dollar will be priced,” said Matt Esteve, a currency trader at Tempus Consulting.

Meanwhile, Treasury Secretary Geithner was punching the happy button before the Senate Banking Committee yesterday, opining that the U.S. financial system is beginning to heal. “Leverage has declined, the most vulnerable parts of the non-bank financial system no longer pose the same risk, and banks are funding themselves more conservatively,” Tiny Tim said.

Geithner added that the administration has $124 billion more on hand, to provide to banks if needed.

Energy

In the energy market on Wednesday, crude for June delivery moved higher, closing at $62.04/barrel, up $1.94. June reformulated gasoline dropped a third of a cent, to $1.8095/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks decreased by 2.1 million barrels in the week ended May 15, slightly more than expected. But that still leaves them above the upper boundary of the average range for this time of year, the EIA said.

Gasoline supplies plunged by 4.3 million barrels, falling below the lower limit of the average range, while distillates rose by 600,000 barrels. Refinery utilization stood at 81.8% of capacity, a slight improvement over the 80.4% figure from a week earlier.

On the other side of the equation, gasoline demand has averaged about 9.1 million barrels per day over the past four weeks, down by 1.2% from the same period a year ago. Jet fuel consumption dropped by 9%, year-over-year.

With crude now more than 70% above February's low near $34 a barrel, “The global recovery could be hampered by rising crude and gasoline prices,” said Tariq Zahir, of Tyche Capital Advisors.

Base Metals

The base metals were mixed again on Wednesday. Copper was only slightly higher until the New York open, when it busted up to its peak of $2.09 in the late morning, then subsided to finish at $2.0756/lb., up better than 3 cents. Nickel was up and down sharply all day, to little effect as it closed at $5.6442/lb., up a penny and a quarter. Zinc was very weak early but rebounded to end at $0.6648/lb., down less than a penny. Aluminum was off modestly, giving up a third of a cent, to $0.6602/lb., while lead declined through most of the day, winding up at $0.6532/lb., down almost a penny and a quarter.

Copper finished for the second straight day in positive territory, as equities showed some early life and the dollar weakened.

“The downtrend in the U.S. dollar is attracting a lot of buying interest into the broader commodity complex,” said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida.

Technicians were also at work yesterday. “There was strong technical momentum from a buy signal triggered on Monday at $2.047 a pound,” said Larry Young, of Infinity Futures in Chicago.

Sounding a cautionary note was the International Copper Study Group, which said that the world copper market experienced a surplus of 86,000 metric tons in February, compared with a deficit of 61,000 tons in the year earlier period.

Stockpiles continue to dwindle. Copper inventories monitored by the LME were off 7,350 metric tons yesterday, to 341,475 tons.

In company news, Jiangxi Copper, China's top integrated producer, said it will meet its 2009 output target of 800,000 metric tons of refined copper, despite repair work on an oxygen generator at its main Guixi smelter.

And Aluminum Corp. of China (Chinalco), the nation’s biggest aluminum producer, announced that it will sell 10 billion yuan ($1.5 billion) worth of debt to help fund its acquisitions and expansion of copper assets.

Proceeds will be used to fund the previously announced acquisitions of Peru Copper and Yunnan Copper Group, and also to help fund three copper strip projects in Luoyang, Shanghai and Daye.

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


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