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Precious Metals

Gold started up in Hong Kong on Wednesday, accelerated the pace during the early London session, and moved even sharply higher through the New York morning, surging past the $800 mark to peak at $814 at noon, then leveled off through the rest of the Comex and the Globex to finish at $809.60, up $34.00. Overnight, gold is sharply higher.

Platinum began rising with the open of European trading, and it too pushed mostly higher through the day, ending at $838, up $26. Overnight, platinum has edged higher.

Silver also turned up strongly, breaching the $10 level at the New York open and holding it despite a sharp mid-morning dip, from which it recovered to close at $10.19, up 38 cents. Overnight, silver is trending higher. (Click here for charts)

After consolidating on Tuesday, the precious metals all blasted higher on Wednesday, as support came from all the usual suspects, with equities moving higher, crude gaining, and the dollar sagging vs. the euro.

It was also a banner day for the producers, for a change, as miners fought off an afternoon slump and finished some 10% higher on the day.

Gains were general across the commodity sector, as the Reuters/Jefferies CRB Index of 19 raw materials climbed by as much as 3.2%.

But of all factors, the dollar still rules, many believe. “People are getting more concerned about inflation down the road,” said Matt Zeman, of LaSalle Futures Group in Chicago. “If the government keeps on spending and interest rates stay low, it’s going to come back and bite us. If the dollar heads lower, that’ll be the stimulus gold needs to put together a nice run.”

Dan Norcini, writing on jsmineset.com, saw gold “knifing through one resistance level after another as if they did not exist. It is evident from the ferocity of the climb that the shorts were squeezed in a big way with a plethora of buy stops being touched off in the relatively low volume trading conditions. Here is another example of that lack of liquidity I have been referring to over and over again with the declining open interest creating huge pockets of air both above and below this market. A few well placed orders, either on the buy side or the sell side, and the cascade or upside catapult ensues.”

Tom Pawlicki, of MF Global, sounded a cautious note, saying that, “We’re witnessing risk appetite returning, but it’s more short-term in nature, instead of an initiation of a long-term uptrend … In this environment, where we see Treasury bills at zero, credit markets are the new safe haven, and gold is trading more with riskier assets.”.

Currencies and Economic News

In the currency market, the dollar got slammed against the euro. Late Wednesday, the euro was trading at $1.3016 vs. $1.2861 on Tuesday.

“The rally in equities this morning has driven major currencies higher against the U.S. dollar and Japanese yen, but it remains to be seen whether the improvement in investor sentiment will last,” said Kathy Lien, of Global Forex Trading.

Many analysts put the U.S. dollar at risk of falling further, with the Fed considered likely to cut to its benchmark funds rate, now at 1%, by at least another half-point at next week’s meeting.

“One has to assume [the FOMC] is going to cut rates by 50 basis points. They have been talking about the fact they can do more -- I don't see why they shouldn't,” said Bill Cheney, chief economist at John Hancock Financial in Boston. “Anything less will be viewed as inadequate.”

The more interesting discussion is whether the Fed will stop there. Most don’t think so. Still, seven economists at the 16 primary dealer firms are on record as believing the Fed will go below 0.5%, and three dealers put the endpoint as zero.

Next week will tell the tale.

Energy

In the energy market Wednesday, oil prices rebounded, with crude for January delivery closing at $43.52/barrel, up $1.45. January reformulated gasoline rose 3 cents, to $0.97/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks added 400,000 barrels during the week ended December 5, vs. Platts expectations for a 2.7 million barrel build.

Gasoline inventories were up by 3.8 million barrels last week, and distillates increased 5.6 million barrels. Refineries were operating at 87.4% of capacity, up from 84.3% a week earlier.

Phil Flynn, of Alaron Trading, said that, “It was leaked out that Saudi Arabia told their customers to expect a major production cut in January … [and] if the Saudis are already telling their customers, that means a big cut is coming.”

In addition, Russia's Energy Minister Sergei Shmatko said yesterday that his country would announce plans to cut its oil production by December 17, when OPEC meets, al though Russia is not a member of the cartel.

The struggle between OPEC bulls and inventory bears goes on.

Base Metals

The base metals were mostly in positive territory on Wednesday. Copper was in the red until near noon, but then caught an updraught that took it mostly higher from there, to finish at $1.4751/lb., up 2 2/3 cents. Nickel was sharply up and down all day long, before finally settling at $4.2418/lb., more than 2 1/2 cents. Zinc declined slowly through the day, just coming off its intraday low to end at $0.4923/lb., down a penny. Aluminum moved slightly higher, closing at $0.6628/lb., up a third of a cent, while lead pushed higher straight through, adding better than a penny and a half, to $0.4435/lb.

Copper turned around on Tuesday, logging only its second day of gains in the past nine, as Congress prepared to vote on a bailout plan for the auto industry.

Analysts, however, were not generally inclined to start ringing Christmas bells, even if the proposal passes.

“The question remains whether the fossilized U.S. auto industry can actually get its act together in three months, when it could not do the same in 30 years,” wrote Kitco’s Jon Nadler. But, “Hope springs eternal.”

Copper is also tightly tied to equities. “Right now it's all about stocks and the dollar. [Copper’s] trying to shrug off the stocks, but it's going to be very difficult to do that,” said Frank McGhee, of Integrated Brokerage Services in Chicago.

And then there was the incessant drumbeat of rising stockpiles. Copper inventories monitored by the LME advanced by another 1,025 metric tons, to 303,600 tons yesterday.

Meanwhile, production cutbacks continue without letup. Yesterday, FNX Mining announced it was suspending all nickel ore production from its Sudbury, Ontario mines, and laying off nearly half its workforce.

But that was minor compared with the knife Rio Tinto took to its operations. The Australian giant will cut 14,000 jobs and slash 2009 spending by more than half, from over $9 billion to $4 billion, as part of a package of measures aimed at reducing its debt by $10 billion by the end of 2009.

Capex will also be reduced to “sustainable levels” by 2010, and operating costs shrunk by at least $2.5 billion in the same year. Dividends will continue at 2007 levels, with no increase in 2009 or 2010.

Gotta wonder if they regret not taking BHP’s buyout offer now.

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


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