The Daily Resource 9.5.08
The Daily Resource 9/5/08:
By Doug Hornig
Precious Metals
Gold peaked at almost $815 just after London trading opened yesterday, but it was all downhill from there, as even the littlest rally was quickly killed and the metal finished barely off its intraday low at $794.70, down $5.70. Overnight, gold has been flat.
Platinum shot up in the far East and early European trading, touching $1420 and, while it retreated substantially from there, was able to end on a positive note at $1380/oz., up $10. Overnight, platinum has fallen off.
Silver spent much of the day trying to hold the $13 mark, but proved unable to do so, declining to $12.65 near the noon hour before modest late-day buying carried it to a close at $12.76/oz., down 13 cents. Overnight, silver is little changed.
(Click here for charts)
Another day, more red numbers for gold and silver, although platinum showed some life on Thursday. The results were not unexpected, and in fact one could argue they should have been much worse, given the continuing slide in crude and another big uptick for the dollar vs. the euro.
Yet again, none of the money that fled the equities markets yesterday wound up in gold or silver.
“Margin calls resulting from that drop in the Dow” likely put pressure on gold as some traders were forced to “sell some of their gold positions in order to meet the stock market margin calls,” said Kitco’s Jon Nadler.
“The short-term direction in gold remains pointed to lower levels and could intensify if $790 is breached this week,” Nadler added.
But Peter Grandich, editor of the Grandich Letter, countered with: “The long uptrend in gold has been marked by rather short but violent corrections that bring fear and calls for a bear market to the forefront … Gold is nearing a major bottom and the surprise will be how fast it heads back to $1,000 before year-end.”
Meanwhile, “it’s bargain hunting” time in the platinum market, says Ralph Preston, an analyst at Heritage West Futures in San Diego.
“Bears are running into a wall of technical support at $1,305 an ounce, halting any further slides. The downtrend is running out of steam,” Preston said. “Technically, this market fell too far, too fast.”
Currencies and Economic News
In the currency market, the dollar’s assault on the euro continued. Late Thursday, the euro was trading at $1.4326 vs. $1.4508 on Wednesday.
What’s happening seems less a rally on the part of the buck as it is a complete deterioration of the common currency.
Yesterday, the European Central Bank left its key rate steady at 4.25%, as had been widely expected.
In the accompanying rhetoric, ECB President Jean-Claude Trichet said the euro-zone economy is “currently experiencing an episode of weak activity characterized by high commodity prices weighing on consumer confidence and demand, as well as by dampened investment growth.”
“Trichet maintained his unambiguously hawkish language on inflation, but markets are largely focusing on the ECB's growth downgrades for the eurozone,” wrote Ashraf Laidi, of CMC Markets US.
“This bolsters the possibility of an eventual ECB easing” in the second half of 2009, Laidi added.
The buck was also helped when the Institute for Supply Management said services businesses managed some growth in August. Its index on the non-manufacturing sector rose to 50.6, from 49.5 in July, inching past 50, the dividing line between expansion and contraction.
But on the jobs front, the Labor Department said jobless claims rose last week to a seasonally adjusted 444,000, up 15,000 from the prior week, where analysts had expected a slight drop. And the ADP index had private-sector employment declining by 33,000 in August.
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Energy
In the energy market Thursday, crude for October delivery fell to a 5-month low, closing at $107.89/barrel, down $1.46. October reformulated gasoline shed 2.6 cents, to $2.7404/gallon.
In its weekly inventory report, the Energy Information Administration said that crude supplies fell by 1.9 million barrels for the week ended August 29. Gasoline stocks dropped by 1 million barrels while distillates were off 400,000 barrels. Refinery utilization clocked in at 88.7%, of capacity, compared with 87.3% a week earlier.
“Refineries were likely boosting production in anticipation of Hurricane Gustav,” said Chris Lafakis, of Moody's Economy.com. “Refiner capacity utilization will sharply retrench in next week's report, as more than 11% of total U.S. refinery capacity is still shut following the hurricane.” Lafakis added that, “Despite the increase in production, refiners are not producing enough gasoline to keep inventories constant given the current level of gasoline demand.”
Kevin Kerr, editor of Global Commodities Alert, wrote that, “We may see more evidence of the impact of [Hurricane] Gustav in next week's data, but overall we see strong support at $106 in the oil and it's likely we will see prices rally once we get to that level.”
Meanwhile, The Energy Department announced on Tuesday that it had received a formal request from Citgo's Lake Charles, La., refinery for 250,000 barrels of oil from the Strategic Petroleum Reserve, a request the department says it intends to grant.
Base Metals
The base metals were mixed on Thursday. Copper held in positive territory until mid-morning in New York, but then hit the skids, finishing just off its intraday low at $3.3037/lb., down 4¾ cents. Nickel pushed almost back to the $9 mark in early New York trading, but tumbled along with copper, closing at its intraday low of $8.6485/lb., down 11½ cents. Zinc moved up and, tho it hit the morning selloff, managed to end in the black at $0.8055/lb., up more than a penny. Aluminum was up and down sharply a couple of times, to little effect as it added just a tenth of a cent, to $1.1904/lb., while lead gave up substantial morning gains, shedding a penny and two-thirds, to $0.8617/lb.
Copper was hit by economic concerns as well as persistently high stockpiles. Inventories monitored by the LME now stand at 182,000 metric tons, the highest level since January.
“I think the sentiment still remains pretty vulnerable,” said analyst Sudakshina Unnikrishnan at Barclays Capital. “The concerns still remain on board about how the global economy is developing. Concerns about the slowdown and how that links back to demand are pretty much in place.”
Gerard Burg, an analyst at the National Australia Bank, added that, “There are still grey clouds over the United States and Europe … The trend for metals is down. The global economy is looking softer than in some years and supply is moving into surplus for some of these metals.”
Lead got hammered as the dollar strengthened. Prices had risen as much as 3.8% after the LME reported another 450-ton decline in inventories, to 78,700 metric tons, the lowest level since June 12.
In company news, the UK’s Panel on Takeovers and Mergers has told Xstrata CEO Mick Davis to “put up or shut up” by October 2 on the firm’s pre-conditional offer for platinum group metals producer Lonmin.
Lonmin sought a ruling after Xstrata made its hostile offer of ₤33 a share, which Lonmin rejected out of hand, on August 6.
The Panel ruled that, by 5pm on 10/2, Xstrata must either announce a firm intention to make an offer for Lonmin or announce that it does not intend to make an offer. If Xstrata does not commit to making an offer by the deadline, it will effectively be precluded from doing so for the next six months.
Senior Market Strategist
An editor at Casey Research, Doug Hornig’s work can be read in "BIG GOLD" a monthly newsletter which focuses on mid- to large-cap gold stocks; "What We Now Know" – a free bi-weekly e-letter covering trends in investments, geopolitics, the economy, health and technology; and "The Daily Resource" an economy and investment column on kitcocasey.com.
A former Edgar Award nominee, finalist for the Virginia Prize in both fiction and poetry, and a past winner of the Virginia Governor's Screenwriting competition, Doug lives on 30 mountainous acres in a county that just got its first stop light. He is an admitted political junkie, but hates all political parties.
Doug has authored ten books and has written articles for Business Week, Playboy and more.
