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Good morning ...

Precious Metals

Gold declined during the Hong Kong and early London sessions yesterday, then rode a roller coaster between $915 and $925 in New York, before a slight late bump took it to a finish at $926.40/oz., down $7.20 from Thursday. Overnight, gold has fallen off.

Platinum prolonged its freefall, ending barely above its intraday low at $1956/oz., down $53. Overnight, platinum is sharply higher.

Silver held its head above the $18 mark until late morning in New York, when it hit an abrupt and sharp selloff that took it down 45 cents in the hour before noon, after which it managed to regain some of the lost ground to close at $17.79/oz., down 47 cents. Overnight, silver is trending lower.

Traders returned to their desks after the long Fourth of July weekend in a conflicted mood, as both gold and silver were all over the place, but in the end the bears wound up carrying the day.

The metals might have garnered some support from a dollar that slipped after early gains, and from weakness in equities, but those appeared to be no match for the influence of plummeting oil prices.

"There was liquidation out of all the financial markets today," said Kathy Lien, chief strategist at The DailyFX.com. "It's the beginning of a new quarter, and there are fears that the upcoming earnings could reflect dire situations in the economy."

There was also likely some carryover from Thursday's selling.

"Gold's recent ascent was quite rapid, and correction and consolidation can be expected," wrote Mark O'Byrne, director at Gold & Silver Investments Ltd.

But O'Byrne believes the gold price should encounter good support at the $915 and $900 levels.

"Inflation will remain the topic du jour as the Bank of England follows the Fed and [European Central Bank] in trying to tread the dangerous tightrope of sharply declining growth and rising inflation or stagflation," O'Byrne said.

Currencies and Economic News

In the currency market, the dollar edged slightly lower against the euro. Late Monday, the euro was trading at $1.5727 vs. $1.571 Thursday.

The dollar dropped "to session lows in concert with the abrupt turnaround in U.S. equities," wrote analysts at Action Economics.

There was, however, some modicum of support as traders were reluctant to sell greenbacks in the midst of the meeting of G8 world leaders in Japan, where the "focus should remain on record energy prices, slowing global growth, rising inflation and the weak dollar," Action Economics said.

Traders are skeptical that G8 leaders will express support for a stronger dollar, and analysts say any such jawboning will have little effect in the absence of policy action. Thus remarks by Federal Reserve officials this week, including two appearances by Chairman Ben Bernanke, assume added importance.

Economists at KBC Bank in Brussels wrote that "it will be interesting to see if and how strongly Bernanke and a series of other Fed members who are scheduled to speak this week will stick to their commitment to fight inflation even if growth remains poor ... If such a clear signal isn't given, a sustained dollar comeback isn't around the corner."

San Francisco Fed President Janet Yellen kicked off the week of talk by saying that balance-sheet pressures on financial institutions and other problems dogging the financial system could stick around "for some time ... "Things could get worse before they get better," Yellen admitted.

Yellen, a non-voting member of the FOMC this year, went on to say that, "The risks to inflation ... have definitely increased ... We cannot and will not allow a wage-price spiral to develop." Strong talk from someone generally regarded as more in favor of stimulating economic growth rather than fighting inflation.

Energy

In the energy market Monday, crude for August delivery was smacked with a wave of selling, plunging nearly $6 before edging back to close at $141.37, down $3.92. July reformulated gasoline fell 8.8 cents, to $3.483/gallon.

Traders responded to the perception of a newly conciliatory Iran. In an interview with CNN, Iran's foreign minister Manouchehr Mottaki said Sunday that talks with Western governments are in a "new environment" over Iran's nuclear program, and suggested that Iran would never launch an unprovoked attack on Israel.

"That certainly reduced some of the tensions in the Middle East and some of the upward pressures on oil prices," said James Williams, of WTRG Economics. Iran is the world's fourth largest oil producer and hosts the second-largest proven reserves.

Analysts will be eyeing today's Energy Department Short-Term Energy Outlook report, expected to indicate slowing growth in oil demand.

"There is little doubt that there will be a downward revision in their consumption estimate for the U.S. and the rest of the world," Williams. "Economic weakness in the U.S. and Europe are spilling over into Asia and slowing the rate of growth in petroleum demand."

However, "The price of oil will rise again in the coming weeks," cautioned Chakib Khelil, Algeria's energy minister and president of OPEC. "We have to follow the evolution of the dollar, because a 1% fall in the dollar means $4 more on the price of oil."

Base Metals

The base metals were almost all in the black on Monday. Copper was off during the pre-dawn hours but rallied during the New York session to finish in the middle of the day's trading range at $3.8898/lb., down a half-cent. Nickel finally experienced a positive day, climbing through most of the session and only coming a bit off its intraday high to close at $9.4083/lb., up more than 17 cents. Zinc pushed higher from the pre-dawn hours straight through, ending at $0.815/lb., up nearly 2 1/3 cents. Aluminum was very strong, rising to $1.4755/lb., up almost 7 1/4 cents, while lead showed a spark of life after its recent woes, adding 2 cents to $0.7223/lb.

Copper recouped most of its early losses, the most in five weeks, that came after Sunday's announcement that Peruvian miners had called off a week-long national strike, to allow talks with government officials over profit-sharing and pensions to proceed.

China also played in, as that country is projected to have shipped in 4% less refined copper in June than in May, as high world prices, weak demand and strong domestic production have sliced into the need for imported metal.

However, investment bank Citi likes what it sees going forward. Analysts there have raised copper price forecasts for the next two years, in light of a supply shortfall that looms as larger than expected. Citi predicts that copper will average $5/lb. in 2009, up sharply from an earlier forecast of $3.50/lb., and $5.50/lb in 2010 versus $3 in its previous forecast.

And on the supply side, inventories monitored by the LME fell by 500 metric tons, to 122,075 tons, yesterday.

Aluminum jumped to a 2-year high that was just off its alltime record, as worry escalated over power problems in China, the world's largest producer and consumer of the metal.

Coal shortages have led to record power shortfalls in northern China's Shanxi province and the coal-rich region had to ration supplies and even import electricity from Beijing to reduce deficits.

That's what's happening ... see you tomorrow!

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